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84-9-407. Restrictions on creation or enforcement of security interest in leasehold interest or in lessor's residual interest. (a) Term restricting assignment generally ineffective. Except as otherwise provided in subsection (b), a term in a lease agreement is ineffective to the extent that it:

(1) Prohibits, restricts, or requires the consent of a party to the lease to the assignment or transfer or the creation, attachment, perfection, or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods; or

(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the lease.

(b) Effectiveness of certain terms. Except as otherwise provided in K.S.A. 84-2a-303(7), and amendments thereto, a term described in subsection (a)(2) is effective to the extent that there is:

(1) A transfer by the lessee of the lessee's right of possession or use of the goods in violation of the term; or

(2) a delegation of a material performance of either party to the lease contract in violation of the term.

(c) Security interest not material impairment. The creation, attachment, perfection, or enforcement of a security interest in the lessor's interest under the lease contract or the lessor's residual interest in the goods is not a transfer that materially impairs the lessee's prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of K.S.A. 84-2a-303(4), and amendments thereto, unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor.

History: L. 2000, ch. 142, § 69; July 1, 2001.

KANSAS COMMENT, 1996

This section, which is optional under the 1995 Official Text, has been adopted by the Kansas legislature with several significant modifications. Like the two previous sections, subsection (2) requires the federal employer identification number (FEIN) or social security number (SSN) of the debtor for searches in the secretary of state's office, and the filing fee provisions are not uniform. The most significant change is the nonuniform provision in subsection (3) giving the secretary of state's office immunity, discussed below. It has not otherwise been amended since 1972.

Subsection (1). It requires the filing officer to furnish a filing secured party with filing data, thus providing a simple method to verify that the financing statement or other document was filed. The words "continuation statement" were added by the Kansas legislature as a non-uniform amendment.

Subsection (2). Subsection (2) requires the filing officer to issue to requesting persons (such as potential lenders) a certificate as to filings against a particular debtor, and to furnish copies of such filings. A separate fee schedule is established for this important service. The secretary of state has approved a special form UCC-3 to embody information requests, copy requests and certification by the filing officer.

This section is of course intended to provide a firm mechanism for obtaining search information from the files. A searcher also has the right to inspect the files personally (84-9-403(4)). If the searcher discovers a competing filing and desires more information than appears on the face of the financing statement, he can ask the debtor to send to the prior filer a request for a statement of account or list of collateral under 84-9-208.

Subsection 3. This provision was added in 1985 as a result of two searches which did not disclose filed security interests. See Borg Warner Acceptance Corp. v. Kansas Secretary of State, 240 K. 598, 731 P.2d 301 (1987); The Topeka Capitol Journal, "Brier's Office to Pay to Avoid Bank Lawsuit," p. 3, April 17, 1985, (inadvertent search for "Joe Flynn" and "Rare Coins" did not reveal filing made against property of "Joe Flynn Rare Coins, Inc.). As a result of this amendment, misled later secured parties in Kansas will bear the loss for nondisclosures by the filing officer. That loss falls on the filing office under the uniform provisions, and thus can be spread among all those who rely on the filing system in a particular jurisdiction by adjusting the filing fee.

Revisor's Note:

Former section 84-9-407 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

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. 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).


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