Printable Format84-9-404. Rights acquired by assignee; claims and defenses against assignee. (a) Assignee's rights subject to terms, claims, and defenses; exceptions. Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subsections (b) through (e), the rights of an assignee are subject to:
(1) All terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and
(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.
(b) Account debtor's claim reduces amount owed to assignee. Subject to subsection (c) and except as otherwise provided in subsection (d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.
(c) 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.
(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 account debtor's recovery against an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record, and the record does not include such a statement, the extent to which a claim of an account debtor against the assignor may be asserted against an assignee is determined as if the record included such a statement.
(e) Inapplicability to health-care-insurance receivable. This section does not apply to an assignment of a health-care-insurance receivable.
History: L. 2000, ch. 142, § 66; July 1, 2001.
KANSAS COMMENT, 1996
Subsection (1). This subsection, which provides a mechanism for clearing the record when no debt exists, does not vary in substance from the 1995 Official Text version, which has not been amended from earlier versions. It establishes something of a double standard. If the collateral is consumer goods, the secured party is obligated to clear the record by filing a termination statement (normally accomplished by the standard UCC-2 form) with each filing officer with whom the original financing statement was filed. If other collateral is involved (e.g., a commercial loan to a business), the secured party need only send the debtor the termination statement, upon the debtor's demand, for filing by the debtor. The basis for the double standard is that consumer debtors are not sophisticated about the mechanics of filing and the advantages of a clear record, while it is a small task for the creditor to do the job for the consumer. The advantage of leaving a filing on record in a commercial setting is that the debtor can more easily obtain future loans and give a perfected security interest by merely executing a new security agreement using the same collateral, and receiving the funds. The old financing statement will serve to perfect the interest with the priority measured from the date of the original filing.
But whether or not the collateral is consumer goods, failure to comply with the directives of this subsection triggers a small civil penalty. Moreover, there could be additional financial loss for which the secured party would be liable, as when the debtor is denied credit due to the absence of a termination statement on file. A similar situation can arise under 84-9-208.
Subsection (2). Subsection (2) requires the filing officer, on presentation of a termination statement in duplicate, to return one copy to the secured party. The subsection also sets forth the rules under which the filing officer may clear the record of the original financing statement.
Subsection (3). In the 1995 Official Text, subsection (3) establishes the fee for filing and indexing a termination statement. The Kansas legislature eliminated this provision in 1980 and in its place established a rule that termination statements may be destroyed by the filing officer after they have been on file for five years (a non-uniform provision). Although Article 9 presently states no fee for a termination statement, filing officers throughout the state use the same schedule as applies to financing statements, continuation statements and amendments. See 84-9-403(5). This makes sense, since termination statements are part of the standard UCC-2 form.
Revisor's Note:
Former section 84-9-404 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.
Law Review and Bar Journal References:
"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 179 (1975).
"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 225, 226 (1976).
"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 311 (1979).
CASE ANNOTATIONS
1. Security interest no longer perfected where termination statement improvidently filed. J. I. Case Credit Corp. v. Foos, 11 Kan. App. 2d 185, 187, 717 P.2d 1064 (1986).