Printable Format84-9-305. Law governing perfection and priority of security interests in investment property. (a) Governing law: General rules. Except as otherwise provided in subsection (c), the following rules apply:
(1) While a security certificate 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 the certificated security represented thereby.
(2) The local law of the issuer's jurisdiction as specified in K.S.A. 84-8-110(d), and amendments thereto, governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in an uncertificated security.
(3) The local law of the securities intermediary's jurisdiction as specified in K.S.A. 84-8-110(e), and amendments thereto, governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a security entitlement or securities account.
(4) The local law of the commodity intermediary's jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a commodity contract or commodity account.
(b) Commodity intermediary's jurisdiction. The following rules determine a commodity intermediary's jurisdiction for purposes of this part:
(1) If an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that a particular jurisdiction is the commodity intermediary's jurisdiction for purposes of this part, this article, or the uniform commercial code, that jurisdiction is the commodity intermediary's jurisdiction.
(2) If paragraph (1) does not apply and an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.
(3) If neither paragraph (1) nor paragraph (2) applies and an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that the commodity account is maintained at an office in a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.
(4) If none of the preceding paragraphs apply, the commodity intermediary's jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the commodity customer's account is located.
(5) If none of the preceding paragraphs apply, the commodity intermediary's jurisdiction is the jurisdiction in which the chief executive office of the commodity intermediary is located.
(c) When perfection governed by law of jurisdiction where debtor located. The local law of the jurisdiction in which the debtor is located governs:
(1) Perfection of a security interest in investment property by filing;
(2) automatic perfection of a security interest in investment property created by a broker or securities intermediary; and
(3) automatic perfection of a security interest in a commodity contract or commodity account created by a commodity intermediary.
History: L. 2000, ch. 142, § 25; July 1, 2001.
KANSAS COMMENT, 1996
This section does not vary from the 1995 Official Text. It allows the secured party to perfect its security interest by taking possession of the collateral. It recognizes the common-law pledge. But what is "possession?" There is no definition of that critical term in the UCC, so that case law will have to fill the void. Official Comment 2 of the section gives some guidance: "Possession may be by the secured party himself or by an agent on his behalf: it is of course clear, however, that the debtor or a person controlled by him cannot qualify as such an agent for the secured party." It has been held that an escrow agent can retain possession for the secured party as a "bailee with notice" under this section, even though the creditor did not have exclusive dominion over the escrow agent; lack of control by the debtor was sufficient to put third parties on notice of the security interest. In re Copeland, 531 F.2d 1195 3d Cir. 1976). It has even been held that the debtor's attorney can act as an escrow agent for the secured party if the attorney's role is made clear. See Norwest Bank St. Paul, N.A. v. Bergquist, 823 F.2d 198 (8th Cir. 1987). Conversely, leaving the debtor in possession of the collateral as the secured party's "collection agent" does not bring perfection. In re Bruce Farley Corp., 612 F.2d 1197 (9th Cir. 1980). The presence of employees of the secured party on the debtor's premises where the collateral is located has been held to be insufficient possession. Transport Equip. Co. v. Guaranty State Bank, 518 F.2d 377 (10th Cir. 1975) (applying Kansas law). On the other hand, where a secured party in possession of an instrument (promissory note, stocks or bonds) as pledgee acknowledges and accepts the instructions of the pledgor-debtor to deliver the collateral to the junior secured party after the debt to the senior is satisfied, the senior creditor has been held to be a bailee with notice, so that the junior creditor has a valid Article 9 pledge. See Landmark Land Co. v. Sprague, 33 U.C.C. Rep. 53 (S.D.N.Y. 1981). Of course the safest way for the junior creditor to handle the "double pledge" situation is to document it with a tripartite agreement among debtor, senior and junior.
Revisor's Note:
Former section 84-9-305 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.
Law Review and Bar Journal References:
Impact of the Uniform Consumer Credit Code upon Kansas, Barkley Clark, 18 K.L.R. 277, 288 (1970).
"Bankruptcy: Physical Possession May Still Be a Voidable Preference," David G. Arst, 38 J.B.A.K. 193, 199 (1969).
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).
"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 217 (1976).
Tenth Circuit survey on Contracts, U.C.C. and U.C.C.C., Martin R. Ufford, 15 W.L.J. 541, 543, 544 (1976).
"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 508 (1986).
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, 382.
3. Cannot employ elements of filing method to defeat nonretroactivity rule when security interest perfected by possession. Transport Equipment Co. v. Guaranty State Bank, 518 F.2d 377, 382.
4. Financing statement failed to satisfy statutory requirements; security interest not perfected until bank took actual possession. Transport Equipment Co. v. Guaranty State Bank, 518 F.2d 377, 382.
5. Mentioned in considering assignment by one partner of benefits under contract for sale of partnership assets. Wellsville Bank v. Nicolay, 7 Kan. App. 2d 172, 174, 638 P.2d 975 (1982).
6. Right to receive payments under a contract for deed is a "general intangible"; must be perfected by filing with secretary of state. In re Southern, 32 B.R. 761, 762, 765 (1983).