KANSAS OFFICE of
  REVISOR of STATUTES

  

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84-9-502. Contents of financing statement; record of mortgage as financing statement; time of filing financing statement. (a) Sufficiency of financing statement. Subject to subsection (b), a financing statement is sufficient only if it:

(1) Provides the name of the debtor;

(2) provides the name of the secured party or a representative of the secured party; and

(3) indicates the collateral covered by the financing statement.

(b) Real-property-related financing statements. Except as otherwise provided in K.S.A. 2022 Supp. 84-9-501(b), and amendments thereto, to be sufficient, a financing statement that covers as-extracted collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection (a) and also:

(1) Indicate that it covers this type of collateral;

(2) indicate that it is to be filed in the real property records;

(3) provide a description of the real property to which the collateral is related; and

(4) if the debtor does not have an interest of record in the real property, provide the name of a record owner.

(c) Record of mortgage as financing statement. A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:

(1) The record indicates the goods or accounts that it covers;

(2) the goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as-extracted collateral or timber to be cut;

(3) the record satisfies the requirements for a financing statement in this section, but:

(A) The record need not indicate that it is to be filed in the real property records; and

(B) the record sufficiently provides the name of a debtor who is an individual if it provides the individual name of the debtor or the surname and first personal name of the debtor, even if the debtor is an individual to whom K.S.A. 2022 Supp. 84-9-503(a)(4), and amendments thereto, applies; and

(4) the record is duly recorded.

(d) Filing before security agreement or attachment. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

History: L. 2000, ch. 142, § 73; L. 2012, ch. 84, § 10; July 1, 2013.

Revisor's Note:

Former section 84-9-502 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

KANSAS COMMENT, 1996

This section does not vary from the 1995 Official Text and has not been amended since 1975.

Subsection (1). Subsection (1) allows the secured party to notify account debtors to make payments on accounts, instruments and chattel paper directly to the secured party after the debtor's default. Generally, notice to the debtor of the assignment is necessary to charge him with the duty to pay the assignee (State Investment Co. v. Cimarron Insurance Co., 183 K. 190, 326 P.2d 299 (1958)), and this subsection codifies that rule.

If the original assignment of accounts receivable was on a "notification" basis, the assignee would be expected to make direct collections from the account debtors even before default; the same would be true when accounts are factored outright or when chattel paper is sold from a dealer to a bank or finance company. But if the assignment is on a "non-notification" basis, as with the typical security interest in accounts, the secured party does not notify the account debtors to make payment direct to it until default of the assignor. Once direct collection is triggered, the secured party can "take control" of the proceeds, and credit checks to the unpaid balance of the assignor's debt.

This collection remedy has been upheld against attack as an unconstitutional taking of property without due process of law. Bichel Optical Laboratories, Inc. v. Marquette Nat'l Bank, 487 F.2d 906 (8th Cir. 1973). The Bichel court held that there was insufficient "state action" to trigger the Fourteenth Amendment. In spite of the subsection's constitutionality, however, collection from third-party obligors can be stymied insofar as the assignee's rights are subject to (1) all claims and defenses arising out of the assigned obligation, and (2) all rights of setoff arising out of unrelated transactions between assignor and account debtors, to the extent that setoff accrues before the account debtors receive notification of the assignment. See 84-9-318 and Kansas Comment 1996 to that section. Thus, although the collection of accounts and other third-party monetary obligations is facilitated by the liquidity of the collateral, it is "precarious security" if claims or defenses exist.

Subsection (2). The secured party can also get into trouble by failing to diligently collect from account debtors, which is required by this subsection. If the duty to collect in a "commercially reasonable manner" is not met, the assignor can recover "any loss" caused by the assignee's breach. See 84-9-507 (1). The effect of careless collection could be the loss of recourse against the assignor. See Delay First Nat'l Bank & Trust Co. v. Jacobson Appliance Co., 243 N.W.2d 745 (Neb. 1976). What is "commercially reasonable" will depend upon the circumstances, but the secured party should be able to hire a collection agency and to compromise or settle disputed accounts, especially if the security agreement so provides. Nor should the secured party have to pursue account debtors to judgment on receivables or instruments, even though the expenses of collection could be added to the unpaid balance of the debt under this subsection.

The leading Kansas decision construing this subsection is Pedi Bares, Inc. v. First Nat'l Bank, 223 K. 477, 575 P.2d 507 (1978), which was a tort action for intentional interference with economic relations. The court remanded to the trier of fact for a determination of whether a bank with an assignment of accounts receivable proceeded in a commercially reasonable way when it notified account debtors to make payments directly to it even though some of the account debtors had already paid their accounts.

If the transaction is actually an outright sale of accounts or other third-party instruments, the deficiency and surplus provisions of this subsection apply only if the security agreement so provides. The leading case on the distinction between security assignments and outright sales is Major's Furniture Mart, Inc. v. Castle Credit Corp., Inc., 602 F.2d 538 (3d Cir. 1979).

Law Review and Bar Journal References:

Subsection (2) contains an exception to the provisions in article 9 of the Code relating to secured loans, Charles H. Oldfather, 14 K.L.R. 571, 580 (1966).

Similarity of section and prior case law discussed, J. Eugene Balloun, 16 K.L.R. 437, 439 (1968).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 310, 311 (1979).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 822, 825 (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).

Attorney General's Opinions:

Record of mortgage can be filed as a financing statement covering fixtures with the register of deeds in the county where the collateral is located if such record complies with the fixture filing requirements without using a UCC-1 form. 2009-19.

CASE ANNOTATIONS

1. Applied in determining that summary judgment would not stand; issues of fact to be resolved. Pedi Bares, Inc. v. First National Bank, 223 K. 477, 482, 575 P.2d 507.

2. Priority between right of setoff and perfected security interest examined. Bank of Kansas v. Hutchinson Health Services, Inc., 13 K.A.2d 421, 426, 773 P.2d 660 (1989).

3. Bankruptcy trustee's attempted avoidance of lien on modular home denied; court distinguishes modular homes from mobile homes. In re Brouillette, 389 B.R. 214, 221 (2008).

4. Mischaracterization in financing statement of membership units in limited liability company was not "seriously misleading" where statement described number of units and identified parties by name under the facts of the case. In re Brown, 479 B.R. 112 (Bkrtcy. D. Kan. 2012).


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