KANSAS OFFICE of
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84-9-307. Location of debtor, registered organization, United States, foreign bank branch or agency, or foreign air carrier. (a) "Place of business." In this section, "place of business" means a place where a debtor conducts its affairs.

(b) Debtor's location: General rules. Except as otherwise provided in this section, the following rules determine a debtor's location:

(1) A debtor who is an individual is located at the individual's principal residence.

(2) A debtor that is an organization and has only one place of business is located at its place of business.

(3) A debtor that is an organization and has more than one place of business is located at its chief executive office.

(c) Limitation of applicability of subsection (b). Subsection (b) applies only if a debtor's residence, place of business, or chief executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral. If subsection (b) does not apply, the debtor is located in the District of Columbia.

(d) Continuation of location: Cessation of existence, etc. A person that ceases to exist, have a residence, or have a place of business continues to be located in the jurisdiction specified by subsections (b) and (c).

(e) Location of registered organization organized under state law. A registered organization that is organized under the law of a state is located in that state.

(f) Location of registered organization organized under federal law; bank branches and agencies. Except as otherwise provided in subsection (i), a registered organization that is organized under the law of the United States and a branch or agency of a bank that is not organized under the law of the United States or a state are located:

(1) In the state that the law of the United States designates, if the law designates a state of location;

(2) in the state that the registered organization, branch, or agency designates, if the law of the United States authorizes the registered organization, branch, or agency to designate its state of location, including by designating its main office, home office or other comparable office; or

(3) in the District of Columbia, if neither paragraph (1) nor paragraph (2) applies.

(g) Continuation of location: Change in status of registered organization. A registered organization continues to be located in the jurisdiction specified by subsection (e) or (f) notwithstanding:

(1) The suspension, revocation, forfeiture, or lapse of the registered organization's status as such in its jurisdiction of organization; or

(2) the dissolution, winding up, or cancellation of the existence of the registered organization.

(h) Location of United States. The United States is located in the District of Columbia.

(i) Location of foreign bank branch or agency if licensed in only one state. A branch or agency of a bank that is not organized under the law of the United States or a state is located in the state in which the branch or agency is licensed, if all branches and agencies of the bank are licensed in only one state.

(j) Location of foreign air carrier. A foreign air carrier under the federal aviation act of 1958, as amended, is located at the designated office of the agent upon which service of process may be made on behalf of the carrier.

(k) Section applies only to this part. This section applies only for purposes of this part.

History: L. 2000, ch. 142, § 27; L. 2012, ch. 84, § 3; July 1, 2013.

Revisor's Note:

Former section 84-9-307 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

KANSAS COMMENT, 1996

Subsection (1). This subsection, which gives a super priority to ordinary course buyers of inventory from a dealer, varies from the 1995 Official Text only in the addition of the last sentence, which excludes dairy products from the definition of "farm products" for purposes of the subsection. It has not been amended since 1972. Under this subsection, a buyer in ordinary course of business (defined in 84-1-201(9) as "a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party buys in ordinary course from a person in the business of selling goods of that kind") takes free from a security interest "created by his seller" even though the security interest is perfected and the buyer knows of its existence.

The primary purpose of the subsection is to protect ordinary buyers of a dealer's inventory; the buyer will take free unless the buyer knows that the dealer is forbidden to sell. By contrast, if the sale is a bulk transfer of all the dealer's inventory, a security interest in the inventory will not be cut off by the transferee. 84-9-306(2). Under the rule of this subsection, the inventory financier is not injured since its security interest will extend automatically to the proceeds generated by the ordinary course sale of inventory. However, the ordinary course buyer does not need the shelter of this subsection if the secured party has otherwise authorized the sale (84-9-306(2)), or the security interest is unperfected (84-9-301(1)(c)).

In First National Bank and Trust Co. v. Ford Motor Credit Co., 231 K. 431, 646 P.2d 1057 (1982), an automobile dealer was doing a little double dealing by giving a floorplan security interest in inventory to creditor X (who had properly perfected by filing a financing statement), and then arranging for sham sales of new cars to officers of the dealer corporation, which sales were financed by creditor Y's purchase of chattel paper from the dealer. The court held that the officers did not qualify as "buyers in ordinary course" who took free of a perfected security interest in inventory under 84-9-307(1). And the officers' financier, Y, could claim no better title to the cars sold out of trust. Y did not itself qualify as a "buyer" within the meaning of 84-9-307(1) and 84-1-201(9); instead, Y was a lender. Therefore, the floorplanner's purchase money security interest in the inventory had priority over Y's claim to the vehicles through the chattel paper. The Kansas supreme court strongly suggests that Y could not claim priority under 84-9-308 in a situation where the purported buyer in ordinary course was guilty of fraud; 84-9-308 gives priority to a purchaser of chattel paper claimed merely as proceeds of an inventory loan by a competing floorplan financier. Indeed, priority under 84-9-308 seems dependent upon the absence of fraud on the part of the ordinary course buyer who signs the chattel paper. See also 84-1-203.

In order to take advantage of the superpriority, the security interest must be created by the buyer's seller. Thus, if Bank retains a perfected security interest in X's inventory, X makes a bulk transfer of the inventory to Y, and Z buys a unit of inventory in ordinary course from Y, Bank should be able to replevy the unit back from Z. The security interest was not created by Z's seller (Y), but by a predecessor in title (X). See National Shawmut Bank v. Jones, 236 A.2d 484 (N.H. 1967).

Under the terms of the Official Text, the primary exception to the general rule of this subsection deals with farm products. If farm products (i.e., crops and livestock) are sold in ordinary course, the buyer cannot take advantage of the superpriority. See Kansas Comment 1983 to the prior section, and see North Central Kansas Production Credit Association v. Washington Sales, Co., 223 K. 689, 577 P.2d 35 (1978). Instead, the buyer must argue that the sale was authorized under 84-9-306(2), or that the security interest was unperfected. For a good Kansas case emphasizing that all good faith buyers take free from unperfected security interests, see Farmers State Bank v. Cooper, 227 K. 547, 608 P.2d 929 (1980).

In 1985, the Food Security Act of 1985, 7 U.S.C. § 1631, became law, reversing the farm product priorities of 84-9-307(1), by providing that buyers of farm products generally take free. The act provides that a buyer in the ordinary course of the buyer's business buying farm products from a person engaged in farming operations takes free of a security interest even if it is perfected and even if the buyer knows of the existence of the security agreement. 7 U.S.C. § 1631(d). The buyer takes subject to the security interest, however, if the buyer has received written notice of the security interest within a year before the sale describing the name and address of the secured party and the debtor, the debtor's social security or taxpayer identification number, description of the crops, any payment obligations imposed on the buyer by the secured party, and the buyer fails to meet the payment obligations. § 1631(e). The statement must be amended within three months for material changes, and it will lapse on the sooner of its provisions or after a year. The act also enables the secretary of state to create a central filing system, an option that Kansas has not adopted. Because of this act, the secured party must give written notice to all possible buyers of farm products or risk loss of the collateral on sale to professional buyers. Several articles discussing the Food Security Act are referenced in this section's Law Review and Bar Journal References.

Subsection (2). This subsection does not vary from the Official Text. The subsection was originally omitted from the Kansas UCC when it was adopted in 1965 because Kansas did not allow automatic perfection of purchase money security interests in personal property as did the Official Text of 9-302(1)(d). In 1987 Kansas adopted a modified version of automatic perfection and in 1989 the Official text of 9-307(2) was restored to the Kansas UCC. The subsection provides that a bona fide consumer buyer from a consumer seller will take free of an automatically perfected security interest in consumer goods. It achieves this by providing that it applies only to consumer goods, requiring that the seller be a consumer. The buyer must be buying as a consumer, i.e. for her or his own personal, family or household purposes. Finally, the buyer does not take free if the secured party has filed a financing statement (traditional perfection). Therefore the only person who could be a perfected secured party in the consumer goods without a filed financing statement is a purchase money secured party.

Subsection (3). This subsection, new with the 1972 Official Text, does not vary from the Official Text. It governs the priority between a non-ordinary course buyer of goods (a buyer in the ordinary course (84-1-201(9)) would take free under 84-9-307(1)) and a competing security interest arising from a future advance clause where the advance is made after the sale of the collateral to the buyer. It provides that the buyer takes free of the future advance if the advance is made by the secured party with knowledge of the prior sale of the collateral, or if made without knowledge, if made more than 45 days after the sale to the buyer. This is a shorter of 45 days or knowledge rule. The effect of the rule is that a secured lender making future advances must check to be sure that the debtor still owns the collateral within 45 days before the future advance or be at peril of losing the collateral to a prior buyer. For the leading judicial application of the rule, see Spector United Employees Credit Union v. Smith, 263 S.E.2d 319 (N.C. App. 1980). Compare a similar federal tax lien rule in 26 U.S.C. 6323(d), and the longer of 45 days or knowledge rule in 84-9-301(4) for lien creditors.

Law Review and Bar Journal References:

Section embodies essence of "floor plan financing," Charles H. Oldfather, 14 K.L.R. 571, 578, 579, 580, 582, 584, 585 (1966).

"Floorplan protection" has been extended to buyers of certain farm products, J. Eugene Balloun, 16 K.L.R. 437, 438, 440 (1968).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 166 (1975).

"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 217, 218, 228 (1976).

Applicability of implied waiver doctrine to article 9 transactions, "Uniform Commercial Code: Farm Creditor Protection," Brian McMahill, 18 W.L.J. 199 (1978).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 307, 309 (1979).

"Commercial Law—Problems with Identifiable Proceeds and Transfers in Ordinary Course in Floor Plan Financing," Richard L. Cram, 30 K.L.R. 478, 483 (1982).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 32 K.L.R. 351, 358, 365, 366 (1984).

"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 479, 482, 483 (1986).

"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 509 (1986).

"Congress's Amendment to the UCC: The Farm Products Rule Change," Keith G. Meyer, 55 J.K.B.A. No. 7, 17, 18 (1986).

"Congress Takes Exception to the Farm Products Exception of the UCC: Retroactivity and Preemption," Drew L. Kershen and J. Thomas Hardin, 36 K.L.R. 1, 29, 52 (1987).

"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).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 831, 832 (2003).

"A Brief Overview of Revised Article 9 in Kansas," John K. Pearson and J. Scott Pohl, 72 J.K.B.A. No. 8, 22 (2003).

CASE ANNOTATIONS

1. Applied; under facts there was no conversion where collateral sold at direction of the debtor who received proceeds; consent. North Cent. Kan. Prod. Cred. Ass'n v. Washington Sales Co., 223 K. 689, 693, 577 P.2d 35.

2. 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.

3. Credit company's perfected purchase money security interest in vehicles has priority over bank's security interest; vehicles not sold to a buyer in ordinary course of business. First National Bank and Trust Co. v. Ford Motor Credit Co., 231 K. 431, 435, 436, 646 P.2d 1057 (1982).

4. 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).

5. Farm creditor's oral consent at outset of loan, permitting sales conditioned on remitting proceeds, constitutes consent waiving security interest. Peoples Nat'l Bank & Trust v. Excel Corp., 236 K. 687, 689, 695, 695 P.2d 444 (1985).

6. Sale of livestock without prior consultation with bank; auction company liable for conversion. First Nat'l & Tr. Co. v. Atchison County Auction Co., 10 K.A.2d 382, 386, 699 P.2d 1032 (1985).

7. A buyer in ordinary course may prevail on entrustment theory (84-2-403(2)) even though buyer cannot prevail hereunder. Executive Financial Services, Inc. v. Pagel, 238 K. 809, 816, 715 P.2d 381 (1986).

8. Unsecured creditor with knowledge of another's unperfected security interest not buyer in ordinary course of business. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 K. 87, 97, 755 P.2d 518 (1988).

9. Creditor filing under federal food security act (7 U.S.C. 1631(e)(1)) has priority over UCC farm products exception. First Nat'l Bank & Tr. v. Miami Co. Co-op Ass'n, 257 K. 989, 993, 897 P.2d 144 (1995).


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