Konkel v. Golden Plains Credit Union
778 p.2d 660 (1989)
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Rule of Law:
Under the Kansas Uniform Commercial Code (UCC), the proper method for perfecting a security interest in equipment is determined by the debtor's actual use of the collateral, not its inherent nature. For mobile goods, such as commercial harvesting machinery, a security interest remains perfected for four months after the debtor changes location, not four months after the collateral is moved to a new jurisdiction.
Facts:
- Duane Lewis, a resident of Hamilton County, Kansas, was both a farmer and a custom crop cutter.
- On May 4, 1978, Golden Plains Credit Union financed Lewis's purchase of two John Deere combines.
- In May 1978, Golden Plains filed a financing statement to perfect its security interest in the office of the registrar of deeds in Hamilton County, Kansas, Lewis's county of residence.
- In late October 1979, Lewis transported the combines from Kansas to a farm he had purchased in Baca County, Colorado.
- On February 7, 1980, Lewis sold one of the combines in Colorado to Bud Konkel, who operated Konkel Equipment Company.
- Konkel did not search for financing statements and had no actual knowledge of Golden Plains' security interest in the combine.
- Konkel subsequently resold the combine to a farmer in Colorado.
Procedural Posture:
- Golden Plains Credit Union sued Bud Konkel for conversion in the Baca County District Court (a Colorado trial court).
- The trial court granted summary judgment for Konkel, finding that Golden Plains' security interest had lapsed.
- Golden Plains, as appellant, appealed the judgment to the Colorado Court of Appeals, an intermediate appellate court.
- The Court of Appeals reversed the trial court, holding that the combine was a 'mobile good' and remanded the case for a factual determination.
- The Colorado Supreme Court granted certiorari to review the decision of the Court of Appeals.
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Issue:
Does a creditor lose its perfected security interest in a farm combine when the debtor moves it to another state and sells it, if the initial perfection was based on a local filing and the creditor does not re-file in the new state within four months of the combine's relocation?
Opinions:
Majority - Justice Vollack
No. A creditor does not automatically lose its security interest, because the perfection analysis depends on two key classifications: (1) whether the initial filing was proper under an 'actual use' test for the collateral, and (2) whether the collateral qualifies as a 'mobile good' for which perfection follows the debtor's location, not the collateral's. First, the court held that to determine if the combine was 'equipment used in farming operations' requiring local filing under Kansas law, the trial court must apply the 'actual use test.' This test focuses on the use to which the debtor actually puts the goods, not the inherent qualities of the goods (the 'normal use test') or the debtor's stated intentions. The case was remanded for the trial court to determine Lewis's actual use of the combine. Second, the court affirmed that the combine is a 'mobile good' under Kansas UCC § 84-9-103(3), which expressly includes 'commercial harvesting machinery.' For mobile goods, the four-month grace period for re-perfection is triggered by a change in the debtor's location, not the physical movement of the goods across state lines. Therefore, the case was also remanded for the trial court to determine whether Lewis had changed his location from Kansas to Colorado at the time of the sale to Konkel.
Analysis:
This decision clarifies two significant rules under the UCC for multi-state secured transactions. By mandating the 'actual use' test for classifying farm-related equipment, the court placed a greater burden on creditors to investigate a debtor's specific business activities rather than relying on the equipment's general purpose, creating potential uncertainty. The ruling solidifies that large, movable equipment like combines are 'mobile goods,' meaning perfection follows the debtor, not the collateral. This protects creditors who finance such equipment but shifts the risk to subsequent purchasers, who must now conduct more diligent searches in the debtor's state of residence, regardless of where the equipment is located.
