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#2346 signed 7-28-97



In re:




CASE NO. 96-41465-13



This matter is before the Court on the motion of creditor Norwest Financial, Inc. (Norwest), to reconsider a determination that its claim is unsecured. Norwest appears by counsel Justice B. King. The debtors appear by counsel Lynn D. Lauver. The Court has reviewed the relevant pleadings and is now ready to rule.

After the chapter 13 trustee moved to dismiss the debtors' case because their plan was not feasible and did not address Norwest's secured claim, the debtors objected to Norwest's assertion that its claim was secured. Norwest failed to respond timely, and understands its claim was deemed unsecured because it failed to supply adequate documentation of its secured status. Norwest has now filed a motion for reconsideration. The parties agreed to submit the matter on briefs, which they have now filed. For purposes of this order, the only pertinent facts are that one of the debtors financed a purchase of furniture through Norwest. The furniture included a $350 chair, a $459 sofa, and a $409 love seat. Norwest did not file a financing statement, but claims it was not required to do so to perfect a security interest it alleges it took in the furniture.

In Kansas, the perfection of security interests in personal property is generally governed by Article 9 of the Kansas version of the Uniform Commercial Code. The dispute here is controlled by K.S.A. 84-9-302(1), which provides in pertinent part: "A financing statement must be filed to perfect all security interests except the following: . . . (d) a purchase money security interest in a consumer good with a purchase price of $1,000 or less." Norwest suggests its security interest is perfected under this provision because each of the items the debtors financed cost less than $1,000, even though the total purchase price in the transaction exceeded that amount. K.S.A. 84-1-102(5) provides: "In this act unless the context otherwise requires (a) words in the singular number include the plural, and in the plural include the singular." This indicates one must be careful about attributing so much significance to the use of the singular in 84-9-302(1)(d).

The parties have cited no authority addressing this question, and it appears no Kansas court has considered the application of 84-9-302(1)(d) under the circumstances presented here. The only significant aid the Court has found is the 1996 Kansas Comment to the statute, which says, in relevant part:

The 1972 Official Text version of subsection (1)(d) provides for automatic perfection of purchase money security interests in consumer goods . . . . Kansas is one of the few states in the country which has restricted this exception to purchases of $1,000 or less. It would seem that a series of purchases over time, each of which was less than $1,000 could all be automatically perfected, but if the same items were purchased at one time the secured party would have to perfect.

The Court believes this Comment offers a more reasonable construction of 84-9-302(1)(d) than Norwest's suggestion. Norwest's view would allow a creditor to sell to a consumer a package of goods such as a suite of furniture for a living room (as may have been done here), a stereo system, or a computer system, but avoid the need to file a financing statement to protect its security interest by listing each item separately on the transaction documents. If accepted, this possibility might go a long way toward eviscerating Kansas's deviation from the official version of the UCC, a deviation which clearly was intended to limit creditors' opportunities to create the "secret liens" that Article 9 generally condemns. In sum, the Court is convinced the prices of all the consumer goods purchased in a single transaction must be added together in order to determine whether the creditor's security interest is automatically perfected. Since the total cost of the chair, sofa, and love seat exceeded $1,000, Norwest's asserted security interest was not covered by K.S.A. 84-9-302(1)(d).

For these reasons, Norwest has failed to satisfy Federal Rule of Bankruptcy Procedure 3001(d), which requires a creditor claiming a security interest to supply evidence of the perfection of that interest, and the Court is convinced its claim should not be allowed as secured. Norwest defaulted on the debtors' objection to the secured status asserted in its proof of claim, and since Norwest cannot prove its alleged security interest is perfected, the Court will and hereby does deny its motion for reconsideration. Given this ruling, the Court need not address the parties' dispute about whether Norwest has shown that it actually has a security interest in the debtors' purchases.


Dated at Topeka, Kansas, this _____ day of July, 1997.





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