First Nat. Bank of Gaylord v. Autrey, 55060

Decision Date22 December 1983
Docket NumberNo. 55060,55060
Citation673 P.2d 448,9 Kan.App.2d 96
Parties, 37 UCC Rep.Serv. 1329 FIRST NATIONAL BANK OF GAYLORD, Gaylord, Kansas, Appellant, v. Laura M. AUTREY, Appellee, v. James R. MARTIN, Defendant.
CourtKansas Court of Appeals

Syllabus by the Court

1. K.S.A. 84-9-104(f ), excluding a "transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract" from U.C.C. coverage, applies only to situations in which the assignor both delegates a duty to perform and assigns the right to payment to the same person.

2. K.S.A. 84-9-104(l ), excluding transfers of deposit accounts from U.C.C. coverage, does not apply to accounts into which assigned contract payments (now proceeds) are deposited.

3. Unless a security interest attaches, it is not enforceable against either the debtor or third parties. K.S.A. 84-9-203.

4. Attachment occurs after three events take place: the secured party possesses the collateral or a security agreement has been executed, value has been given, and the debtor has rights in the collateral. K.S.A. 84-9-203(1) and (2).

5. In order to perfect a security interest in contract rights, the filing of a financing statement is required. See K.S.A. 84-9-106; K.S.A. 84-9-302.

6. A bank may set off only matured claims it has against depositors. K.S.A. 9-1206.

Michael S. Holland, Russell, for appellant.

Norman R. Kelly of Norton, Wasserman, Jones & Kelly, Salina, for appellee.

Before FOTH, C.J., TERRY L. BULLOCK, District Judge, Assigned, and FREDERICK WOLESLAGEL, District Judge, Retired, Assigned.

TERRY L. BULLOCK, District Judge, Assigned:

James Martin sold his interest in the Bank of Gaylord. In connection with the sale, James contracted with the Bank to provide consulting services, for which James was to be paid $11,225 each year for three years. Thereafter, James fell upon hard times, both financially and domestically. As a result, James borrowed substantial sums from the Bank and "orally assigned" to the Bank his right to compensation under the consulting contract to secure the repayment of his borrowings. In conformity with the "oral assignment," the Bank thereafter deposited all payments under the consulting contract into a new account at the Bank, but did not apply the proceeds to the loans. At the time of James' divorce, however, the trial court awarded the account in question (and the balance due under the contract) to James' wife Laura Martin (now Autrey).

The Bank then sued both James and Laura seeking the sums contained in the account. The trial court held the Bank's interest was an unperfected security interest under the Uniform Commercial Code and thus junior and inferior to Laura's claim as owner under the divorce decree. The Bank appeals, raising four issues:

1. The Bank first contends that K.S.A. 84-9-104(f ) excludes the assignment from coverage under Article 9 of the Uniform Commercial Code. This provision excludes a "transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract." The Bank's claim is that since it was to pay under the compensation contract and also to receive the payments via the assignment, this exclusion applies. The Kansas Comments to this section make clear, however, that this exception applies only to situations in which the assignor both delegates a duty to perform and assigns the right to payment to the same person. K.S.A. 84-9-104, Kansas Comment 1983, subsection (f ). See also Clark, Law of Secured Transactions under the Uniform Commercial Code, p 1.8(6)(c) (1980). Here, Martin did not delegate a duty to perform and the Bank's contention lacks merit.

2. The Bank next seeks to apply K.S.A. 84-9-104(l ) which excludes transfers of deposit accounts from U.C.C. coverage. In the present case, there was no transfer of a deposit account. Martin assigned his rights in a contract. The payments he received were proceeds as defined by K.S.A. 84-9-306(1). The Bank attempts to rely on Walton v. Piqua State Bank, 204 Kan. 741, 466 P.2d 316 (1970), which found the pledge of a savings account as security for another's loan did not come under the U.C.C. In that case, the account itself was the collateral rather than proceeds from the collateral. The Bank's reliance on Walton is misplaced.

The Bank also cites Carson v. Chevron Chemical Co., 6 Kan.App.2d 776, 635 P.2d 1248 (1981). In that case, rights to proceeds in a pending law suit were assigned as collateral for a loan and the assignment was held to have priority over a subsequent garnishment. The applicability of the U.C.C., however, does not appear to have been raised. The case has no application here.

In the case at bar the district court correctly determined that the assignment was a security interest, and that the U.C.C. applies.

3. The Bank next argues that if the U.C.C. does apply, its security interest became perfected, if not in the consulting contract per se, then at least in the...

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4 cases
  • Sun Bank, N.A. v. Parkland Design and Development Corp., 83-787
    • United States
    • Florida District Court of Appeals
    • January 31, 1985
    ...(Callaghan) 957 (S.D.Fla.1973); In Re Boughner, 8 U.C.C.Rep.Serv. (Callaghan) 144 (W.D.Mich.1970); First National Bank of Gaylord v. Autrey, 9 Kan.App.2d 96, 673 P.2d 448 (1983). Further, it is clear that Article 9 encompasses not only financing types of assignments of accounts, but also ab......
  • In re Bucyrus Grain Co., Inc., Bankruptcy No. 84-20269.
    • United States
    • U.S. Bankruptcy Court — District of Kansas
    • November 20, 1986
    ...by filing the financing statement, the bank perfected the security interest in the proceeds. See First National Bank of Gaylord v. Autrey, 9 Kan.App.2d 96, 98, 673 P.2d 448 (1983). As such, State Bank has a valid claim to the proceeds under either a setoff theory or a perfected security int......
  • Karner v. Willis
    • United States
    • Kansas Court of Appeals
    • May 31, 1985
    ...the bank cannot set off deposits against it unless the bank can show that the debtor is insolvent. First Nat'l Bank of Gaylord v. Autrey, 9 Kan.App.2d 96, 99, 673 P.2d 448 (1983); Docking v. Commercial National Bank, 118 Kan. 566, 568, 235 P. 1044 (1925). The date on which a loan matures is......
  • Garst Seed Co. v. Wilson
    • United States
    • Kansas Court of Appeals
    • June 12, 1992
    ...re Newman, 71 B.R. 698, 699 (Bankr.D.Kan.1987) (valid security agreement must contain words of grant); First Nat'l Bank of Gaylord v. Autrey, 9 Kan.App.2d 96, 98, 673 P.2d 448 (1983). We have found no authority for merging the two separate documents in order to satisfy the requirements of 8......

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