KANSAS COMMENT, 1996

1. The version of the Uniform Commercial Code that was first enacted in Kansas was the 1962 Official Text, enacted on April 23, 1965, effective January 1, 1966. In several places, the Code as enacted in Kansas contained minor variations from the Official Text. In 1966, the permanent editorial board of the Uniform Commercial Code recommended several changes in the Official Text. These were adopted by the Kansas legislature in 1967. In 1972, a new Official Text was published. This new text contained a substantial overhaul of Article 9, secured transactions, and made conforming amendments throughout the rest of the Code. Kansas adopted the 1972 Official Text in 1975, effective January 1, 1976. Since then, the legislature has made a number of significant changes to the Code. The revised Article 8 was adopted in 1986. The new Article 4a was adopted in 1990. Kansas enacted the revised Articles 3 and 4 in 1991. The new Article 2a on leases was adopted, effective February 1, 1992. Article 6 on bulk transfers was repealed in 1992. Finally, the revised Article 5, and amendments to Articles 8 and 9 were adopted in 1996. Several other non-uniform provisions have been added periodically throughout the Code.

2. The non-uniform provisions found in the Kansas Code, and the amendments to the Kansas Code enacted since the publication of the Kansas Comment 1983, are noted in the Kansas Comment 1996 throughout.

3. Article 1 contains general provisions and definitions that apply throughout the entire Code. Many of these definitions are new to Kansas law, and many substantially change existing law. In addition, each article also contains definitions that apply only to that article. It is important to understand this approach to Code terminology, since several terms are defined differently in different articles, and a term may have more than one meaning depending on the context in which it is used.

Revisor's Note:

Former section 84-1-101 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Kansas law on statutes of limitation, 18 K.L.R. 441 (1970).

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 388, 389 (1973).

Landlord-tenant implied warranty of habitability, 22 K.L.R. 666, 669 (1974).

"Uniform Commercial Code: Deficiency Judgments in a Commercially Unreasonable Setting," Michael L. Happe, 22 W.L.J. 160 (1982).

CASE ANNOTATIONS

1. Mentioned in holding that security interest in vehicle perfected by lien notation on bill of sale. In re Littlejohn, 519 F.2d 356, 358.

2. Provisions of Code construed in suit against bank for negligence in the payment of checks with altered payees. Hanover Ins. Companies v. Brotherhood State Bank, 482 F. Supp. 501.

3. Secured creditor sale of collateral not in "commercially reasonable manner"; test. Westgate State Bank v. Clark, 231 Kan. 81, 90, 642 P.2d 961 (1982).

4. Where debtors and creditor did not enter into reaffirmation when debt discharged, creditor's lien did not survive discharge. In Re Williams, 9 B.R. 228, 229, 234 (1981).

5. Directed verdict for defendants erroneous; UCC applicable to transaction involving irrigation system with defective hose not manufactured by dealer. Stair v. Gaylord, 232 Kan. 765, 769, 659 P.2d 178 (1983).

6. Cited; implied warranties not extended to remote seller or manufacturer of product not inherently dangerous for economic loss without privity. Professional Lens Plan, Inc. v. Polaris Leasing Corp., 234 Kan. 742, 748, 755, 675 P.2d 887 (1984).

7. Creditor's failure to sell in good faith and commercially reasonable manner under K.S.A. 16a-5-103(1) not absolute bar to deficiency judgment hereunder. Medling v. Wecoe Credit Union, 234 Kan. 852, 861, 678 P.2d 1115 (1984).

8. Principles of law and equity and other validating or invalidating causes remain unless displaced by UCC; cash sale doctrine abolished. Iola State Bank v. Bolan, 235 Kan. 175, 179, 679 P.2d 720 (1984).

9. Cited; constitutionality of statute on debtor depriving creditor of creditor's own money (K.S.A. 21-3734(1)(c)) examined. State v. Jones, 242 Kan. 385, 386, 748 P.2d 839 (1988).

10. Cited; superiority of partnership charging order (K.S.A. 56-328) over assignment constituting prior unperfected security interest examined. City of Arkansas City v. Anderson, 242 Kan. 875, 883, 752 P.2d 673 (1988).

11. Cited; preemption of state law governing secured transactions by federal statutes examined. Rural Gas, Inc. v. North Central Kan. Prod. Cred. Corp., 243 Kan. 109, 113, 755 P.2d 529 (1988).

12. Although code does not apply to mortgages, legislature's intent is that territorial restrictions should not hinder commerce. Mark Twain Kansas City Bank v. Cates, 248 Kan. 700, 706, 810 P.2d 1154 (1991).

13. Definition of "signature" under code did not apply to case involving a guaranty. Airlines Reporting v. Travel Serv. Clearinghouse, 778 F. Supp. 1141 (1991).

14. Cited by dissent where majority found phrase "gambling place" in K.S.A. 21-4303 did not require showing of previous use. State v. Schlein, 253 Kan. 205, 225, 854 P.2d 296 (1993).

KANSAS COMMENT, 1996

1. Subsections (1) and (2) state a broad rule requiring liberal construction of the Code so that its underlying policies may be furthered. See Iola State Bank v. Bolan, 235 K. 175, 679 P.2d 720 (1984). The Code is intentionally designed to allow room to grow, and traditional rules of narrow statutory construction have no place in a modern commercial statute of this type. This philosophy was recognized and followed in Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980).

2. Subsections (3) and (4) state as a general principle that the parties are normally free to write their own contracts. It is worth noting that under subsection (3), however, the parties cannot change the statute; rather, the parties may change "the effect" of the statute. See Official Comment 2 to this section.

3. In some settings, such as sales contracts under Article 2, the parties might be likely to write their own rules, and the courts should allow them considerable flexibility in doing so. In other settings, variation of standard or accepted practices is less likely, and the courts may require more explicit agreement. For example, in Cairo Coop. Exch. v. First Nat'l Bank of Cunningham, 228 K. 613, 620 P.2d 805 (1980), modified, 229 K. 184, 624 P.2d 420 (1981), it was held that a course of conduct could not vary the duties imposed by a restrictive indorsement.

4. Several sections of the Code contain express limitations on freedom of contract. Subsection (3) of this section states one of the most important: the obligations of good faith, diligence, reasonableness, and care prescribed by the Code may not be disclaimed by agreement, although the parties may set the standards by which their performance of these obligations is measured. Some other provisions of the Code expressly preclude variance by agreement, such as 84-1-105 (certain choice of law rules); 84-1-204 (agreements as to time); 84-2-210(1) (delegation of duties); 84-2-318 (third party beneficiaries); 84-2-616(3) (procedure after notice claiming excuse); 84-2-718(1) (limitations of liquidated damages); 84-2-719(3) (limitations of consequential damages); 84-4-103 (limitation of damages for a bank's lack of good faith or failure to exercise ordinary care); 84-4a-404(c) (right of a beneficiary to receive payment and damages); 84-9-318(4) (assignment of certain accounts); 84-9-501(3) (rights of a debtor after default in a secured transaction); and 84-9-505 (compulsory disposition of collateral). Each is noted in the applicable Kansas Comment 1996.

5. Other provisions of the Code probably cannot be varied by agreement even though the Code does not say so explicitly. For example, the various Code statutes of frauds surely are not variable by agreement. See 84-1-206, 84-2-201, 84-2a-201, 84-3-104, 84-5-104, and 84-9-203. In addition, 84-2-302 and 84-2a-108, on unconscionability, should not be variable. See also 84-2-513 (buyer's right to inspect). There may be other provisions in the Code that, because of the policy underlying the provision, a court would not permit the parties to vary by agreement. In the bulk of the Code, however, the general principle of freedom of contract prevails and should be followed.

Revisor's Note:

Former section 84-1-102 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Paragraph (2) quoted in 1963-65 survey of secured transactions, J. Eugene Balloun, 14 K.L.R. 359 (1965).

Subsection (2)(c) mentioned in "Negotiable Instruments—Irrevocable Commitment as Value Under the Uniform Commercial Code," Terry L. Kramer, 7 W.L.J. 399, 405 (1968).

Strict liability in tort as adopted in Kansas, 25 K.L.R. 462, 470, 471 (1977).

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

"Comparative Fault and Strict Products Liability in Kansas: Reflections on the Distinction Between Initial Liability and Ultimate Loss Allocation," William Edward Westerbeke and Hal D. Meltzer, 28 K.L.R. 25, 96 (1979).

"Commercial Law—Commercially Unreasonable Foreclosure Sales in the Context of a Surety Relationship—United States v. Lattauzio," John S. Clifford, 34 K.L.R. 175, 181, 184, 188 (1985).

"Lender Liability: A Survey of Theories, Thoughts and Trends," Troy H. Gott and William L. Townsley III, 28 W.L.J. 238, 241, 272 (1988).

"Creditor Beware: From Default Through Deficiency Judgment," Wanda M. Temm, 60 J.K.B.A. No. 8, 17, 18 (1991).

CASE ANNOTATIONS

1. Depositary-payor bank receiving a "For Deposit Only" check has duty to apply proceeds consistently with endorsement; variance may be made by agreement. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 4 Kan. App. 2d 458, 463, 465, 608 P.2d 1370.

2. U.C.C. to be liberally construed. Wendling v. Puls, 227 Kan. 780, 784, 610 P.2d 580.

3. Cited in showing legislative intent to impose absolute and non-delegable duties on one party to contract. State v. Mwaura, 4 Kan. App. 2d 738, 741, 610 P.2d 662.

4. Bank held liable for conversion and breach of contract. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 228 Kan. 613, 620 P.2d 805. Opinion modified and motion for rehearing denied: 229 Kan. 184, 624 P.2d 420.

5. Secured creditor sale of collateral not in "commercially reasonable manner"; deficiency not barred; test. Westgate State Bank v. Clark, 231 Kan. 81, 86, 642 P.2d 961 (1982).

6. A secured obligation may have a purchase money part and a nonpurchase money part. In Re Gibson, 16 B.R. 257, 258, 268 (1981).

7. Principles of law and equity and other validating or invalidating causes remain unless displaced by UCC. Iola State Bank v. Bolan, 235 Kan. 175, 179, 679 P.2d 720 (1984).

8. States not granted authority to remove federal court jurisdiction merely by codifying traditional common-law cause. Federal Deposit Ins. Corp. v. Gates, 594 F. Supp. 36, 38 (1984).

9. Suit by bank in depositor's name; breach of implied warranties, forged and missing indorsements, statute of limitations discussed. Chilson v. Capital Bank of Miami, 237 Kan. 442, 447, 701 P.2d 903 (1985).

10. Priority between right of setoff and perfected security interest determined. Bank of Kansas v. Hutchinson Health Services, Inc., 13 Kan. App. 2d 421, 428, 773 P.2d 660 (1989).

11. Computer software as goods under UCC noted. Systems Design v. Kansas City P.O. Employees Cred. Union, 14 Kan. App. 2d 270, 788 P.2d 878 (1990).

12. Whether contractual provisions exculpating warehouseman from all liability for its own ordinary negligence is enforceable examined. Butler Mfg Co. v. Americold Corp., 835 F. Supp. 1274, 1280 (1993).

13. One of the code's purposes is to permit the continued expansion of commercial practices through custom, usage and agreement. Cravotta v. Deggingers' Foundry, Inc., 42 Kan. App. 2d 700, 215 P.3d 636 (2009).

KANSAS COMMENT, 1996

1. This section is perhaps one of the most important sections in the Code. It recognizes that even the Code does not cover everything, and other principles of law and equity must supplement the Code in appropriate circumstances. The list of subject matters in this section is illustrative only; the courts are free to apply other pre-Code and non-Code principles of law.

2. The Kansas courts have generally recognized the policy of this section, and have often used it to supplement the Code with other general principles of law. See, for example, Perry v. Goff Motors, Inc. 12 K.A.2d 139, 736 P.2d 949 (1987) (rescission); Weidensaul v. Greenhouse Restaurant of Lawrence, Inc., 13 K.A.2d 95, 762 P.2d 196 (1988) (accord & satisfaction); Zurn Constructors, Inc. v. B.F. Goodrich Co., 746 F. Supp. 1051 (D. Kan. 1990) (tolling doctrines); Kansas City Power & Light Co. v. Pittsburg & Midway Coal Mining Co., 1989 U.S. Dist. LEXIS 15036 (D. Kan. 1989) (frustration of purpose); Leaderbrand v. Central State Bank of Wichita, 202 K. 450, 450 P.2d 1 (1969) (principal and agent); Decatur Coop. Ass'n v. Urban, 219 K. 171, 547 P.2d 323 (1976) (promissory estoppel); United States Fidelity and Guar. Co. v. First State Bank, 208 K. 738, 494 P.2d 1149 (1972) (non-Code priority rules); Hanover Ins. Cos. v. Brotherhood State Bank, 482 F. Supp. 501 (D. Kan. 1979) (suretyship); Cairo Coop. Exch. v. First Nat'l Bank of Cunningham, 228 K. 613, 620 P.2d 805 (1980), modified, 229 K. 184, 624 P.2d 420 (1981) (estoppel); Powers v. Coffeyville Livestock Sales Co., 665 F.2d 311 (10th Cir. 1981) (applying Kansas law) (rules of interpretation); North Central Kansas Prod. Credit Ass'n v. Washington Sales Co., 223 K. 689, 577 P.2d 35 (1978) (waiver).

Revisor's Note:

Former section 84-1-103 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Cited in article concerning sureties, Larry A. Withers, 10 W.L.J. 356, 366 (1971).

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 390 (1973).

"U.C.C.: The Farmer is Not a Merchant Under the U.C.C.—Promissory Estoppel to Avoid the Operation of the Statute of Frauds," Mark A. Buck, 16 W.L.J. 230, 237 (1976).

The uniform commercial code, the statute of frauds, and the farmer, 25 K.L.R. 318, 325 (1977).

Exceptions to statute of frauds, (K.S.A. 84-2-201), 26 K.L.R. 327, 331 (1978).

"Right of Secured Party to Recover Proceeds Commingled in Debtor's Bank Account," Kristen D. Balloun, 28, K.L.R. 325, 337 (1980).

"Commercial Law—Problems with Identifiable Proceeds and Transfers in Ordinary Course in Floor Plan Financing," Richard L. Cram, 30 K.L.R. 478, 480 (1982).

"Deregulation and Natural Gas Purchase Contracts: Examination Through Neoclassical and Relational Contract Theories," Danton B. Rice, Michael A. Schlueter, 25 W.L.J. 43, 59 (1985).

"The Holder of U.C.C. Section 3-407(2)(a) and the Windfall Discharge," Charles C. Lewis, 26 W.L.J. 27, 63 (1986).

CASE ANNOTATIONS

1. Signature may be made by agent, and law relative to principal and agent supplements code provisions. Leaderbrand v. Central State Bank of Wichita, 202 Kan. 450, 453, 450 P.2d 1.

2. Subrogation pursuant to surety contract not a "security interest" within meaning of statute. United States Fidelity & Guaranty Co. v. First State Bank, 208 Kan. 738, 749, 494 P.2d 1149.

3. No evidence agent lacked authority to endorse check; statutory presumption of genuineness of signatures as to authority becomes operative. Meador v. Ranchmart State Bank, 213 Kan. 372, 377, 380, 517 P.2d 123.

4. Mentioned in invoking doctrine of promissory estoppel concerning an oral sale of wheat. Decatur Cooperative Association v. Urban, 219 Kan. 171, 177, 547 P.2d 323.

5. Applied; error not to submit question of independent warranty to jury. Service Iron Foundry, Inc. v. M. A. Bell Co., 2 Kan. App. 2d 662, 671, 588 P.2d 463.

6. Principles of agency and estoppel applied. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 4 Kan. App. 2d 458, 463, 465, 608 P.2d 1370.

7. Discussed in dissenting and concurring opinion; bank held liable for breach of contract and conversion. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 228 Kan. 613, 621, 620 P.2d 805. Opinion modified and motion for rehearing denied: 229 Kan. 184, 624 P.2d 420.

8. Other principles of law supplement UCC except when displaced by specific provision of act. Johnson v. General Motors Corp., 233 Kan. 1044, 1046, 668 P.2d 139 (1983).

9. Principles of law and equity and other validating or invalidating causes remain unless displaced by UCC. Iola State Bank v. Bolan, 235 Kan. 175, 179, 679 P.2d 720 (1984).

10. Cited where depositary bank accepted from its depositor unendorsed check to third party; warranties and statute of limitations determined. Chilson v. Capital Bank of Miami, 237 Kan. 442, 447, 701 P.2d 903 (1985).

11. Trust law tracing principles applied; proceeds commingled with other funds retained identifiability. Bank of Kansas v. Hutchinson Health Services, Inc., 12 Kan. App. 2d 87, 92, 735 P.2d 256 (1987).

12. Code's concepts of rejection and revocation of acceptance do not preclude common law action for rescission. Perry v. Goff Motors, Inc., 12 Kan. App. 2d 139, 143, 736 P.2d 949 (1987).

13. Cited by dissent where court held creditor had no claim under Kansas law to liquidation sale proceeds commingled with other funds. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1301 (1986).

14. Cited; applicability of law and equity on unauthorized removal from state and sale of secured collateral examined. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 Kan. 87, 101, 755 P.2d 518 (1988).

15. UCC clearly does not affect common-law doctrines in Kansas unless it explicitly replaces them. Weidensaul v. Greenhouse Restaurant of Lawrence, Inc., 13 Kan. App. 2d 95, 97, 762 P.2d 196 (1988).

16. Doctrines of fraudulent concealment and equitable estoppel available to toll statute of limitations for breach of contract for sale of goods. Zuru Constructors, Inc. v. B.F. Goodrich Co., 746 F. Supp. 1051, 1055 (1990).

17. Purchase of company's assets through UCC article 9 foreclosure sale does not automatically preclude liability under common law theory of successor liability. Wells Fargo Vendor Financial Svcs., LLC v. Nationwide Learning, LLC, 56 Kan. App. 2d 259, 269, 429 P.3d 221 (2018).

KANSAS COMMENT, 1996

This section states the generally accepted rule of construction that repeal by implication is not favored. The Kansas courts have long recognized this principle. See City of Kansas City v. Kimball, 60 K. 224, 56 P. 78 (1899); Naff v. Harper, 144 K. 424, 61 P. 2d 129 (1936).

Revisor's Note:

Former section 84-1-104 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 390 (1973).

KANSAS COMMENT, 1996

1. This section establishes choice of law rules when a transaction bears "a reasonable relation" to the state of Kansas as well as to another state. Under subsection (1), the parties are permitted to specify the state whose laws will govern a particular contract. If the parties do not so specify, the Kansas Code applies when a transaction bears "an appropriate relation" to the state of Kansas. As to what constitutes "an appropriate relation," the courts will have to say. See Official Comments 2 and 3 to this section for some guidance. However, since the Code is law in all but one state (and even in that state, Louisiana, part of the Code is law), the statutes in the various states will usually be identical or nearly identical, and conflict of laws problems should be less serious than in pre-Code days.

2. Subsection (2) lists seven provisions under which the parties' ability to specify the applicable law is limited. This subsection has been amended several times in recent years to reflect additions and revisions to the Code.

3. Cases applying this section, or applying Kansas law via this section, include Farmers State Bank v. Production Credit Ass'n, 243 K. 87, 755 P.2d 518 (1988); Benedictine College, Inc. v. Century Office Prod., Inc., 853 F. Supp. 1315 (D. Kan. 1994); National Equip. Rental, Ltd. v. Taylor, 225 K. 58, 587 P.2d 870 (1978); Ellsworth v. Worthey, 612 S.W.2d 396 (Mo. App. 1981). See also Mark Twain Kansas City Bank v. Cates, 248 K. 700, 810 P.2d 1154 (1991) (applying 84-1-105 by analogy to mortgage).

Revisor's Note:

Former section 84-1-105 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

"Secured Transactions in Kansas: The New Look," J. Eugene Balloun, 5 W.L.J. 192, 193 (1966).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 16 K.L.R. 437, 441 (1968).

"Contracts in Conflict of Laws," J. Taylor Neuschwander, 12 W.L.J. 317, 324 (1973).

"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 221, 222 (1976).

"Choice-of-Laws: Should Kansas Abandon Lex Loci Delicti?", Martin R. Ufford, 16 W.L.J. 302, 318, 319, 322 (1977).

CASE ANNOTATIONS

1. Foreign default judgment order dismissed on motion; service not complete; jurisdiction not acquired. National Equip. Rental, Ltd. v. Taylor, 225 Kan. 58, 60, 61, 587 P.2d 870.

2. Cited; applicability of Kansas law on unauthorized removal from state and sale of secured collateral examined. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 Kan. 87, 96, 755 P.2d 518 (1988).

3. Contract provided that Massachusetts law governed contract claims of Kansas purchaser from Massachusetts seller; Kansas law governed tort claims as that was where injury was suffered. Ritchie Enterprises v. Honeywell Bull, Inc., 730 F. Supp. 1041, 1046 (1990).

4. Public policy herein applies to loan and mortgage executed in Missouri on land located in Kansas. Mark Twain Kansas City Bank v. Cates, 248 Kan. 700, 707, 810 P.2d 1154 (1991).

5. Guaranty choice of law provision designating Missouri law as controlling upheld although guarantor and debtor were Kansas residents. United Missouri Bank v. Gagel, 815 F. Supp. 387, 388, 391 (1993).

6. Whether Missouri had reasonable relationship to transaction allowing parties agreement to apply Missouri law to stand examined. Benedictine College v. Century Office Products, 853 F. Supp. 1315, 1323 (1994).

KANSAS COMMENT, 1996

1. Subsection (1) states a general policy of damages under the Code, and reaffirms the standard rule that the object of damages for breach of contract is compensation of the injured party, not deterrence or punishment of the breaching party. Full compensation is to be allowed, and the remedies are to be "liberally administered" so as to protect the injured party's expectation. See, e.g., Stair v. Gaylord, 232 K. 765, 659 P.2d 178 (1983) (relying on this section to conclude that "[u]nder the UCC consequential damages need not be proven with any particular degree of certainty"); Cricket Alley Corp. v. Data Terminal Sys., Inc., 240 K. 661, 732 P.2d 719 (1987) (same); see also Westgate State Bank v. Clark, 231 K. 81, 642 P.2d 961 (1982), in which the court refused to bar absolutely recovery of a deficiency judgment from a commercial debtor when the secured creditor resells the collateral in a non-commercially reasonable manner. The court relied in part on the policy of this section that to deny such a deficiency absolutely would be punitive.

2. Kansas courts generally have not been receptive to the argument that subsection (1) acts as an independent limit on the measure of damages otherwise available under specific sections of the Code. Thus, in Tongish v. Thomas, 251 K. 728, 840 P.2d 471 (1992), the Kansas Supreme Court rejected a seller's argument that this section precluded a buyer from recovering market damages under section 84-2-713 when the buyer's actual loss was much lower. The court permitted the buyer to recover market damages of roughly $12 per hundredweight of sunflower seeds, even though the buyer's profit, under a resale contract, was only to be a 55 cent per hundredweight handling fee. See also Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980) (permitting seller that has resold goods to recover higher market damages under section 84-2- 708). Compare 84-2a-501(4) & 1996 Kansas Comment 3 to that section (using section 84-1-106(1) as basis for finding remedies under Article 2a not cumulative).

3. The general policy of this section is that punitive damages are not available under the Code. Thus, in cases involving sales contracts subject to Article 2, "[b]reach of contract, standing alone, does not call for punitive damages even if the breach is intentional and unjustified." Farrell v. General Motors Corp., 249 K. 231, 815 P.2d 538 (1991). Only if some independent tort is present can the aggrieved party recover punitive damages. See Dold v. Sherow, 220 K. 350, 552 P.2d 945 (1976); Cantrell v. Amarillo Hardware Co., 226 K. 681, 602 P.2d 1326 (1979); see also Equitable Life Leasing Corp. v. Abbick, 243 K. 513, 757 P.2d 304 (1988) (computer equipment lease).

Revisor's Note:

Former section 84-1-106 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Recovery of damages for breach of warranty, Curtis D. Terflinger, 14 K.L.R. 355, 356 (1965).

"Punitive Damages in Contract Actions—Are the Exceptions Swallowing the Rule?" Randy L. Sassaman, 20 W.L.J. 86, 96 (1980).

"Commercial Law—Commercially Unreasonable Foreclosure Sales in the Context of a Surety Relationship—United States v. Lattauzio," John S. Clifford, 34 K.L.R. 175, 184 (1985).

CASE ANNOTATIONS

1. Secured creditor sale of collateral not in "commercially reasonable manner"; deficiency not barred; test. Westgate State Bank v. Clark, 231 Kan. 81, 86, 642 P.2d 961 (1982).

2. Liquidated damages clause, damages for breach of contract, recovery of lost profits examined. Kvassay v. Murray, 15 Kan. App. 2d 426, 432, 808 P.2d 896 (1991).

3. Specific damage remedy provisions of K.S.A. 84-2-713 prevail over general provisions herein when seller breaches contract for sale of goods. Tongish v. Thomas, 16 Kan. App. 2d 809, 813, 829 P.2d 916 (1992); Aff'd. 251 Kan. 728, 734, 840 P.2d 471 (1992).

4. Debtor not entitled to possession of collateral even if he prevailed on wrongful possession claim against creditor. Clark v. Associates Commercial Corp., 820 F. Supp. 562, 563, 565 (1993).

5. Whether debtor who sought replevin resulting from repossession breach of peace is precluded from asserting conversion claim examined. Clark v. Associates Commercial Corp., 877 F. Supp. 1439, 1450 (1994).

KANSAS COMMENT, 1996

At common law, a release from liability for breach of contract was not effective unless it was under seal or given in exchange for consideration. See Weathers v. Kansas City Bridge Co., 99 K. 632, 162 P. 957 (1917); 5A Corbin, Contracts § 1238 (1964). This section changes that rule and provides that renunciations in writing are enforceable without consideration. A similar rule has now been adopted by the Restatement (Second) Contracts § 277(1). This section applies throughout the entire Code, and is not limited to contracts for the sale of goods. Compare 84-2-209(1) (modification of sales contracts enforceable without consideration).

Revisor's Note:

Former section 84-1-107 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

KANSAS COMMENT, 1996

This section is in accord with existing Kansas law. If the parts of a statute are readily separable, the constitutional parts may stand even though the unconstitutional part is rejected. State ex rel. Marshall v. Consumers Warehouse Market, Inc., 185 K. 363, 343 P.2d 234 (1959). This sort of severability clause is a standard part of comprehensive statutes. See, e.g., K.S.A. 16a-1-105 (Kansas Uniform Consumer Credit Code); K.S.A. 50-643 (Kansas Consumer Protection Act).

Revisor's Note:

Former section 84-1-108 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

KANSAS COMMENT, 1996

This section differs from section 1-109 of the Official Text. The Official Text provides that section captions are part of the act. Under the Kansas provision, section captions have a smaller role; they may be "added in the construction" of the act. This section is in accord with existing Kansas law. See Becker v. Roothe, 184 K. 830, 339 P.2d 292 (1959); In re Estate of Butler, 159 K. 144, 152 P.2d 815 (1944).

KANSAS COMMENT, 1996

This section contains 46 definitions which apply throughout the entire Code. In addition, each other article of the Code also contains separate definitions which apply only to those respective articles.

(1) The definition of "action" is similar to that contained in K.S.A. 58-2543(a) and K.S.A. 34-223(a).

(2) The definition of "aggrieved party" is new to Kansas law.

(3) The term "agreement" is broader than the term "contract" under subsection (11), and differs from other provisions of Kansas law. See K.S.A. 27-201 (defining "agreement" as "contract"). For discussion of the significance of course of dealing, usage of trade, and course of performance, see 1996 Kansas Comments to 84-1-205. See also Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758 (10th Cir. 1983) (applying Kansas law).

(4) The definition of "bank" is broader than that found in the Kansas banking laws. See K.S.A. 9-504 and 9-701.

(5) The definition of "bearer" is somewhat broader than that found in former K.S.A. 52-102. It applies generally in cases involving negotiable paper of various kinds.

(6) There was no statutory definition of "bill of lading" in prior Kansas law, although bills of lading are referred to in other Kansas statutes. See, e.g. K.S.A. 66-255. Although this subsection speaks of a bill of lading as a receipt, the provisions of Article 7 indicate that a bill of lading carries many more rights and obligations than a mere receipt. A bill of lading is a "document of title" under subsection (15).

(7) The definition of "branch" is new to Kansas statutory law with the Uniform Commercial Code.. For the statutory provisions governing the establishment of branch banks in Kansas, see K.S.A. 9-1111.

(8) The term "burden of establishing" is new. It is defined as the burden of persuading the trier of fact that a fact is more likely to exist than not—i.e., it requires proof by a preponderance of the evidence. Compare K.S.A. 60-401(d) (defining the terms "burden of proof" and "burden of persuasion" as synonymous and as requiring fact to be proven either by preponderance of the evidence, clear and convincing evidence, or beyond a reasonable doubt).

(9) The definition of "buyer in ordinary course of business" is a specialized version of the traditional concept of bona fide purchaser, purchasing from one who deals in goods of that kind. "Good faith" is defined in subsection (19) of this section. In Ellsworth v. Worthey, 612 S.W.2d 396 (Mo. App. 1981) (applying Kansas law), the court held that a buyer of a motor vehicle who does not obtain a certificate of title cannot be in good faith and does not qualify as a "buyer in ordinary course of business." As to the "without knowledge" requirement of this subsection, see First Nat'l Bank v. Ford Motor Credit Co., 231 K. 431, 646 P.2d 1057 (1982), which discusses the distinction between a buyer who merely knows of the existence of a security agreement and a buyer who knows that a particular sale was in violation of rights under the security agreement. Under this subsection, a "buyer" is one who acquires property for value. See also 84-2-103(1)(a). "Buyer" is distinguished from "purchaser" throughout the Code. A "purchaser" need not give any value or consideration, and is anyone who acquires by a voluntary transaction. See subsections (32) and (33).

(10) The definition of "conspicuous" is new to Kansas law. This subsection spells out several means—e.g., larger or contrasting type or color — by which a term can be made "conspicuous." The court in J&W Equip., Inc. v. Weingartner, 5 K.A.2d 466, 618 P.2d 862 (1980), however, indicated that whether a term is conspicuous should be evaluated by looking to the document as a whole rather than solely on the basis of type size or ink color. In a number of cases, Kansas courts have examined whether warranty disclaimers were conspicuous as required under section 84-2-316(2). In J&W Equip., Inc. v. Weingartner, supra, a disclaimer which appeared in a standard form contract, in all capital letters in an unnumbered paragraph, was held to be conspicuous even though there were other capitalized portions of the contract. See also Ray Martin Painting, Inc. v. Ameron, Inc., 638 F. Supp. 768 (D. Kan. 1986) (upholding disclaimer as sufficiently conspicuous); Delhomme Indus., Inc. v. Houston Beechcraft, Inc., 669 F.2d 1049 (5th Cir. 1982) (applying Kansas law) (same). However, in Geo. C. Christopher & Son, Inc. v. Kansas Paint & Color Co., Inc., 215 K. 185, 523 P.2d 709, modified on rehearing 215 K. 510, 525 P.2d 626 (1974), a disclaimer appearing in fine print on the backs of invoices was held not conspicuous. See also Kelley Metal Trading Co. v. Al-Jon/United, Inc., 812 F. Supp. 185 (D. Kan. 1993) (holding disclaimer ineffective as not conspicuous); Belger Cartage Service, Inc. v. Holland Constr. Co., 224 K. 320, 582 P.2d 1111 (1978); see also Atlas Industries, Inc. v. National Cash Register Co., 216 K. 213, 531 P.2d 41 (1975) (holding attempted disclaimer in smaller type than the rest of the contract not conspicuous).

(11) The definition of "contract" supplements the definition of "agreement" in subsection (3). The definition of "contract" is a broad one. Compare Restatement (Second) Contracts § 1 (defining contract as "a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty"). In Stanturf v. Quality Dodge, Inc., 3 K.A.2d 485, 596 P.2d 1247 (1979), the court recognized that the Code has substantially liberalized certain contract principles, particularly principles of contract formation. See 84-2-204 and 1996 Kansas Comment 1 to that section.

(12) The term "creditor" was not defined in earlier uniform acts. The definition in this subsection, while broad, does not exclude other categories of persons who might have claims. The term "lien creditor" is defined in 84-9-301(3); the reference to "secured creditor" presumably means "secured party" as defined in 84-9-105(1)(m).

(13) K.S.A. 60-202 provides that the adverse party in a civil action shall be called the "defendant." The term as defined in this subsection includes persons in that position in cross-claims or counterclaims.

(14) The term "delivery" means voluntary transfer. It applies only to the transfer of possession of paper instruments. The Code contains no definition of delivery of goods. Compare "tender" under 84-2-503. However, in Evco Distrib., Inc. v. Commercial Credit Equip. Corp., 6 K.A.2d 205, 627 P.2d 374, rev. denied, 229 K. 669 (1981), the court cited this subsection in discussing the transfer of possession of goods.

(15) The definition of "document of title" is a broad one. The most common documents of title are bills of lading and warehouse receipts, as defined in subsections (6) and (45) of this section, and delivery orders as defined in 84-7-102. However, as is made clear by the Official Comment, the definition is left open so that new types of documents which develop in commercial usage may be included. The term "bailee" is defined in 84-7-102 for Article 7; it would seem that the drafters intended the same definition to apply throughout the Code when used in connection with documents of title. In 84-7-102, the term "document" is adopted as a shorthand term in Article 7 for "document of title." See also 84-9-105(1)(f). It is also worth noting that motor vehicle certificates of title are not "documents of title" within the meaning of the Code definition. See In re Emergency Beacon Corp., 665 F.2d 36 (2d Cir. 1981); National Exch. Bank v. Mann, 81 Wis.2d 352, 260 N.W.2d 716 (1978).

(16) The term "fault" is new to Kansas statutory law, although it was a part of the Uniform Sales Act.

(17) The term "fungible" is in accord with the definition of "fungible grain" in K.S.A. 34-223. Under this subsection, however, the concept of fungibility in Article 2 is extended to securities as well as to goods. See 84-8-107. In addition, the provision for fungibility by agreement is new. On the question of identifying a share of a bulk of fungible goods for sale, see 84-2-105(4), 84-2-501, and Reeves v. Pillsbury Co., 229 K. 423, 625 P.2d 440 (1981).

(18) The definition of "genuine" is new to Kansas statutory law. The term is used throughout the Code only in connection with commercial paper of various kinds and, in the newer amendments, has been replaced by authorized in many provisions. See, e.g., former 84-3-417 and current 84-3-417 and 84-3-418, former 84-4-207 and current 84-4-207 and 84-4-208 on negotiable instruments, 84-7-507, on documents of title, and 84-8-108, on investment securities.

(19) The definition of "good faith" in this subsection is subjective, and requires only honesty in fact. See also 84-1-203 (providing that every contract or duty under the Code imposes an obligation of good faith). In Articles 2 and 2a, the definition of "good faith" is expanded to include an objective standard of "reasonable commercial standards of fair dealing in the trade" when the party involved is a merchant. See 84-2-103(1)(b) and 84-2a-103(3). A party that gives pretextual reasons for canceling a letter agreement when its true reason was to escape a unfavorable business deal has not acted in good faith. See Kansas Mun. Gas Agency v. Vesta Energy Co., 843 F. Supp. 1401 (D. Kan. 1994); see also Iola State Bank v. Bolan, 235 K. 175, 679 P.2d 720 (1984) (bank failed to act honestly toward farmers and so was not good faith purchaser); Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 238 K. 41, 708 P.2d 494 (1985) (bank did not act in good faith when it profited twice by its actions). Compare Nash Finch Co. v. Caspar, 813 F. Supp. 1497 (D. Kan. 1993) (wholesaler's selling of goods to retailer at price higher than other wholesalers does not establish lack of good faith).

"Good faith" has been redefined in Article 3, 4 and 4a to add the requirement of "reasonable commercial standards of fair dealing." See 84-3-103(a)(4), 84-4-104(c) and 84-4a-105(a)(6). Two Kansas cases apply the former Code's definition of "good faith" in situations involving a holder in due course under Article 3. See Kaw Valley State Bank & Trust Co. v. Riddle, 219 K. 550, 549 P.2d 927 (1976); Cairo Coop. Exchange v. First Nat'l Bank of Cunningham, 4 K.A.2d 458, 608 P.2d 1370 (1980), aff'd in part and rev'd in part, 228 K. 613, 620 P.2d 805 (1980), modified, 229 K. 184, 624 P.2d 420 (1981). In Baker v. Ratzlaff, 1 K.A.2d 285, 554 P.2d 153 (1977), the court applied the Code's good faith provisions to wrongful termination of a contract for the sale of goods. In North Central Kansas Prod. Credit Ass'n v. Boese, 19 U.C.C. Rep. Serv. 179 (D. Kan. 1976), the court stated that knowledge of suspicious circumstances did not amount to bad faith.

(20) The definition of "holder" is similar to the definitions found in former K.S.A. 52-102 and former K.S.A. 82-158. For cases applying the definition in the context of negotiable instruments, see Hanover Ins. Cos. v. Brotherhood State Bank, 482 F. Supp. 501 (D. Kan. 1979); Litwin v. Barrier, 6 K.A.2d 128, 626 P.2d 1232 (1981).

(21) The definition of "honor" is new to Kansas law with the Code.

(22) The definition of "insolvency proceedings" is new. The term includes bankruptcy proceedings. See In re SMS, Inc., 15 B.R. 496 (Bankr. Ct. D. Kan. 1981).

(23) The term "insolvent" was not defined in previous uniform laws in Kansas. Compare K.S.A. 9-1902 (defining "insolvency" for banks and trust companies); K.S.A. 40-3607 (defining "insolvent" for insurance companies); K.S.A. 2-3402 (defining "insolvent" under Family Farm Rehabilitation Act, K.S.A. 2-3401 et seq.). The definition in this subsection is broad, and includes general equitable insolvency as well as insolvency under section 101(32) of the federal Bankruptcy Code, 11 U.S.C. § 101(32).

(24) The definition of "money" is intended to be broad, referring only to the sanction of government and not merely to "legal tender." Note the additional definition in 84-3-107, dealing with instruments payable in foreign money. It has been held that coins with a numismatic value were "goods" and not "money" within the meaning of those terms in Article 9. See In re Midas Coin Co., Inc., 264 F. Supp. 193 (E.D. Mo. 1967), aff'd sub nom. Zuke v. St. Johns Community Bank, 387 F.2d 118 (8th Cir. 1968).

(25) This subsection carefully distinguishes between the terms "notice" and "knowledge." Precise use of these terms is essential in applying certain sections of the Code. See, for example, 84-3-303 et seq., dealing with notice of defenses in holder in due course doctrine. See also Kaw Valley State Bank & Trust Co. v. Riddle, 219 K. 550, 549 P.2d 927 (1976).

(26) This subsection defines giving and receipt of notice (not "knowledge") under subsection (25). Compare the definition of "send" in subsection (38).

(27) This subsection is new, and merely determines when notice or knowledge is effective when given to an organization.

(28) The definition of "organization" is new. It complements the definition of "person" in subsection (30).

(29) The term "party" refers to a person who engages in a transaction or an agreement under the Code. It is distinguished from "third party" throughout.

(30) The definition of "person" is very broad and is similar to statutory definitions of the same term in other uniform acts and general statutes in Kansas. See K.S.A. 16a-1-301(29) (Kansas Uniform Consumer Credit Code); K.S.A. 50-624(f) (Kansas Consumer Protection Act). But compare K.S.A. 77-201 (thirteenth) restricting the term to people, bodies politic and corporate, the latter two being more restrictive than the code "organization" in subsection (28).

(31) The last sentence of the definition presumption is not part of the uniform act. The language of subsection (31) is mandatory, but the reference to the introduction of evidence makes it clear that presumptions under the Code, as a general rule, are rebuttable. See also the definition of "burden of establishing" in subsection (8).

(32) The definition of "purchase" is the broad, common law definition of the word, and includes any voluntary transaction creating an interest in property, whether or not there is a price or other consideration. See First Nat'l Bank of Amarillo v. Southwestern Livestock, Inc., 616 F. Supp. 1515 (D. Kan. 1985) (quoting Kansas Comment 1983 to this section), aff'd, 859 F.2d 847 (1988). As noted in the comment to subsection (9), "purchase" must be distinguished from the narrower term, "buying" under the Code.

(33) This subsection defines "purchaser" with reference to the term "purchase" in subsection (32). See Iola State Bank v. Bolan, 235 K. 175, 679 P.2d 720 (1984) (bank with security interest is "purchaser"); First Nat'l Bank of Amarillo v. Southwestern Livestock, Inc., 616 F. Supp. 1515 (D. Kan. 1985) (auction house not "purchaser" because at most had only possessory interest in cattle), aff'd, 859 F.2d 847 (1988). While a "purchaser" may be a person who takes by gift, the Code in several places uses the concept "good faith purchaser for value." See 84-2-403(1). A good faith purchaser for value, naturally, must be in "good faith," see subsection (19), and give "value," see subsection (44), and is distinguished from an ordinary "purchaser."

(34) The definition of "remedy" is broad and includes "rights" as well. See subsection (36). It also includes self-help remedies such as repossession under 84-9-503.

(35) The term "representative" is new. See Rosedale State Bank & Trust Co. v. Stringer, 2 Kan. App.2d 331, 579 P.2d 158 (1978), for an application of this term.

(36) The term "rights" is new, and includes "remedies" as defined in subsection (34).

(37) The section varies from the Official Text only in that the third, and final, subsections "a," "b" and "c" in the Official Text are denominated "x," "y" and "z." The term "security interest," which usually determines whether the priorities of Article 9 apply, is defined in very broad terms. Although most security agreements secure payment, security agreements may also be useful to secure performance of other obligations, such as manufacture or noncompete clauses. For a failed attempt at such a security agreement, see John Miller Supply Co., Inc. v. Western State Bank, 199 N.W.2d 161 (Wis., 1972). Most security interests arise from security agreements entered into under Article 9. See 84-9-102, for included transactions and 84-9-104, for excluded transactions, and 1996 Kansas Comment to 84-9-102. This section defines six transactions which may be construed as security interests: consensual security interests; interests arising under Article 2 on sales; the interests of the buyers of accounts and chattel paper; interests of buyers of goods identified to a contract; consignments and leases.

Security interests may also arise in ways other than through consensual arrangements under Article 9. Under Article 2, the seller of goods may create a security interest in itself by reserving title, see 84-2-401; Holiday Rambler Corp. v. Morris, 32 U.C.C. Rep. Serv. 1222 (D. Kan. 1981), or by shipping goods under reservation, see 84-2-505. A buyer that has prepaid all or part of the price has a security interest under 84-2-711(3) in goods that have been rejected or whose acceptance has been revoked. These security interests, while they arise under Article 2, are subject in part to the provisions of Article 9. See 84-9-113.

The rights of a buyer of accounts and chattel paper is deemed to have a security interest. The practical effect of this provision is that the buyer must file for the accounts and either file or take possession of chattel paper or risk subordination to creditors, buyers and other secured parties. See 84-9-301, 84-9-308 and 84-9-312.

Consignment arrangements have been held to be security interests when they were not intended as true consignments. See In re Phippens, 4 B.R. 155 (Bankr. Ct. M.D. Tenn. 1980). Because a consignment is defined as a "sale or return," 84-2-326(1)(b), for the provisions in 84-2-326(3), the consignor is likely to be subordinate to creditors of the consignee unless the consignor complies with Article 9's filing requirements.

The definition of "security interest" was changed significantly when the Kansas legislature enacted new Article 2a concerning leases. Indeed, one of the reasons for the promulgation of Article 2a was to resolve uncertainty about "whether a transaction creates a lease or a security interest disguised as a lease." See Official Comment to 84-2a-101. Kansas courts have long recognized that a lease may be a security agreement. See Executive Finan. Serv., Inc. v. Pagel, 238 K. 809, 715 P.2d 381 (1986) (security interest disguised as lease); K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148 (10th Cir. 1985) (applying Kansas law) (same); Atlas Indus., Inc. v. National Cash Register Co., 216 K. 213, 531 P.2d 41 (1975) (tripartite commercial equipment lease was really security interest); CIT Fin. Serv., Inc. v. Gott, 5 K.A.2d 224, 615 P.2d 774 (1980) (same). Compare Ford Motor Credit Co. v. Sims, 12 K.A.2d 363, 743 P.2d 1012, rev. denied, 242 K. 902 (1987) (true lease); Wight v. AgriStor Leasing, 652 F. Supp. 1000 (D. Kan. 1987) (same); Evco Distrib., Inc. v. Commercial Credit Equip. Corp., 6 K.A.2d 205, 627 P.2d 374, rev. denied, 229 K. 669 (1981) (sale of equipment for subsequent lease). The former Code test for distinguishing between true leases and security interests disguised as security interests depended on the intent of the parties, which led to substantial uncertainty. As revised, this section "deletes all reference to the parties' intent" and "focus[es] on economics, not the intent of the parties." See Official Comment 37.

Paragraph two of this subsection sets out a two-part test for determining whether a lease is in reality a disguised security interest. A transaction is a security interest if the lessee does not have the right to terminate the lease before the end of the lease term and if one of four additional requirements are satisfied. If the lessee has the right to terminate the lease with no further obligation, the transaction is a true lease. In such a transaction, the lessor at all times retains a residual interest in the goods, which is "[t]he fundamental economic component of a lease." See William H. Lawrence & John H. Minan, The Law of Personal Property Leasing§ 2.01[2][c] (1993). If the lessee has no right to terminate, the first requirement is met, and the question then is whether one of four additional factors is satisfied. If (1) the original term of the lease equals or exceeds the remaining economic life of the goods; or (2) the lessee is required to become the owner of the goods or to renew the lease for the remaining economic life of the goods; or (3) the lessee has the option to renew the lease for the remaining economic life of the goods for nominal consideration; or (4) the lessee has an option to become the owner of the goods for nominal consideration, then the transaction is a security interest rather than a lease. In the case of the first two factors, the purported lessor has no residual interest; in the case of the latter two factors, the lease payments compensate the lessor for its residual interest. This subsection sets out specific circumstances in which consideration is and is not nominal. For a detailed discussion, see William H. Lawrence & John H. Minan, supra, § 2.01[2][c][ii].

In addition to defining when a transaction is a security interest rather than a lease, this section also sets out several factors that, of themselves, do not turn a lease into a security interest. Kansas cases relied on several of these factors in classifying a transaction as a security interest prior to the enactment of Article 2a, see Atlas Indus. v. National Cash Register Co., supra (present value of consideration under lease); CIT Fin. Serv., Inc. v. Gott, supra (same); see also AgriStor Leasing v. Meuli, supra (dicta) (lessee to provide insurance, make repairs, pay taxes), but the Official Comment to this subsection explains that such factors "are as applicable to true leases as to security interests." In particular, this provision makes clear that a full payout lease (lease in which present value of rental payments approximately equals fair market value of goods ) and the typical net lease (lease in which lessee assumes risk of loss or agrees to pay taxes, insurance, etc.) do not per se create a security interest. See the Official Comment.

In addition to the above six transactions which may create security interests,, the term "security interest" is used in 84-4-210 to describe the claim of a collecting bank in checks and other items taken for collection. Not everything is a security interest. In United States Fidelity & Guar. Co. v. First State Bank, 208 K. 738, 494 P.2d 1149 (1972), the court recognized that the right of a surety on a contractor's bond is not a security interest within the meaning of this subsection. See also 84-1-209 regarding other subordinated obligations which are not security agreements.

(38) The definition of "send" is new. Compare the definition of "notifies" in subsection (26).

(39) The definition of "signed" is extremely broad, and includes any symbol executed or adopted with present intention to authenticate a writing. As the Official Comment makes clear, no formal signature is required. A thumbprint, letterhead, or even an "x" would suffice. See Southwest Eng'g Co., Inc. v. Martin Tractor Co., Inc., 205 K. 684, 473 P.2d 18 (1970) (holding that name printed in upper lefthand corner of paper was sufficient). This definition applies only to the Code. In In re Estate of Reed, 229 K. 431, 625 P.2d 447 (1981), the court held that the definition in this subsection would not apply in a case concerning the proper subscription of a will within the meaning of the state law on wills.

(40) The term "surety" is not widely used in the Code. "Guarantor," which is not defined, appears in several sections in the Code. On the term "guarantor," see Benschoter v. First Nat'l Bank of Lawrence, 218 K. 144, 542 P.2d 1042 (1975), appeal dismissed, 425 U.S. 928 (1976). See also the definition of "accommodation party" in 84-3-419.

(41) The definition of "telegram" is new with the original adoption of the code.

(42) The definition of "term" is new with the original adoption of the Code. It will have particular significance in statutes of frauds, such as 84-2-201, and in such sections as 84-2-202, the parol evidence rule.

(43) The term "unauthorized" refers only to signatures or indorsements. Compare "genuine" in subsection (18). See generally Meador v. Ranchmart State Bank, 213 K. 372, 517 P.2d 123 (1973).

(44) The term "value" in this subsection does not apply to Articles 3 and 4, which have their own definitions of "value." See 84-3-303 and 84-4-211. For an illustration of paragraph (a), see E.F. Corp. v. Smith, 496 F.2d 826 (10th Cir. 1974) (applying Kansas law). For an illustration of paragraph (b), see Holiday Rambler Corp. v. Morris, 32 U.C.C. Rep. Serv. 1222 (D. Kan. 1981). The provision in paragraph (b) recognizing value in situations involving the taking of property in satisfaction for a pre-existing debt changes prior Kansas law. See Harbert v. Ft. Smith Canning Co., 134 K. 240, 5 P.2d 849 (1931).

(45) The definition of "warehouse receipt" is new with the adoption of the Code. A warehouse receipt is a "document of title" under subsection (15). K.S.A. 34-223 defines the term "receipt" as meaning "warehouse receipt" for purposes of the Kansas statutes on storage of grain. See 84-7-102 for the definition of "warehouseman."

(46) The terms "written" and "writing" are defined broadly in this subsection to include any intentional reduction to tangible form. It has been held that a tape recording may constitute a "writing" within the meaning of this subsection. See Ellis Canning Co. v. Bernstein, 348 F. Supp. 1212 (D. Colo. 1972); Swink & Co., Inc. v. Caroll McEntee & McGinley, Inc., 266 Ark. 279, 584 S.W.2d 393 (1979).

Revisor's Note:

Notice of sale of secured property in limited actions to be in compliance with this section, see 61-2403.

Section was amended twice in 1991 session, see also 84-1-201a.

Former section 84-1-201 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Paragraph (19) mentioned in relating UCC to law of contracts, William G. Zimmerman, 14 K.L.R. 509, 510 (1966).

Paragraphs (19) and (37) cited in "Secured Transactions in Kansas: The New Look," J. Eugene Balloun, 5 W.L.J. 192, 194, 195, 198, 200, 203, 206, 211 (1966).

Paragraph (44) mentioned with respect to secured transactions, J. Eugene Balloun, 14 K.L.R. 359 (1965).

Subsection (9) quoted in footnote to "Some Secured Transactions With the Farmer," Van Smith, 35 J.B.A.K. 299, 302 (1966).

Definition of certain terms discussed with respect to "floor plan" financing, Charles H. Oldfather, 14 K.L.R. 571, 578, 579, 580, 581, 582, 583, 584, 590 (1966).

Concept of "good faith" within UCC provisions discussed, William G. Zimmerman, 14 K.L.R. 509, 510 (1966).

Subsection (37) mentioned in "Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 16K.L.R. 437, 441 (1968).

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 394 (1973).

Discussed and applied to similar provisions of K.S.A. 17-6426 in "Close Corporations and the Kansas General Corporation Code of 1972," Edwin W. Hecker, Jr., 22 K.L.R. 489, 534 (1974).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 133 (1975).

"U.C.C.: The Farmer is Not a Merchant Under the U.C.C.—Promissory Estoppel to Avoid the Operation of the Statute of Frauds," Mark A. Buck, 16 W.L.J. 230, 231, 236 (1976).

Subsection (37) mentioned in note on warranty violations in Tripartite finance lease agreements, Winton A. Winter, Jr., 25 K.L.R. 573, 577 (1977).

"Uniform Commercial Code: Aspects of a Commercially Reasonable Sale of Repossessed Property," Jon D. Graves, 19 W.L.J. 123, 124 (1979).

"Commercial Law—Problems with Identifiable Proceeds and Transfers in Ordinary Course in Floor Plan Financing," Richard L. Cram, 30 K.L.R. 478, 482, 483, 489 (1982).

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

"Grain Elevator Bankruptcies: How Can the Grain Producer be Better Protected?" Marc E. Elkins, 31 K.L.R. 157, 160 (1982).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 32 K.L.R. 351, 353, 354, 358, 359, 360 (1984).

"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 484, 485, 492 (1986).

"Bank's Right of Setoff—Iola State Bank v. Bolan," SueAnn S. Bradford, 33 K.L.R. 569, 571, 573 (1985).

"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, 73, 75, 81 (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).

"Kansas Legislation Governing Credit Agreements of Financial Institutions," George L. Calvert III, 59 J.K.B.A. No. 2, 19, 21 (1990).

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

"Electronic Commerce Under the U.C.C. Section 2-201 Statute of Frauds: Are Electronic Messages Enforceable?" Deborah L. Wilkerson, 41 K.L.R. 403, 404 (1992).

"Pork, Pollution, and Pig Farming: The Truth About Corporate Hog Production in Kansas, Eric Voogt, 5 Kan. J.L. & Pub. Pol'y, No. 3, 219, 226, 237 (1996).

"Electronic Commerce in Kansas: Contract Formation and Formalities Under Article 2," Christopher R. Drahozal, 68 J.K.B.A. No. 5, 22 (1999).

"The Kansas Uniform Fraudulent Transfer Act," Leon B. Graves, 68 J.K.B.A. No. 6, 34 (1999).

"Survey of Kansas Tort Law: Part II," William E. Westerbeke, 50 K.L.R. 225 (2002).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 776, 787, 788, 790, 855 (2003).

Attorney General's Opinions:

Lease or installment-purchase agreements; contracts for services. 89-16.

Credit agreements; required notice. 89-19.

CASE ANNOTATIONS

1. Right of holder, subsection (20), to bring action when not real party in interest raised but not decided. Leaderbrand v. Central State Bank of Wichita, 202 Kan. 450, 453, 450 P.2d 1.

2. Subsection (37) mentioned in holding vehicle sale void. Melton v. Prickett, 203 Kan. 501, 508, 456 P.2d 34.

3. Subrogation pursuant to surety contract not a "security interest'' within meaning of statute. United States Fidelity & Guaranty Co. v. First State Bank, 208 Kan. 738, 749, 494 P.2d 1149.

4. Assignee of secured contract, notwithstanding its contrary provisions, must make demand or give notice prior to repossession to avoid liability for unlawful conversion. Klingbiel v. Commercial Credit Corporation, 439 F.2d 1303, 1306, 1308.

5. Subsection (43) considered; no evidence agent lacked authority to endorse check; statutory presumption of genuineness of signatures as to authority operative. Meador v. Ranchmart State Bank, 213 Kan. 372, 377, 517 P.2d 123.

6. Applied; action to recover on implied warranty; disclaimer inadmissible; failure to comply with K.S.A. 84-2-316 (2). Christopher and Son v. Kansas Paint and Color Co., 215 Kan. 185, 194, 523 P.2d 709. Modified: 215 Kan. 510, 525 P.2d 626.

7. 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.

8. Guarantor subrogated to rights of creditor; entitled to advantages of self-help repossession provisions of K.S.A. 84-9-503. Benschoter v. First National Bank of Lawrence, 218 Kan. 144, 154, 542 P.2d 1042.

9. Subsections (19) and (25) applied; holder of note admitting total failure of consideration not a holder in due course. Kaw Valley State Bank & Trust Co. v. Riddle, 219 Kan. 550, 556, 549 P.2d 927.

10. Subparagraph (19) applied; defendant breached "good faith". Baker v. Ratzlaff, 1 Kan. App. 2d 285, 288, 564 P.2d 153.

11. Subsection (10) cited; exculpatory clauses transferring employees from one employer to another strictly construed against transferring employer. Belger Cartage Serv., Inc. v. Holland Construction Company, 224 Kan. 320, 330, 582 P.2d 1111.

12. Exclusion of testimony concerning defendant's capacity in signing of note held error. Rosedale State Bank and Trust Co. v. Stringer, 2 Kan. App. 2d 331, 335, 579 P.2d 158.

13. Effect of unauthorized signature reviewed. Coleman v. Brotherhood State Bank, 3 Kan. App. 2d 162, 167, 592 P.2d 103.

14. Definition of "good faith" applied. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 4 Kan. App. 2d 458, 464, 608 P.2d 1370.

15. Bank held liable for conversion and breach of contract. Cairo Cooperative Exchange v. First Nat'l Bank of Cunningham, 228 Kan. 613, 615, 620 P.2d 805. Opinion modified and motion for rehearing denied: 229 Kan. 184, 624 P.2d 420.

16. Purchase of temporary city notes at discount by bank from individual not evidence of bad faith; bank bona fide purchaser for value without notice. Farmers State Bank & Trust Co. of Hays v. City of Yates Center, 229 Kan. 330, 345, 624 P.2d 971.

17. Where lease agreements were intended to create security interests hereunder, provisions of Article 9 of UCC applicable. CIT Financial Services, Inc. v. Gott, 5 Kan. App. 2d 224, 228, 615 P.2d 774.

18. Disclaimer of implied warranty of merchantability held sufficiently conspicuous; factors to be considered discussed. J & W Equipment, Inc. v. Weingartner, 5 Kan. App. 2d 466, 618 P.2d 862.

19. Document executed in another state and not signed by maker is not entitled to original probate as a will in Kansas. In re Estate of Reed, 229 Kan. 431, 433, 625 P.2d 447.

20. Bank's application of funds in debtor's account to antecedent debt should not be considered transaction in ordinary course of business to defeat perfected security interest (dissenting opinion). Tuloka Affiliates, Inc. v. Security State Bank, 229 Kan. 544, 551, 556, 627 P.2d 816.

21. Unauthorized and forged indorsements held substantially the same with respect to conversion of property. Aetna Casualty and Surety Co. v. Hepler State Bank, 6 Kan. App. 2d 543, 546, 630 P.2d 721 (1981).

22. "Buyer in ordinary course of business" defined. Victory Nat'l Bank of Nowata v. Stewart, 6 Kan. App. 2d 847, 852, 636 P.2d 788 (1981).

23. 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 Kan. 431, 435, 646 P.2d 1057 (1982).

24. Creditor with security interest in inventory had security interest in non-cash proceeds by filing and perfecting. In Re SMS, Inc., 15 B.R. 496, 499 (1981).

25. 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).

26. Agreement effective between parties and against purchaser (taking by sale, gift, etc.); security interest continues unless disposition authorized by secured party. Clark Jewelers v. Satterthwaite, 8 Kan. App. 2d 569, 571, 662 P.2d 1301 (1983).

27. Absent express term to contrary, term constituting usage of trade is binding term of agreement. Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 765 (1983).

28. Bank failed to act in good faith; security against debtor/ buyer did not attach against sellers. Iola State Bank v. Bolan, 235 Kan. 175, 182, 183, 186, 679 P.2d 720 (1984).

29. "Actual knowledge" does not encompass "reason to know" within its meaning as defined in (25). Broadway National Bank v. G & L Athletic Supplies, Inc., 10 Kan. App. 2d 43, 47, 49, 691 P.2d 400 (1984).

30. Where defendant's testimony established existence of oral contract, requirements of (3)(b) satisfied. Quaney v. Tobyne, 236 Kan. 201, 212, 689 P.2d 844 (1984).

31. Cited; defaulting buyer has sufficient rights in collateral for bank's security interest in after-acquired inventory to attach. Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 10 Kan. App. 2d 350, 356, 699 P.2d 566 (1985).

32. Acceleration to maturity (K.S.A. 84-1-208) of bank's setoff against depositor (K.S.A. 9-1206) discussed; good faith (honesty in fact) required. Karner v. Willis, 10 Kan. App. 2d 432, 434, 700 P.2d 582 (1985).

33. Bank not good faith purchaser when enriched by refusing to complete agreement with defaulting bank customer and plaintiff. Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 238 Kan. 41, 45, 46, 708 P.2d 494 (1985).

34. Paragraph (19) cited; test of good faith in K.S.A. 84-1-208 is subjective and requires only honesty in fact. Karner v. Willis, 238 Kan. 246, 249, 710 P.2d 21 (1985).

35. Cited; lease-purchase agreement under economic development revenue bond act (K.S.A. 12-1740 et seq.) not complete sale; filing requirements inapplicable. In re Petition of City of Moran, 238 Kan. 513, 519, 522, 713 P.2d 451 (1986).

36. Cited; where leasing essentially financing transaction, UCC applies; entrustment doctrine (K.S.A. 84-2-403(2)) examined and applied. Executive Financial Services, Inc. v. Pagel, 238 Kan. 809, 812, 715 P.2d 381 (1986).

37. Cited; provisions of K.S.A. 84-7-210(1) and (2) must be met to enforce statutory lien on household goods. Owen v. Treadwell, 11 Kan. App. 2d 127, 133, 716 P.2d 585 (1986).

38. 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).

39. Auction house with mere possessory interest which sells collateral on debtor's behalf not purchasers under UCC. First Nat. Bank of Amarillo v. SW Livestock, Inc., 616 F. Supp. 1515, 1518 (1985).

40. Cited by dissent where court held creditor had no claim under Kansas law to liquidation sale proceeds commingled with other funds. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1301 (1986).

41. Cited; in sale of industrial paint, alleged breach of express warranties, warranties of fitness for particular purpose examined. Ray Martin Painting, Inc., v. Ameron, Inc., 638 F. Supp. 768 (1986).

42. Under (37), agreement is true lease where option to purchase cannot be fulfilled nominally. Wight v. Agristor Leasing, 652 F. Supp. 1000, 1009 (1987).

43. Cited; implied covenant of good faith and fair dealing in area of termination of employment contracts examined. Morriss v. Coleman Co., 241 Kan. 501, 515, 738 P.2d 841 (1987).

44. Transactions under industrial revenue bond statutes as excluded from Article 9 of UCC noted. In re Petroleum Products, Inc., 72 B.R. 739, 745 (1987).

45. PIK certificates as nonnegotiable, creditor's protection of security interest therein, right to proceeds therefrom determined. In re George, 85 B.R. 133, 134, 144 (1988).

46. Cited; constitutionality of statute on debtor depriving creditor of creditor's own money (K.S.A. 21-3734(1)(c)) examined. State v. Jones, 242 Kan. 385, 389, 748 P.2d 839 (1988).

47. Cited; circumstances indicative of duty to exercise good faith examined. Riley State Bank v. Spillman, 242 Kan. 696, 705, 750 P.2d 1024 (1988).

48. Cited; superiority of partnership charging order (K.S.A. 56-328) over assignment constituting prior unperfected security interest examined. City of Arkansas City v. Anderson, 242 Kan. 875, 883, 752 P.2d 673 (1988).

49. Unsecured creditor with knowledge of another's unperfected security interest disqualified as purchaser. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 Kan. 87, 97, 755 P.2d 518 (1988).

50. Delivery with respect to instruments, liability of bank in accepting unindorsed returned checks without determining question of delivery examined. Saloga v. Central Kan. Cred. Union, 13 Kan. App. 2d 357, 360, 770 P.2d 847 (1989).

51. Priority between right of setoff and perfected security interest determined. Bank of Kansas v. Hutchinson Health Services, Inc., 13 Kan. App. 2d 421, 428, 773 P.2d 660 (1989).

52. Agreement between small business association borrower and tractor seller was contract for sale/security agreement subject to UCC under facts stated. U.S. v. Ables, 739 F. Supp. 1439, 1445 (1990).

53. Definition of "signature" under code did not apply to case involving a guaranty. Airlines Reporting v. Travel Serv. Clearinghouse, 778 F. Supp. 1141 (1991).

54. Summary judgment granted to payee of promissory notes against guarantors and to foreclose security interests. FDIC v. Central Air Control, Inc., 785 F. Supp. 898 (1992).

55. Disclaimer of implied warranties in contract not conspicuous; cause of action stated. Kelley Metal Trading Co. v. Al-Jon/United, Inc., 812 F. Supp. 185, 186, 188 (1992).

56. Whether previously filed but undiscovered financing statement acts as notice to assignee for K.S.A. 84-9-206 waiver provision purposes examined. Benedictine College v. Century Office Products, 853 F. Supp. 1315, 1321 (1994).

57. Whether lessor may acquire security interest in accounts receivable to protect ownership interest in leased property examined. Baldwin v. Hays Asphalt Constr., Inc., 20 Kan. App. 2d 853, 854, 893 P.2d 275 (1995).

58. Security interest in personal property (inventory), properly secured in accord with law, may be the subject of conversion. Farmers State Bank v. FFP Operating Partners, 23 Kan. App. 2d 712, 714, 935 P.2d 233 (1997).

59. Disclaimer of manufacturer was not conspicuous and did not exclude warranties of merchantability and fitness to buyer. Sithon Maritime Co. v. Holiday Mansion, 983 F. Supp. 977, 987 (1997).

60. UCC held inapplicable, but if so, bank required to have actual knowledge of trustee's misconduct to be liable. Wetherill v. Bank IV Kansas, N.A., 145 F.3d 1187, 1193 (1998).

61. In distinguishing a lease from disguised sales and security agreement, economic realities rather than parties subjective intent are applied. In re Beckham, 275 B.R. 598 (2002).

62. Secured creditor's error in listing itself as owner rather than lienholder on certification of title did not render security interest unperfected. In re Charles, 278 B.R. 216, 221 (2002).

63. Mentioned in case involving no written agreement with sperm donor pursuant to K.S.A. 38-1114(f). In re K.M.H., 285 Kan. 53, 169 P.3d 1025 (2007).

64. For a buyer to establish constructive possession over goods, so as to demonstrate buyer in ordinary course (BIOC) status, at a minimum, the goods that the prepaying buyer is claiming to have constructively possessed must have been identified in the contract. In re Sunbelt Grain WKS, LLC, 427 B.R. 896 (2010).

65. A contract for sale of goods must identify the bulk in order for identification to have occurred. In re Sunbelt Grain WKS, LLC, 427 B.R. 896 (2010).

66. A buyer must only satisfy the requirements listed in the statute defining "buyer in ordinary course" (BIOC) to attain BIOC status. In re Sunbelt Grain WKS, LLC, 427 B.R. 896 (2010).

67. Loan services entitled to enforce promissory note against debtor, despite servicer's sale of beneficial interest in note to third party. In re Martinez, 455 B.R. 755 (Bkrtcy. D. Kan. 2011).

KANSAS COMMENT, 1996

This section gives the status of prima facie evidence of authenticity and genuineness to a third party document that was authorized or required by the contract. This section also provides that such documents are prima facie evidence of the facts stated in the document. The opposing party is not prevented by this section from introducing evidence that would disprove the document's authenticity or genuineness or the facts stated in the document, and when this is done the party proffering the document might be required to furnish additional proof. See Plastileather Corp. v. Aetna Casualty & Sur. Co., 280 N.E.2d 402 (Mass. 1972). It has been held that this section applies only to official or self-authenticating third party documents, and not to letters or other correspondence, which are hearsay. See Thrifty Rent-A-Car Sys. v. Chuck Ruwart Chevrolet, Inc., 500 P.2d 172 (Colo. App. 1972); Mid-Continent Cas. Co. v. P&H Supply, Inc., 490 P.2d 1358 (Okla. 1971).

Revisor's Note:

Former section 84-1-202 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

KANSAS COMMENT, 1996

1. This section, for the first time in a statute, imposes the obligation of good faith in every contract under the Code. It has proven to be one of the most far-reaching sections in the entire Code. Restatement (Second) Contracts § 205 (1981) has adopted this rule for all contracts. Note the specific definitions of "good faith" for Article 3 (84-3-103(a)(3)) and for Article 4 (84-4-104(c)).

2. The obligation of good faith has been a part of commercial transactions in the past. However, most discussion of good faith was found in cases dealing with such commercial settings as good faith purchase and holder in due course. See 84-2-403(1) and 84-3-302; see also Iola State Bank v. Bolan, 235 K. 175, 679 P.2d 720 (1984); Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 238 K. 41, 708 P.2d 494 (1985) . In these settings, the question whether a purchaser or holder took in good faith was frequently wrapped up with the question of notice. See, for example, Kaw Valley State Bank & Trust Co. v. Riddle, 219 K. 550, 547 P.2d 927 (1976). Under the Code much more is involved, and the obligation of good faith is imposed in all types of commercial contracts. The courts have applied this provision in diverse settings, including sales contracts under Article 2, see Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980), and security agreements under Article 9, see Pedi Bares, Inc. v. First Nat'l Bank of Neodesha, 223 K. 477, 575 P.2d 507 (1978).

3. This section speaks of good faith only in the "performance or enforcement" of a contract. Thus, the obligation of good faith does not extend to matters of contract formation. E.g., Meyer v. Sandhills Beef, Inc., 211 Neb. 388, 318 N.W.2d 863 (1982). Courts have, however, construed what constitutes the "performance and enforcement" of a contract generously and applied the good faith obligation broadly under the Code. The duty of good faith applies to negotiating a final contract after agreeing in a letter agreement to negotiate toward a final contract, see Kansas Mun. Gas Agency v. Vesta Energy Co., 843 F. Supp. 1401 (D. Kan. 1994); modification of ongoing contracts, see A&G Constr. Co., Inc. v. Reid Bros. Logging Co., Inc., 547 P.2d 1207 (Alaska 1976); the exercise of Code remedies, see Scherman v. Kansas City Aviation Center, 1994 U.S. Dist. LEXIS 17346 (D. Kan. 1994), aff'd mem., 83 F.3d 433 (10th Cir. 1996); warranty disclaimers and remedy limitations, see Schroeder v. Fageol Motors, Inc., 80 Wash.2d 256, 544 P.2d 20 (1975); termination of sales contracts, see Baker v. Ratzlaff, 1 K.A.2d 285, 564 P.2d 153 (1977); reclamation of goods from an insolvent buyer, see In re Creative Bldgs., Inc., 498 F.2d 1 (7th Cir. 1974); warehousing transactions, see Mitchell v. Bailey & Selover, Inc., 605 P.2d 1138 (Nev. 1980); the enforcement and priority of security agreements, see Thompson v. U.S., 408 F.2d 1075 (8th Cir. 1969); repossession and care of collateral, see Farmers State Bank in Afton v. Ballew, 626 P.2d 337 (Okla. App. 1981); and a bank's duty under a letter of credit, see Lustrelon, Inc. v. Prutscher, 178 N.J. Super. 128, 428 A.2d 518 (1981).

4. The term "good faith" is defined in 84-1-201(19), and means "honesty in fact in the conduct or transaction concerned," a subjective standard. See Kansas Comment 1996 to 84-1-201(19). In cases under Article 2 when merchants are involved, there is a higher, objective standard of good faith. See 84-2-103(1)(b) (imposing on merchants the duty to observe reasonable commercial standards of fair dealing in the trade); see also Kansas Comment 1996 number 3 to 84-2-103.

5. Under 84-1-102(3), the obligation of good faith may not be disclaimed by agreement; however, the parties may, by agreement, determine the standards by which good faith is to be measured as long as the standards are not manifestly unreasonable.

Revisor's Note:

Former section 84-1-203 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

"Secured Transactions in Kansas: The New Look," J. Eugene Balloun, 5 W.L.J. 192, 194, 198 (1966).

1963-65 survey of secured transactions, J. Eugene Balloun, 14 K.L.R. 359, 360 (1965).

Applicability as "good faith" limitation on K.S.A. 84-9-308 questioned, Charles H. Oldfather, 14 K.L.R. 571, 581 (1966).

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 393 (1973).

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

"Uniform Commercial Code: Aspects of a Commercially Reasonable Sale of Repossessed Property," Jon D. Graves, 19 W.L.J. 123, 124 (1979).

"Punitive Damages in Contract Actions—Are the Exceptions Swallowing the Rule?" Randy L. Sassaman, 20 W.L.J. 86, 96 (1980).

"Too Much Good Faith in Real Estate Purchase Agreements? Give Me an Option," Harvey L. Temkin, 34 K.L.R. 43, 54 (1985).

"Commercial Law—Commercially Unreasonable Foreclosure Sales in the Context of a Surety Relationship—United States v. Lattauzio," John S. Clifford, 34 K.L.R. 175, 181 (1985).

"Lender Liability: A Survey of Theories, Thoughts and Trends," Troy H. Gott and William L. Townsley III, 28 W.L.J. 238, 241, 272 (1988).

CASE ANNOTATIONS

Annotation to former K.S.A. 52-502:

1. Clerical error did not prevent intended endorsee from being holder in due course. Swanson v. Fuline Corporation, 248 F. Supp. 364, 365, 370.

Annotations to K.S.A. 84-1-203:

2. Duty of payor bank, where check presented for payment and drawer has insufficient funds on deposit, to give timely notice of dishonor just once to party presenting check for payment. Leaderbrand v. Central State Bank of Wichita, 202Kan. App. 2d450, 459, 450P.2d 1.

3. Defendant breached good faith; termination of contract is "performance" or "enforcement" of contract. Baker v. Ratzlaff, 1 Kan. App. 2d 285, 288, 289, 564P.2d 153.

4. Applied in determining that summary judgment would not stand; issues of fact to be resolved. Pedi Bares, Inc. v. First National Bank, 223Kan. App. 2d477, 482, 575 P.2d 507.

5. Every duty in U.C.C. imposes obligation of good faith in performance. Wendling v. Puls, 227Kan. App. 2d780, 784, 610 P.2d 580.

6. Cited by dissent where court found no breach of contract between general contractor and subcontractor on highway project. Meier's Trucking Co. v. United Constr. Co., 237Kan. App. 2d692, 699, 704 P.2d 2 (1985).

7. Where no duty exists to give notice, failure to do so cannot be construed as bad faith. Utility Trailers of Wichita, Inc. v. Citizens Nat'l Bank & Tr. Co., 11 Kan. App. 2d 421, 424, 726 P.2d 282 (1986).

8. Cited; breach of good faith and fair dealing noted where supplier entered into contract by bribing manufacturer's employee. NL Industries, Inc. v. Gulf & Western Industries, 650 F. Supp. 1115, 1133 (1986).

9. Cited; implied covenant of good faith and fair dealing in area of termination of employment contracts examined. Morriss v. Coleman Co., 241Kan. App. 2d501, 514, 738 P.2d 841 (1987).

10. Cited; circumstances indicative of duty to exercise good faith examined. Riley State Bank v. Spillman, 242Kan. App. 2d696, 705, 750 P.2d 1024 (1988).

11. Implied duty of good faith in performance or enforcement of contracts does not override express contract terms. General Aviation, Inc. v. Cessna Aircraft Co., 703 F. Supp. 637, 643 (W.D. Mich. 1988).

12. Mentioned in discussion regarding whether breach of duty of good faith is a duplicative claim. Rupe v. Triton Oil and Gas Corp., 806 F. Supp. 1495, 1504 (1992).

13. Whether issue of breach of duty of good faith by supplier in negotiating final contract precluded summary judgment examined. Kansas Mun. Gas Agency v. Vesta Energy Co., Inc., 840 F. Supp. 814, 820 (1993).

14. Whether bank's position customer was liable for checks forged by customer's employees violated good faith duty examined. In re Mid-American Clean Water Systems, Inc., 159 B.R. 941, 946 (1993).

15. Whether proof of dishonesty on part of secured party precluded summary judgment in good faith breach claim examined. Gillenwater v. Mid-American Bank & Tr. Co., 19 Kan. App. 2d 420, 426, 870 P.2d 700 (1994).

1. Lessee's furniture and television leases were leases rather than security interests, as leases could be cancelled any time without penalty by surrendering or returning the property. In re Wade, 501 B.R. 870 (Bkrtcy. D. Kan. 2013).

KANSAS COMMENT, 1996

1. The term "reasonable time" appears in literally dozens of Code sections. This section establishes broad criteria for determining a reasonable time in particular cases.

2. Under subsection (1), the parties may determine for themselves what constitutes a "reasonable time" in their particular transaction. However, a clause fixing a reasonable time may not be "manifestly unreasonable." Although what makes a clause "manifestly unreasonable" is not defined in the Code, Official Comment 1 explains that the purpose of the limitation is to permit courts to disregard a clause that "whether by inadvertence or overreaching fixes a time so unreasonable that it amounts to eliminating all remedy under the contract." See, e.g., Koch Supplies, Inc. v. Farm Fresh Meats, Inc., 630 F.2d 282 (5th Cir. 1980) (provision giving 48 hours after receipt to reject nonconforming smokehouse manifestly unreasonable as to latent defects when smokehouse would take several weeks to set up). Presumably, the inquiry is similar to that made in evaluating good faith under 84-1-203 and unconscionability under 84 -2-302 and 84-2a-108.

3. Subsection (2) states that a reasonable time depends on the circumstances of the transaction. See Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980). For application of the phrase "reasonable time" in the context of individual sections of the Code, see, e.g., Newmaster v. Southeast Equip., Inc., 231 K. 466, 646 P.2d 488 (1982) (three days after tender accepted is reasonable time for giving notice of nonconformity); Wendling v. Puls, supra (permitting seller to set time for delivery); La Villa Fair v. Lewis Carpet Mills, Inc., 219 K. 395, 548 P.2d 825 (1976) (stating that what constitutes reasonable time is for trier of fact if facts are disputed, but if facts are undisputed the question becomes one for the court).

4. Subsection (3) defines the term "seasonably," which appears in many sections of the Code, basically as synonymous with "reasonable time" under subsection (1).

Revisor's Note:

Former section 84-1-204 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

Paragraph (1) cited in "Secured Transactions in Kansas: The New Look," J. Eugene Balloun, 5 W.L.J. 192, 193 (1966).

"The Buyer's Right to Return Unsatisfactory Goods—The Uniform Commercial Code Remedies of Rejection and Revocation of Acceptance," George I. Wallach, 20 W.L.J. 20, 29 (1980).

CASE ANNOTATIONS

1. Reasonable time for taking action depends on nature, purpose and circumstances of such action. Wendling v. Puls, 227 Kan. 780, 784, 610 P.2d 580.

2. Provisions in contract limiting time for filing suit as provided in K.S.A. 84-2-725 examined. Vanier v. Ponsoldt, 251 Kan. 88, 108, 833 P.2d 949 (1992).

KANSAS COMMENT, 1996

1. This section defines the key phrases "course of dealing" and "usage of trade," which become part of every agreement under the Code. See 84-1-201(3). These concepts provide the commercial context of the contract and the background through which the formal or written provisions of the contract are to be read.

2. Subsection (1) defines "course of dealing." This term refers to prior, pre-contract conduct between the parties to a current contract. See Olathe Mfg., Inc. v. Browning Mfg., 259 K. 735, 915 P.2d 86 (1996) (sending catalogs to buyer did not constitute course of dealing such that remedy limitation contained in catalog became part of agreement); Geo C. Christopher & Son, Inc. v. Kansas Paint & Color Co., 215 K. 185, 523 P.2d 709, modified on rehearing, 215 K. 510, 525 P.2d 626 (1974) (rejecting argument that disclaimer contained in certain invoices became part of contract since parties had engaged in similar previous course of dealing). The statutory definition requires a " sequence of previous conduct." See Aero Consulting Corp. v. Cessna Aircraft Co., 867 F. Supp. 1480 (D. Kan. 1994). Thus, a single instance cannot constitute a course of dealing. "Course of dealing" should be distinguished from "course of performance," defined in 84-2-208, and which is applicable only to Article 2. A "course of performance" refers to the ongoing performance of a current contract, whereas "course of dealing" refers to previous, pre-contract conduct.

3. Subsection (2) defines "usage of trade." This provision changes much former Kansas law. The most obvious change is in terminology, since the former term "custom" is no longer used. In addition, the test for establishing the existence of a usage of trade has been changed. Official Comment 5 notes that a usage of trade need only have a "regularity of observance." There is no requirement that a usage be "ancient or immemorial," "universal," or the like. Thus, pre-Code cases such as Jarecki Mfg. Co. v. Merriam, 104 K. 646, 180 P. 224 (1919) are overruled. In addition, pre-Code Kansas cases have often required that a custom be established by clear and convincing evidence. See Jarecki Mfg. Co. v. Merriam, supra; Radio Station KFH Co. v. Musicians Ass'n Local No. 297, 169 K. 596, 220 P.2d 199 (1950). This standard may no longer apply under the Code, since subsection (2) provides that the existence and scope of a trade usage are to be proved as facts, presumably by a preponderance of evidence as with other facts. See 84-1-201(8) (defining "burden of establishing"). In Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980), the court continued to discuss the old concept of "custom" and required clear and convincing evidence to prove its existence. This section, however, was not cited. It is not necessary that the parties actually know of a trade usage for it to apply to their agreement. Instead, subsection (3) requires only that the usage be one of the trade in which they are engaged or of which they are or should be aware.

4. Under subsection (3), usage of trade and course of dealing become part of the agreement and may supplement the parties' agreement by supplying a missing term. See Wayman v. Amoco Oil Co., 923 F. Supp. 1322 (D. Kan. 1996); see also 84-1-201(3) and 84-2-202(a) (course of dealing and usage of trade admissible even when contract completely integrated). They also are relevant in interpreting the express terms of the parties' agreement. Indeed, subsection (5) requires that a usage of trade in the place where any part of performance is to take place "shall be used" to interpret the agreement as to that part of the performance. However, a usage of trade "cannot be used to create a contract where none previously existed." See Wichita Sheet Metal Supply, Inc. v. Dahlstrom & Ferrell Constr. Co., 246 K. 557, 792 P.2d 1043 (1990).

5. Subsection (4) establishes the hierarchy to be applied when these terms conflict with each other. See also 84-2-208(2) (incorporating "course of performance" into the hierarchy). This subsection provides that a course of dealing between the parties controls over a conflicting usage of trade. This ranking makes sense, since presumably the prior dealings between the parties are a better indication of their intent than a usage of trade. See also Kansas Comment 1996 number 3 to 84-2-208. While this subsection makes clear that a conflicting express term would control over both a course of dealing and a usage of trade, it should be noted that all express terms are to be read in light of course of dealing and usage of trade and construed as consistent whenever possible. See Wayman v. Amoco Oil Co., supra; see also 84-2-208(3) (express term might be waived by inconsistent course of performance).

6. Subsection (6) requires that a party who wishes to rely on a usage of trade give notice to the other as a pre-condition for admission of evidence concerning the usage of trade. This provision apparently abolishes the pre-Code requirement that usage of trade (or "custom") be specially pleaded. See Rains v. Weiler, 101 K. 294, 166 P. 235 (1917); First Nat'l Bank in Dodge City v. Keller, 193 K. 581, 396 P.2d 304 (1964). However, the safest course would be to give notice as soon as possible, and notice in a pleading, such as an answer, is sufficient. See Torstenson v. Melcher, 195 Neb. 764, 241 N.W.2d 103 (1976). Any notice sufficient under subsection (6) serves the same purpose as special pleading, and a party who gives adequate notice should not be denied a chance to prove the usage of trade. Of course, the notice must be timely; an offer to prove a usage of trade which comes late in the trial will be denied. Paymaster Oil Mill Co. v. Mitchell, 319 So.2d 652 (Miss. 1975).

7. In several Kansas cases dealing with farm financing, the courts have adopted and applied the concept "course of conduct." This term does not appear in the Code, but, as used by the courts, this term seems analogous to "course of performance" under 84-2-208. However, the courts usually cite this section (84-1-205) when they discuss "course of conduct." In each of the cases, a pattern of behavior, or course of conduct, by the secured party was held not to amount to a waiver of an express term of the contract. See North Central Kansas Prod. Credit Ass'n v. Washington Sales Co., Inc., 223 K. 689, 577 P.2d 35 (1978); North Central Kansas Prod. Credit Ass'n v. Boese, 2 K.A.2d 231, 577 P.2d 824, aff'd, 588 P.2d 491 (1978); Security Nat'l Bank v. Belleville Livestock Comm'n Co., 619 F.2d 840 (10th Cir. 1979); see also Utica Nat'l Bank & Trust Co. v. Associated Producers Co., 622 P.2d 1061 (Okla. 1980) (applying Kansas law) (court used term "course of conduct" in holding that bank had relinquished its security interest in certain funds).

Revisor's Note:

Former section 84-1-205 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

The UCC and law of contracts, William G. Zimmerman, 14 K.L.R. 509, 514, 516 (1966).

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: Contracts," Mary Kathleen Babcock, 27 K.L.R. 215, 218 (1979).

"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 480 (1986).

CASE ANNOTATIONS

1. Applied; action to recover on implied warranty; disclaimer made after date of contract inadmissible. Christopher and Son v. Kansas Paint and Color Co., 215 Kan. 185, 191, 523 P.2d 709. Modified: 215 Kan. 510, 525 P.2d 626.

2. 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 Kan. 689, 692, 577 P.2d 35.

3. Title to goods under K.S.A. 84-2-105, 84-2-401 cannot pass under a contract for sale prior to their identification to the contract. Reeves v. Pillsbury Co., 229 Kan. 423, 429, 625 P.2d 440.

4. Bank did not impliedly waive security interest in cattle sold by its debtor by custom of accepting proceeds of unauthorized sale of cattle covered by security agreements. Security Natl. Bank v. Belleville Livestock, 619 F.2d 840, 846.

5. Invoices relevant to limitation of remedies issue based on course of dealing. Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 765 (1983).

6. Cited; whether security agreement may be altered by course of dealing examined. Riley State Bank v. Spillman, 242 Kan. 696, 700, 750 P.2d 1024 (1988).

7. Extent of coverage under contractors' bonds (K.S.A. 60-1111) and mechanic's lien statute (K.S.A. 60-1103) examined. Wichita Sheet Metal Supply, Inc. v. Dahlstrom & Ferrell, 14 Kan. App. 2d 111, 117, 783 P.2d 353 (1989).

8. Intent of statute in understanding commercial meaning examined; statute not intended to create contract where none exists. Wichita Sheet Metal Supply, Inc. v. Dahlstrom & Ferrell Constr. Co., 246 Kan. 557, 565, 792 P.2d 1043 (1990).

9. Whether buyer's course of dealing evidence could be used to establish additional contract terms examined. Aere Consulting Corp. v. Cessna Aircraft Co., 867 F. Supp. 1480, 1490 (1994).

10. Seller's limitation of remedies not established by course of dealing. Olathe Mfg., Inc. v. Browning Mfg., 259 Kan. 735, 753, 755, 915 P.2d 86 (1996).

11. Whether extrinsic evidence constitutes a course of dealing, usage of trade or a course of performance is a factual inquiry. Cravotta v. Deggingers' Foundry, Inc., 42 Kan. App. 2d 700, 215 P.3d 636 (2009).

KANSAS COMMENT, 1996

1. Subsection (1) is a statute of frauds applicable to contracts involving the sale of certain intangible personal property when the amount exceeds $5,000. Compare the statute of frauds in K.S.A. 33-106. "[T]he purpose of K.S.A. 84-1-206 is to include within its provisions sales of intangibles and choses-in-action which are not subject" to other statutes of frauds in the Code. See Decatur Coop. Ass'n v. Urban, 219 K. 171, 547 P.2d 323 (1976). The Official Comment identifies "typical" examples included within this section as the sale of bilateral contracts, royalty rights, and the like. This section's cross reference to Article 8 was amended in 1996 to reflect the amendment of Article 8 and stylistic changes.

2. Under this provision, as under 84-2-201, the writing need not contain all of the essential terms of the contract. Rather, it merely must indicate that a contract has been made, and contain a price term, the identity of the subject matter, and be signed by the party to be charged.

3. Subsection (2) excludes from this statute of frauds many types of contracts for the sale of personal property. Contracts for the sale of goods are covered by Article 2, which has its own statute of frauds. See 84-2-201; Decatur Co-op Ass'n v. Urban, supra. Contracts for the sale of investment securities are covered by Article 8 which has its own statute of frauds at 84-8-319. In addition, many sales of accounts and other intangibles will in fact be security agreements under Article 9. See 84-9-102 and 84-9-106. Finally, in Kansas no statute of frauds covers contracts for the sale of services. See Care Display, Inc. v. Didde-Glaser, Inc., 225 K. 232, 589 P.2d 599 (1979).

Revisor's Note:

Former section 84-1-206 was repealed by L. 2007, ch. 89, § 49 and the number reassigned to the current text.

Law Review and Bar Journal References:

"Contracts: Interaction Between the Statute of Frauds and Promissory Estoppel in Kansas," Quentin E. Kurtz, 30 K.L.R. 332, 333 (1982).

CASE ANNOTATIONS

1. Trial court erred in applying statute to oral sale of wheat; doctrine of promissory estoppel invoked. Decatur Cooperative Association v. Urban, 219 Kan. 171, 174, 175, 547 P.2d 323.

2. Contract held unenforceable although wrong statute relied on; summary judgment sustained. Mildfelt v. Lair, 221 Kan. 557, 561, 562, 564, 561 P.2d 805.

3. Cited; breach of good faith and fair dealing noted where supplier entered into contract by bribing manufacturer's employee. NL Industries, Inc. v. Gulf & Western Industries, 650 F. Supp. 1115, 1133 (1986).

KANSAS COMMENT, 1996

1. As indicated by Official Comment 1, this section provides a mechanism by which the parties may continue performing a contract despite a pending dispute. It was amended in 1991 by adding subsection (2). Accord and satisfaction by means of an instrument is now treated in 84-3-311. This provision has been useful in contracts such as long-term requirements contracts, under which one party may continue performance by delivering subsequent installments without waiving a claimed breach that might have occurred under an earlier installment. See, e.g., Shea-Kaiser-Lockheed-Healy v. Dep't of Water & Power, 73 Cal. App.3d 679, 140 Cal. Rptr. 884 (1977).

2. This section has been litigated most often in cases involving the so-called conditional check, or a check which is submitted by a debtor to a creditor with a notation that indorsement of the check constitutes payment in full of the obligation. At common law, a creditor who indorsed such a check would generally be held to have entered into an accord and satisfaction, and to have waived any right to insist on performance of the amount originally claimed if the amount was in dispute. See Restatement (Second) Contracts § 281. Some courts held that this section did away with the common law doctrine. The Kansas Court of Appeals rejected such an argument in Weidensaul v. Greenhouse Restaurant of Lawrence, Inc., 13 K.A.2d 95, 762 P.2d 196 (1988), holding that this section did not override the doctrine of accord and satisfaction. Subsequently, the Kansas legislature amended this section to conform to changes in the Official Text by adding subsection (2), which makes clear that this section "does not apply to an accord and satisfaction." See Official Comment 3 to this section.

CASE ANNOTATIONS

1. Provisions herein do not abrogate present Kansas law of accord and satisfaction with respect to payment in full checks. Weidensaul v. Greenhouse Restaurant of Lawrence, Inc., 13 Kan. App. 2d 95, 97, 762 P.2d 196 (1988).

2. No error in judge's conclusion that sale of collateral was made in commercially reasonable manner where defendant sold stock that allegedly could have been sold at a higher value. Ross v. Rothstein, 92 F. Supp. 3d 1041, 1062 (D. Kan. 2015).

KANSAS COMMENT, 1996

1. This section recognizes the common practice of including acceleration clauses in notes, security agreements, and other contracts. The inclusion of an acceleration clause has no effect on the negotiability of commercial paper under Article 3. See 84-3-108(a). This section is concerned with acceleration of an obligation not for substantive defaults in performance of the contract, but pursuant to a clause permitting acceleration "at will" or an insecurity clause such as "when creditor deems himself insecure." Under this section, the creditor may exercise such a clause only if he in good faith believes that the prospect of receiving payment or performance from the debtor is impaired. This section has no application to demand instruments, which may be called because of the demand feature, and not by any acceleration clause. See Fulton Nat'l Bank v. Willis Denney Ford, Inc., 154 Ga. App. 846, 269 S.E.2d 916 (1980).

2. In Klingbiel v. Commercial Credit Corp., 439 F.2d 1303 (10th Cir. 1971) (applying Kansas law), the court held that an insecurity clause applied only to the right of acceleration under the contract, and did not apply to the creditor's right to repossess the collateral. Thus, the creditor, even under an insecurity clause, must make demand or give notice prior to repossession or be liable for wrongful repossession.

3. The operation of this section is severely limited in consumer cases by the Kansas Uniform Consumer Credit Code at K.S.A. 16a-5-109. Under K.S.A. 16a-5-109(2), an acceleration clause, or any other default clause, may be exercised only when the prospect of payment, performance, or realization of collateral is significantly impaired. The addition of "significantly" goes beyond the requirement of "good faith" in 84-1-208, and establishes an objective standard for measuring the impairment. This standard effectively prohibits insecurity clauses. In addition, K.S.A. 16a-5-109 reverses the burden of proof by providing that the burden of establishing the prospect of significant impairment is on the creditor. Under 84-1-208, the burden is on the party against whom the acceleration clause has been exercised, normally the debtor.

Law Review and Bar Journal References:

1963-65 survey of secured transactions, J. Eugene Balloun, 14 K.L.R. 359, 361 (1965).

Changes in repossession law under the UCCC discussed in "The New Kansas Consumer Legislation," Barkley Clark, 42 J.B.A.K. 147, 197 (1973).

"Commercial Law—Commercially Unreasonable Foreclosure Sales in the Context of a Surety Relationship—United States v. Lattauzio," John S. Clifford, 34 K.L.R. 175, 181 (1985).

"Lender Liability: A Survey of Theories, Thoughts and Trends," Troy H. Gott and William L. Townsley III, 28 W.L.J. 238, 241, 272 (1988).

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

CASE ANNOTATIONS

1. Assignee of secured contract, notwithstanding its contrary provisions, must make demand or give notice prior to repossession to avoid liability for unlawful conversion. Klingbiel v. Commercial Credit Corporation, 439 F.2d 1303, 1306, 1308.

2. Acceleration to maturity of bank's setoff against depositor (K.S.A. 9-1206) discussed; good faith required means "honesty in fact" (K.S.A. 84-1-201(19)). Karner v. Willis, 10 Kan. App. 2d 432, 433, 700 P.2d 582 (1985).

3. Test of good faith herein is subjective and requires only honesty in fact (K.S.A. 84-1-201(19)). Karner v. Willis, 238 Kan. 246, 249, 710 P.2d 21 (1985).

KANSAS COMMENT, 1996

This section was added by the legislature in 1967. It was proposed in the Official Text as an optional section, but was recommended to make it clear that a subordination agreement does not constitute a security agreement under Article 9. See the definition of "security interest" in 84-1-201(37), and see 84-9-102. This section does not prohibit the creation of a security interest by means of a subordination agreement, but the parties' intent to do so would have to be found specifically. See Chase Manhattan Bank v. First Marion Bank, 437 F.2d 1040 (5th Cir. 1971).