84-9-408. (a) Term restricting assignment generally ineffective. Except as otherwise provided in K.S.A. 17-76,134(b) and (g), and amendments thereto, a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in, the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term:
(1) Would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
(b) Applicability of subsection (a) to sales of certain rights to payment. Subsection (a) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a sale pursuant to a disposition under K.S.A. 2024 Supp. 84-9-610, and amendments thereto, or an acceptance of collateral under K.S.A. 2024 Supp. 84-9-620, and amendments thereto.
(c) Legal restrictions on assignment generally ineffective. Except as otherwise provided in K.S.A. 17-76,134(g), and amendments thereto, a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation:
(1) Would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
(d) Limitation on ineffectiveness under subsections (a) and (c). To the extent that a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or general intangible or a rule of law, statute, or regulation described in subsection (c) would be effective under law other than this article but is ineffective under subsection (a) or (c), the creation, attachment, or perfection of a security interest in the promissory note, health-care-insurance receivable, or general intangible:
(1) Is not enforceable against the person obligated on the promissory note or the account debtor;
(2) does not impose a duty or obligation on the person obligated on the promissory note or the account debtor;
(3) does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render performance to the secured party, or accept payment or performance from the secured party;
(4) does not entitle the secured party to use or assign the debtor's rights under the promissory note, health-care-insurance receivable, or general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory note, health-care-insurance receivable, or general intangible;
(5) does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the person obligated on the promissory note or the account debtor; and
(6) does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable, or general intangible.
(e) Section prevails over specified inconsistent law. This section prevails over any inconsistent provisions of any laws, rules, and regulations of this state.
History: L. 2000, ch. 142, § 70; L. 2012, ch. 84, § 9; L. 2014, ch. 40, § 67; L. 2016, ch. 62, § 2; May 19.
KANSAS COMMENT, 1996
This section, which does not vary from the 1995 Official Text, became part of the Kansas UCC with the enactment of the 1972 Official Text in 1975. It is potentially a useful section, providing for a "protective filing" by a lessor or consignor which feels that it is not subject to Article 9 but wants to take no chances in case a court later determines otherwise. For example, a lessor of business equipment may choose to make a protective filing under this section even though the lessee has no option to purchase the equipment and by every measure the transaction is a bona fide lease rather than a disguised installment sale. See 84-1-201(37). Similarly, a consignor who is selling goods on approval and would thus be outside the scope of Article 9 (see 84-2-326) may make a protective filing. In either case, the mere fact of filing cannot be used against the filer as evidence that the transaction was really a disguised security interest subject to Article 9. In short, this section is intended to avoid a "Catch-22" for the lessor or consignor. For a good case where the court reads the section in this spirit, see American Standard Credit, Inc. v. National Cement Co., 643 F.2d 248 (5 th Cir. 1981).
Revisor's Note:
Former section 84-9-408 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, 133 (1975).
Mentioned in legislative survey, "Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 226 (1976).
Warranty violations in tripartite finance lease agreements, Winton A. Winter, Jr., 25 K.L.R. 573, 584 (1977).
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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