Printable Format84-9-403. Agreement not to assert defenses against assignee. (a) "Value." In this section, "value" has the meaning provided in K.S.A. 84-3-303(a), and amendments thereto.
(b) Agreement not to assert claim or defense. Except as otherwise provided in this section, an agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment:
(1) For value;
(2) in good faith;
(3) without notice of a claim of a property or possessory right to the property assigned; and
(4) without notice of a defense or claim in recoupment of the type that may be asserted against a person entitled to enforce a negotiable instrument under K.S.A. 84-3-305(a), and amendments thereto.
(c) When subsection (b) not applicable. Subsection (b) does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under K.S.A. 84-3-305(b), and amendments thereto.
(d) Omission of required statement in consumer transaction. In a consumer transaction, if a record evidences the account debtor's obligation, law other than this article requires that the record include a statement to the effect that the rights of an assignee are subject to claims or defenses that the account debtor could assert against the original obligee, and the record does not include such a statement:
(1) The record has the same effect as if the record included such a statement; and
(2) the account debtor may assert against an assignee those claims and defenses that would have been available if the record included such a statement.
(e) Rule for individual under other law. This section is subject to law other than this article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(f) Other law not displaced. Except as otherwise provided in subsection (d), this section does not displace law other than this article which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee.
History: L. 2000, ch. 142, § 65; July 1, 2001.
KANSAS COMMENT, 1996
Subsection (1). Subsection (1) does not vary from the 1995 Official Text version. Under subsection (1), constructive notice is given from the time the financing statement and fee are tendered to the filing officer—secretary of state or register of deeds. Pre-UCC Kansas law was in substantial accord. If the proper fee is tendered (see subsection (5) for the applicable fee schedule), together with a financing statement which meets all the formal requisites of this section, but the filing officer wrongfully rejects the tender, the filing will still be effective. See In re Royal Electrotype Corp., 485 F.2d 394 (3d Cir. 1973); In re Fowler, 407 F. Supp. 799 (W.D. Okla. 1975).
Subsection (2). Subsection (2), which does not vary from the 1995 Official Text, states a filed financing statement is effective for five years and provides that continuation statements (see subsection (3)) may be filed before lapse to continue the effectiveness of the filing for another five years, but they may only be filed in the six-month window before the prior financing statement expires. It is important to set up a "tickler" system to ensure filing a timely continuation statement.
Subsection (2) also provides that a security interest perfected by filing at the time insolvency proceedings are instituted against the debtor remains perfected until sixty days after termination of the proceedings or until expiration of the five-year period, whichever occurs later. This is an exception to the general rule that filing lapses after five years. Matters are frozen at the time of bankruptcy because it would serve no useful purpose to require a refiling. See In re Delia Bros., Inc., 29 U.C.C. Rep. 1446 (S.D.N.Y. (Bankr.) 1980). Compare § 546(b) of the Bankruptcy Code, which deals with the related problem of filing a financing statement after a bankruptcy petition is filed in order to attain priority over the trustee as an intervening lien creditor.
Under the last sentence of the subsection, lapse of a security interest upon failure to file a continuation statement is retroactive and the security interest is deemed not to have perfected against purchasers (see 84-1-201(32) and (33)) and lien creditors (see 84-9-301(3)) whose interests may have been subordinate before the lapse. This notion of retroactive lapse changes prior Kansas law, both before the UCC (see Farmer's Bank v. Bank of Glen Elder, 46 K. 376, 26 P. 680 (1891)) and under the UCC prior to the 1972 Official Text (Blair Milling & Elevator Co., Inc. v. Wehrkamp, 217 K. 122, 535 P.2d 457 (1975)). See also Kansas Comment 1983 to 84-9-103 for the related problem of retroactive lapse in a multistate transaction setting.
Subsection (3). This subsection, which has a slight variation from the 1995 Official Text, sets forth the formal requisites for continuation statements. The standard UCC-2 form is normally used. A continuation statement signed by a person other than the secured party of record must be accompanied by a written assignment from that party. On the other hand, 84-9-405 makes it clear that the filing of assignments of security interests is not required in order to maintain the creditor's perfected status. In general, continuation statements need be signed only by the secured party, whereas the original financing statement must be signed by the debtor. In a nonuniform Kansas addition to the requirements of the continuation statement, any continuation statement filed with the secretary of state must also have the debtor's social security or federal employer identification number.
The subsection gives the filing officer the authorization to remove and destroy lapsed filings under certain circumstances.
Subsection (4). Subsection (4), designating the duties of the filing officer upon receipt of financing or continuation statements, does contain some non-uniform amendments. As with the uniform provision, the filing officer is directed to index the statements according to the name of the debtors, and in a nonuniform provision, the filing officer is directed not to index statements according to the names of corporate officers or according to the signatures of debtors. If a corporation is the debtor, only the corporate name should be indexed, and if there is any discrepancy between the listed names and signatures of debtors (which appear in two different locations on the standard financing statements), the names control. The filing officer is directed to note in the index the file number and the address of the debtor, and, in a second nonuniform provision, the filing officer is directed to note in the index the date of filing and a general description of the collateral, and to make the index accessible to the public. These directives are not found in the 1995 Official Text.
Subsection (5). Subsection (5) designates the filing fee schedule. The fee has risen several times since the UCC was originally enacted in 1965, in an attempt to make the UCC filing operations self-financing. The discrepancy between fees for standard form statements and tailor-made documents reflects the higher cost of filing non-standard statements. It should be emphasized, however, that the creditor always has the option of filing the security agreement itself or another tailor-made document as a financing statement, so long as all the formal requisites of 84-9-402 are met. Although the Kansas legislature eliminated the last sentence of the Official Text version under which the secured party may at its option show a trade name for any debtor upon the payment of an extra fee, a separate financing statement containing such a name could still presumably be filed. However, it cannot be overemphasized that a security interest will probably be unperfected if the financing statement is not indexed according to the individual name of a person doing business as a sole proprietorship. See 84-9-402(7) and Kansas Comment 1996 to that subsection. If there is uncertainty as to the debtor's name, the better course is to double check the debtor's legal name or to double file.
Subsection (6). This subsection, which sets up special rules for transmitting utilities and real estate mortgages doing double duty as fixture filings, came into Article 9 for the first time with the 1972 Official Text. The Kansas version does not vary from the 1995 Official Text.
Subsection (7). This subsection, which varies somewhat from the 1995 Official Text, should be read together with 84-9-402(5). Its most important application is to require the register of deeds to cross-index an Article 9 fixture filing into the real estate mortgage records so that a real estate abstract searcher will pick up the fact that the fixtures are encumbered.
Revisor's Note:
Former section 84-9-403 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.
Law Review and Bar Journal References:
Filing of financing statement discussed, Charles H. Oldfather, 14 K.L.R. 571, 572 (1966).
1966 amendment mentioned with respect to growing crops as collateral, Van Smith, 35 J.B.A.K. 299, 302 (1966).
Subsection (4) discussed in "Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 16 K.L.R. 437, 438 (1968).
"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 134 (1975).
"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 213, 225 (1976).
Survey of contracts, UCCC and UCC, Franklin E. Lynch and Larry Schneider, 15 W.L.J. 324, 335 (1976).
"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 304 (1979).
"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 840 (2003).
Attorney General's Opinions:
Filing of financing statement which does not include social security number or federal employer identification number of debtor. 95-121.
CASE ANNOTATIONS
1. Filing of financial statement pursuant to Kansas law binding under bankruptcy proceedings. In re McCoy, 330 F. Supp. 533, 535, 536.
2. Referred to; interest of holder of perfected security interest superior to interest of judgment creditor although failure to file financing statement within 10 days. Blair Milling & Elevator Co., Inc. v. Wehrkamp, 217 Kan. 122, 126, 535 P.2d 457.
3. Subsection (7) applied in determining dairy equipment installed in barn was equipment, not fixture. Peoples State Bank of Cherryvale v. Clayton, 2 Kan. App. 2d 438, 439, 580 P.2d 1375.
4. Cited; UCC rather than federal common law determines whether FmHA's interest inferior to rights of purchaser for value. United States v. Central Livestock Corp., 616 F. Supp. 629, 634 (1985).
5. Cited; lease-purchase agreement under economic development revenue bond act (K.S.A. 12-1740 et seq.) not complete sale; filing requirements inapplicable. In re Petition of City of Moran, 238 Kan. 513, 519, 522, 713 P.2d 451 (1986).
6. Cited; action for failing to disclose existence of prior security interest, statute of limitations examined. Borg Warner Acceptance Corp. v. Kansas Secretary of State, 240 Kan. 598, 599, 731 P.2d 301 (1987).
7. Security interest in wife's interest in equipment unperfected; financing statement not listing her name seriously misleading. In re Griffin, 141 B.R. 207, 213 (1992).
8. Whether KUCC harmless error provision applied where continuation statement signed by successor in interest to secured party examined. In re Kruckenberg, 160 B.R. 663, 669 (1993).