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84-9-301. Law governing perfection of priority of security interests. Except as otherwise provided in K.S.A. 2022 Supp. 84-9-303 through 84-9-306, and amendments thereto, the following rules determine the law governing perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral:

(1) Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral.

(2) While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a possessory security interest in that collateral.

(3) Except as otherwise provided in paragraph (4), while tangible negotiable documents, goods, instruments, money, or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:

(A) Perfection of a security interest in the goods by filing a fixture filing;

(B) perfection of a security interest in timber to be cut; and

(C) the effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.

(4) The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in as-extracted collateral.

History: L. 2000, ch. 142, § 21; L. 2007, ch. 90, § 70; July 1, 2008.

Revisor's Note:

Former section 84-9-301 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

KANSAS COMMENT, 1996

This section is identical to the 1995 Official Text with the exception that it allows 20 days, rather than 10, for a purchase money secured party to file, as discussed below. 84-9-201 provides that the secured party will prevail over third parties' interest in a debtor's collateral, except as otherwise provided. The 84-9-300's are provisions describing situations in which third parties prevail over a secured party.

Subsection (1). This subsection, which details the four classes of competitors which defeat an unperfected security interest. This subsection is the primary "exception" to the general rule, naming the many classes of purchasers (84-1-201(32) and (33)) that defeat an unperfected secured party.

Subsection (1)(a) grants priority to those who prevail under 84-9-312, where priorities among conflicting security interests are determined, which is generally a first in time provision, with special rules favoring some purchase money security interests.

Subsection (1)(b) subordinates an unperfected security interest to a lien creditor who becomes such before the security interest is perfected. The term "lien creditor" is defined in subsection (3) to mean a judgment creditor who has obtained a levy of attachment or execution under Kansas law, and includes the trustee in bankruptcy. See Blair Milling & Elevator Co., Inc. v. Wehrkamp, 217 K. 122, 535 P.2d 457 (1975), and § 544(a) of the Bankruptcy Code (11 U.S.C. § 544(a)). Thus, if the security interest is unperfected when a levy of attachment or execution is obtained, or when a petition in bankruptcy is filed, the security interest is subordinate, except as provided in subsection 2. It is irrelevant that the lien creditor knows of the security interest, as it was under pre-UCC Kansas law. See Geiser v. Murray, 84 K. 450, 114 P. 1046 (1911); Paul v. Lingenfelter, 89 K. 871, 132 P. 1179 (1913). This subsection, which is tremendously important in bankruptcy, should be read together with § 544(a) of the Bankruptcy Code.

Subsection (1)(c) discusses the rights of buyers of tangible personal property and most reified intangibles. It gives bulk transferees and other nonordinary course buyers, as well as buyers of farm products in the ordinary course of business, priority over an unperfected security interest so long as these buyers take the collateral without actual knowledge of the unperfected security interest. Knowledge does prevent a buyer from taking priority over an unperfected security interest, and the unperfected security interest will prevail under the terms of 84-9-201 because 84-9-301(1)(c) does not take it away. Ordinary course buyers of inventory are not included because, under 84-9-307(1), they have priority even though the security interest is perfected. Pre-UCC Kansas law is consistent with this rule; buyers of goods were protected from unrecorded conditional sales contracts of which they had no knowledge (see Werner v. Winzer, 109 K. 647, 202 P. 80 (1921)), and from unrecorded chattel mortgages (former K.S.A. 58-301).

Subsection (1)(d) is similar to subsection (1)(c), except that it describes the rights of transferees of intangibles. The subsection does not require taking possession. It also covers investment property. Former K.S.A. 58-804, which governed assignments of accounts receivable for security and otherwise, provided that a protected assignee took subject to prior assignments of which it had written notice.

Subsection (2). This subsection varies from the 1995 Official Text by allowing a purchase money secured party (84-9-107) twenty days after the debtor receives possession of the collateral, instead of ten days in the Official text, to file. If the security interest is perfected within this twenty-day grace period, it will have priority over a "lien creditor" or a bulk transferee in the gap. It should be noted that this is not temporary automatic possession, and other interests, such as buyers without knowledge, will prevail over a purchase money secured party who files within twenty days. On the other hand, there is no grace period for a non-purchase money security interest; the only way to assure priority for such an interest is to be perfected when the debtor receives value, by signing the security agreement, filing the financing statement and making sure the debtor still owns the collateral when the loan is made.

The twenty-day grace period in paragraph 84-9-301(1)(c) has a parallel in the new provisions § 547 of the bankruptcy Code, which in general gives a secured creditor (whether purchase money or not) a grace period of twenty days within which to perfect a security interest in order to avoid attack upon the security interest by the debtor's trustee as a voidable preference. 11 U.S.C. § 547(e)(2). If the security interest is not perfected within twenty days after the extension of credit, and the perfection takes place within 90 days of bankruptcy, the secured party runs the danger of having the security interest voided. Moreover, if the creditor is deemed to be an "insider" (defined in 11 U.S.C. § 101(25)), the trustee can reach back a full year. For the purchase money secured creditor, the lesson is simple: file your financing statement or take possession within the twenty-day grace period. For all other secured parties, be perfected at the time value passes.

Subsection (3). This subsection defines a "lien creditor" to include the trustee in bankruptcy for the purposes of 84-9-301(1).

Subsection (4). This subsection sets forth a special 45-day rule for future advances. The purpose of the subsection is to balance the interests of a future advance lender and a lien creditor by giving priority to the lender for all advances made prior to the judgment lien, and for all optional advances made for 45 days thereafter irrespective of knowledge. So long as the lender has no knowledge of the judgment lien, he may claim priority for future advances made even later than the 45 days. Contrast the 45-day rule governing non-ordinary course buyers under 84-9-307(3), and for the federal tax lien under 26 U.S.C. §6323(d).

Law Review and Bar Journal References:

Reference made to Official UCC Comment No. 1 in article concerning "floor plan financing," Charles H. Oldfather, 14 K.L.R. 571, 572 (1966).

"Bankruptcy: Physical Possession May Still Be a Voidable Preference," David G. Arst, 38 J.B.A.K. 193, 200 (1969).

Mineral lease exemptions from UCC coverage for security purposes, Bryan E. Nelson, 23 K.L.R. 367 (1975).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 169, 176 (1975).

Legislative survey, "Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 217, 218, 219 (1976).

Warranty violations in tripartite finance lease agreements, Winton A. Winter, Jr., 25 K.L.R. 573, 583 (1977).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 302, 304 (1979).

"The Perfection of Security Interests in Motor Vehicles in Kansas-Perfection or Confusion?" Susan C. Jacobson, 28 K.L.R. 315, 317, 318, 319 (1980).

"Secured Transactions: The Priority of Future Advances," Jennifer A. Strus, 21 W.L.J. 717, 718 (1982).

"Commercial Law—Problems with Identifiable Proceeds and Transfers in Ordinary Course in Floor Plan Financing," Richard L. Cram, 30 K.L.R. 478, 488 (1982).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 32 K.L.R. 351, 358, 366 (1984).

"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 478, 494 (1986).

"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 511 (1986).

"Clear Title: A Buyer's Bonus, A Lender's Loss—Repeal of UCC § 9-307(1) Farm Products Exception by Food Security Act § 1324 [7 U.S.C. § 1631]," Mark V. Bodine, 26 W.L.J. 71, 93, 94 (1986).

"Commercial Law: Identifiable Proceeds and the Knowledge Factor [Farmers State Bank v. Production Credit Association, 243 Kan. 87, 755 P.2d 518 (1988)]," Mahesh I. Patel, 28 W.L.J. 295, 305 (1988).

"Creditor Beware: From Default Through Deficiency Judgment," Wanda M. Temm, 60 J.K.B.A. No. 8, 17 (1991).

"To Be (Transformed) or Not to Be: The Transformation Versus Dual-Status Rules for Purchase-Money Security Interest Under Kansas' Former and Revised Article 9," Christopher Harry, 50 K.L.R. 1095 (2002).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 849 (2003).

Attorney General's Opinions:

Banking code; dissolution; insolvency; receiver in charge of assets; distribution. 85-112.

CASE ANNOTATIONS

1. Assignment of oil and gas lease for security purposes not subject to provisions of code. Ingram v. Ingram, 214 K. 415, 418, 423, 521 P.2d 254.

2. Chief place of business of purchasers of truck tractor used in interstate commerce was Kansas; lien required to be perfected hereunder; security interest unprotected. In re Dobbins, 371 F.Supp. 141, 143.

3. Bankruptcy proceeding; past due secured note; to determine whether impermissible preference given, date of transfer was date value given; claim not secured. E. F. Corporation v. Smith, 496 F.2d 826, 828, 831.

4. Applied; determination of priority of temporarily perfected interest and judgment creditor levying on execution. Blair Milling & Elevator Co., Inc. v. Wehrkamp, 217 K. 122, 124, 535 P.2d 457.

5. Secured party's interest in collateral prior to that of purchaser if such interest is perfected; if interest not perfected no priority over purchaser for value without knowledge. Farmers State Bank v. Cooper, 227 K. 547, 555, 608 P.2d 929.

6. Unperfected security interest is subordinate to rights of buyer not in ordinary course of business if buyer gives value and receives delivery without knowledge of unperfected security interest. Victory Nat'l Bank of Nowata v. Stewart, 6 K.A.2d 847, 852, 636 P.2d 788 (1981).

7. Lease of truck to debtor was true lease and not meant to be security; under facts, lessor could reclaim. In Re Intern. Plastics, Inc., 18 B.R. 583, 584, 585 (1982).

8. Assignment of payments from realty deed governed by Article 9 of UCC; trustee had priority over unperfected bank. In Re Southworth, 22 B.R. 376, 377, 379 (1982).

9. Trustee had priority over creditor whose security interest in note was unperfected. In re Southern, 32 B.R. 761, 762, 765, 766 (1983).

10. Financing statement which listed "McMannis heirs" as landowners adequate; description sufficient to warn of security interest. In re McMannis, 39 B.R. 98, 99, 102 (1983).

11. Unperfected security interest under (1)(b), subordinate to judgment lien, deemed no security interest under federal statute. Adkisson v. Fallier, 565 F.Supp. 850, 855 (1983).

12. If properly employed, UCC protects unpaid sellers in variety of ways. Holiday Rambler Corp. v. First Nat. Bank and Trust, 723 F.2d 1449, 1453 (1983).

13. Severed crops are farm products, not "growing crops"; if in farm debtor's possession, financing statement needs no property description. In re Roberts, 38 B.R. 128, 129, 132 (1984).

14. Buyer not in ordinary course of business without actual knowledge of security interest has priority over unperfected interest (84-9-103(1)(d)). Broadway National Bank v. G & L Athletic Supplies, Inc., 10 K.A.2d 43, 45, 46, 691 P.2d 400 (1984).

15. Cited; entrustment doctrine (84-2-403(2)) examined and applied. Executive Financial Services, Inc. v. Pagel, 238 K. 809, 812, 715 P.2d 381 (1986).

16. 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).

17. Unperfected secured creditor may recover from auction company for unauthorized sale of encumbered collateral. First Nat. Bank of Amarillo v. SW Livestock, Inc., 616 F.Supp. 1515, 1517, 1521 (1985).

18. Cited; bank's prior interest in crops not diminished by lease between debtor and third party. First Nat'l Bank v. Milford, 239 K. 151, 155, 718 P.2d 1291 (1986).

19. Security interest created in inventory but not perfected is subordinated to intervening claim of bankruptcy trustee. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1299, 62 B.R. [168] [169] [174] (1986).

20. Security interest filed under debtor's trade name bearing no similarity to legal name can be set aside by bankruptcy trustee. Pearson v. Salina Coffee House, Inc., 61 B.R. 538, 541 (1986).

21. Chapter 7 trustee's rights as superior to grain company in possession with unperfected security interest examined. In re Lewis, 70 B.R. 699, 704 (1987).

22. Cited; rules relating to ownership of property under act relative to security interests stated and applied. City of Arkansas City v. Anderson, 242 K. 875, 891, 752 P.2d 673 (1988).

23. Unsecured creditor with knowledge of another's unperfected security interest not entitled to priority. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 K. 87, 97, 755 P.2d 518 (1988).

24. Absent authorization, borrower and seller of excavator could not modify lender's perfected security interest. U.S. v. Ables, 739 F.Supp. 1439, 1446 (1990).

25. Since holder of unsecured security interest in motor vehicle cannot recover from bona fide purchasers, holder damaged thereby. Mid American Credit Union v. Board of Sedgwick County Comm'rs, 15 K.A.2d 216, 224, 806 P.2d 479 (1991).

26. Security interest in wife's interest in equipment unperfected; financial statement not listing her name seriously misleading. In re Griffin, 141 B.R. 207, 209, 214 (1992).

27. Whether creditor could reach secured, perfected assets of debtor who allegedly fraudulently transferred assets examined. Printed Media Services v. Solna Web, Inc., 838 F.Supp. 1453, 1461 (1993).

28. Certificates of title sufficient to perfect security interest despite creditor being listed as vehicle owner. In re Charles, 323 F.3d 841, 845 (2003).


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