Printable Format84-9-304. Law governing perfection and priority of security interests in deposit accounts. (a) Law of bank's jurisdiction governs. The local law of a bank's jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a deposit account maintained with that bank.
(b) Bank's jurisdiction. The following rules determine a bank's jurisdiction for purposes of this part:
(1) If an agreement between the bank and the debtor governing the deposit account expressly provides that a particular jurisdiction is the bank's jurisdiction for purposes of this part, this article, or the uniform commercial code, that jurisdiction is the bank's jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the bank and its customer governing the deposit account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the bank's jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an agreement between the bank and its customer governing the deposit account expressly provides that the deposit account is maintained at an office in a particular jurisdiction, that jurisdiction is the bank's jurisdiction.
(4) If none of the preceding paragraphs apply, the bank's jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the customer's account is located.
(5) If none of the preceding paragraphs apply, the bank's jurisdiction is the jurisdiction in which the chief executive office of the bank is located.
History: L. 2000, ch. 142, § 24; July 1, 2001.
KANSAS COMMENT, 1996
This section does not vary from the 1995 Official Text, which slightly amended the prior provision. Subsection (1) provides that chattel paper or negotiable documents of title may be perfected by filing; 84-9-305 provides that they may also be perfected by possession; and 84-9-308 and 84-9-309 establish a set of priority rules which makes perfection by possession preferable to filing. If the collateral is proceeds of a letter of credit, money or instruments (defined in 84-9-105(1)(i)), possession is the only way to perfect unless one of the rules governing limited automatic perfection comes into play. Subsections (2) and (3) set forth the rules governing documents of title.
Under subsection (2), as long as a negotiable document covering the goods is outstanding, the proper way to deal with the goods is through the document. Any interest perfected directly in the goods while the document is outstanding is subordinated to the rights in the outstanding negotiable document. The most important Kansas application of this rule is probably the warehouse receipt issued by a grain elevator. Note, however, that a bank with a perfected security interest in growing crops will not automatically be subordinated if the crops are later delivered to an elevator, which issues a negotiable warehouse receipt; in such a case, the bank had a security interest before the goods were delivered to the issuer of the warehouse receipt. In determining priorities in this situation, see also K.S.A. 84-7-501, 84-7-502 and 84-7-503.
Subsection (3) is concerned with nonnegotiable documents of title, such as scale tickets issued by a grain elevator. Since title to the underlying goods is not seen as reified, or "locked in the document," as it is with negotiable documents of title, the secured party may perfect its interest directly in the goods by filing. Two other methods of perfection are also provided: (1) issuance of the document in the secured party's name, and (2) receipt of notification of the secured party's interest by the bailee.
The 21-day grace periods in subsections (4) and (5) were not found in pre-UCC Kansas law. These subsections give protected status in bankruptcy to security interests in instruments and documents for a short period of time, although there has been no filing and the collateral is in the debtor's possession. There is a variety of legitimate reasons, some of them described in subsections (5)(a) and (5)(b) and Official Comment 4, why such collateral has to be temporarily released to a debtor; in such cases, no useful purpose would be served by cluttering the files with records of such exceedingly short-term transactions. However, the creditor relying on the short-term automatic perfection granted by these subsections runs the risk that the debtor will sell the collateral or double-finance by delivering the collateral to an innocent third party which would take free under 84-9-308 or 84-9-309.
Revisor's Note:
Former section 84-9-304 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.
Law Review and Bar Journal References:
Secured transactions under the U.C.C., Gerald D. Haag, 21 K.L.R. 107 (1972).
"Close Corporations and the Kansas General Corporation Code of 1972," Edwin W. Hecker, Jr., 22 K.L.R. 489, 535 (1974).
"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 132 (1975).
"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 217 (1976).
"Right of Secured Party to Recover Proceeds Commingled in Debtor's Bank Account," Kristen D. Balloun, 28 K.L.R. 325, 326, 327 (1980).
"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 508 (1986).
"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 782 (2003).
Attorney General's Opinions:
Banks; trust powers; investment of public moneys by governmental subdivisions, units and entities; repurchase agreements. 92-9.
CASE ANNOTATIONS
1. Mentioned in discussion of commercial security interest priority over federal tax liens; circumstances necessary for priority. Donald v. Madison Industries, Inc., 483 F.2d 837, 844.
2. Possession defined as unequivocal, absolute and notorious; mere physical presence, standing alone, does not perfect security interest. Transport Equipment Co. v. Guaranty State Bank, 518 F.2d 377, 380, 381.
3. Consignor who failed to perfect proceeds within ten-day period not entitled to reclaim proceeds. In re Critiques, Inc., 29 B.R. 941, 942, 946 (1983).
4. Instruments must be perfected by possession. In re Southern, 32 B.R. 761, 762, 765 (1983).
5. Cited; foreclosing creditor's duty to check UCC files, give notice of pending sale, disclose subsequent purchaser's name examined. Utility Trailers of Wichita, Inc. v. Citizens Nat'l Bank & Tr. Co., 11 Kan. App. 2d 421, 726 P.2d 282 (1986).
6. Perfection of security interest in instrument, mortgagee's assignment of notes and mortgages as security, relative priority of interests examined. Army Nat'l Bank v. Equity Developers, Inc., 245 Kan. 3, 4, 13, 774 P.2d 919 (1989).
7. The effect failure to record assignment of mortgage on rights of the assignee in relation to junior mortgagees discussed. Bank Western v. Henderson, 255 Kan. 343, 348, 874 P.2d 632 (1994).