Uniform Commercial Code

UNIFORM
COMMERCIAL
CODE
U.C.C.WORKBOOK
U.C.C.UNIFORMCOMMERCIALCODE
Article1.GeneralProvisions
Article2.Sales
Article2A.Leases
Article3.NegotiableInstruments
Article4.BankDeposit
Article4A.FundsTransfers
Article5.LettersofCredit
Article6.BulkTransfersand[Revised]BulkSales
Article7.WarehouseReceipts,BillsofLadingandOtherDocumentsofTitle
Article8.InvestmentSecurities
Article9.SecuredTransactions
Copyright2005byTheAmericanLawInstituteandtheNationalConferenceofCommissionersonUniformState
Laws;reproduced,publishedanddistributedforthelimitedpurposesofstudy,teaching,andacademicresearch.
U.C.C.ARTICLE1GENERALPROVISIONS
PART1.GENERALPROVISIONS
1101.ShortTitles.
1102.ScopeofArticle.
1103.Constructionof[UniformCommercialCode]toPromoteitsPurposesand
Policies:ApplicabilityofSupplementalPrinciplesofLaw.
1104.ConstructionAgainstImpliedRepeal.
1105.Severability.
1106.UseofSingularandPlural;Gender.
1107.SectionCaptions.
1108.RelationtoElectronicSignaturesinGlobalandNationalCommerceAct.
PART2.GENERALDEFINITIONSANDPRINCIPLESOFINTERPRETATION
1201.GeneralDefinitions.
1202.Notice;Knowledge.
1203.LeaseDistinguishedfromSecurityInterest.
1204.Value.
1205.Reasonabletime;Seasonableness.
1206.Presumptions.
PART3.TERRITORIALAPPLICABILITYANDGENERALRULES
1301.TerritorialApplicability;Parties'PowertoChooseApplicableLaw.
1302.VariationbyAgreement.
1303.CourseofPerformance,CourseofDealing,andUsageofTrade.
1304.ObligationofGoodFaith.
1305.RemediestobeLiberallyAdministered.
1306.WaiverorRenunciationofClaimorRightAfterBreach.
1307.PrimaFacieEvidencebyThirdPartyDocuments.
1308.PerformanceorAcceptanceUnderReservationofRights.
1309.OptiontoAccelerateatWill.
1310.SubordinatedObligations.
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1101.ShortTitles.
(a)This[Act]maybecitedastheUniformCommercialCode.
(b)ThisarticlemaybecitedasUniformCommercialCodeGeneralProvisions.
1102.ScopeofArticle.
Thisarticleappliestoatransactiontotheextentthatitisgovernedbyanotherarticleof
[theUniformCommercialCode].
1103.Constructionof[UniformCommercialCode]toPromoteitsPurposesand
Policies:ApplicabilityofSupplementalPrinciplesofLaw.
(a)[TheUniformCommercialCode]mustbeliberallyconstruedandappliedtopromote
itsunderlyingpurposesandpolicies,whichare:(1)tosimplify,clarify,andmodernize
thelawgoverningcommercialtransactions;(2)topermitthecontinuedexpansionof
commercialpracticesthroughcustom,usage,andagreementoftheparties;and(3)to
makeuniformthelawamongthevariousjurisdictions.
(b)Unlessdisplacedbytheparticularprovisionsof[theUniformCommercialCode],the
principlesoflawandequity,includingthelawmerchantandthelawrelativetocapacity
tocontract,principalandagent,estoppel,fraud,misrepresentation,duress,coercion,
mistake,bankruptcy,andothervalidatingorinvalidatingcausesupplementits
provisions.
1104.ConstructionAgainstImpliedRepeal.
[TheUniformCommercialCode]beingageneralactintendedasaunifiedcoverageof
itssubjectmatter,nopartofitshallbedeemedtobeimpliedlyrepealedbysubsequent
legislationifsuchconstructioncanreasonablybeavoided.
1105.Severability.
Ifanyprovisionorclauseof[theUniformCommercialCode]oritsapplicationtoany
personorcircumstanceisheldinvalid,theinvaliditydoesnotaffectotherprovisionsor
applicationsof[theUniformCommercialCode]whichcanbegiveneffectwithoutthe
invalidprovisionorapplication,andtothisendtheprovisionsof[theUniform
CommercialCode]areseverable.
1106.UseofSingularandPlural;Gender.
In[theUniformCommercialCode],unlessthestatutorycontextotherwiserequires:(1)
wordsinthesingularnumberincludetheplural,andthoseinthepluralincludethe
singular;and(2)wordsofanygenderalsorefertoanyothergender.
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1107.SectionCaptions.
Sectioncaptionsarepartof[theUniformCommercialCode].
1108.RelationtoElectronicSignaturesinGlobalandNationalCommerceAct.
Thisarticlemodifies,limits,andsupersedesthefederalElectronicSignaturesinGlobal
andNationalCommerceAct,15U.S.C.Section7001etseq.,exceptthatnothinginthis
articlemodifies,limits,orsupersedesSection7001(c)ofthatActorauthorizes
electronicdeliveryofanyofthenoticesdescribedinSection7003(b)ofthatAct.
PART2.GENERALDEFINITIONSANDPRINCIPLESOFINTERPRETATION
1201.GeneralDefinitions.
(a)Unlessthecontextotherwiserequires,wordsorphrasesdefinedinthissection,or
intheadditionaldefinitionscontainedinotherarticlesof[theUniformCommercial
Code]thatapplytoparticulararticlesorpartsthereof,havethemeaningsstated.
(b)Subjecttodefinitionscontainedinotherarticlesof[theUniformCommercialCode]
thatapplytoparticulararticlesorpartsthereof:
(1)"Action",inthesenseofajudicialproceeding,includesrecoupment,
counterclaim,setoff,suitinequity,andanyotherproceedinginwhichrightsare
determined.
(2)"Aggrievedparty"meansapartyentitledtopursuearemedy.
(3)"Agreement",asdistinguishedfrom"contract",meansthebargainofthe
partiesinfact,asfoundintheirlanguageorinferredfromothercircumstances,
includingcourseofperformance,courseofdealing,orusageoftradeasprovided
inSection1303.
(4)"Bank"meansapersonengagedinthebusinessofbankingandincludesa
savingsbank,savingsandloanassociation,creditunion,andtrustcompany.
(5)"Bearer"meansapersoninpossessionofanegotiableinstrument,document
oftitle,orcertificatedsecuritythatispayabletobearerorindorsedinblank.
(6)"Billoflading"meansadocumentevidencingthereceiptofgoodsfor
shipmentissuedbyapersonengagedinthebusinessoftransportingor
forwardinggoods.
(7)"Branch"includesaseparatelyincorporatedforeignbranchofabank.
(8)"Burdenofestablishing"afactmeanstheburdenofpersuadingthetrierof
factthattheexistenceofthefactismoreprobablethanitsnonexistence.
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(9)"Buyerinordinarycourseofbusiness"meansapersonthatbuysgoodsin
goodfaith,withoutknowledgethatthesaleviolatestherightsofanotherperson
inthegoods,andintheordinarycoursefromaperson,otherthanapawnbroker,
inthebusinessofsellinggoodsofthatkind.Apersonbuysgoodsintheordinary
courseifthesaletothepersoncomportswiththeusualorcustomarypractices
inthekindofbusinessinwhichthesellerisengagedorwiththeseller'sown
usualorcustomarypractices.Apersonthatsellsoil,gas,orothermineralsatthe
wellheadormineheadisapersoninthebusinessofsellinggoodsofthatkind.A
buyerinordinarycourseofbusinessmaybuyforcash,byexchangeofother
property,oronsecuredorunsecuredcredit,andmayacquiregoodsor
documentsoftitleunderapreexistingcontractforsale.Onlyabuyerthattakes
possessionofthegoodsorhasarighttorecoverthegoodsfromthesellerunder
Article2maybeabuyerinordinarycourseofbusiness."Buyerinordinary
courseofbusiness"doesnotincludeapersonthatacquiresgoodsinatransferin
bulkorassecurityfororintotalorpartialsatisfactionofamoneydebt.
(10)"Conspicuous",withreferencetoaterm,meanssowritten,displayed,or
presentedthatareasonablepersonagainstwhichitistooperateoughttohave
noticedit.Whetheratermis"conspicuous"ornotisadecisionforthecourt.
Conspicuoustermsincludethefollowing:(A)aheadingincapitalsequaltoor
greaterinsizethanthesurroundingtext,orincontrastingtype,font,orcolorto
thesurroundingtextofthesameorlessersize;and(B)languageinthebodyofa
recordordisplayinlargertypethanthesurroundingtext,orincontrastingtype,
font,orcolortothesurroundingtextofthesamesize,orsetofffrom
surroundingtextofthesamesizebysymbolsorothermarksthatcallattention
tothelanguage.
(11)"Consumer"meansanindividualwhoentersintoatransactionprimarily
forpersonal,family,orhouseholdpurposes.
(12)"Contract",asdistinguishedfrom"agreement",meansthetotallegal
obligationthatresultsfromtheparties'agreementasdeterminedby[the
UniformCommercialCode]assupplementedbyanyotherapplicablelaws.
(13)"Creditor"includesageneralcreditor,asecuredcreditor,aliencreditor,
andanyrepresentativeofcreditors,includinganassigneeforthebenefitof
creditors,atrusteeinbankruptcy,areceiverinequity,andanexecutoror
administratorofaninsolventdebtor'sorassignor'sestate.
(14)"Defendant"includesapersoninthepositionofdefendantina
counterclaim,crossclaim,orthirdpartyclaim.
(15)"Delivery",withrespecttoaninstrument,documentoftitle,orchattel
paper,meansvoluntarytransferofpossession.
(16)"Documentoftitle"includesbilloflading,dockwarrant,dockreceipt,
warehousereceiptororderforthedeliveryofgoods,andalsoanyother
documentwhichintheregularcourseofbusinessorfinancingistreatedas
adequatelyevidencingthatthepersoninpossessionofitisentitledtoreceive,
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hold,anddisposeofthedocumentandthegoodsitcovers.Tobeadocumentof
title,adocumentmustpurporttobeissuedbyoraddressedtoabaileeand
purporttocovergoodsinthebailee'spossessionwhichareeitheridentifiedor
arefungibleportionsofanidentifiedmass.
(17)"Fault"meansadefault,breach,orwrongfulactoromission.
(18)"Fungiblegoods"means:(A)goodsofwhichanyunit,bynatureorusageof
trade,istheequivalentofanyotherlikeunit;or(B)goodsthatbyagreementare
treatedasequivalent.
(19)"Genuine"meansfreeofforgeryorcounterfeiting.
(20)"Goodfaith,"exceptasotherwiseprovidedinArticle5,meanshonestyin
factandtheobservanceofreasonablecommercialstandardsoffairdealing.
(21)"Holder"means:(A)thepersoninpossessionofanegotiableinstrument
thatispayableeithertobearerortoanidentifiedpersonthatisthepersonin
possession;or(B)thepersoninpossessionofadocumentoftitleifthegoodsare
deliverableeithertobearerortotheorderofthepersoninpossession.
(22)"Insolvencyproceeding"includesanassignmentforthebenefitofcreditors
orotherproceedingintendedtoliquidateorrehabilitatetheestateoftheperson
involved.
(23)"Insolvent"means:(A)havinggenerallyceasedtopaydebtsintheordinary
courseofbusinessotherthanasaresultofbonafidedispute;(B)beingunableto
paydebtsastheybecomedue;or(C)beinginsolventwithinthemeaningof
federalbankruptcylaw.
(24)"Money"meansamediumofexchangecurrentlyauthorizedoradoptedbya
domesticorforeigngovernment.Thetermincludesamonetaryunitofaccount
establishedbyanintergovernmentalorganizationorbyagreementbetweentwo
ormorecountries.
(25)"Organization"meansapersonotherthananindividual.
(26)"Party",asdistinguishedfrom"thirdparty",meansapersonthathas
engagedinatransactionormadeanagreementsubjectto[theUniform
CommercialCode].
(27)"Person"meansanindividual,corporation,businesstrust,estate,trust,
partnership,limitedliabilitycompany,association,jointventure,government,
governmentalsubdivision,agency,orinstrumentality,publiccorporation,orany
otherlegalorcommercialentity.
(28)"Presentvalue"meanstheamountasofadatecertainofoneormoresums
payableinthefuture,discountedtothedatecertainbyuseofeitheraninterest
ratespecifiedbythepartiesifthatrateisnotmanifestlyunreasonableatthe
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timethetransactionisenteredintoor,ifaninterestrateisnotsospecified,a
commerciallyreasonableratethattakesintoaccountthefactsand
circumstancesatthetimethetransactionisenteredinto.
(29)"Purchase"meanstakingbysale,lease,discount,negotiation,mortgage,
pledge,lien,securityinterest,issueorreissue,gift,oranyothervoluntary
transactioncreatinganinterestinproperty.
(30)"Purchaser"meansapersonthattakesbypurchase.
(31)"Record"meansinformationthatisinscribedonatangiblemediumorthat
isstoredinanelectronicorothermediumandisretrievableinperceivableform.
(32)"Remedy"meansanyremedialrighttowhichanaggrievedpartyisentitled
withorwithoutresorttoatribunal.
(33)"Representative"meansapersonempoweredtoactforanother,including
anagent,anofficerofacorporationorassociation,andatrustee,executor,or
administratorofanestate.
(34)"Right"includesremedy.
(35)"Securityinterest"meansaninterestinpersonalpropertyorfixtureswhich
securespaymentorperformanceofanobligation."Securityinterest"includes
anyinterestofaconsignorandabuyerofaccounts,chattelpaper,apayment
intangible,orapromissorynoteinatransactionthatissubjecttoArticle9.
"Securityinterest"doesnotincludethespecialpropertyinterestofabuyerof
goodsonidentificationofthosegoodstoacontractforsaleunderSection2505,
therightofasellerorlessorofgoodsunderArticle2or2Atoretainoracquire
possessionofthegoodsisnota"securityinterest",butasellerorlessormayalso
acquirea"securityinterest"bycomplyingwithArticle9.Theretentionor
reservationoftitlebyasellerofgoodsnotwithstandingshipmentordeliveryto
thebuyerunderSection2401islimitedineffecttoareservationofa"security
interest."Whetheratransactionintheformofaleasecreatesa"security
interest"isdeterminedpursuanttoSection1203.
(36)"Send"inconnectionwithawriting,record,ornoticemeans:(A)todeposit
inthemailordeliverfortransmissionbyanyotherusualmeansof
communicationwithpostageorcostoftransmissionprovidedforandproperly
addressedand,inthecaseofaninstrument,toanaddressspecifiedthereonor
otherwiseagreed,oriftherebenonetoanyaddressreasonableunderthe
circumstances;or(B)inanyotherwaytocausetobereceivedanyrecordor
noticewithinthetimeitwouldhavearrivedifproperlysent.
(37)"Signed"includesusinganysymbolexecutedoradoptedwithpresent
intentiontoadoptoracceptawriting.
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(38)"State"meansaStateoftheUnitedStates,theDistrictofColumbia,Puerto
Rico,theUnitedStatesVirginIslands,oranyterritoryorinsularpossession
subjecttothejurisdictionoftheUnitedStates.
(39)"Surety"includesaguarantororothersecondaryobligor.
(40)"Term"meansaportionofanagreementthatrelatestoaparticularmatter.
(41)"Unauthorizedsignature"meansasignaturemadewithoutactual,implied,
orapparentauthority.Thetermincludesaforgery.
(42)"Warehousereceipt"meansareceiptissuedbyapersonengagedinthe
businessofstoringgoodsforhire.
(43)"Writing"includesprinting,typewriting,oranyotherintentionalreduction
totangibleform."Written"hasacorrespondingmeaning.
1202.Notice;Knowledge.
(a)Subjecttosubsection(f),apersonhas"notice"ofafactiftheperson:(1)hasactual
knowledgeofit;(2)hasreceivedanoticeornotificationofit;or(3)fromallthefacts
andcircumstancesknowntothepersonatthetimeinquestion,hasreasontoknowthat
itexists.
(b)"Knowledge"meansactualknowledge."Knows"hasacorrespondingmeaning.
(c)"Discover","learn",orwordsofsimilarimportrefertoknowledgeratherthanto
reasontoknow.
(d)Aperson"notifies"or"gives"anoticeornotificationtoanotherpersonbytaking
suchstepsasmaybereasonablyrequiredtoinformtheotherpersoninordinary
course,whetherornottheotherpersonactuallycomestoknowofit.
(e)Subjecttosubsection(f),aperson"receives"anoticeornotificationwhen:(1)it
comestothatperson'sattention;or(2)itisdulydeliveredinaformreasonableunder
thecircumstancesattheplaceofbusinessthroughwhichthecontractwasmadeorat
anotherlocationheldoutbythatpersonastheplaceforreceiptofsuch
communications.
(f)Notice,knowledge,oranoticeornotificationreceivedbyanorganizationiseffective
foraparticulartransactionfromthetimeitisbroughttotheattentionoftheindividual
conductingthattransactionand,inanyevent,fromthetimeitwouldhavebeenbrought
totheindividual'sattentioniftheorganizationhadexercisedduediligence.An
organizationexercisesduediligenceifitmaintainsreasonableroutinesfor
communicatingsignificantinformationtothepersonconductingthetransactionand
thereisreasonablecompliancewiththeroutines.Duediligencedoesnotrequirean
individualactingfortheorganizationtocommunicateinformationunlessthe
communicationispartoftheindividual'sregulardutiesortheindividualhasreasonto
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knowofthetransactionandthatthetransactionwouldbemateriallyaffectedbythe
information.
1203.LeaseDistinguishedfromSecurityInterest.
(a)Whetheratransactionintheformofaleasecreatesaleaseorsecurityinterestis
determinedbythefactsofeachcase.
(b)Atransactionintheformofaleasecreatesasecurityinterestiftheconsideration
thatthelesseeistopaythelessorfortherighttopossessionanduseofthegoodsisan
obligationforthetermoftheleaseandisnotsubjecttoterminationbythelessee,and:
(1)theoriginaltermoftheleaseisequaltoorgreaterthantheremainingeconomiclife
ofthegoods;(2)thelesseeisboundtorenewtheleasefortheremainingeconomiclife
ofthegoodsorisboundtobecometheownerofthegoods;(3)thelesseehasanoption
torenewtheleasefortheremainingeconomiclifeofthegoodsfornoadditional
considerationorfornominaladditionalconsiderationuponcompliancewiththelease
agreement;or(4)thelesseehasanoptiontobecometheownerofthegoodsforno
additionalconsiderationorfornominaladditionalconsiderationuponcompliancewith
theleaseagreement.
(c)Atransactionintheformofaleasedoesnotcreateasecurityinterestmerely
because:(1)thepresentvalueoftheconsiderationthelesseeisobligatedtopaythe
lessorfortherighttopossessionanduseofthegoodsissubstantiallyequaltooris
greaterthanthefairmarketvalueofthegoodsatthetimetheleaseisenteredinto;(2)
thelesseeassumesriskoflossofthegoods;(3)thelesseeagreestopay,withrespectto
thegoods,taxes,insurance,filing,recording,orregistrationfees,orserviceor
maintenancecosts;(4)thelesseehasanoptiontorenewtheleaseortobecomethe
ownerofthegoods;(5)thelesseehasanoptiontorenewtheleaseforafixedrentthat
isequaltoorgreaterthanthereasonablypredictablefairmarketrentfortheuseofthe
goodsforthetermoftherenewalatthetimetheoptionistobeperformed;or(6)the
lesseehasanoptiontobecometheownerofthegoodsforafixedpricethatisequalto
orgreaterthanthereasonablypredictablefairmarketvalueofthegoodsatthetimethe
optionistobeperformed.
(d)Additionalconsiderationisnominalifitislessthanthelessee'sreasonably
predictablecostofperformingundertheleaseagreementiftheoptionisnotexercised.
Additionalconsiderationisnotnominalif:(1)whentheoptiontorenewtheleaseis
grantedtothelessee,therentisstatedtobethefairmarketrentfortheuseofthe
goodsforthetermoftherenewaldeterminedatthetimetheoptionistobeperformed;
or(2)whentheoptiontobecometheownerofthegoodsisgrantedtothelessee,the
priceisstatedtobethefairmarketvalueofthegoodsdeterminedatthetimetheoption
istobeperformed.
(e)The"remainingeconomiclifeofthegoods"and"reasonablypredictable"fairmarket
rent,fairmarketvalue,orcostofperformingundertheleaseagreementmustbe
determinedwithreferencetothefactsandcircumstancesatthetimethetransactionis
enteredinto.
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1204.Value.
ExceptasotherwiseprovidedinArticles3,4,[and]5,[and6],apersongivesvaluefor
rightsifthepersonacquiresthem:(1)inreturnforabindingcommitmenttoextend
creditorfortheextensionofimmediatelyavailablecredit,whetherornotdrawnupon
andwhetherornotachargebackisprovidedforintheeventofdifficultiesin
collection;(2)assecurityfor,orintotalorpartialsatisfactionof,apreexistingclaim;(3)
byacceptingdeliveryunderapreexistingcontractforpurchase;or(4)inreturnforany
considerationsufficienttosupportasimplecontract.
1205.Reasonabletime;Seasonableness.
(a)Whetheratimefortakinganactionrequiredby[theUniformCommercialCode]is
reasonabledependsonthenature,purpose,andcircumstancesoftheaction.
(b)Anactionistakenseasonablyifitistakenatorwithinthetimeagreedor,ifnotime
isagreed,atorwithinareasonabletime.
1206.Presumptions.
Whenever[theUniformCommercialCode]createsa"presumption"withrespecttoa
fact,orprovidesthatafactis"presumed,"thetrieroffactmustfindtheexistenceofthe
factunlessanduntilevidenceisintroducedthatsupportsafindingofitsnonexistence.
PART3.TERRITORIALAPPLICABILITYANDGENERALRULES
1301.TerritorialApplicability;Parties'PowertoChooseApplicableLaw.
(a)Inthissection:
(1)"Domestictransaction"meansatransactionotherthananinternational
transaction.
(2)"Internationaltransaction"meansatransactionthatbearsareasonable
relationtoacountryotherthantheUnitedStates.
(b)Thissectionappliestoatransactiontotheextentthatitisgovernedbyanother
articleofthe[UniformCommercialCode].
(c)Exceptasotherwiseprovidedinthissection:
(1)anagreementbypartiestoadomestictransactionthatanyoralloftheir
rightsandobligationsaretobedeterminedbythelawofthisStateorofanother
Stateiseffective,whetherornotthetransactionbearsarelationtotheState
designated;and
(2)anagreementbypartiestoaninternationaltransactionthatanyorallof
theirrightsandobligationsaretobedeterminedbythelawofthisStateorof
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anotherStateorcountryiseffective,whetherornotthetransactionbearsa
relationtotheStateorcountrydesignated.
(d)Intheabsenceofanagreementeffectiveundersubsection(c),andexceptas
providedinsubsections(e)and(g),therightsandobligationsofthepartiesare
determinedbythelawthatwouldbeselectedbyapplicationofthisState'sconflictof
lawsprinciples.
(e)Ifoneofthepartiestoatransactionisaconsumer,thefollowingrulesapply:
(1)Anagreementreferredtoinsubsection(c)isnoteffectiveunlessthe
transactionbearsareasonablerelationtotheStateorcountrydesignated.
(2)ApplicationofthelawoftheStateorcountrydeterminedpursuantto
subsection(c)or(d)maynotdeprivetheconsumeroftheprotectionofanyrule
oflawgoverningamatterwithinthescopeofthissection,whichbothis
protectiveofconsumersandmaynotbevariedbyagreement:(A)oftheStateor
countryinwhichtheconsumerprincipallyresides,unlesssubparagraph(B)
applies;or(B)ifthetransactionisasaleofgoods,oftheStateorcountryin
whichtheconsumerbothmakesthecontractandtakesdeliveryofthosegoods,
ifsuchStateorcountryisnottheStateorcountryinwhichtheconsumer
principallyresides.
(f)Anagreementotherwiseeffectiveundersubsection(c)isnoteffectivetotheextent
thatapplicationofthelawoftheStateorcountrydesignatedwouldbecontrarytoa
fundamentalpolicyoftheStateorcountrywhoselawwouldgovernintheabsenceof
agreementundersubsection(d).
(g)Totheextentthat[theUniformCommercialCode]governsatransaction,ifoneof
thefollowingprovisionsof[theUniformCommercialCode]specifiestheapplicablelaw,
thatprovisiongovernsandacontraryagreementiseffectiveonlytotheextent
permittedbythelawsospecified:(1)Section2402;(2)Sections2A105and2A106;
(3)Section4102;(4)Section4A507;(5)Section5116;[(6)Section6103;](7)
Section8110;(8)Sections9301through9307.
1302.VariationbyAgreement.
(a)Exceptasotherwiseprovidedinsubsection(b)orelsewherein[theUniform
CommercialCode],theeffectofprovisionsof[theUniformCommercialCode]maybe
variedbyagreement.
(b)Theobligationsofgoodfaith,diligence,reasonableness,andcareprescribedby[the
UniformCommercialCode]maynotbedisclaimedbyagreement.Theparties,by
agreement,maydeterminethestandardsbywhichtheperformanceofthose
obligationsistobemeasuredifthosestandardsarenotmanifestlyunreasonable.
Whenever[theUniformCommercialCode]requiresanactiontobetakenwithina
reasonabletime,atimethatisnotmanifestlyunreasonablemaybefixedbyagreement.
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(c)Thepresenceincertainprovisionsof[theUniformCommercialCode]ofthephrase
"unlessotherwiseagreed",orwordsofsimilarimport,doesnotimplythattheeffectof
otherprovisionsmaynotbevariedbyagreementunderthissection.
1303.CourseofPerformance,CourseofDealing,andUsageofTrade.
(a)A"courseofperformance"isasequenceofconductbetweenthepartiestoa
particulartransactionthatexistsif:(1)theagreementofthepartieswithrespecttothe
transactioninvolvesrepeatedoccasionsforperformancebyaparty;and(2)theother
party,withknowledgeofthenatureoftheperformanceandopportunityforobjection
toit,acceptstheperformanceoracquiescesinitwithoutobjection.
(b)A"courseofdealing"isasequenceofconductconcerningprevioustransactions
betweenthepartiestoaparticulartransactionthatisfairlytoberegardedas
establishingacommonbasisofunderstandingforinterpretingtheirexpressionsand
otherconduct.
(c)A"usageoftrade"isanypracticeormethodofdealinghavingsuchregularityof
observanceinaplace,vocation,ortradeastojustifyanexpectationthatitwillbe
observedwithrespecttothetransactioninquestion.Theexistenceandscopeofsucha
usagemustbeprovedasfacts.Ifitisestablishedthatsuchausageisembodiedina
tradecodeorsimilarrecord,theinterpretationoftherecordisaquestionoflaw.
(d)Acourseofperformanceorcourseofdealingbetweenthepartiesorusageoftrade
inthevocationortradeinwhichtheyareengagedorofwhichtheyareorshouldbe
awareisrelevantinascertainingthemeaningoftheparties'agreement,maygive
particularmeaningtospecifictermsoftheagreement,andmaysupplementorqualify
thetermsoftheagreement.Ausageoftradeapplicableintheplaceinwhichpartofthe
performanceundertheagreementistooccurmaybesoutilizedastothatpartofthe
performance.
(e)Exceptasotherwiseprovidedinsubsection(f),theexpresstermsofanagreement
andanyapplicablecourseofperformance,courseofdealing,orusageoftrademustbe
construedwheneverreasonableasconsistentwitheachother.Ifsuchaconstructionis
unreasonable:(1)expresstermsprevailovercourseofperformance,courseofdealing,
andusageoftrade;(2)courseofperformanceprevailsovercourseofdealingandusage
oftrade;and(3)courseofdealingprevailsoverusageoftrade.
(f)SubjecttoSection2209,acourseofperformanceisrelevanttoshowawaiveror
modificationofanyterminconsistentwiththecourseofperformance.
(g)Evidenceofarelevantusageoftradeofferedbyonepartyisnotadmissibleunless
thatpartyhasgiventheotherpartynoticethatthecourtfindssufficienttoprevent
unfairsurprisetotheotherparty.
1304.ObligationofGoodFaith.
Everycontractordutywithin[theUniformCommercialCode]imposesanobligationof
goodfaithinitsperformanceandenforcement.
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1305.RemediestobeLiberallyAdministered.
(a)Theremediesprovidedby[theUniformCommercialCode]mustbeliberally
administeredtotheendthattheaggrievedpartymaybeputinasgoodapositionasif
theotherpartyhadfullyperformedbutneitherconsequentialorspecialdamagesnor
penaldamagesmaybehadexceptasspecificallyprovidedin[theUniformCommercial
Code]orbyotherruleoflaw.
(b)Anyrightorobligationdeclaredby[theUniformCommercialCode]isenforceable
byactionunlesstheprovisiondeclaringitspecifiesadifferentandlimitedeffect.
1306.WaiverorRenunciationofClaimorRightAfterBreach.
Aclaimorrightarisingoutofanallegedbreachmaybedischargedinwholeorinpart
withoutconsiderationbyagreementoftheaggrievedpartyinanauthenticatedrecord.
1307.PrimaFacieEvidencebyThirdPartyDocuments.
Adocumentindueformpurportingtobeabilloflading,policyorcertificateof
insurance,officialweigher'sorinspector'scertificate,consularinvoice,oranyother
documentauthorizedorrequiredbythecontracttobeissuedbyathirdpartyisprima
facieevidenceofitsownauthenticityandgenuinenessandofthefactsstatedinthe
documentbythethirdparty.
1308.PerformanceorAcceptanceUnderReservationofRights.
(a)Apartythatwithexplicitreservationofrightsperformsorpromisesperformanceor
assentstoperformanceinamannerdemandedorofferedbytheotherpartydoesnot
therebyprejudicetherightsreserved.Suchwordsas"withoutprejudice,""under
protest,"orthelikearesufficient.
(b)Subsection(a)doesnotapplytoanaccordandsatisfaction.
1309.OptiontoAccelerateatWill.
Atermprovidingthatonepartyorthatparty'ssuccessorininterestmayaccelerate
paymentorperformanceorrequirecollateraloradditionalcollateral"atwill"orwhen
theparty"deemsitselfinsecure,"orwordsofsimilarimport,meansthatthepartyhas
powertodosoonlyifthatpartyingoodfaithbelievesthattheprospectofpaymentor
performanceisimpaired.Theburdenofestablishinglackofgoodfaithisontheparty
againstwhichthepowerhasbeenexercised.
1310.SubordinatedObligations.
Anobligationmaybeissuedassubordinatedtoperformanceofanotherobligationof
thepersonobligated,oracreditormaysubordinateitsrighttoperformanceofan
obligationbyagreementwitheitherthepersonobligatedoranothercreditorofthe
personobligated.Subordinationdoesnotcreateasecurityinterestasagainsteitherthe
commondebtororasubordinatedcreditor.
[ 14 ]
M.I.C.NOTES[UCCARTICLE1:GENERALPROVISIONS]
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[ 24 ]
U.C.C.ARTICLE2SALES
PART1.SHORTTITLE,GENERALCONSTRUCTIONANDSUBJECTMATTER
2101.ShortTitle.
2102.Scope;CertainSecurityandOtherTransactionsExcludedFromThisArticle.
2103.DefinitionsandIndexofDefinitions.
2104.Definitions:"Merchant";"BetweenMerchants";"FinancingAgency".
2105.Definitions:Transferability;"Goods";"Future"Goods;"Lot";"Commercial
Unit".
2106.Definitions:"Contract";"Agreement";"Contractforsale";"Sale";"Presentsale";
"Conforming"toContract;"Termination";"Cancellation".
2107.GoodstoBeSeveredFromRealty:Recording.
PART2.FORM,FORMATIONANDREADJUSTMENTOFCONTRACT
2201.FormalRequirements;StatuteofFrauds.
2202.FinalWrittenExpression:ParolorExtrinsicEvidence.
2203.SealsInoperative.
2204.FormationinGeneral.
2205.FirmOffers.
2206.OfferandAcceptanceinFormationofContract.
2207.AdditionalTermsinAcceptanceorConfirmation.
2209.Modification,RescissionandWaiver.
2210.DelegationofPerformance;AssignmentofRights.
PART3.GENERALOBLIGATIONANDCONSTRUCTIONOFCONTRACT
2301.GeneralObligationsofParties.
2302.UnconscionablecontractorClause.
2303.AllocationorDivisionofRisks.
2304.PricePayableinMoney,Goods,Realty,orOtherwise.
2305.OpenPriceTerm.
2306.Output,RequirementsandExclusiveDealings.
2307.DeliveryinSingleLotorSeveralLots.
2308.AbsenceofSpecifiedPlaceforDelivery.
2309.AbsenceofSpecificTimeProvisions;NoticeofTermination.
2310.OpenTimeforPaymentorRunningofCredit;AuthoritytoShipUnder
Reservation.
2311.OptionsandCooperationRespectingPerformance.
2312.WarrantyofTitleandAgainstInfringement;Buyer'sObligationAgainst
Infringement.
2313.ExpressWarrantiesbyAffirmation,Promise,Description,Sample.
2313A.ObligationtoRemotePurchaserCreatedbyRecordPackagedWithor
AccompanyingGoods
2313B.ObligationtoRemotePurchaserCreatedbyCommunicationtothePublic
2314.ImpliedWarranty:Merchantability;UsageofTrade.
[ 25 ]
2315.ImpliedWarranty:FitnessforParticularPurpose.
2316.ExclusionorModificationofWarranties.
2317.CumulationandConflictofWarrantiesExpressorImplied.
2318.ThirdPartyBeneficiariesofWarrantiesExpressorImplied.
2319.F.O.B.andF.A.S.Terms.
2320.C.I.F.andC.&F.Terms.
2321.C.I.F.orC.&F.:"NetLandedWeights";"PaymentonArrival";Warrantyof
ConditiononArrival.
2322.Delivery"ExShip".
2323.FormofBillofLadingRequiredinOverseasShipment;"Overseas".
2324."NoArrival,Nosale"Term.
2325."LetterofCredit"Term;"ConfirmedCredit".
2326.SaleonApprovalandSaleorReturn;ConsignmentSalesandRightsof
Creditors.
2327.SpecialIncidentsofSaleonApprovalandSaleorReturn.
2328.SalebyAuction.
PART4.TITLE,CREDITORSANDGOODFAITHPURCHASERS
2401.PassingofTitle;ReservationforSecurity;LimitedApplicationofThisSection.
2402.RightsofSeller'sCreditorsAgainstSoldGoods.
2403.PowertoTransfer;GoodFaithPurchaseofGoods;"Entrusting".
PART5.PERFORMANCE
2501.InsurableInterestinGoods;MannerofIdentificationofGoods.
2502.Buyer'sRighttoGoodsonSeller'sRepudiation,FailuretoDeliveror
Insolvency.
2503.MannerofSeller'sTenderofDelivery.
2504.ShipmentbySeller.
2505.Seller'sShipmentUnderReservation.
2506.RightsofFinancingagency.
2507.EffectofSeller'sTender;DeliveryonCondition.
2508.CurebySellerofImproperTenderorDelivery;Replacement.
2509.RiskofLossintheAbsenceofBreach.
2510.EffectofBreachonRiskofLoss.
2511.TenderofPaymentbyBuyer;PaymentbyCheck.
2512.PaymentbyBuyerBeforeInspection.
2513.Buyer'sRighttoInspectionofGoods.
2514.WhenDocumentsDeliverableonAcceptance;WhenonPayment.
2515.PreservingEvidenceofGoodsinDispute.
PART6.BREACH,REPUDIATIONANDEXCUSE
2601.Buyer'sRightsonImproperDelivery.
2602.MannerandEffectofRightfulRejection.
2603.MerchantBuyer'sDutiesastoRightfullyRejectedGoods.
2604.Buyer'sOptionsastoSalvageofRightfullyRejectedGoods.
2605.WaiverofBuyer'sObjectionsbyFailuretoParticularize.
[ 26 ]
2606.WhatConstitutesAcceptanceofGoods.
2607.EffectofAcceptance;NoticeofBreach;BurdenofEstablishingBreachAfter
Acceptance;NoticeofClaimorLitigationtoPersonAnswerableOver.
2608.RevocationofAcceptanceinWholeorinPart.
2609.RighttoAdequateAssuranceofPerformance.
2610.AnticipatoryRepudiation.
2611.RetractionofAnticipatoryRepudiation.
2612."Installmentcontract";Breach.
2613.CasualtytoIdentifiedGoods.
2614.SubstitutedPerformance.
2615.ExcusebyFailureofPresupposedConditions.
2616.ProcedureonNoticeClaimingExcuse.
PART7.REMEDIES
2701.RemediesforBreachofCollateralcontractsNotImpaired.
2702.Seller'sRemediesonDiscoveryofBuyer'sInsolvency.
2703.Seller'sRemediesinGeneral.
2704.Seller'sRighttoIdentifyGoodstotheContractNotwithstandingBreachorto
SalvageUnfinishedGoods.
2705.Seller'sStoppageofDeliveryinTransitorOtherwise.
2706.Seller'sResaleIncludingContractforResale.
2707."PersoninthePositionofaSeller".
2708.Seller'sDamagesforNonacceptanceorRepudiation.
2709.ActionforthePrice.
2710.Seller'sIncidentalDamages.
2711.Buyer'sRemediesinGeneral;Buyer'sSecurityInterestinRejectedGoods.
2712."Cover";Buyer'sProcurementofSubstituteGoods.
2713.Buyer'sDamagesforNondeliveryorRepudiation.
2714.Buyer'sDamagesforBreachinRegardtoAcceptedGoods.
2715.Buyer'sIncidentalandConsequentialDamages.
2716.Buyer'sRighttoSpecificPerformanceorReplevin.
2717.DeductionofDamagesFromthePrice.
2718.LiquidationorLimitationofDamages;Deposits.
2719.ContractualModificationorLimitationofRemedy.
2720.Effectof"Cancellation"or"Rescission"onClaimsforAntecedentBreach.
2721.RemediesforFraud.
2722.WhoCanSueThirdPartiesforInjurytoGoods.
2723.ProofofMarketPrice:TimeandPlace.
2724.AdmissibilityofMarketQuotations.
2725.StatuteofLimitationsinContractsforSale.
[ 27 ]
PART1.SHORTTITLE,GENERALCONSTRUCTIONANDSUBJECTMATTER
2101.ShortTitle.
ThisArticleshallbeknownandmaybecitedasUniformCommercialCodeSales.
2102.Scope;CertainSecurityandOtherTransactionsExcludedFromThisArticle.
Unlessthecontextotherwiserequires,thisArticleappliestotransactionsingoods;it
doesnotapplytoanytransactionwhichalthoughintheformofanunconditional
contracttosellorpresentsaleisintendedtooperateonlyasasecuritytransactionnor
doesthisArticleimpairorrepealanystatuteregulatingsalestoconsumers,farmersor
otherspecifiedclassesofbuyers.
(1)InthisArticleunlessthecontextotherwiserequires
(a)"Buyer"meansapersonthatbuysorcontractstobuygoods.
(b)"Conspicuous",withreferencetoaterm,meanssowritten,displayed,or
presentedthatareasonablepersonagainstwhichitistooperateoughttohave
noticedit.Aterminanelectronicrecordintendedtoevokearesponsebyan
electronicagentisconspicuousifitispresentedinaformthatwouldenablea
reasonablyconfiguredelectronicagenttotakeitintoaccountorreacttoit
withoutreviewoftherecordbyanindividual.Whetheratermis"conspicuous"
ornotisadecisionforthecourt.Conspicuoustermsincludethefollowing:
(i)foraperson:
(A)aheadingincapitalsequaltoorgreaterinsizethanthe
surroundingtext,orincontrastingtype,font,orcolortothe
surroundingtextofthesameorlessersize;and
(B)languageinthebodyofarecordordisplayinlargertypethan
thesurroundingtext,orincontrastingtype,font,orcolortothe
surroundingtextofthesamesize,orsetofffromsurroundingtext
ofthesamesizebysymbolsorothermarksthatcallattentionto
thelanguage;and
(ii)forapersonoranelectronicagent,atermthatissoplacedinarecord
ordisplaythatthepersonorelectronicagentmaynotproceedwithout
takingactionwithrespecttotheparticularterm.
(c)"Consumer"meansanindividualwhobuysorcontractstobuygoodsthat,at
thetimeofcontracting,areintendedbytheindividualtobeusedprimarilyfor
personal,family,orhouseholdpurposes.
[ 28 ]
(d)"Consumercontract"meansacontractbetweenamerchantselleranda
consumer.
(e)"Delivery"meansthevoluntarytransferofphysicalpossessionorcontrolof
goods.
(f)"Electronic"meansrelatingtotechnologyhavingelectrical,digital,magnetic,
wireless,optical,electromagnetic,orsimilarcapabilities.
(g)"Electronicagent"meansacomputerprogramoranelectronicorother
automatedmeansusedindependentlytoinitiateanactionorrespondto
electronicrecordsorperformancesinwholeorinpart,withoutrevieworaction
byanindividual.
(h)"Electronicrecord"meansarecordcreated,generated,sent,communicated,
received,orstoredbyelectronicmeans.
(i)"Foreignexchangetransaction"meansatransactioninwhichoneparty
agreestodeliveraquantityofaspecifiedmoneyorunitofaccountin
considerationoftheotherparty'sagreementtodeliveranotherquantityofa
differentmoneyorunitofaccounteithercurrentlyoratafuturedate,andin
whichdeliveryistobethroughfundstransfer,bookentryaccounting,orother
formofpaymentorder,orotheragreedmeanstotransferacreditbalance.The
termincludesatransactionofthistypeinvolvingtwoormoremoneysandspot,
forward,option,orotherproductsderivedfromunderlyingmoneysandany
combinationofthesetransactions.Thetermdoesnotincludeatransaction
involvingtwoormoremoneysinwhichoneorbothofthepartiesisobligatedto
makephysicaldelivery,atthetimeofcontractingorinthefuture,ofbanknotes,
coins,orotherformoflegaltenderorspecie.
[(j)Reserved]
[(j)"Goodfaith"meanshonestyinfactandtheobservanceofreasonable
commercialstandardsoffairdealing.]
LegislativeNote:Thedefinitionof"goodfaith"shouldnotbeadoptedifthe
jurisdictionhasenactedthisdefinitionaspartofArticle1.
(k)"Goods"meansallthingsthataremovableatthetimeofidentificationtoa
contractforsale.Thetermincludesfuturegoods,speciallymanufacturedgoods,
theunbornyoungofanimals,growingcrops,andotheridentifiedthingsattached
torealtyasdescribedinSection2107.Thetermdoesnotincludeinformation,
themoneyinwhichthepriceistobepaid,investmentsecuritiesunderArticle8,
thesubjectmatterofforeignexchangetransactions,orchosesinaction.
(l)"Receiptofgoods"meanstakingphysicalpossessionofgoods.
(m)"Record"meansinformationthatisinscribedonatangiblemediumorthat
[ 29 ]
LegislativeNote:Thedefinitionof"record"shouldnotbeadoptedifthe
jurisdictionhasenactedrevisedArticle1.
(n)"Remedialpromise"meansapromisebythesellertorepairorreplacegoods
ortorefundallorpartofthepriceofgoodsuponthehappeningofaspecified
event.
(o)"Seller"meansapersonthatsellsorcontractstosellgoods.
(p)"Sign"means,withpresentintenttoauthenticateoradoptarecord:
(i)toexecuteoradoptatangiblesymbol;or
(ii)toattachtoorlogicallyassociatewiththerecordanelectronicsound,
symbol,orprocess.
(2)OtherdefinitionsapplyingtothisArticleortospecifiedPartsthereof,andthe
sectionsinwhichtheyappearare:
"Acceptance".Section2606.
"Betweenmerchants".Section2104.
"Cancellation".Section2106(4).
"Commercialunit".Section2105.
"Conformingtocontract".Section2106.
"Contractforsale".Section2106.
"Cover".Section2712.
"Entrusting".Section2403.
"Financingagency".Section2104.
"FutureGoods".Section2105.
"Goods".Section2103.
"Identification".Section2501.
"Installmentcontract".Section2612.
"Lot".Section2105.
"Merchant".Section2104.
[ 30 ]
"PersoninpositionofSeller".Section2707.
"Presentsale".Section2106.
"Sale".Section2106.
"Saleonapproval".Section2326.
"Saleorreturn".Section2326.
"Termination".Section2106.
(3)"Control"asprovidedinSection7106andthefollowingdefinitionsinother
ArticlesapplytothisArticle:
"Check".Section3104(f).
"Consignee".Section7102(3).
"Consignor".Section7102(4).
"ConsumerGoods".Section9102(a)(23).
"Dishonor".Section3502.
"Draft".Section3104(e).
"Honor".Section5102(a)(8).
"Injunctionagainsthonor".Section5109(b).
"Letterofcredit".Section5102(a)(10).
(4)InadditionArticle1containsgeneraldefinitionsandprinciplesofconstructionand
interpretationapplicablethroughoutthisArticle.
2104.Definitions:"Merchant";"BetweenMerchants";"FinancingAgency".
(1)"Merchant"meansapersonthatdealsingoodsofthekindorotherwiseholdsitself
outbyoccupationashavingknowledgeorskillpeculiartothepracticesorgoods
involvedinthetransactionortowhichtheknowledgeorskillmaybeattributedbythe
person'semploymentofanagentorbrokerorotherintermediarythatholdsitselfout
byoccupationashavingtheknowledgeorskill.
(2)"Financingagency"meansabank,financecompanyorotherpersonthatinthe
ordinarycourseofbusinessmakesadvancesagainstgoodsordocumentsoftitleorthat
byarrangementwitheitherthesellerorthebuyerintervenesinordinarycourseto
makeorcollectpaymentdueorclaimedunderthecontractforsale,asbypurchasingor
payingtheseller'sdraftormakingadvancesagainstitorbymerelytakingitfor
[ 31 ]
collectionwhetherornotdocumentsoftitleaccompanyorareassociatedwiththe
draft.Thetermincludesalsoabankorotherpersonthatsimilarlyintervenesbetween
personsthatareinthepositionofsellerandbuyerinrespecttothegoods(Section2
707).
(3)"BetweenMerchants"meansinanytransactionwithrespecttowhichbothparties
arechargeablewiththeknowledgeorskillofmerchants.
2105.Definitions:Transferability;"Future"Goods;"Lot";"CommercialUnit".
(1)Goodsmustbebothexistingandidentifiedbeforeanyinterestinthemmaypass.
Goodsthatarenotbothexistingandidentifiedare"future"goods.Apurportedpresent
saleoffuturegoodsorofanyinterestthereinoperatesasacontracttosell.
(2)Theremaybeasaleofapartinterestinexistingidentifiedgoods.
(3)Anundividedshareinanidentifiedbulkoffungiblegoodsissufficientlyidentifiedto
besoldalthoughthequantityofthebulkisnotdetermined.Anyagreedproportionof
thebulkoranyquantitythereofagreeduponbynumber,weight,orothermeasuremay
totheextentoftheseller'sinterestinthebulkbesoldtothebuyerthatthenbecomes
anownerincommon.
(4)"Lot"meansaparcelorasinglearticlewhichisthesubjectmatterofaseparatesale
ordelivery,whetherornotitissufficienttoperformthecontract.
(5)"Commercialunit"meanssuchaunitofgoodsasbycommercialusageisasingle
wholeforpurposesofsaleanddivisionofwhichmateriallyimpairsitscharacteror
valueonthemarketorinuse.Acommercialunitmaybeasinglearticle(asamachine)
orasetofarticles(asasuiteoffurnitureoranassortmentofsizes)oraquantity(asa
bale,gross,orcarload)oranyotherunittreatedinuseorintherelevantmarketasa
singlewhole.
2106.Definitions:"Contract";"Agreement";"Contractforsale";"Sale";"Present
sale";"Conforming"toContract;"Termination";"Cancellation".
(1)InthisArticleunlessthecontextotherwiserequires"contract"and"agreement"are
limitedtothoserelatingtothepresentorfuturesaleofgoods."Contractforsale"
includesbothapresentsaleofgoodsandacontracttosellgoodsatafuturetime.A
"sale"consistsinthepassingoftitlefromthesellertothebuyerforaprice(Section2
401).A"presentsale"meansasalewhichisaccomplishedbythemakingofthe
contract.
(2)Goodsorconductincludinganypartofaperformanceare"conforming"orconform
tothecontractwhentheyareinaccordancewiththeobligationsunderthecontract.
(3)"Termination"occurswheneitherpartypursuanttoapowercreatedbyagreement
orlawputsanendtothecontractotherwisethanforitsbreach.On"termination"all
obligationswhicharestillexecutoryonbothsidesaredischargedbutanyrightbased
onpriorbreachorperformancesurvives.
[ 32 ]
(4)"Cancellation"occurswheneitherpartyputsanendtothecontractforbreachby
theotheranditseffectisthesameasthatof"termination"exceptthatthecancelling
partyalsoretainsanyremedyforbreachofthewholecontractoranyunperformed
balance.
2107.GoodstoBeSeveredFromRealty:Recording.
(1)Acontractforthesaleofmineralsorthelike(includingoilandgas)orastructureor
itsmaterialstoberemovedfromrealtyisacontractforthesaleofgoodswithinthis
Articleiftheyaretobeseveredbythesellerbutuntilseveranceapurportedpresent
salethereofwhichisnoteffectiveasatransferofaninterestinlandiseffectiveonlyasa
contracttosell.
(2)Acontractforthesaleapartfromthelandofgrowingcropsorotherthingsattached
torealtyandcapableofseverancewithoutmaterialharmtheretobutnotdescribedin
subsection(1)oroftimbertobecutisacontractforthesaleofgoodswithinthisArticle
whetherthesubjectmatteristobeseveredbythebuyerorbythesellereventhoughit
formspartoftherealtyatthetimeofcontracting,andthepartiescanbyidentification
effectapresentsalebeforeseverance.
(3)Theprovisionsofthissectionaresubjecttoanythirdpartyrightsprovidedbythe
lawrelatingtorealtyrecords,andthecontractforsalemaybeexecutedandrecorded
asadocumenttransferringaninterestinlandandshallthenconstitutenoticetothird
partiesofthebuyer'srightsunderthecontractforsale.
2108.TransactionsSubjecttoOtherLaw
(1)Atransactionsubjecttothisarticleisalsosubjecttoanyapplicable:
(a)[listanycertificateoftitlestatutesofthisStatecoveringautomobiles,trailers,
mobilehomes,boats,farmtractors,orthelike],exceptwithrespecttotherights
ofabuyerinordinarycourseofbusinessunderSection2403(2)whicharise
beforeacertificateoftitlecoveringthegoodsiseffectiveinthenameofany
otherbuyer;
(b)ruleoflawthatestablishesadifferentruleforconsumers;or
(c)statuteofthisstateapplicabletothetransaction,suchasastatutedealing
with:
(i)thesaleorleaseofagriculturalproducts;
(ii)thetransferofhumanblood,bloodproducts,tissues,orparts;
(iii)theconsignmentortransferbyartistsofworksofartorfineprints;
(iv)distributionagreements,franchises,andotherrelationshipsthrough
whichgoodsaresold;
[ 33 ]
(v)themisbrandingoradulterationoffoodproductsordrugs;and
(vi)dealersinparticularproducts,suchasautomobiles,motorized
wheelchairs,agriculturalequipment,andhearingaids.
(2)Exceptfortherightsofabuyerinordinarycourseofbusinessundersubsection
(1)(a),intheeventofaconflictbetweenthisarticleandalawreferredtoinsubsection
(1),thatlawgoverns.
(3)Forpurposesofthisarticle,failuretocomplywithalawreferredtoinsubsection
(1)hasonlytheeffectspecifiedinthatlaw.
(4)Thisarticlemodifies,limits,andsupersedesthefederalElectronicSignaturesin
GlobalandNationalCommerceAct,15U.S.C.Section7001etseq.,exceptthatnothingin
thisarticlemodifies,limits,orsupersedesSection7001(c)ofthatActorauthorizes
electronicdeliveryofanyofthenoticesdescribedinSection7003(b)ofthatAct.
PART2.FORM,FORMATIONANDREADJUSTMENTOFCONTRACT
2201.FormalRequirements;StatuteofFrauds.
(1)Acontractforthesaleofgoodsforthepriceof$5,000ormoreisnotenforceableby
wayofactionordefenseunlessthereissomerecordsufficienttoindicatethata
contractforsalehasbeenmadebetweenthepartiesandsignedbythepartyagainst
whichenforcementissoughtorbytheparty'sauthorizedagentorbroker.Arecordis
notinsufficientbecauseitomitsorincorrectlystatesatermagreeduponbutthe
contractisnotenforceableunderthissubsectionbeyondthequantityofgoodsshown
intherecord.
(2)Betweenmerchantsifwithinareasonabletimearecordinconfirmationofthe
contractandsufficientagainstthesenderisreceivedandthepartyreceivingithas
reasontoknowitscontents,itsatisfiestherequirementsofsubsection(1)againstthe
recipientunlessnoticeofobjectiontoitscontentsisgiveninarecordwithin10days
afteritisreceived.
(3)Acontractthatdoesnotsatisfytherequirementsofsubsection(1)butwhichisvalid
inotherrespectsisenforceable:
(a)ifthegoodsaretobespeciallymanufacturedforthebuyerandarenot
suitableforsaletoothersintheordinarycourseoftheseller'sbusinessandthe
seller,beforenoticeofrepudiationisreceivedandundercircumstancesthat
reasonablyindicatethatthegoodsareforthebuyer,hasmadeeithera
substantialbeginningoftheirmanufactureorcommitmentsfortheir
procurement;
(b)ifthepartyagainstwhichenforcementissoughtadmitsintheparty's
pleading,orintheparty'stestimonyorotherwiseunderoaththatacontractfor
salewasmade,butthecontractisnotenforceableunderthisparagraphbeyond
thequantityofgoodsadmitted;or
[ 34 ]
(c)withrespecttogoodsforwhichpaymenthasbeenmadeandacceptedor
whichhavebeenreceivedandaccepted(Sec.2606).
(4)Acontractthatisenforceableunderthissectionisnotunenforceablemerely
becauseitisnotcapableofbeingperformedwithinoneyearoranyotherperiodafter
itsmaking.
2202.FinalExpressioninaRecord:ParolorExtrinsicEvidence.
(1)Termswithrespecttowhichtheconfirmatoryrecordsofthepartiesagreeorwhich
areotherwisesetforthinarecordintendedbythepartiesasafinalexpressionoftheir
agreementwithrespecttosuchtermsasareincludedthereinmaynotbecontradicted
byevidenceofanyprioragreementorofacontemporaneousoralagreementbutmay
besupplementedbyevidenceof:
(a)courseofperformance,courseofdealing,orusageoftrade(Section1303);
and
(b)consistentadditionaltermsunlessthecourtfindstherecordtohavebeen
intendedalsoasacompleteandexclusivestatementofthetermsofthe
agreement.
(2)Termsinarecordmaybeexplainedbyevidenceofcourseofperformance,courseof
dealing,orusageoftradewithoutapreliminarydeterminationbythecourtthatthe
languageusedisambiguous.
2203.SealsInoperative.
Theaffixingofasealtoarecordevidencingacontractforsaleoranoffertobuyorsell
goodsdoesnotconstitutetherecordasealedinstrument.Thelawwithrespectto
sealedinstrumentsdoesnotapplytosuchacontractoroffer.
2204.FormationinGeneral.
(1)Acontractforsaleofgoodsmaybemadeinanymannersufficienttoshow
agreement,includingofferandacceptance,conductbybothpartieswhichrecognizes
theexistenceofacontract,theinteractionofelectronicagents,andtheinteractionofan
electronicagentandanindividual.
(2)Anagreementsufficienttoconstituteacontractforsalemaybefoundevenifthe
momentofitsmakingisundetermined.
(3)Evenifoneormoretermsareleftopen,acontractforsaledoesnotfailfor
indefinitenessifthepartieshaveintendedtomakeacontractandthereisareasonably
certainbasisforgivinganappropriateremedy.
(4)ExceptasotherwiseprovidedinSections2211through2213,thefollowingrules
apply:
[ 35 ]
(a)Acontractmaybeformedbytheinteractionofelectronicagentsofthe
parties,evenifnoindividualwasawareoforreviewedtheelectronicagents'
actionsortheresultingtermsandagreements.
(b)Acontractmaybeformedbytheinteractionofanelectronicagentandan
individualactingontheindividual'sownbehalforforanotherperson.Acontract
isformediftheindividualtakesactionsthattheindividualisfreetorefuseto
takeormakesastatement,andtheindividualhasreasontoknowthatthe
actionsorstatementwill:
(i)causetheelectronicagenttocompletethetransactionorperformance;
or
(ii)indicateacceptanceofanoffer,regardlessofotherexpressionsor
actionsbytheindividualtowhichtheelectronicagentcannotreact.
2205.FirmOffers.
Anofferbyamerchanttobuyorsellgoodsinasignedrecordthatbyitstermsgives
assurancethatitwillbeheldopenisnotrevocable,forlackofconsideration,duringthe
timestatedorifnotimeisstatedforareasonabletime,butinnoeventmaysuchperiod
ofirrevocabilityexceedthreemonths;butinnoeventmaytheperiodofirrevocability
exceedthreemonths.Anysuchtermofassuranceinaformsuppliedbytheofferee
mustbeseparatelysignedbytheofferor.
2206.OfferandAcceptanceinFormationofContract.
(1)Unlessotherwiseunambiguouslyindicatedbythelanguageorcircumstances
(a)anoffertomakeacontractshallbeconstruedasinvitingacceptanceinany
mannerandbyanymediumreasonableinthecircumstances:
(b)anorderorotheroffertobuygoodsforpromptorcurrentshipmentshallbe
construedasinvitingacceptanceeitherbyapromptpromisetoshiporbythe
promptorcurrentshipmentofconformingornonconforminggoods,butthe
shipmentofnonconforminggoodsisnotanacceptanceifthesellerseasonably
notifiesthebuyerthattheshipmentisofferedonlyasanaccommodationtothe
buyer.
(2)Ifthebeginningofarequestedperformanceisareasonablemodeofacceptance,an
offerorthatisnotnotifiedofacceptancewithinareasonabletimemaytreattheofferas
havinglapsedbeforeacceptance.
(3)Adefiniteandseasonableexpressionofacceptanceinarecordoperatesasan
acceptanceevenifitcontainstermsadditionaltoordifferentfromtheoffer.
[ 36 ]
2207.TermsofContract;EffectofConfirmation.
SubjecttoSection2202,if(i)conductbybothpartiesrecognizestheexistenceofa
contractalthoughtheirrecordsdonototherwiseestablishacontract,(ii)acontractis
formedbyanofferandacceptance,or(iii)acontractformedinanymanneris
confirmedbyarecordthatcontainstermsadditionaltoordifferentfromthoseinthe
contractbeingconfirmed,thetermsofthecontractare:
(a)termsthatappearintherecordsofbothparties;
(b)terms,whetherinarecordornot,towhichbothpartiesagree;and
(c)termssuppliedorincorporatedunderanyprovisionofthisAct.
[2208.Reserved]
2209.Modification,RescissionandWaiver.
(1)AnagreementmodifyingacontractwithinthisArticleneedsnoconsiderationtobe
binding.
(2)Anagreementinasignedrecordwhichexcludesmodificationorrescissionexcept
byasignedrecordmaynotbeotherwisemodifiedorrescinded,butexceptasbetween
merchantssucharequirementinaformsuppliedbythemerchantmustbeseparately
signedbytheotherparty.
(3)TherequirementsofSection2201mustbesatisfiedifthecontractasmodifiedis
withinitsprovisions.
(4)Althoughanattemptatmodificationorrescissiondoesnotsatisfytherequirements
ofsubsection(2)or(3),itmayoperateasawaiver.
(5)Apartythathasmadeawaiveraffectinganexecutoryportionofacontractmay
retractthewaiverbyreasonablenotificationreceivedbytheotherpartythatstrict
performancewillberequiredofanytermwaived,unlesstheretractionwouldbeunjust
inviewofamaterialchangeofpositioninrelianceonthewaiver.
2210.DelegationofPerformance;AssignmentofRights.
(1)Ifthesellerorbuyerassignsrightsunderacontract,thefollowingrulesapply:
(a)Subjecttoparagraph(b)andexceptasotherwiseprovidedinSection9406
orasotherwiseagreed,allrightsofthesellerorthebuyermaybeassigned
unlesstheassignmentwouldmateriallychangethedutyoftheotherparty,
increasemateriallytheburdenorriskimposedonthatpartybythecontract,or
impairmateriallythatparty'schanceofobtainingreturnperformance.Arightto
damagesforbreachofthewholecontractorarightarisingoutoftheassignor's
[ 37 ]
dueperformanceofitsentireobligationmaybeassigneddespiteanagreement
otherwise.
(b)Thecreation,attachment,perfection,orenforcementofasecurityinterestin
theseller'sinterestunderacontractisnotanassignmentthatmaterially
changesthedutyoformateriallyincreasestheburdenorriskimposedonthe
buyerormateriallyimpairsthebuyer'schanceofobtainingreturnperformance
underparagraph(a)unless,andonlytotheextentthat,enforcementofthe
securityinterestresultsinadelegationofamaterialperformanceoftheseller.
Eveninthatevent,thecreation,attachment,perfection,andenforcementofthe
securityinterestremaineffective.However,thesellerisliabletothebuyerfor
damagescausedbythedelegationtotheextentthatthedamagescouldnot
reasonablybepreventedbythebuyer,andacourtmaygrantotherappropriate
relief,includingcancellationofthecontractoraninjunctionagainstenforcement
ofthesecurityinterestorconsummationoftheenforcement.
(2)Ifthesellerorbuyerdelegatesperformanceofitsdutiesunderacontract,the
followingrulesapply:
(a)Apartymayperformitsdutiesthroughadelegateunlessotherwiseagreed
orunlesstheotherpartyhasasubstantialinterestinhavingtheoriginal
promisorperformorcontroltheactsrequiredbythecontract.Delegationof
performancedoesnotrelievethedelegatingpartyofanydutytoperformor
liabilityforbreach.
(b)Acceptanceofadelegationofdutiesbytheassigneeconstitutesapromiseto
performthoseduties.Thepromiseisenforceablebyeithertheassignororthe
otherpartytotheoriginalcontract.
(c)Theotherpartymaytreatanydelegationofdutiesascreatingreasonable
groundsforinsecurityandmaywithoutprejudicetoitsrightsagainstthe
assignordemandassurancesfromtheassigneeunderSection2609.
(d)Acontractualtermprohibitingthedelegationofdutiesotherwisedelegable
underparagraph(a)isenforceable,andanattempteddelegationisnoteffective.
(3)Anassignmentof"thecontract"orof"allmyrightsunderthecontract"oran
assignmentinsimilargeneraltermsisanassignmentofrightsandunlessthelanguage
orthecircumstances,asinanassignmentforsecurity,indicatethecontrary,itisalsoa
delegationofperformanceofthedutiesoftheassignor.
(4)Unlessthecircumstancesindicatethecontrary,aprohibitionofassignmentof"the
contract"istobeconstruedasbarringonlythedelegationtotheassigneeofthe
assignor'sperformance.
2211.LegalRecognitionofElectronicContracts,Records,andSignatures
(1)Arecordorsignaturemaynotbedeniedlegaleffectorenforceabilitysolelybecause
itisinelectronicform.
[ 38 ]
(2)Acontractmaynotbedeniedlegaleffectorenforceabilitysolelybecausean
electronicrecordwasusedinitsformation.
(3)Thisarticledoesnotrequirearecordorsignaturetobecreated,generated,sent,
communicated,received,stored,orotherwiseprocessedbyelectronicmeansorin
electronicform.
(4)Acontractformedbytheinteractionofanindividualandanelectronicagentunder
Section2204(4)(b)doesnotincludetermsprovidedbytheindividualiftheindividual
hadreasontoknowthattheagentcouldnotreacttothetermsasprovided.
2212.ATTRIBUTION
Anelectronicrecordorelectronicsignatureisattributabletoapersonifitwastheact
ofthepersonortheperson'selectronicagentorthepersonisotherwiselegallybound
bytheact.
2213.ELECTRONICCOMMUNICATION
(1)Ifthereceiptofanelectroniccommunicationhasalegaleffect,ithasthateffecteven
ifnoindividualisawareofitsreceipt.
(2)Receiptofanelectronicacknowledgmentofanelectroniccommunication
establishesthatthecommunicationwasreceivedbut,initself,doesnotestablishthat
thecontentsentcorrespondstothecontentreceived.
PART3.GENERALOBLIGATIONANDCONSTRUCTIONOFCONTRACT
2301.GeneralObligationsofParties.
Theobligationoftheselleristotransferanddeliverandthatofthebuyeristoaccept
andpayinaccordancewiththecontract.
2302.UnconscionablecontractorTerm.
(1)Ifthecourtasamatteroflawfindsthecontractoranytermofthecontracttohave
beenunconscionableatthetimeitwasmadethecourtmayrefusetoenforcethe
contract,oritmayenforcetheremainderofthecontractwithouttheunconscionable
term,oritmaysolimittheapplicationofanyunconscionabletermastoavoidany
unconscionableresult.
(2)Ifitisclaimedorappearstothecourtthatthecontractoranytermthereofmaybe
unconscionablethepartiesshallbeaffordedareasonableopportunitytopresent
evidenceastoitscommercialsetting,purpose,andeffecttoaidthecourtinmakingthe
determination.
[ 39 ]
2303.AllocationorDivisionofRisks.
WherethisArticleallocatesariskoraburdenasbetweentheparties"unlessotherwise
agreed",theagreementmaynotonlyshifttheallocationbutmayalsodividetheriskor
burden.
2304.PricePayableinMoney,Goods,Realty,orOtherwise.
(1)Thepricemaybemadepayableinmoneyorotherwise.Ifitispayableinwholeor
inpartingoodseachpartyisasellerofthegoodsthatthepartyistotransfer.
(2)Evenifallorpartofthepriceispayableinaninterestinrealpropertythetransfer
ofthegoodsandtheseller'sobligationswithreferencetothemaresubjecttothis
Article,butnotthetransferoftheinterestinrealpropertyorthetransferor's
obligationsinconnectiontherewith.
2305.OpenPriceTerm.
(1)Thepartiesiftheysointendmayconcludeacontractforsaleevenifthepriceisnot
settled.Insuchacasethepriceisareasonablepriceatthetimefordeliveryif:
(a)nothingissaidastoprice;
(b)thepriceislefttobeagreedbythepartiesandtheyfailtoagree;or
(c)thepriceistobefixedintermsofsomeagreedmarketorotherstandardas
setorrecordedbyathirdpersonoragencyanditisnotsosetorrecorded.
(2)Apricetobefixedbythesellerorbythebuyermeansapricetobefixedingood
faith.
(3)Ifapricelefttobefixedotherwisethanbyagreementofthepartiesfailstobefixed
throughfaultofonepartytheothermayattheparty'soptiontreatthecontractas
cancelledorthepartymayfixareasonableprice.
(4)If,however,thepartiesintendnottobeboundunlessthepriceisfixedoragreed
anditisnotfixedoragreedthereisnocontract.Insuchacasethebuyermustreturn
anygoodsalreadyreceivedorifunabletodosomustpaytheirreasonablevalueatthe
timeofdeliveryandthesellermustreturnanyportionofthepricepaidonaccount.
2306.Output,RequirementsandExclusiveDealings.
(1)Atermwhichmeasuresthequantitybytheoutputofthesellerortherequirements
ofthebuyermeanssuchactualoutputorrequirementsasmayoccuringoodfaith,
exceptthatnoquantityunreasonablydisproportionatetoanystatedestimateorinthe
absenceofastatedestimatetoanynormalorotherwisecomparableprioroutputor
requirementsmaybetenderedordemanded.
[ 40 ]
(2)Alawfulagreementbyeitherthesellerorthebuyerforexclusivedealinginthekind
ofgoodsconcernedimposesunlessotherwiseagreedanobligationbythesellertouse
besteffortstosupplythegoodsandbythebuyertousebesteffortstopromotetheir
sale.
2307.DeliveryinSingleLotorSeveralLots.
Unlessotherwiseagreedallgoodscalledforbyacontractforsalemustbetenderedina
singledeliveryandpaymentisdueonlyonsuchtenderbutwherethecircumstances
giveeitherpartytherighttomakeordemanddeliveryinlotsthepriceifitcanbe
apportionedmaybedemandedforeachlot.
2308.AbsenceofSpecifiedPlaceforDelivery.
Unlessotherwiseagreed
(a)theplacefordeliveryofgoodsistheseller'splaceofbusinessorifnone,the
seller'sresidence;but
(b)inacontractforsaleofidentifiedgoodswhichtotheknowledgeofthe
partiesatthetimeofcontractingareinsomeotherplace,thatplaceistheplace
fortheirdelivery;and
(c)documentsoftitlemaybedeliveredthroughcustomarybankingchannels.
2309.AbsenceofSpecificTimeProvisions;NoticeofTermination.
(1)Thetimeforshipmentordeliveryoranyotheractionunderacontractifnot
providedinthisArticleoragreeduponshallbeareasonabletime.
(2)Ifthecontractprovidesforsuccessiveperformancesbutisindefiniteinduration,it
isvalidforareasonabletimebutunlessotherwiseagreedmaybeterminatedatany
timebyeitherparty.
(3)Terminationofacontractbyonepartyexceptonthehappeningofanagreedevent
requiresthatreasonablenotificationbereceivedbytheotherpartyandanagreement
dispensingwithnotificationisinvalidifitsoperationwouldbeunconscionable.Aterm
specifyingstandardsforthenatureandtimingofnoticeisenforceableifthestandards
arenotmanifestlyunreasonable.
2310.OpenTimeforPaymentorRunningofCredit;AuthoritytoShipUnder
Reservation.
Unlessotherwiseagreed
(a)paymentisdueatthetimeandplaceatwhichthebuyeristoreceivethe
goodseventhoughtheplaceofshipmentistheplaceofdelivery;
[ 41 ]
(b)ifthesellerisrequiredorauthorizedtosendthegoods,thesellermayship
themunderreservation,andmaytenderthedocumentsoftitle,butthebuyer
mayinspectthegoodsaftertheirarrivalbeforepaymentisdueunlessthe
inspectionisinconsistentwiththetermsofthecontract(Section2513);
(c)iftenderofdeliveryisagreedtobemadebywayofdocumentsoftitle
otherwisethanbyparagraph(b),thenpaymentisdueregardlessofwherethe
goodsaretobereceived(i)atthetimeandplaceatwhichthebuyeristoreceive
deliveryofthetangibledocuments,or(ii)atthetimethebuyeristoreceive
deliveryoftheelectronicdocumentsandattheseller'splaceofbusinessorif
none,theseller'sresidence;and
(d)ifthesellerisrequiredorauthorizedtoshipthegoodsoncreditthecredit
periodrunsfromthetimeofshipmentbutpostdatingtheinvoiceordelayingits
dispatchwillcorrespondinglydelaythestartingofthecreditperiod.
2311.OptionsandCooperationRespectingPerformance.
(1)Anagreementforsalewhichisotherwisesufficientlydefinite(Section2204(3))to
beacontractisnotmadeinvalidbythefactthatitleavesparticularsofperformanceto
bespecifiedbyoneoftheparties.Anysuchspecificationmustbemadeingoodfaith
andwithinlimitssetbycommercialreasonableness.
(2)Unlessotherwiseagreed,specificationsrelatingtoassortmentofthegoodsareat
thebuyer'soptionandspecificationsorarrangementsrelatingtoshipmentareatthe
seller'soption.
(3)Ifthespecificationwouldmateriallyaffecttheotherparty'sperformancebutisnot
seasonablymadeorifoneparty'scooperationisnecessarytotheagreedperformance
oftheotherbutisnotseasonablyforthcoming,theotherpartyinadditiontoallother
remedies:
(a)isexcusedforanyresultingdelayinthatparty'sperformance;and
(b)mayalsoeitherproceedtoperforminanyreasonablemannerorafterthe
timeforamaterialpartofthatparty'sperformancetreatthefailuretospecifyor
tocooperateasabreachbyfailuretodeliveroracceptthegoods.
2312.WarrantyofTitleandAgainstInfringement;Buyer'sObligationAgainst
Infringement.
(1)Subjecttosubsection(3),thereisinacontractforsaleawarrantybythesellerthat:
(a)thetitleconveyedshallbegoodanditstransferrightfulandshallnot
unreasonablyexposethebuyertolitigationbecauseofanycolorableclaimtoor
interestinthegoods;and
(b)thegoodsshallbedeliveredfreefromanysecurityinterestorotherlienor
encumbranceofwhichthebuyeratthetimeofcontractinghasnoknowledge.
[ 42 ]
(2)Unlessotherwiseagreed,asellerthatisamerchantregularlydealingingoodsofthe
kindwarrantsthatthegoodsshallbedeliveredfreeoftherightfulclaimofanythird
personbywayofinfringementorthelikebutabuyerthatfurnishesspecificationsto
thesellermustholdthesellerharmlessagainstanysuchclaimthatarisesoutof
compliancewiththespecifications.
(3)Awarrantyunderthissectionmaybedisclaimedormodifiedonlybyspecific
languageorbycircumstancesthatgivethebuyerreasontoknowthatthesellerdoes
notclaimtitle,thatthesellerispurportingtosellonlytherightortitleasthesellerora
thirdpersonmayhave,orthatthesellerissellingsubjecttoanyclaimsofinfringement
orthelike.
2313.ExpressWarrantiesbyAffirmation,Promise,Description,Sample.
(1)Inthissection,"immediatebuyer"meansabuyerthatentersintoacontractwith
theseller.
(2)Expresswarrantiesbythesellertotheimmediatebuyerarecreatedasfollows:
(a)Anyaffirmationoffactorpromisemadebythesellerwhichrelatestothe
goodsandbecomespartofthebasisofthebargaincreatesanexpresswarranty
thatthegoodsshallconformtotheaffirmationorpromise.
(b)Anydescriptionofthegoodswhichismadepartofthebasisofthebargain
createsanexpresswarrantythatthegoodsshallconformtothedescription.
(c)Anysampleormodelthatismadepartofthebasisofthebargaincreatesan
expresswarrantythatthewholeofthegoodsshallconformtothesampleor
model.
(3)Itisnotnecessarytothecreationofanexpresswarrantythattheselleruseformal
wordssuchas"warrant"or"guarantee"orthatthesellerhaveaspecificintentionto
makeawarranty,butanaffirmationmerelyofthevalueofthegoodsorastatement
purportingtobemerelytheseller'sopinionorcommendationofthegoodsdoesnot
createawarranty.
(4)Anyremedialpromisemadebythesellertotheimmediatebuyercreatesan
obligationthatthepromisewillbeperformeduponthehappeningofthespecified
event.
2313AObligationtoRemotePurchaserCreatedbyRecordPackagedWithor
AccompanyingGoods
(1)Inthissection:
(a)"Immediatebuyer"meansabuyerthatentersintoacontractwiththeseller.
(b)"Remotepurchaser"meansapersonthatbuysorleasesgoodsfroman
immediatebuyerorotherpersoninthenormalchainofdistribution.
[ 43 ]
(2)Thissectionappliesonlytonewgoodsandgoodssoldorleasedasnewgoodsina
transactionofpurchaseinthenormalchainofdistribution.
(3)Ifinarecordpackagedwithoraccompanyingthegoodsthesellermakesan
affirmationoffactorpromisethatrelatestothegoods,providesadescriptionthat
relatestothegoods,ormakesaremedialpromise,andthesellerreasonablyexpectsthe
recordtobe,andtherecordis,furnishedtotheremotepurchaser,thesellerhasan
obligationtotheremotepurchaserthat:
(a)thegoodswillconformtotheaffirmationoffact,promise,ordescription
unlessareasonablepersoninthepositionoftheremotepurchaserwouldnot
believethattheaffirmationoffact,promise,ordescriptioncreatedanobligation;
and
(b)thesellerwillperformtheremedialpromise.
(4)Itisnotnecessarytothecreationofanobligationunderthissectionthattheseller
useformalwordssuchas"warrant"or"guarantee"orthatthesellerhaveaspecific
intentiontoundertakeanobligation,butanaffirmationmerelyofthevalueofthegoods
orastatementpurportingtobemerelytheseller'sopinionorcommendationofthe
goodsdoesnotcreateanobligation.
(5)Thefollowingrulesapplytotheremediesforbreachofanobligationcreatedunder
thissection:
(a)Thesellermaymodifyorlimittheremediesavailabletotheremote
purchaserifthemodificationorlimitationisfurnishedtotheremotepurchaser
nolaterthanthetimeofpurchaseorifthemodificationorlimitationis
containedintherecordthatcontainstheaffirmationoffact,promise,or
description.
(b)Subjecttoamodificationorlimitationofremedy,asellerinbreachisliable
forincidentalorconsequentialdamagesunderSection2715,butnotforlost
profits.
(c)Theremotepurchasermayrecoverasdamagesforbreachofaseller's
obligationarisingundersubsection(3)thelossresultingintheordinarycourse
ofeventsasdeterminedinanyreasonablemanner.
(6)Anobligationthatisnotaremedialpromiseisbreachedifthegoodsdidnot
conformtotheaffirmationoffact,promise,ordescriptioncreatingtheobligationwhen
thegoodslefttheseller'scontrol.
2313BObligationtoRemotePurchaserCreatedbyCommunicationtothePublic
(1)Inthissection:
[ 44 ]
(2)Thissectionappliesonlytonewgoodsandgoodssoldorleasedasnewgoodsina
transactionofpurchaseinthenormalchainofdistribution.
(3)Ifinanadvertisementorasimilarcommunicationtothepublicasellermakesan
affirmationoffactorpromisethatrelatestothegoods,providesadescriptionthat
relatestothegoods,ormakesaremedialpromise,andtheremotepurchaserenters
intoatransactionofpurchasewithknowledgeofandwiththeexpectationthatthe
goodswillconformtotheaffirmationoffact,promise,ordescription,orthattheseller
willperformtheremedialpromise,thesellerhasanobligationtotheremotepurchaser
that:
(a)thegoodswillconformtotheaffirmationoffact,promise,ordescription
unlessareasonablepersoninthepositionoftheremotepurchaserwouldnot
believethattheaffirmationoffact,promise,ordescriptioncreatedanobligation;
and
(b)thesellerwillperformtheremedialpromise.
(4)Itisnotnecessarytothecreationofanobligationunderthissectionthattheseller
useformalwordssuchas"warrant"or"guarantee"orthatthesellerhaveaspecific
intentiontoundertakeanobligation,butanaffirmationmerelyofthevalueofthegoods
orastatementpurportingtobemerelytheseller'sopinionorcommendationofthe
goodsdoesnotcreateanobligation.
(5)Thefollowingrulesapplytotheremediesforbreachofanobligationcreatedunder
thissection:
(a)Thesellermaymodifyorlimittheremediesavailabletotheremote
purchaserifthemodificationorlimitationisfurnishedtotheremotepurchaser
nolaterthanthetimeofpurchase.Themodificationorlimitationmaybe
furnishedaspartofthecommunicationthatcontainstheaffirmationoffact,
promise,ordescription.
(b)Subjecttoamodificationorlimitationofremedy,asellerinbreachisliable
forincidentalorconsequentialdamagesunderSection2715,butnotforlost
profits.
(c)Theremotepurchasermayrecoverasdamagesforbreachofaseller's
obligationarisingundersubsection(3)thelossresultingintheordinarycourse
ofeventsasdeterminedinanyreasonablemanner.
(6)Anobligationthatisnotaremedialpromiseisbreachedifthegoodsdidnot
conformtotheaffirmationoffact,promise,ordescriptioncreatingtheobligationwhen
thegoodslefttheseller'scontrol.
[ 45 ]
2314.ImpliedWarranty:Merchantability;UsageofTrade.
(1)Unlessexcludedormodified(Section2316),awarrantythatthegoodsshallbe
merchantableisimpliedinacontractfortheirsaleifthesellerisamerchantwith
respecttogoodsofthatkind.Underthissectiontheservingforvalueoffoodordrink
tobeconsumedeitheronthepremisesorelsewhereisasale.
(2)Goodstobemerchantablemustbeatleastsuchas:
(a)passwithoutobjectioninthetradeunderthecontractdescription;
(b)inthecaseoffungiblegoods,areoffairaveragequalitywithinthe
description;
(c)arefitfortheordinarypurposesforwhichgoodsofthatdescriptionare
used;
(d)run,withinthevariationspermittedbytheagreement,ofevenkind,quality
andquantitywithineachunitandamongallunitsinvolved;
(e)areadequatelycontained,packaged,andlabeledastheagreementmay
require;and
(f)conformtothepromiseoraffirmationsoffactmadeonthecontainerorlabel
ifany.
(3)Unlessexcludedormodified(Section2316)otherimpliedwarrantiesmayarise
fromcourseofdealingorusageoftrade.
2315.ImpliedWarranty:FitnessforParticularPurpose.
Wheretheselleratthetimeofcontractinghasreasontoknowanyparticularpurpose
forwhichthegoodsarerequiredandthatthebuyerisrelyingontheseller'sskillor
judgmenttoselectorfurnishsuitablegoods,thereisunlessexcludedormodifiedunder
thenextsectionanimpliedwarrantythatthegoodsshallbefitforsuchpurpose.
2316.ExclusionorModificationofWarranties.
(1)Wordsorconductrelevanttothecreationofanexpresswarrantyandwordsor
conducttendingtonegateorlimitwarrantyshallbeconstruedwhereverreasonableas
consistentwitheachother;butsubjecttoSection2202,negationorlimitationis
inoperativetotheextentthatsuchconstructionisunreasonable.
(2)Subjecttosubsection(3),toexcludeormodifytheimpliedwarrantyof
merchantabilityoranypartofitinaconsumercontractthelanguagemustbeina
record,beconspicuous,andstate"Thesellerundertakesnoresponsibilityforthe
qualityofthegoodsexceptasotherwiseprovidedinthiscontract,"andinanyother
contractthelanguagemustmentionmerchantabilityandincaseofarecordmustbe
conspicuous.Subjecttosubsection(3),toexcludeormodifytheimpliedwarrantyof
[ 46 ]
fitness,theexclusionmustbeinarecordandbeconspicuous.Languagetoexcludeall
impliedwarrantiesoffitnessinaconsumercontractmuststate"Thesellerassumesno
responsibilitythatthegoodswillbefitforanyparticularpurposeforwhichyoumaybe
buyingthesegoods,exceptasotherwiseprovidedinthecontract,"andinanyother
contractthelanguageissufficientifitstates,forexample,that"Therearenowarranties
thatextendbeyondthedescriptiononthefacehereof."Languagethatsatisfiesthe
requirementsofthissubsectionfortheexclusionormodificationofawarrantyina
consumercontractalsosatisfiestherequirementsforanyothercontract.
(3)Notwithstandingsubsection(2)
(a)unlessthecircumstancesindicateotherwise,allimpliedwarrantiesare
excludedbyexpressionslike"asis","withallfaults"orotherlanguagethatin
commonunderstandingcallsthebuyer'sattentiontotheexclusionof
warranties,makesplainthatthereisnoimpliedwarranty,and,inaconsumer
contractevidencedbyarecord,issetforthconspicuouslyintherecord;
(b)ifthebuyerbeforeenteringintothecontracthasexaminedthegoodsorthe
sampleormodelasfullyasdesiredorhasrefusedtoexaminethegoodsaftera
demandbythesellerthereisnoimpliedwarrantywithregardtodefectsthatan
examinationinthecircumstancesshouldhaverevealedtothebuyer;and
(c)animpliedwarrantymayalsobeexcludedormodifiedbycourseofdealing
orcourseofperformanceorusageoftrade.
(4)RemediesforbreachofwarrantymaybelimitedinaccordancewithSections2718
and2719.
2317.CumulationandConflictofWarrantiesExpressorImplied.
Warrantieswhetherexpressorimpliedshallbeconstruedasconsistentwitheachother
andascumulative,butifsuchconstructionisunreasonabletheintentionoftheparties
shalldeterminewhichwarrantyisdominant.Inascertainingthatintentionthe
(a)Exactortechnicalspecificationsdisplaceaninconsistentsampleormodelor
generallanguageofdescription.
(b)Asamplefromanexistingbulkdisplacesinconsistentgenerallanguageof
description.
(c)Expresswarrantiesdisplaceinconsistentimpliedwarrantiesotherthanan
impliedwarrantyoffitnessforaparticularpurpose.
2318.ThirdPartyBeneficiariesofWarrantiesExpressorImplied.
(1)Inthissection:
[ 47 ]
AlternativeAtosubsection(2)
Aseller'swarrantytoanimmediatebuyer,whetherexpressorimplied,aseller's
remedialpromisetoanimmediatebuyer,oraseller'sobligationtoaremote
purchaserunderSection2313Aor2313Bextendstoanyindividualwhoisin
thefamilyorhouseholdoftheimmediatebuyerortheremotepurchaserorwho
isaguestinthehomeofeitherifitisreasonabletoexpectthatthepersonmay
use,consume,orbeaffectedbythegoodsandwhoisinjuredinpersonbybreach
ofthewarranty,remedialpromise,orobligation.Asellermaynotexcludeor
limittheoperationofthissection.
AlternativeBtosubsection(2)
purchaserunderSection2313Aor2313Bextendstoanyindividualwhomay
reasonablybeexpectedtouse,consume,orbeaffectedbythegoodsandwhois
injuredinpersonbybreachofthewarranty,remedialpromise,orobligation.A
sellermaynotexcludeorlimittheoperationofthissection.
AlternativeCtosubsection(2)
purchaserunderSection2313Aor2313Bextendstoanypersonthatmay
reasonablybeexpectedtouse,consume,orbeaffectedbythegoodsandthatis
injuredbybreachofthewarranty,remedialpromise,orobligation.Asellermay
notexcludeorlimittheoperationofthissectionwithrespecttoinjurytothe
personofanindividualtowhomthewarranty,remedialpromise,orobligation
extends.
[2319.Reserved]
[2320.Reserved]
[2321.Reserved]
[2322.Reserved]
[2323.Reserved]
[2324.Reserved]
[ 48 ]
2325."LetterofCredit"Term;"ConfirmedCredit".
Ifthepartiesagreethattheprimarymethodofpaymentwillbebyletterofcredit,the
(a)Thebuyer'sobligationtopayissuspendedbyseasonabledeliverytothe
sellerofaletterofcreditissuedorconfirmedbyafinancingagencyofgood
reputeinwhichtheissuerandanyconfirmerundertaketopayagainst
presentationofdocumentsthatevidencedeliveryofthegoods.
(b)Failureofapartyseasonablytofurnishaletterofcreditasagreedisabreach
ofthecontractforsale.
(c)Iftheletterofcreditisdishonoredorrepudiated,theseller,onseasonable
notification,mayrequirepaymentdirectlyfromthebuyer.
2326.SaleonApprovalandSaleorReturn;ConsignmentSalesandRightsof
Creditors.
(1)Unlessotherwiseagreed,ifdeliveredgoodsmaybereturnedbythebuyerevenif
theyconformtothecontract,thetransactionis:
(a)a"saleonapproval"ifthegoodsaredeliveredprimarilyforuse;and
(b)a"saleorreturn"ifthegoodsaredeliveredprimarilyforresale.
(2)Goodsheldonapprovalarenotsubjecttotheclaimsofthebuyer'screditorsuntil
acceptance;goodsheldonsaleorreturnaresubjecttosuchclaimswhileinthebuyer's
possession.
(3)Any"orreturn"termofacontractforsaleistobetreatedasaseparatecontractfor
saleunderSection2201andascontradictingthesaleaspectofthecontractunder
Section2202.
2327.SpecialIncidentsofSaleonApprovalandSaleorReturn.
(1)Underasaleonapprovalunlessotherwiseagreed
(a)althoughthegoodsareidentifiedtothecontracttheriskoflossandthetitle
donotpasstothebuyeruntilacceptance;and
(b)useofthegoodsconsistentwiththepurposeoftrialisnotacceptancebut
failureseasonablytonotifythesellerofelectiontoreturnthegoodsis
acceptance,andifthegoodsconformtothecontractacceptanceofanypartis
acceptanceofthewhole;and
(c)afterduenotificationofelectiontoreturn,thereturnisattheseller'sriskand
expensebutamerchantbuyermustfollowanyreasonableinstructions.
[ 49 ]
(2)Underasaleorreturnunlessotherwiseagreed
(a)theoptiontoreturnextendstothewholeoranycommercialunitofthe
goodswhileinsubstantiallytheiroriginalcondition,butmustbeexercised
seasonably;and
(b)thereturnisatthebuyer'sriskandexpense.
2328.SalebyAuction.
(1)Inasalebyauction,ifgoodsareputupinlotseachlotisthesubjectofaseparate
sale.
(2)Asalebyauctioniscompletewhentheauctioneersoannouncesbythefallofthe
hammerorinothercustomarymanner.Ifabidismadeduringtheprocessof
completingthesalebutbeforeapriorbidisaccepted,theauctioneerhasdiscretionto
reopenthebiddingortodeclarethegoodssoldunderthepriorbid.
(3)Asalebyauctionissubjecttotheseller'srighttowithdrawthegoodsunlessatthe
timethegoodsareputuporduringthecourseoftheauctionitisannouncedinexpress
termsthattherighttowithdrawthegoodsisnotreserved.Inanauctioninwhichthe
righttowithdrawthegoodsisreserved,theauctioneermaywithdrawthegoodsatany
timeuntilcompletionofthesaleisannouncedbytheauctioneer.Inanauctioninwhich
therighttowithdrawthegoodsisnotreserved,aftertheauctioneercallsforbidsonan
articleorlot,thearticleorlotmaynotbewithdrawnunlessnobidismadewithina
reasonabletime.Ineithercaseabiddermayretractabiduntiltheauctioneer's
announcementofcompletionofthesale,butabidder'sretractiondoesnotreviveany
previousbid.
(4)Iftheauctioneerknowinglyreceivesabidontheseller'sbehalforthesellermakes
orprocuressuchabid,andnoticehasnotbeengiventhatlibertyforsuchbiddingis
reserved,thebuyermayatthebuyer'soptionavoidthesaleortakethegoodsatthe
priceofthelastgoodfaithbidpriortothecompletionofthesale.Thissubsectionshall
notapplytoanybidatanauctionrequiredbylaw.
PART4.TITLE,CREDITORSANDGOODFAITHPURCHASERS
2401.PassingofTitle;ReservationforSecurity;LimitedApplicationofThisSection.
EachprovisionofthisArticlewithregardtotherights,obligationsandremediesofthe
seller,thebuyer,purchasersorotherthirdpartiesappliesirrespectiveoftitletothe
goodsexceptwheretheprovisionreferstosuchtitle.Insofarassituationsarenot
coveredbytheotherprovisionsofthisArticleandmattersconcerningtitlebecome
materialthefollowingrulesapply:
(1)Titletogoodscannotpassunderacontractforsalepriortotheir
identificationtothecontract(Section2501),andunlessotherwiseexplicitly
agreedthebuyeracquiresbytheiridentificationaspecialpropertyaslimitedby
thisAct.Anyretentionorreservationbythesellerofthetitle(property)in
[ 50 ]
goodsshippedordeliveredtothebuyerislimitedineffecttoareservationofa
securityinterest.SubjecttotheseprovisionsandtotheprovisionsofArticle9,
titletogoodspassesfromthesellertothebuyerinanymannerandonany
conditionsexplicitlyagreedonbytheparties.
(2)Unlessotherwiseexplicitlyagreedtitlepassestothebuyeratthetimeand
placeatwhichthesellercompletesperformancewithreferencetothephysical
deliveryofthegoods,despiteanyreservationofasecurityinterestandeven
thoughadocumentoftitleistobedeliveredatadifferenttimeorplace;andin
particularanddespiteanyreservationofasecurityinterestbythebilloflading
(a)ifthecontractrequiresorauthorizesthesellertosendthegoodsto
thebuyerbutdoesnotrequirethesellertodeliverthematdestination,
titlepassestothebuyeratthetimeandplaceofshipment;but
(b)ifthecontractrequiresdeliveryatdestination,titlepassesontender
there.
(3)Unlessotherwiseexplicitlyagreedwheredeliveryistobemadewithout
movingthegoods,
(a)iftheselleristodeliveratangibledocumentoftitle,titlepassesatthe
timewhenandtheplacewherehedeliverssuchdocumentsandifthe
selleristodeliveranelectronicdocuemntoftitle,titlepasseswhenthe
sellerdeliversthedocument;or
(b)ifthegoodsareatthetimeofcontractingalreadyidentifiedandno
documentsoftitlearetobedelivered,titlepassesatthetimeandplaceof
contracting.
(4)Arejectionorotherrefusalbythebuyertoreceiveorretainthegoods,
whetherornotjustified,orajustifiedrevocationofacceptancereveststitleto
thegoodsintheseller.Suchrevestingoccursbyoperationoflawandisnota
"sale".
2402.RightsofSeller'sCreditorsAgainstSoldGoods.
(1)Exceptasprovidedinsubsections(2)and(3),rightsofunsecuredcreditorsofthe
sellerwithrespecttogoodswhichhavebeenidentifiedtoacontractforsalearesubject
tothebuyer'srightstorecoverthegoodsunderthisArticle(Sections2502and2716).
(2)Acreditorofthesellermaytreatasaleoranidentificationofgoodstoacontractfor
saleasvoidifasagainsthimaretentionofpossessionbythesellerisfraudulentunder
anyruleoflawofthestatewherethegoodsaresituated,exceptthatretentionof
possessioningoodfaithandcurrentcourseoftradebyamerchantsellerfora
commerciallyreasonabletimeafterasaleoridentificationisnotfraudulent.
[ 51 ]
(3)NothinginthisArticleshallbedeemedtoimpairtherightsofcreditorsoftheseller
(a)undertheprovisionsoftheArticleonSecuredTransactions(Article9);or
(b)whereidentificationtothecontractordeliveryismadenotincurrentcourse
oftradebutinsatisfactionoforassecurityforapreexistingclaimformoney,
securityorthelikeandismadeundercircumstanceswhichunderanyruleof
lawofthestatewherethegoodsaresituatedwouldapartfromthisArticle
constitutethetransactionafraudulenttransferorvoidablepreference.
2403.PowertoTransfer;GoodFaithPurchaseofGoods;"Entrusting".
(1)Apurchaserofgoodsacquiresalltitlewhichhistransferorhadorhadpowerto
transferexceptthatapurchaserofalimitedinterestacquiresrightsonlytotheextent
oftheinterestpurchased.Apersonwithvoidabletitlehaspowertotransferagood
titletoagoodfaithpurchaserforvalue.Whengoodshavebeendeliveredundera
transactionofpurchasethepurchaserhassuchpowereventhough
(a)thetransferorwasdeceivedastotheidentityofthepurchaser,or
(b)thedeliverywasinexchangeforacheckwhichislaterdishonored,or
(c)itwasagreedthatthetransactionwastobea"cashsale",or
(d)thedeliverywasprocuredthroughfraudpunishableaslarcenousunderthe
criminallaw.
(2)Anyentrustingofpossessionofgoodstoamerchantthatdealsingoodsofthatkind
giveshimpowertotransferallrightsoftheentrustertoabuyerinordinarycourseof
business.
(3)"Entrusting"includesanydeliveryandanyacquiescenceinretentionofpossession
regardlessofanyconditionexpressedbetweenthepartiestothedeliveryor
acquiescenceandregardlessofwhethertheprocurementoftheentrustingorthe
possessor'sdispositionofthegoodshavebeensuchastobelarcenousunderthe
criminallaw.
[Note:IfastateadoptstherepealerofArticle6BulkTransfers(AlternativeA),subsec.
(4)shouldreadasfollows:]
(4)Therightsofotherpurchasersofgoodsandofliencreditorsaregovernedbythe
ArticlesonSecuredTransactions(Article9)andDocumentsofTitle(Article7).
[Note:IfastateadoptsRevisedArticle6BulkSales(AlternativeB),subsec.(4)should
readasfollows:]
ArticlesonSecuredTransactions(Article9),BulkSales(Article6)andDocumentsof
Title(Article7).
[ 52 ]
PART5.PERFORMANCE
2501.InsurableInterestinGoods;MannerofIdentificationofGoods.
(1)Thebuyerobtainsaspecialpropertyandaninsurableinterestingoodsby
identificationofexistinggoodsasgoodstowhichthecontractreferseventhoughthe
goodssoidentifiedarenonconformingandhehasanoptiontoreturnorrejectthem.
Suchidentificationcanbemadeatanytimeandinanymannerexplicitlyagreedtoby
theparties.Intheabsenceofexplicitagreementidentificationoccurs
(a)whenthecontractismadeifitisforthesaleofgoodsalreadyexistingand
identified;
(b)ifthecontractisforthesaleoffuturegoodsotherthanthosedescribedin
paragraph(c),whengoodsareshipped,markedorotherwisedesignatedbythe
sellerasgoodstowhichthecontractrefers;
(c)whenthecropsareplantedorotherwisebecomegrowingcropsortheyoung
areconceivedifthecontractisforthesaleofunbornyoungtobebornwithin
twelvemonthsaftercontractingorforthesaleofcropstobeharvestedwithin
twelvemonthsorthenextnormalharvestreasonaftercontractingwhicheveris
longer.
(2)Thesellerretainsaninsurableinterestingoodssolongastitletooranysecurity
interestinthegoodsremainsinhimandwheretheidentificationisbytheselleralone
hemayuntildefaultorinsolvencyornotificationtothebuyerthattheidentificationis
finalsubstituteothergoodsforthoseidentified.
(3)Nothinginthissectionimpairsanyinsurableinterestrecognizedunderanyother
statuteorruleoflaw.
2502.Buyer'sRighttoGoodsonSeller'sRepudiation,FailuretoDeliverorInsolvency.
(1)Subjecttosubsections(2)and(3)andeventhoughthegoodshavenotbeenshipped
abuyerwhohaspaidapartorallofthepriceofgoodsinwhichhehasaspecial
propertyundertheprovisionsoftheimmediatelyprecedingsectionmayonmakingand
keepinggoodatenderofanyunpaidportionoftheirpricerecoverthemfromtheseller
if:
(a)inthecaseofgoodsboughtforpersonal,family,orhouseholdpurposes,the
sellerrepudiatesorfailstodeliverasrequiredbythecontract;or
(b)inothercases,thesellerbecomesinsolventwithintendaysafterreceiptof
thefirstinstallmentontheirprice.
(2)Thebuyer'srighttorecoverthegoodsundersubsection(1)(a)vestsupon
acquisitionofaspecialproperty,evenifthesellerhadnotthenrepudiatedorfailedto
deliver.
[ 53 ]
(3)Iftheidentificationcreatinghisspecialpropertyhasbeenmadebythebuyerhe
acquirestherighttorecoverthegoodsonlyiftheyconformtothecontractforsale.
2503.MannerofSeller'sTenderofDelivery.
(1)Tenderofdeliveryrequiresthatthesellerputandholdconforminggoodsatthe
buyer'sdispositionandgivethebuyeranynotificationreasonablynecessarytoenable
himtotakedelivery.Themanner,timeandplacefortenderaredeterminedbythe
agreementandthisArticle,andinparticular
(a)tendermustbeatareasonablehour,andifitisofgoodstheymustbekept
availablefortheperiodreasonablynecessarytoenablethebuyertotake
possession;but
(b)unlessotherwiseagreedthebuyermustfurnishfacilitiesreasonablysuited
tothereceiptofthegoods.
(2)Wherethecaseiswithinthenextsectionrespectingshipmenttenderrequiresthat
thesellercomplywithitsprovisions.
(3)Wherethesellerisrequiredtodeliverataparticulardestinationtenderrequires
thathecomplywithsubsection(1)andalsoinanyappropriatecasetenderdocuments
asdescribedinsubsections(4)and(5)ofthissection.
(4)Wheregoodsareinthepossessionofabaileeandaretobedeliveredwithoutbeing
moved
(a)tenderrequiresthatthesellereithertenderanegotiabledocumentoftitle
coveringsuchgoodsorprocureacknowledgmentbythebaileeofthebuyer's
righttopossessionofthegoods;but
(b)tendertothebuyerofanonnegotiabledocumentoftitleorofarecord
directingthebaileetodeliverissufficienttenderunlessthebuyerseasonably
objects,andexceptasotherwiseprovidedinArticle9receiptbythebaileeof
notificationofthebuyer'srightsfixesthoserightsasagainstthebaileeandall
thirdpersons;butriskoflossofthegoodsandofanyfailurebythebaileeto
honorthenonnegotiabledocumentoftitleortoobeythedirectionremainson
theselleruntilthebuyerhashadareasonabletimetopresentthedocumentor
direction,andarefusalbythebaileetohonorthedocumentortoobeythe
directiondefeatsthetender.
(5)Wherethecontractrequiresthesellertodeliverdocuments
(a)hemusttenderallsuchdocumentsincorrectform,exceptasprovidedinthis
Articlewithrespecttobillsofladinginaset(subsection(2)ofSection2323);
and
[ 54 ]
(b)tenderthroughcustomarybankingchannelsissufficientanddishonorofa
draftaccompanyingorassociatedwiththedocumentsconstitutesnon
acceptanceorrejection.
2504.ShipmentbySeller.
Wherethesellerisrequiredorauthorizedtosendthegoodstothebuyerandthe
contractdoesnotrequirehimtodeliverthemataparticulardestination,thenunless
otherwiseagreedhemust
(a)putthegoodsinthepossessionofsuchacarrierandmakesuchacontractfor
theirtransportationasmaybereasonablehavingregardtothenatureofthe
goodsandothercircumstancesofthecase;and
(b)obtainandpromptlydeliverortenderindueformanydocumentnecessary
toenablethebuyertoobtainpossessionofthegoodsorotherwiserequiredby
theagreementorbyusageoftrade;and
(c)promptlynotifythebuyeroftheshipment.
Failuretonotifythebuyerunderparagraph(c)ortomakeapropercontractunder
paragraph(a)isagroundforrejectiononlyifmaterialdelayorlossensues.
2505.Seller'sShipmentUnderReservation.
(1)Wherethesellerhasidentifiedgoodstothecontractbyorbeforeshipment:
(a)hisprocurementofanegotiablebillofladingtohisownorderorotherwise
reservesinhimasecurityinterestinthegoods.Hisprocurementofthebillto
theorderofafinancingagencyorofthebuyerindicatesinadditiononlythe
seller'sexpectationoftransferringthatinteresttothepersonnamed.
(b)anonnegotiablebillofladingtohimselforhisnomineereservespossession
ofthegoodsassecuritybutexceptinacaseofconditionaldelivery(subsection
(2)ofSection2507)anonnegotiablebillofladingnamingthebuyeras
consigneereservesnosecurityinteresteventhoughthesellerretainspossession
orcontrolofthebilloflading.
(2)Whenshipmentbythesellerwithreservationofasecurityinterestisinviolationof
thecontractforsaleitconstitutesanimpropercontractfortransportationwithinthe
precedingsectionbutimpairsneithertherightsgiventothebuyerbyshipmentand
identificationofthegoodstothecontractnortheseller'spowersasaholderofa
negotiabledocumentoftitle.
2506.RightsofFinancingagency.
(1)Afinancingagencybypayingorpurchasingforvalueadraftwhichrelatestoa
shipmentofgoodsacquirestotheextentofthepaymentorpurchaseandinadditionto
itsownrightsunderthedraftandanydocumentoftitlesecuringitanyrightsofthe
[ 55 ]
shipperinthegoodsincludingtherighttostopdeliveryandtheshipper'srighttohave
thedrafthonoredbythebuyer.
(2)Therighttoreimbursementofafinancingagencywhichhasingoodfaithhonored
orpurchasedthedraftundercommitmenttoorauthorityfromthebuyerisnot
impairedbysubsequentdiscoveryofdefectswithreferencetoanyrelevantdocument
whichwasapparentlyregular.
2507.EffectofSeller'sTender;DeliveryonCondition.
(1)Tenderofdeliveryisaconditiontothebuyer'sdutytoacceptthegoodsand,unless
otherwiseagreed,tohisdutytopayforthem.Tenderentitlesthesellertoacceptance
ofthegoodsandtopaymentaccordingtothecontract.
(2)Wherepaymentisdueanddemandedonthedeliverytothebuyerofgoodsor
documentsoftitle,hisrightasagainstthesellertoretainordisposeofthemis
conditionaluponhismakingthepaymentdue.
[PermanentEditorialBoardCommentary]
2508.CurebySellerofImproperTenderorDelivery;Replacement.
(1)Whereanytenderordeliverybythesellerisrejectedbecausenonconformingand
thetimeforperformancehasnotyetexpired,thesellermayseasonablynotifythe
buyerofhisintentiontocureandmaythenwithinthecontracttimemakeaconforming
delivery.
(2)Wherethebuyerrejectsanonconformingtenderwhichthesellerhadreasonable
groundstobelievewouldbeacceptablewithorwithoutmoneyallowancetheseller
mayifheseasonablynotifiesthebuyerhaveafurtherreasonabletimetosubstitutea
conformingtender.
2509.RiskofLossintheAbsenceofBreach.
(1)Wherethecontractrequiresorauthorizesthesellertoshipthegoodsbycarrier
(a)ifitdoesnotrequirehimtodeliverthemataparticulardestination,therisk
oflosspassestothebuyerwhenthegoodsaredulydeliveredtothecarriereven
thoughtheshipmentisunderreservation(Section2505);but
(b)ifitdoesrequirehimtodeliverthemataparticulardestinationandthe
goodsaretheredulytenderedwhileinthepossessionofthecarrier,theriskof
losspassestothebuyerwhenthegoodsaretheredulysotenderedastoenable
thebuyertotakedelivery.
(2)Wherethegoodsareheldbyabaileetobedeliveredwithoutbeingmoved,therisk
oflosspassestothebuyer
[ 56 ]
(a)onhisreceiptofpossessionorcontrolofanegotiabledocumentoftitle
coveringthegoods;or
(b)onacknowledgmentbythebaileeofthebuyer'srighttopossessionofthe
goods;or
(c)afterhisreceiptofposessionorcontrolofanonnegotiabledocumentoftitle
orotherdirectiontodeliverinarecord,asprovidedinsubsection(4)(b)of
Section2503.
(3)Inanycasenotwithinsubsection(1)or(2),theriskoflosspassestothebuyeron
hisreceiptofthegoodsifthesellerisamerchant;otherwisetheriskpassestothe
buyerontenderofdelivery.
(4)Theprovisionsofthissectionaresubjecttocontraryagreementofthepartiesand
totheprovisionsofthisArticleonsaleonapproval(Section2327)andoneffectof
breachonriskofloss(Section2510).
2510.EffectofBreachonRiskofLoss.
(1)Whereatenderordeliveryofgoodssofailstoconformtothecontractastogivea
rightofrejectiontheriskoftheirlossremainsontheselleruntilcureoracceptance.
(2)Wherethebuyerrightfullyrevokesacceptancehemaytotheextentofany
deficiencyinhiseffectiveinsurancecoveragetreattheriskoflossashavingrestedon
thesellerfromthebeginning.
(3)Wherethebuyerastoconforminggoodsalreadyidentifiedtothecontractforsale
repudiatesorisotherwiseinbreachbeforeriskoftheirlosshaspassedtohim,the
sellermaytotheextentofanydeficiencyinhiseffectiveinsurancecoveragetreatthe
riskoflossasrestingonthebuyerforacommerciallyreasonabletime.
2511.TenderofPaymentbyBuyer;PaymentbyCheck.
(1)Unlessotherwiseagreedtenderofpaymentisaconditiontotheseller'sdutyto
tenderandcompleteanydelivery.
(2)Tenderofpaymentissufficientwhenmadebyanymeansorinanymannercurrent
intheordinarycourseofbusinessunlessthesellerdemandspaymentinlegaltender
andgivesanyextensionoftimereasonablynecessarytoprocureit.
(3)SubjecttotheprovisionsofthisActontheeffectofaninstrumentonanobligation
(Section3802),paymentbycheckisconditionalandisdefeatedasbetweentheparties
bydishonorofthecheckonduepresentment.
[ 57 ]
2512.PaymentbyBuyerBeforeInspection.
(1)Wherethecontractrequirespaymentbeforeinspectionnonconformityofthe
goodsdoesnotexcusethebuyerfromsomakingpaymentunless
(a)thenonconformityappearswithoutinspection;or
(b)despitetenderoftherequireddocumentsthecircumstanceswouldjustify
injunctionagainsthonorunderthisAct(Section5109(b)).
(2)Paymentpursuanttosubsection(1)doesnotconstituteanacceptanceofgoodsor
impairthebuyer'srighttoinspectoranyofhisremedies.
2513.Buyer'sRighttoInspectionofGoods.
(1)Unlessotherwiseagreedandsubjecttosubsection(3),wheregoodsaretenderedor
deliveredoridentifiedtothecontractforsale,thebuyerhasarightbeforepaymentor
acceptancetoinspectthematanyreasonableplaceandtimeandinanyreasonable
manner.Whenthesellerisrequiredorauthorizedtosendthegoodstothebuyer,the
inspectionmaybeaftertheirarrival.
(2)Expensesofinspectionmustbebornebythebuyerbutmayberecoveredfromthe
sellerifthegoodsdonotconformandarerejected.
(3)UnlessotherwiseagreedandsubjecttotheprovisionsofthisArticleonC.I.F.
contracts(subsection(3)ofSection2321),thebuyerisnotentitledtoinspectthe
goodsbeforepaymentofthepricewhenthecontractprovides
(a)fordelivery"C.O.D."oronotherliketerms;or
(b)forpaymentagainstdocumentsoftitle,exceptwheresuchpaymentisdue
onlyafterthegoodsaretobecomeavailableforinspection.
(4)Aplaceormethodofinspectionfixedbythepartiesispresumedtobeexclusivebut
unlessotherwiseexpresslyagreeditdoesnotpostponeidentificationorshifttheplace
fordeliveryorforpassingtheriskofloss.Ifcompliancebecomesimpossible,
inspectionshallbeasprovidedinthissectionunlesstheplaceormethodfixedwas
clearlyintendedasanindispensableconditionfailureofwhichavoidsthecontract.
2514.WhenDocumentsDeliverableonAcceptance;WhenonPayment.
Unlessotherwiseagreeddocumentsagainstwhichadraftisdrawnaretobedeliveredtothe
draweeonacceptanceofthedraftifitispayablemorethanthreedaysafterpresentment;
otherwise,onlyonpayment.
[ 58 ]
2515.PreservingEvidenceofGoodsinDispute.
Infurtheranceoftheadjustmentofanyclaimordispute
(a)eitherpartyonreasonablenotificationtotheotherandforthepurposeof
ascertainingthefactsandpreservingevidencehastherighttoinspect,testand
samplethegoodsincludingsuchofthemasmaybeinthepossessionorcontrol
oftheother;and
(b)thepartiesmayagreetoathirdpartyinspectionorsurveytodeterminethe
conformityorconditionofthegoodsandmayagreethatthefindingsshallbe
bindingupontheminanysubsequentlitigationoradjustment.
PART6.BREACH,REPUDIATIONANDEXCUSE
2601.Buyer'sRightsonImproperDelivery.
SubjecttotheprovisionsofthisArticleonbreachininstallmentcontracts(Section2
612)andunlessotherwiseagreedunderthesectionsoncontractuallimitationsof
remedy(Sections2718and2719),ifthegoodsorthetenderofdeliveryfailinany
respecttoconformtothecontract,thebuyermay
(a)rejectthewhole;or
(b)acceptthewhole;or
(c)acceptanycommercialunitorunitsandrejecttherest.
2602.MannerandEffectofRightfulRejection.
(1)Rejectionofgoodsmustbewithinareasonabletimeaftertheirdeliveryortender.
Itisineffectiveunlessthebuyerseasonablynotifiestheseller.
(2)Subjecttotheprovisionsofthetwofollowingsectionsonrejectedgoods(Sections
2603and2604),
(a)afterrejectionanyexerciseofownershipbythebuyerwithrespecttoany
commercialunitiswrongfulasagainsttheseller;and
(b)ifthebuyerhasbeforerejectiontakenphysicalpossessionofgoodsinwhich
hedoesnothaveasecurityinterestundertheprovisionsofthisArticle
(subsection(3)ofSection2711),heisunderadutyafterrejectiontoholdthem
withreasonablecareattheseller'sdispositionforatimesufficienttopermitthe
sellertoremovethem;but
(c)thebuyerhasnofurtherobligationswithregardtogoodsrightfullyrejected.
(3)Theseller'srightswithrespecttogoodswrongfullyrejectedaregovernedbythe
provisionsofthisArticleonseller'sremediesingeneral(Section2703).
[ 59 ]
2603.MerchantBuyer'sDutiesastoRightfullyRejectedGoods.
(1)Subjecttoanysecurityinterestinthebuyer(subsection(3)ofSection2711),when
thesellerhasnoagentorplaceofbusinessatthemarketofrejectionamerchantbuyer
isunderadutyafterrejectionofgoodsinhispossessionorcontroltofollowany
reasonableinstructionsreceivedfromthesellerwithrespecttothegoodsandinthe
absenceofsuchinstructionstomakereasonableeffortstosellthemfortheseller's
accountiftheyareperishableorthreatentodeclineinvaluespeedily.Instructionsare
notreasonableifondemandindemnityforexpensesisnotforthcoming.
(2)Whenthebuyersellsgoodsundersubsection(1),heisentitledtoreimbursement
fromtheselleroroutoftheproceedsforreasonableexpensesofcaringforandselling
them,andiftheexpensesincludenosellingcommissionthentosuchcommissionasis
usualinthetradeorifthereisnonetoareasonablesumnotexceedingtenpercenton
thegrossproceeds.
(3)Incomplyingwiththissectionthebuyerisheldonlytogoodfaithandgoodfaith
conducthereunderisneitheracceptancenorconversionnorthebasisofanactionfor
damages.
2604.Buyer'sOptionsastoSalvageofRightfullyRejectedGoods.
Subjecttotheprovisionsoftheimmediatelyprecedingsectiononperishablesifthe
sellergivesnoinstructionswithinareasonabletimeafternotificationofrejectionthe
buyermaystoretherejectedgoodsfortheseller'saccountorreshipthemtohimor
resellthemfortheseller'saccountwithreimbursementasprovidedinthepreceding
section.Suchactionisnotacceptanceorconversion.
2605.WaiverofBuyer'sObjectionsbyFailuretoParticularize.
(1)Thebuyer'sfailuretostateinconnectionwithrejectionaparticulardefectwhichis
ascertainablebyreasonableinspectionprecludeshimfromrelyingontheunstated
defecttojustifyrejectionortoestablishbreach
(a)wherethesellercouldhavecureditifstatedseasonably;or
(b)betweenmerchantswhenthesellerhasafterrejectionmadearequestin
writingforafullandfinalwrittenstatementofalldefectsonwhichthebuyer
proposestorely.
(2)Paymentagainstdocumentsmadewithoutreservationofrightsprecludesrecovery
ofthepaymentfordefectsapparentinthedocuments.
2606.WhatConstitutesAcceptanceofGoods.
(1)Acceptanceofgoodsoccurswhenthebuyer
[ 60 ]
(a)afterareasonableopportunitytoinspectthegoodssignifiestothesellerthat
thegoodsareconformingorthathewilltakeorretaintheminspiteoftheirnon
conformity;or
(b)failstomakeaneffectiverejection(subsection(1)ofSection2602),butsuch
acceptancedoesnotoccuruntilthebuyerhashadareasonableopportunityto
inspectthem;or
(c)doesanyactinconsistentwiththeseller'sownership;butifsuchactis
wrongfulasagainsttheselleritisanacceptanceonlyifratifiedbyhim.
(2)Acceptanceofapartofanycommercialunitisacceptanceofthatentireunit.
2607.EffectofAcceptance;NoticeofBreach;BurdenofEstablishingBreachAfter
Acceptance;NoticeofClaimorLitigationtoPersonAnswerableOver.
(1)Thebuyermustpayatthecontractrateforanygoodsaccepted.
(2)Acceptanceofgoodsbythebuyerprecludesrejectionofthegoodsacceptedandif
madewithknowledgeofanonconformitycannotberevokedbecauseofitunlessthe
acceptancewasonthereasonableassumptionthatthenonconformitywouldbe
seasonablycuredbutacceptancedoesnotofitselfimpairanyotherremedyprovided
bythisArticlefornonconformity.
(3)Whereatenderhasbeenaccepted
(a)thebuyermustwithinareasonabletimeafterhediscoversorshouldhave
discoveredanybreachnotifythesellerofbreachorbebarredfromanyremedy;
and
(b)iftheclaimisoneforinfringementorthelike(subsection(3)ofSection2
312)andthebuyerissuedasaresultofsuchabreachhemustsonotifythe
sellerwithinareasonabletimeafterhereceivesnoticeofthelitigationorbe
barredfromanyremedyoverforliabilityestablishedbythelitigation.
(4)Theburdenisonthebuyertoestablishanybreachwithrespecttothegoods
accepted.
(5)Wherethebuyerissuedforbreachofawarrantyorotherobligationforwhichhis
sellerisanswerableover
(a)hemaygivehissellerwrittennoticeofthelitigation.Ifthenoticestatesthat
thesellermaycomeinanddefendandthatifthesellerdoesnotdosohewillbe
boundinanyactionagainsthimbyhisbuyerbyanydeterminationoffact
commontothetwolitigations,thenunlessthesellerafterseasonablereceiptof
thenoticedoescomeinanddefendheissobound.
(b)iftheclaimisoneforinfringementorthelike(subsection(3)ofSection2
312)theoriginalsellermaydemandinwritingthathisbuyerturnovertohim
[ 61 ]
controlofthelitigationincludingsettlementorelsebebarredfromanyremedy
overandifhealsoagreestobearallexpenseandtosatisfyanyadverse
judgment,thenunlessthebuyerafterseasonablereceiptofthedemanddoes
turnovercontrolthebuyerissobarred.
(6)Theprovisionsofsubsections(3),(4)and(5)applytoanyobligationofabuyerto
holdthesellerharmlessagainstinfringementorthelike(subsection(3)ofSection2
312).
2608.RevocationofAcceptanceinWholeorinPart.
(1)Thebuyermayrevokehisacceptanceofalotorcommercialunitwhosenon
conformitysubstantiallyimpairsitsvaluetohimifhehasacceptedit
(a)onthereasonableassumptionthatitsnonconformitywouldbecuredandit
hasnotbeenseasonablycured;or
(b)withoutdiscoveryofsuchnonconformityifhisacceptancewasreasonably
inducedeitherbythedifficultyofdiscoverybeforeacceptanceorbytheseller's
assurances.
(2)Revocationofacceptancemustoccurwithinareasonabletimeafterthebuyer
discoversorshouldhavediscoveredthegroundforitandbeforeanysubstantialchange
inconditionofthegoodswhichisnotcausedbytheirowndefects.Itisnoteffective
untilthebuyernotifiesthesellerofit.
(3)Abuyerwhosorevokeshasthesamerightsanddutieswithregardtothegoods
involvedasifhehadrejectedthem.
(4)Ifabuyerusesthegoodsafterarightfulrejectionorjustifiablerevocationof
acceptance,thefollowingrulesapply:
(a)Anyusebythebuyerthatisunreasonableunderthecircumstancesis
wrongfulasagainstthesellerandisanacceptanceonlyifratifiedbytheseller.
(b)Anyuseofthegoodsthatisreasonableunderthecircumstancesisnot
wrongfulasagainstthesellerandisnotanacceptance,butinanappropriate
casethebuyerisobligatedtothesellerforthevalueoftheusetothebuyer.
2609.RighttoAdequateAssuranceofPerformance.
(1)Acontractforsaleimposesanobligationoneachpartythattheother'sexpectation
ofreceivingdueperformancewillnotbeimpaired.Whenreasonablegroundsfor
insecurityarisewithrespecttotheperformanceofeitherpartytheothermayin
writingdemandadequateassuranceofdueperformanceanduntilhereceivessuch
assurancemayifcommerciallyreasonablesuspendanyperformanceforwhichhehas
notalreadyreceivedtheagreedreturn.
[ 62 ]
(2)Betweenmerchantsthereasonablenessofgroundsforinsecurityandtheadequacy
ofanyassuranceofferedshallbedeterminedaccordingtocommercialstandards.
(3)Acceptanceofanyimproperdeliveryorpaymentdoesnotprejudicetheaggrieved
party'srighttodemandadequateassuranceoffutureperformance.
(4)Afterreceiptofajustifieddemandfailuretoprovidewithinareasonabletimenot
exceedingthirtydayssuchassuranceofdueperformanceasisadequateunderthe
circumstancesoftheparticularcaseisarepudiationofthecontract.
2610.AnticipatoryRepudiation.
Wheneitherpartyrepudiatesthecontractwithrespecttoaperformancenotyetdue
thelossofwhichwillsubstantiallyimpairthevalueofthecontracttotheother,the
aggrievedpartymay
(a)foracommerciallyreasonabletimeawaitperformancebytherepudiating
party;or
(b)resorttoanyremedyforbreach(Section2703orSection2711),even
thoughhehasnotifiedtherepudiatingpartythathewouldawaitthelatter's
performanceandhasurgedretraction;and
(c)ineithercasesuspendhisownperformanceorproceedinaccordancewith
theprovisionsofthisArticleontheseller'srighttoidentifygoodstothecontract
notwithstandingbreachortosalvageunfinishedgoods(Section2704).
2611.RetractionofAnticipatoryRepudiation.
(1)Untiltherepudiatingparty'snextperformanceisduehecanretracthisrepudiation
unlesstheaggrievedpartyhassincetherepudiationcancelledormateriallychangedhis
positionorotherwiseindicatedthatheconsiderstherepudiationfinal.
(2)Retractionmaybebyanymethodwhichclearlyindicatestotheaggrievedpartythat
therepudiatingpartyintendstoperform,butmustincludeanyassurancejustifiably
demandedundertheprovisionsofthisArticle(Section2609).
(3)Retractionreinstatestherepudiatingparty'srightsunderthecontractwithdue
excuseandallowancetotheaggrievedpartyforanydelayoccasionedbythe
repudiation.
2612."Installmentcontract";Breach.
(1)An"installmentcontract"isonewhichrequiresorauthorizesthedeliveryofgoods
inseparatelotstobeseparatelyaccepted,eventhoughthecontractcontainsaclause
"eachdeliveryisaseparatecontract"oritsequivalent.
(2)Thebuyermayrejectanyinstallmentwhichisnonconformingifthenon
conformitysubstantiallyimpairsthevalueofthatinstallmentandcannotbecuredorif
[ 63 ]
thenonconformityisadefectintherequireddocuments;butifthenonconformity
doesnotfallwithinsubsection(3)andthesellergivesadequateassuranceofitscure
thebuyermustacceptthatinstallment.
(3)Whenevernonconformityordefaultwithrespecttooneormoreinstallments
substantiallyimpairsthevalueofthewholecontractthereisabreachofthewhole.But
theaggrievedpartyreinstatesthecontractifheacceptsanonconforminginstallment
withoutseasonablynotifyingofcancellationorifhebringsanactionwithrespectonly
topastinstallmentsordemandsperformanceastofutureinstallments.
2613.CasualtytoIdentifiedGoods.
Wherethecontractrequiresforitsperformancegoodsidentifiedwhenthecontractis
made,andthegoodssuffercasualtywithoutfaultofeitherpartybeforetheriskofloss
passestothebuyer,orinapropercaseundera"noarrival,nosale"term(Section2
324)then
(a)ifthelossistotalthecontractisavoided;and
(b)ifthelossispartialorthegoodshavesodeterioratedasnolongertoconform
tothecontractthebuyermayneverthelessdemandinspectionandathisoption
eithertreatthecontractasavoidedoracceptthegoodswithdueallowancefrom
thecontractpriceforthedeteriorationorthedeficiencyinquantitybutwithout
furtherrightagainsttheseller.
2614.SubstitutedPerformance.
(1)Wherewithoutfaultofeitherpartytheagreedberthing,loading,orunloading
facilitiesfailoranagreedtypeofcarrierbecomesunavailableortheagreedmannerof
deliveryotherwisebecomescommerciallyimpracticablebutacommerciallyreasonable
substituteisavailable,suchsubstituteperformancemustbetenderedandaccepted.
(2)Iftheagreedmeansormannerofpaymentfailsbecauseofdomesticorforeign
governmentalregulation,thesellermaywithholdorstopdeliveryunlessthebuyer
providesameansormannerofpaymentwhichiscommerciallyasubstantial
equivalent.Ifdeliveryhasalreadybeentaken,paymentbythemeansorinthemanner
providedbytheregulationdischargesthebuyer'sobligationunlesstheregulationis
discriminatory,oppressiveorpredatory.
2615.ExcusebyFailureofPresupposedConditions.
Exceptsofarasasellermayhaveassumedagreaterobligationandsubjecttothe
precedingsectiononsubstitutedperformance:
(a)Delayindeliveryornondeliveryinwholeorinpartbyasellerthatcomplies
withparagraphs(b)and(c)isnotabreachofhisdutyunderacontractforsaleif
performanceasagreedhasbeenmadeimpracticablebytheoccurrenceofa
contingencythenonoccurrenceofwhichwasabasicassumptiononwhichthe
contractwasmadeorbycomplianceingoodfaithwithanyapplicableforeignor
[ 64 ]
domesticgovernmentalregulationororderwhetherornotitlaterprovestobe
invalid.
(b)Wherethecausesmentionedinparagraph(a)affectonlyapartoftheseller's
capacitytoperform,hemustallocateproductionanddeliveriesamonghis
customersbutmayathisoptionincluderegularcustomersnotthenunder
contractaswellashisownrequirementsforfurthermanufacture.Hemayso
allocateinanymannerwhichisfairandreasonable.
(c)Thesellermustnotifythebuyerseasonablythattherewillbedelayornon
deliveryand,whenallocationisrequiredunderparagraph(b),oftheestimated
quotathusmadeavailableforthebuyer.
2616.ProcedureonNoticeClaimingExcuse.
(1)Wherethebuyerreceivesnotificationofamaterialorindefinitedelayoran
allocationjustifiedundertheprecedingsectionhemaybywrittennotificationtothe
sellerastoanydeliveryconcerned,andwheretheprospectivedeficiencysubstantially
impairsthevalueofthewholecontractundertheprovisionsofthisArticlerelatingto
breachofinstallmentcontracts(Section2612),thenalsoastothewhole,
(a)terminateandtherebydischargeanyunexecutedportionofthecontract;or
(b)modifythecontractbyagreeingtotakehisavailablequotainsubstitution.
(2)Ifafterreceiptofsuchnotificationfromthesellerthebuyerfailssotomodifythe
contractwithinareasonabletimenotexceedingthirtydaysthecontractlapseswith
respecttoanydeliveriesaffected.
(3)Theprovisionsofthissectionmaynotbenegatedbyagreementexceptinsofaras
thesellerhasassumedagreaterobligationundertheprecedingsection.s
PART7.REMEDIES
2701.RemediesforBreachofCollateralcontractsNotImpaired.
Remediesforbreachofanyobligationorpromisecollateralorancillarytoacontractfor
salearenotimpairedbytheprovisionsofthisArticle.
2702.Seller'sRemediesonDiscoveryofBuyer'sInsolvency.
(1)Wherethesellerdiscoversthebuyertobeinsolventhemayrefusedeliveryexcept
forcashincludingpaymentforallgoodstheretoforedeliveredunderthecontract,and
stopdeliveryunderthisArticle(Section2705).
(2)Wherethesellerdiscoversthatthebuyerhasreceivedgoodsoncreditwhile
insolvent,thesellermayreclaimthegoodsupondemandmadewithinareasonable
timeafterthebuyer'sreceiptofthegoods.Exceptasprovidedinthissubsection,the
[ 65 ]
sellermaynotbasearighttoreclaimgoodsonthebuyer'sfraudulentorinnocent
misrepresentationofsolvencyorofintenttopay.
(3)Theseller'srighttoreclaimundersubsection(2)issubjecttotherightsofabuyer
inordinarycourseofbusinessorothergoodfaithpurchaserforvalueunderSection2
403.Successfulreclamationofgoodsexcludesallotherremedieswithrespecttothem.
2703.Seller'sRemediesinGeneral.
(1)Abreachofcontractbythebuyerincludesthebuyer'swrongfulrejectionor
wrongfulattempttorevokeacceptanceofgoods,wrongfulfailuretoperforma
contractualobligation,failuretomakeapaymentwhendue,andrepudiation.
(2)Ifthebuyerisinbreachofcontracttheseller,totheextentprovidedforbythisAct
orotherlaw,may:
(a)withholddeliveryofsuchgoods;
(b)stopdeliveryofthegoodsunderSection2705;
(c)proceedunderSection2704withrespecttogoodsunidentifiedtothe
contractorunfinished;
(d)reclaimthegoodsunderSection2507(2)or2702(2);
(e)requirepaymentdirectlyfromthebuyerunderSection2325(c);
(f)cancel;
(g)resellandrecoverdamagesunderSection2706;
(h)recoverdamagesfornonacceptanceorrepudiationunder(Section2708(1)
orinapropercasetheprice(Section2709);
(j)recoverthepriceunderSection2709;
(k)obtainspecificperformanceunderSection2716;
(l)recoverliquidateddamagesunderSection2718;
(m)inothercases,recoverdamagesinanymannerthatisreasonableunderthe
circumstances.
(3)Ifthebuyerbecomesinsolvent,thesellermay:
(a)withholddeliveryunderSection2702(1);
(b)stopdeliveryofthegoodsunderSection2705;
[ 66 ]
(c)reclaimthegoodsunderSection2702(2).
2704.Seller'sRighttoIdentifyGoodstotheContractNotwithstandingBreachorto
SalvageUnfinishedGoods.
(1)Anaggrievedsellerundertheprecedingsectionmay
(a)identifytothecontractconforminggoodsnotalreadyidentifiedifatthetime
helearnedofthebreachtheyareinhispossessionorcontrol;
(b)treatasthesubjectofresalegoodswhichhavedemonstrablybeenintended
fortheparticularcontracteventhoughthosegoodsareunfinished.
(2)Wherethegoodsareunfinishedanaggrievedsellermayintheexerciseof
reasonablecommercialjudgmentforthepurposesofavoidinglossandofeffective
realizationeithercompletethemanufactureandwhollyidentifythegoodstothe
contractorceasemanufactureandresellforscraporsalvagevalueorproceedinany
otherreasonablemanner.
2705.Seller'sStoppageofDeliveryinTransitorOtherwise.
(1)Thesellermaystopdeliveryofgoodsinthepossessionofacarrierorotherbailee
whenhediscoversthebuyertobeinsolvent(Section2702)orifthebuyerrepudiates
orfailstomakeapaymentduebeforedeliveryorifforanyotherreasonthesellerhasa
righttowithholdorreclaimthegoods.
(2)Asagainstsuchbuyerthesellermaystopdeliveryuntil
(a)receiptofthegoodsbythebuyer;or
(b)acknowledgmenttothebuyerbyanybaileeofthegoodsexceptacarrierthat
thebaileeholdsthegoodsforthebuyer;or
(c)suchacknowledgmenttothebuyerbyacarrierbyreshipmentorasa
warehouse;or
(d)negotiationtothebuyerofanynegotiabledocumentoftitlecoveringthe
goods.
(3)
(a)Tostopdeliverythesellermustsonotifyastoenablethebaileeby
reasonablediligencetopreventdeliveryofthegoods.
(b)Aftersuchnotificationthebaileemustholdanddeliverthegoodsaccording
tothedirectionsofthesellerbutthesellerisliabletothebaileeforanyensuing
chargesordamages.
(c)Ifanegotiabledocumentoftitlehasbeenissuedforgoodsthebaileeisnot
obligedtoobeyanotificationtostopuntilsurrenderofpossessionorcontrolof
thedocument.
[ 67 ]
(d)Acarrierthathasissuedanonnegotiablebillofladingisnotobligedtoobey
anotificationtostopreceivedfromapersonotherthantheconsignor.
2706.Seller'sResaleIncludingContractforResale.
(1)UndertheconditionsstatedinSection2703onseller'sremedies,thesellermay
resellthegoodsconcernedortheundeliveredbalancethereof.Wheretheresaleis
madeingoodfaithandinacommerciallyreasonablemannerthesellermayrecoverthe
differencebetweentheresalepriceandthecontractpricetogetherwithanyincidental
damagesallowedundertheprovisionsofthisArticle(Section2710),butlessexpenses
savedinconsequenceofthebuyer'sbreach.
(2)Exceptasotherwiseprovidedinsubsection(3)orunlessotherwiseagreedresale
maybeatpublicorprivatesaleincludingsalebywayofoneormorecontractstosellor
ofidentificationtoanexistingcontractoftheseller.Salemaybeasaunitorinparcels
andatanytimeandplaceandonanytermsbuteveryaspectofthesaleincludingthe
method,manner,time,placeandtermsmustbecommerciallyreasonable.Theresale
mustbereasonablyidentifiedasreferringtothebrokencontract,butitisnotnecessary
thatthegoodsbeinexistenceorthatanyorallofthemhavebeenidentifiedtothe
contractbeforethebreach.
(3)Wheretheresaleisatprivatesalethesellermustgivethebuyerreasonable
notificationofhisintentiontoresell.
(4)Wheretheresaleisatpublicsale
(a)onlyidentifiedgoodscanbesoldexceptwherethereisarecognizedmarket
forapublicsaleoffuturesingoodsofthekind;and
(b)itmustbemadeatausualplaceormarketforpublicsaleifoneisreasonably
availableandexceptinthecaseofgoodswhichareperishableorthreatento
declineinvaluespeedilythesellermustgivethebuyerreasonablenoticeofthe
timeandplaceoftheresale;and
(c)ifthegoodsarenottobewithintheviewofthoseattendingthesalethe
notificationofsalemuststatetheplacewherethegoodsarelocatedandprovide
fortheirreasonableinspectionbyprospectivebidders;and
(d)thesellermaybuy.
(5)Apurchaserthatbuysingoodfaithataresaletakesthegoodsfreeofanyrightsof
theoriginalbuyereventhoughthesellerfailstocomplywithoneormoreofthe
requirementsofthissection.
(6)Thesellerisnotaccountabletothebuyerforanyprofitmadeonanyresale.A
personinthepositionofaseller(Section2707)orabuyerthathasrightfullyrejected
orjustifiablyrevokedacceptancemustaccountforanyexcessovertheamountofhis
securityinterest,ashereinafterdefined(subsection(3)ofSection2711).
[ 68 ]
2707."PersoninthePositionofaSeller".
(1)A"personinthepositionofaseller"includesasagainstaprincipalanagentthathas
paidorbecomeresponsibleforthepriceofgoodsonbehalfofhisprincipaloranyone
thatotherwiseholdsasecurityinterestorotherrightingoodssimilartothatofaseller.
(2)Apersoninthepositionofasellerhasthesameremediesasasellerunderthis
Article.
2708.Seller'sDamagesforNonacceptanceorRepudiation.
(1)Subjecttosubsection(2)andtoSection2723:
(a)themeasureofdamagesfornonacceptancebythebuyeristhedifference
betweenthecontractpriceandthemarketpriceatthetimeandplacefortender
togetherwithanyincidentalorconsequentialdamagesprovidedinSection2
710,butlessexpensessavedinconsequenceofthebuyer'sbreach;and
(b)themeasureofdamagesforrepudiationbythebuyeristhedifference
betweenthecontractpriceandthemarketpriceattheplacefortenderatthe
expirationofacommerciallyreasonabletimeafterthesellerlearnedofthe
repudiation,butnolaterthanthetimestatedinparagraph(a),togetherwithany
incidentalorconsequentialdamagesprovidedinSection2710,lessexpenses
savedinconsequenceofthebuyer'sbreach.
(2)Ifthemeasureofdamagesprovidedinsubsection(1)isinadequatetoputtheseller
inasgoodapositionasperformancewouldhavedonethenthemeasureofdamagesis
theprofit(includingreasonableoverhead)whichthesellerwouldhavemadefromfull
performancebythebuyer,togetherwithanyincidentaldamagesprovidedinthis
Article(Section2710),dueallowanceforcostsreasonablyincurredandduecreditfor
paymentsorproceedsofresale.
2709.ActionforthePrice.
(1)Whenthebuyerfailstopaythepriceasitbecomesduethesellermayrecover,
togetherwithanyincidentaldamagesunderthenextsection,theprice
(a)ofgoodsacceptedorofconforminggoodslostordamagedwithina
commerciallyreasonabletimeafterriskoftheirlosshaspassedtothebuyer;
and
(b)ofgoodsidentifiedtothecontractifthesellerisunableafterreasonable
efforttoresellthematareasonablepriceorthecircumstancesreasonably
indicatethatsucheffortwillbeunavailing.
(2)Wherethesellersuesforthepricehemustholdforthebuyeranygoodswhichhave
beenidentifiedtothecontractandarestillinhiscontrolexceptthatifresalebecomes
possiblehemayresellthematanytimepriortothecollectionofthejudgment.Thenet
[ 69 ]
proceedsofanysuchresalemustbecreditedtothebuyerandpaymentofthejudgment
entitleshimtoanygoodsnotresold.
(3)Afterthebuyerhaswrongfullyrejectedorrevokedacceptanceofthegoodsorhas
failedtomakeapaymentdueorhasrepudiated(Section2610),asellerthatisheldnot
entitledtothepriceunderthissectionshallneverthelessbeawardeddamagesfornon
acceptanceundertheprecedingsection.
2710.Seller'sIncidentalDamages.
(1)Incidentaldamagestoanaggrievedsellerincludeanycommerciallyreasonable
charges,expensesorcommissionsincurredinstoppingdelivery,inthetransportation,
careandcustodyofgoodsafterthebuyer'sbreach,inconnectionwithreturnorresale
ofthegoodsorotherwiseresultingfromthebreach.
(2)Consequentialdamagesresultingfromthebuyer'sbreachincludeanylossresulting
fromgeneralorparticularrequirementsandneedsofwhichthebuyeratthetimeof
contractinghadreasontoknowandwhichcouldnotreasonablybepreventedbyresale
orotherwise.
(3)Inaconsumercontract,asellermaynotrecoverconsequentialdamagesfroma
consumer.
2711.Buyer'sRemediesinGeneral;Buyer'sSecurityInterestinRejectedGoods.
(1)Abreachofcontractbythesellerincludestheseller'swrongfulfailuretodeliveror
toperformacontractualobligation,makingofanonconformingtenderofdeliveryor
performance,andrepudiation.
(2)Ifthesellerisinbreachofcontractundersubsection(1),thebuyer,totheextent
providedforbythisActorotherlaw,may:
(a)inthecaseofrightfulcancellation,rightfulrejection,orjustifiablerevocation
ofacceptance,recoversomuchofthepriceashasbeenpaid;
(b)deductdamagesfromanypartofthepricestilldueunderSection2717;
(c)cancel;
(d)coverandhavedamagesunderSection2712astoallgoodsaffected
whetherornottheyhavebeenidentifiedtothecontract;
(e)recoverdamagesfornondeliveryorrepudiationunderSection2713;
(f)recoverdamagesforbreachwithregardtoacceptedgoodsorbreachwith
regardtoaremedialpromiseunderSection2714;
(g)recoveridentifiedgoodsunderSection2502;
[ 70 ]
(h)obtainspecificperformanceorobtainthegoodsbyreplevinorsimilar
remedyunderSection2716;
(i)recoverliquidateddamagesunderSection2718;
(j)inothercases,recoverdamagesinanymannerthatisreasonableunderthe
circumstances.
(3)Onrightfulrejectionorjustifiablerevocationofacceptanceabuyerhasasecurity
interestingoodsinhispossessionorcontrolforanypaymentsmadeontheirpriceand
anyexpensesreasonablyincurredintheirinspection,receipt,transportation,careand
custodyandmayholdsuchgoodsandreselltheminlikemannerasanaggrievedseller
(Section2706).
2712."Cover";Buyer'sProcurementofSubstituteGoods.
(1)Ifthesellerwrongfullyfailstodeliverorrepudiatesorthebuyerrightfullyrejectsor
justifiablyrevokesacceptance,thebuyermay"cover"bymakingingoodfaithand
withoutunreasonabledelayanyreasonablepurchaseoforcontracttopurchasegoods
insubstitutionforthoseduefromtheseller.
(2)Thebuyermayrecoverfromthesellerasdamagesthedifferencebetweenthecost
ofcoverandthecontractpricetogetherwithanyincidentalorconsequentialdamages
ashereinafterdefined(Section2715),butlessexpensessavedinconsequenceofthe
seller'sbreach.
(3)Failureofthebuyertoeffectcoverwithinthissectiondoesnotbarhimfromany
otherremedy.
2713.Buyer'sDamagesforNondeliveryorRepudiation.
(1)SubjecttoSection2723,ifthesellerwrongfullyfailstodeliverorrepudiatesorthe
buyerrightfullyrejectsorjustifiablyrevokesacceptance:
(a)themeasureofdamagesinthecaseofwrongfulfailuretodeliverbytheseller
orrightfulrejectionorjustifiablerevocationofacceptancebythebuyeristhe
differencebetweenthemarketpriceatthetimefortenderunderthecontract
andthecontractpricetogetherwithanyincidentalorconsequentialdamages
underSection2715,butlessexpensessavedinconsequenceoftheseller's
breach;and
(b)themeasureofdamagesforrepudiationbytheselleristhedifference
betweenthemarketpriceattheexpirationofacommerciallyreasonabletime
afterthebuyerlearnedoftherepudiation,butnolaterthanthetimestatedin
paragraph(a),andthecontractpricetogetherwithanyincidentalor
consequentialdamagesprovidedinthisArticle(Section2715),lessexpenses
savedinconsequenceoftheseller'sbreach.
[ 71 ]
(2)Marketpriceistobedeterminedasoftheplacefortenderor,incasesofrejection
afterarrivalorrevocationofacceptance,asoftheplaceofarrival.
2714.Buyer'sDamagesforBreachinRegardtoAcceptedGoods.
(1)Wherethebuyerhasacceptedgoodsandgivennotification(subsection(3)of
Section2607)hemayrecoverasdamagesforanynonconformityoftendertheloss
resultingintheordinarycourseofeventsfromtheseller'sbreachasdeterminedinany
mannerwhichisreasonable.
(2)Themeasureofdamagesforbreachofwarrantyisthedifferenceatthetimeand
placeofacceptancebetweenthevalueofthegoodsacceptedandthevaluetheywould
havehadiftheyhadbeenaswarranted,unlessspecialcircumstancesshowproximate
damagesofadifferentamount.
(3)Inapropercaseanyincidentalandconsequentialdamagesunderthenextsection
mayalsoberecovered.
2715.Buyer'sIncidentalandConsequentialDamages.
(1)Incidentaldamagesresultingfromtheseller'sbreachincludeexpensesreasonably
incurredininspection,receipt,transportationandcareandcustodyofgoodsrightfully
rejected,anycommerciallyreasonablecharges,expensesorcommissionsinconnection
witheffectingcoverandanyotherreasonableexpenseincidenttothedelayorother
breach.
(2)Consequentialdamagesresultingfromtheseller'sbreachinclude
(a)anylossresultingfromgeneralorparticularrequirementsandneedsof
whichtheselleratthetimeofcontractinghadreasontoknowandwhichcould
notreasonablybepreventedbycoverorotherwise;and
(b)injurytopersonorpropertyproximatelyresultingfromanybreachof
warranty.
2716.Buyer'sRighttoSpecificPerformanceorReplevin.
(1)Specificperformancemaybedecreedifthegoodsareuniqueorinotherproper
circumstances.Inacontractotherthanaconsumercontract,specificperformancemay
bedecreedifthepartieshaveagreedtothatremedy.However,evenifthepartiesagree
tospecificperformance,specificperformancemaynotbedecreedifthebreaching
party'ssoleremainingcontractualobligationisthepaymentofmoney.
(2)Thedecreeforspecificperformancemayincludesuchtermsandconditionsasto
paymentoftheprice,damages,orotherreliefasthecourtmaydeemjust.
(3)Thebuyerhasarightofreplevinorsimilarremedyforgoodsidentifiedtothe
contractifafterreasonableeffortthebuyerisunabletoeffectcoverforsuchgoodsor
thecircumstancesreasonablyindicatethatsucheffortwillbeunavailingorifthegoods
[ 72 ]
havebeenshippedunderreservationandsatisfactionofthesecurityinterestinthem
hasbeenmadeortendered.
(4)Thebuyer'srightundersubsection(3)vestsuponacquisitionofaspecialproperty,
evenifthesellerhadnotthenrepudiatedorfailedtodeliver.
2717.DeductionofDamagesFromthePrice.
Thebuyeronnotifyingthesellerofhisintentiontodosomaydeductalloranypartof
thedamagesresultingfromanybreachofthecontractfromanypartofthepricestill
dueunderthesamecontract.
2718.LiquidationorLimitationofDamages;Deposits.
(1)Damagesforbreachbyeitherpartymaybeliquidatedintheagreementbutonlyat
anamountwhichisreasonableinthelightoftheanticipatedoractualharmcausedby
thebreach,thedifficultiesofproofofloss,andtheinconvenienceornonfeasibilityof
otherwiseobtaininganadequateremedy.Section2719determinestheenforceability
ofatermthatlimitsbutdoesnotliquidatedamages.
(2)Ifthesellerjustifiablywithholdsdeliveryofgoodsorstopsperformancebecauseof
thebuyer'sbreachorinsolvency,thebuyerisentitledtorestitutionofanyamountby
whichthesumofthebuyer'spaymentsexceedstheamounttowhichtheselleris
entitledbyvirtueoftermsliquidatingtheseller'sdamagesinaccordancewith
subsection(1)
(a)theamounttowhichthesellerisentitledbyvirtueoftermsliquidatingthe
seller'sdamagesinaccordancewithsubsection(1),or
(b)intheabsenceofsuchterms,twentypercentofthevalueofthetotal
performanceforwhichthebuyerisobligatedunderthecontractor$500,
whicheverissmaller.
(3)Thebuyer'srighttorestitutionundersubsection(2)issubjecttooffsettotheextent
thatthesellerestablishes:
(a)arighttorecoverdamagesundertheprovisionsofthisArticleotherthan
subsection(1),and
(b)theamountorvalueofanybenefitsreceivedbythebuyerdirectlyor
indirectlybyreasonofthecontract.
(4)Whereasellerhasreceivedpaymentingoodstheirreasonablevalueorthe
proceedsoftheirresaleshallbetreatedaspaymentsforthepurposesofsubsection
(2);butifthesellerhasnoticeofthebuyer'sbreachbeforeresellinggoodsreceivedin
partperformance,hisresaleissubjecttotheconditionslaiddowninthisArticleon
resalebyanaggrievedseller(Section2706).
[ 73 ]
2719.ContractualModificationorLimitationofRemedy.
(1)Subjecttotheprovisionsofsubsections(2)and(3)ofthissectionandofthe
precedingsectiononliquidationandlimitationofdamages,
(a)theagreementmayprovideforremediesinadditiontoorinsubstitutionfor
thoseprovidedinthisArticleandmaylimitoralterthemeasureofdamages
recoverableunderthisArticle,asbylimitingthebuyer'sremediestoreturnof
thegoodsandrepaymentofthepriceortorepairandreplacementofnon
conforminggoodsorparts;and
(b)resorttoaremedyasprovidedisoptionalunlesstheremedyisexpressly
agreedtobeexclusive,inwhichcaseitisthesoleremedy.
(2)Wherecircumstancescauseanexclusiveorlimitedremedytofailofitsessential
purpose,remedymaybehadasprovidedinthisAct.
(3)Consequentialdamagesmaybelimitedorexcludedunlessthelimitationor
exclusionisunconscionable.Limitationofconsequentialdamagesforinjurytothe
personinthecaseofconsumergoodsisprimafacieunconscionablebutlimitationof
damageswherethelossiscommercialisnot.
2720.Effectof"Cancellation"or"Rescission"onClaimsforAntecedentBreach.
Unlessthecontraryintentionclearlyappears,expressionsof"cancellation"or
"rescission"ofthecontractorthelikeshallnotbeconstruedasarenunciationor
dischargeofanyclaimindamagesforanantecedentbreach.
2721.RemediesforFraud.
Remediesformaterialmisrepresentationorfraudincludeallremediesavailableunder
thisArticlefornonfraudulentbreach.Neitherrescissionoraclaimforrescissionofthe
contractforsalenorrejectionorreturnofthegoodsshallbarorbedeemed
inconsistentwithaclaimfordamagesorotherremedy.
2722.WhoCanSueThirdPartiesforInjurytoGoods.
Whereathirdpartysodealswithgoodswhichhavebeenidentifiedtoacontractfor
saleastocauseactionableinjurytoapartytothatcontract
(a)arightofactionagainstthethirdpartyisineitherpartytothecontractfor
salethathastitletoorasecurityinterestoraspecialpropertyoraninsurable
interestinthegoods;andifthegoodshavebeendestroyedorconvertedaright
ofactionisalsointhepartythateitherboretheriskoflossunderthecontract
forsaleorhassincetheinjuryassumedthatriskasagainsttheother;
(b)ifatthetimeoftheinjurythepartyplaintiffdidnotbeartheriskoflossas
againsttheotherpartytothecontractforsaleandthereisnoarrangement
[ 74 ]
betweenthemfordispositionoftherecovery,hissuitorsettlementis,subjectto
hisowninterest,asafiduciaryfortheotherpartytothecontract;
(c)eitherpartymaywiththeconsentoftheothersueforthebenefitofwhichit
mayconcern.
2723.ProofofMarketPrice:TimeandPlace.
(1)IfevidenceofapriceprevailingatthetimesorplacesdescribedinthisArticleisnot
readilyavailablethepriceprevailingwithinanyreasonabletimebeforeorafterthe
timedescribedoratanyotherplacewhichincommercialjudgmentorunderusageof
tradewouldserveasareasonablesubstitutefortheonedescribedmaybeused,making
anyproperallowanceforthecostoftransportingthegoodstoorfromsuchotherplace.
(2)Evidenceofarelevantpriceprevailingatatimeorplaceotherthantheone
describedinthisArticleofferedbyonepartyisnotadmissibleunlessanduntilhehas
giventheotherpartysuchnoticeasthecourtfindssufficienttopreventunfairsurprise.
2724.AdmissibilityofMarketQuotations.
Whenevertheprevailingpriceorvalueofanygoodsregularlyboughtandsoldinany
establishedcommoditymarketisinissue,reportsinofficialpublicationsortrade
journalsorinnewspapersorperiodicalsofgeneralcirculationpublishedasthereports
ofsuchmarketshallbeadmissibleinevidence.Thecircumstancesofthepreparationof
suchareportmaybeshowntoaffectitsweightbutnotitsadmissibility.
2725.StatuteofLimitationsinContractsforSale.
(1)Exceptasotherwiseprovidedinthissection,anactionforbreachofanycontractfor
salemustbecommencedwithinthelateroffouryearsaftertherightofactionhas
accruedundersubsection(2)or(3)oroneyearafterthebreachwasorshouldhave
beendiscovered,butnolongerthanfiveyearsaftertherightofactionaccrued.Bythe
originalagreementthepartiesmayreducetheperiodoflimitationtonotlessthanone
yearbutmaynotextendit.However,inaconsumercontract,theperiodoflimitation
maynotbereduced.
(2)Exceptasotherwiseprovidedinsubsection(3),thefollowingrulesapply:
(a)Exceptasotherwiseprovidedinthissubsection,arightofactionforbreach
ofacontractaccrueswhenthebreachoccurs,eveniftheaggrievedpartydidnot
haveknowledgeofthebreach.
(b)Forbreachofacontractbyrepudiation,arightofactionaccruesatthe
earlierofwhentheaggrievedpartyelectstotreattherepudiationasabreachor
whenacommerciallyreasonabletimeforawaitingperformancehasexpired.
(c)Forbreachofaremedialpromise,arightofactionaccrueswhentheremedial
promiseisnotperformedwhenperformanceisdue.
[ 75 ]
(d)Inanactionbyabuyeragainstapersonthatisanswerableovertothebuyer
foraclaimassertedagainstthebuyer,thebuyer'srightofactionagainstthe
personanswerableoveraccruesatthetimetheclaimwasoriginallyasserted
againstthebuyer.
(3)IfabreachofawarrantyarisingunderSection2312,2313(2),2314,or2315,or
abreachofanobligation,otherthanaremedialpromise,arisingunderSection2313A
or2313B,isclaimed,thefollowingrulesapply:
(a)Exceptasotherwiseprovidedinparagraph(c),arightofactionforbreachof
awarrantyarisingunderSection2313(2),2314,or2315accrueswhenthe
sellerhastendereddeliverytotheimmediatebuyer,asdefinedinSection2313,
andhascompletedperformanceofanyagreedinstallationorassemblyofthe
goods.
(b)Exceptasotherwiseprovidedinparagraph(c),arightofactionforbreachof
anobligation,otherthanaremedialpromise,arisingunderSection2313Aor2
313Baccrueswhentheremotepurchaser,asdefinedinSection2313Aor2
313B,receivesthegoods.
(c)IfawarrantyarisingunderSection2313(2)oranobligation,otherthana
remedialpromise,arisingunderSection2313Aor2313Bexplicitlyextendsto
futureperformanceofthegoodsanddiscoveryofthebreachmustawaitthetime
forperformance,therightofactionaccrueswhentheimmediatebuyeras
definedinSection2313ortheremotepurchaserasdefinedinSection2313A
or2313Bdiscoversorshouldhavediscoveredthebreach.
(d)ArightofactionforbreachofwarrantyarisingunderSection2312accrues
whentheaggrievedpartydiscoversorshouldhavediscoveredthebreach.
However,anactionforbreachofthewarrantyofnoninfringementmaynotbe
commencedmorethansixyearsaftertenderofdeliveryofthegoodstothe
aggrievedparty.
(4)Whereanactioncommencedwithinthetimelimitedbysubsection(1)isso
terminatedastoleaveavailablearemedybyanotheractionforthesamebreachsuch
otheractionmaybecommencedaftertheexpirationofthetimelimitedandwithinsix
monthsaftertheterminationofthefirstactionunlesstheterminationresultedfrom
voluntarydiscontinuanceorfromdismissalforfailureorneglecttoprosecute.
(5)Thissectiondoesnotalterthelawontollingofthestatuteoflimitationsnordoesit
applytocausesofactionwhichhaveaccruedbeforethisActbecomeseffective.
[ 76 ]
M.I.C.NOTES[UCCARTICLE2:SALES]
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[ 86 ]
U.C.C.ARTICLE2ALEASES
PART1.GENERALPROVISIONS.
2A101.SHORTTITLE.
2A102.SCOPE.
2A103.DEFINITIONSANDINDEXOFDEFINITIONS.
2A104.LEASESSUBJECTTOOTHERLAW.
2A105.TERRITORIALAPPLICATIONOFARTICLETOGOODSCOVEREDBY
CERTIFICATEOFTITLE.
2A106.LIMITATIONONPOWEROFPARTIESTOCONSUMERLEASETOCHOOSE
APPLICABLELAWANDJUDICIALFORUM.
2A107.WAIVERORRENUNCIATIONOFCLAIMORRIGHTAFTERDEFAULT.
2A108.UNCONSCIONABILITY.
2A109.OPTIONTOACCELERATEATWILL.
PART2.FORMATIONANDCONSTRUCTIONOFLEASECONTRACT
2A201.STATUTEOFFRAUDS.
2A202.FINALWRITTENEXPRESSION:PAROLOREXTRINSICEVIDENCE.
2A203.SEALSINOPERATIVE.
2A204.FORMATIONINGENERAL.
2A205.FIRMOFFERS.
2A206.OFFERANDACCEPTANCEINFORMATIONOFLEASECONTRACT.
2A208.MODIFICATION,RESCISSIONANDWAIVER.
2A209.LESSEEUNDERFINANCELEASEASBENEFICIARYOFSUPPLYCONTRACT.
2A210.EXPRESSWARRANTIES.
2A211.WARRANTIESAGAINSTINTERFERENCEANDAGAINSTINFRINGEMENT;
LESSEE'SOBLIGATIONAGAINSTINFRINGEMENT.
2A212.IMPLIEDWARRANTYOFMERCHANTABILITY.
2A213.IMPLIEDWARRANTYOFFITNESSFORPARTICULARPURPOSE.
2A214.EXCLUSIONORMODIFICATIONOFWARRANTIES.
2A215.CUMULATIONANDCONFLICTOFWARRANTIESEXPRESSORIMPLIED.
2A216.THIRDPARTYBENEFICIARIESOFEXPRESSANDIMPLIEDWARRANTIES.
2A217.IDENTIFICATION.
2A218.INSURANCEANDPROCEEDS.
2A219.RISKOFLOSS.
2A220.EFFECTOFDEFAULTONRISKOFLOSS.
2A221.CASUALTYTOIDENTIFIEDGOODS.
PART3.EFFECTOFLEASECONTRACT
2A301.ENFORCEABILITYOFLEASECONTRACT.
2A302.TITLETOANDPOSSESSIONOFGOODS.
2A303.ALIENABILITYOFPARTY'SINTERESTUNDERLEASECONTRACTOROF
LESSOR'SRESIDUALINTERESTINGOODS;DELEGATIONOFPERFORMANCE;
TRANSFEROFRIGHTS.
[ 87 ]
2A304.SUBSEQUENTLEASEOFGOODSBYLESSOR.
2A305.SALEORSUBLEASEOFGOODSBYLESSEE.
2A306.PRIORITYOFCERTAINLIENSARISINGBYOPERATIONOFLAW.
2A307.PRIORITYOFLIENSARISINGBYATTACHMENTORLEVYON,SECURITY
INTERESTSIN,ANDOTHERCLAIMSTOGOODS.
2A308.SPECIALRIGHTSOFCREDITORS.
2A309.LESSOR'SANDLESSEE'SRIGHTSWHENGOODSBECOMEFIXTURES.
2A310.LESSOR'SANDLESSEE'SRIGHTSWHENGOODSBECOMEACCESSIONS.
2A311.PRIORITYSUBJECTTOSUBORDINATION.
PART4.PERFORMANCEOFLEASECONTRACT:REPUDIATED,SUBSTITUTEDAND
EXCUSED
2A401.INSECURITY:ADEQUATEASSURANCEOFPERFORMANCE.
2A402.ANTICIPATORYREPUDIATION.
2A403.RETRACTIONOFANTICIPATORYREPUDIATION.
2A404.SUBSTITUTEDPERFORMANCE.
2A405.EXCUSEDPERFORMANCE.
2A406.PROCEDUREONEXCUSEDPERFORMANCE.
2A407.IRREVOCABLEPROMISES:FINANCELEASES.
PART5.DEFAULT
A.INGENERAL
2A501.DEFAULT:PROCEDURE.
2A502.NOTICEAFTERDEFAULT.
2A503.MODIFICATIONORIMPAIRMENTOFRIGHTSANDREMEDIES.
2A504.LIQUIDATIONOFDAMAGES.
2A505.CANCELLATIONANDTERMINATIONANDEFFECTOFCANCELLATION,
TERMINATION,RESCISSION,ORFRAUDONRIGHTSANDREMEDIES.
2A506.STATUTEOFLIMITATIONS.
2A507.PROOFOFMARKETRENT:TIMEANDPLACE.
B.DEFAULTBYLESSOR
2A508.LESSEE'SREMEDIES.
2A509.LESSEE'SRIGHTSONIMPROPERDELIVERY;RIGHTFULREJECTION.
2A510.INSTALLMENTLEASECONTRACTS:REJECTIONANDDEFAULT.
2A511.MERCHANTLESSEE'SDUTIESASTORIGHTFULLYREJECTEDGOODS.
2A512.LESSEE'SDUTIESASTORIGHTFULLYREJECTEDGOODS.
2A513.CUREBYLESSOROFIMPROPERTENDERORDELIVERY;REPLACEMENT.
2A514.WAIVEROFLESSEE'SOBJECTIONS.
2A515.ACCEPTANCEOFGOODS.
2A516.EFFECTOFACCEPTANCEOFGOODS;NOTICEOFDEFAULT;BURDENOF
ESTABLISHINGDEFAULTAFTERACCEPTANCE;NOTICEOFCLAIMORLITIGATIONTO
PERSONANSWERABLEOVER.
2A517.REVOCATIONOFACCEPTANCEOFGOODS.
2A518.COVER;SUBSTITUTEGOODS.
[ 88 ]
2A519.LESSEE'SDAMAGESFORNONDELIVERY,REPUDIATION,DEFAULT,AND
BREACHOFWARRANTYINREGARDTOACCEPTEDGOODS.
2A520.LESSEE'SINCIDENTALANDCONSEQUENTIALDAMAGES.
2A521.LESSEE'SRIGHTTOSPECIFICPERFORMANCEORREPLEVIN.
2A522.LESSEE'SRIGHTTOGOODSONLESSOR'SINSOLVENCY.
C.DEFAULTBYLESSEE
2A523.LESSOR'SREMEDIES.
2A524.LESSOR'SRIGHTTOIDENTIFYGOODSTOLEASECONTRACT.
2A525.LESSOR'SRIGHTTOPOSSESSIONOFGOODS.
2A526.LESSOR'SSTOPPAGEOFDELIVERYINTRANSITOROTHERWISE.
2A527.LESSOR'SRIGHTSTODISPOSEOFGOODS.
2A528.LESSOR'SDAMAGESFORNONACCEPTANCE,FAILURETOPAY,
REPUDIATION,OROTHERDEFAULT.
2A529.LESSOR'SACTIONFORTHERENT.
2A530.LESSOR'SINCIDENTALDAMAGES.
2A531.STANDINGTOSUETHIRDPARTIESFORINJURYTOGOODS.
2A532.LESSOR'SRIGHTSTORESIDUALINTEREST.
[ 89 ]
PART1.GENERALPROVISIONS.
2A101.SHORTTITLE.
ThisArticleshallbeknownandmaybecitedastheUniformCommercialCodeLeases.
2A102.SCOPE.
ThisArticleappliestoanytransaction,regardlessofform,thatcreatesalease.
2A103.DEFINITIONSANDINDEXOFDEFINITIONS.
(1)InthisArticleunlessthecontextotherwiserequires:
(a)"Buyerinordinarycourseofbusiness"meansapersonwhoingoodfaith
andwithoutknowledgethatthesaletohim[orher]isinviolationofthe
ownershiprightsorsecurityinterestorleaseholdinterestofathirdpartyinthe
goods,buysinordinarycoursefromapersoninthebusinessofsellinggoodsof
thatkindbutdoesnotincludeapawnbroker."Buying"maybeforcashorby
exchangeofotherpropertyoronsecuredorunsecuredcreditandincludes
acquiringgoodsordocumentsoftitleunderapreexistingcontractforsalebut
doesnotincludeatransferinbulkorassecurityfororintotalorpartial
satisfactionofamoneydebt.
(b)"Cancellation"occurswheneitherpartyputsanendtotheleasecontractfor
defaultbytheotherparty.
(c)"Commercialunit"meanssuchaunitofgoodsasbycommercialusageisa
singlewholeforpurposesofleaseanddivisionofwhichmateriallyimpairsits
characterorvalueonthemarketorinuse.Acommercialunitmaybeasingle
article,asamachine,orasetofarticles,asasuiteoffurnitureoralineof
machinery,oraquantity,asagrossorcarload,oranyotherunittreatedinuseor
intherelevantmarketasasinglewhole.
(d)"Conforming"goodsorperformanceunderaleasecontractmeansgoodsor
performancethatareinaccordancewiththeobligationsunderthelease
contract.
(e)"Consumerlease"meansaleasethatalessorregularlyengagedinthe
businessofleasingorsellingmakestoalesseewhoisanindividualandwho
takesundertheleaseprimarilyforapersonal,family,orhouseholdpurpose[,if
thetotalpaymentstobemadeundertheleasecontract,excludingpaymentsfor
optionstoreneworbuy,donotexceed$_______].
(f)"Fault"meanswrongfulact,omission,breach,ordefault.
(g)"Financelease"meansaleasewithrespecttowhich:
[ 90 ]
(i)thelessordoesnotselect,manufacture,orsupplythegoods;
(ii)thelessoracquiresthegoodsortherighttopossessionanduseofthe
goodsinconnectionwiththelease;and
(iii)oneofthefollowingoccurs:
(A)thelesseereceivesacopyofthecontractbywhichthelessor
acquiredthegoodsortherighttopossessionanduseofthegoods
beforesigningtheleasecontract;
(B)thelessee'sapprovalofthecontractbywhichthelessor
acquiredthegoodsortherighttopossessionanduseofthegoods
isaconditiontoeffectivenessoftheleasecontract;
(C)thelessee,beforesigningtheleasecontract,receivesan
accurateandcompletestatementdesignatingthepromisesand
warranties,andanydisclaimersofwarranties,limitationsor
modificationsofremedies,orliquidateddamages,includingthose
ofathirdparty,suchasthemanufacturerofthegoods,providedto
thelessorbythepersonsupplyingthegoodsinconnectionwithor
aspartofthecontractbywhichthelessoracquiredthegoodsor
therighttopossessionanduseofthegoods;or
(D)iftheleaseisnotaconsumerlease,thelessor,beforethe
lesseesignstheleasecontract,informsthelesseeinwriting(a)of
theidentityofthepersonsupplyingthegoodstothelessor,unless
thelesseehasselectedthatpersonanddirectedthelessorto
acquirethegoodsortherighttopossessionanduseofthegoods
fromthatperson,(b)thatthelesseeisentitledunderthisArticle
tothepromisesandwarranties,includingthoseofanythirdparty,
providedtothelessorbythepersonsupplyingthegoodsin
connectionwithoraspartofthecontractbywhichthelessor
acquiredthegoodsortherighttopossessionanduseofthegoods,
and(c)thatthelesseemaycommunicatewiththeperson
supplyingthegoodstothelessorandreceiveanaccurateand
completestatementofthosepromisesandwarranties,including
anydisclaimersandlimitationsofthemorofremedies.
(h)"Goods"meansallthingsthataremovableatthetimeofidentificationtothe
leasecontract,orarefixtures(Section2A309),butthetermdoesnotinclude
money,documents,instruments,accounts,chattelpaper,generalintangibles,or
mineralsorthelike,includingoilandgas,beforeextraction.Thetermalso
includestheunbornyoungofanimals.
(i)"Installmentleasecontract"meansaleasecontractthatauthorizesor
requiresthedeliveryofgoodsinseparatelotstobeseparatelyaccepted,even
thoughtheleasecontractcontainsaclause"eachdeliveryisaseparatelease"or
itsequivalent.
[ 91 ]
(j)"Lease"meansatransferoftherighttopossessionanduseofgoodsfora
terminreturnforconsideration,butasale,includingasaleonapprovalorasale
orreturn,orretentionorcreationofasecurityinterestisnotalease.Unlessthe
contextclearlyindicatesotherwise,thetermincludesasublease.
(k)"Leaseagreement"meansthebargain,withrespecttothelease,ofthelessor
andthelesseeinfactasfoundintheirlanguageorbyimplicationfromother
circumstancesincludingcourseofdealingorusageoftradeorcourseof
performanceasprovidedinthisArticle.Unlessthecontextclearlyindicates
otherwise,thetermincludesasubleaseagreement.
(l)"Leasecontract"meansthetotallegalobligationthatresultsfromthelease
agreementasaffectedbythisArticleandanyotherapplicablerulesoflaw.
Unlessthecontextclearlyindicatesotherwise,thetermincludesasublease
contract.
(m)"Leaseholdinterest"meanstheinterestofthelessororthelesseeundera
leasecontract.
(n)"Lessee"meansapersonwhoacquirestherighttopossessionanduseof
goodsunderalease.Unlessthecontextclearlyindicatesotherwise,theterm
includesasublessee.
(o)"Lesseeinordinarycourseofbusiness"meansapersonwhoingoodfaith
andwithoutknowledgethattheleasetohim[orher]isinviolationofthe
ownershiprightsorsecurityinterestorleaseholdinterestofathirdpartyinthe
goodsleasesinordinarycoursefromapersoninthebusinessofsellingor
leasinggoodsofthatkindbutdoesnotincludeapawnbroker."Leasing"maybe
forcashorbyexchangeofotherpropertyoronsecuredorunsecuredcreditand
includesacquiringgoodsordocumentsoftitleunderapreexistinglease
contractbutdoesnotincludeatransferinbulkorassecurityfororintotalor
partialsatisfactionofamoneydebt.
(p)"Lessor"meansapersonwhotransferstherighttopossessionanduseof
goodsunderalease.Unlessthecontextclearlyindicatesotherwise,theterm
includesasublessor.
(q)"Lessor'sresidualinterest"meansthelessor'sinterestinthegoodsafter
expiration,termination,orcancellationoftheleasecontract.
(r)"Lien"meansachargeagainstorinterestingoodstosecurepaymentofa
debtorperformanceofanobligation,butthetermdoesnotincludeasecurity
interest.
(s)"Lot"meansaparcelorasinglearticlethatisthesubjectmatterofa
separateleaseordelivery,whetherornotitissufficienttoperformthelease
contract.
[ 92 ]
(t)"Merchantlessee"meansalesseethatisamerchantwithrespecttogoodsof
thekindsubjecttothelease.
(u)"Presentvalue"meanstheamountasofadatecertainofoneormoresums
payableinthefuture,discountedtothedatecertain.Thediscountisdetermined
bytheinterestratespecifiedbythepartiesiftheratewasnotmanifestly
unreasonableatthetimethetransactionwasenteredinto;otherwise,the
discountisdeterminedbyacommerciallyreasonableratethattakesinto
accountthefactsandcircumstancesofeachcaseatthetimethetransactionwas
enteredinto.
(v)"Purchase"includestakingbysale,lease,mortgage,securityinterest,pledge,
gift,oranyothervoluntarytransactioncreatinganinterestingoods.
(w)"Sublease"meansaleaseofgoodstherighttopossessionanduseofwhich
wasacquiredbythelessorasalesseeunderanexistinglease.
(x)"Supplier"meansapersonfromwhomalessorbuysorleasesgoodstobe
leasedunderafinancelease.
(y)"Supplycontract"meansacontractunderwhichalessorbuysorleases
goodstobeleased.
(z)"Termination"occurswheneitherpartypursuanttoapowercreatedby
agreementorlawputsanendtotheleasecontractotherwisethanfordefault.
(2)OtherdefinitionsapplyingtothisArticleandthesectionsinwhichtheyappearare:
"Accessions".Section2A310(1).
"Constructionmortgage".Section2A309(1)(d).
"Encumbrance".Section2A309(1)(e).
"Fixtures".Section2A309(1)(a).
"Fixturefiling".Section2A309(1)(b).
"Purchasemoneylease".Section2A309(1)(c).
(3)ThefollowingdefinitionsinotherArticlesapplytothisArticle:
"Account".Section9102(a)(2).
"Betweenmerchants".Section2104(3).
"Buyer".Section2103(1)(a).
"Chattelpaper".Section9102(a)(11).
[ 93 ]
"Consumergoods".Section9102(a)(23).
"Document".Section9102(a)(30).
"Entrusting".Section2403(3).
"Generalintangible".Section9102(a)(42).
"Instrument".Section9102(a)(47).
"Merchant".Section2104(1).
"Mortgage".Section9102(a)(55).
"Pursuanttocommitment".Section9102(a)(68).
"Receipt".Section2103(1)(c).
"Sale".Section2106(1).
"Saleonapproval".Section2326.
"Saleorreturn".Section2326.
"Seller".Section2103(1)(d).
(4)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
2A104.LEASESSUBJECTTOOTHERLAW.
(1)Alease,althoughsubjecttothisArticle,isalsosubjecttoanyapplicable:
(a)certificateoftitlestatuteofthisState:(listanycertificateoftitlestatutes
coveringautomobiles,trailers,mobilehomes,boats,farmtractors,andthelike);
(b)certificateoftitlestatuteofanotherjurisdiction(Section2A105);or
(c)consumerprotectionstatuteofthisState,orfinalconsumerprotection
decisionofacourtofthisStateexistingontheeffectivedateofthisArticle.
(2)IncaseofconflictbetweenthisArticle,otherthanSections2A105,2A304(3),and
2A305(3),andastatuteordecisionreferredtoinsubsection(1),thestatuteor
decisioncontrols.
(3)Failuretocomplywithanapplicablelawhasonlytheeffectspecifiedtherein.
[ 94 ]
2A105.TERRITORIALAPPLICATIONOFARTICLETOGOODSCOVEREDBY
CERTIFICATEOFTITLE.
SubjecttotheprovisionsofSections2A304(3)and2A305(3),withrespecttogoods
coveredbyacertificateoftitleissuedunderastatuteofthisStateorofanother
jurisdiction,complianceandtheeffectofcomplianceornoncompliancewitha
certificateoftitlestatutearegovernedbythelaw(includingtheconflictoflawsrules)
ofthejurisdictionissuingthecertificateuntiltheearlierof(a)surrenderofthe
certificate,or(b)fourmonthsafterthegoodsareremovedfromthatjurisdictionand
thereafteruntilanewcertificateoftitleisissuedbyanotherjurisdiction.
2A106.LIMITATIONONPOWEROFPARTIESTOCONSUMERLEASETOCHOOSE
APPLICABLELAWANDJUDICIALFORUM.
(1)Ifthelawchosenbythepartiestoaconsumerleaseisthatofajurisdictionother
thanajurisdictioninwhichthelesseeresidesatthetimetheleaseagreementbecomes
enforceableorwithin30daysthereafterorinwhichthegoodsaretobeused,the
choiceisnotenforceable.
(2)Ifthejudicialforumchosenbythepartiestoaconsumerleaseisaforumthatwould
nototherwisehavejurisdictionoverthelessee,thechoiceisnotenforceable.
2A107.WAIVERORRENUNCIATIONOFCLAIMORRIGHTAFTERDEFAULT.
Anyclaimorrightarisingoutofanallegeddefaultorbreachofwarrantymaybe
dischargedinwholeorinpartwithoutconsiderationbyawrittenwaiveror
renunciationsignedanddeliveredbytheaggrievedparty.
2A108.UNCONSCIONABILITY.
(1)Ifthecourtasamatteroflawfindsaleasecontractoranyclauseofaleasecontract
tohavebeenunconscionableatthetimeitwasmadethecourtmayrefusetoenforce
theleasecontract,oritmayenforcetheremainderoftheleasecontractwithoutthe
unconscionableclause,oritmaysolimittheapplicationofanyunconscionableclause
astoavoidanyunconscionableresult.
(2)Withrespecttoaconsumerlease,ifthecourtasamatteroflawfindsthatalease
contractoranyclauseofaleasecontracthasbeeninducedbyunconscionableconduct
orthatunconscionableconducthasoccurredinthecollectionofaclaimarisingfroma
leasecontract,thecourtmaygrantappropriaterelief.
(3)Beforemakingafindingofunconscionabilityundersubsection(1)or(2),thecourt,
onitsownmotionorthatofaparty,shallaffordthepartiesareasonableopportunityto
presentevidenceastothesetting,purpose,andeffectoftheleasecontractorclause
thereof,oroftheconduct.
(4)Inanactioninwhichthelesseeclaimsunconscionabilitywithrespecttoa
consumerlease:
[ 95 ]
(a)Ifthecourtfindsunconscionabilityundersubsection(1)or(2),thecourt
shallawardreasonableattorney'sfeestothelessee.
(b)Ifthecourtdoesnotfindunconscionabilityandthelesseeclaiming
unconscionabilityhasbroughtormaintainedanactionhe[orshe]knewtobe
groundless,thecourtshallawardreasonableattorney'sfeestothepartyagainst
whomtheclaimismade.
(c)Indeterminingattorney'sfees,theamountoftherecoveryonbehalfofthe
claimantundersubsections(1)and(2)isnotcontrolling.
2A109.OPTIONTOACCELERATEATWILL.
(1)Atermprovidingthatonepartyorhis[orher]successorininterestmayaccelerate
paymentorperformanceorrequirecollateraloradditionalcollateral"atwill"or"when
he[orshe]deemshimself[orherself]insecure"orinwordsofsimilarimportmustbe
construedtomeanthathe[orshe]haspowertodosoonlyifhe[orshe]ingoodfaith
believesthattheprospectofpaymentorperformanceisimpaired.
(2)Withrespecttoaconsumerlease,theburdenofestablishinggoodfaithunder
subsection(1)isonthepartywhoexercisedthepower;otherwisetheburdenof
establishinglackofgoodfaithisonthepartyagainstwhomthepowerhasbeen
exercised.
PART2.FORMATIONANDCONSTRUCTIONOFLEASECONTRACT
2A201.STATUTEOFFRAUDS.
(1)Aleasecontractisnotenforceablebywayofactionordefenseunless:
(a)thetotalpaymentstobemadeundertheleasecontract,excludingpayments
foroptionstoreneworbuy,arelessthan$1,000;or
(b)thereisawriting,signedbythepartyagainstwhomenforcementissoughtor
bythatparty'sauthorizedagent,sufficienttoindicatethataleasecontracthas
beenmadebetweenthepartiesandtodescribethegoodsleasedandthelease
term.
(2)Anydescriptionofleasedgoodsoroftheleasetermissufficientandsatisfies
subsection(1)(b),whetherornotitisspecific,ifitreasonablyidentifieswhatis
described.
(3)Awritingisnotinsufficientbecauseitomitsorincorrectlystatesatermagreed
upon,buttheleasecontractisnotenforceableundersubsection(1)(b)beyondthelease
termandthequantityofgoodsshowninthewriting.
(4)Aleasecontractthatdoesnotsatisfytherequirementsofsubsection(1),butwhich
isvalidinotherrespects,isenforceable:
[ 96 ]
(a)ifthegoodsaretobespeciallymanufacturedorobtainedforthelesseeand
arenotsuitableforleaseorsaletoothersintheordinarycourseofthelessor's
business,andthelessor,beforenoticeofrepudiationisreceivedandunder
circumstancesthatreasonablyindicatethatthegoodsareforthelessee,has
madeeitherasubstantialbeginningoftheirmanufactureorcommitmentsfor
theirprocurement;
(b)ifthepartyagainstwhomenforcementissoughtadmitsinthatparty's
pleading,testimonyorotherwiseincourtthataleasecontractwasmade,butthe
leasecontractisnotenforceableunderthisprovisionbeyondthequantityof
goodsadmitted;or
(c)withrespecttogoodsthathavebeenreceivedandacceptedbythelessee.
(5)Theleasetermunderaleasecontractreferredtoinsubsection(4)is:
(a)ifthereisawritingsignedbythepartyagainstwhomenforcementissought
orbythatparty'sauthorizedagentspecifyingtheleaseterm,thetermso
specified;
(b)ifthepartyagainstwhomenforcementissoughtadmitsinthatparty's
pleading,testimony,orotherwiseincourtaleaseterm,thetermsoadmitted;or
(c)areasonableleaseterm.
2A202.FINALWRITTENEXPRESSION:PAROLOREXTRINSICEVIDENCE.
Termswithrespecttowhichtheconfirmatorymemorandaofthepartiesagreeorwhich
areotherwisesetforthinawritingintendedbythepartiesasafinalexpressionoftheir
agreementwithrespecttosuchtermsasareincludedthereinmaynotbecontradicted
byevidenceofanyprioragreementorofacontemporaneousoralagreementbutmay
beexplainedorsupplemented:
(a)bycourseofdealingorusageoftradeorbycourseofperformance;and
(b)byevidenceofconsistentadditionaltermsunlessthecourtfindsthewriting
tohavebeenintendedalsoasacompleteandexclusivestatementofthetermsof
theagreement.
2A203.SEALSINOPERATIVE.
Theaffixingofasealtoawritingevidencingaleasecontractoranoffertoenterintoa
leasecontractdoesnotrenderthewritingasealedinstrumentandthelawwithrespect
tosealedinstrumentsdoesnotapplytotheleasecontractoroffer.
2A204.FORMATIONINGENERAL.
(1)Aleasecontractmaybemadeinanymannersufficienttoshowagreement,
includingconductbybothpartieswhichrecognizestheexistenceofaleasecontract.
[ 97 ]
(2)Anagreementsufficienttoconstitutealeasecontractmaybefoundalthoughthe
momentofitsmakingisundetermined.
(3)Althoughoneormoretermsareleftopen,aleasecontractdoesnotfailfor
indefinitenessifthepartieshaveintendedtomakealeasecontractandthereisa
reasonablycertainbasisforgivinganappropriateremedy.
2A205.FIRMOFFERS.
Anofferbyamerchanttoleasegoodstoorfromanotherpersoninasignedwritingthat
byitstermsgivesassuranceitwillbeheldopenisnotrevocable,forlackof
consideration,duringthetimestatedor,ifnotimeisstated,forareasonabletime,but
innoeventmaytheperiodofirrevocabilityexceed3months.Anysuchtermof
assuranceonaformsuppliedbytheoffereemustbeseparatelysignedbytheofferor.
2A206.OFFERANDACCEPTANCEINFORMATIONOFLEASECONTRACT.
(1)Unlessotherwiseunambiguouslyindicatedbythelanguageorcircumstances,an
offertomakealeasecontractmustbeconstruedasinvitingacceptanceinanymanner
andbyanymediumreasonableinthecircumstances.
(2)Ifthebeginningofarequestedperformanceisareasonablemodeofacceptance,an
offerorwhoisnotnotifiedofacceptancewithinareasonabletimemaytreattheofferas
havinglapsedbeforeacceptance.
2A208.MODIFICATION,RESCISSIONANDWAIVER.
(1)Anagreementmodifyingaleasecontractneedsnoconsiderationtobebinding.
(2)Asignedleaseagreementthatexcludesmodificationorrescissionexceptbya
signedwritingmaynotbeotherwisemodifiedorrescinded,but,exceptasbetween
merchants,sucharequirementonaformsuppliedbyamerchantmustbeseparately
signedbytheotherparty.
(3)Althoughanattemptatmodificationorrescissiondoesnotsatisfytherequirements
ofsubsection(2),itmayoperateasawaiver.
(4)Apartywhohasmadeawaiveraffectinganexecutoryportionofaleasecontract
mayretractthewaiverbyreasonablenotificationreceivedbytheotherpartythatstrict
performancewillberequiredofanytermwaived,unlesstheretractionwouldbeunjust
inviewofamaterialchangeofpositioninrelianceonthewaiver.
2A209.LESSEEUNDERFINANCELEASEASBENEFICIARYOFSUPPLYCONTRACT.
(1)Thebenefitofasupplier'spromisestothelessorunderthesupplycontractandof
allwarranties,whetherexpressorimplied,includingthoseofanythirdpartyprovided
inconnectionwithoraspartofthesupplycontract,extendstothelesseetotheextent
ofthelessee'sleaseholdinterestunderafinanceleaserelatedtothesupplycontract,
[ 98 ]
butissubjecttothetermsofthewarrantyandofthesupplycontractandalldefenses
orclaimsarisingtherefrom.
(2)Theextensionofthebenefitofasupplier'spromisesandofwarrantiestothe
lessee(Section2A209(1))doesnot:(i)modifytherightsandobligationsoftheparties
tothesupplycontract,whetherarisingtherefromorotherwise,or(ii)imposeanyduty
orliabilityunderthesupplycontractonthelessee.
(3)Anymodificationorrescissionofthesupplycontractbythesupplierandthelessor
iseffectivebetweenthesupplierandthelesseeunless,beforethemodificationor
rescission,thesupplierhasreceivednoticethatthelesseehasenteredintoafinance
leaserelatedtothesupplycontract.Ifthemodificationorrescissioniseffective
betweenthesupplierandthelessee,thelessorisdeemedtohaveassumed,inaddition
totheobligationsofthelessortothelesseeundertheleasecontract,promisesofthe
suppliertothelessorandwarrantiesthatweresomodifiedorrescindedastheyexisted
andwereavailabletothelesseebeforemodificationorrescission.
(4)Inadditiontotheextensionofthebenefitofthesupplier'spromisesandof
warrantiestothelesseeundersubsection(1),thelesseeretainsallrightsthatthelessee
mayhaveagainstthesupplierwhicharisefromanagreementbetweenthelesseeand
thesupplierorunderotherlaw.
2A210.EXPRESSWARRANTIES.
(1)Expresswarrantiesbythelessorarecreatedasfollows:
(a)Anyaffirmationoffactorpromisemadebythelessortothelesseewhich
relatestothegoodsandbecomespartofthebasisofthebargaincreatesan
expresswarrantythatthegoodswillconformtotheaffirmationorpromise.
(b)Anydescriptionofthegoodswhichismadepartofthebasisofthebargain
createsanexpresswarrantythatthegoodswillconformtothedescription.
(c)Anysampleormodelthatismadepartofthebasisofthebargaincreatesan
expresswarrantythatthewholeofthegoodswillconformtothesampleor
model.
(2)Itisnotnecessarytothecreationofanexpresswarrantythatthelessoruseformal
words,suchas"warrant"or"guarantee,"orthatthelessorhaveaspecificintentionto
makeawarranty,butanaffirmationmerelyofthevalueofthegoodsorastatement
purportingtobemerelythelessor'sopinionorcommendationofthegoodsdoesnot
createawarranty.
2A211.WARRANTIESAGAINSTINTERFERENCEANDAGAINSTINFRINGEMENT;
LESSEE'SOBLIGATIONAGAINSTINFRINGEMENT.
(1)Thereisinaleasecontractawarrantythatfortheleasetermnopersonholdsa
claimtoorinterestinthegoodsthatarosefromanactoromissionofthelessor,other
[ 99 ]
thanaclaimbywayofinfringementorthelike,whichwillinterferewiththelessee's
enjoymentofitsleaseholdinterest.
(2)Exceptinafinanceleasethereisinaleasecontractbyalessorwhoisamerchant
regularlydealingingoodsofthekindawarrantythatthegoodsaredeliveredfreeofthe
rightfulclaimofanypersonbywayofinfringementorthelike.
(3)Alesseewhofurnishesspecificationstoalessororasuppliershallholdthelessor
andthesupplierharmlessagainstanyclaimbywayofinfringementorthelikethat
arisesoutofcompliancewiththespecifications.
2A212.IMPLIEDWARRANTYOFMERCHANTABILITY.
(1)Exceptinafinancelease,awarrantythatthegoodswillbemerchantableisimplied
inaleasecontractifthelessorisamerchantwithrespecttogoodsofthatkind.
(2)Goodstobemerchantablemustbeatleastsuchas
(a)passwithoutobjectioninthetradeunderthedescriptioninthelease
agreement;
(b)inthecaseoffungiblegoods,areoffairaveragequalitywithinthe
description;
(c)arefitfortheordinarypurposesforwhichgoodsofthattypeareused;
(d)run,withinthevariationpermittedbytheleaseagreement,ofevenkind,
quality,andquantitywithineachunitandamongallunitsinvolved;
(e)areadequatelycontained,packaged,andlabeledastheleaseagreementmay
require;and
(f)conformtoanypromisesoraffirmationsoffactmadeonthecontaineror
label.
(3)Otherimpliedwarrantiesmayarisefromcourseofdealingorusageoftrade.
2A213.IMPLIEDWARRANTYOFFITNESSFORPARTICULARPURPOSE.
Exceptinafinancelease,ifthelessoratthetimetheleasecontractismadehasreason
toknowofanyparticularpurposeforwhichthegoodsarerequiredandthatthelessee
isrelyingonthelessor'sskillorjudgmenttoselectorfurnishsuitablegoods,thereisin
theleasecontractanimpliedwarrantythatthegoodswillbefitforthatpurpose.
2A214.EXCLUSIONORMODIFICATIONOFWARRANTIES.
(1)Wordsorconductrelevanttothecreationofanexpresswarrantyandwordsor
conducttendingtonegateorlimitawarrantymustbeconstruedwhereverreasonable
asconsistentwitheachother;but,subjecttotheprovisionsofSection2A202onparol
[ 100 ]
orextrinsicevidence,negationorlimitationisinoperativetotheextentthatthe
constructionisunreasonable.
(2)Subjecttosubsection(3),toexcludeormodifytheimpliedwarrantyof
merchantabilityoranypartofitthelanguagemustmention"merchantability",bebya
writing,andbeconspicuous.Subjecttosubsection(3),toexcludeormodifyany
impliedwarrantyoffitnesstheexclusionmustbebyawritingandbeconspicuous.
Languagetoexcludeallimpliedwarrantiesoffitnessissufficientifitisinwriting,is
conspicuousandstates,forexample,"Thereisnowarrantythatthegoodswillbefitfor
aparticularpurpose".
(3)Notwithstandingsubsection(2),butsubjecttosubsection(4),
(a)unlessthecircumstancesindicateotherwise,allimpliedwarrantiesare
excludedbyexpressionslike"asis,"or"withallfaults,"orbyotherlanguagethat
incommonunderstandingcallsthelessee'sattentiontotheexclusionof
warrantiesandmakesplainthatthereisnoimpliedwarranty,ifinwritingand
conspicuous;
(b)ifthelesseebeforeenteringintotheleasecontracthasexaminedthegoods
orthesampleormodelasfullyasdesiredorhasrefusedtoexaminethegoods,
thereisnoimpliedwarrantywithregardtodefectsthatanexaminationoughtin
thecircumstancestohaverevealed;and
(c)animpliedwarrantymayalsobeexcludedormodifiedbycourseofdealing,
courseofperformance,orusageoftrade.
(4)Toexcludeormodifyawarrantyagainstinterferenceoragainstinfringement
(Section2A211)oranypartofit,thelanguagemustbespecific,bebyawriting,andbe
conspicuous,unlessthecircumstances,includingcourseofperformance,courseof
dealing,orusageoftrade,givethelesseereasontoknowthatthegoodsarebeing
leasedsubjecttoaclaimorinterestofanyperson.
2A215.CUMULATIONANDCONFLICTOFWARRANTIESEXPRESSORIMPLIED.
Warranties,whetherexpressorimplied,mustbeconstruedasconsistentwitheach
otherandascumulative,butifthatconstructionisunreasonable,theintentionofthe
partiesdetermineswhichwarrantyisdominant.Inascertainingthatintentionthe
(a)Exactortechnicalspecificationsdisplaceaninconsistentsampleormodelor
generallanguageofdescription.
(b)Asamplefromanexistingbulkdisplacesinconsistentgenerallanguageof
description.
(c)Expresswarrantiesdisplaceinconsistentimpliedwarrantiesotherthanan
impliedwarrantyoffitnessforaparticularpurpose.
[ 101 ]
2A216.THIRDPARTYBENEFICIARIESOFEXPRESSANDIMPLIEDWARRANTIES.
AlternativeA
AwarrantytoorforthebenefitofalesseeunderthisArticle,whetherexpressor
implied,extendstoanynaturalpersonwhoisinthefamilyorhouseholdofthe
lesseeorwhoisaguestinthelessee'shomeifitisreasonabletoexpectthatsuch
personmayuse,consume,orbeaffectedbythegoodsandwhoisinjuredin
personbybreachofthewarranty.Thissectiondoesnotdisplaceprinciplesof
lawandequitythatextendawarrantytoorforthebenefitofalesseetoother
persons.Theoperationofthissectionmaynotbeexcluded,modified,orlimited,
butanexclusion,modification,orlimitationofthewarranty,includinganywith
respecttorightsandremedies,effectiveagainstthelesseeisalsoeffective
againstanybeneficiarydesignatedunderthissection.
AlternativeB
implied,extendstoanynaturalpersonwhomayreasonablybeexpectedtouse,
consume,orbeaffectedbythegoodsandwhoisinjuredinpersonbybreachof
thewarranty.Thissectiondoesnotdisplaceprinciplesoflawandequitythat
extendawarrantytoorforthebenefitofalesseetootherpersons.The
operationofthissectionmaynotbeexcluded,modified,orlimited,butan
exclusion,modification,orlimitationofthewarranty,includinganywithrespect
torightsandremedies,effectiveagainstthelesseeisalsoeffectiveagainstthe
beneficiarydesignatedunderthissection.
AlternativeC
implied,extendstoanypersonwhomayreasonablybeexpectedtouse,
consume,orbeaffectedbythegoodsandwhoisinjuredbybreachofthe
warranty.Theoperationofthissectionmaynotbeexcluded,modified,or
limitedwithrespecttoinjurytothepersonofanindividualtowhomthe
warrantyextends,butanexclusion,modification,orlimitationofthewarranty,
includinganywithrespecttorightsandremedies,effectiveagainstthelesseeis
alsoeffectiveagainstthebeneficiarydesignatedunderthissection.
2A217.IDENTIFICATION.
Identificationofgoodsasgoodstowhichaleasecontractrefersmaybemadeatany
timeandinanymannerexplicitlyagreedtobytheparties.Intheabsenceofexplicit
agreement,identificationoccurs:
(a)whentheleasecontractismadeiftheleasecontractisforaleaseofgoods
thatareexistingandidentified;
[ 102 ]
(b)whenthegoodsareshipped,marked,orotherwisedesignatedbythelessor
asgoodstowhichtheleasecontractrefers,iftheleasecontractisforaleaseof
goodsthatarenotexistingandidentified;or
(c)whentheyoungareconceived,iftheleasecontractisforaleaseofunborn
youngofanimals.
2A218.INSURANCEANDPROCEEDS.
(1)Alesseeobtainsaninsurableinterestwhenexistinggoodsareidentifiedtothe
leasecontracteventhoughthegoodsidentifiedarenonconformingandthelesseehas
anoptiontorejectthem.
(2)Ifalesseehasaninsurableinterestonlybyreasonofthelessor'sidentificationof
thegoods,thelessor,untildefaultorinsolvencyornotificationtothelesseethat
identificationisfinal,maysubstituteothergoodsforthoseidentified.
(3)Notwithstandingalessee'sinsurableinterestundersubsections(1)and(2),the
lessorretainsaninsurableinterestuntilanoptiontobuyhasbeenexercisedbythe
lesseeandriskoflosshaspassedtothelessee.
(4)Nothinginthissectionimpairsanyinsurableinterestrecognizedunderanyother
statuteorruleoflaw.
(5)Thepartiesbyagreementmaydeterminethatoneormorepartieshavean
obligationtoobtainandpayforinsurancecoveringthegoodsandbyagreementmay
determinethebeneficiaryoftheproceedsoftheinsurance.
2A219.RISKOFLOSS.
(1)Exceptinthecaseofafinancelease,riskoflossisretainedbythelessoranddoes
notpasstothelessee.Inthecaseofafinancelease,riskoflosspassestothelessee.
(2)SubjecttotheprovisionsofthisArticleontheeffectofdefaultonriskofloss
(Section2A220),ifriskoflossistopasstothelesseeandthetimeofpassageisnot
stated,thefollowingrulesapply:
(a)Iftheleasecontractrequiresorauthorizesthegoodstobeshippedby
carrier
(i)anditdoesnotrequiredeliveryataparticulardestination,theriskof
losspassestothelesseewhenthegoodsaredulydeliveredtothecarrier;
but
(ii)ifitdoesrequiredeliveryataparticulardestinationandthegoodsare
theredulytenderedwhileinthepossessionofthecarrier,theriskofloss
passestothelesseewhenthegoodsaretheredulysotenderedasto
enablethelesseetotakedelivery.
[ 103 ]
(b)Ifthegoodsareheldbyabaileetobedeliveredwithoutbeingmoved,the
riskoflosspassestothelesseeonacknowledgmentbythebaileeofthelessee's
righttopossessionofthegoods.
(c)Inanycasenotwithinsubsection(a)or(b),theriskoflosspassestothe
lesseeonthelessee'sreceiptofthegoodsifthelessor,or,inthecaseofafinance
lease,thesupplier,isamerchant;otherwisetheriskpassestothelesseeon
tenderofdelivery.
2A220.EFFECTOFDEFAULTONRISKOFLOSS.
(1)Whereriskoflossistopasstothelesseeandthetimeofpassageisnotstated:
(a)Ifatenderordeliveryofgoodssofailstoconformtotheleasecontractasto
givearightofrejection,theriskoftheirlossremainswiththelessor,or,inthe
caseofafinancelease,thesupplier,untilcureoracceptance.
(b)Ifthelesseerightfullyrevokesacceptance,he[orshe],totheextentofany
deficiencyinhis[orher]effectiveinsurancecoverage,maytreattheriskofloss
ashavingremainedwiththelessorfromthebeginning.
(2)Whetherornotriskoflossistopasstothelessee,ifthelesseeastoconforming
goodsalreadyidentifiedtoaleasecontractrepudiatesorisotherwiseindefaultunder
theleasecontract,thelessor,or,inthecaseofafinancelease,thesupplier,totheextent
ofanydeficiencyinhis[orher]effectiveinsurancecoveragemaytreattheriskoflossas
restingonthelesseeforacommerciallyreasonabletime.
2A221.CASUALTYTOIDENTIFIEDGOODS.
Ifaleasecontractrequiresgoodsidentifiedwhentheleasecontractismade,andthe
goodssuffercasualtywithoutfaultofthelessee,thelessororthesupplierbefore
delivery,orthegoodssuffercasualtybeforeriskoflosspassestothelesseepursuantto
theleaseagreementorSection2A219,then:
(a)ifthelossistotal,theleasecontractisavoided;and
(b)ifthelossispartialorthegoodshavesodeterioratedastonolongerconform
totheleasecontract,thelesseemayneverthelessdemandinspectionandathis
[orher]optioneithertreattheleasecontractasavoidedor,exceptinafinance
leasethatisnotaconsumerlease,acceptthegoodswithdueallowancefromthe
rentpayableforthebalanceoftheleasetermforthedeteriorationorthe
deficiencyinquantitybutwithoutfurtherrightagainstthelessor.
[ 104 ]
PART3.EFFECTOFLEASECONTRACT
2A301.ENFORCEABILITYOFLEASECONTRACT.
ExceptasotherwiseprovidedinthisArticle,aleasecontractiseffectiveandenforceable
accordingtoitstermsbetweentheparties,againstpurchasersofthegoodsandagainst
creditorsoftheparties.
2A302.TITLETOANDPOSSESSIONOFGOODS.
ExceptasotherwiseprovidedinthisArticle,eachprovisionofthisArticleapplies
whetherthelessororathirdpartyhastitletothegoods,andwhetherthelessor,the
lessee,orathirdpartyhaspossessionofthegoods,notwithstandinganystatuteorrule
oflawthatpossessionortheabsenceofpossessionisfraudulent.
2A303.ALIENABILITYOFPARTY'SINTERESTUNDERLEASECONTRACTOROF
LESSOR'SRESIDUALINTERESTINGOODS;DELEGATIONOFPERFORMANCE;TRANSFER
OFRIGHTS.
(1)Asusedinthissection,"creationofasecurityinterest"includesthesaleofalease
contractthatissubjecttoArticle9,SecuredTransactions,byreasonofSection9
109(a)(3).
(2)Exceptasprovidedinsubsection(3)andSection9407,aprovisioninalease
agreementwhich(i)prohibitsthevoluntaryorinvoluntarytransfer,includinga
transferbysale,sublease,creationorenforcementofasecurityinterest,orattachment,
levy,orotherjudicialprocess,ofaninterestofapartyundertheleasecontractorofthe
lessor'sresidualinterestinthegoods,or(ii)makessuchatransferaneventofdefault,
givesrisetotherightsandremediesprovidedinsubsection(4),butatransferthatis
prohibitedorisaneventofdefaultundertheleaseagreementisotherwiseeffective.
(3)Aprovisioninaleaseagreementwhich(i)prohibitsatransferofarighttodamages
fordefaultwithrespecttothewholeleasecontractorofarighttopaymentarisingout
ofthetransferor'sdueperformanceofthetransferor'sentireobligation,or(ii)makes
suchatransferaneventofdefault,isnotenforceable,andsuchatransferisnota
transferthatmateriallyimpairstheprospectofobtainingreturnperformanceby,
materiallychangesthedutyof,ormateriallyincreasestheburdenorriskimposedon,
theotherpartytotheleasecontractwithinthepurviewofsubsection(4).
(4)Subjecttosubsection(3)andSection9407:
(a)ifatransferismadewhichismadeaneventofdefaultunderalease
agreement,thepartytotheleasecontractnotmakingthetransfer,unlessthat
partywaivesthedefaultorotherwiseagrees,hastherightsandremedies
describedinSection2A501(2);
(b)ifparagraph(a)isnotapplicableandifatransferismadethat(i)is
prohibitedunderaleaseagreementor(ii)materiallyimpairstheprospectof
obtainingreturnperformanceby,materiallychangesthedutyof,ormaterially
[ 105 ]
increasestheburdenorriskimposedon,theotherpartytotheleasecontract,
unlessthepartynotmakingthetransferagreesatanytimetothetransferinthe
leasecontractorotherwise,then,exceptaslimitedbycontract,(i)thetransferor
isliabletothepartynotmakingthetransferfordamagescausedbythetransfer
totheextentthatthedamagescouldnotreasonablybepreventedbytheparty
notmakingthetransferand(ii)acourthavingjurisdictionmaygrantother
appropriaterelief,includingcancellationoftheleasecontractoraninjunction
againstthetransfer.
(5)Atransferof"thelease"orof"allmyrightsunderthelease",oratransferinsimilar
generalterms,isatransferofrightsand,unlessthelanguageorthecircumstances,as
inatransferforsecurity,indicatethecontrary,thetransferisadelegationofdutiesby
thetransferortothetransferee.Acceptancebythetransfereeconstitutesapromise
bythetransfereetoperformthoseduties.Thepromiseisenforceablebyeitherthe
transferorortheotherpartytotheleasecontract.
(6)Unlessotherwiseagreedbythelessorandthelessee,adelegationofperformance
doesnotrelievethetransferorasagainsttheotherpartyofanydutytoperformorof
anyliabilityfordefault.
(7)Inaconsumerlease,toprohibitthetransferofaninterestofapartyunderthe
leasecontractortomakeatransferaneventofdefault,thelanguagemustbespecific,
byawriting,andconspicuous.
2A304.SUBSEQUENTLEASEOFGOODSBYLESSOR.
(1)SubjecttoSection2A303,asubsequentlesseefromalessorofgoodsunderan
existingleasecontractobtains,totheextentoftheleaseholdinteresttransferred,the
leaseholdinterestinthegoodsthatthelessorhadorhadpowertotransfer,andexcept
asprovidedinsubsection(2)andSection2A527(4),takessubjecttotheexistinglease
contract.Alessorwithvoidabletitlehaspowertotransferagoodleaseholdinterestto
agoodfaithsubsequentlesseeforvalue,butonlytotheextentsetforthinthepreceding
sentence.Ifgoodshavebeendeliveredunderatransactionofpurchase,thelessorhas
thatpowereventhough:
(a)thelessor'stransferorwasdeceivedastotheidentityofthelessor;
(b)thedeliverywasinexchangeforacheckwhichislaterdishonored;
(c)itwasagreedthatthetransactionwastobea"cashsale";or
(d)thedeliverywasprocuredthroughfraudpunishableaslarcenousunderthe
criminallaw.
(2)Asubsequentlesseeintheordinarycourseofbusinessfromalessorwhoisa
merchantdealingingoodsofthatkindtowhomthegoodswereentrustedbythe
existinglesseeofthatlessorbeforetheinterestofthesubsequentlesseebecame
enforceableagainstthatlessorobtains,totheextentoftheleaseholdinterest
[ 106 ]
transferred,allofthatlessor'sandtheexistinglessee'srightstothegoods,andtakes
freeoftheexistingleasecontract.
(3)Asubsequentlesseefromthelessorofgoodsthataresubjecttoanexistinglease
contractandarecoveredbyacertificateoftitleissuedunderastatuteofthisStateorof
anotherjurisdictiontakesnogreaterrightsthanthoseprovidedbothbythissection
andbythecertificateoftitlestatute.
2A305.SALEORSUBLEASEOFGOODSBYLESSEE.
(1)SubjecttotheprovisionsofSection2A303,abuyerorsublesseefromthelesseeof
goodsunderanexistingleasecontractobtains,totheextentoftheinteresttransferred,
theleaseholdinterestinthegoodsthatthelesseehadorhadpowertotransfer,and
exceptasprovidedinsubsection(2)andSection2A511(4),takessubjecttothe
existingleasecontract.Alesseewithavoidableleaseholdinteresthaspowerto
transferagoodleaseholdinteresttoagoodfaithbuyerforvalueoragoodfaith
sublesseeforvalue,butonlytotheextentsetforthintheprecedingsentence.When
goodshavebeendeliveredunderatransactionofleasethelesseehasthatpowereven
though:
(a)thelessorwasdeceivedastotheidentityofthelessee;
(b)thedeliverywasinexchangeforacheckwhichislaterdishonored;or
(c)thedeliverywasprocuredthroughfraudpunishableaslarcenousunderthe
criminallaw.
(2)Abuyerintheordinarycourseofbusinessorasublesseeintheordinarycourseof
businessfromalesseewhoisamerchantdealingingoodsofthatkindtowhomthe
goodswereentrustedbythelessorobtains,totheextentoftheinteresttransferred,all
ofthelessor'sandlessee'srightstothegoods,andtakesfreeoftheexistinglease
contract.
(3)Abuyerorsublesseefromthelesseeofgoodsthataresubjecttoanexistinglease
contractandarecoveredbyacertificateoftitleissuedunderastatuteofthisStateorof
anotherjurisdictiontakesnogreaterrightsthanthoseprovidedbothbythissection
andbythecertificateoftitlestatute.
2A306.PRIORITYOFCERTAINLIENSARISINGBYOPERATIONOFLAW.
Ifapersonintheordinarycourseofhis[orher]businessfurnishesservicesor
materialswithrespecttogoodssubjecttoaleasecontract,alienuponthosegoodsin
thepossessionofthatpersongivenbystatuteorruleoflawforthosematerialsor
servicestakespriorityoveranyinterestofthelessororlesseeundertheleasecontract
orthisArticleunlessthelieniscreatedbystatuteandthestatuteprovidesotherwiseor
unlessthelieniscreatedbyruleoflawandtheruleoflawprovidesotherwise.
[ 107 ]
2A307.PRIORITYOFLIENSARISINGBYATTACHMENTORLEVYON,SECURITY
INTERESTSIN,ANDOTHERCLAIMSTOGOODS.
(1)ExceptasotherwiseprovidedinSection2A306,acreditorofalesseetakessubject
totheleasecontract.
(2)Exceptasotherwiseprovidedinsubsection(3)andinSections2A306and2A308,
acreditorofalessortakessubjecttotheleasecontractunlessthecreditorholdsalien
thatattachedtothegoodsbeforetheleasecontractbecameenforceable.
(3)ExceptasotherwiseprovidedinSections9317,9321,and9323,alesseetakesa
leaseholdinterestsubjecttoasecurityinterestheldbyacreditorofthelessor.
2A308.SPECIALRIGHTSOFCREDITORS.
(1)Acreditorofalessorinpossessionofgoodssubjecttoaleasecontractmaytreat
theleasecontractasvoidifasagainstthecreditorretentionofpossessionbythelessor
isfraudulentunderanystatuteorruleoflaw,butretentionofpossessioningoodfaith
andcurrentcourseoftradebythelessorforacommerciallyreasonabletimeafterthe
leasecontractbecomesenforceableisnotfraudulent.
(2)NothinginthisArticleimpairstherightsofcreditorsofalessoriftheleasecontract
(a)becomesenforceable,notincurrentcourseoftradebutinsatisfactionoforas
securityforapreexistingclaimformoney,security,orthelike,and(b)ismadeunder
circumstanceswhichunderanystatuteorruleoflawapartfromthisArticlewould
constitutethetransactionafraudulenttransferorvoidablepreference.
(3)Acreditorofasellermaytreatasaleoranidentificationofgoodstoacontractfor
saleasvoidifasagainstthecreditorretentionofpossessionbythesellerisfraudulent
underanystatuteorruleoflaw,butretentionofpossessionofthegoodspursuanttoa
leasecontractenteredintobytheselleraslesseeandthebuyeraslessorinconnection
withthesaleoridentificationofthegoodsisnotfraudulentifthebuyerboughtfor
valueandingoodfaith.
2A309.LESSOR'SANDLESSEE'SRIGHTSWHENGOODSBECOMEFIXTURES.
(1)Inthissection:
(a)goodsare"fixtures"whentheybecomesorelatedtoparticularrealestate
thataninterestinthemarisesunderrealestatelaw;
(b)a"fixturefiling"isthefiling,intheofficewhereamortgageontherealestate
wouldbefiledorrecorded,ofafinancingstatementcoveringgoodsthatareor
aretobecomefixturesandconformingtotherequirementsofSection9502(a)
and(b);
(c)aleaseisa"purchasemoneylease"unlessthelesseehaspossessionoruseof
thegoodsortherighttopossessionoruseofthegoodsbeforethelease
agreementisenforceable;
[ 108 ]
(d)amortgageisa"constructionmortgage"totheextentitsecuresanobligation
incurredfortheconstructionofanimprovementonlandincludingthe
acquisitioncostoftheland,iftherecordedwritingsoindicates;and
(e)"encumbrance"includesrealestatemortgagesandotherliensonrealestate
andallotherrightsinrealestatethatarenotownershipinterests.
(2)UnderthisArticlealeasemaybeofgoodsthatarefixturesormaycontinuein
goodsthatbecomefixtures,butnoleaseexistsunderthisArticleofordinarybuilding
materialsincorporatedintoanimprovementonland.
(3)ThisArticledoesnotpreventcreationofaleaseoffixturespursuanttorealestate
law.
(4)Theperfectedinterestofalessoroffixtureshaspriorityoveraconflictinginterest
ofanencumbrancerorowneroftherealestateif:
(a)theleaseisapurchasemoneylease,theconflictinginterestofthe
encumbrancerorownerarisesbeforethegoodsbecomefixtures,theinterestof
thelessorisperfectedbyafixturefilingbeforethegoodsbecomefixturesor
withintendaysthereafter,andthelesseehasaninterestofrecordinthereal
estateorisinpossessionoftherealestate;or
(b)theinterestofthelessorisperfectedbyafixturefilingbeforetheinterestof
theencumbrancerorownerisofrecord,thelessor'sinteresthaspriorityover
anyconflictinginterestofapredecessorintitleoftheencumbrancerorowner,
andthelesseehasaninterestofrecordintherealestateorisinpossessionof
therealestate.
(5)Theinterestofalessoroffixtures,whetherornotperfected,haspriorityoverthe
conflictinginterestofanencumbrancerorowneroftherealestateif:
(a)thefixturesarereadilyremovablefactoryorofficemachines,readily
removableequipmentthatisnotprimarilyusedorleasedforuseinthe
operationoftherealestate,orreadilyremovablereplacementsofdomestic
appliancesthataregoodssubjecttoaconsumerlease,andbeforethegoods
becomefixturestheleasecontractisenforceable;or
(b)theconflictinginterestisalienontherealestateobtainedbylegalor
equitableproceedingsaftertheleasecontractisenforceable;or
(c)theencumbrancerorownerhasconsentedinwritingtotheleaseorhas
disclaimedaninterestinthegoodsasfixtures;or
(d)thelesseehasarighttoremovethegoodsasagainsttheencumbranceror
owner.Ifthelessee'srighttoremoveterminates,thepriorityoftheinterestof
thelessorcontinuesforareasonabletime.
[ 109 ]
(6)Notwithstandingsubsection(4)(a)butotherwisesubjecttosubsections(4)and
(5),theinterestofalessoroffixtures,includingthelessor'sresidualinterest,is
subordinatetotheconflictinginterestofanencumbranceroftherealestateundera
constructionmortgagerecordedbeforethegoodsbecomefixturesifthegoodsbecome
fixturesbeforethecompletionoftheconstruction.Totheextentgiventorefinancea
constructionmortgage,theconflictinginterestofanencumbranceroftherealestate
underamortgagehasthisprioritytothesameextentastheencumbrancerofthereal
estateundertheconstructionmortgage.
(7)Incasesnotwithintheprecedingsubsections,prioritybetweentheinterestofa
lessoroffixtures,includingthelessor'sresidualinterest,andtheconflictinginterestof
anencumbrancerorowneroftherealestatewhoisnotthelesseeisdeterminedbythe
priorityrulesgoverningconflictinginterestsinrealestate.
(8)Iftheinterestofalessoroffixtures,includingthelessor'sresidualinterest,has
priorityoverallconflictinginterestsofallownersandencumbrancersoftherealestate,
thelessororthelesseemay(i)ondefault,expiration,termination,orcancellationof
theleaseagreementbutsubjecttotheleaseagreementandthisArticle,or(ii)if
necessarytoenforceotherrightsandremediesofthelessororlesseeunderthis
Article,removethegoodsfromtherealestate,freeandclearofallconflictinginterests
ofallownersandencumbrancersoftherealestate,butthelessororlesseemust
reimburseanyencumbrancerorowneroftherealestatewhoisnotthelesseeandwho
hasnototherwiseagreedforthecostofrepairofanyphysicalinjury,butnotforany
diminutioninvalueoftherealestatecausedbytheabsenceofthegoodsremovedorby
anynecessityofreplacingthem.Apersonentitledtoreimbursementmayrefuse
permissiontoremoveuntilthepartyseekingremovalgivesadequatesecurityforthe
performanceofthisobligation.
(9)Eventhoughtheleaseagreementdoesnotcreateasecurityinterest,theinterestof
alessoroffixtures,includingthelessor'sresidualinterest,isperfectedbyfilinga
financingstatementasafixturefilingforleasedgoodsthatareoraretobecomefixtures
inaccordancewiththerelevantprovisionsoftheArticleonSecuredTransactions
(Article9).
2A310.LESSOR'SANDLESSEE'SRIGHTSWHENGOODSBECOMEACCESSIONS.
(1)Goodsare"accessions"whentheyareinstalledinoraffixedtoothergoods.
(2)Theinterestofalessororalesseeunderaleasecontractenteredintobeforethe
goodsbecameaccessionsissuperiortoallinterestsinthewholeexceptasstatedin
subsection(4).
(3)Theinterestofalessororalesseeunderaleasecontractenteredintoatthetimeor
afterthegoodsbecameaccessionsissuperiortoallsubsequentlyacquiredinterestsin
thewholeexceptasstatedinsubsection(4)butissubordinatetointerestsinthewhole
existingatthetimetheleasecontractwasmadeunlesstheholdersofsuchinterestsin
thewholehaveinwritingconsentedtotheleaseordisclaimedaninterestinthegoods
aspartofthewhole.
[ 110 ]
(4)Theinterestofalessororalesseeunderaleasecontractdescribedinsubsection
(2)or(3)issubordinatetotheinterestof
(a)abuyerintheordinarycourseofbusinessoralesseeintheordinarycourse
ofbusinessofanyinterestinthewholeacquiredafterthegoodsbecame
accessions;or
(b)acreditorwithasecurityinterestinthewholeperfectedbeforethelease
contractwasmadetotheextentthatthecreditormakessubsequentadvances
withoutknowledgeoftheleasecontract.
(5)Whenundersubsections(2)or(3)and(4)alessororalesseeofaccessionsholds
aninterestthatissuperiortoallinterestsinthewhole,thelessororthelesseemay(a)
ondefault,expiration,termination,orcancellationoftheleasecontractbytheother
partybutsubjecttotheprovisionsoftheleasecontractandthisArticle,or(b)if
necessarytoenforcehis[orher]otherrightsandremediesunderthisArticle,remove
thegoodsfromthewhole,freeandclearofallinterestsinthewhole,buthe[orshe]
mustreimburseanyholderofaninterestinthewholewhoisnotthelesseeandwho
hasnototherwiseagreedforthecostofrepairofanyphysicalinjurybutnotforany
diminutioninvalueofthewholecausedbytheabsenceofthegoodsremovedorbyany
necessityforreplacingthem.Apersonentitledtoreimbursementmayrefuse
permissiontoremoveuntilthepartyseekingremovalgivesadequatesecurityforthe
performanceofthisobligation.
2A311.PRIORITYSUBJECTTOSUBORDINATION.
NothinginthisArticlepreventssubordinationbyagreementbyanypersonentitledto
priority.
PART4.PERFORMANCEOFLEASECONTRACT:
REPUDIATED,SUBSTITUTEDANDEXCUSED
2A401.INSECURITY:ADEQUATEASSURANCEOFPERFORMANCE.
(1)Aleasecontractimposesanobligationoneachpartythattheother'sexpectationof
receivingdueperformancewillnotbeimpaired.
(2)Ifreasonablegroundsforinsecurityarisewithrespecttotheperformanceofeither
party,theinsecurepartymaydemandinwritingadequateassuranceofdue
performance.Untiltheinsecurepartyreceivesthatassurance,ifcommercially
reasonabletheinsecurepartymaysuspendanyperformanceforwhichhe[orshe]has
notalreadyreceivedtheagreedreturn.
(3)Arepudiationoftheleasecontractoccursifassuranceofdueperformance
adequateunderthecircumstancesoftheparticularcaseisnotprovidedtotheinsecure
partywithinareasonabletime,nottoexceed30daysafterreceiptofademandbythe
otherparty.
[ 111 ]
(4)Betweenmerchants,thereasonablenessofgroundsforinsecurityandtheadequacy
ofanyassuranceofferedmustbedeterminedaccordingtocommercialstandards.
(5)Acceptanceofanynonconformingdeliveryorpaymentdoesnotprejudicethe
aggrievedparty'srighttodemandadequateassuranceoffutureperformance.
2A402.ANTICIPATORYREPUDIATION.
Ifeitherpartyrepudiatesaleasecontractwithrespecttoaperformancenotyetdue
undertheleasecontract,thelossofwhichperformancewillsubstantiallyimpairthe
valueoftheleasecontracttotheother,theaggrievedpartymay:
(a)foracommerciallyreasonabletime,awaitretractionofrepudiationand
performancebytherepudiatingparty;
(b)makedemandpursuanttoSection2A401andawaitassuranceoffuture
performanceadequateunderthecircumstancesoftheparticularcase;or
(c)resorttoanyrightorremedyupondefaultundertheleasecontractorthis
Article,eventhoughtheaggrievedpartyhasnotifiedtherepudiatingpartythat
theaggrievedpartywouldawaittherepudiatingparty'sperformanceand
assuranceandhasurgedretraction.Inaddition,whetherornottheaggrieved
partyispursuingoneoftheforegoingremedies,theaggrievedpartymay
suspendperformanceor,iftheaggrievedpartyisthelessor,proceedin
accordancewiththeprovisionsofthisArticleonthelessor'srighttoidentify
goodstotheleasecontractnotwithstandingdefaultortosalvageunfinished
goods(Section2A524).
2A403.RETRACTIONOFANTICIPATORYREPUDIATION.
(1)Untiltherepudiatingparty'snextperformanceisdue,therepudiatingpartycan
retracttherepudiationunless,sincetherepudiation,theaggrievedpartyhascancelled
theleasecontractormateriallychangedtheaggrievedparty'spositionorotherwise
indicatedthattheaggrievedpartyconsiderstherepudiationfinal.
(2)Retractionmaybebyanymethodthatclearlyindicatestotheaggrievedpartythat
therepudiatingpartyintendstoperformundertheleasecontractandincludesany
assurancedemandedunderSection2A401.
(3)Retractionreinstatesarepudiatingparty'srightsunderaleasecontractwithdue
excuseandallowancetotheaggrievedpartyforanydelayoccasionedbythe
repudiation.
2A404.SUBSTITUTEDPERFORMANCE.
(1)Ifwithoutfaultofthelessee,thelessorandthesupplier,theagreedberthing,
loading,orunloadingfacilitiesfailortheagreedtypeofcarrierbecomesunavailableor
theagreedmannerofdeliveryotherwisebecomescommerciallyimpracticable,buta
[ 112 ]
commerciallyreasonablesubstituteisavailable,thesubstituteperformancemustbe
tenderedandaccepted.
(2)Iftheagreedmeansormannerofpaymentfailsbecauseofdomesticorforeign
governmentalregulation:
(a)thelessormaywithholdorstopdeliveryorcausethesuppliertowithholdor
stopdeliveryunlessthelesseeprovidesameansormannerofpaymentthatis
commerciallyasubstantialequivalent;and
(b)ifdeliveryhasalreadybeentaken,paymentbythemeansorinthemanner
providedbytheregulationdischargesthelessee'sobligationunlessthe
regulationisdiscriminatory,oppressive,orpredatory.
2A405.EXCUSEDPERFORMANCE.
SubjecttoSection2A404onsubstitutedperformance,thefollowingrulesapply:
(a)Delayindeliveryornondeliveryinwholeorinpartbyalessororasupplier
whocomplieswithparagraphs(b)and(c)isnotadefaultunderthelease
contractifperformanceasagreedhasbeenmadeimpracticablebythe
occurrenceofacontingencythenonoccurrenceofwhichwasabasicassumption
onwhichtheleasecontractwasmadeorbycomplianceingoodfaithwithany
applicableforeignordomesticgovernmentalregulationororder,whetherornot
theregulationororderlaterprovestobeinvalid.
(b)Ifthecausesmentionedinparagraph(a)affectonlypartofthelessor'sor
thesupplier'scapacitytoperform,he[orshe]shallallocateproductionand
deliveriesamonghis[orher]customersbutathis[orher]optionmayinclude
regularcustomersnotthenundercontractforsaleorleaseaswellashis[orher]
ownrequirementsforfurthermanufacture.He[orshe]maysoallocateinany
mannerthatisfairandreasonable.
(c)Thelessorseasonablyshallnotifythelesseeandinthecaseofafinancelease
thesupplierseasonablyshallnotifythelessorandthelessee,ifknown,thatthere
willbedelayornondeliveryand,ifallocationisrequiredunderparagraph(b),of
theestimatedquotathusmadeavailableforthelessee.
2A406.PROCEDUREONEXCUSEDPERFORMANCE.
(1)Ifthelesseereceivesnotificationofamaterialorindefinitedelayoranallocation
justifiedunderSection2A405,thelesseemaybywrittennotificationtothelessorasto
anygoodsinvolved,andwithrespecttoallofthegoodsifunderaninstallmentlease
contractthevalueofthewholeleasecontractissubstantiallyimpaired(Section2A
510):
(a)terminatetheleasecontract(Section2A505(2));or
[ 113 ]
(b)exceptinafinanceleasethatisnotaconsumerlease,modifythelease
contractbyacceptingtheavailablequotainsubstitution,withdueallowance
fromtherentpayableforthebalanceoftheleasetermforthedeficiencybut
withoutfurtherrightagainstthelessor.
(2)If,afterreceiptofanotificationfromthelessorunderSection2A405,thelessee
failssotomodifytheleaseagreementwithinareasonabletimenotexceeding30days,
theleasecontractlapseswithrespecttoanydeliveriesaffected.
2A407.IRREVOCABLEPROMISES:FINANCELEASES.
(1)Inthecaseofafinanceleasethatisnotaconsumerleasethelessee'spromises
undertheleasecontractbecomeirrevocableandindependentuponthelessee's
acceptanceofthegoods.
(2)Apromisethathasbecomeirrevocableandindependentundersubsection(1):
(a)iseffectiveandenforceablebetweentheparties,andbyoragainstthird
partiesincludingassigneesoftheparties;and
(b)isnotsubjecttocancellation,termination,modification,repudiation,excuse,
orsubstitutionwithouttheconsentofthepartytowhomthepromiseruns.
(3)Thissectiondoesnotaffectthevalidityunderanyotherlawofacovenantinany
leasecontractmakingthelessee'spromisesirrevocableandindependentuponthe
lessee'sacceptanceofthegoods.
PART5.DEFAULT
A.INGENERAL
2A501.DEFAULT:PROCEDURE.
(1)Whetherthelessororthelesseeisindefaultunderaleasecontractisdetermined
bytheleaseagreementandthisArticle.
(2)Ifthelessororthelesseeisindefaultundertheleasecontract,thepartyseeking
enforcementhasrightsandremediesasprovidedinthisArticleand,exceptaslimited
bythisArticle,asprovidedintheleaseagreement.
(3)Ifthelessororthelesseeisindefaultundertheleasecontract,thepartyseeking
enforcementmayreducetheparty'sclaimtojudgment,orotherwiseenforcethelease
contractbyselfhelporanyavailablejudicialprocedureornonjudicialprocedure,
includingadministrativeproceeding,arbitration,orthelike,inaccordancewiththis
Article.
(4)ExceptasotherwiseprovidedinSection1106(1)orthisArticleorthelease
agreement,therightsandremediesreferredtoinsubsections(2)and(3)are
cumulative.
[ 114 ]
(5)Iftheleaseagreementcoversbothrealpropertyandgoods,thepartyseeking
enforcementmayproceedunderthisPartastothegoods,orunderotherapplicablelaw
astoboththerealpropertyandthegoodsinaccordancewiththatparty'srightsand
remediesinrespectoftherealproperty,inwhichcasethisPartdoesnotapply.
2A502.NOTICEAFTERDEFAULT.
ExceptasotherwiseprovidedinthisArticleortheleaseagreement,thelessororlessee
indefaultundertheleasecontractisnotentitledtonoticeofdefaultornoticeof
enforcementfromtheotherpartytotheleaseagreement.
2A503.MODIFICATIONORIMPAIRMENTOFRIGHTSANDREMEDIES.
(1)ExceptasotherwiseprovidedinthisArticle,theleaseagreementmayincluderights
andremediesfordefaultinadditiontoorinsubstitutionforthoseprovidedinthis
ArticleandmaylimitoralterthemeasureofdamagesrecoverableunderthisArticle.
(2)ResorttoaremedyprovidedunderthisArticleorintheleaseagreementisoptional
unlesstheremedyisexpresslyagreedtobeexclusive.Ifcircumstancescausean
exclusiveorlimitedremedytofailofitsessentialpurpose,orprovisionforanexclusive
remedyisunconscionable,remedymaybehadasprovidedinthisArticle.
(3)ConsequentialdamagesmaybeliquidatedunderSection2A504,ormayotherwise
belimited,altered,orexcludedunlessthelimitation,alteration,orexclusionis
unconscionable.Limitation,alteration,orexclusionofconsequentialdamagesfor
injurytothepersoninthecaseofconsumergoodsisprimafacieunconscionablebut
limitation,alteration,orexclusionofdamageswherethelossiscommercialisnotprima
facieunconscionable.
(4)Rightsandremediesondefaultbythelessororthelesseewithrespecttoany
obligationorpromisecollateralorancillarytotheleasecontractarenotimpairedby
thisArticle.
2A504.LIQUIDATIONOFDAMAGES.
(1)Damagespayablebyeitherpartyfordefault,oranyotheractoromission,including
indemnityforlossordiminutionofanticipatedtaxbenefitsorlossordamagetolessor's
residualinterest,maybeliquidatedintheleaseagreementbutonlyatanamountorby
aformulathatisreasonableinlightofthethenanticipatedharmcausedbythedefault
orotheractoromission.
(2)Iftheleaseagreementprovidesforliquidationofdamages,andsuchprovisiondoes
notcomplywithsubsection(1),orsuchprovisionisanexclusiveorlimitedremedythat
circumstancescausetofailofitsessentialpurpose,remedymaybehadasprovidedin
thisArticle.
(3)Ifthelessorjustifiablywithholdsorstopsdeliveryofgoodsbecauseofthelessee's
defaultorinsolvency(Section2A525or2A526),thelesseeisentitledtorestitutionof
anyamountbywhichthesumofhis[orher]paymentsexceeds:
[ 115 ]
(a)theamounttowhichthelessorisentitledbyvirtueoftermsliquidatingthe
lessor'sdamagesinaccordancewithsubsection(1);or
(b)intheabsenceofthoseterms,20percentofthethenpresentvalueofthe
totalrentthelesseewasobligatedtopayforthebalanceoftheleaseterm,or,in
thecaseofaconsumerlease,thelesserofsuchamountor$500.
(4)Alessee'srighttorestitutionundersubsection(3)issubjecttooffsettotheextent
thelessorestablishes:
(a)arighttorecoverdamagesundertheprovisionsofthisArticleotherthan
subsection(1);and
(b)theamountorvalueofanybenefitsreceivedbythelesseedirectlyor
indirectlybyreasonoftheleasecontract.
2A505.CANCELLATIONANDTERMINATIONANDEFFECTOFCANCELLATION,
TERMINATION,RESCISSION,ORFRAUDONRIGHTSANDREMEDIES.
(1)Oncancellationoftheleasecontract,allobligationsthatarestillexecutoryonboth
sidesaredischarged,butanyrightbasedonpriordefaultorperformancesurvives,and
thecancellingpartyalsoretainsanyremedyfordefaultofthewholeleasecontractor
anyunperformedbalance.
(2)Onterminationoftheleasecontract,allobligationsthatarestillexecutoryonboth
sidesaredischargedbutanyrightbasedonpriordefaultorperformancesurvives.
(3)Unlessthecontraryintentionclearlyappears,expressionsof
"cancellation,""rescission,"orthelikeoftheleasecontractmaynotbeconstruedasa
renunciationordischargeofanyclaimindamagesforanantecedentdefault.
(4)Rightsandremediesformaterialmisrepresentationorfraudincludeallrightsand
remediesavailableunderthisArticlefordefault.
(5)Neitherrescissionnoraclaimforrescissionoftheleasecontractnorrejectionor
returnofthegoodsmaybarorbedeemedinconsistentwithaclaimfordamagesor
otherrightorremedy.
2A506.STATUTEOFLIMITATIONS.
(1)Anactionfordefaultunderaleasecontract,includingbreachofwarrantyor
indemnity,mustbecommencedwithin4yearsafterthecauseofactionaccrued.Bythe
originalleasecontractthepartiesmayreducetheperiodoflimitationtonotlessthan
oneyear.
(2)Acauseofactionfordefaultaccrueswhentheactoromissiononwhichthedefault
orbreachofwarrantyisbasedisorshouldhavebeendiscoveredbytheaggrieved
party,orwhenthedefaultoccurs,whicheverislater.Acauseofactionforindemnity
[ 116 ]
accrueswhentheactoromissiononwhichtheclaimforindemnityisbasedisorshould
havebeendiscoveredbytheindemnifiedparty,whicheverislater.
(3)Ifanactioncommencedwithinthetimelimitedbysubsection(1)issoterminated
astoleaveavailablearemedybyanotheractionforthesamedefaultorbreachof
warrantyorindemnity,theotheractionmaybecommencedaftertheexpirationofthe
timelimitedandwithin6monthsaftertheterminationofthefirstactionunlessthe
terminationresultedfromvoluntarydiscontinuanceorfromdismissalforfailureor
neglecttoprosecute.
(4)Thissectiondoesnotalterthelawontollingofthestatuteoflimitationsnordoesit
applytocausesofactionthathaveaccruedbeforethisArticlebecomeseffective.
2A507.PROOFOFMARKETRENT:TIMEANDPLACE.
(1)Damagesbasedonmarketrent(Section2A519or2A528)aredetermined
accordingtotherentfortheuseofthegoodsconcernedforaleasetermidenticaltothe
remainingleasetermoftheoriginalleaseagreementandprevailingatthetimes
specifiedinSections2A519and2A528.
(2)Ifevidenceofrentfortheuseofthegoodsconcernedforaleasetermidenticalto
theremainingleasetermoftheoriginalleaseagreementandprevailingatthetimesor
placesdescribedinthisArticleisnotreadilyavailable,therentprevailingwithinany
reasonabletimebeforeorafterthetimedescribedoratanyotherplaceorfora
differentleasetermwhichincommercialjudgmentorunderusageoftradewouldserve
asareasonablesubstitutefortheonedescribedmaybeused,makinganyproper
allowanceforthedifference,includingthecostoftransportingthegoodstoorfromthe
otherplace.
(3)Evidenceofarelevantrentprevailingatatimeorplaceorforaleasetermother
thantheonedescribedinthisArticleofferedbyonepartyisnotadmissibleunlessand
untilhe[orshe]hasgiventheotherpartynoticethecourtfindssufficienttoprevent
unfairsurprise.
(4)Iftheprevailingrentorvalueofanygoodsregularlyleasedinanyestablished
marketisinissue,reportsinofficialpublicationsortradejournalsorinnewspapersor
periodicalsofgeneralcirculationpublishedasthereportsofthatmarketareadmissible
inevidence.Thecircumstancesofthepreparationofthereportmaybeshowntoaffect
itsweightbutnotitsadmissibility.
B.DEFAULTBYLESSOR
2A508.LESSEE'SREMEDIES.
(1)Ifalessorfailstodeliverthegoodsinconformitytotheleasecontract(Section2A
509)orrepudiatestheleasecontract(Section2A402),oralesseerightfullyrejectsthe
goods(Section2A509)orjustifiablyrevokesacceptanceofthegoods(Section2A517),
thenwithrespecttoanygoodsinvolved,andwithrespecttoallofthegoodsifunderan
installmentleasecontractthevalueofthewholeleasecontractissubstantially
[ 117 ]
impaired(Section2A510),thelessorisindefaultundertheleasecontractandthe
lesseemay:
(a)canceltheleasecontract(Section2A505(1));
(b)recoversomuchoftherentandsecurityashasbeenpaidandisjustunder
thecircumstances;
(c)coverandrecoverdamagesastoallgoodsaffectedwhetherornottheyhave
beenidentifiedtotheleasecontract(Sections2A518and2A520),orrecover
damagesfornondelivery(Sections2A519and2A520);
(d)exerciseanyotherrightsorpursueanyotherremediesprovidedinthelease
contract.
(2)Ifalessorfailstodeliverthegoodsinconformitytotheleasecontractorrepudiates
theleasecontract,thelesseemayalso:
(a)ifthegoodshavebeenidentified,recoverthem(Section2A522);or
(b)inapropercase,obtainspecificperformanceorreplevythegoods(Section
2A521).
(3)Ifalessorisotherwiseindefaultunderaleasecontract,thelesseemayexercisethe
rightsandpursuetheremediesprovidedintheleasecontract,whichmayincludea
righttocancelthelease,andinSection2A519(3).
(4)Ifalessorhasbreachedawarranty,whetherexpressorimplied,thelesseemay
recoverdamages(Section2A519(4)).
(5)Onrightfulrejectionorjustifiablerevocationofacceptance,alesseehasasecurity
interestingoodsinthelessee'spossessionorcontrolforanyrentandsecuritythathas
beenpaidandanyexpensesreasonablyincurredintheirinspection,receipt,
transportation,andcareandcustodyandmayholdthosegoodsanddisposeofthemin
goodfaithandinacommerciallyreasonablemanner,subjecttoSection2A527(5).
(6)SubjecttotheprovisionsofSection2A407,alessee,onnotifyingthelessorofthe
lessee'sintentiontodoso,maydeductalloranypartofthedamagesresultingfromany
defaultundertheleasecontractfromanypartoftherentstilldueunderthesamelease
contract.
2A509.LESSEE'SRIGHTSONIMPROPERDELIVERY;RIGHTFULREJECTION.
(1)SubjecttotheprovisionsofSection2A510ondefaultininstallmentlease
contracts,ifthegoodsorthetenderordeliveryfailinanyrespecttoconformtothe
leasecontract,thelesseemayrejectoracceptthegoodsoracceptanycommercialunit
orunitsandrejecttherestofthegoods.
[ 118 ]
(2)Rejectionofgoodsisineffectiveunlessitiswithinareasonabletimeaftertenderor
deliveryofthegoodsandthelesseeseasonablynotifiesthelessor.
2A510.INSTALLMENTLEASECONTRACTS:REJECTIONANDDEFAULT.
(1)Underaninstallmentleasecontractalesseemayrejectanydeliverythatis
nonconformingifthenonconformitysubstantiallyimpairsthevalueofthatdeliveryand
cannotbecuredorthenonconformityisadefectintherequireddocuments;butifthe
nonconformitydoesnotfallwithinsubsection(2)andthelessororthesuppliergives
adequateassuranceofitscure,thelesseemustacceptthatdelivery.
(2)Whenevernonconformityordefaultwithrespecttooneormoredeliveries
substantiallyimpairsthevalueoftheinstallmentleasecontractasawholethereisa
defaultwithrespecttothewhole.But,theaggrievedpartyreinstatestheinstallment
leasecontractasawholeiftheaggrievedpartyacceptsanonconformingdelivery
withoutseasonablynotifyingofcancellationorbringsanactionwithrespectonlyto
pastdeliveriesordemandsperformanceastofuturedeliveries.
2A511.MERCHANTLESSEE'SDUTIESASTORIGHTFULLYREJECTEDGOODS.
(1)Subjecttoanysecurityinterestofalessee(Section2A508(5)),ifalessorora
supplierhasnoagentorplaceofbusinessatthemarketofrejection,amerchantlessee,
afterrejectionofgoodsinhis[orher]possessionorcontrol,shallfollowanyreasonable
instructionsreceivedfromthelessororthesupplierwithrespecttothegoods.Inthe
absenceofthoseinstructions,amerchantlesseeshallmakereasonableeffortstosell,
lease,orotherwisedisposeofthegoodsforthelessor'saccountiftheythreatento
declineinvaluespeedily.Instructionsarenotreasonableifondemandindemnityfor
expensesisnotforthcoming.
(2)Ifamerchantlessee(subsection(1))oranyotherlessee(Section2A512)disposes
ofgoods,he[orshe]isentitledtoreimbursementeitherfromthelessororthesupplier
oroutoftheproceedsforreasonableexpensesofcaringforanddisposingofthegoods
and,iftheexpensesincludenodispositioncommission,tosuchcommissionasisusual
inthetrade,orifthereisnone,toareasonablesumnotexceeding10percentofthe
grossproceeds.
(3)IncomplyingwiththissectionorSection2A512,thelesseeisheldonlytogood
faith.Goodfaithconducthereunderisneitheracceptanceorconversionnorthebasisof
anactionfordamages.
(4)Apurchaserwhopurchasesingoodfaithfromalesseepursuanttothissectionor
Section2A512takesthegoodsfreeofanyrightsofthelessorandthesuppliereven
thoughthelesseefailstocomplywithoneormoreoftherequirementsofthisArticle.
2A512.LESSEE'SDUTIESASTORIGHTFULLYREJECTEDGOODS.
(1)Exceptasotherwiseprovidedwithrespecttogoodsthatthreatentodeclinein
valuespeedily(Section2A511)andsubjecttoanysecurityinterestofalessee(Section
2A508(5)):
[ 119 ]
(a)thelessee,afterrejectionofgoodsinthelessee'spossession,shallholdthem
withreasonablecareatthelessor'sorthesupplier'sdispositionforareasonable
timeafterthelessee'sseasonablenotificationofrejection;
(b)ifthelessororthesuppliergivesnoinstructionswithinareasonabletime
afternotificationofrejection,thelesseemaystoretherejectedgoodsforthe
lessor'sorthesupplier'saccountorshipthemtothelessororthesupplieror
disposeofthemforthelessor'sorthesupplier'saccountwithreimbursementin
themannerprovidedinSection2A511;but
(c)thelesseehasnofurtherobligationswithregardtogoodsrightfullyrejected.
(2)Actionbythelesseepursuanttosubsection(1)isnotacceptanceorconversion.
2A513.CUREBYLESSOROFIMPROPERTENDERORDELIVERY;REPLACEMENT.
(1)Ifanytenderordeliverybythelessororthesupplierisrejectedbecause
nonconformingandthetimeforperformancehasnotyetexpired,thelessororthe
suppliermayseasonablynotifythelesseeofthelessor'sorthesupplier'sintentionto
cureandmaythenmakeaconformingdeliverywithinthetimeprovidedinthelease
contract.
(2)Ifthelesseerejectsanonconformingtenderthatthelessororthesupplierhad
reasonablegroundstobelievewouldbeacceptablewithorwithoutmoneyallowance,
thelessororthesuppliermayhaveafurtherreasonabletimetosubstitutea
conformingtenderifhe[orshe]seasonablynotifiesthelessee.
2A514.WAIVEROFLESSEE'SOBJECTIONS.
(1)Inrejectinggoods,alessee'sfailuretostateaparticulardefectthatisascertainable
byreasonableinspectionprecludesthelesseefromrelyingonthedefecttojustify
rejectionortoestablishdefault:
(a)if,statedseasonably,thelessororthesuppliercouldhavecuredit(Section
2A513);or
(b)betweenmerchantsifthelessororthesupplierafterrejectionhasmadea
requestinwritingforafullandfinalwrittenstatementofalldefectsonwhich
thelesseeproposestorely.
(2)Alessee'sfailuretoreserverightswhenpayingrentorotherconsiderationagainst
documentsprecludesrecoveryofthepaymentfordefectsapparentinthedocuments.
2A515.ACCEPTANCEOFGOODS.
(1)Acceptanceofgoodsoccursafterthelesseehashadareasonableopportunityto
inspectthegoodsand
[ 120 ]
(a)thelesseesignifiesoractswithrespecttothegoodsinamannerthat
signifiestothelessororthesupplierthatthegoodsareconformingorthatthe
lesseewilltakeorretaintheminspiteoftheirnonconformity;or
(b)thelesseefailstomakeaneffectiverejectionofthegoods(Section2A
509(2)).
(2)Acceptanceofapartofanycommercialunitisacceptanceofthatentireunit.
2A516.EFFECTOFACCEPTANCEOFGOODS;NOTICEOFDEFAULT;BURDENOF
ESTABLISHINGDEFAULTAFTERACCEPTANCE;NOTICEOFCLAIMORLITIGATIONTO
PERSONANSWERABLEOVER.
(1)Alesseemustpayrentforanygoodsacceptedinaccordancewiththelease
contract,withdueallowanceforgoodsrightfullyrejectedornotdelivered.
(2)Alessee'sacceptanceofgoodsprecludesrejectionofthegoodsaccepted.Inthe
caseofafinancelease,ifmadewithknowledgeofanonconformity,acceptancecannot
berevokedbecauseofit.Inanyothercase,ifmadewithknowledgeofanonconformity,
acceptancecannotberevokedbecauseofitunlesstheacceptancewasonthe
reasonableassumptionthatthenonconformitywouldbeseasonablycured.Acceptance
doesnotofitselfimpairanyotherremedyprovidedbythisArticleorthelease
agreementfornonconformity.
(3)Ifatenderhasbeenaccepted:
(a)withinareasonabletimeafterthelesseediscoversorshouldhavediscovered
anydefault,thelesseeshallnotifythelessorandthesupplier,ifany,orbebarred
fromanyremedyagainstthepartynotnotified;
(b)exceptinthecaseofaconsumerlease,withinareasonabletimeafterthe
lesseereceivesnoticeoflitigationforinfringementorthelike(Section2A211)
thelesseeshallnotifythelessororbebarredfromanyremedyoverforliability
establishedbythelitigation;and
(c)theburdenisonthelesseetoestablishanydefault.
(4)Ifalesseeissuedforbreachofawarrantyorotherobligationforwhichalessoror
asupplierisanswerableoverthefollowingapply:
(a)Thelesseemaygivethelessororthesupplier,orboth,writtennoticeofthe
litigation.Ifthenoticestatesthatthepersonnotifiedmaycomeinanddefend
andthatifthepersonnotifieddoesnotdosothatpersonwillbeboundinany
actionagainstthatpersonbythelesseebyanydeterminationoffactcommonto
thetwolitigations,thenunlessthepersonnotifiedafterseasonablereceiptof
thenoticedoescomeinanddefendthatpersonissobound.
(b)Thelessororthesuppliermaydemandinwritingthatthelesseeturnover
controlofthelitigationincludingsettlementiftheclaimisoneforinfringement
[ 121 ]
orthelike(Section2A211)orelsebebarredfromanyremedyover.Ifthe
demandstatesthatthelessororthesupplieragreestobearallexpenseandto
satisfyanyadversejudgment,thenunlessthelesseeafterseasonablereceiptof
thedemanddoesturnovercontrolthelesseeissobarred.
(5)Subsections(3)and(4)applytoanyobligationofalesseetoholdthelessororthe
supplierharmlessagainstinfringementorthelike(Section2A211).
2A517.REVOCATIONOFACCEPTANCEOFGOODS.
(1)Alesseemayrevokeacceptanceofalotorcommercialunitwhosenonconformity
substantiallyimpairsitsvaluetothelesseeifthelesseehasacceptedit:
(a)exceptinthecaseofafinancelease,onthereasonableassumptionthatits
nonconformitywouldbecuredandithasnotbeenseasonablycured;or
(b)withoutdiscoveryofthenonconformityifthelessee'sacceptancewas
reasonablyinducedeitherbythelessor'sassurancesor,exceptinthecaseofa
financelease,bythedifficultyofdiscoverybeforeacceptance.
(2)Exceptinthecaseofafinanceleasethatisnotaconsumerlease,alesseemay
revokeacceptanceofalotorcommercialunitifthelessordefaultsunderthelease
contractandthedefaultsubstantiallyimpairsthevalueofthatlotorcommercialunitto
thelessee.
(3)Iftheleaseagreementsoprovides,thelesseemayrevokeacceptanceofalotor
commercialunitbecauseofotherdefaultsbythelessor.
(4)Revocationofacceptancemustoccurwithinareasonabletimeafterthelessee
discoversorshouldhavediscoveredthegroundforitandbeforeanysubstantialchange
inconditionofthegoodswhichisnotcausedbythenonconformity.Revocationisnot
effectiveuntilthelesseenotifiesthelessorofthepresentvalueasofthesamedateof
thetotalrentforthethenremainingleasetermoftheoriginalleaseagreement,and(ii)
anyincidentalorconsequentialdamages,lessexpensessavedinconsequenceofthe
lessor'sdefault.
2A518.COVER;SUBSTITUTEGOODS.
(1)AfteradefaultbyalessorundertheleasecontractofthetypedescribedinSection
2A508(1),or,ifagreed,afterotherdefaultbythelessor,thelesseemaycoverby
makinganypurchaseorleaseoforcontracttopurchaseorleasegoodsinsubstitution
forthoseduefromthelessor.
(2)Exceptasotherwiseprovidedwithrespecttodamagesliquidatedinthelease
agreement(Section2A504)orotherwisedeterminedpursuanttoagreementofthe
parties(Sections1302and2A503),ifalessee'scoverisbyaleaseagreement
substantiallysimilartotheoriginalleaseagreementandthenewleaseagreementis
madeingoodfaithandinacommerciallyreasonablemanner,thelesseemayrecover
fromthelessorasdamages(i)thepresentvalue,asofthedateofthecommencementof
[ 122 ]
thetermofthenewleaseagreement,oftherentunderthenewleaseagreement
applicabletothatperiodofthenewleasetermwhichiscomparabletothethen
remainingtermoftheoriginalleaseagreementminusthepresentvalueasofthesame
dateofthetotalrentforthethenremainingleasetermoftheoriginalleaseagreement,
and(ii)anyincidentalorconsequentialdamages,lessexpensessavedinconsequenceof
thelessor'sdefault.
(3)Ifalessee'scoverisbyleaseagreementthatforanyreasondoesnotqualifyfor
treatmentundersubsection(2),orisbypurchaseorotherwise,thelesseemayrecover
fromthelessorasifthelesseehadelectednottocoverandSection2A519governs.
2A519.LESSEE'SDAMAGESFORNONDELIVERY,REPUDIATION,DEFAULT,AND
BREACHOFWARRANTYINREGARDTOACCEPTEDGOODS.
parties(Sections1302and2A503),ifalesseeelectsnottocoveroralesseeelectsto
coverandthecoverisbyleaseagreementthatforanyreasondoesnotqualifyfor
treatmentunderSection2A518(2),orisbypurchaseorotherwise,themeasureof
damagesfornondeliveryorrepudiationbythelessororforrejectionorrevocationof
acceptancebythelesseeisthepresentvalue,asofthedateofthedefault,ofthethen
marketrentminusthepresentvalueasofthesamedateoftheoriginalrent,computed
fortheremainingleasetermoftheoriginalleaseagreement,togetherwithincidental
andconsequentialdamages,lessexpensessavedinconsequenceofthelessor'sdefault.
(2)Marketrentistobedeterminedasoftheplacefortenderor,incasesofrejection
afterarrivalorrevocationofacceptance,asoftheplaceofarrival.
(3)Exceptasotherwiseagreed,ifthelesseehasacceptedgoodsandgivennotification
(Section2A516(3)),themeasureofdamagesfornonconformingtenderordeliveryor
otherdefaultbyalessoristhelossresultingintheordinarycourseofeventsfromthe
lessor'sdefaultasdeterminedinanymannerthatisreasonabletogetherwithincidental
andconsequentialdamages,lessexpensessavedinconsequenceofthelessor'sdefault.
(4)Exceptasotherwiseagreed,themeasureofdamagesforbreachofwarrantyisthe
presentvalueatthetimeandplaceofacceptanceofthedifferencebetweenthevalueof
theuseofthegoodsacceptedandthevalueiftheyhadbeenaswarrantedforthelease
term,unlessspecialcircumstancesshowproximatedamagesofadifferentamount,
togetherwithincidentalandconsequentialdamages,lessexpensessavedin
consequenceofthelessor'sdefaultorbreachofwarranty.
2A520.LESSEE'SINCIDENTALANDCONSEQUENTIALDAMAGES.
(1)Incidentaldamagesresultingfromalessor'sdefaultincludeexpensesreasonably
incurredininspection,receipt,transportation,andcareandcustodyofgoodsrightfully
rejectedorgoodstheacceptanceofwhichisjustifiablyrevoked,anycommercially
reasonablecharges,expensesorcommissionsinconnectionwitheffectingcover,and
anyotherreasonableexpenseincidenttothedefault.
[ 123 ]
(2)Consequentialdamagesresultingfromalessor'sdefaultinclude:
(a)anylossresultingfromgeneralorparticularrequirementsandneedsof
whichthelessoratthetimeofcontractinghadreasontoknowandwhichcould
notreasonablybepreventedbycoverorotherwise;and
(b)injurytopersonorpropertyproximatelyresultingfromanybreachof
warranty.
2A521.LESSEE'SRIGHTTOSPECIFICPERFORMANCEORREPLEVIN.
(1)Specificperformancemaybedecreedifthegoodsareuniqueorinotherproper
circumstances.
(2)Adecreeforspecificperformancemayincludeanytermsandconditionsasto
paymentoftherent,damages,orotherreliefthatthecourtdeemsjust.
(3)Alesseehasarightofreplevin,detinue,sequestration,claimanddelivery,orthe
likeforgoodsidentifiedtotheleasecontractifafterreasonableeffortthelesseeis
unabletoeffectcoverforthosegoodsorthecircumstancesreasonablyindicatethatthe
effortwillbeunavailing.
2A522.LESSEE'SRIGHTTOGOODSONLESSOR'SINSOLVENCY.
(1)Subjecttosubsection(2)andeventhoughthegoodshavenotbeenshipped,a
lesseewhohaspaidapartoralloftherentandsecurityforgoodsidentifiedtoalease
contract(Section2A217)onmakingandkeepinggoodatenderofanyunpaidportion
oftherentandsecuritydueundertheleasecontractmayrecoverthegoodsidentified
fromthelessorifthelessorbecomesinsolventwithin10daysafterreceiptofthefirst
installmentofrentandsecurity.
(2)Alesseeacquirestherighttorecovergoodsidentifiedtoaleasecontractonlyif
theyconformtotheleasecontract.
C.DEFAULTBYLESSEE
2A523.LESSOR'SREMEDIES.
(1)Ifalesseewrongfullyrejectsorrevokesacceptanceofgoodsorfailstomakea
paymentwhendueorrepudiateswithrespecttoapartorthewhole,then,withrespect
toanygoodsinvolved,andwithrespecttoallofthegoodsifunderaninstallmentlease
contractthevalueofthewholeleasecontractissubstantiallyimpaired(Section2A
510),thelesseeisindefaultundertheleasecontractandthelessormay:
(a)canceltheleasecontract(Section2A505(1));
(b)proceedrespectinggoodsnotidentifiedtotheleasecontract(Section2A
524);
[ 124 ]
(c)withholddeliveryofthegoodsandtakepossessionofgoodspreviously
delivered(Section2A525);
(d)stopdeliveryofthegoodsbyanybailee(Section2A526);
(e)disposeofthegoodsandrecoverdamages(Section2A527),orretainthe
goodsandrecoverdamages(Section2A528),orinapropercaserecoverrent
(Section2A529);
(f)exerciseanyotherrightsorpursueanyotherremediesprovidedinthelease
contract.
(2)Ifalessordoesnotfullyexercisearightorobtainaremedytowhichthelessoris
entitledundersubsection(1),thelessormayrecoverthelossresultingintheordinary
courseofeventsfromthelessee'sdefaultasdeterminedinanyreasonablemanner,
togetherwithincidentaldamages,lessexpensessavedinconsequenceofthelessee's
default.
(3)Ifalesseeisotherwiseindefaultunderaleasecontract,thelessormayexercisethe
rightsandpursuetheremediesprovidedintheleasecontract,whichmayincludea
righttocancelthelease.Inaddition,unlessotherwiseprovidedintheleasecontract:
(a)ifthedefaultsubstantiallyimpairsthevalueoftheleasecontracttothe
lessor,thelessormayexercisetherightsandpursuetheremediesprovidedin
subsections(1)or(2);or
(b)ifthedefaultdoesnotsubstantiallyimpairthevalueoftheleasecontractto
thelessor,thelessormayrecoverasprovidedinsubsection(2).
2A524.LESSOR'SRIGHTTOIDENTIFYGOODSTOLEASECONTRACT.
(1)AfterdefaultbythelesseeundertheleasecontractofthetypedescribedinSection
2A523(1)orSection2A523(3)(a)or,ifagreed,afterotherdefaultbythelessee,the
lessormay:
(a)identifytotheleasecontractconforminggoodsnotalreadyidentifiedifatthe
timethelessorlearnedofthedefaulttheywereinthelessor'sorthesupplier's
possessionorcontrol;and
(b)disposeofgoods(Section2A527(1))thatdemonstrablyhavebeenintended
fortheparticularleasecontracteventhoughthosegoodsareunfinished.
(2)Ifthegoodsareunfinished,intheexerciseofreasonablecommercialjudgmentfor
thepurposesofavoidinglossandofeffectiverealization,anaggrievedlessororthe
suppliermayeithercompletemanufactureandwhollyidentifythegoodstothelease
contractorceasemanufactureandlease,sell,orotherwisedisposeofthegoodsfor
scraporsalvagevalueorproceedinanyotherreasonablemanner.
[ 125 ]
2A525.LESSOR'SRIGHTTOPOSSESSIONOFGOODS.
(1)Ifalessordiscoversthelesseetobeinsolvent,thelessormayrefusetodeliverthe
goods.
(2)Afteradefaultbythelesseeundertheleasecontractofthetypedescribedin
Section2A523(1)or2A523(3)(a)or,ifagreed,afterotherdefaultbythelessee,the
lessorhastherighttotakepossessionofthegoods.Iftheleasecontractsoprovides,
thelessormayrequirethelesseetoassemblethegoodsandmakethemavailabletothe
lessorataplacetobedesignatedbythelessorwhichisreasonablyconvenienttoboth
parties.Withoutremoval,thelessormayrenderunusableanygoodsemployedintrade
orbusiness,andmaydisposeofgoodsonthelessee'spremises(Section2A527).
(3)Thelessormayproceedundersubsection(2)withoutjudicialprocessifitcanbe
donewithoutbreachofthepeaceorthelessormayproceedbyaction.
2A526.LESSOR'SSTOPPAGEOFDELIVERYINTRANSITOROTHERWISE.
(1)Alessormaystopdeliveryofgoodsinthepossessionofacarrierorotherbaileeif
thelessordiscoversthelesseetobeinsolventandmaystopdeliveryofcarload,
truckload,planeload,orlargershipmentsofexpressorfreightifthelesseerepudiates
orfailstomakeapaymentduebeforedelivery,whetherforrent,securityorotherwise
undertheleasecontract,orforanyotherreasonthelessorhasarighttowithholdor
takepossessionofthegoods.
(2)Inpursuingitsremediesundersubsection(1),thelessormaystopdeliveryuntil
(a)receiptofthegoodsbythelessee;
(b)acknowledgmenttothelesseebyanybaileeofthegoods,exceptacarrier,
thatthebaileeholdsthegoodsforthelessee;or
(c)suchanacknowledgmenttothelesseebyacarrierviareshipmentoras
warehouse.
(3)
(a)Tostopdelivery,alessorshallsonotifyastoenablethebaileebyreasonable
diligencetopreventdeliveryofthegoods.
(b)Afternotification,thebaileeshallholdanddeliverthegoodsaccordingto
thedirectionsofthelessor,butthelessorisliabletothebaileeforanyensuing
chargesordamages.
(c)Acarrierwhohasissuedanonnegotiablebillofladingisnotobligedtoobey
anotificationtostopreceivedfromapersonotherthantheconsignor.
[ 126 ]
2A527.LESSOR'SRIGHTSTODISPOSEOFGOODS.
(1)AfteradefaultbyalesseeundertheleasecontractofthetypedescribedinSection
2A523(1)or2A523(3)(a)orafterthelessorrefusestodeliverortakespossessionof
goods(Section2A525or2A526),or,ifagreed,afterotherdefaultbyalessee,the
lessormaydisposeofthegoodsconcernedortheundeliveredbalancethereofbylease,
sale,orotherwise.
parties(Sections1302and2A503),ifthedispositionisbyleaseagreement
substantiallysimilartotheoriginalleaseagreementandthenewleaseagreementis
madeingoodfaithandinacommerciallyreasonablemanner,thelessormayrecover
fromthelesseeasdamages(i)accruedandunpaidrentasofthedateofthe
commencementofthetermofthenewleaseagreement,(ii)thepresentvalue,asofthe
samedate,ofthetotalrentforthethenremainingleasetermoftheoriginallease
agreementminusthepresentvalue,asofthesamedate,oftherentunderthenew
leaseagreementapplicabletothatperiodofthenewleasetermwhichiscomparableto
thethenremainingtermoftheoriginalleaseagreement,and(iii)anyincidental
damagesallowedunderSection2A530,lessexpensessavedinconsequenceofthe
lessee'sdefault.
(3)Ifthelessor'sdispositionisbyleaseagreementthatforanyreasondoesnotqualify
fortreatmentundersubsection(2),orisbysaleorotherwise,thelessormayrecover
fromthelesseeasifthelessorhadelectednottodisposeofthegoodsandSection2A
528governs.
(4)Asubsequentbuyerorlesseewhobuysorleasesfromthelessoringoodfaithfor
valueasaresultofadispositionunderthissectiontakesthegoodsfreeoftheoriginal
leasecontractandanyrightsoftheoriginallesseeeventhoughthelessorfailsto
complywithoneormoreoftherequirementsofthisArticle.
(5)Thelessorisnotaccountabletothelesseeforanyprofitmadeonanydisposition.A
lesseewhohasrightfullyrejectedorjustifiablyrevokedacceptanceshallaccounttothe
lessorforanyexcessovertheamountofthelessee'ssecurityinterest(Section2A
508(5)).
2A528.LESSOR'SDAMAGESFORNONACCEPTANCE,FAILURETOPAY,REPUDIATION,
OROTHERDEFAULT.
parties(Sections1302and2A503),ifalessorelectstoretainthegoodsoralessor
electstodisposeofthegoodsandthedispositionisbyleaseagreementthatforany
reasondoesnotqualifyfortreatmentunderSection2A527(2),orisbysaleor
otherwise,thelessormayrecoverfromthelesseeasdamagesforadefaultofthetype
describedinSection2A523(1)or2A523(3)(a),or,ifagreed,forotherdefaultofthe
lessee,(i)accruedandunpaidrentasofthedateofdefaultifthelesseehasnevertaken
possessionofthegoods,or,ifthelesseehastakenpossessionofthegoods,asofthe
[ 127 ]
datethelessorrepossessesthegoodsoranearlierdateonwhichthelesseemakesa
tenderofthegoodstothelessor,(ii)thepresentvalueasofthedatedeterminedunder
clause(i)ofthetotalrentforthethenremainingleasetermoftheoriginallease
agreementminusthepresentvalueasofthesamedateofthemarketrentattheplace
wherethegoodsarelocatedcomputedforthesameleaseterm,and(iii)anyincidental
damagesallowedunderSection2A530,lessexpensessavedinconsequenceofthe
lessee'sdefault.
(2)Ifthemeasureofdamagesprovidedinsubsection(1)isinadequatetoputalessor
inasgoodapositionasperformancewouldhave,themeasureofdamagesisthe
presentvalueoftheprofit,includingreasonableoverhead,thelessorwouldhavemade
fromfullperformancebythelessee,togetherwithanyincidentaldamagesallowed
underSection2A530,dueallowanceforcostsreasonablyincurredandduecreditfor
paymentsorproceedsofdisposition.
2A529.LESSOR'SACTIONFORTHERENT.
2A523(1))or2A523(3)(a)or,ifagreed,afterotherdefaultbythelessee,ifthelessor
complieswithsubsection(2),thelessormayrecoverfromthelesseeasdamages:
(a)forgoodsacceptedbythelesseeandnotrepossessedbyortenderedtothe
lessor,andforconforminggoodslostordamagedwithinacommercially
reasonabletimeafterriskoflosspassestothelessee(Section2A219),(i)
accruedandunpaidrentasofthedateofentryofjudgmentinfavorofthe
lessor,(ii)thepresentvalueasofthesamedateoftherentforthethen
remainingleasetermoftheleaseagreement,and(iii)anyincidentaldamages
allowedunderSection2A530,lessexpensessavedinconsequenceofthe
lessee'sdefault;and
(b)forgoodsidentifiedtotheleasecontractifthelessorisunableafter
reasonableefforttodisposeofthematareasonablepriceorthecircumstances
reasonablyindicatethateffortwillbeunavailing,(i)accruedandunpaidrentas
ofthedateofentryofjudgmentinfavorofthelessor,(ii)thepresentvalueasof
thesamedateoftherentforthethenremainingleasetermofthelease
agreement,and(iii)anyincidentaldamagesallowedunderSection2A530,less
expensessavedinconsequenceofthelessee'sdefault.
(2)Exceptasprovidedinsubsection(3),thelessorshallholdforthelesseeforthe
remainingleasetermoftheleaseagreementanygoodsthathavebeenidentifiedtothe
leasecontractandareinthelessor'scontrol.
(3)Thelessormaydisposeofthegoodsatanytimebeforecollectionofthejudgment
fordamagesobtainedpursuanttosubsection(1).Ifthedispositionisbeforetheendof
theremainingleasetermoftheleaseagreement,thelessor'srecoveryagainstthelessee
fordamagesisgovernedbySection2A527orSection2A528,andthelessorwillcause
anappropriatecredittobeprovidedagainstajudgmentfordamagestotheextentthat
theamountofthejudgmentexceedstherecoveryavailablepursuanttoSection2A527
or2A528.
[ 128 ]
(4)Paymentofthejudgmentfordamagesobtainedpursuanttosubsection(1)entitles
thelesseetotheuseandpossessionofthegoodsnotthendisposedoffortheremaining
leasetermofandinaccordancewiththeleaseagreement.
2A523(1)orSection2A523(3)(a)or,ifagreed,afterotherdefaultbythelessee,a
lessorwhoisheldnotentitledtorentunderthissectionmustneverthelessbeawarded
damagesfornonacceptanceunderSection2A527orSection2A528.
2A530.LESSOR'SINCIDENTALDAMAGES.
Incidentaldamagestoanaggrievedlessorincludeanycommerciallyreasonable
charges,expenses,orcommissionsincurredinstoppingdelivery,inthetransportation,
careandcustodyofgoodsafterthelessee'sdefault,inconnectionwithreturnor
dispositionofthegoods,orotherwiseresultingfromthedefault.
2A531.STANDINGTOSUETHIRDPARTIESFORINJURYTOGOODS.
(1)Ifathirdpartysodealswithgoodsthathavebeenidentifiedtoaleasecontractas
tocauseactionableinjurytoapartytotheleasecontract(a)thelessorhasarightof
actionagainstthethirdparty,and(b)thelesseealsohasarightofactionagainstthe
thirdpartyifthelessee:
(i)hasasecurityinterestinthegoods;
(ii)hasaninsurableinterestinthegoods;or
(iii)bearstheriskoflossundertheleasecontractorhassincetheinjury
assumedthatriskasagainstthelessorandthegoodshavebeenconvertedor
destroyed.
(2)Ifatthetimeoftheinjurythepartyplaintiffdidnotbeartheriskoflossasagainst
theotherpartytotheleasecontractandthereisnoarrangementbetweenthemfor
dispositionoftherecovery,his[orher]suitorsettlement,subjecttohis[orher]own
interest,isasafiduciaryfortheotherpartytotheleasecontract.
(3)Eitherpartywiththeconsentoftheothermaysueforthebenefitofwhomitmay
concern.
2A532.LESSOR'SRIGHTSTORESIDUALINTEREST.
InadditiontoanyotherrecoverypermittedbythisArticleorotherlaw,thelessormay
recoverfromthelesseeanamountthatwillfullycompensatethelessorforanylossof
ordamagetothelessor'sresidualinterestinthegoodscausedbythedefaultofthe
lessee.
[ 129 ]
M.I.C.NOTES[UCCARTICLE2A:LEASES]
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[ 139 ]
U.C.C.ARTICLE3NEGOTIABLEINSTRUMENTS
PART1.GENERALPROVISIONSANDDEFINITIONS
3101.SHORTTITLE.
3102.SUBJECTMATTER.
3103.DEFINITIONS.
3104.NEGOTIABLEINSTRUMENT.
3105.ISSUEOFINSTRUMENT.
3106.UNCONDITIONALPROMISEORORDER.
3107.INSTRUMENTPAYABLEINFOREIGNMONEY.
3108.PAYABLEONDEMANDORATDEFINITETIME.
3109.PAYABLETOBEARERORTOORDER.
3110.IDENTIFICATIONOFPERSONTOWHOMINSTRUMENTISPAYABLE.
3111.PLACEOFPAYMENT.
3112.INTEREST.
3113.DATEOFINSTRUMENT.
3114.CONTRADICTORYTERMSOFINSTRUMENT.
3115.INCOMPLETEINSTRUMENT.
3116.JOINTANDSEVERALLIABILITY;CONTRIBUTION.
3117.OTHERAGREEMENTSAFFECTINGINSTRUMENT.
3118.STATUTEOFLIMITATIONS.
3119.NOTICEOFRIGHTTODEFENDACTION.
PART2.NEGOTIATION,TRANSFER,ANDINDORSEMENT
3201.NEGOTIATION.
3202.NEGOTIATIONSUBJECTTORESCISSION.
3203.TRANSFEROFINSTRUMENT;RIGHTSACQUIREDBYTRANSFER.
3204.INDORSEMENT.
3205.SPECIALINDORSEMENT;BLANKINDORSEMENT;ANOMALOUS
INDORSEMENT.
3206.RESTRICTIVEINDORSEMENT.
3207.REACQUISITION.
PART3.ENFORCEMENTOFINSTRUMENTS
3301.PERSONENTITLEDTOENFORCEINSTRUMENT.
3302.HOLDERINDUECOURSE.
3303.VALUEANDCONSIDERATION.
3304.OVERDUEINSTRUMENT.
3305.DEFENSESANDCLAIMSINRECOUPMENT.
3306.CLAIMSTOANINSTRUMENT.
3307.NOTICEOFBREACHOFFIDUCIARYDUTY.
3308.PROOFOFSIGNATURESANDSTATUSASHOLDERINDUECOURSE.
3309.ENFORCEMENTOFLOST,DESTROYED,ORSTOLENINSTRUMENT.
3310.EFFECTOFINSTRUMENTONOBLIGATIONFORWHICHTAKEN.
[ 140 ]
3311.ACCORDANDSATISFACTIONBYUSEOFINSTRUMENT.
3312.LOST,DESTROYED,ORSTOLENCASHIER'SCHECK,TELLER'SCHECK,OR
CERTIFIEDCHECK.
PART4.LIABILITYOFPARTIES
3401.SIGNATURE.
3402.SIGNATUREBYREPRESENTATIVE.
3403.UNAUTHORIZEDSIGNATURE.
3404.IMPOSTORS;FICTITIOUSPAYEES.
3405.EMPLOYER'SRESPONSIBILITYFORFRAUDULENTINDORSEMENTBY
EMPLOYEE.
3406.NEGLIGENCECONTRIBUTINGTOFORGEDSIGNATUREORALTERATIONOF
INSTRUMENT.
3407.ALTERATION.
3408.DRAWEENOTLIABLEONUNACCEPTEDDRAFT.
3409.ACCEPTANCEOFDRAFT;CERTIFIEDCHECK.
3410.ACCEPTANCEVARYINGDRAFT.
3411.REFUSALTOPAYCASHIER'SCHECKS,TELLER'SCHECKS,ANDCERTIFIED
CHECKS.
3412.OBLIGATIONOFISSUEROFNOTEORCASHIER'SCHECK.
3413.OBLIGATIONOFACCEPTOR.
3414.OBLIGATIONOFDRAWER.
3415.OBLIGATIONOFINDORSER.
3416.TRANSFERWARRANTIES.
3417.PRESENTMENTWARRANTIES.
3418.PAYMENTORACCEPTANCEBYMISTAKE.
3419.INSTRUMENTSSIGNEDFORACCOMMODATION.
3420.CONVERSIONOFINSTRUMENT.
PART5.DISHONOR
3501.PRESENTMENT.
3502.DISHONOR.
3503.NOTICEOFDISHONOR.
3504.EXCUSEDPRESENTMENTANDNOTICEOFDISHONOR.
3505.EVIDENCEOFDISHONOR.
PART6.DISCHARGEANDPAYMENT
3601.DISCHARGEANDEFFECTOFDISCHARGE.
3602.PAYMENT.
3603.TENDEROFPAYMENT.
3604.DISCHARGEBYCANCELLATIONORRENUNCIATION.
3605.DISCHARGEOFINDORSERSANDACCOMMODATIONPARTIES.
[ 141 ]
3101.SHORTTITLE.
ThisArticlemaybecitedasUniformCommercialCodeNegotiableInstruments.
3102.SUBJECTMATTER.
(a)ThisArticleappliestonegotiableinstruments.Itdoesnotapplytomoney,to
paymentordersgovernedbyArticle4A,ortosecuritiesgovernedbyArticle8.
(b)IfthereisconflictbetweenthisArticleandArticle4or9,Articles4and9govern.
(c)RegulationsoftheBoardofGovernorsoftheFederalReserveSystemandoperating
circularsoftheFederalReserveBankssupersedeanyinconsistentprovisionofthis
Articletotheextentoftheinconsistency.
3103.DEFINITIONS.
(a)InthisArticle:
(1)"Acceptor"meansadraweewhohasacceptedadraft.
(2)"Consumeraccount"meansanaccountestablishedbyanindividual
primarilyforpersonal,family,orhouseholdpurposes.
(3)"Consumertransaction"meansatransactioninwhichanindividualincursan
obligationprimarilyforpersonal,family,orhouseholdpurposes.
(4)"Drawee"meansapersonorderedinadrafttomakepayment.
(5)"Drawer"meansapersonwhosignsorisidentifiedinadraftasaperson
orderingpayment.
(6)[reserved]
(7)"Maker"meansapersonwhosignsorisidentifiedinanoteasaperson
undertakingtopay.
(8)"Order"meansawritteninstructiontopaymoneysignedbytheperson
givingtheinstruction.Theinstructionmaybeaddressedtoanyperson,
includingthepersongivingtheinstruction,ortooneormorepersonsjointlyor
inthealternativebutnotinsuccession.Anauthorizationtopayisnotanorder
unlessthepersonauthorizedtopayisalsoinstructedtopay.
(9)"Ordinarycare"inthecaseofapersonengagedinbusinessmeans
observanceofreasonablecommercialstandards,prevailingintheareainwhich
thepersonislocated,withrespecttothebusinessinwhichthepersonis
[ 142 ]
engaged.Inthecaseofabankthattakesaninstrumentforprocessingfor
collectionorpaymentbyautomatedmeans,reasonablecommercialstandards
donotrequirethebanktoexaminetheinstrumentifthefailuretoexaminedoes
notviolatethebank'sprescribedproceduresandthebank'sproceduresdonot
varyunreasonablyfromgeneralbankingusagenotdisapprovedbythisArticle
orArticle4.
(10)"Party"meansapartytoaninstrument.
(11)"Principalobligor,"withrespecttoaninstrument,meansthe
accommodatedpartyoranyotherpartytotheinstrumentagainstwhoma
secondaryobligorhasrecourseunderthisarticle.
(12)"Promise"meansawrittenundertakingtopaymoneysignedbytheperson
undertakingtopay.Anacknowledgmentofanobligationbytheobligorisnota
promiseunlesstheobligoralsoundertakestopaytheobligation.
(13)"Prove"withrespecttoafactmeanstomeettheburdenofestablishingthe
fact(Section1201(b)(8)).
(14)[reserved]
(15)"Remitter"meansapersonwhopurchasesaninstrumentfromitsissuerif
theinstrumentispayabletoanidentifiedpersonotherthanthepurchaser.
(16)"Remotelycreatedconsumeritem"meansanitemdrawnonaconsumer
account,whichisnotcreatedbythepayorbankanddoesnotbearahandwritten
signaturepurportingtobethesignatureofthedrawer.
(17)"Secondaryobligor,"withrespecttoaninstrument,means(a)anindorser
oranaccommodationparty,(b)adrawerhavingtheobligationdescribedin
Section3414(d),or(c)anyotherpartytotheinstrumentthathasrecourse
againstanotherpartytotheinstrumentpursuanttoSection3116(b).
(b)OtherdefinitionsapplyingtothisArticleandthesectionsinwhichtheyappearare:
"Acceptance"Section3409
"Accommodatedparty"Section3419
"Accommodationparty"Section3419
"Account"Section4104
"Alteration"Section3407
"Anomalousindorsement"Section3205
"Blankindorsement"Section3205
[ 143 ]
"Cashier'scheck"Section3104
"Certificateofdeposit"Section3104
"Certifiedcheck"Section3409
"Check"Section3104
"Consideration"Section3303
"Draft"Section3104
"Holderinduecourse"Section3302
"Incompleteinstrument"Section3115
"Indorsement"Section3204
"Indorser"Section3204
"Instrument"Section3104
"Issue"Section3105
"Issuer"Section3105
"Negotiableinstrument"Section3104
"Negotiation"Section3201
"Note"Section3104
"Payableatadefinitetime"Section3108
"Payableondemand"Section3108
"Payabletobearer"Section3109
"Payabletoorder"Section3109
"Payment"Section3602
"Personentitledtoenforce"Section3301
"Presentment"Section3501
"Reacquisition"Section3207
"Specialindorsement"Section3205
[ 144 ]
"Teller'scheck"Section3104
"Transferofinstrument"Section3203
"Traveler'scheck"Section3104
"Value"Section3303
(c)ThefollowingdefinitionsinotherArticlesapplytothisArticle:
"Bankingday"Section4104
"Clearinghouse"Section4104
"Collectingbank"Section4105
"Depositarybank"Section4105
"Documentarydraft"Section4104
"Intermediarybank"Section4105
"Item"Section4104
"Payorbank"Section4105
"Suspendspayments"Section4104
(d)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
3104.NEGOTIABLEINSTRUMENT.
(a)Exceptasprovidedinsubsections(c)and(d),"negotiableinstrument"meansan
unconditionalpromiseorordertopayafixedamountofmoney,withorwithout
interestorotherchargesdescribedinthepromiseororder,ifit:
(1)ispayabletobearerortoorderatthetimeitisissuedorfirstcomesinto
possessionofaholder;
(2)ispayableondemandoratadefinitetime;and
(3)doesnotstateanyotherundertakingorinstructionbythepersonpromising
ororderingpaymenttodoanyactinadditiontothepaymentofmoney,butthe
promiseorordermaycontain(i)anundertakingorpowertogive,maintain,or
protectcollateraltosecurepayment,(ii)anauthorizationorpowertotheholder
toconfessjudgmentorrealizeonordisposeofcollateral,or(iii)awaiverofthe
benefitofanylawintendedfortheadvantageorprotectionofanobligor.
[ 145 ]
(b)"Instrument"meansanegotiableinstrument.
(c)Anorderthatmeetsalloftherequirementsofsubsection(a),exceptparagraph(1),
andotherwisefallswithinthedefinitionof"check"insubsection(f)isanegotiable
instrumentandacheck.
(d)Apromiseororderotherthanacheckisnotaninstrumentif,atthetimeitisissued
orfirstcomesintopossessionofaholder,itcontainsaconspicuousstatement,however
expressed,totheeffectthatthepromiseororderisnotnegotiableorisnotan
instrumentgovernedbythisArticle.
(e)Aninstrumentisa"note"ifitisapromiseandisa"draft"ifitisanorder.Ifan
instrumentfallswithinthedefinitionofboth"note"and"draft,"apersonentitledto
enforcetheinstrumentmaytreatitaseither.
(f)"Check"means(i)adraft,otherthanadocumentarydraft,payableondemandand
drawnonabankor(ii)acashier'scheckorteller'scheck.Aninstrumentmaybea
checkeventhoughitisdescribedonitsfacebyanotherterm,suchas"moneyorder."
(g)"Cashier'scheck"meansadraftwithrespecttowhichthedraweranddraweeare
thesamebankorbranchesofthesamebank.
(h)"Teller'scheck"meansadraftdrawnbyabank(i)onanotherbank,or(ii)payable
atorthroughabank.
(i)"Traveler'scheck"meansaninstrumentthat(i)ispayableondemand,(ii)isdrawn
onorpayableatorthroughabank,(iii)isdesignatedbytheterm"traveler'scheck"or
byasubstantiallysimilarterm,and(iv)requires,asaconditiontopayment,a
countersignaturebyapersonwhosespecimensignatureappearsontheinstrument.
(j)"Certificateofdeposit"meansaninstrumentcontaininganacknowledgmentbya
bankthatasumofmoneyhasbeenreceivedbythebankandapromisebythebankto
repaythesumofmoney.Acertificateofdepositisanoteofthebank.
3105.ISSUEOFINSTRUMENT.
(a)"Issue"meansthefirstdeliveryofaninstrumentbythemakerordrawer,whether
toaholderornonholder,forthepurposeofgivingrightsontheinstrumenttoany
person.
(b)Anunissuedinstrument,oranunissuedincompleteinstrumentthatiscompleted,is
bindingonthemakerordrawer,butnonissuanceisadefense.Aninstrumentthatis
conditionallyissuedorisissuedforaspecialpurposeisbindingonthemakeror
drawer,butfailureoftheconditionorspecialpurposetobefulfilledisadefense.
(c)"Issuer"appliestoissuedandunissuedinstrumentsandmeansamakerordrawer
ofaninstrument.
[ 146 ]
3106.UNCONDITIONALPROMISEORORDER.
(a)Exceptasprovidedinthissection,forthepurposesofSection3104(a),apromise
ororderisunconditionalunlessitstates(i)anexpressconditiontopayment,(ii)that
thepromiseororderissubjecttoorgovernedbyanotherrecord,or(iii)thatrightsor
obligationswithrespecttothepromiseororderarestatedinanotherrecord.A
referencetoanotherrecorddoesnotofitselfmakethepromiseororderconditional.
(b)Apromiseororderisnotmadeconditional(i)byareferencetoanotherrecordfor
astatementofrightswithrespecttocollateral,prepayment,oracceleration,or(ii)
becausepaymentislimitedtoresorttoaparticularfundorsource.
(c)Ifapromiseororderrequires,asaconditiontopayment,acountersignaturebya
personwhosespecimensignatureappearsonthepromiseororder,theconditiondoes
notmakethepromiseororderconditionalforthepurposesofSection3104(a).Ifthe
personwhosespecimensignatureappearsonaninstrumentfailstocountersignthe
instrument,thefailuretocountersignisadefensetotheobligationoftheissuer,butthe
failuredoesnotpreventatransfereeoftheinstrumentfrombecomingaholderofthe
instrument.
(d)Ifapromiseororderatthetimeitisissuedorfirstcomesintopossessionofa
holdercontainsastatement,requiredbyapplicablestatutoryoradministrativelaw,to
theeffectthattherightsofaholderortransfereearesubjecttoclaimsordefensesthat
theissuercouldassertagainsttheoriginalpayee,thepromiseororderisnotthereby
madeconditionalforthepurposesofSection3104(a);butifthepromiseororderisan
instrument,therecannotbeaholderinduecourseoftheinstrument.
3107.INSTRUMENTPAYABLEINFOREIGNMONEY.
Unlesstheinstrumentotherwiseprovides,aninstrumentthatstatestheamount
payableinforeignmoneymaybepaidintheforeignmoneyorinanequivalentamount
indollarscalculatedbyusingthecurrentbankofferedspotrateattheplaceofpayment
forthepurchaseofdollarsonthedayonwhichtheinstrumentispaid.
3108.PAYABLEONDEMANDORATDEFINITETIME.
(a)Apromiseororderis"payableondemand"ifit(i)statesthatitispayableon
demandoratsight,orotherwiseindicatesthatitispayableatthewilloftheholder,or
(ii)doesnotstateanytimeofpayment.
(b)Apromiseororderis"payableatadefinitetime"ifitispayableonelapseofa
definiteperiodoftimeaftersightoracceptanceoratafixeddateordatesoratatimeor
timesreadilyascertainableatthetimethepromiseororderisissued,subjecttorights
of(i)prepayment,(ii)acceleration,(iii)extensionattheoptionoftheholder,or(iv)
extensiontoafurtherdefinitetimeattheoptionofthemakeroracceptoror
automaticallyuponorafteraspecifiedactorevent.
(c)Ifaninstrument,payableatafixeddate,isalsopayableupondemandmadebefore
thefixeddate,theinstrumentispayableondemanduntilthefixeddateand,ifdemand
[ 147 ]
forpaymentisnotmadebeforethatdate,becomespayableatadefinitetimeonthe
fixeddate.
3109.PAYABLETOBEARERORTOORDER.
(a)Apromiseororderispayabletobearerifit:
(1)statesthatitispayabletobearerortotheorderofbearerorotherwise
indicatesthatthepersoninpossessionofthepromiseororderisentitledto
payment;
(2)doesnotstateapayee;or
(3)statesthatitispayabletoortotheorderofcashorotherwiseindicatesthat
itisnotpayabletoanidentifiedperson.
(b)Apromiseororderthatisnotpayabletobearerispayabletoorderifitispayable
(i)totheorderofanidentifiedpersonor(ii)toanidentifiedpersonororder.A
promiseororderthatispayabletoorderispayabletotheidentifiedperson.
(c)Aninstrumentpayabletobearermaybecomepayabletoanidentifiedpersonifitis
speciallyindorsedpursuanttoSection3205(a).Aninstrumentpayabletoanidentified
personmaybecomepayabletobearerifitisindorsedinblankpursuanttoSection3
205(b).
3110.IDENTIFICATIONOFPERSONTOWHOMINSTRUMENTISPAYABLE.
(a)Thepersontowhomaninstrumentisinitiallypayableisdeterminedbytheintent
oftheperson,whetherornotauthorized,signingas,orinthenameorbehalfof,the
issueroftheinstrument.Theinstrumentispayabletothepersonintendedbythe
signerevenifthatpersonisidentifiedintheinstrumentbyanameorother
identificationthatisnotthatoftheintendedperson.Ifmorethanonepersonsignsin
thenameorbehalfoftheissuerofaninstrumentandallthesignersdonotintendthe
samepersonaspayee,theinstrumentispayabletoanypersonintendedbyoneormore
ofthesigners.
(b)Ifthesignatureoftheissuerofaninstrumentismadebyautomatedmeans,suchas
acheckwritingmachine,thepayeeoftheinstrumentisdeterminedbytheintentofthe
personwhosuppliedthenameoridentificationofthepayee,whetherornotauthorized
todoso.
(c)Apersontowhomaninstrumentispayablemaybeidentifiedinanyway,including
byname,identifyingnumber,office,oraccountnumber.Forthepurposeof
determiningtheholderofaninstrument,thefollowingrulesapply:
(1)Ifaninstrumentispayabletoanaccountandtheaccountisidentifiedonly
bynumber,theinstrumentispayabletothepersontowhomtheaccountis
payable.Ifaninstrumentispayabletoanaccountidentifiedbynumberandby
[ 148 ]
thenameofaperson,theinstrumentispayabletothenamedperson,whetheror
notthatpersonistheowneroftheaccountidentifiedbynumber.
(2)Ifaninstrumentispayableto:
(i)atrust,anestate,orapersondescribedastrusteeorrepresentativeof
atrustorestate,theinstrumentispayabletothetrustee,the
representative,orasuccessorofeither,whetherornotthebeneficiaryor
estateisalsonamed;
(ii)apersondescribedasagentorsimilarrepresentativeofanamedor
identifiedperson,theinstrumentispayabletotherepresentedperson,
therepresentative,orasuccessoroftherepresentative;
(iii)afundororganizationthatisnotalegalentity,theinstrumentis
payabletoarepresentativeofthemembersofthefundororganization;
or
(iv)anofficeortoapersondescribedasholdinganoffice,theinstrument
ispayabletothenamedperson,theincumbentoftheoffice,ora
successortotheincumbent.
(d)Ifaninstrumentispayabletotwoormorepersonsalternatively,itispayabletoany
ofthemandmaybenegotiated,discharged,orenforcedbyanyorallofthemin
possessionoftheinstrument.Ifaninstrumentispayabletotwoormorepersonsnot
alternatively,itispayabletoallofthemandmaybenegotiated,discharged,orenforced
onlybyallofthem.Ifaninstrumentpayabletotwoormorepersonsisambiguousasto
whetheritispayabletothepersonsalternatively,theinstrumentispayabletothe
personsalternatively.
3111.PLACEOFPAYMENT.
ExceptasotherwiseprovidedforitemsinArticle4,aninstrumentispayableatthe
placeofpaymentstatedintheinstrument.Ifnoplaceofpaymentisstated,an
instrumentispayableattheaddressofthedraweeormakerstatedintheinstrument.
Ifnoaddressisstated,theplaceofpaymentistheplaceofbusinessofthedraweeor
maker.Ifadraweeormakerhasmorethanoneplaceofbusiness,theplaceofpayment
isanyplaceofbusinessofthedraweeormakerchosenbythepersonentitledtoenforce
theinstrument.Ifthedraweeormakerhasnoplaceofbusiness,theplaceofpaymentis
theresidenceofthedraweeormaker.
3112.INTEREST.
(a)Unlessotherwiseprovidedintheinstrument,(i)aninstrumentisnotpayablewith
interest,and(ii)interestonaninterestbearinginstrumentispayablefromthedateof
theinstrument.
(b)Interestmaybestatedinaninstrumentasafixedorvariableamountofmoneyorit
maybeexpressedasafixedorvariablerateorrates.Theamountorrateofinterest
[ 149 ]
maybestatedordescribedintheinstrumentinanymannerandmayrequirereference
toinformationnotcontainedintheinstrument.Ifaninstrumentprovidesforinterest,
buttheamountofinterestpayablecannotbeascertainedfromthedescription,interest
ispayableatthejudgmentrateineffectattheplaceofpaymentoftheinstrumentandat
thetimeinterestfirstaccrues.
3113.DATEOFINSTRUMENT.
(a)Aninstrumentmaybeantedatedorpostdated.Thedatestateddeterminesthetime
ofpaymentiftheinstrumentispayableatafixedperiodafterdate.Exceptasprovided
inSection4401(c),aninstrumentpayableondemandisnotpayablebeforethedateof
theinstrument.
(b)Ifaninstrumentisundated,itsdateisthedateofitsissueor,inthecaseofan
unissuedinstrument,thedateitfirstcomesintopossessionofaholder.
3114.CONTRADICTORYTERMSOFINSTRUMENT.
Ifaninstrumentcontainscontradictoryterms,typewrittentermsprevailoverprinted
terms,handwrittentermsprevailoverboth,andwordsprevailovernumbers.
3115.INCOMPLETEINSTRUMENT.
(a)"Incompleteinstrument"meansasignedwriting,whetherornotissuedbythe
signer,thecontentsofwhichshowatthetimeofsigningthatitisincompletebutthat
thesignerintendedittobecompletedbytheadditionofwordsornumbers.
(b)Subjecttosubsection(c),ifanincompleteinstrumentisaninstrumentunder
Section3104,itmaybeenforcedaccordingtoitstermsifitisnotcompleted,or
accordingtoitstermsasaugmentedbycompletion.Ifanincompleteinstrumentisnot
aninstrumentunderSection3104,but,aftercompletion,therequirementsofSection
3104aremet,theinstrumentmaybeenforcedaccordingtoitstermsasaugmentedby
completion.
(c)Ifwordsornumbersareaddedtoanincompleteinstrumentwithoutauthorityof
thesigner,thereisanalterationoftheincompleteinstrumentunderSection3407.
(d)Theburdenofestablishingthatwordsornumberswereaddedtoanincomplete
instrumentwithoutauthorityofthesignerisonthepersonassertingthelackof
authority.
3116.JOINTANDSEVERALLIABILITY;CONTRIBUTION.
(a)Exceptasotherwiseprovidedintheinstrument,twoormorepersonswhohavethe
sameliabilityonaninstrumentasmakers,drawers,acceptors,indorserswhoindorse
asjointpayees,oranomalousindorsersarejointlyandseverallyliableinthecapacityin
whichtheysign.
[ 150 ]
(b)ExceptasprovidedinSection3419(e)orbyagreementoftheaffectedparties,a
partyhavingjointandseveralliabilitywhopaystheinstrumentisentitledtoreceive
fromanypartyhavingthesamejointandseveralliabilitycontributioninaccordance
withapplicablelaw.
3117.OTHERAGREEMENTSAFFECTINGINSTRUMENT.
Subjecttoapplicablelawregardingexclusionofproofofcontemporaneousorprevious
agreements,theobligationofapartytoaninstrumenttopaytheinstrumentmaybe
modified,supplemented,ornullifiedbyaseparateagreementoftheobligoranda
personentitledtoenforcetheinstrument,iftheinstrumentisissuedortheobligationis
incurredinrelianceontheagreementoraspartofthesametransactiongivingriseto
theagreement.Totheextentanobligationismodified,supplemented,ornullifiedbyan
agreementunderthissection,theagreementisadefensetotheobligation.
(a)Exceptasprovidedinsubsection(e),anactiontoenforcetheobligationofaparty
topayanotepayableatadefinitetimemustbecommencedwithinsixyearsafterthe
duedateordatesstatedinthenoteor,ifaduedateisaccelerated,withinsixyearsafter
theacceleratedduedate.
(b)Exceptasprovidedinsubsection(d)or(e),ifdemandforpaymentismadetothe
makerofanotepayableondemand,anactiontoenforcetheobligationofapartytopay
thenotemustbecommencedwithinsixyearsafterthedemand.Ifnodemandfor
paymentismadetothemaker,anactiontoenforcethenoteisbarredifneither
principalnorinterestonthenotehasbeenpaidforacontinuousperiodof10years.
(c)Exceptasprovidedinsubsection(d),anactiontoenforcetheobligationofaparty
toanunaccepteddrafttopaythedraftmustbecommencedwithinthreeyearsafter
dishonorofthedraftor10yearsafterthedateofthedraft,whicheverperiodexpires
first.
(d)Anactiontoenforcetheobligationoftheacceptorofacertifiedcheckortheissuer
ofateller'scheck,cashier'scheck,ortraveler'scheckmustbecommencedwithinthree
yearsafterdemandforpaymentismadetotheacceptororissuer,asthecasemaybe.
(e)Anactiontoenforcetheobligationofapartytoacertificateofdeposittopaythe
instrumentmustbecommencedwithinsixyearsafterdemandforpaymentismadeto
themaker,butiftheinstrumentstatesaduedateandthemakerisnotrequiredtopay
beforethatdate,thesixyearperiodbeginswhenademandforpaymentisineffectand
theduedatehaspassed.
(f)Anactiontoenforcetheobligationofapartytopayanaccepteddraft,otherthana
certifiedcheck,mustbecommenced(i)withinsixyearsaftertheduedateordates
statedinthedraftoracceptanceiftheobligationoftheacceptorispayableatadefinite
time,or(ii)withinsixyearsafterthedateoftheacceptanceiftheobligationofthe
acceptorispayableondemand.
[ 151 ]
(g)Unlessgovernedbyotherlawregardingclaimsforindemnityorcontribution,an
action(i)forconversionofaninstrument,formoneyhadandreceived,orlikeaction
basedonconversion,(ii)forbreachofwarranty,or(iii)toenforceanobligation,duty,
orrightarisingunderthisArticleandnotgovernedbythissectionmustbecommenced
withinthreeyearsafterthe[causeofaction]accrues.
3119.NOTICEOFRIGHTTODEFENDACTION.
Inanactionforbreachofanobligationforwhichathirdpersonisanswerableover
pursuanttothisArticleorArticle4,thedefendantmaygivethethirdpersonnoticeof
thelitigationinarecord,andthepersonnotifiedmaythengivesimilarnoticetoany
otherpersonwhoisanswerableover.Ifthenoticestates(i)thatthepersonnotified
maycomeinanddefendand(ii)thatfailuretodosowillbindthepersonnotifiedinan
actionlaterbroughtbythepersongivingthenoticeastoanydeterminationoffact
commontothetwolitigations,thepersonnotifiedissoboundunlessafterseasonable
receiptofthenoticethepersonnotifieddoescomeinanddefend.
PART2.NEGOTIATION,TRANSFER,ANDINDORSEMENT
3201.NEGOTIATION.
(a)"Negotiation"meansatransferofpossession,whethervoluntaryorinvoluntary,of
aninstrumentbyapersonotherthantheissuertoapersonwhotherebybecomesits
holder.
(b)Exceptfornegotiationbyaremitter,ifaninstrumentispayabletoanidentified
person,negotiationrequirestransferofpossessionoftheinstrumentandits
indorsementbytheholder.Ifaninstrumentispayabletobearer,itmaybenegotiated
bytransferofpossessionalone.
3202.NEGOTIATIONSUBJECTTORESCISSION.
(a)Negotiationiseffectiveevenifobtained(i)fromaninfant,acorporationexceeding
itspowers,orapersonwithoutcapacity,(ii)byfraud,duress,ormistake,or(iii)in
breachofdutyoraspartofanillegaltransaction.
(b)Totheextentpermittedbyotherlaw,negotiationmayberescindedormaybe
subjecttootherremedies,butthoseremediesmaynotbeassertedagainstasubsequent
holderinduecourseorapersonpayingtheinstrumentingoodfaithandwithout
knowledgeoffactsthatareabasisforrescissionorotherremedy.
3203.TRANSFEROFINSTRUMENT;RIGHTSACQUIREDBYTRANSFER.
(a)Aninstrumentistransferredwhenitisdeliveredbyapersonotherthanitsissuer
forthepurposeofgivingtothepersonreceivingdeliverytherighttoenforcethe
instrument.
(b)Transferofaninstrument,whetherornotthetransferisanegotiation,vestsinthe
transfereeanyrightofthetransferortoenforcetheinstrument,includinganyrightasa
[ 152 ]
holderinduecourse,butthetransfereecannotacquirerightsofaholderinduecourse
byatransfer,directlyorindirectly,fromaholderinduecourseifthetransferee
engagedinfraudorillegalityaffectingtheinstrument.
(c)Unlessotherwiseagreed,ifaninstrumentistransferredforvalueandthetransferee
doesnotbecomeaholderbecauseoflackofindorsementbythetransferor,the
transfereehasaspecificallyenforceablerighttotheunqualifiedindorsementofthe
transferor,butnegotiationoftheinstrumentdoesnotoccuruntiltheindorsementis
made.
(d)Ifatransferorpurportstotransferlessthantheentireinstrument,negotiationof
theinstrumentdoesnotoccur.ThetransfereeobtainsnorightsunderthisArticleand
hasonlytherightsofapartialassignee.
3204.INDORSEMENT.
(a)"Indorsement"meansasignature,otherthanthatofasignerasmaker,drawer,or
acceptor,thataloneoraccompaniedbyotherwordsismadeonaninstrumentforthe
purposeof(i)negotiatingtheinstrument,(ii)restrictingpaymentoftheinstrument,or
(iii)incurringindorser'sliabilityontheinstrument,butregardlessoftheintentofthe
signer,asignatureanditsaccompanyingwordsisanindorsementunlessthe
accompanyingwords,termsoftheinstrument,placeofthesignature,orother
circumstancesunambiguouslyindicatethatthesignaturewasmadeforapurposeother
thanindorsement.Forthepurposeofdeterminingwhetherasignatureismadeonan
instrument,apaperaffixedtotheinstrumentisapartoftheinstrument.
(b)"Indorser"meansapersonwhomakesanindorsement.
(c)Forthepurposeofdeterminingwhetherthetransfereeofaninstrumentisaholder,
anindorsementthattransfersasecurityinterestintheinstrumentiseffectiveasan
unqualifiedindorsementoftheinstrument.
(d)Ifaninstrumentispayabletoaholderunderanamethatisnotthenameofthe
holder,indorsementmaybemadebytheholderinthenamestatedintheinstrumentor
intheholder'snameorboth,butsignatureinbothnamesmayberequiredbyaperson
payingortakingtheinstrumentforvalueorcollection.
3205.SPECIALINDORSEMENT;BLANKINDORSEMENT;ANOMALOUSINDORSEMENT.
(a)Ifanindorsementismadebytheholderofaninstrument,whetherpayabletoan
identifiedpersonorpayabletobearer,andtheindorsementidentifiesapersonto
whomitmakestheinstrumentpayable,itisa"specialindorsement."Whenspecially
indorsed,aninstrumentbecomespayabletotheidentifiedpersonandmaybe
negotiatedonlybytheindorsementofthatperson.TheprinciplesstatedinSection3
110applytospecialindorsements.
(b)Ifanindorsementismadebytheholderofaninstrumentanditisnotaspecial
indorsement,itisa"blankindorsement."Whenindorsedinblank,aninstrument
[ 153 ]
becomespayabletobearerandmaybenegotiatedbytransferofpossessionaloneuntil
speciallyindorsed.
(c)Theholdermayconvertablankindorsementthatconsistsonlyofasignatureintoa
specialindorsementbywriting,abovethesignatureoftheindorser,wordsidentifying
thepersontowhomtheinstrumentismadepayable.
(d)"Anomalousindorsement"meansanindorsementmadebyapersonwhoisnotthe
holderoftheinstrument.Ananomalousindorsementdoesnotaffectthemannerin
whichtheinstrumentmaybenegotiated.
3206.RESTRICTIVEINDORSEMENT.
(a)Anindorsementlimitingpaymenttoaparticularpersonorotherwiseprohibiting
furthertransferornegotiationoftheinstrumentisnoteffectivetopreventfurther
transferornegotiationoftheinstrument.
(b)Anindorsementstatingaconditiontotherightoftheindorseetoreceivepayment
doesnotaffecttherightoftheindorseetoenforcetheinstrument.Apersonpayingthe
instrumentortakingitforvalueorcollectionmaydisregardthecondition,andthe
rightsandliabilitiesofthatpersonarenotaffectedbywhethertheconditionhasbeen
fulfilled.
(c)Ifaninstrumentbearsanindorsement(i)describedinSection4201(b),or(ii)in
blankortoaparticularbankusingthewords"fordeposit,""forcollection,"orother
wordsindicatingapurposeofhavingtheinstrumentcollectedbyabankforthe
indorserorforaparticularaccount,thefollowingrulesapply:
(1)Aperson,otherthanabank,whopurchasestheinstrumentwhenso
indorsedconvertstheinstrumentunlesstheamountpaidfortheinstrumentis
receivedbytheindorserorappliedconsistentlywiththeindorsement.
(2)Adepositarybankthatpurchasestheinstrumentortakesitforcollection
whensoindorsedconvertstheinstrumentunlesstheamountpaidbythebank
withrespecttotheinstrumentisreceivedbytheindorserorapplied
consistentlywiththeindorsement.
(3)Apayorbankthatisalsothedepositarybankorthattakestheinstrument
forimmediatepaymentoverthecounterfromapersonotherthanacollecting
bankconvertstheinstrumentunlesstheproceedsoftheinstrumentarereceived
bytheindorserorappliedconsistentlywiththeindorsement.
(4)Exceptasotherwiseprovidedinparagraph(3),apayorbankor
intermediarybankmaydisregardtheindorsementandisnotliableifthe
proceedsoftheinstrumentarenotreceivedbytheindorserorapplied
consistentlywiththeindorsement.
(d)Exceptforanindorsementcoveredbysubsection(c),ifaninstrumentbearsan
indorsementusingwordstotheeffectthatpaymentistobemadetotheindorseeas
[ 154 ]
agent,trustee,orotherfiduciaryforthebenefitoftheindorseroranotherperson,the
(1)UnlessthereisnoticeofbreachoffiduciarydutyasprovidedinSection3
307,apersonwhopurchasestheinstrumentfromtheindorseeortakesthe
instrumentfromtheindorseeforcollectionorpaymentmaypaytheproceedsof
paymentorthevaluegivenfortheinstrumenttotheindorseewithoutregardto
whethertheindorseeviolatesafiduciarydutytotheindorser.
(2)Asubsequenttransfereeoftheinstrumentorpersonwhopaysthe
instrumentisneithergivennoticenorotherwiseaffectedbytherestrictionin
theindorsementunlessthetransfereeorpayorknowsthatthefiduciarydealt
withtheinstrumentoritsproceedsinbreachoffiduciaryduty.
(e)Thepresenceonaninstrumentofanindorsementtowhichthissectionapplies
doesnotpreventapurchaseroftheinstrumentfrombecomingaholderinduecourse
oftheinstrumentunlessthepurchaserisaconverterundersubsection(c)orhasnotice
orknowledgeofbreachoffiduciarydutyasstatedinsubsection(d).
(f)Inanactiontoenforcetheobligationofapartytopaytheinstrument,theobligor
hasadefenseifpaymentwouldviolateanindorsementtowhichthissectionapplies
andthepaymentisnotpermittedbythissection.
3207.REACQUISITION.
Reacquisitionofaninstrumentoccursifitistransferredtoaformerholder,by
negotiationorotherwise.Aformerholderwhoreacquirestheinstrumentmaycancel
indorsementsmadeafterthereacquirerfirstbecameaholderoftheinstrument.Ifthe
cancellationcausestheinstrumenttobepayabletothereacquirerortobearer,the
reacquirermaynegotiatetheinstrument.Anindorserwhoseindorsementiscanceled
isdischarged,andthedischargeiseffectiveagainstanysubsequentholder.
PART3.ENFORCEMENTOFINSTRUMENTS
3301.PERSONENTITLEDTOENFORCEINSTRUMENT.
"Personentitledtoenforce"aninstrumentmeans(i)theholderoftheinstrument,(ii)a
nonholderinpossessionoftheinstrumentwhohastherightsofaholder,or(iii)a
personnotinpossessionoftheinstrumentwhoisentitledtoenforcetheinstrument
pursuanttoSection3309or3418(d).Apersonmaybeapersonentitledtoenforce
theinstrumenteventhoughthepersonisnottheowneroftheinstrumentorisin
wrongfulpossessionoftheinstrument.
3302.HOLDERINDUECOURSE.
(a)Subjecttosubsection(c)andSection3106(d),"holderinduecourse"meansthe
holderofaninstrumentif:
[ 155 ]
(1)theinstrumentwhenissuedornegotiatedtotheholderdoesnotbearsuch
apparentevidenceofforgeryoralterationorisnototherwisesoirregularor
incompleteastocallintoquestionitsauthenticity;and
(2)theholdertooktheinstrument(i)forvalue,(ii)ingoodfaith,(iii)without
noticethattheinstrumentisoverdueorhasbeendishonoredorthatthereisan
uncureddefaultwithrespecttopaymentofanotherinstrumentissuedaspartof
thesameseries,(iv)withoutnoticethattheinstrumentcontainsan
unauthorizedsignatureorhasbeenaltered,(v)withoutnoticeofanyclaimto
theinstrumentdescribedinSection3306,and(vi)withoutnoticethatanyparty
hasadefenseorclaiminrecoupmentdescribedinSection3305(a).
(b)Noticeofdischargeofaparty,otherthandischargeinaninsolvencyproceeding,is
notnoticeofadefenseundersubsection(a),butdischargeiseffectiveagainstaperson
whobecameaholderinduecoursewithnoticeofthedischarge.Publicfilingor
recordingofadocumentdoesnotofitselfconstitutenoticeofadefense,claimin
recoupment,orclaimtotheinstrument.
(c)Excepttotheextentatransferororpredecessorininteresthasrightsasaholderin
duecourse,apersondoesnotacquirerightsofaholderinduecourseofaninstrument
taken(i)bylegalprocessorbypurchaseinanexecution,bankruptcy,orcreditor'ssale
orsimilarproceeding,(ii)bypurchaseaspartofabulktransactionnotinordinary
courseofbusinessofthetransferor,or(iii)asthesuccessorininteresttoanestateor
otherorganization.
(d)If,underSection3303(a)(1),thepromiseofperformancethatistheconsideration
foraninstrumenthasbeenpartiallyperformed,theholdermayassertrightsasaholder
induecourseoftheinstrumentonlytothefractionoftheamountpayableunderthe
instrumentequaltothevalueofthepartialperformancedividedbythevalueofthe
promisedperformance.
(e)If(i)thepersonentitledtoenforceaninstrumenthasonlyasecurityinterestinthe
instrumentand(ii)thepersonobligedtopaytheinstrumenthasadefense,claimin
recoupment,orclaimtotheinstrumentthatmaybeassertedagainstthepersonwho
grantedthesecurityinterest,thepersonentitledtoenforcetheinstrumentmayassert
rightsasaholderinduecourseonlytoanamountpayableundertheinstrumentwhich,
atthetimeofenforcementoftheinstrument,doesnotexceedtheamountoftheunpaid
obligationsecured.
(f)Tobeeffective,noticemustbereceivedatatimeandinamannerthatgivesa
reasonableopportunitytoactonit.
(g)Thissectionissubjecttoanylawlimitingstatusasaholderinduecoursein
particularclassesoftransactions.
3303.VALUEANDCONSIDERATION.
(a)Aninstrumentisissuedortransferredforvalueif:
[ 156 ]
(1)theinstrumentisissuedortransferredforapromiseofperformance,tothe
extentthepromisehasbeenperformed;
(2)thetransfereeacquiresasecurityinterestorotherlienintheinstrument
otherthanalienobtainedbyjudicialproceeding;
(3)theinstrumentisissuedortransferredaspaymentof,orassecurityfor,an
antecedentclaimagainstanyperson,whetherornottheclaimisdue;
(4)theinstrumentisissuedortransferredinexchangeforanegotiable
instrument;or
(5)theinstrumentisissuedortransferredinexchangefortheincurringofan
irrevocableobligationtoathirdpartybythepersontakingtheinstrument.
(b)"Consideration"meansanyconsiderationsufficienttosupportasimplecontract.
Thedrawerormakerofaninstrumenthasadefenseiftheinstrumentisissuedwithout
consideration.Ifaninstrumentisissuedforapromiseofperformance,theissuerhasa
defensetotheextentperformanceofthepromiseisdueandthepromisehasnotbeen
performed.Ifaninstrumentisissuedforvalueasstatedinsubsection(a),the
instrumentisalsoissuedforconsideration.
3304.OVERDUEINSTRUMENT.
(a)Aninstrumentpayableondemandbecomesoverdueattheearliestofthefollowing
times:
(1)onthedayafterthedaydemandforpaymentisdulymade;
(2)iftheinstrumentisacheck,90daysafteritsdate;or
(3)iftheinstrumentisnotacheck,whentheinstrumenthasbeenoutstanding
foraperiodoftimeafteritsdatewhichisunreasonablylongunderthe
circumstancesoftheparticularcaseinlightofthenatureoftheinstrumentand
usageofthetrade.
(b)Withrespecttoaninstrumentpayableatadefinitetimethefollowingrulesapply:
(1)Iftheprincipalispayableininstallmentsandaduedatehasnotbeen
accelerated,theinstrumentbecomesoverdueupondefaultundertheinstrument
fornonpaymentofaninstallment,andtheinstrumentremainsoverdueuntilthe
defaultiscured.
(2)Iftheprincipalisnotpayableininstallmentsandtheduedatehasnotbeen
accelerated,theinstrumentbecomesoverdueonthedayaftertheduedate.
(3)Ifaduedatewithrespecttoprincipalhasbeenaccelerated,theinstrument
becomesoverdueonthedayaftertheacceleratedduedate.
[ 157 ]
(c)Unlesstheduedateofprincipalhasbeenaccelerated,aninstrumentdoesnot
becomeoverdueifthereisdefaultinpaymentofinterestbutnodefaultinpaymentof
principal.
3305.DEFENSESANDCLAIMSINRECOUPMENT.
(a)Exceptasotherwiseprovidedinthissection,therighttoenforcetheobligationofa
partytopayaninstrumentissubjecttothefollowing:
(1)adefenseoftheobligorbasedon(i)infancyoftheobligortotheextentitisa
defensetoasimplecontract,(ii)duress,lackoflegalcapacity,orillegalityofthe
transactionwhich,underotherlaw,nullifiestheobligationoftheobligor,(iii)
fraudthatinducedtheobligortosigntheinstrumentwithneitherknowledge
norreasonableopportunitytolearnofitscharacteroritsessentialterms,or(iv)
dischargeoftheobligorininsolvencyproceedings;
(2)adefenseoftheobligorstatedinanothersectionofthisArticleoradefense
oftheobligorthatwouldbeavailableifthepersonentitledtoenforcethe
instrumentwereenforcingarighttopaymentunderasimplecontract;and
(3)aclaiminrecoupmentoftheobligoragainsttheoriginalpayeeofthe
instrumentiftheclaimarosefromthetransactionthatgaverisetothe
instrument;buttheclaimoftheobligormaybeassertedagainstatransfereeof
theinstrumentonlytoreducetheamountowingontheinstrumentatthetime
theactionisbrought.
(b)Therightofaholderinduecoursetoenforcetheobligationofapartytopaythe
instrumentissubjecttodefensesoftheobligorstatedinsubsection(a)(1),butisnot
subjecttodefensesoftheobligorstatedinsubsection(a)(2)orclaimsinrecoupment
statedinsubsection(a)(3)againstapersonotherthantheholder.
(c)Exceptasstatedinsubsection(d),inanactiontoenforcetheobligationofapartyto
paytheinstrument,theobligormaynotassertagainstthepersonentitledtoenforcethe
instrumentadefense,claiminrecoupment,orclaimtotheinstrument(Section3306)
ofanotherperson,buttheotherperson'sclaimtotheinstrumentmaybeassertedby
theobligoriftheotherpersonisjoinedintheactionandpersonallyassertstheclaim
againstthepersonentitledtoenforcetheinstrument.Anobligorisnotobligedtopay
theinstrumentifthepersonseekingenforcementoftheinstrumentdoesnothave
rightsofaholderinduecourseandtheobligorprovesthattheinstrumentisalostor
stoleninstrument.
(d)Inanactiontoenforcetheobligationofanaccommodationpartytopayan
instrument,theaccommodationpartymayassertagainstthepersonentitledtoenforce
theinstrumentanydefenseorclaiminrecoupmentundersubsection(a)thatthe
accommodatedpartycouldassertagainstthepersonentitledtoenforcetheinstrument,
exceptthedefensesofdischargeininsolvencyproceedings,infancy,andlackoflegal
capacity.
[ 158 ]
(e)Inaconsumertransaction,iflawotherthanthisarticlerequiresthataninstrument
includeastatementtotheeffectthattherightsofaholderortransfereearesubjecttoa
claimordefensethattheissuercouldassertagainsttheoriginalpayee,andthe
instrumentdoesnotincludesuchastatement:(1)theinstrumenthasthesameeffectas
iftheinstrumentincludedsuchastatement;(2)theissuermayassertagainstthe
holderortransfereeallclaimsanddefensesthatwouldhavebeenavailableifthe
instrumentincludedsuchastatement;and(3)theextenttowhichclaimsmaybe
assertedagainsttheholderortransfereeisdeterminedasiftheinstrumentincluded
suchastatement.
(f)Thissectionissubjecttolawotherthanthisarticlethatestablishesadifferentrule
forconsumertransactions.
3306.CLAIMSTOANINSTRUMENT.
Apersontakinganinstrument,otherthanapersonhavingrightsofaholderindue
course,issubjecttoaclaimofapropertyorpossessoryrightintheinstrumentorits
proceeds,includingaclaimtorescindanegotiationandtorecovertheinstrumentorits
proceeds.Apersonhavingrightsofaholderinduecoursetakesfreeoftheclaimtothe
instrument.
3307.NOTICEOFBREACHOFFIDUCIARYDUTY.
(a)Inthissection:
(1)"Fiduciary"meansanagent,trustee,partner,corporateofficerordirector,or
otherrepresentativeowingafiduciarydutywithrespecttoaninstrument.
(2)"Representedperson"meanstheprincipal,beneficiary,partnership,
corporation,orotherpersontowhomthedutystatedinparagraph(1)isowed.
(b)If(i)aninstrumentistakenfromafiduciaryforpaymentorcollectionorforvalue,
(ii)thetakerhasknowledgeofthefiduciarystatusofthefiduciary,and(iii)the
representedpersonmakesaclaimtotheinstrumentoritsproceedsonthebasisthat
thetransactionofthefiduciaryisabreachoffiduciaryduty,thefollowingrulesapply:
(1)Noticeofbreachoffiduciarydutybythefiduciaryisnoticeoftheclaimofthe
representedperson.
(2)Inthecaseofaninstrumentpayabletotherepresentedpersonorthe
fiduciaryassuch,thetakerhasnoticeofthebreachoffiduciarydutyifthe
instrumentis(i)takeninpaymentoforassecurityforadebtknownbythetaker
tobethepersonaldebtofthefiduciary,(ii)takeninatransactionknownbythe
takertobeforthepersonalbenefitofthefiduciary,or(iii)depositedtoan
accountotherthananaccountofthefiduciary,assuch,oranaccountofthe
representedperson.
(3)Ifaninstrumentisissuedbytherepresentedpersonorthefiduciaryassuch,
andmadepayabletothefiduciarypersonally,thetakerdoesnothavenoticeof
[ 159 ]
thebreachoffiduciarydutyunlessthetakerknowsofthebreachoffiduciary
duty.
(4)Ifaninstrumentisissuedbytherepresentedpersonorthefiduciaryassuch,
tothetakeraspayee,thetakerhasnoticeofthebreachoffiduciarydutyifthe
instrumentis(i)takeninpaymentoforassecurityforadebtknownbythetaker
tobethepersonaldebtofthefiduciary,(ii)takeninatransactionknownbythe
takertobeforthepersonalbenefitofthefiduciary,or(iii)depositedtoan
accountotherthananaccountofthefiduciary,assuch,oranaccountofthe
representedperson.
3308.PROOFOFSIGNATURESANDSTATUSASHOLDERINDUECOURSE.
(a)Inanactionwithrespecttoaninstrument,theauthenticityof,andauthorityto
make,eachsignatureontheinstrumentisadmittedunlessspecificallydeniedinthe
pleadings.Ifthevalidityofasignatureisdeniedinthepleadings,theburdenof
establishingvalidityisonthepersonclaimingvalidity,butthesignatureispresumedto
beauthenticandauthorizedunlesstheactionistoenforcetheliabilityofthepurported
signerandthesignerisdeadorincompetentatthetimeoftrialoftheissueofvalidityof
thesignature.Ifanactiontoenforcetheinstrumentisbroughtagainstapersonasthe
undisclosedprincipalofapersonwhosignedtheinstrumentasapartytothe
instrument,theplaintiffhastheburdenofestablishingthatthedefendantisliableon
theinstrumentasarepresentedpersonunderSection3402(a).
(b)Ifthevalidityofsignaturesisadmittedorprovedandthereiscompliancewith
subsection(a),aplaintiffproducingtheinstrumentisentitledtopaymentiftheplaintiff
provesentitlementtoenforcetheinstrumentunderSection3301,unlessthedefendant
provesadefenseorclaiminrecoupment.Ifadefenseorclaiminrecoupmentisproved,
therighttopaymentoftheplaintiffissubjecttothedefenseorclaim,excepttothe
extenttheplaintiffprovesthattheplaintiffhasrightsofaholderinduecoursewhich
arenotsubjecttothedefenseorclaim.
3309.ENFORCEMENTOFLOST,DESTROYED,ORSTOLENINSTRUMENT.
(a)Apersonnotinpossessionofaninstrumentisentitledtoenforcetheinstrumentif:
(1)thepersonseekingtoenforcetheinstrument
(A)wasentitledtoenforceittheinstrumentwhenlossofpossession
occurred,or
(B)hasdirectlyorindirectlyacquiredownershipoftheinstrumentfrom
apersonwhowasentitledtoenforcetheinstrumentwhenlossof
possessionoccurred;
(2)thelossofpossessionwasnottheresultofatransferbythepersonora
lawfulseizure;and
[ 160 ]
(3)thepersoncannotreasonablyobtainpossessionoftheinstrumentbecause
theinstrumentwasdestroyed,itswhereaboutscannotbedetermined,oritisin
thewrongfulpossessionofanunknownpersonorapersonthatcannotbefound
orisnotamenabletoserviceofprocess.
(b)Apersonseekingenforcementofaninstrumentundersubsection(a)mustprove
thetermsoftheinstrumentandtheperson'srighttoenforcetheinstrument.Ifthat
proofismade,Section3308appliestothecaseasifthepersonseekingenforcement
hadproducedtheinstrument.Thecourtmaynotenterjudgmentinfavoroftheperson
seekingenforcementunlessitfindsthatthepersonrequiredtopaytheinstrumentis
adequatelyprotectedagainstlossthatmightoccurbyreasonofaclaimbyanother
persontoenforcetheinstrument.Adequateprotectionmaybeprovidedbyany
reasonablemeans.
3310.EFFECTOFINSTRUMENTONOBLIGATIONFORWHICHTAKEN.
(a)Unlessotherwiseagreed,ifacertifiedcheck,cashier'scheck,orteller'scheckis
takenforanobligation,theobligationisdischargedtothesameextentdischargewould
resultifanamountofmoneyequaltotheamountoftheinstrumentweretakenin
paymentoftheobligation.Dischargeoftheobligationdoesnotaffectanyliabilitythat
theobligormayhaveasanindorseroftheinstrument.
(b)Unlessotherwiseagreedandexceptasprovidedinsubsection(a),ifanoteoran
uncertifiedcheckistakenforanobligation,theobligationissuspendedtothesame
extenttheobligationwouldbedischargedifanamountofmoneyequaltotheamount
oftheinstrumentweretaken,andthefollowingrulesapply:
(1)Inthecaseofanuncertifiedcheck,suspensionoftheobligationcontinues
untildishonorofthecheckoruntilitispaidorcertified.Paymentor
certificationofthecheckresultsindischargeoftheobligationtotheextentofthe
amountofthecheck.
(2)Inthecaseofanote,suspensionoftheobligationcontinuesuntildishonorof
thenoteoruntilitispaid.Paymentofthenoteresultsindischargeofthe
obligationtotheextentofthepayment.
(3)Exceptasprovidedinparagraph(4),ifthecheckornoteisdishonoredand
theobligeeoftheobligationforwhichtheinstrumentwastakenistheperson
entitledtoenforcetheinstrument,theobligeemayenforceeithertheinstrument
ortheobligation.Inthecaseofaninstrumentofathirdpersonwhichis
negotiatedtotheobligeebytheobligor,dischargeoftheobligoronthe
instrumentalsodischargestheobligation.
(4)Ifthepersonentitledtoenforcetheinstrumenttakenforanobligationisa
personotherthantheobligee,theobligeemaynotenforcetheobligationtothe
extenttheobligationissuspended.Iftheobligeeisthepersonentitledto
enforcetheinstrumentbutnolongerhaspossessionofitbecauseitwaslost,
stolen,ordestroyed,theobligationmaynotbeenforcedtotheextentofthe
[ 161 ]
amountpayableontheinstrument,andtothatextenttheobligee'srightsagainst
theobligorarelimitedtoenforcementoftheinstrument.
(c)Ifaninstrumentotherthanonedescribedinsubsection(a)or(b)istakenforan
obligation,theeffectis(i)thatstatedinsubsection(a)iftheinstrumentisoneonwhich
abankisliableasmakeroracceptor,or(ii)thatstatedinsubsection(b)inanyother
case.
3311.ACCORDANDSATISFACTIONBYUSEOFINSTRUMENT.
(a)Ifapersonagainstwhomaclaimisassertedprovesthat(i)thatpersoningoodfaith
tenderedaninstrumenttotheclaimantasfullsatisfactionoftheclaim,(ii)theamount
oftheclaimwasunliquidatedorsubjecttoabonafidedispute,and(iii)theclaimant
obtainedpaymentoftheinstrument,thefollowingsubsectionsapply.
(b)Unlesssubsection(c)applies,theclaimisdischargedifthepersonagainstwhom
theclaimisassertedprovesthattheinstrumentoranaccompanyingwritten
communicationcontainedaconspicuousstatementtotheeffectthattheinstrument
wastenderedasfullsatisfactionoftheclaim.
(c)Subjecttosubsection(d),aclaimisnotdischargedundersubsection(b)ifeitherof
thefollowingapplies:
(1)Theclaimant,ifanorganization,provesthat(i)withinareasonabletime
beforethetender,theclaimantsentaconspicuousstatementtotheperson
againstwhomtheclaimisassertedthatcommunicationsconcerningdisputed
debts,includinganinstrumenttenderedasfullsatisfactionofadebt,aretobe
senttoadesignatedperson,office,orplace,and(ii)theinstrumentor
accompanyingcommunicationwasnotreceivedbythatdesignatedperson,
office,orplace.
(2)Theclaimant,whetherornotanorganization,provesthatwithin90days
afterpaymentoftheinstrument,theclaimanttenderedrepaymentofthe
amountoftheinstrumenttothepersonagainstwhomtheclaimisasserted.This
paragraphdoesnotapplyiftheclaimantisanorganizationthatthatsenta
statementcomplyingwithparagraph(1)(i).
(d)Aclaimisdischargedifthepersonagainstwhomtheclaimisassertedprovesthat
withinareasonabletimebeforecollectionoftheinstrumentwasinitiated,theclaimant,
oranagentoftheclaimanthavingdirectresponsibilitywithrespecttothedisputed
obligation,knewthattheinstrumentwastenderedinfullsatisfactionoftheclaim.
3312.LOST,DESTROYED,ORSTOLENCASHIER'SCHECK,TELLER'SCHECK,OR
CERTIFIEDCHECK.
(a)Inthissection:
(1)"Check"meansacashier'scheck,teller'scheck,orcertifiedcheck.
[ 162 ]
(2)"Claimant"meansapersonwhoclaimstherighttoreceivetheamountofa
cashier'scheck,teller'scheck,orcertifiedcheckthatwaslost,destroyed,or
stolen.
(3)"Declarationofloss"meansastatement,madeinarecordunderpenaltyof
perjury,totheeffectthat(i)thedeclarerlostpossessionofacheck,(ii)the
declareristhedrawerorpayeeofthecheck,inthecaseofacertifiedcheck,or
theremitterorpayeeofthecheck,inthecaseofacashier'scheckorteller's
check,(iii)thelossofpossessionwasnottheresultofatransferbythedeclarer
oralawfulseizure,and(iv)thedeclarercannotreasonablyobtainpossessionof
thecheckbecausethecheckwasdestroyed,itswhereaboutscannotbe
determined,oritisinthewrongfulpossessionofanunknownpersonora
personthatcannotbefoundorisnotamenabletoserviceofprocess.
(4)"Obligatedbank"meanstheissuerofacashier'scheckorteller'scheckorthe
acceptorofacertifiedcheck.
(b)Aclaimantmayassertaclaimtotheamountofacheckbyacommunicationtothe
obligatedbankdescribingthecheckwithreasonablecertaintyandrequestingpayment
oftheamountofthecheck,if(i)theclaimantisthedrawerorpayeeofacertifiedcheck
ortheremitterorpayeeofacashier'scheckorteller'scheck,(ii)thecommunication
containsorisaccompaniedbyadeclarationoflossoftheclaimantwithrespecttothe
check,(iii)thecommunicationisreceivedatatimeandinamanneraffordingthebank
areasonabletimetoactonitbeforethecheckispaid,and(iv)theclaimantprovides
reasonableidentificationifrequestedbytheobligatedbank.Deliveryofadeclaration
oflossisawarrantyofthetruthofthestatementsmadeinthedeclaration.Ifaclaimis
assertedincompliancewiththissubsection,thefollowingrulesapply:
(1)Theclaimbecomesenforceableatthelaterof(i)thetimetheclaimis
asserted,or(ii)the90thdayfollowingthedateofthecheck,inthecaseofa
cashier'scheckorteller'scheck,orthe90thdayfollowingthedateofthe
acceptance,inthecaseofacertifiedcheck.
(2)Untiltheclaimbecomesenforceable,ithasnolegaleffectandtheobligated
bankmaypaythecheckor,inthecaseofateller'scheck,maypermitthedrawee
topaythecheck.Paymenttoapersonentitledtoenforcethecheckdischarges
allliabilityoftheobligatedbankwithrespecttothecheck.
(3)Iftheclaimbecomesenforceablebeforethecheckispresentedforpayment,
theobligatedbankisnotobligedtopaythecheck.
(4)Whentheclaimbecomesenforceable,theobligatedbankbecomesobligedto
paytheamountofthechecktotheclaimantifpaymentofthecheckhasnotbeen
madetoapersonentitledtoenforcethecheck.SubjecttoSection4302(a)(1),
paymenttotheclaimantdischargesallliabilityoftheobligatedbankwith
respecttothecheck.
(c)Iftheobligatedbankpaystheamountofachecktoaclaimantundersubsection
(b)(4)andthecheckispresentedforpaymentbyapersonhavingrightsofaholderin
[ 163 ]
duecourse,theclaimantisobligedto(i)refundthepaymenttotheobligatedbankifthe
checkispaid,or(ii)paytheamountofthechecktothepersonhavingrightsofaholder
induecourseifthecheckisdishonored.
(d)Ifaclaimanthastherighttoassertaclaimundersubsection(b)andisalsoaperson
entitledtoenforceacashier'scheck,teller'scheck,orcertifiedcheckwhichislost,
destroyed,orstolen,theclaimantmayassertrightswithrespecttothecheckeither
underthissectionorSection3309.
PART4.LIABILITYOFPARTIES
3401.SIGNATURE.
(a)Apersonisnotliableonaninstrumentunless(i)thepersonsignedtheinstrument,
or(ii)thepersonisrepresentedbyanagentorrepresentativewhosignedthe
instrumentandthesignatureisbindingontherepresentedpersonunderSection3
402.
(b)Asignaturemaybemade(i)manuallyorbymeansofadeviceormachine,and(ii)
bytheuseofanyname,includingatradeorassumedname,orbyaword,mark,or
symbolexecutedoradoptedbyapersonwithpresentintentiontoauthenticatea
writing.
3402.SIGNATUREBYREPRESENTATIVE.
(a)Ifapersonacting,orpurportingtoact,asarepresentativesignsaninstrumentby
signingeitherthenameoftherepresentedpersonorthenameofthesigner,the
representedpersonisboundbythesignaturetothesameextenttherepresented
personwouldbeboundifthesignaturewereonasimplecontract.Iftherepresented
personisbound,thesignatureoftherepresentativeisthe"authorizedsignatureofthe
representedperson"andtherepresentedpersonisliableontheinstrument,whetheror
notidentifiedintheinstrument.
(b)Ifarepresentativesignsthenameoftherepresentativetoaninstrumentandthe
signatureisanauthorizedsignatureoftherepresentedperson,thefollowingrules
apply:
(1)Iftheformofthesignatureshowsunambiguouslythatthesignatureismade
onbehalfoftherepresentedpersonwhoisidentifiedintheinstrument,the
representativeisnotliableontheinstrument.
(2)Subjecttosubsection(c),if(i)theformofthesignaturedoesnotshow
unambiguouslythatthesignatureismadeinarepresentativecapacityor(ii)the
representedpersonisnotidentifiedintheinstrument,therepresentativeis
liableontheinstrumenttoaholderinduecoursethattooktheinstrument
withoutnoticethattherepresentativewasnotintendedtobeliableonthe
instrument.Withrespecttoanyotherperson,therepresentativeisliableonthe
instrumentunlesstherepresentativeprovesthattheoriginalpartiesdidnot
intendtherepresentativetobeliableontheinstrument.
[ 164 ]
(c)Ifarepresentativesignsthenameoftherepresentativeasdrawerofacheck
withoutindicationoftherepresentativestatusandthecheckispayablefroman
accountoftherepresentedpersonwhoisidentifiedonthecheck,thesignerisnotliable
onthecheckifthesignatureisanauthorizedsignatureoftherepresentedperson.
3403.UNAUTHORIZEDSIGNATURE.
(a)UnlessotherwiseprovidedinthisArticleorArticle4,anunauthorizedsignatureis
ineffectiveexceptasthesignatureoftheunauthorizedsignerinfavorofapersonwho
ingoodfaithpaystheinstrumentortakesitforvalue.Anunauthorizedsignaturemay
beratifiedforallpurposesofthisArticle.
(b)Ifthesignatureofmorethanonepersonisrequiredtoconstitutetheauthorized
signatureofanorganization,thesignatureoftheorganizationisunauthorizedifoneof
therequiredsignaturesislacking.
(c)Thecivilorcriminalliabilityofapersonwhomakesanunauthorizedsignatureis
notaffectedbyanyprovisionofthisArticlewhichmakestheunauthorizedsignature
effectiveforthepurposesofthisArticle.
3404.IMPOSTORS;FICTITIOUSPAYEES.
(a)Ifanimpostor,byuseofthemailsorotherwise,inducestheissuerofaninstrument
toissuetheinstrumenttotheimpostor,ortoapersonactinginconcertwiththe
impostor,byimpersonatingthepayeeoftheinstrumentorapersonauthorizedtoact
forthepayee,anindorsementoftheinstrumentbyanypersoninthenameofthepayee
iseffectiveastheindorsementofthepayeeinfavorofapersonwho,ingoodfaith,pays
theinstrumentortakesitforvalueorforcollection.
(b)If(i)apersonwhoseintentdeterminestowhomaninstrumentispayable(Section
3110(a)or(b))doesnotintendthepersonidentifiedaspayeetohaveanyinterestin
theinstrument,or(ii)thepersonidentifiedaspayeeofaninstrumentisafictitious
person,thefollowingrulesapplyuntiltheinstrumentisnegotiatedbyspecial
indorsement:
(1)Anypersoninpossessionoftheinstrumentisitsholder.
(2)Anindorsementbyanypersoninthenameofthepayeestatedinthe
instrumentiseffectiveastheindorsementofthepayeeinfavorofapersonwho,
ingoodfaith,paystheinstrumentortakesitforvalueorforcollection.
(c)Undersubsection(a)or(b),anindorsementismadeinthenameofapayeeif(i)it
ismadeinanamesubstantiallysimilartothatofthepayeeor(ii)theinstrument,
whetherornotindorsed,isdepositedinadepositarybanktoanaccountinaname
substantiallysimilartothatofthepayee.
(d)Withrespecttoaninstrumenttowhichsubsection(a)or(b)applies,ifaperson
payingtheinstrumentortakingitforvalueorforcollectionfailstoexerciseordinary
careinpayingortakingtheinstrumentandthatfailuresubstantiallycontributestoloss
[ 165 ]
resultingfrompaymentoftheinstrument,thepersonbearingthelossmayrecover
fromthepersonfailingtoexerciseordinarycaretotheextentthefailuretoexercise
ordinarycarecontributedtotheloss.
3405.EMPLOYER'SRESPONSIBILITYFORFRAUDULENTINDORSEMENTBY
EMPLOYEE.
(a)Inthissection:
(1)"Employee"includesanindependentcontractorandemployeeofan
independentcontractorretainedbytheemployer.
(2)"Fraudulentindorsement"means(i)inthecaseofaninstrumentpayableto
theemployer,aforgedindorsementpurportingtobethatoftheemployer,or(ii)
inthecaseofaninstrumentwithrespecttowhichtheemployeristheissuer,a
forgedindorsementpurportingtobethatofthepersonidentifiedaspayee.
(3)"Responsibility"withrespecttoinstrumentsmeansauthority(i)tosignor
indorseinstrumentsonbehalfoftheemployer,(ii)toprocessinstruments
receivedbytheemployerforbookkeepingpurposes,fordeposittoanaccount,
orforotherdisposition,(iii)toprepareorprocessinstrumentsforissueinthe
nameoftheemployer,(iv)tosupplyinformationdeterminingthenamesor
addressesofpayeesofinstrumentstobeissuedinthenameoftheemployer,(v)
tocontrolthedispositionofinstrumentstobeissuedinthenameofthe
employer,or(vi)toactotherwisewithrespecttoinstrumentsinaresponsible
capacity."Responsibility"doesnotincludeauthoritythatmerelyallowsan
employeetohaveaccesstoinstrumentsorblankorincompleteinstrument
formsthatarebeingstoredortransportedorarepartofincomingoroutgoing
mail,orsimilaraccess.
(b)Forthepurposeofdeterminingtherightsandliabilitiesofapersonwho,ingood
faith,paysaninstrumentortakesitforvalueorforcollection,ifanemployerentrusted
anemployeewithresponsibilitywithrespecttotheinstrumentandtheemployeeora
personactinginconcertwiththeemployeemakesafraudulentindorsementofthe
instrument,theindorsementiseffectiveastheindorsementofthepersontowhomthe
instrumentispayableifitismadeinthenameofthatperson.Ifthepersonpayingthe
instrumentortakingitforvalueorforcollectionfailstoexerciseordinarycarein
payingortakingtheinstrumentandthatfailuresubstantiallycontributestoloss
resultingfromthefraud,thepersonbearingthelossmayrecoverfromtheperson
failingtoexerciseordinarycaretotheextentthefailuretoexerciseordinarycare
contributedtotheloss.
(c)Undersubsection(b),anindorsementismadeinthenameofthepersontowhom
aninstrumentispayableif(i)itismadeinanamesubstantiallysimilartothenameof
thatpersonor(ii)theinstrument,whetherornotindorsed,isdepositedinadepositary
banktoanaccountinanamesubstantiallysimilartothenameofthatperson.
[ 166 ]
3406.NEGLIGENCECONTRIBUTINGTOFORGEDSIGNATUREORALTERATIONOF
INSTRUMENT.
(a)Apersonwhosefailuretoexerciseordinarycaresubstantiallycontributestoan
alterationofaninstrumentortothemakingofaforgedsignatureonaninstrumentis
precludedfromassertingthealterationortheforgeryagainstapersonwho,ingood
faith,paystheinstrumentortakesitforvalueorforcollection.
(b)Undersubsection(a),ifthepersonassertingthepreclusionfailstoexercise
ordinarycareinpayingortakingtheinstrumentandthatfailuresubstantially
contributestoloss,thelossisallocatedbetweenthepersonprecludedandtheperson
assertingthepreclusionaccordingtotheextenttowhichthefailureofeachtoexercise
ordinarycarecontributedtotheloss.
(c)Undersubsection(a),theburdenofprovingfailuretoexerciseordinarycareison
thepersonassertingthepreclusion.Undersubsection(b),theburdenofprovingfailure
toexerciseordinarycareisonthepersonprecluded.
3407.ALTERATION.
(a)"Alteration"means(i)anunauthorizedchangeinaninstrumentthatpurportsto
modifyinanyrespecttheobligationofaparty,or(ii)anunauthorizedadditionof
wordsornumbersorotherchangetoanincompleteinstrumentrelatingtothe
obligationofaparty.
(b)Exceptasprovidedinsubsection(c),analterationfraudulentlymadedischargesa
partywhoseobligationisaffectedbythealterationunlessthatpartyassentsoris
precludedfromassertingthealteration.Nootheralterationdischargesaparty,andthe
instrumentmaybeenforcedaccordingtoitsoriginalterms.
(c)Apayorbankordraweepayingafraudulentlyalteredinstrumentorapersontaking
itforvalue,ingoodfaithandwithoutnoticeofthealteration,mayenforcerightswith
respecttotheinstrument(i)accordingtoitsoriginalterms,or(ii)inthecaseofan
incompleteinstrumentalteredbyunauthorizedcompletion,accordingtoitstermsas
completed.
3408.DRAWEENOTLIABLEONUNACCEPTEDDRAFT.
Acheckorotherdraftdoesnotofitselfoperateasanassignmentoffundsinthehands
ofthedraweeavailableforitspayment,andthedraweeisnotliableontheinstrument
untilthedraweeacceptsit.
3409.ACCEPTANCEOFDRAFT;CERTIFIEDCHECK.
(a)"Acceptance"meansthedrawee'ssignedagreementtopayadraftaspresented.It
mustbewrittenonthedraftandmayconsistofthedrawee'ssignaturealone.
Acceptancemaybemadeatanytimeandbecomeseffectivewhennotificationpursuant
toinstructionsisgivenortheaccepteddraftisdeliveredforthepurposeofgivingrights
ontheacceptancetoanyperson.
[ 167 ]
(b)Adraftmaybeacceptedalthoughithasnotbeensignedbythedrawer,isotherwise
incomplete,isoverdue,orhasbeendishonored.
(c)Ifadraftispayableatafixedperiodaftersightandtheacceptorfailstodatethe
acceptance,theholdermaycompletetheacceptancebysupplyingadateingoodfaith.
(d)"Certifiedcheck"meansacheckacceptedbythebankonwhichitisdrawn.
Acceptancemaybemadeasstatedinsubsection(a)orbyawritingonthecheckwhich
indicatesthatthecheckiscertified.Thedraweeofacheckhasnoobligationtocertify
thecheck,andrefusaltocertifyisnotdishonorofthecheck.
3410.ACCEPTANCEVARYINGDRAFT.
(a)Ifthetermsofadrawee'sacceptancevaryfromthetermsofthedraftaspresented,
theholdermayrefusetheacceptanceandtreatthedraftasdishonored.Inthatcase,the
draweemaycanceltheacceptance.
(b)Thetermsofadraftarenotvariedbyanacceptancetopayataparticularbankor
placeintheUnitedStates,unlesstheacceptancestatesthatthedraftistobepaidonly
atthatbankorplace.
(c)Iftheholderassentstoanacceptancevaryingthetermsofadraft,theobligationof
eachdrawerandindorserthatdoesnotexpresslyassenttotheacceptanceis
discharged.
3411.REFUSALTOPAYCASHIER'SCHECKS,TELLER'SCHECKS,ANDCERTIFIED
CHECKS.
(a)Inthissection,"obligatedbank"meanstheacceptorofacertifiedcheckorthe
issuerofacashier'scheckorteller'scheckboughtfromtheissuer.
(b)Iftheobligatedbankwrongfully(i)refusestopayacashier'scheckorcertified
check,(ii)stopspaymentofateller'scheck,or(iii)refusestopayadishonoredteller's
check,thepersonassertingtherighttoenforcethecheckisentitledtocompensation
forexpensesandlossofinterestresultingfromthenonpaymentandmayrecover
consequentialdamagesiftheobligatedbankrefusestopayafterreceivingnoticeof
particularcircumstancesgivingrisetothedamages.
(c)Expensesorconsequentialdamagesundersubsection(b)arenotrecoverableifthe
refusaloftheobligatedbanktopayoccursbecause(i)thebanksuspendspayments,(ii)
theobligatedbankassertsaclaimordefenseofthebankthatithasreasonablegrounds
tobelieveisavailableagainstthepersonentitledtoenforcetheinstrument,(iii)the
obligatedbankhasareasonabledoubtwhetherthepersondemandingpaymentisthe
personentitledtoenforcetheinstrument,or(iv)paymentisprohibitedbylaw.
3412.OBLIGATIONOFISSUEROFNOTEORCASHIER'SCHECK.
Theissuerofanoteorcashier'scheckorotherdraftdrawnonthedrawerisobligedto
paytheinstrument(i)accordingtoitstermsatthetimeitwasissuedor,ifnotissued,at
[ 168 ]
thetimeitfirstcameintopossessionofaholder,or(ii)iftheissuersignedan
incompleteinstrument,accordingtoitstermswhencompleted,totheextentstatedin
Sections3115and3407.Theobligationisowedtoapersonentitledtoenforcethe
instrumentortoanindorserwhopaidtheinstrumentunderSection3415.
3413.OBLIGATIONOFACCEPTOR.
(a)Theacceptorofadraftisobligedtopaythedraft(i)accordingtoitstermsatthe
timeitwasaccepted,eventhoughtheacceptancestatesthatthedraftispayable"as
originallydrawn"orequivalentterms,(ii)iftheacceptancevariesthetermsofthe
draft,accordingtothetermsofthedraftasvaried,or(iii)iftheacceptanceisofadraft
thatisanincompleteinstrument,accordingtoitstermswhencompleted,totheextent
statedinSections3115and3407.Theobligationisowedtoapersonentitledto
enforcethedraftortothedraweroranindorserwhopaidthedraftunderSection3
414or3415.
(b)Ifthecertificationofacheckorotheracceptanceofadraftstatestheamount
certifiedoraccepted,theobligationoftheacceptoristhatamount.If(i)the
certificationoracceptancedoesnotstateanamount,(ii)theamountoftheinstrument
issubsequentlyraised,and(iii)theinstrumentisthennegotiatedtoaholderindue
course,theobligationoftheacceptoristheamountoftheinstrumentatthetimeitwas
takenbytheholderinduecourse.
3414.OBLIGATIONOFDRAWER.
(a)Thissectiondoesnotapplytocashier'schecksorotherdraftsdrawnonthedrawer.
(b)Ifanunaccepteddraftisdishonored,thedrawerisobligedtopaythedraft(i)
accordingtoitstermsatthetimeitwasissuedor,ifnotissued,atthetimeitfirstcame
intopossessionofaholder,or(ii)ifthedrawersignedanincompleteinstrument,
accordingtoitstermswhencompleted,totheextentstatedinSections3115and3
407.Theobligationisowedtoapersonentitledtoenforcethedraftortoanindorser
whopaidthedraftunderSection3415.
(c)Ifadraftisacceptedbyabank,thedrawerisdischarged,regardlessofwhenorby
whomacceptancewasobtained.
(d)Ifadraftisacceptedandtheacceptorisnotabank,theobligationofthedrawerto
paythedraftifthedraftisdishonoredbytheacceptoristhesameastheobligationof
anindorserunderSection3415(a)and(c).
(e)Ifadraftstatesthatitisdrawn"withoutrecourse"orotherwisedisclaimsliability
ofthedrawertopaythedraft,thedrawerisnotliableundersubsection(b)topaythe
draftifthedraftisnotacheck.Adisclaimeroftheliabilitystatedinsubsection(b)is
noteffectiveifthedraftisacheck.
(f)If(i)acheckisnotpresentedforpaymentorgiventoadepositarybankfor
collectionwithin30daysafteritsdate,(ii)thedraweesuspendspaymentsafter
expirationofthe30dayperiodwithoutpayingthecheck,and(iii)becauseofthe
[ 169 ]
suspensionofpayments,thedrawerisdeprivedoffundsmaintainedwiththedraweeto
coverpaymentofthecheck,thedrawertotheextentdeprivedoffundsmaydischarge
itsobligationtopaythecheckbyassigningtothepersonentitledtoenforcethecheck
therightsofthedraweragainstthedraweewithrespecttothefunds.
3415.OBLIGATIONOFINDORSER.
(a)Subjecttosubsections(b),(c),and(d)andtoSection3419(d),ifaninstrumentis
dishonored,anindorserisobligedtopaytheamountdueontheinstrument(i)
accordingtothetermsoftheinstrumentatthetimeitwasindorsed,or(ii)ifthe
indorserindorsedanincompleteinstrument,accordingtoitstermswhencompleted,to
theextentstatedinSections3115and3407.Theobligationoftheindorserisowedto
apersonentitledtoenforcetheinstrumentortoasubsequentindorserwhopaidthe
instrumentunderthissection.
(b)Ifanindorsementstatesthatitismade"withoutrecourse"orotherwisedisclaims
liabilityoftheindorser,theindorserisnotliableundersubsection(a)topaythe
instrument.
(c)IfnoticeofdishonorofaninstrumentisrequiredbySection3503andnoticeof
dishonorcomplyingwiththatsectionisnotgiventoanindorser,theliabilityofthe
indorserundersubsection(a)isdischarged.
(d)Ifadraftisacceptedbyabankafteranindorsementismade,theliabilityofthe
indorserundersubsection(a)isdischarged.
(e)Ifanindorserofacheckisliableundersubsection(a)andthecheckisnot
presentedforpayment,orgiventoadepositarybankforcollection,within30daysafter
thedaytheindorsementwasmade,theliabilityoftheindorserundersubsection(a)is
discharged.
(a)Apersonwhotransfersaninstrumentforconsiderationwarrantstothetransferee
and,ifthetransferisbyindorsement,toanysubsequenttransfereethat:
(1)thewarrantorisapersonentitledtoenforcetheinstrument;
(2)allsignaturesontheinstrumentareauthenticandauthorized;
(3)theinstrumenthasnotbeenaltered;
(4)theinstrumentisnotsubjecttoadefenseorclaiminrecoupmentofany
partywhichcanbeassertedagainstthewarrantor;and
(5)thewarrantorhasnoknowledgeofanyinsolvencyproceedingcommenced
withrespecttothemakeroracceptoror,inthecaseofanunaccepteddraft,the
drawer;and
[ 170 ]
(6)withrespecttoaremotelycreatedconsumeritem,thatthepersononwhose
accounttheitemisdrawnauthorizedtheissuanceoftheitemintheamountfor
whichtheitemisdrawn.
(b)Apersontowhomthewarrantiesundersubsection(a)aremadeandwhotookthe
instrumentingoodfaithmayrecoverfromthewarrantorasdamagesforbreachof
warrantyanamountequaltothelosssufferedasaresultofthebreach,butnotmore
thantheamountoftheinstrumentplusexpensesandlossofinterestincurredasa
resultofthebreach.
(c)Thewarrantiesstatedinsubsection(a)cannotbedisclaimedwithrespectto
checks.Unlessnoticeofaclaimforbreachofwarrantyisgiventothewarrantorwithin
30daysaftertheclaimanthasreasontoknowofthebreachandtheidentityofthe
warrantor,theliabilityofthewarrantorundersubsection(b)isdischargedtothe
extentofanylosscausedbythedelayingivingnoticeoftheclaim.
(d)A[causeofaction]forbreachofwarrantyunderthissectionaccrueswhenthe
claimanthasreasontoknowofthebreach.
(a)Ifanunaccepteddraftispresentedtothedraweeforpaymentoracceptanceand
thedraweepaysoracceptsthedraft,(i)thepersonobtainingpaymentoracceptance,at
thetimeofpresentment,and(ii)aprevioustransferorofthedraft,atthetimeof
transfer,warranttothedraweemakingpaymentoracceptingthedraftingoodfaith
that:
(1)thewarrantoris,orwas,atthetimethewarrantortransferredthedraft,a
personentitledtoenforcethedraftorauthorizedtoobtainpaymentor
acceptanceofthedraftonbehalfofapersonentitledtoenforcethedraft;
(2)thedrafthasnotbeenaltered;
(3)thewarrantorhasnoknowledgethatthesignatureofthedrawerofthedraft
isunauthorized;
(4)withrespecttoanyremotelycreatedconsumeritem,thatthepersonon
whoseaccounttheitemisdrawnauthorizedtheissuanceoftheiteminthe
amountforwhichtheitemisdrawn.
(b)Adraweemakingpaymentmayrecoverfromanywarrantordamagesforbreachof
warrantyequaltotheamountpaidbythedraweelesstheamountthedraweereceived
orisentitledtoreceivefromthedrawerbecauseofthepayment.Inaddition,the
draweeisentitledtocompensationforexpensesandlossofinterestresultingfromthe
breach.Therightofthedraweetorecoverdamagesunderthissubsectionisnot
affectedbyanyfailureofthedraweetoexerciseordinarycareinmakingpayment.If
thedraweeacceptsthedraft,breachofwarrantyisadefensetotheobligationofthe
acceptor.Iftheacceptormakespaymentwithrespecttothedraft,theacceptoris
[ 171 ]
entitledtorecoverfromanywarrantorforbreachofwarrantytheamountsstatedin
thissubsection.
(c)Ifadraweeassertsaclaimforbreachofwarrantyundersubsection(a)basedonan
unauthorizedindorsementofthedraftoranalterationofthedraft,thewarrantormay
defendbyprovingthattheindorsementiseffectiveunderSection3404or3405orthe
drawerisprecludedunderSection3406or4406fromassertingagainstthedrawee
theunauthorizedindorsementoralteration.
(d)If(i)adishonoreddraftispresentedforpaymenttothedraweroranindorseror
(ii)anyotherinstrumentispresentedforpaymenttoapartyobligedtopaythe
instrument,and(iii)paymentisreceived,thefollowingrulesapply:
(1)Thepersonobtainingpaymentandapriortransferoroftheinstrument
warranttothepersonmakingpaymentingoodfaiththatthewarrantoris,or
was,atthetimethewarrantortransferredtheinstrument,apersonentitledto
enforcetheinstrumentorauthorizedtoobtainpaymentonbehalfofaperson
entitledtoenforcetheinstrument.
(2)Thepersonmakingpaymentmayrecoverfromanywarrantorforbreachof
warrantyanamountequaltotheamountpaidplusexpensesandlossofinterest
resultingfromthebreach.
(e)Thewarrantiesstatedinsubsections(a)and(d)cannotbedisclaimedwithrespect
tochecks.Unlessnoticeofaclaimforbreachofwarrantyisgiventothewarrantor
within30daysaftertheclaimanthasreasontoknowofthebreachandtheidentityof
thewarrantor,theliabilityofthewarrantorundersubsection(b)or(d)isdischargedto
theextentofanylosscausedbythedelayingivingnoticeoftheclaim.
(f)A[causeofaction]forbreachofwarrantyunderthissectionaccrueswhenthe
claimanthasreasontoknowofthebreach.
3418.PAYMENTORACCEPTANCEBYMISTAKE.
(a)Exceptasprovidedinsubsection(c),ifthedraweeofadraftpaysoracceptsthe
draftandthedraweeactedonthemistakenbeliefthat(i)paymentofthedrafthadnot
beenstoppedpursuanttoSection4403or(ii)thesignatureofthedrawerofthedraft
wasauthorized,thedraweemayrecovertheamountofthedraftfromthepersonto
whomorforwhosebenefitpaymentwasmadeor,inthecaseofacceptance,may
revoketheacceptance.Rightsofthedraweeunderthissubsectionarenotaffectedby
failureofthedraweetoexerciseordinarycareinpayingoracceptingthedraft.
(b)Exceptasprovidedinsubsection(c),ifaninstrumenthasbeenpaidoracceptedby
mistakeandthecaseisnotcoveredbysubsection(a),thepersonpayingoraccepting
may,totheextentpermittedbythelawgoverningmistakeandrestitution,(i)recover
thepaymentfromthepersontowhomorforwhosebenefitpaymentwasmadeor(ii)
inthecaseofacceptance,mayrevoketheacceptance.
[ 172 ]
(c)Theremediesprovidedbysubsection(a)or(b)maynotbeassertedagainsta
personwhotooktheinstrumentingoodfaithandforvalueorwhoingoodfaith
changedpositioninrelianceonthepaymentoracceptance.Thissubsectiondoesnot
limitremediesprovidedbySection3417or4407.
(d)NotwithstandingSection4215,ifaninstrumentispaidoracceptedbymistakeand
thepayororacceptorrecoverspaymentorrevokesacceptanceundersubsection(a)or
(b),theinstrumentisdeemednottohavebeenpaidoracceptedandistreatedas
dishonored,andthepersonfromwhompaymentisrecoveredhasrightsasaperson
entitledtoenforcethedishonoredinstrument.
3419.INSTRUMENTSSIGNEDFORACCOMMODATION.
(a)Ifaninstrumentisissuedforvaluegivenforthebenefitofapartytotheinstrument
("accommodatedparty")andanotherpartytotheinstrument("accommodationparty")
signstheinstrumentforthepurposeofincurringliabilityontheinstrumentwithout
beingadirectbeneficiaryofthevaluegivenfortheinstrument,theinstrumentissigned
bytheaccommodationparty"foraccommodation."
(b)Anaccommodationpartymaysigntheinstrumentasmaker,drawer,acceptor,or
indorserand,subjecttosubsection(d),isobligedtopaytheinstrumentinthecapacity
inwhichtheaccommodationpartysigns.Theobligationofanaccommodationparty
maybeenforcednotwithstandinganystatuteoffraudsandwhetherornotthe
accommodationpartyreceivesconsiderationfortheaccommodation.
(c)Apersonsigninganinstrumentispresumedtobeanaccommodationpartyand
thereisnoticethattheinstrumentissignedforaccommodationifthesignatureisan
anomalousindorsementorisaccompaniedbywordsindicatingthatthesignerisacting
assuretyorguarantorwithrespecttotheobligationofanotherpartytothe
instrument.ExceptasprovidedinSection3605,theobligationofanaccommodation
partytopaytheinstrumentisnotaffectedbythefactthatthepersonenforcingthe
obligationhadnoticewhentheinstrumentwastakenbythatpersonthatthe
accommodationpartysignedtheinstrumentforaccommodation.
(d)Ifthesignatureofapartytoaninstrumentisaccompaniedbywordsindicating
unambiguouslythatthepartyisguaranteeingcollectionratherthanpaymentofthe
obligationofanotherpartytotheinstrument,thesignerisobligedtopaytheamount
dueontheinstrumenttoapersonentitledtoenforcetheinstrumentonlyif(i)
executionofjudgmentagainsttheotherpartyhasbeenreturnedunsatisfied,(ii)the
otherpartyisinsolventorinaninsolvencyproceeding,(iii)theotherpartycannotbe
servedwithprocess,or(iv)itisotherwiseapparentthatpaymentcannotbeobtained
fromtheotherparty.
(e)Ifthesignatureofapartytoaninstrumentisaccompaniedbywordsindicatingthat
thepartyguaranteespaymentorthesignersignstheinstrumentasanaccommodation
partyinsomeothermannerthatdoesnotunambiguouslyindicateanintentionto
guaranteecollectionratherthanpayment,thesignerisobligedtopaytheamountdue
ontheinstrumenttoapersonentitledtoenforcetheinstrumentinthesame
[ 173 ]
circumstancesastheaccommodatedpartywouldbeobliged,withoutpriorresorttothe
accommodatedpartybythepersonentitledtoenforcetheinstrument.
(f)Anaccommodationpartywhopaystheinstrumentisentitledtoreimbursement
fromtheaccommodatedpartyandisentitledtoenforcetheinstrumentagainstthe
accommodatedparty.Inpropercircumstances,anaccommodationpartymayobtain
reliefthatrequirestheaccommodatedpartytoperformitsobligationsonthe
instrument.Anaccommodatedpartythatpaystheinstrumenthasnorightofrecourse
against,andisnotentitledtocontributionfrom,anaccommodationparty.
3420.CONVERSIONOFINSTRUMENT.
(a)Thelawapplicabletoconversionofpersonalpropertyappliestoinstruments.An
instrumentisalsoconvertedifitistakenbytransfer,otherthananegotiation,froma
personnotentitledtoenforcetheinstrumentorabankmakesorobtainspaymentwith
respecttotheinstrumentforapersonnotentitledtoenforcetheinstrumentorreceive
payment.Anactionforconversionofaninstrumentmaynotbebroughtby(i)the
issueroracceptoroftheinstrumentor(ii)apayeeorindorseewhodidnotreceive
deliveryoftheinstrumenteitherdirectlyorthroughdeliverytoanagentoracopayee.
(b)Inanactionundersubsection(a),themeasureofliabilityispresumedtobethe
amountpayableontheinstrument,butrecoverymaynotexceedtheamountofthe
plaintiff'sinterestintheinstrument.
(c)Arepresentative,otherthanadepositarybank,whohasingoodfaithdealtwithan
instrumentoritsproceedsonbehalfofonewhowasnotthepersonentitledtoenforce
theinstrumentisnotliableinconversiontothatpersonbeyondtheamountofany
proceedsthatithasnotpaidout.
PART5.DISHONOR
3501.PRESENTMENT.
(a)"Presentment"meansademandmadebyoronbehalfofapersonentitledto
enforceaninstrument(i)topaytheinstrumentmadetothedraweeorapartyobliged
topaytheinstrumentor,inthecaseofanoteoraccepteddraftpayableatabank,tothe
bank,or(ii)toacceptadraftmadetothedrawee.
(b)ThefollowingrulesaresubjecttoArticle4,agreementoftheparties,andclearing
houserulesandthelike:
(1)Presentmentmaybemadeattheplaceofpaymentoftheinstrumentand
mustbemadeattheplaceofpaymentiftheinstrumentispayableatabankin
theUnitedStates;maybemadebyanycommerciallyreasonablemeans,
includinganoral,written,orelectroniccommunication;iseffectivewhenthe
demandforpaymentoracceptanceisreceivedbythepersontowhom
presentmentismade;andiseffectiveifmadetoanyoneoftwoormoremakers,
acceptors,drawees,orotherpayors.
[ 174 ]
(2)Upondemandofthepersontowhompresentmentismade,theperson
makingpresentmentmust(i)exhibittheinstrument,(ii)givereasonable
identificationand,ifpresentmentismadeonbehalfofanotherperson,
reasonableevidenceofauthoritytodoso,and(iii)signareceiptonthe
instrumentforanypaymentmadeorsurrendertheinstrumentiffullpaymentis
made.
(3)Withoutdishonoringtheinstrument,thepartytowhompresentmentis
mademay(i)returntheinstrumentforlackofanecessaryindorsement,or(ii)
refusepaymentoracceptanceforfailureofthepresentmenttocomplywiththe
termsoftheinstrument,anagreementoftheparties,orotherapplicablelawor
rule.
(4)Thepartytowhompresentmentismademaytreatpresentmentas
occurringonthenextbusinessdayafterthedayofpresentmentifthepartyto
whompresentmentismadehasestablishedacutoffhournotearlierthan2p.m.
forthereceiptandprocessingofinstrumentspresentedforpaymentor
acceptanceandpresentmentismadeafterthecutoffhour.
3502.DISHONOR.
(a)Dishonorofanoteisgovernedbythefollowingrules:
(1)Ifthenoteispayableondemand,thenoteisdishonoredifpresentmentis
dulymadetothemakerandthenoteisnotpaidonthedayofpresentment.
(2)Ifthenoteisnotpayableondemandandispayableatorthroughabankor
thetermsofthenoterequirepresentment,thenoteisdishonoredifpresentment
isdulymadeandthenoteisnotpaidonthedayitbecomespayableorthedayof
presentment,whicheverislater.
(3)Ifthenoteisnotpayableondemandandparagraph(2)doesnotapply,the
noteisdishonoredifitisnotpaidonthedayitbecomespayable.
(b)Dishonorofanunaccepteddraftotherthanadocumentarydraftisgovernedbythe
followingrules:
(1)Ifacheckisdulypresentedforpaymenttothepayorbankotherwisethan
forimmediatepaymentoverthecounter,thecheckisdishonoredifthepayor
bankmakestimelyreturnofthecheckorsendstimelynoticeofdishonoror
nonpaymentunderSection4301or4302,orbecomesaccountableforthe
amountofthecheckunderSection4302.
(2)Ifadraftispayableondemandandparagraph(1)doesnotapply,thedraftis
dishonoredifpresentmentforpaymentisdulymadetothedraweeandthedraft
isnotpaidonthedayofpresentment.
(3)Ifadraftispayableonadatestatedinthedraft,thedraftisdishonoredif(i)
presentmentforpaymentisdulymadetothedraweeandpaymentisnotmade
[ 175 ]
onthedaythedraftbecomespayableorthedayofpresentment,whicheveris
later,or(ii)presentmentforacceptanceisdulymadebeforethedaythedraft
becomespayableandthedraftisnotacceptedonthedayofpresentment.
(4)Ifadraftispayableonelapseofaperiodoftimeaftersightoracceptance,
thedraftisdishonoredifpresentmentforacceptanceisdulymadeandthedraft
isnotacceptedonthedayofpresentment.
(c)Dishonorofanunaccepteddocumentarydraftoccursaccordingtotherulesstated
insubsection(b)(2),(3),and(4),exceptthatpaymentoracceptancemaybedelayed
withoutdishonoruntilnolaterthanthecloseofthethirdbusinessdayofthedrawee
followingthedayonwhichpaymentoracceptanceisrequiredbythoseparagraphs.
(d)Dishonorofanaccepteddraftisgovernedbythefollowingrules:
(1)Ifthedraftispayableondemand,thedraftisdishonoredifpresentmentfor
paymentisdulymadetotheacceptorandthedraftisnotpaidonthedayof
presentment.
(2)Ifthedraftisnotpayableondemand,thedraftisdishonoredifpresentment
forpaymentisdulymadetotheacceptorandpaymentisnotmadeonthedayit
becomespayableorthedayofpresentment,whicheverislater.
(e)Inanycaseinwhichpresentmentisotherwiserequiredfordishonorunderthis
sectionandpresentmentisexcusedunderSection3504,dishonoroccurswithout
presentmentiftheinstrumentisnotdulyacceptedorpaid.
(f)Ifadraftisdishonoredbecausetimelyacceptanceofthedraftwasnotmadeandthe
personentitledtodemandacceptanceconsentstoalateacceptance,fromthetimeof
acceptancethedraftistreatedasneverhavingbeendishonored.
3503.NOTICEOFDISHONOR.
(a)TheobligationofanindorserstatedinSection3415(a)andtheobligationofa
drawerstatedinSection3414(d)maynotbeenforcedunless(i)theindorseror
drawerisgivennoticeofdishonoroftheinstrumentcomplyingwiththissectionor(ii)
noticeofdishonorisexcusedunderSection3504(b).
(b)Noticeofdishonormaybegivenbyanyperson;maybegivenbyanycommercially
reasonablemeans,includinganoral,written,orelectroniccommunication;andis
sufficientifitreasonablyidentifiestheinstrumentandindicatesthattheinstrumenthas
beendishonoredorhasnotbeenpaidoraccepted.Returnofaninstrumentgiventoa
bankforcollectionissufficientnoticeofdishonor.
(c)SubjecttoSection3504(c),withrespecttoaninstrumenttakenforcollectionbya
collectingbank,noticeofdishonormustbegiven(i)bythebankbeforemidnightofthe
nextbankingdayfollowingthebankingdayonwhichthebankreceivesnoticeof
dishonoroftheinstrument,or(ii)byanyotherpersonwithin30daysfollowingtheday
onwhichthepersonreceivesnoticeofdishonor.Withrespecttoanyotherinstrument,
[ 176 ]
noticeofdishonormustbegivenwithin30daysfollowingthedayonwhichdishonor
occurs.
3504.EXCUSEDPRESENTMENTANDNOTICEOFDISHONOR.
(a)Presentmentforpaymentoracceptanceofaninstrumentisexcusedif(i)the
personentitledtopresenttheinstrumentcannotwithreasonablediligencemake
presentment,(ii)themakeroracceptorhasrepudiatedanobligationtopaythe
instrumentorisdeadorininsolvencyproceedings,(iii)bythetermsoftheinstrument
presentmentisnotnecessarytoenforcetheobligationofindorsersorthedrawer,(iv)
thedrawerorindorserwhoseobligationisbeingenforcedhaswaivedpresentmentor
otherwisehasnoreasontoexpectorrighttorequirethattheinstrumentbepaidor
accepted,or(v)thedrawerinstructedthedraweenottopayoracceptthedraftorthe
draweewasnotobligatedtothedrawertopaythedraft.
(b)Noticeofdishonorisexcusedif(i)bythetermsoftheinstrumentnoticeof
dishonorisnotnecessarytoenforcetheobligationofapartytopaytheinstrument,or
(ii)thepartywhoseobligationisbeingenforcedwaivednoticeofdishonor.Awaiverof
presentmentisalsoawaiverofnoticeofdishonor.
(c)Delayingivingnoticeofdishonorisexcusedifthedelaywascausedby
circumstancesbeyondthecontrolofthepersongivingthenoticeandthepersongiving
thenoticeexercisedreasonablediligenceafterthecauseofthedelayceasedtooperate.
3505.EVIDENCEOFDISHONOR.
(a)Thefollowingareadmissibleasevidenceandcreateapresumptionofdishonorand
ofanynoticeofdishonorstated:
(1)adocumentregularinformasprovidedinsubsection(b)whichpurportsto
beaprotest;
(2)apurportedstamporwritingofthedrawee,payorbank,orpresentingbank
onoraccompanyingtheinstrumentstatingthatacceptanceorpaymenthasbeen
refusedunlessreasonsfortherefusalarestatedandthereasonsarenot
consistentwithdishonor;
(3)abookorrecordofthedrawee,payorbank,orcollectingbank,keptinthe
usualcourseofbusinesswhichshowsdishonor,evenifthereisnoevidenceof
whomadetheentry.
(b)AprotestisacertificateofdishonormadebyaUnitedStatesconsulorviceconsul,
oranotarypublicorotherpersonauthorizedtoadministeroathsbythelawofthe
placewheredishonoroccurs.Itmaybemadeuponinformationsatisfactorytothat
person.Theprotestmustidentifytheinstrumentandcertifyeitherthatpresentment
hasbeenmadeor,ifnotmade,thereasonwhyitwasnotmade,andthattheinstrument
hasbeendishonoredbynonacceptanceornonpayment.Theprotestmayalsocertify
thatnoticeofdishonorhasbeengiventosomeorallparties.
[ 177 ]
PART6.DISCHARGEANDPAYMENT
3601.DISCHARGEANDEFFECTOFDISCHARGE.
(a)TheobligationofapartytopaytheinstrumentisdischargedasstatedinthisArticle
orbyanactoragreementwiththepartywhichwoulddischargeanobligationtopay
moneyunderasimplecontract.
(b)Dischargeoftheobligationofapartyisnoteffectiveagainstapersonacquiring
rightsofaholderinduecourseoftheinstrumentwithoutnoticeofthedischarge.
3602.PAYMENT.
(a)Subjecttosubsection(b),aninstrumentispaidtotheextentpaymentismade(i)by
oronbehalfofapartyobligedtopaytheinstrument,and(ii)toapersonentitledto
enforcetheinstrument.Totheextentofthepayment,theobligationoftheparty
obligedtopaytheinstrumentisdischargedeventhoughpaymentismadewith
knowledgeofaclaimtotheinstrumentunderSection3306byanotherperson.
(b)Subjecttosubsection(e)anoteispaidtotheextentpaymentismadebyoron
behalfofapartyobligedtopaythenotetoapersonthatformerlywasentitledto
enforcethenoteonlyifatthetimeofthepaymentthepartyobligedtopayhasnot
receivedadequatenotificationthatthenotehasbeentransferredandthatpaymentisto
bemadetothetransferee.Anotificationisadequateonlyifitissignedbythetransferor
orthetransferee;reasonablyidentifiesthetransferrednote;andprovidesanaddressat
whichpaymentssubsequentlycanbemade.Uponrequest,atransfereeshallseasonably
furnishreasonableproofthatthenotehasbeentransferred.Unlessthetransferee
complieswiththerequest,apaymenttothepersonthatformerlywasentitledto
enforcethenoteiseffectiveforpurposesofsubsection(c)evenifthepartyobligedto
paythenotehasreceivedanotificationunderthisparagraph.
(c)Subjecttosubsection(e),totheextentofapaymentundersubsections(a)and(b),
theobligationofthepartyobligedtopaytheinstrumentisdischargedeventhough
paymentismadewithknowledgeofaclaimtotheinstrumentunderSection3306by
anotherperson.
(d)Subjecttosubsection(e),atransferee,oranypartythathasacquiredrightsinthe
instrumentdirectlyorindirectlyfromatransferee,includinganysuchpartythathas
rightsasaholderinduecourse,isdeemedtohavenoticeofanypaymentthatismade
undersubsection(b)afterthedatethatthenoteistransferredtothetransfereebut
beforethepartyobligedtopaythenotereceivesadequatenotificationofthetransfer.
(e)Theobligationofapartytopaytheinstrumentisnotdischargedundersubsections
(a)through(d)if:
(1)aclaimtotheinstrumentunderSection3306isenforceableagainsttheparty
receivingpaymentand(i)paymentismadewithknowledgebythepayorthatpayment
isprohibitedbyinjunctionorsimilarprocessofacourtofcompetentjurisdiction,or(ii)
inthecaseofaninstrumentotherthanacashier'scheck,teller'scheck,orcertified
[ 178 ]
check,thepartymakingpaymentaccepted,fromthepersonhavingaclaimtothe
instrument,indemnityagainstlossresultingfromrefusaltopaythepersonentitledto
enforcetheinstrument;or
(2)thepersonmakingpaymentknowsthattheinstrumentisastoleninstrumentand
paysapersonitknowsisinwrongfulpossessionoftheinstrument.
(f)Asusedinthissection,"signed,"withrespecttoarecordthatisnotawriting,
includestheattachmenttoorlogicalassociationwiththerecordofanelectronic
symbol,sound,orprocesstoorwiththerecordwiththepresentintenttoadoptor
accepttherecord.
3603.TENDEROFPAYMENT.
(a)Iftenderofpaymentofanobligationtopayaninstrumentismadetoaperson
entitledtoenforcetheinstrument,theeffectoftenderisgovernedbyprinciplesoflaw
applicabletotenderofpaymentunderasimplecontract.
(b)Iftenderofpaymentofanobligationtopayaninstrumentismadetoaperson
entitledtoenforcetheinstrumentandthetenderisrefused,thereisdischarge,tothe
extentoftheamountofthetender,oftheobligationofanindorseroraccommodation
partyhavingarightofrecoursewithrespecttotheobligationtowhichthetender
relates.
(c)Iftenderofpaymentofanamountdueonaninstrumentismadetoaperson
entitledtoenforcetheinstrument,theobligationoftheobligortopayinterestafterthe
duedateontheamounttenderedisdischarged.Ifpresentmentisrequiredwithrespect
toaninstrumentandtheobligorisableandreadytopayontheduedateateveryplace
ofpaymentstatedintheinstrument,theobligorisdeemedtohavemadetenderof
paymentontheduedatetothepersonentitledtoenforcetheinstrument.
3604.DISCHARGEBYCANCELLATIONORRENUNCIATION.
(a)Apersonentitledtoenforceaninstrument,withorwithoutconsideration,may
dischargetheobligationofapartytopaytheinstrument(i)byanintentionalvoluntary
act,suchassurrenderoftheinstrumenttotheparty,destruction,mutilation,or
cancellationoftheinstrument,cancellationorstrikingoutoftheparty'ssignature,or
theadditionofwordstotheinstrumentindicatingdischarge,or(ii)byagreeingnotto
sueorotherwiserenouncingrightsagainstthepartybyasignedrecord.
(b)Cancellationorstrikingoutofanindorsementpursuanttosubsection(a)doesnot
affectthestatusandrightsofapartyderivedfromtheindorsement.
(c)Asusedinthissection,"signed,"withrespecttoarecordthatisnotawriting,
includestheattachmenttoorlogicalassociationwiththerecordofanelectronic
symbol,sound,orprocesstoorwiththerecordwiththepresentintenttoadoptor
accepttherecord.
[ 179 ]
3605.DISCHARGEOFSECONDARYOBLIGORS.
(a)Ifapersonentitledtoenforceaninstrumentreleasestheobligationofaprincipal
obligorinwholeorinpart,andanotherpartytotheinstrumentisasecondaryobligor
withrespecttotheobligationofthatprincipalobligor,thefollowingrulesapply:
(1)Anyobligationsoftheprincipalobligortothesecondaryobligorwithrespect
toanypreviouspaymentbythesecondaryobligorarenotaffected.Unlessthe
termsofthereleasepreservethesecondaryobligor'srecourse,theprincipal
obligorisdischarged,totheextentoftherelease,fromanyotherdutiestothe
secondaryobligorunderthisarticle.
(2)Unlessthetermsofthereleaseprovidethatthepersonentitledtoenforce
theinstrumentretainstherighttoenforcetheinstrumentagainstthesecondary
obligor,thesecondaryobligorisdischargedtothesameextentastheprincipal
obligorfromanyunperformedportionofitsobligationontheinstrument.Ifthe
instrumentisacheckandtheobligationofthesecondaryobligorisbasedonan
indorsementofthecheck,thesecondaryobligorisdischargedwithoutregardto
thelanguageorcircumstancesofthedischargeorotherrelease.
(3)Ifthesecondaryobligorisnotdischargedunderparagraph(2),the
secondaryobligorisdischargedtotheextentofthevalueoftheconsideration
fortherelease,andtotheextentthatthereleasewouldotherwisecausethe
secondaryobligoraloss.
(b)Ifapersonentitledtoenforceaninstrumentgrantsaprincipalobligoranextension
ofthetimeatwhichoneormorepaymentsaredueontheinstrumentandanother
partytotheinstrumentisasecondaryobligorwithrespecttotheobligationofthat
principalobligor,thefollowingrulesapply:
toanypreviouspaymentbythesecondaryobligorarenotaffected.Unlessthe
termsoftheextensionpreservethesecondaryobligor'srecourse,theextension
correspondinglyextendsthetimeforperformanceofanyotherdutiesowedto
thesecondaryobligorbytheprincipalobligorunderthisarticle.
(2)Thesecondaryobligorisdischargedtotheextentthattheextensionwould
otherwisecausethesecondaryobligoraloss.
(3)Totheextentthatthesecondaryobligorisnotdischargedunderparagraph
(2),thesecondaryobligormayperformitsobligationstoapersonentitledto
enforcetheinstrumentasifthetimeforpaymenthadnotbeenextendedor,
unlessthetermsoftheextensionprovidethatthepersonentitledtoenforcethe
instrumentretainstherighttoenforcetheinstrumentagainstthesecondary
obligorasifthetimeforpaymenthadnotbeenextended,treatthetimefor
performanceofitsobligationsashavingbeenextendedcorrespondingly.
(c)Ifapersonentitledtoenforceaninstrumentagrees,withorwithoutconsideration,
toamodificationoftheobligationofaprincipalobligorotherthanacompleteorpartial
[ 180 ]
releaseoranextensionoftheduedateandanotherpartytotheinstrumentisa
secondaryobligorwithrespecttotheobligationofthatprincipalobligor,thefollowing
rulesapply:
toanypreviouspaymentbythesecondaryobligorarenotaffected.The
modificationcorrespondinglymodifiesanyotherdutiesowedtothesecondary
obligorbytheprincipalobligorunderthisarticle.
(2)Thesecondaryobligorisdischargedfromanyunperformedportionofits
obligationtotheextentthatthemodificationwouldotherwisecausethe
secondaryobligoraloss.
(3)Totheextentthatthesecondaryobligorisnotdischargedunderparagraph
(2),thesecondaryobligormaysatisfyitsobligationontheinstrumentasifthe
modificationhadnotoccurred,ortreatitsobligationontheinstrumentas
havingbeenmodifiedcorrespondingly.
(d)Iftheobligationofaprincipalobligorissecuredbyaninterestincollateral,another
partytotheinstrumentisasecondaryobligorwithrespecttothatobligation,anda
personentitledtoenforcetheinstrumentimpairsthevalueoftheinterestincollateral,
theobligationofthesecondaryobligorisdischargedtotheextentoftheimpairment.
Thevalueofaninterestincollateralisimpairedtotheextentthevalueoftheinterestis
reducedtoanamountlessthantheamountoftherecourseofthesecondaryobligor,or
thereductioninvalueoftheinterestcausesanincreaseintheamountbywhichthe
amountoftherecourseexceedsthevalueoftheinterest.Forpurposesofthis
subsection,impairingthevalueofaninterestincollateralincludesfailuretoobtainor
maintainperfectionorrecordationoftheinterestincollateral,releaseofcollateral
withoutsubstitutionofcollateralofequalvalueorequivalentreductionofthe
underlyingobligation,failuretoperformadutytopreservethevalueofcollateralowed,
underArticle9orotherlaw,toadebtororotherpersonsecondarilyliable,andfailure
tocomplywithapplicablelawindisposingoforotherwiseenforcingtheinterestin
collateral.
(e)Asecondaryobligorisnotdischargedundersubsection(a)(3),(b),(c),or(d)unless
thepersonentitledtoenforcetheinstrumentknowsthatthepersonisasecondary
obligororhasnoticeunderSection3419(c)thattheinstrumentwassignedfor
accommodation.
(f)Asecondaryobligorisnotdischargedunderthissectionifthesecondaryobligor
consentstotheeventorconductthatisthebasisofthedischarge,ortheinstrumentor
aseparateagreementofthepartyprovidesforwaiverofdischargeunderthissection
specificallyorbygenerallanguageindicatingthatpartieswaivedefensesbasedon
suretyshiporimpairmentofcollateral.Unlessthecircumstancesindicateotherwise,
consentbytheprincipalobligortoanactthatwouldleadtoadischargeunderthis
sectionconstitutesconsenttothatactbythesecondaryobligorifthesecondaryobligor
controlstheprincipalobligorordealswiththepersonentitledtoenforcethe
instrumentonbehalfoftheprincipalobligor.
[ 181 ]
(g)Areleaseorextensionpreservesasecondaryobligor'srecourseifthetermsofthe
releaseorextensionprovidethatthepersonentitledtoenforcetheinstrumentretains
therighttoenforcetheinstrumentagainstthesecondaryobligor;andtherecourseof
thesecondaryobligorcontinuesasthoughthereleaseorextensionhadnotbeen
granted.
(h)Exceptasotherwiseprovidedinsubsection(i),asecondaryobligorasserting
dischargeunderthissectionhastheburdenofpersuasionbothwithrespecttothe
occurrenceoftheactsallegedtoharmthesecondaryobligorandlossorprejudice
causedbythoseacts.
(i)Ifthesecondaryobligordemonstratesprejudicecausedbyanimpairmentofits
recourse,andthecircumstancesofthecaseindicatethattheamountoflossisnot
reasonablysusceptibleofcalculationorrequiresproofoffactsthatarenot
ascertainable,itispresumedthattheactimpairingrecoursecausedalossor
impairmentequaltotheliabilityofthesecondaryobligorontheinstrument.Inthat
event,theburdenofpersuasionastoanylesseramountofthelossisontheperson
entitledtoenforcetheinstrument.
[ 182 ]
M.I.C.NOTES[UCCARTICLE3:NEGOTIABLEINSTRUMENTS]
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[ 192 ]
U.C.C.ARTICLE4BANKDEPOSITSANDCOLLECTIONS
4101.SHORTTITLE.
4102.APPLICABILITY.
4103.VARIATIONBYAGREEMENT;MEASUREOFDAMAGES;ACTIONCONSTITUTING
ORDINARYCARE.
4104.DEFINITIONSANDINDEXOFDEFINITIONS.
4105."BANK";"DEPOSITARYBANK";"PAYORBANK";"INTERMEDIARYBANK";
"COLLECTINGBANK";"PRESENTINGBANK".
4106.PAYABLETHROUGHORPAYABLEATBANK;COLLECTINGBANK.
4107.SEPARATEOFFICEOFBANK.
4108.TIMEOFRECEIPTOFITEMS.
4109.DELAYS.
4110.ELECTRONICPRESENTMENT.
PART2.COLLECTIONOFITEMS:DEPOSITARYANDCOLLECTINGBANKS
4201.STATUSOFCOLLECTINGBANKASAGENTANDPROVISIONALSTATUSOF
CREDITS;APPLICABILITYOFARTICLE;ITEMINDORSED"PAYANYBANK".
4202.RESPONSIBILITYFORCOLLECTIONORRETURN;WHENACTIONTIMELY.
4203.EFFECTOFINSTRUCTIONS.
4204.METHODSOFSENDINGANDPRESENTING;SENDINGDIRECTLYTOPAYORBANK.
4205.DEPOSITARYBANKHOLDEROFUNINDORSEDITEM.
4206.TRANSFERBETWEENBANKS.
4209.ENCODINGANDRETENTIONWARRANTIES.
4210.SECURITYINTERESTOFCOLLECTINGBANKINITEMS,ACCOMPANYING
DOCUMENTSANDPROCEEDS.
4211.WHENBANKGIVESVALUEFORPURPOSESOFHOLDERINDUECOURSE.
4212.PRESENTMENTBYNOTICEOFITEMNOTPAYABLEBY,THROUGH,ORATBANK;
LIABILITYOFDRAWERORINDORSER.
4213.MEDIUMANDTIMEOFSETTLEMENTBYBANK.
4214.RIGHTOFCHARGEBACKORREFUND;LIABILITYOFCOLLECTINGBANK;
RETURNOFITEM.
4215.FINALPAYMENTOFITEMBYPAYORBANK;WHENPROVISIONALDEBITSAND
CREDITSBECOMEFINAL;WHENCERTAINCREDITSBECOMEAVAILABLEFOR
WITHDRAWAL.
4216.INSOLVENCYANDPREFERENCE.
PART3.COLLECTIONOFITEMS:PAYORBANKS.
4301.DEFERREDPOSTING;RECOVERYOFPAYMENTBYRETURNOFITEMS;TIMEOF
DISHONOR;RETURNOFITEMSBYPAYORBANK.
[ 193 ]
4302.PAYORBANK'SRESPONSIBILITYFORLATERETURNOFITEM.
4303.WHENITEMSSUBJECTTONOTICE,STOPPAYMENTORDER,LEGALPROCESS,OR
SETOFF;ORDERINWHICHITEMSMAYBECHARGEDORCERTIFIED.
PART4.RELATIONSHIPBETWEENPAYORBANKANDITSCUSTOMER
4401.WHENBANKMAYCHARGECUSTOMER'SACCOUNT.
4402.BANK'SLIABILITYTOCUSTOMERFORWRONGFULDISHONOR;TIMEOF
DETERMININGINSUFFICIENCYOFACCOUNT.
4403.CUSTOMER'SRIGHTTOSTOPPAYMENT;BURDENOFPROOFOFLOSS.
4404.BANKNOTOBLIGEDTOPAYCHECKMORETHANSIXMONTHSOLD.
4405.DEATHORINCOMPETENCEOFCUSTOMER.
4406.CUSTOMER'SDUTYTODISCOVERANDREPORTUNAUTHORIZEDSIGNATUREOR
ALTERATION.
4407.PAYORBANK'SRIGHTTOSUBROGATIONONIMPROPERPAYMENT.
PART5.COLLECTIONOFDOCUMENTATARYDRAFTS
4501.HANDLINGOFDOCUMENTARYDRAFTS;DUTYTOSENDFORPRESENTMENT
ANDTONOTIFYCUSTOMEROFDISHONOR.
4502.PRESENTMENTOF"ONARRIVAL"DRAFTS.
4503.RESPONSIBILITYOFPRESENTINGBANKFORDOCUMENTSANDGOODS;REPORT
OFREASONSFORDISHONOR;REFEREEINCASEOFNEED.
4504.PRIVILEGEOFPRESENTINGBANKTODEALWITHGOODS;SECURITYINTEREST
FOREXPENSES.
[ 194 ]
4101.SHORTTITLE.
ThisArticlemaybecitedasUniformCommercialCodeBankDepositsandCollections.
4102.APPLICABILITY.
(a)TotheextentthatitemswithinthisArticlearealsowithinArticles3and8,theyare
subjecttothoseArticles.Ifthereisconflict,thisArticlegovernsArticle3,butArticle8
governsthisArticle.
(b)Theliabilityofabankforactionornonactionwithrespecttoanitemhandledbyitfor
purposesofpresentment,payment,orcollectionisgovernedbythelawoftheplacewhere
thebankislocated.Inthecaseofactionornonactionbyoratabranchorseparateoffice
ofabank,itsliabilityisgovernedbythelawoftheplacewherethebranchorseparate
officeislocated.
4103.VARIATIONBYAGREEMENT;MEASUREOFDAMAGES;ACTIONCONSTITUTING
ORDINARYCARE.
(a)TheeffectoftheprovisionsofthisArticlemaybevariedbyagreement,buttheparties
totheagreementcannotdisclaimabank'sresponsibilityforitslackofgoodfaithorfailure
toexerciseordinarycareorlimitthemeasureofdamagesforthelackorfailure.However,
thepartiesmaydeterminebyagreementthestandardsbywhichthebank'sresponsibility
istobemeasuredifthosestandardsarenotmanifestlyunreasonable.
(b)FederalReserveregulationsandoperatingcirculars,clearinghouserules,andthelike
havetheeffectofagreementsundersubsection(a),whetherornotspecificallyassentedto
byallpartiesinterestedinitemshandled.
(c)ActionornonactionapprovedbythisArticleorpursuanttoFederalReserve
regulationsoroperatingcircularsistheexerciseofordinarycareand,intheabsenceof
specialinstructions,actionornonactionconsistentwithclearinghouserulesandthelike
orwithageneralbankingusagenotdisapprovedbythisArticle,isprimafacietheexercise
ofordinarycare.
(d)ThespecificationorapprovalofcertainproceduresbythisArticleisnotdisapprovalof
otherproceduresthatmaybereasonableunderthecircumstances.
(e)Themeasureofdamagesforfailuretoexerciseordinarycareinhandlinganitemisthe
amountoftheitemreducedbyanamountthatcouldnothavebeenrealizedbythe
exerciseofordinarycare.Ifthereisalsobadfaithitincludesanyotherdamagestheparty
sufferedasaproximateconsequence.
(a)InthisArticle,unlessthecontextotherwiserequires:
[ 195 ]
(1)"Account"meansanydepositorcreditaccountwithabank,includinga
demand,time,savings,passbook,sharedraft,orlikeaccount,otherthananaccount
evidencedbyacertificateofdeposit;
(2)"Afternoon"meanstheperiodofadaybetweennoonandmidnight;
(3)"Bankingday"meansthepartofadayonwhichabankisopentothepublicfor
carryingonsubstantiallyallofitsbankingfunctions;
(4)"Clearinghouse"meansanassociationofbanksorotherpayorsregularly
clearingitems;
(5)"Customer"meansapersonhavinganaccountwithabankorforwhomabank
hasagreedtocollectitems,includingabankthatmaintainsanaccountatanother
bank;
(6)"Documentarydraft"meansadrafttobepresentedforacceptanceorpaymentif
specifieddocuments,certificatedsecurities(Section8102)orinstructionsfor
uncertificatedsecurities(Section8102),orothercertificates,statements,orthelike
aretobereceivedbythedraweeorotherpayorbeforeacceptanceorpaymentof
thedraft;
(7)"Draft"meansadraftasdefinedinSection3104oranitem,otherthanan
instrument,thatisanorder.
(8)"Drawee"meansapersonorderedinadrafttomakepayment.
(9)"Item"meansaninstrumentorapromiseorordertopaymoneyhandledbya
bankforcollectionorpayment.Thetermdoesnotincludeapaymentorder
governedbyArticle4Aoracreditordebitcardslip;
(10)"Midnightdeadline"withrespecttoabankismidnightonitsnextbankingday
followingthebankingdayonwhichitreceivestherelevantitemornoticeorfrom
whichthetimefortakingactioncommencestorun,whicheverislater;
(11)"Settle"meanstopayincash,byclearinghousesettlement,inachargeor
creditorbyremittance,orotherwiseasagreed.Asettlementmaybeeither
provisionalorfinal.
(12)"Suspendspayments"withrespecttoabankmeansthatithasbeenclosedby
orderofthesupervisoryauthorities,thatapublicofficerhasbeenappointedtotake
itover,orthatitceasesorrefusestomakepaymentsintheordinarycourseof
business.
"Agreementforelectronicpresentment"Section4110
"Collectingbank"Section4105
[ 196 ]
"Depositarybank"Section4105
"Intermediarybank"Section4105
"Payorbank"Section4105
"Presentingbank"Section4105
"Presentmentnotice"Section4110
(c)"Control"asprovidedinSection7106andthefollowingdefinitionsinotherArticles
applytothisArticle:
"Acceptance"Section3409
"Alteration"Section3407
"Cashier'scheck"Section3104
"Certificateofdeposit"Section3104
"Certifiedcheck"Section3409
"Check"Section3104
"Holderinduecourse"Section3302
"Instrument"Section3104
"Noticeofdishonor"Section3503
"Order"Section3103
"Ordinarycare"Section3103
"Personentitledtoenforce"Section3301
"Presentment"Section3501
"Promise"Section3103
"Prove"Section3103
"Record"Section3103.
"RemotelyCreatedconsumeritem"Section3103.
"Teller'scheck"Section3104
[ 197 ]
"Unauthorizedsignature"Section3403
(d)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
4105."BANK";"DEPOSITARYBANK";"PAYORBANK";"INTERMEDIARYBANK";
"COLLECTINGBANK";"PRESENTINGBANK".
InthisArticle:
(1)"Bank"meansapersonengagedinthebusinessofbanking,includingasavings
bank,savingsandloanassociation,creditunion,ortrustcompany.
(2)"Depositarybank"meansthefirstbanktotakeanitemeventhoughitisalsothe
payorbank,unlesstheitemispresentedforimmediatepaymentoverthecounter;
(3)"Payorbank"meansabankthatisthedraweeofadraft;
(4)"Intermediarybank"meansabanktowhichanitemistransferredincourseof
collectionexceptthedepositaryorpayorbank;
(5)"Collectingbank"meansabankhandlinganitemforcollectionexceptthepayor
bank;
(6)"Presentingbank"meansabankpresentinganitemexceptapayorbank.
4106.PAYABLETHROUGHORPAYABLEATBANK;COLLECTINGBANK.
(a)Ifanitemstatesthatitis"payablethrough"abankidentifiedintheitem,(i)theitem
designatesthebankasacollectingbankanddoesnotbyitselfauthorizethebanktopaythe
item,and(ii)theitemmaybepresentedforpaymentonlybyorthroughthebank.
AlternativeA
(b)Ifanitemstatesthatitis"payableat"abankidentifiedintheitem,theitemis
equivalenttoadraftdrawnonthebank.
AlternativeB
(b)Ifanitemstatesthatitis"payableat"abankidentifiedintheitem,(i)theitem
designatesthebankasacollectingbankanddoesnotbyitselfauthorizethebanktopaythe
item,and(ii)theitemmaybepresentedforpaymentonlybyorthroughthebank.
(c)Ifadraftnamesanonbankdraweeanditisunclearwhetherabanknamedinthedraft
isacodraweeoracollectingbank,thebankisacollectingbank.
[ 198 ]
4107.SEPARATEOFFICEOFBANK.
Abranchorseparateofficeofabankisaseparatebankforthepurposeofcomputingthe
timewithinwhichanddeterminingtheplaceatortowhichactionmaybetakenornotice
orordersmustbegivenunderthisArticleandunderArticle3.
4108.TIMEOFRECEIPTOFITEMS.
(a)Forthepurposeofallowingtimetoprocessitems,provebalances,andmakethe
necessaryentriesonitsbookstodetermineitspositionfortheday,abankmayfixan
afternoonhourof2P.M.orlaterasacutoffhourforthehandlingofmoneyanditemsand
themakingofentriesonitsbooks.
(b)Anitemordepositofmoneyreceivedonanydayafteracutoffhoursofixedorafter
thecloseofthebankingdaymaybetreatedasbeingreceivedattheopeningofthenext
bankingday.
4109.DELAYS.
(a)Unlessotherwiseinstructed,acollectingbankinagoodfaithefforttosecurepayment
ofaspecificitemdrawnonapayorotherthanabank,andwithorwithouttheapprovalof
anypersoninvolved,maywaive,modify,orextendtimelimitsimposedorpermittedby
this[Act]foraperiodnotexceedingtwoadditionalbankingdayswithoutdischargeof
drawersorindorsersorliabilitytoitstransferororapriorparty.
(b)Delaybyacollectingbankorpayorbankbeyondtimelimitsprescribedorpermitted
bythis[Act]orbyinstructionsisexcusedif(i)thedelayiscausedbyinterruptionof
communicationorcomputerfacilities,suspensionofpaymentsbyanotherbank,war,
emergencyconditions,failureofequipment,orothercircumstancesbeyondthecontrolof
thebank,and(ii)thebankexercisessuchdiligenceasthecircumstancesrequire.
4110.ELECTRONICPRESENTMENT.
(a)"Agreementforelectronicpresentment"meansanagreement,clearinghouserule,or
FederalReserveregulationoroperatingcircular,providingthatpresentmentofanitem
maybemadebytransmissionofanimageofanitemorinformationdescribingtheitem
("presentmentnotice")ratherthandeliveryoftheitemitself.Theagreementmayprovide
forproceduresgoverningretention,presentment,payment,dishonor,andothermatters
concerningitemssubjecttotheagreement.
(b)Presentmentofanitempursuanttoanagreementforpresentmentismadewhenthe
presentmentnoticeisreceived.
(c)Ifpresentmentismadebypresentmentnotice,areferenceto"item"or"check"inthis
Articlemeansthepresentmentnoticeunlessthecontextotherwiseindicates.
[ 199 ]
Anactiontoenforceanobligation,duty,orrightarisingunderthisArticlemustbe
commencedwithinthreeyearsafterthe[causeofaction]accrues.
PART2.COLLECTIONOFITEMS:DEPOSITARYANDCOLLECTINGBANKS
4201.STATUSOFCOLLECTINGBANKASAGENTANDPROVISIONALSTATUSOF
CREDITS;APPLICABILITYOFARTICLE;ITEMINDORSED"PAYANYBANK".
(a)Unlessacontraryintentclearlyappearsandbeforethetimethatasettlementgivenby
acollectingbankforanitemisorbecomesfinal,thebank,withrespecttotheitem,isan
agentorsubagentoftheowneroftheitemandanysettlementgivenfortheitemis
provisional.Thisprovisionappliesregardlessoftheformofindorsementorlackof
indorsementandeventhoughcreditgivenfortheitemissubjecttoimmediatewithdrawal
asofrightorisinfactwithdrawn;butthecontinuanceofownershipofanitembyitsowner
andanyrightsoftheownertoproceedsoftheitemaresubjecttorightsofacollecting
bank,suchasthoseresultingfromoutstandingadvancesontheitemandrightsof
recoupmentorsetoff.Ifanitemishandledbybanksforpurposesofpresentment,
payment,collection,orreturn,therelevantprovisionsofthisArticleapplyeventhough
actionofthepartiesclearlyestablishesthataparticularbankhaspurchasedtheitemandis
theownerofit.
(b)Afteranitemhasbeenindorsedwiththewords"payanybank"orthelike,onlyabank
mayacquiretherightsofaholderuntiltheitemhasbeen:
(1)returnedtothecustomerinitiatingcollection;or
(2)speciallyindorsedbyabanktoapersonwhoisnotabank.
4202.RESPONSIBILITYFORCOLLECTIONORRETURN;WHENACTIONTIMELY.
(a)Acollectingbankmustexerciseordinarycarein:
(1)presentinganitemorsendingitforpresentment;
(2)sendingnoticeofdishonorornonpaymentorreturninganitemotherthana
documentarydrafttothebank'stransferorafterlearningthattheitemhasnotbeen
paidoraccepted,asthecasemaybe;
(3)settlingforanitemwhenthebankreceivesfinalsettlement;and
(4)notifyingitstransferorofanylossordelayintransitwithinareasonabletime
afterdiscoverythereof.
(b)Acollectingbankexercisesordinarycareundersubsection(a)bytakingproperaction
beforeitsmidnightdeadlinefollowingreceiptofanitem,notice,orsettlement.Taking
properactionwithinareasonablylongertimemayconstitutetheexerciseofordinarycare,
butthebankhastheburdenofestablishingtimeliness.
[ 200 ]
(c)Subjecttosubsection(a)(1),abankisnotliablefortheinsolvency,neglect,
misconduct,mistake,ordefaultofanotherbankorpersonorforlossordestructionofan
iteminthepossessionofothersorintransit.
4203.EFFECTOFINSTRUCTIONS.
SubjecttoArticle3concerningconversionofinstruments(Section3420)andrestrictive
indorsements(Section3206),onlyacollectingbank'stransferorcangiveinstructionsthat
affectthebankorconstitutenoticetoit,andacollectingbankisnotliabletopriorparties
foranyactiontakenpursuanttotheinstructionsorinaccordancewithanyagreementwith
itstransferor.
4204.METHODSOFSENDINGANDPRESENTING;SENDINGDIRECTLYTOPAYORBANK.
(a)Acollectingbankshallsenditemsbyareasonablypromptmethod,takinginto
considerationrelevantinstructions,thenatureoftheitem,thenumberofthoseitemson
hand,thecostofcollectioninvolved,andthemethodgenerallyusedbyitorothersto
presentthoseitems.
(b)Acollectingbankmaysend:
(1)anitemdirectlytothepayorbank;
(2)anitemtoanonbankpayorifauthorizedbyitstransferor;and
(3)anitemotherthandocumentarydraftstoanonbankpayor,ifauthorizedby
FederalReserveregulationoroperatingcircular,clearinghouserule,orthelike.
(c)Presentmentmaybemadebyapresentingbankataplacewherethepayorbankor
otherpayorhasrequestedthatpresentmentbemade.
4205.DEPOSITARYBANKHOLDEROFUNINDORSEDITEM.
Ifacustomerdeliversanitemtoadepositarybankforcollection:
(1)thedepositarybankbecomesaholderoftheitematthetimeitreceivestheitem
forcollectionifthecustomeratthetimeofdeliverywasaholderoftheitem,
whetherornotthecustomerindorsestheitem,and,ifthebanksatisfiestheother
requirementsofSection3302,itisaholderinduecourse;and
(2)thedepositarybankwarrantstocollectingbanks,thepayorbankorotherpayor,
andthedrawerthattheamountoftheitemwaspaidtothecustomerordeposited
tothecustomer'saccount.
4206.TRANSFERBETWEENBANKS.
Anyagreedmethodthatidentifiesthetransferorbankissufficientfortheitem'sfurther
transfertoanotherbank.
[ 201 ]
(a)Acustomerorcollectingbankthattransfersanitemandreceivesasettlementorother
considerationwarrantstothetransfereeandtoanysubsequentcollectingbankthat:
(1)thewarrantorisapersonentitledtoenforcetheitem;
(2)allsignaturesontheitemareauthenticandauthorized;
(3)theitemhasnotbeenaltered;
(4)theitemisnotsubjecttoadefenseorclaiminrecoupment(Section3305(a))of
anypartythatcanbeassertedagainstthewarrantor;and
(5)thewarrantorhasnoknowledgeofanyinsolvencyproceedingcommencedwith
respecttothemakeroracceptoror,inthecaseofanunaccepteddraft,thedrawer;
and
(6)withrespecttoanyremotelycreatedconsumeritem,thatthepersononwhose
(b)Ifanitemisdishonored,acustomerorcollectingbanktransferringtheitemand
receivingsettlementorotherconsiderationisobligedtopaytheamountdueontheitem(i)
accordingtothetermsoftheitematthetimeitwastransferred,or(ii)ifthetransferwas
ofanincompleteitem,accordingtoitstermswhencompletedasstatedinSections3115
and3407.Theobligationofatransferorisowedtothetransfereeandtoanysubsequent
collectingbankthattakestheitemingoodfaith.Atransferorcannotdisclaimitsobligation
underthissubsectionbyanindorsementstatingthatitismade"withoutrecourse"or
otherwisedisclaimingliability.
(c)Apersontowhomthewarrantiesundersubsection(a)aremadeandwhotookthe
itemingoodfaithmayrecoverfromthewarrantorasdamagesforbreachofwarrantyan
amountequaltothelosssufferedasaresultofthebreach,butnotmorethantheamountof
theitemplusexpensesandlossofinterestincurredasaresultofthebreach.
(d)Thewarrantiesstatedinsubsection(a)cannotbedisclaimedwithrespecttochecks.
Unlessnoticeofaclaimforbreachofwarrantyisgiventothewarrantorwithin30days
aftertheclaimanthasreasontoknowofthebreachandtheidentityofthewarrantor,the
warrantorisdischargedtotheextentofanylosscausedbythedelayingivingnoticeofthe
claim.
(e)Acauseofactionforbreachofwarrantyunderthissectionaccrueswhentheclaimant
hasreasontoknowofthebreach.
(a)Ifanunaccepteddraftispresentedtothedraweeforpaymentoracceptanceandthe
draweepaysoracceptsthedraft,(i)thepersonobtainingpaymentoracceptance,atthe
[ 202 ]
timeofpresentment,and(ii)aprevioustransferorofthedraft,atthetimeoftransfer,
warranttothedraweethatpaysoracceptsthedraftingoodfaiththat:
(1)thewarrantoris,orwas,atthetimethewarrantortransferredthedraft,a
personentitledtoenforcethedraftorauthorizedtoobtainpaymentoracceptance
ofthedraftonbehalfofapersonentitledtoenforcethedraft;
(2)thedrafthasnotbeenaltered;and
(3)thewarrantorhasnoknowledgethatthesignatureofthepurporteddrawerof
thedraftisunauthorized;and
(4)withrespecttoanyremotelycreatedconsumeritem,thatthepersononwhose
(b)Adraweemakingpaymentmayrecoverfromawarrantordamagesforbreachof
warrantyequaltotheamountpaidbythedraweelesstheamountthedraweereceivedor
isentitledtoreceivefromthedrawerbecauseofthepayment.Inaddition,thedraweeis
entitledtocompensationforexpensesandlossofinterestresultingfromthebreach.The
rightofthedraweetorecoverdamagesunderthissubsectionisnotaffectedbyanyfailure
ofthedraweetoexerciseordinarycareinmakingpayment.Ifthedraweeacceptsthedraft
(i)breachofwarrantyisadefensetotheobligationoftheacceptor,and(ii)iftheacceptor
makespaymentwithrespecttothedraft,theacceptorisentitledtorecoverfroma
warrantorforbreachofwarrantytheamountsstatedinthissubsection.
(c)Ifadraweeassertsaclaimforbreachofwarrantyundersubsection(a)basedonan
unauthorizedindorsementofthedraftoranalterationofthedraft,thewarrantormay
defendbyprovingthattheindorsementiseffectiveunderSection3404or3405orthe
drawerisprecludedunderSection3406or4406fromassertingagainstthedraweethe
unauthorizedindorsementoralteration.
(d)If(i)adishonoreddraftispresentedforpaymenttothedraweroranindorseror(ii)
anyotheritemispresentedforpaymenttoapartyobligedtopaytheitem,andtheitemis
paid,thepersonobtainingpaymentandapriortransferoroftheitemwarranttothe
personmakingpaymentingoodfaiththatthewarrantoris,orwas,atthetimethe
warrantortransferredtheitem,apersonentitledtoenforcetheitemorauthorizedto
obtainpaymentonbehalfofapersonentitledtoenforcetheitem.Thepersonmaking
paymentmayrecoverfromanywarrantorforbreachofwarrantyanamountequaltothe
amountpaidplusexpensesandlossofinterestresultingfromthebreach.
(e)Thewarrantiesstatedinsubsections(a)and(d)cannotbedisclaimedwithrespectto
checks.Unlessnoticeofaclaimforbreachofwarrantyisgiventothewarrantorwithin30
daysaftertheclaimanthasreasontoknowofthebreachandtheidentityofthewarrantor,
thewarrantorisdischargedtotheextentofanylosscausedbythedelayingivingnoticeof
theclaim.
(f)Acauseofactionforbreachofwarrantyunderthissectionaccrueswhentheclaimant
hasreasontoknowofthebreach.
[ 203 ]
4209.ENCODINGANDRETENTIONWARRANTIES.
(a)Apersonwhoencodesinformationonorwithrespecttoanitemafterissuewarrants
toanysubsequentcollectingbankandtothepayorbankorotherpayorthatthe
informationiscorrectlyencoded.Ifthecustomerofadepositarybankencodes,thatbank
alsomakesthewarranty.
(b)Apersonwhoundertakestoretainanitempursuanttoanagreementforelectronic
presentmentwarrantstoanysubsequentcollectingbankandtothepayorbankorother
payorthatretentionandpresentmentoftheitemcomplywiththeagreement.Ifa
customerofadepositarybankundertakestoretainanitem,thatbankalsomakesthis
warranty.
(c)Apersontowhomwarrantiesaremadeunderthissectionandwhotooktheitemin
goodfaithmayrecoverfromthewarrantorasdamagesforbreachofwarrantyanamount
equaltothelosssufferedasaresultofthebreach,plusexpensesandlossofinterest
incurredasaresultofthebreach.
4210.SECURITYINTERESTOFCOLLECTINGBANKINITEMS,ACCOMPANYING
DOCUMENTSANDPROCEEDS.
(a)Acollectingbankhasasecurityinterestinanitemandanyaccompanyingdocuments
ortheproceedsofeither:
(1)incaseofanitemdepositedinanaccount,totheextenttowhichcreditgivenfor
theitemhasbeenwithdrawnorapplied;
(2)incaseofanitemforwhichithasgivencreditavailableforwithdrawalasof
right,totheextentofthecreditgiven,whetherornotthecreditisdrawnuponor
thereisarightofchargeback;or
(3)ifitmakesanadvanceonoragainsttheitem.
(b)Ifcreditgivenforseveralitemsreceivedatonetimeorpursuanttoasingleagreement
iswithdrawnorappliedinpart,thesecurityinterestremainsuponalltheitems,any
accompanyingdocumentsortheproceedsofeither.Forthepurposeofthissection,credits
firstgivenarefirstwithdrawn.
(c)Receiptbyacollectingbankofafinalsettlementforanitemisarealizationonits
securityinterestintheitem,accompanyingdocuments,andproceeds.Solongasthebank
doesnotreceivefinalsettlementfortheitemorgiveuppossessionoftheitemor
possessionorcontroloftheaccompanyingdocumentsforpurposesotherthancollection,
thesecurityinterestcontinuestothatextentandissubjecttoArticle9,but:
(1)nosecurityagreementisnecessarytomakethesecurityinterestenforceable(
Section9203(b)(3)(A));
(2)nofilingisrequiredtoperfectthesecurityinterest;and
[ 204 ]
(3)thesecurityinteresthaspriorityoverconflictingperfectedsecurityinterestsin
theitem,accompanyingdocuments,orproceeds.
4211.WHENBANKGIVESVALUEFORPURPOSESOFHOLDERINDUECOURSE.
Forpurposesofdeterminingitsstatusasaholderinduecourse,abankhasgivenvalueto
theextentithasasecurityinterestinanitem,ifthebankotherwisecomplieswiththe
requirementsofSection3302onwhatconstitutesaholderinduecourse.
4212.PRESENTMENTBYNOTICEOFITEMNOTPAYABLEBY,THROUGH,ORATBANK;
LIABILITYOFDRAWERORINDORSER.
(a)Unlessotherwiseinstructed,acollectingbankmaypresentanitemnotpayableby,
through,oratabankbysendingtothepartytoacceptorpayarecordprovidingnoticethat
thebankholdstheitemforacceptanceorpayment.Thenoticemustbesentintimetobe
receivedonorbeforethedaywhenpresentmentisdueandthebankmustmeetany
requirementofthepartytoacceptorpayunderSection3501bythecloseofthebank's
nextbankingdayafteritknowsoftherequirement.
(b)Ifpresentmentismadebynoticeandpayment,acceptance,orrequestforcompliance
witharequirementunderSection3501isnotreceivedbythecloseofbusinessontheday
aftermaturityor,inthecaseofdemanditems,bythecloseofbusinessonthethirdbanking
dayafternoticewassent,thepresentingbankmaytreattheitemasdishonoredandcharge
anydrawerorindorserbysendingitnoticeofthefacts.
4213.MEDIUMANDTIMEOFSETTLEMENTBYBANK.
(a)Withrespecttosettlementbyabank,themediumandtimeofsettlementmaybe
prescribedbyFederalReserveregulationsorcirculars,clearinghouserules,andthelike,
oragreement.Intheabsenceofsuchprescription:
(1)themediumofsettlementiscashorcredittoanaccountinaFederalReserve
bankoforspecifiedbythepersontoreceivesettlement;and
(2)thetimeofsettlement,is:
(i)withrespecttotenderofsettlementbycash,acashier'scheck,orteller's
check,whenthecashorcheckissentordelivered;
(ii)withrespecttotenderofsettlementbycreditinanaccountinaFederal
ReserveBank,whenthecreditismade;
(iii)withrespecttotenderofsettlementbyacreditordebittoanaccountin
abank,whenthecreditordebitismadeor,inthecaseoftenderof
settlementbyauthoritytochargeanaccount,whentheauthorityissentor
delivered;or
(iv)withrespecttotenderofsettlementbyafundstransfer,whenpayment
ismadepursuanttoSection4A406(a)tothepersonreceivingsettlement.
[ 205 ]
(b)Ifthetenderofsettlementisnotbyamediumauthorizedbysubsection(a)orthetime
ofsettlementisnotfixedbysubsection(a),nosettlementoccursuntilthetenderof
settlementisacceptedbythepersonreceivingsettlement.
(c)Ifsettlementforanitemismadebycashier'scheckorteller'scheckandtheperson
receivingsettlement,beforeitsmidnightdeadline:
(1)presentsorforwardsthecheckforcollection,settlementisfinalwhenthecheck
isfinallypaid;or
(2)failstopresentorforwardthecheckforcollection,settlementisfinalatthe
midnightdeadlineofthepersonreceivingsettlement.
(d)Ifsettlementforanitemismadebygivingauthoritytochargetheaccountofthebank
givingsettlementinthebankreceivingsettlement,settlementisfinalwhenthechargeis
madebythebankreceivingsettlementiftherearefundsavailableintheaccountforthe
amountoftheitem.
4214.RIGHTOFCHARGEBACKORREFUND;LIABILITYOFCOLLECTINGBANK;RETURN
OFITEM.
(a)Ifacollectingbankhasmadeprovisionalsettlementwithitscustomerforanitemand
failsbyreasonofdishonor,suspensionofpaymentsbyabank,orotherwisetoreceive
settlementfortheitemwhichisorbecomesfinal,thebankmayrevokethesettlement
givenbyit,chargebacktheamountofanycreditgivenfortheitemtoitscustomer's
account,orobtainrefundfromitscustomer,whetherornotitisabletoreturntheitem,if
byitsmidnightdeadlineorwithinalongerreasonabletimeafteritlearnsthefactsit
returnstheitemorsendsnotificationofthefacts.Ifthereturnornoticeisdelayedbeyond
thebank'smidnightdeadlineoralongerreasonabletimeafteritlearnsthefacts,thebank
mayrevokethesettlement,chargebackthecredit,orobtainrefundfromitscustomer,but
itisliableforanylossresultingfromthedelay.Theserightstorevoke,chargeback,and
obtainrefundterminateifandwhenasettlementfortheitemreceivedbythebankisor
becomesfinal.
(b)Acollectingbankreturnsanitemwhenitissentordeliveredtothebank'scustomeror
transferororpursuanttoitsinstructions.
(c)Adepositarybankthatisalsothepayormaychargebacktheamountofanitemtoits
customer'saccountorobtainrefundinaccordancewiththesectiongoverningreturnofan
itemreceivedbyapayorbankforcreditonitsbooks(Section4301).
(d)Therighttochargebackisnotaffectedby:
(1)previoususeofacreditgivenfortheitem;or
(2)failurebyanybanktoexerciseordinarycarewithrespecttotheitem,butabank
sofailingremainsliable.
[ 206 ]
(e)Afailuretochargebackorclaimrefunddoesnotaffectotherrightsofthebankagainst
thecustomeroranyotherparty.
(f)Ifcreditisgivenindollarsastheequivalentofthevalueofanitempayableinforeign
money,thedollaramountofanychargebackorrefundmustbecalculatedonthebasisof
thebankofferedspotratefortheforeignmoneyprevailingonthedaywhentheperson
entitledtothechargebackorrefundlearnsthatitwillnotreceivepaymentinordinary
course.
4215.FINALPAYMENTOFITEMBYPAYORBANK;WHENPROVISIONALDEBITSAND
CREDITSBECOMEFINAL;WHENCERTAINCREDITSBECOMEAVAILABLEFOR
WITHDRAWAL.
(a)Anitemisfinallypaidbyapayorbankwhenthebankhasfirstdoneanyofthe
following:
(1)paidtheitemincash;
(2)settledfortheitemwithouthavingarighttorevokethesettlementunder
statute,clearinghouserule,oragreement;or
(3)madeaprovisionalsettlementfortheitemandfailedtorevokethesettlementin
thetimeandmannerpermittedbystatute,clearinghouserule,oragreement.
(b)Ifprovisionalsettlementforanitemdoesnotbecomefinal,theitemisnotfinallypaid.
(c)Ifprovisionalsettlementforanitembetweenthepresentingandpayorbanksismade
throughaclearinghouseorbydebitsorcreditsinanaccountbetweenthem,thentothe
extentthatprovisionaldebitsorcreditsfortheitemareenteredinaccountsbetweenthe
presentingandpayorbanksorbetweenthepresentingandsuccessivepriorcollecting
banksseriatim,theybecomefinaluponfinalpaymentoftheitemsbythepayorbank.
(d)Ifacollectingbankreceivesasettlementforanitemwhichisorbecomesfinal,the
bankisaccountabletoitscustomerfortheamountoftheitemandanyprovisionalcredit
givenfortheiteminanaccountwithitscustomerbecomesfinal.
(e)Subjectto(i)applicablelawstatingatimeforavailabilityoffundsand(ii)anyrightof
thebanktoapplythecredittoanobligationofthecustomer,creditgivenbyabankforan
iteminacustomer'saccountbecomesavailableforwithdrawalasofright:
(1)ifthebankhasreceivedaprovisionalsettlementfortheitem,whenthe
settlementbecomesfinalandthebankhashadareasonabletimetoreceivereturn
oftheitemandtheitemhasnotbeenreceivedwithinthattime;
(2)ifthebankisboththedepositarybankandthepayorbank,andtheitemis
finallypaid,attheopeningofthebank'ssecondbankingdayfollowingreceiptofthe
item.
[ 207 ]
(f)Subjecttoapplicablelawstatingatimeforavailabilityoffundsandanyrightofabank
toapplyadeposittoanobligationofthedepositor,adepositofmoneybecomesavailable
forwithdrawalasofrightattheopeningofthebank'snextbankingdayafterreceiptofthe
deposit.
4216.INSOLVENCYANDPREFERENCE.
(a)Ifanitemisinorcomesintothepossessionofapayororcollectingbankthat
suspendspaymentandtheitemhasnotbeenfinallypaid,theitemmustbereturnedby
thereceiver,trustee,oragentinchargeoftheclosedbanktothepresentingbankorthe
closedbank'scustomer.
(b)Ifapayorbankfinallypaysanitemandsuspendspaymentswithoutmakinga
settlementfortheitemwithitscustomerorthepresentingbankwhichsettlementisor
becomesfinal,theowneroftheitemhasapreferredclaimagainstthepayorbank.
(c)Ifapayorbankgivesoracollectingbankgivesorreceivesaprovisionalsettlementfor
anitemandthereaftersuspendspayments,thesuspensiondoesnotpreventorinterfere
withthesettlement'sbecomingfinalifthefinalityoccursautomaticallyuponthelapseof
certaintimeorthehappeningofcertainevents.
(d)Ifacollectingbankreceivesfromsubsequentpartiessettlementforanitem,which
settlementisorbecomesfinalandthebanksuspendspaymentswithoutmakinga
settlementfortheitemwithitscustomerwhichsettlementisorbecomesfinal,theowner
oftheitemhasapreferredclaimagainstthecollectingbank.
PART3.COLLECTIONOFITEMS:PAYORBANKS.
4301.DEFERREDPOSTING;RECOVERYOFPAYMENTBYRETURNOFITEMS;TIMEOF
DISHONOR;RETURNOFITEMSBYPAYORBANK.
(a)Ifapayorbanksettlesforademanditemotherthanadocumentarydraftpresented
otherwisethanforimmediatepaymentoverthecounterbeforemidnightofthebanking
dayofreceipt,thepayorbankmayrevokethesettlementandrecoverthesettlementif,
beforeithasmadefinalpaymentandbeforeitsmidnightdeadline,it
(1)returnstheitem;
(2)returnsanimageoftheitem,ifthepartytowhichthereturnismadehasentered
intoanagreementtoacceptanimageasareturnoftheitem;andtheimageis
returnedinaccordancewiththatagreement;
(3)sendsarecordprovidingnoticeofdishonorornonpaymentiftheitemis
unavailableforreturn.
(b)Ifademanditemisreceivedbyapayorbankforcreditonitsbooks,itmayreturnthe
itemorsendnoticeofdishonorandmayrevokeanycreditgivenorrecovertheamount
thereofwithdrawnbyitscustomer,ifitactswithinthetimelimitandinthemanner
specifiedinsubsection(a).
[ 208 ]
(c)Unlesspreviousnoticeofdishonorhasbeensent,anitemisdishonoredatthetime
whenforpurposesofdishonoritisreturnedornoticesentinaccordancewiththissection.
(d)Anitemisreturned:
(1)astoanitempresentedthroughaclearinghouse,whenitisdeliveredtothe
presentingorlastcollectingbankortotheclearinghouseorissentordeliveredin
accordancewithclearinghouserules;or
(2)inallothercases,whenitissentordeliveredtothebank'scustomeror
transferororpursuanttoinstructions.
4302.PAYORBANK'SRESPONSIBILITYFORLATERETURNOFITEM.
(a)Ifanitemispresentedtoandreceivedbyapayorbank,thebankisaccountableforthe
amountof:
(1)ademanditem,otherthanadocumentarydraft,whetherproperlypayableor
not,ifthebank,inanycaseinwhichitisnotalsothedepositarybank,retainsthe
itembeyondmidnightofthebankingdayofreceiptwithoutsettlingforitor,
whetherornotitisalsothedepositarybank,doesnotpayorreturntheitemor
sendnoticeofdishonoruntilafteritsmidnightdeadline;or
(2)anyotherproperlypayableitemunless,withinthetimeallowedforacceptance
orpaymentofthatitem,thebankeitheracceptsorpaystheitemorreturnsitand
accompanyingdocuments.
(b)Theliabilityofapayorbanktopayanitempursuanttosubsection(a)issubjectto
defensesbasedonbreachofapresentmentwarranty(Section4208)orproofthatthe
personseekingenforcementoftheliabilitypresentedortransferredtheitemforthe
purposeofdefraudingthepayorbank.
4303.WHENITEMSSUBJECTTONOTICE,STOPPAYMENTORDER,LEGALPROCESS,OR
SETOFF;ORDERINWHICHITEMSMAYBECHARGEDORCERTIFIED.
(a)Anyknowledge,notice,orstoppaymentorderreceivedby,legalprocessservedupon,
orsetoffexercisedbyapayorbankcomestoolatetoterminate,suspend,ormodifythe
bank'srightordutytopayanitemortochargeitscustomer'saccountfortheitemifthe
knowledge,notice,stoppaymentorder,orlegalprocessisreceivedorservedanda
reasonabletimeforthebanktoactthereonexpiresorthesetoffisexercisedafterthe
earliestofthefollowing:
(1)thebankacceptsorcertifiestheitem;
(2)thebankpaystheitemincash;
(3)thebanksettlesfortheitemwithouthavingarighttorevokethesettlement
understatute,clearinghouserule,oragreement;
[ 209 ]
(4)thebankbecomesaccountablefortheamountoftheitemunderSection4302
dealingwiththepayorbank'sresponsibilityforlatereturnofitems;or
(5)withrespecttochecks,acutoffhournoearlierthanonehouraftertheopening
ofthenextbankingdayafterthebankingdayonwhichthebankreceivedthecheck
andnolaterthanthecloseofthatnextbankingdayor,ifnocutoffhourisfixed,the
closeofthenextbankingdayafterthebankingdayonwhichthebankreceivedthe
check.
(b)Subjecttosubsection(a),itemsmaybeaccepted,paid,certified,orchargedtothe
indicatedaccountofitscustomerinanyorder.
PART4.RELATIONSHIPBETWEENPAYORBANKANDITSCUSTOMER
4401.WHENBANKMAYCHARGECUSTOMER'SACCOUNT.
(a)Abankmaychargeagainsttheaccountofacustomeranitemthatisproperlypayable
fromthataccounteventhoughthechargecreatesanoverdraft.Anitemisproperly
payableifitisauthorizedbythecustomerandisinaccordancewithanyagreement
betweenthecustomerandbank.
(b)Acustomerisnotliablefortheamountofanoverdraftifthecustomerneithersigned
theitemnorbenefitedfromtheproceedsoftheitem.
(c)Abankmaychargeagainsttheaccountofacustomeracheckthatisotherwiseproperly
payablefromtheaccount,eventhoughpaymentwasmadebeforethedateofthecheck,
unlessthecustomerhasgivennoticetothebankofthepostdatingdescribingthecheck
withreasonablecertainty.ThenoticeiseffectivefortheperiodstatedinSection4403(b)
forstoppaymentorders,andmustbereceivedatsuchtimeandinsuchmannerasto
affordthebankareasonableopportunitytoactonitbeforethebanktakesanyactionwith
respecttothecheckdescribedinSection4303.Ifabankchargesagainsttheaccountofa
customeracheckbeforethedatestatedinthenoticeofpostdating,thebankisliablefor
damagesforthelossresultingfromitsact.Thelossmayincludedamagesfordishonorof
subsequentitemsunderSection4402.
(d)Abankthatingoodfaithmakespaymenttoaholdermaychargetheindicatedaccount
ofitscustomeraccordingto:
(1)theoriginaltermsofthealtereditem;or
(2)thetermsofthecompleteditem,eventhoughthebankknowstheitemhasbeen
completedunlessthebankhasnoticethatthecompletionwasimproper.
4402.BANK'SLIABILITYTOCUSTOMERFORWRONGFULDISHONOR;TIMEOF
DETERMININGINSUFFICIENCYOFACCOUNT.
(a)ExceptasotherwiseprovidedinthisArticle,apayorbankwrongfullydishonorsan
itemifitdishonorsanitemthatisproperlypayable,butabankmaydishonoranitemthat
wouldcreateanoverdraftunlessithasagreedtopaytheoverdraft.
[ 210 ]
(b)Apayorbankisliabletoitscustomerfordamagesproximatelycausedbythewrongful
dishonorofanitem.Liabilityislimitedtoactualdamagesprovedandmayinclude
damagesforanarrestorprosecutionofthecustomerorotherconsequentialdamages.
Whetheranyconsequentialdamagesareproximatelycausedbythewrongfuldishonorisa
questionoffacttobedeterminedineachcase.
(c)Apayorbank'sdeterminationofthecustomer'saccountbalanceonwhichadecisionto
dishonorforinsufficiencyofavailablefundsisbasedmaybemadeatanytimebetweenthe
timetheitemisreceivedbythepayorbankandthetimethatthepayorbankreturnsthe
itemorgivesnoticeinlieuofreturn,andnomorethanonedeterminationneedbemade.
If,attheelectionofthepayorbank,asubsequentbalancedeterminationismadeforthe
purposeofreevaluatingthebank'sdecisiontodishonortheitem,theaccountbalanceat
thattimeisdeterminativeofwhetheradishonorforinsufficiencyofavailablefundsis
wrongful.
4403.CUSTOMER'SRIGHTTOSTOPPAYMENT;BURDENOFPROOFOFLOSS.
(a)Acustomeroranypersonauthorizedtodrawontheaccountifthereismorethanone
personmaystoppaymentofanyitemdrawnonthecustomer'saccountorclosethe
accountbyanordertothebankdescribingtheitemoraccountwithreasonablecertainty
receivedatatimeandinamannerthataffordsthebankareasonableopportunitytoacton
itbeforeanyactionbythebankwithrespecttotheitemdescribedinSection4303.Ifthe
signatureofmorethanonepersonisrequiredtodrawonanaccount,anyofthesepersons
maystoppaymentorclosetheaccount.
(b)Astoppaymentorderiseffectiveforsixmonths,butitlapsesafter14calendardaysif
theoriginalorderwasoralandwasnotconfirmedinarecordwithinthatperiod.Astop
paymentordermayberenewedforadditionalsixmonthperiodsbyarecordgiventothe
bankwithinaperiodduringwhichthestoppaymentorderiseffective.
(c)Theburdenofestablishingthefactandamountoflossresultingfromthepaymentofan
itemcontrarytoastoppaymentorderorordertocloseanaccountisonthecustomer.The
lossfrompaymentofanitemcontrarytoastoppaymentordermayincludedamagesfor
dishonorofsubsequentitemsunderSection4402.
4404.BANKNOTOBLIGEDTOPAYCHECKMORETHANSIXMONTHSOLD.
Abankisundernoobligationtoacustomerhavingacheckingaccounttopayacheck,other
thanacertifiedcheck,whichispresentedmorethansixmonthsafteritsdate,butitmay
chargeitscustomer'saccountforapaymentmadethereafteringoodfaith.
4405.DEATHORINCOMPETENCEOFCUSTOMER.
(a)Apayororcollectingbank'sauthoritytoaccept,pay,orcollectanitemortoaccount
forproceedsofitscollection,ifotherwiseeffective,isnotrenderedineffectiveby
incompetenceofacustomerofeitherbankexistingatthetimetheitemisissuedorits
collectionisundertakenifthebankdoesnotknowofanadjudicationofincompetence.
Neitherdeathnorincompetenceofacustomerrevokestheauthoritytoaccept,pay,collect,
[ 211 ]
oraccountuntilthebankknowsofthefactofdeathorofanadjudicationofincompetence
andhasreasonableopportunitytoactonit.
(b)Evenwithknowledge,abankmayfor10daysafterthedateofdeathpayorcertify
checksdrawnonorbeforethatdateunlessorderedtostoppaymentbyapersonclaiming
aninterestintheaccount.
4406.CUSTOMER'SDUTYTODISCOVERANDREPORTUNAUTHORIZEDSIGNATUREOR
ALTERATION.
(a)Abankthatsendsormakesavailabletoacustomerastatementofaccountshowing
paymentofitemsfortheaccountshalleitherreturnormakeavailabletothecustomerthe
itemspaidorprovideinformationinthestatementofaccountsufficienttoallowthe
customerreasonablytoidentifytheitemspaid.Thestatementofaccountprovides
sufficientinformationiftheitemisdescribedbyitemnumber,amount,anddateof
payment.
(b)Iftheitemsarenotreturnedtothecustomer,thepersonretainingtheitemsshall
eitherretaintheitemsor,iftheitemsaredestroyed,maintainthecapacitytofurnish
legiblecopiesoftheitemsuntiltheexpirationofsevenyearsafterreceiptoftheitems.A
customermayrequestanitemfromthebankthatpaidtheitem,andthatbankmust
provideinareasonabletimeeithertheitemor,iftheitemhasbeendestroyedorisnot
otherwiseobtainable,alegiblecopyoftheitem.
(c)Ifabanksendsormakesavailableastatementofaccountoritemspursuantto
subsection(a),thecustomermustexercisereasonablepromptnessinexaminingthe
statementortheitemstodeterminewhetheranypaymentwasnotauthorizedbecauseof
analterationofanitemorbecauseapurportedsignaturebyoronbehalfofthecustomer
wasnotauthorized.If,basedonthestatementoritemsprovided,thecustomershould
reasonablyhavediscoveredtheunauthorizedpayment,thecustomermustpromptlynotify
thebankoftherelevantfacts.
(d)Ifthebankprovesthatthecustomerfailed,withrespecttoanitem,tocomplywiththe
dutiesimposedonthecustomerbysubsection(c),thecustomerisprecludedfrom
assertingagainstthebank:
(1)thecustomer'sunauthorizedsignatureoranyalterationontheitem,ifthebank
alsoprovesthatitsufferedalossbyreasonofthefailure;and
(2)thecustomer'sunauthorizedsignatureoralterationbythesamewrongdoeron
anyotheritempaidingoodfaithbythebankifthepaymentwasmadebeforethe
bankreceivednoticefromthecustomeroftheunauthorizedsignatureoralteration
andafterthecustomerhadbeenaffordedareasonableperiodoftime,notexceeding
30days,inwhichtoexaminetheitemorstatementofaccountandnotifythebank.
(e)Ifsubsection(d)appliesandthecustomerprovesthatthebankfailedtoexercise
ordinarycareinpayingtheitemandthatthefailuresubstantiallycontributedtoloss,the
lossisallocatedbetweenthecustomerprecludedandthebankassertingthepreclusion
accordingtotheextenttowhichthefailureofthecustomertocomplywithsubsection(c)
[ 212 ]
andthefailureofthebanktoexerciseordinarycarecontributedtotheloss.Ifthecustomer
provesthatthebankdidnotpaytheitemingoodfaith,thepreclusionundersubsection(d)
doesnotapply.
(f)Withoutregardtocareorlackofcareofeitherthecustomerorthebank,acustomer
whodoesnotwithinoneyearafterthestatementoritemsaremadeavailabletothe
customer(subsection(a))discoverandreportthecustomer'sunauthorizedsignatureonor
anyalterationontheitemisprecludedfromassertingagainstthebanktheunauthorized
signatureoralteration.Ifthereisapreclusionunderthissubsection,thepayorbankmay
notrecoverforbreachofwarrantyunderSection4208withrespecttotheunauthorized
signatureoralterationtowhichthepreclusionapplies.
4407.PAYORBANK'SRIGHTTOSUBROGATIONONIMPROPERPAYMENT.
Ifapayorbankhaspaidanitemovertheorderofthedrawerormakertostoppayment,or
afteranaccounthasbeenclosed,orotherwiseundercircumstancesgivingabasisfor
objectionbythedrawerormaker,topreventunjustenrichmentandonlytotheextent
necessarytopreventlosstothebankbyreasonofitspaymentoftheitem,thepayorbank
issubrogatedtotherights
(1)ofanyholderinduecourseontheitemagainstthedrawerormaker;
(2)ofthepayeeoranyotherholderoftheitemagainstthedrawerormakereither
ontheitemorunderthetransactionoutofwhichtheitemarose;and
(3)ofthedrawerormakeragainstthepayeeoranyotherholderoftheitemwith
respecttothetransactionoutofwhichtheitemarose.
PART5.COLLECTIONOFDOCUMENTATARYDRAFTS
4501.HANDLINGOFDOCUMENTARYDRAFTS;DUTYTOSENDFORPRESENTMENTAND
TONOTIFYCUSTOMEROFDISHONOR.
Abankthattakesadocumentarydraftforcollectionshallpresentorsendthedraftand
accompanyingdocumentsforpresentmentand,uponlearningthatthedrafthasnotbeen
paidoracceptedinduecourse,shallseasonablynotifyitscustomerofthefacteventhough
itmayhavediscountedorboughtthedraftorextendedcreditavailableforwithdrawalas
ofright.
4502.PRESENTMENTOF"ONARRIVAL"DRAFTS.
Ifadraftortherelevantinstructionsrequirepresentment"onarrival","whengoodsarrive"
orthelike,thecollectingbankneednotpresentuntilinitsjudgmentareasonabletimefor
arrivalofthegoodshasexpired.Refusaltopayoracceptbecausethegoodshavenot
arrivedisnotdishonor;thebankmustnotifyitstransferoroftherefusalbutneednot
presentthedraftagainuntilitisinstructedtodosoorlearnsofthearrivalofthegoods.
4503.RESPONSIBILITYOFPRESENTINGBANKFORDOCUMENTSANDGOODS;REPORT
OFREASONSFORDISHONOR;REFEREEINCASEOFNEED.
[ 213 ]
UnlessotherwiseinstructedandexceptasprovidedinArticle5,abankpresentinga
documentarydraft:
(1)mustdeliverthedocumentstothedraweeonacceptanceofthedraftifitis
payablemorethanthreedaysafterpresentment;otherwise,onlyonpayment;and
(2)upondishonor,eitherinthecaseofpresentmentforacceptanceorpresentment
forpayment,mayseekandfollowinstructionsfromanyrefereeincaseofneed
designatedinthedraftor,ifthepresentingbankdoesnotchoosetoutilizethe
referee'sservices,itmustusediligenceandgoodfaithtoascertainthereasonfor
dishonor,mustnotifyitstransferorofthedishonorandoftheresultsofitseffortto
ascertainthereasonstherefor,andmustrequestinstructions.
Howeverthepresentingbankisundernoobligationwithrespecttogoodsrepresentedby
thedocumentsexcepttofollowanyreasonableinstructionsseasonablyreceived;ithasa
righttoreimbursementforanyexpenseincurredinfollowinginstructionsandto
prepaymentoforindemnityforthoseexpenses.
4504.PRIVILEGEOFPRESENTINGBANKTODEALWITHGOODS;SECURITYINTEREST
FOREXPENSES.
(a)Apresentingbankthat,followingthedishonorofadocumentarydraft,hasseasonably
requestedinstructionsbutdoesnotreceivethemwithinareasonabletimemaystore,sell,
orotherwisedealwiththegoodsinanyreasonablemanner.
(b)Foritsreasonableexpensesincurredbyactionundersubsection(a),thepresenting
bankhasalienuponthegoodsortheirproceeds,whichmaybeforeclosedinthesame
mannerasanunpaidseller'slien.
[ 214 ]
M.I.C.NOTES[UCCARTICLE4:BANKDEPOSITSANDCOLLECTIONS]
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[ 224 ]
U.C.C.ARTICLE4AFUNDSTRANSFER
PART1.SUBJECTMATTERANDDEFINITIONS
4A101.SHORTTITLE.
4A102.SUBJECTMATTER.
4A103.PAYMENTORDERDEFINITIONS.
4A104.FUNDSTRANSFERDEFINITIONS.
4A105.OTHERDEFINITIONS.
4A106.TIMEPAYMENTORDERISRECEIVED.
4A107.FEDERALRESERVEREGULATIONSANDOPERATINGCIRCULARS.
4A108.EXCLUSIONOFCONSUMERTRANSACTIONSGOVERNEDBYFEDERALLAW.
PART2.ISSUEANDACCEPTANCEOFPAYMENTORDER
4A201.SECURITYPROCEDURE.
4A202.AUTHORIZEDANDVERIFIEDPAYMENTORDERS.
4A203.UNENFORCEABILITYOFCERTAINVERIFIEDPAYMENTORDERS.
4A204.REFUNDOFPAYMENTANDDUTYOFCUSTOMERTOREPORTWITHRESPECT
TOUNAUTHORIZEDPAYMENTORDER.
4A205.ERRONEOUSPAYMENTORDERS.
4A206.TRANSMISSIONOFPAYMENTORDERTHROUGHFUNDSTRANSFEROROTHER
COMMUNICATIONSYSTEM.
4A207.MISDESCRIPTIONOFBENEFICIARY.
4A208.MISDESCRIPTIONOFINTERMEDIARYBANKORBENEFICIARY'SBANK.
4A209.ACCEPTANCEOFPAYMENTORDER.
4A210.REJECTIONOFPAYMENTORDER.
4A211.CANCELLATIONANDAMENDMENTOFPAYMENTORDER.
4A212.LIABILITYANDDUTYOFRECEIVINGBANKREGARDINGUNACCEPTED
PAYMENTORDER.
PART3.EXECUTIONOFSENDER'SPAYMENTORDERBYRECEIVINGBANK
4A301.EXECUTIONANDEXECUTIONDATE.
4A302.OBLIGATIONSOFRECEIVINGBANKINEXECUTIONOFPAYMENTORDER.
4A303.ERRONEOUSEXECUTIONOFPAYMENTORDER.
4A304.DUTYOFSENDERTOREPORTERRONEOUSLYEXECUTEDPAYMENTORDER.
4A305.LIABILITYFORLATEORIMPROPEREXECUTIONORFAILURETOEXECUTE
PAYMENTORDER.
PART4.PAYMENT
4A401.PAYMENTDATE.
4A402.OBLIGATIONOFSENDERTOPAYRECEIVINGBANK.
4A403.PAYMENTBYSENDERTORECEIVINGBANK.
4A404.OBLIGATIONOFBENEFICIARY'SBANKTOPAYANDGIVENOTICETO
BENEFICIARY.
[ 225 ]
4A405.PAYMENTBYBENEFICIARY'SBANKTOBENEFICIARY.
4A406.PAYMENTBYORIGINATORTOBENEFICIARY;DISCHARGEOFUNDERLYING
OBLIGATION.
PART5.MISCELLANEOUSPROVISIONS
4A501.VARIATIONBYAGREEMENTANDEFFECTOFFUNDSTRANSFERSYSTEMRULE.
4A502.CREDITORPROCESSSERVEDONRECEIVINGBANK;SETOFFBYBENEFICIARY'S
BANK.
4A503.INJUNCTIONORRESTRAININGORDERWITHRESPECTTOFUNDSTRANSFER.
4A504.ORDERINWHICHITEMSANDPAYMENTORDERSMAYBECHARGEDTO
ACCOUNT;ORDEROFWITHDRAWALSFROMACCOUNT.
4A505.PRECLUSIONOFOBJECTIONTODEBITOFCUSTOMER'SACCOUNT.
4A506.RATEOFINTEREST.
4A507.CHOICEOFLAW.
[ 226 ]
4A101.SHORTTITLE.
ThisArticlemaybecitedasUniformCommercialCodeFundsTransfers.
4A102.SUBJECTMATTER.
ExceptasotherwiseprovidedinSection4A108,thisArticleappliestofundstransfers
definedinSection4A104.
4A103.PAYMENTORDERDEFINITIONS.
(a)InthisArticle:
(1)"Paymentorder"meansaninstructionofasendertoareceivingbank,
transmittedorally,electronically,orinwriting,topay,ortocauseanotherbankto
pay,afixedordeterminableamountofmoneytoabeneficiaryif:
(i)theinstructiondoesnotstateaconditiontopaymenttothebeneficiary
otherthantimeofpayment,
(ii)thereceivingbankistobereimbursedbydebitinganaccountof,or
otherwisereceivingpaymentfrom,thesender,and
(iii)theinstructionistransmittedbythesenderdirectlytothereceiving
bankortoanagent,fundstransfersystem,orcommunicationsystemfor
transmittaltothereceivingbank.
(2)"Beneficiary"meansthepersontobepaidbythebeneficiary'sbank.
(3)"Beneficiary'sbank"meansthebankidentifiedinapaymentorderinwhichan
accountofthebeneficiaryistobecreditedpursuanttotheorderorwhichotherwise
istomakepaymenttothebeneficiaryiftheorderdoesnotprovideforpaymentto
anaccount.
(4)"Receivingbank"meansthebanktowhichthesender'sinstructionisaddressed.
(5)"Sender"meansthepersongivingtheinstructiontothereceivingbank.
(b)Ifaninstructioncomplyingwithsubsection(a)(1)istomakemorethanonepayment
toabeneficiary,theinstructionisaseparatepaymentorderwithrespecttoeachpayment.
(c)Apaymentorderisissuedwhenitissenttothereceivingbank.
[ 227 ]
4A104.FUNDSTRANSFERDEFINITIONS.
InthisArticle:
(a)"Fundstransfer"meanstheseriesoftransactions,beginningwiththeoriginator's
paymentorder,madeforthepurposeofmakingpaymenttothebeneficiaryoftheorder.
Thetermincludesanypaymentorderissuedbytheoriginator'sbankoranintermediary
bankintendedtocarryouttheoriginator'spaymentorder.Afundstransferiscompleted
byacceptancebythebeneficiary'sbankofapaymentorderforthebenefitofthe
beneficiaryoftheoriginator'spaymentorder.
(b)"Intermediarybank"meansareceivingbankotherthantheoriginator'sbankorthe
beneficiary'sbank.
(c)"Originator"meansthesenderofthefirstpaymentorderinafundstransfer.
(d)"Originator'sbank"means(i)thereceivingbanktowhichthepaymentorderofthe
originatorisissuediftheoriginatorisnotabank,or(ii)theoriginatoriftheoriginatorisa
bank.
4A105.OTHERDEFINITIONS.
(a)InthisArticle:
(1)"Authorizedaccount"meansadepositaccountofacustomerinabank
designatedbythecustomerasasourceofpaymentofpaymentordersissuedbythe
customertothebank.Ifacustomerdoesnotsodesignateanaccount,anyaccount
ofthecustomerisanauthorizedaccountifpaymentofapaymentorderfromthat
accountisnotinconsistentwitharestrictionontheuseofthataccount.
(2)"Bank"meansapersonengagedinthebusinessofbankingandincludesa
savingsbank,savingsandloanassociation,creditunion,andtrustcompany.A
branchorseparateofficeofabankisaseparatebankforpurposesofthisArticle.
(3)"Customer"meansaperson,includingabank,havinganaccountwithabankor
fromwhomabankhasagreedtoreceivepaymentorders.
(4)"Fundstransferbusinessday"ofareceivingbankmeansthepartofaday
duringwhichthereceivingbankisopenforthereceipt,processing,andtransmittal
ofpaymentordersandcancellationsandamendmentsofpaymentorders.
(5)"Fundstransfersystem"meansawiretransfernetwork,automatedclearing
house,orothercommunicationsystemofaclearinghouseorotherassociationof
banksthroughwhichapaymentorderbyabankmaybetransmittedtothebankto
whichtheorderisaddressed.
(6)[reserved]
[ 228 ]
(7)"Prove"withrespecttoafactmeanstomeettheburdenofestablishingthefact
(Section1201(b)(8)).
"Acceptance"Section4A209
"Beneficiary"Section4A103
"Beneficiary'sbank"Section4A103
"Executed"Section4A301
"Executiondate"Section4A301
"Fundstransfer"Section4A104
"Fundstransfersystemrule"Section4A501
"Intermediarybank"Section4A104
"Originator"Section4A104
"Originator'sbank"Section4A104
"Paymentbybeneficiary'sbanktobeneficiary"Section4A405
"Paymentbyoriginatortobeneficiary"Section4A406
"Paymentbysendertoreceivingbank"Section4A403
"Paymentdate"Section4A401
"Paymentorder"Section4A103
"Receivingbank"Section4A103
"Securityprocedure"Section4A201
"Sender"Section4A103
(c)ThefollowingdefinitionsinArticle4applytothisArticle:
"Clearinghouse"Section4104
"Item"Section4104
"Suspendspayments"Section4104
[ 229 ]
(d)InadditionArticle1containsgeneraldefinitionsandprinciplesofconstructionand
4A106.TIMEPAYMENTORDERISRECEIVED.
(a)Thetimeofreceiptofapaymentorderorcommunicationcancellingoramendinga
paymentorderisdeterminedbytherulesapplicabletoreceiptofanoticestatedinSection
1202.Areceivingbankmayfixacutofftimeortimesonafundstransferbusinessdayfor
thereceiptandprocessingofpaymentordersandcommunicationscancellingoramending
paymentorders.Differentcutofftimesmayapplytopaymentorders,cancellations,or
amendments,ortodifferentcategoriesofpaymentorders,cancellations,oramendments.
Acutofftimemayapplytosendersgenerallyordifferentcutofftimesmayapplyto
differentsendersorcategoriesofpaymentorders.Ifapaymentorderorcommunication
cancellingoramendingapaymentorderisreceivedafterthecloseofafundstransfer
businessdayoraftertheappropriatecutofftimeonafundstransferbusinessday,the
receivingbankmaytreatthepaymentorderorcommunicationasreceivedattheopening
ofthenextfundstransferbusinessday.
(b)IfthisArticlereferstoanexecutiondateorpaymentdateorstatesadayonwhicha
receivingbankisrequiredtotakeaction,andthedateordaydoesnotfallonafunds
transferbusinessday,thenextdaythatisafundstransferbusinessdayistreatedasthe
dateordaystated,unlessthecontraryisstatedinthisArticle.
4A107.FEDERALRESERVEREGULATIONSANDOPERATINGCIRCULARS.
RegulationsoftheBoardofGovernorsoftheFederalReserveSystemandoperating
circularsoftheFederalReserveBankssupersedeanyinconsistentprovisionofthisArticle
totheextentoftheinconsistency.
4A108.EXCLUSIONOFCONSUMERTRANSACTIONSGOVERNEDBYFEDERALLAW.
ThisArticledoesnotapplytoafundstransferanypartofwhichisgovernedbythe
ElectronicFundTransferActof1978(TitleXX,PublicLaw95630,92Stat.3728,15U.S.C.
1693etseq.)asamendedfromtimetotime.
PART2.ISSUEANDACCEPTANCEOFPAYMENTORDER[TableofContents]
4A201.SECURITYPROCEDURE.
"Securityprocedure"meansaprocedureestablishedbyagreementofacustomeranda
receivingbankforthepurposeof(i)verifyingthatapaymentorderorcommunication
amendingorcancellingapaymentorderisthatofthecustomer,or(ii)detectingerrorin
thetransmissionorthecontentofthepaymentorderorcommunication.Asecurity
proceduremayrequiretheuseofalgorithmsorothercodes,identifyingwordsornumbers,
encryption,callbackprocedures,orsimilarsecuritydevices.Comparisonofasignatureon
apaymentorderorcommunicationwithanauthorizedspecimensignatureofthecustomer
isnotbyitselfasecurityprocedure.
[ 230 ]
4A202.AUTHORIZEDANDVERIFIEDPAYMENTORDERS.
(a)Apaymentorderreceivedbythereceivingbankistheauthorizedorderoftheperson
identifiedassenderifthatpersonauthorizedtheorderorisotherwiseboundbyitunder
thelawofagency.
(b)Ifabankanditscustomerhaveagreedthattheauthenticityofpaymentordersissued
tothebankinthenameofthecustomerassenderwillbeverifiedpursuanttoasecurity
procedure,apaymentorderreceivedbythereceivingbankiseffectiveastheorderofthe
customer,whetherornotauthorized,if(i)thesecurityprocedureisacommercially
reasonablemethodofprovidingsecurityagainstunauthorizedpaymentorders,and(ii)the
bankprovesthatitacceptedthepaymentorderingoodfaithandincompliancewiththe
securityprocedureandanywrittenagreementorinstructionofthecustomerrestricting
acceptanceofpaymentordersissuedinthenameofthecustomer.Thebankisnot
requiredtofollowaninstructionthatviolatesawrittenagreementwiththecustomeror
noticeofwhichisnotreceivedatatimeandinamanneraffordingthebankareasonable
opportunitytoactonitbeforethepaymentorderisaccepted.
(c)Commercialreasonablenessofasecurityprocedureisaquestionoflawtobe
determinedbyconsideringthewishesofthecustomerexpressedtothebank,the
circumstancesofthecustomerknowntothebank,includingthesize,type,andfrequency
ofpaymentordersnormallyissuedbythecustomertothebank,alternativesecurity
proceduresofferedtothecustomer,andsecurityproceduresingeneralusebycustomers
andreceivingbankssimilarlysituated.Asecurityprocedureisdeemedtobecommercially
reasonableif(i)thesecurityprocedurewaschosenbythecustomerafterthebankoffered,
andthecustomerrefused,asecurityprocedurethatwascommerciallyreasonableforthat
customer,and(ii)thecustomerexpresslyagreedinwritingtobeboundbyanypayment
order,whetherornotauthorized,issuedinitsnameandacceptedbythebankin
compliancewiththesecurityprocedurechosenbythecustomer.
(d)Theterm"sender"inthisArticleincludesthecustomerinwhosenameapayment
orderisissuediftheorderistheauthorizedorderofthecustomerundersubsection(a),or
itiseffectiveastheorderofthecustomerundersubsection(b).
(e)Thissectionappliestoamendmentsandcancellationsofpaymentorderstothesame
extentitappliestopaymentorders.
(f)ExceptasprovidedinthissectionandinSection4A203(a)(1),rightsandobligations
arisingunderthissectionorSection4A203maynotbevariedbyagreement.
4A203.UNENFORCEABILITYOFCERTAINVERIFIEDPAYMENTORDERS.
(a)Ifanacceptedpaymentorderisnot,underSection4A202(a),anauthorizedorderofa
customeridentifiedassender,butiseffectiveasanorderofthecustomerpursuantto
Section4A202(b),thefollowingrulesapply:
(1)Byexpresswrittenagreement,thereceivingbankmaylimittheextenttowhich
itisentitledtoenforceorretainpaymentofthepaymentorder.
[ 231 ]
(2)Thereceivingbankisnotentitledtoenforceorretainpaymentofthepayment
orderifthecustomerprovesthattheorderwasnotcaused,directlyorindirectly,by
aperson(i)entrustedatanytimewithdutiestoactforthecustomerwithrespectto
paymentordersorthesecurityprocedure,or(ii)whoobtainedaccessto
transmittingfacilitiesofthecustomerorwhoobtained,fromasourcecontrolledby
thecustomerandwithoutauthorityofthereceivingbank,informationfacilitating
breachofthesecurityprocedure,regardlessofhowtheinformationwasobtainedor
whetherthecustomerwasatfault.Informationincludesanyaccessdevice,
computersoftware,orthelike.
(b)Thissectionappliestoamendmentsofpaymentorderstothesameextentitappliesto
paymentorders.
4A204.REFUNDOFPAYMENTANDDUTYOFCUSTOMERTOREPORTWITHRESPECTTO
UNAUTHORIZEDPAYMENTORDER.
(a)Ifareceivingbankacceptsapaymentorderissuedinthenameofitscustomeras
senderwhichis(i)notauthorizedandnoteffectiveastheorderofthecustomerunder
Section4A202,or(ii)notenforceable,inwholeorinpart,againstthecustomerunder
Section4A203,thebankshallrefundanypaymentofthepaymentorderreceivedfromthe
customertotheextentthebankisnotentitledtoenforcepaymentandshallpayintereston
therefundableamountcalculatedfromthedatethebankreceivedpaymenttothedateof
therefund.However,thecustomerisnotentitledtointerestfromthebankontheamount
toberefundedifthecustomerfailstoexerciseordinarycaretodeterminethattheorder
wasnotauthorizedbythecustomerandtonotifythebankoftherelevantfactswithina
reasonabletimenotexceeding90daysafterthedatethecustomerreceivednotification
fromthebankthattheorderwasacceptedorthatthecustomer'saccountwasdebitedwith
respecttotheorder.Thebankisnotentitledtoanyrecoveryfromthecustomeron
accountofafailurebythecustomertogivenotificationasstatedinthissection.
(b)Reasonabletimeundersubsection(a)maybefixedbyagreementasstatedinSection
1204(1),buttheobligationofareceivingbanktorefundpaymentasstatedinsubsection
(a)maynototherwisebevariedbyagreement.
4A205.ERRONEOUSPAYMENTORDERS.
(a)Ifanacceptedpaymentorderwastransmittedpursuanttoasecurityprocedureforthe
detectionoferrorandthepaymentorder(i)erroneouslyinstructedpaymenttoa
beneficiarynotintendedbythesender,(ii)erroneouslyinstructedpaymentinanamount
greaterthantheamountintendedbythesender,or(iii)wasanerroneouslytransmitted
duplicateofapaymentorderpreviouslysentbythesender,thefollowingrulesapply:
(1)Ifthesenderprovesthatthesenderorapersonactingonbehalfofthesender
pursuanttoSection4A206compliedwiththesecurityprocedureandthattheerror
wouldhavebeendetectedifthereceivingbankhadalsocomplied,thesenderisnot
obligedtopaytheordertotheextentstatedinparagraphs(2)and(3).
(2)Ifthefundstransferiscompletedonthebasisofanerroneouspaymentorder
describedinclause(i)or(iii)ofsubsection(a),thesenderisnotobligedtopaythe
[ 232 ]
orderandthereceivingbankisentitledtorecoverfromthebeneficiaryanyamount
paidtothebeneficiarytotheextentallowedbythelawgoverningmistakeand
restitution.
(3)Ifthefundstransferiscompletedonthebasisofapaymentorderdescribedin
clause(ii)ofsubsection(a),thesenderisnotobligedtopaytheordertotheextent
theamountreceivedbythebeneficiaryisgreaterthantheamountintendedbythe
sender.Inthatcase,thereceivingbankisentitledtorecoverfromthebeneficiary
theexcessamountreceivedtotheextentallowedbythelawgoverningmistakeand
restitution.
(b)If(i)thesenderofanerroneouspaymentorderdescribedinsubsection(a)isnot
obligedtopayallorpartoftheorder,and(ii)thesenderreceivesnotificationfromthe
receivingbankthattheorderwasacceptedbythebankorthatthesender'saccountwas
debitedwithrespecttotheorder,thesenderhasadutytoexerciseordinarycare,onthe
basisofinformationavailabletothesender,todiscovertheerrorwithrespecttotheorder
andtoadvisethebankoftherelevantfactswithinareasonabletime,notexceeding90
days,afterthebank'snotificationwasreceivedbythesender.Ifthebankprovesthatthe
senderfailedtoperformthatduty,thesenderisliabletothebankforthelossthebank
provesitincurredasaresultofthefailure,buttheliabilityofthesendermaynotexceed
theamountofthesender'sorder.
(c)Thissectionappliestoamendmentstopaymentorderstothesameextentitappliesto
paymentorders.
4A206.TRANSMISSIONOFPAYMENTORDERTHROUGHFUNDSTRANSFEROROTHER
COMMUNICATIONSYSTEM.
(a)Ifapaymentorderaddressedtoareceivingbankistransmittedtoafundstransfer
systemorotherthirdpartycommunicationsystemfortransmittaltothebank,thesystem
isdeemedtobeanagentofthesenderforthepurposeoftransmittingthepaymentorder
tothebank.Ifthereisadiscrepancybetweenthetermsofthepaymentordertransmitted
tothesystemandthetermsofthepaymentordertransmittedbythesystemtothebank,
thetermsofthepaymentorderofthesenderarethosetransmittedbythesystem.This
sectiondoesnotapplytoafundstransfersystemoftheFederalReserveBanks.
(b)Thissectionappliestocancellationsandamendmentsofpaymentorderstothesame
extentitappliestopaymentorders.
4A207.MISDESCRIPTIONOFBENEFICIARY.
(a)Subjecttosubsection(b),if,inapaymentorderreceivedbythebeneficiary'sbank,the
name,bankaccountnumber,orotheridentificationofthebeneficiaryreferstoa
nonexistentorunidentifiablepersonoraccount,nopersonhasrightsasabeneficiaryofthe
orderandacceptanceoftheordercannotoccur.
(b)Ifapaymentorderreceivedbythebeneficiary'sbankidentifiesthebeneficiarybothby
nameandbyanidentifyingorbankaccountnumberandthenameandnumberidentify
differentpersons,thefollowingrulesapply:
[ 233 ]
(1)Exceptasotherwiseprovidedinsubsection(c),ifthebeneficiary'sbankdoes
notknowthatthenameandnumberrefertodifferentpersons,itmayrelyonthe
numberastheproperidentificationofthebeneficiaryoftheorder.The
beneficiary'sbankneednotdeterminewhetherthenameandnumberrefertothe
sameperson.
(2)Ifthebeneficiary'sbankpaysthepersonidentifiedbynameorknowsthatthe
nameandnumberidentifydifferentpersons,nopersonhasrightsasbeneficiary
exceptthepersonpaidbythebeneficiary'sbankifthatpersonwasentitledto
receivepaymentfromtheoriginatorofthefundstransfer.Ifnopersonhasrightsas
beneficiary,acceptanceoftheordercannotoccur.
(c)If(i)apaymentorderdescribedinsubsection(b)isaccepted,(ii)theoriginator's
paymentorderdescribedthebeneficiaryinconsistentlybynameandnumber,and(iii)the
beneficiary'sbankpaysthepersonidentifiedbynumberaspermittedbysubsection(b)(1),
thefollowingrulesapply:
(1)Iftheoriginatorisabank,theoriginatorisobligedtopayitsorder.
(2)Iftheoriginatorisnotabankandprovesthatthepersonidentifiedbynumber
wasnotentitledtoreceivepaymentfromtheoriginator,theoriginatorisnot
obligedtopayitsorderunlesstheoriginator'sbankprovesthattheoriginator,
beforeacceptanceoftheoriginator'sorder,hadnoticethatpaymentofapayment
orderissuedbytheoriginatormightbemadebythebeneficiary'sbankonthebasis
ofanidentifyingorbankaccountnumberevenifitidentifiesapersondifferentfrom
thenamedbeneficiary.Proofofnoticemaybemadebyanyadmissibleevidence.
Theoriginator'sbanksatisfiestheburdenofproofifitprovesthattheoriginator,
beforethepaymentorderwasaccepted,signedawritingstatingtheinformationto
whichthenoticerelates.
(d)Inacasegovernedbysubsection(b)(1),ifthebeneficiary'sbankrightfullypaysthe
personidentifiedbynumberandthatpersonwasnotentitledtoreceivepaymentfromthe
originator,theamountpaidmayberecoveredfromthatpersontotheextentallowedby
thelawgoverningmistakeandrestitutionasfollows:
(1)Iftheoriginatorisobligedtopayitspaymentorderasstatedinsubsection(c),
theoriginatorhastherighttorecover.
(2)Iftheoriginatorisnotabankandisnotobligedtopayitspaymentorder,the
originator'sbankhastherighttorecover.
4A208.MISDESCRIPTIONOFINTERMEDIARYBANKORBENEFICIARY'SBANK.
(a)Thissubsectionappliestoapaymentorderidentifyinganintermediarybankorthe
beneficiary'sbankonlybyanidentifyingnumber.
(1)Thereceivingbankmayrelyonthenumberastheproperidentificationofthe
intermediaryorbeneficiary'sbankandneednotdeterminewhetherthenumber
identifiesabank.
[ 234 ]
(2)Thesenderisobligedtocompensatethereceivingbankforanylossand
expensesincurredbythereceivingbankasaresultofitsrelianceonthenumberin
executingorattemptingtoexecutetheorder.
(b)Thissubsectionappliestoapaymentorderidentifyinganintermediarybankorthe
beneficiary'sbankbothbynameandanidentifyingnumberifthenameandnumber
identifydifferentpersons.
(1)Ifthesenderisabank,thereceivingbankmayrelyonthenumberastheproper
identificationoftheintermediaryorbeneficiary'sbankifthereceivingbank,whenit
executesthesender'sorder,doesnotknowthatthenameandnumberidentify
differentpersons.Thereceivingbankneednotdeterminewhetherthenameand
numberrefertothesamepersonorwhetherthenumberreferstoabank.The
senderisobligedtocompensatethereceivingbankforanylossandexpenses
incurredbythereceivingbankasaresultofitsrelianceonthenumberinexecuting
orattemptingtoexecutetheorder.
(2)Ifthesenderisnotabankandthereceivingbankprovesthatthesender,before
thepaymentorderwasaccepted,hadnoticethatthereceivingbankmightrelyon
thenumberastheproperidentificationoftheintermediaryorbeneficiary'sbank
evenifitidentifiesapersondifferentfromthebankidentifiedbyname,therights
andobligationsofthesenderandthereceivingbankaregovernedbysubsection
(b)(1),asthoughthesenderwereabank.Proofofnoticemaybemadebyany
admissibleevidence.Thereceivingbanksatisfiestheburdenofproofifitproves
thatthesender,beforethepaymentorderwasaccepted,signedawritingstatingthe
informationtowhichthenoticerelates.
(3)Regardlessofwhetherthesenderisabank,thereceivingbankmayrelyonthe
nameastheproperidentificationoftheintermediaryorbeneficiary'sbankifthe
receivingbank,atthetimeitexecutesthesender'sorder,doesnotknowthatthe
nameandnumberidentifydifferentpersons.Thereceivingbankneednot
determinewhetherthenameandnumberrefertothesameperson.
(4)Ifthereceivingbankknowsthatthenameandnumberidentifydifferent
persons,relianceoneitherthenameorthenumberinexecutingthesender's
paymentorderisabreachoftheobligationstatedinSection4A302(a)(1).
4A209.ACCEPTANCEOFPAYMENTORDER.
(a)Subjecttosubsection(d),areceivingbankotherthanthebeneficiary'sbankacceptsa
paymentorderwhenitexecutestheorder.
(b)Subjecttosubsections(c)and(d),abeneficiary'sbankacceptsapaymentorderatthe
earliestofthefollowingtimes:
(1)whenthebank(i)paysthebeneficiaryasstatedinSection4A405(a)or4A
405(b),or(ii)notifiesthebeneficiaryofreceiptoftheorderorthattheaccountof
thebeneficiaryhasbeencreditedwithrespecttotheorderunlessthenotice
indicatesthatthebankisrejectingtheorderorthatfundswithrespecttotheorder
[ 235 ]
maynotbewithdrawnoruseduntilreceiptofpaymentfromthesenderofthe
order;
(2)whenthebankreceivespaymentoftheentireamountofthesender'sorder
pursuanttoSection4A403(a)(1)or4A403(a)(2);or
(3)theopeningofthenextfundstransferbusinessdayofthebankfollowingthe
paymentdateoftheorderif,atthattime,theamountofthesender'sorderisfully
coveredbyawithdrawablecreditbalanceinanauthorizedaccountofthesenderor
thebankhasotherwisereceivedfullpaymentfromthesender,unlesstheorderwas
rejectedbeforethattimeorisrejectedwithin(i)onehourafterthattime,or(ii)one
houraftertheopeningofthenextbusinessdayofthesenderfollowingthepayment
dateifthattimeislater.Ifnoticeofrejectionisreceivedbythesenderafterthe
paymentdateandtheauthorizedaccountofthesenderdoesnotbearinterest,the
bankisobligedtopayinteresttothesenderontheamountoftheorderforthe
numberofdayselapsingafterthepaymentdatetothedaythesenderreceives
noticeorlearnsthattheorderwasnotaccepted,countingthatdayasanelapsed
day.Ifthewithdrawablecreditbalanceduringthatperiodfallsbelowtheamountof
theorder,theamountofinterestpayableisreducedaccordingly.
(c)Acceptanceofapaymentordercannotoccurbeforetheorderisreceivedbythe
receivingbank.Acceptancedoesnotoccurundersubsection(b)(2)or(b)(3)ifthe
beneficiaryofthepaymentorderdoesnothaveanaccountwiththereceivingbank,the
accounthasbeenclosed,orthereceivingbankisnotpermittedbylawtoreceivecreditsfor
thebeneficiary'saccount.
(d)Apaymentorderissuedtotheoriginator'sbankcannotbeaccepteduntilthepayment
dateifthebankisthebeneficiary'sbank,ortheexecutiondateifthebankisnotthe
beneficiary'sbank.Iftheoriginator'sbankexecutestheoriginator'spaymentorderbefore
theexecutiondateorpaysthebeneficiaryoftheoriginator'spaymentorderbeforethe
paymentdateandthepaymentorderissubsequentlycanceledpursuanttoSection4A
211(b),thebankmayrecoverfromthebeneficiaryanypaymentreceivedtotheextent
allowedbythelawgoverningmistakeandrestitution.
4A210.REJECTIONOFPAYMENTORDER.
(a)Apaymentorderisrejectedbythereceivingbankbyanoticeofrejectiontransmitted
tothesenderorally,electronically,orinwriting.Anoticeofrejectionneednotuseany
particularwordsandissufficientifitindicatesthatthereceivingbankisrejectingtheorder
orwillnotexecuteorpaytheorder.Rejectioniseffectivewhenthenoticeisgivenif
transmissionisbyameansthatisreasonableinthecircumstances.Ifnoticeofrejectionis
givenbyameansthatisnotreasonable,rejectioniseffectivewhenthenoticeisreceived.If
anagreementofthesenderandreceivingbankestablishesthemeanstobeusedtorejecta
paymentorder,(i)anymeanscomplyingwiththeagreementisreasonableand(ii)any
meansnotcomplyingisnotreasonableunlessnosignificantdelayinreceiptofthenotice
resultedfromtheuseofthenoncomplyingmeans.
(b)Thissubsectionappliesifareceivingbankotherthanthebeneficiary'sbankfailsto
executeapaymentorderdespitetheexistenceontheexecutiondateofawithdrawable
[ 236 ]
creditbalanceinanauthorizedaccountofthesendersufficienttocovertheorder.Ifthe
senderdoesnotreceivenoticeofrejectionoftheorderontheexecutiondateandthe
authorizedaccountofthesenderdoesnotbearinterest,thebankisobligedtopayinterest
tothesenderontheamountoftheorderforthenumberofdayselapsingafterthe
executiondatetotheearlierofthedaytheorderiscanceledpursuanttoSection4A211(d)
orthedaythesenderreceivesnoticeorlearnsthattheorderwasnotexecuted,counting
thefinaldayoftheperiodasanelapsedday.Ifthewithdrawablecreditbalanceduringthat
periodfallsbelowtheamountoftheorder,theamountofinterestisreducedaccordingly.
(c)Ifareceivingbanksuspendspayments,allunacceptedpaymentordersissuedtoitare
deemedrejectedatthetimethebanksuspendspayments.
(d)Acceptanceofapaymentorderprecludesalaterrejectionoftheorder.Rejectionofa
paymentorderprecludesalateracceptanceoftheorder.
4A211.CANCELLATIONANDAMENDMENTOFPAYMENTORDER.
(a)Acommunicationofthesenderofapaymentordercancellingoramendingtheorder
maybetransmittedtothereceivingbankorally,electronically,orinwriting.Ifasecurity
procedureisineffectbetweenthesenderandthereceivingbank,thecommunicationis
noteffectivetocanceloramendtheorderunlessthecommunicationisverifiedpursuantto
thesecurityprocedureorthebankagreestothecancellationoramendment.
(b)Subjecttosubsection(a),acommunicationbythesendercancellingoramendinga
paymentorderiseffectivetocanceloramendtheorderifnoticeofthecommunicationis
receivedatatimeandinamanneraffordingthereceivingbankareasonableopportunity
toactonthecommunicationbeforethebankacceptsthepaymentorder.
(c)Afterapaymentorderhasbeenaccepted,cancellationoramendmentoftheorderis
noteffectiveunlessthereceivingbankagreesorafundstransfersystemruleallows
cancellationoramendmentwithoutagreementofthebank.
(1)Withrespecttoapaymentorderacceptedbyareceivingbankotherthanthe
beneficiary'sbank,cancellationoramendmentisnoteffectiveunlessaconforming
cancellationoramendmentofthepaymentorderissuedbythereceivingbankis
alsomade.
(2)Withrespecttoapaymentorderacceptedbythebeneficiary'sbank,
cancellationoramendmentisnoteffectiveunlesstheorderwasissuedinexecution
ofanunauthorizedpaymentorder,orbecauseofamistakebyasenderinthefunds
transferwhichresultedintheissuanceofapaymentorder(i)thatisaduplicateofa
paymentorderpreviouslyissuedbythesender,(ii)thatorderspaymenttoa
beneficiarynotentitledtoreceivepaymentfromtheoriginator,or(iii)thatorders
paymentinanamountgreaterthantheamountthebeneficiarywasentitledto
receivefromtheoriginator.Ifthepaymentorderiscanceledoramended,the
beneficiary'sbankisentitledtorecoverfromthebeneficiaryanyamountpaidtothe
beneficiarytotheextentallowedbythelawgoverningmistakeandrestitution.
[ 237 ]
(d)Anunacceptedpaymentorderiscanceledbyoperationoflawatthecloseofthefifth
fundstransferbusinessdayofthereceivingbankaftertheexecutiondateorpaymentdate
oftheorder.
(e)Acanceledpaymentordercannotbeaccepted.Ifanacceptedpaymentorderis
canceled,theacceptanceisnullifiedandnopersonhasanyrightorobligationbasedonthe
acceptance.Amendmentofapaymentorderisdeemedtobecancellationoftheoriginal
orderatthetimeofamendmentandissueofanewpaymentorderintheamendedformat
thesametime.
(f)Unlessotherwiseprovidedinanagreementofthepartiesorinafundstransfersystem
rule,ifthereceivingbank,afteracceptingapaymentorder,agreestocancellationor
amendmentoftheorderbythesenderorisboundbyafundstransfersystemruleallowing
cancellationoramendmentwithoutthebank'sagreement,thesender,whetherornot
cancellationoramendmentiseffective,isliabletothebankforanylossandexpenses,
includingreasonableattorney'sfees,incurredbythebankasaresultofthecancellationor
amendmentorattemptedcancellationoramendment.
(g)Apaymentorderisnotrevokedbythedeathorlegalincapacityofthesenderunless
thereceivingbankknowsofthedeathorofanadjudicationofincapacitybyacourtof
competentjurisdictionandhasreasonableopportunitytoactbeforeacceptanceofthe
order.
(h)Afundstransfersystemruleisnoteffectivetotheextentitconflictswithsubsection
(c)(2).
4A212.LIABILITYANDDUTYOFRECEIVINGBANKREGARDINGUNACCEPTEDPAYMENT
ORDER.
Ifareceivingbankfailstoacceptapaymentorderthatitisobligedbyexpressagreementto
accept,thebankisliableforbreachoftheagreementtotheextentprovidedinthe
agreementorinthisArticle,butdoesnototherwisehaveanydutytoacceptapayment
orderor,beforeacceptance,totakeanyaction,orrefrainfromtakingaction,withrespect
totheorderexceptasprovidedinthisArticleorbyexpressagreement.Liabilitybasedon
acceptancearisesonlywhenacceptanceoccursasstatedinSection4A209,andliabilityis
limitedtothatprovidedinthisArticle.Areceivingbankisnottheagentofthesenderor
beneficiaryofthepaymentorderitaccepts,orofanyotherpartytothefundstransfer,and
thebankowesnodutytoanypartytothefundstransferexceptasprovidedinthisArticle
orbyexpressagreement.
PART3.EXECUTIONOFSENDER'SPAYMENTORDERBYRECEIVINGBANK
4A301.EXECUTIONANDEXECUTIONDATE.
(a)Apaymentorderis"executed"bythereceivingbankwhenitissuesapaymentorder
intendedtocarryoutthepaymentorderreceivedbythebank.Apaymentorderreceived
bythebeneficiary'sbankcanbeacceptedbutcannotbeexecuted.
[ 238 ]
(b)"Executiondate"ofapaymentordermeansthedayonwhichthereceivingbankmay
properlyissueapaymentorderinexecutionofthesender'sorder.Theexecutiondatemay
bedeterminedbyinstructionofthesenderbutcannotbeearlierthanthedaytheorderis
receivedand,unlessotherwisedetermined,isthedaytheorderisreceived.Ifthesender's
instructionstatesapaymentdate,theexecutiondateisthepaymentdateoranearlierdate
onwhichexecutionisreasonablynecessarytoallowpaymenttothebeneficiaryonthe
paymentdate.
4A302.OBLIGATIONSOFRECEIVINGBANKINEXECUTIONOFPAYMENTORDER.
(a)Exceptasprovidedinsubsections(b)through(d),ifthereceivingbankacceptsa
paymentorderpursuanttoSection4A209(a),thebankhasthefollowingobligationsin
executingtheorder:
(1)Thereceivingbankisobligedtoissue,ontheexecutiondate,apaymentorder
complyingwiththesender'sorderandtofollowthesender'sinstructions
concerning(i)anyintermediarybankorfundstransfersystemtobeusedin
carryingoutthefundstransfer,or(ii)themeansbywhichpaymentordersaretobe
transmittedinthefundstransfer.Iftheoriginator'sbankissuesapaymentorderto
anintermediarybank,theoriginator'sbankisobligedtoinstructtheintermediary
bankaccordingtotheinstructionoftheoriginator.Anintermediarybankinthe
fundstransferissimilarlyboundbyaninstructiongiventoitbythesenderofthe
paymentorderitaccepts.
(2)Ifthesender'sinstructionstatesthatthefundstransferistobecarriedout
telephonicallyorbywiretransferorotherwiseindicatesthatthefundstransferisto
becarriedoutbythemostexpeditiousmeans,thereceivingbankisobligedto
transmititspaymentorderbythemostexpeditiousavailablemeans,andtoinstruct
anyintermediarybankaccordingly.Ifasender'sinstructionstatesapaymentdate,
thereceivingbankisobligedtotransmititspaymentorderatatimeandbymeans
reasonablynecessarytoallowpaymenttothebeneficiaryonthepaymentdateoras
soonthereafterasisfeasible.
(b)Unlessotherwiseinstructed,areceivingbankexecutingapaymentordermay(i)use
anyfundstransfersystemifuseofthatsystemisreasonableinthecircumstances,and(ii)
issueapaymentordertothebeneficiary'sbankortoanintermediarybankthroughwhich
apaymentorderconformingtothesender'sordercanexpeditiouslybeissuedtothe
beneficiary'sbankifthereceivingbankexercisesordinarycareintheselectionofthe
intermediarybank.Areceivingbankisnotrequiredtofollowaninstructionofthesender
designatingafundstransfersystemtobeusedincarryingoutthefundstransferifthe
receivingbank,ingoodfaith,determinesthatitisnotfeasibletofollowtheinstructionor
thatfollowingtheinstructionwouldundulydelaycompletionofthefundstransfer.
(c)Unlesssubsection(a)(2)appliesorthereceivingbankisotherwiseinstructed,thebank
mayexecuteapaymentorderbytransmittingitspaymentorderbyfirstclassmailorby
anymeansreasonableinthecircumstances.Ifthereceivingbankisinstructedtoexecute
thesender'sorderbytransmittingitspaymentorderbyaparticularmeans,thereceiving
bankmayissueitspaymentorderbythemeansstatedorbyanymeansasexpeditiousas
themeansstated.
[ 239 ]
(d)Unlessinstructedbythesender,(i)thereceivingbankmaynotobtainpaymentofits
chargesforservicesandexpensesinconnectionwiththeexecutionofthesender'sorderby
issuingapaymentorderinanamountequaltotheamountofthesender'sorderlessthe
amountofthecharges,and(ii)maynotinstructasubsequentreceivingbanktoobtain
paymentofitschargesinthesamemanner.
4A303.ERRONEOUSEXECUTIONOFPAYMENTORDER.
(a)Areceivingbankthat(i)executesthepaymentorderofthesenderbyissuinga
paymentorderinanamountgreaterthantheamountofthesender'sorder,or(ii)issuesa
paymentorderinexecutionofthesender'sorderandthenissuesaduplicateorder,is
entitledtopaymentoftheamountofthesender'sorderunderSection4A402(c)ifthat
subsectionisotherwisesatisfied.Thebankisentitledtorecoverfromthebeneficiaryof
theerroneousordertheexcesspaymentreceivedtotheextentallowedbythelaw
governingmistakeandrestitution.
(b)Areceivingbankthatexecutesthepaymentorderofthesenderbyissuingapayment
orderinanamountlessthantheamountofthesender'sorderisentitledtopaymentofthe
amountofthesender'sorderunderSection4A402(c)if(i)thatsubsectionisotherwise
satisfiedand(ii)thebankcorrectsitsmistakebyissuinganadditionalpaymentorderfor
thebenefitofthebeneficiaryofthesender'sorder.Iftheerrorisnotcorrected,theissuer
oftheerroneousorderisentitledtoreceiveorretainpaymentfromthesenderoftheorder
itacceptedonlytotheextentoftheamountoftheerroneousorder.Thissubsectiondoes
notapplyifthereceivingbankexecutesthesender'spaymentorderbyissuingapayment
orderinanamountlessthantheamountofthesender'sorderforthepurposeofobtaining
paymentofitschargesforservicesandexpensespursuanttoinstructionofthesender.
(c)Ifareceivingbankexecutesthepaymentorderofthesenderbyissuingapayment
ordertoabeneficiarydifferentfromthebeneficiaryofthesender'sorderandthefunds
transferiscompletedonthebasisofthaterror,thesenderofthepaymentorderthatwas
erroneouslyexecutedandallprevioussendersinthefundstransferarenotobligedtopay
thepaymentorderstheyissued.Theissueroftheerroneousorderisentitledtorecover
fromthebeneficiaryoftheorderthepaymentreceivedtotheextentallowedbythelaw
governingmistakeandrestitution.
4A304.DUTYOFSENDERTOREPORTERRONEOUSLYEXECUTEDPAYMENTORDER.
IfthesenderofapaymentorderthatiserroneouslyexecutedasstatedinSection4A303
receivesnotificationfromthereceivingbankthattheorderwasexecutedorthatthe
sender'saccountwasdebitedwithrespecttotheorder,thesenderhasadutytoexercise
ordinarycaretodetermine,onthebasisofinformationavailabletothesender,thatthe
orderwaserroneouslyexecutedandtonotifythebankoftherelevantfactswithina
reasonabletimenotexceeding90daysafterthenotificationfromthebankwasreceivedby
thesender.Ifthesenderfailstoperformthatduty,thebankisnotobligedtopayinterest
onanyamountrefundabletothesenderunderSection4A402(d)fortheperiodbeforethe
banklearnsoftheexecutionerror.Thebankisnotentitledtoanyrecoveryfromthe
senderonaccountofafailurebythesendertoperformthedutystatedinthissection.
[ 240 ]
4A305.LIABILITYFORLATEORIMPROPEREXECUTIONORFAILURETOEXECUTE
PAYMENTORDER.
(a)Ifafundstransferiscompletedbutexecutionofapaymentorderbythereceivingbank
inbreachofSection4A302resultsindelayinpaymenttothebeneficiary,thebankis
obligedtopayinteresttoeithertheoriginatororthebeneficiaryofthefundstransferfor
theperiodofdelaycausedbytheimproperexecution.Exceptasprovidedinsubsection(c),
additionaldamagesarenotrecoverable.
(b)IfexecutionofapaymentorderbyareceivingbankinbreachofSection4A302results
in(i)noncompletionofthefundstransfer,(ii)failuretouseanintermediarybank
designatedbytheoriginator,or(iii)issuanceofapaymentorderthatdoesnotcomplywith
thetermsofthepaymentorderoftheoriginator,thebankisliabletotheoriginatorforits
expensesinthefundstransferandforincidentalexpensesandinterestlosses,totheextent
notcoveredbysubsection(a),resultingfromtheimproperexecution.Exceptasprovided
insubsection(c),additionaldamagesarenotrecoverable.
(c)Inadditiontotheamountspayableundersubsections(a)and(b),damages,including
consequentialdamages,arerecoverabletotheextentprovidedinanexpresswritten
agreementofthereceivingbank.
(d)Ifareceivingbankfailstoexecuteapaymentorderitwasobligedbyexpress
agreementtoexecute,thereceivingbankisliabletothesenderforitsexpensesinthe
transactionandforincidentalexpensesandinterestlossesresultingfromthefailureto
execute.Additionaldamages,includingconsequentialdamages,arerecoverabletothe
extentprovidedinanexpresswrittenagreementofthereceivingbank,butarenot
otherwiserecoverable.
(e)Reasonableattorney'sfeesarerecoverableifdemandforcompensationunder
subsection(a)or(b)ismadeandrefusedbeforeanactionisbroughtontheclaim.Ifa
claimismadeforbreachofanagreementundersubsection(d)andtheagreementdoesnot
providefordamages,reasonableattorney'sfeesarerecoverableifdemandfor
compensationundersubsection(d)ismadeandrefusedbeforeanactionisbroughtonthe
claim.
(f)Exceptasstatedinthissection,theliabilityofareceivingbankundersubsections(a)
and(b)maynotbevariedbyagreement.
PART4.PAYMENT
4A401.PAYMENTDATE.
"Paymentdate"ofapaymentordermeansthedayonwhichtheamountoftheorderis
payabletothebeneficiarybythebeneficiary'sbank.Thepaymentdatemaybedetermined
byinstructionofthesenderbutcannotbeearlierthanthedaytheorderisreceivedbythe
beneficiary'sbankand,unlessotherwisedetermined,isthedaytheorderisreceivedbythe
beneficiary'sbank.
[ 241 ]
4A402.OBLIGATIONOFSENDERTOPAYRECEIVINGBANK.
(a)ThissectionissubjecttoSections4A205and4A207.
(b)Withrespecttoapaymentorderissuedtothebeneficiary'sbank,acceptanceofthe
orderbythebankobligesthesendertopaythebanktheamountoftheorder,butpayment
isnotdueuntilthepaymentdateoftheorder.
(c)Thissubsectionissubjecttosubsection(e)andtoSection4A303.Withrespecttoa
paymentorderissuedtoareceivingbankotherthanthebeneficiary'sbank,acceptanceof
theorderbythereceivingbankobligesthesendertopaythebanktheamountofthe
sender'sorder.Paymentbythesenderisnotdueuntiltheexecutiondateofthesender's
order.Theobligationofthatsendertopayitspaymentorderisexcusedifthefunds
transferisnotcompletedbyacceptancebythebeneficiary'sbankofapaymentorder
instructingpaymenttothebeneficiaryofthatsender'spaymentorder.
(d)Ifthesenderofapaymentorderpaystheorderandwasnotobligedtopayallorpart
oftheamountpaid,thebankreceivingpaymentisobligedtorefundpaymenttotheextent
thesenderwasnotobligedtopay.ExceptasprovidedinSections4A204and4A304,
interestispayableontherefundableamountfromthedateofpayment.
(e)Ifafundstransferisnotcompletedasstatedinsubsection(c)andanintermediary
bankisobligedtorefundpaymentasstatedinsubsection(d)butisunabletodosobecause
notpermittedbyapplicablelaworbecausethebanksuspendspayments,asenderinthe
fundstransferthatexecutedapaymentorderincompliancewithaninstruction,asstated
inSection4A302(a)(1),toroutethefundstransferthroughthatintermediarybankis
entitledtoreceiveorretainpaymentfromthesenderofthepaymentorderthatit
accepted.Thefirstsenderinthefundstransferthatissuedaninstructionrequiringrouting
throughthatintermediarybankissubrogatedtotherightofthebankthatpaidthe
intermediarybanktorefundasstatedinsubsection(d).
(f)Therightofthesenderofapaymentordertobeexcusedfromtheobligationtopaythe
orderasstatedinsubsection(c)ortoreceiverefundundersubsection(d)maynotbe
variedbyagreement.
4A403.PAYMENTBYSENDERTORECEIVINGBANK.
(a)Paymentofthesender'sobligationunderSection4A402topaythereceivingbank
occursasfollows:
(1)Ifthesenderisabank,paymentoccurswhenthereceivingbankreceivesfinal
settlementoftheobligationthroughaFederalReserveBankorthroughafunds
transfersystem.
(2)Ifthesenderisabankandthesender(i)creditedanaccountofthereceiving
bankwiththesender,or(ii)causedanaccountofthereceivingbankinanother
banktobecredited,paymentoccurswhenthecreditiswithdrawnor,ifnot
withdrawn,atmidnightofthedayonwhichthecreditiswithdrawableandthe
receivingbanklearnsofthatfact.
[ 242 ]
(3)Ifthereceivingbankdebitsanaccountofthesenderwiththereceivingbank,
paymentoccurswhenthedebitismadetotheextentthedebitiscoveredbya
withdrawablecreditbalanceintheaccount.
(b)Ifthesenderandreceivingbankaremembersofafundstransfersystemthatnets
obligationsmultilaterallyamongparticipants,thereceivingbankreceivesfinalsettlement
whensettlementiscompleteinaccordancewiththerulesofthesystem.Theobligationof
thesendertopaytheamountofapaymentordertransmittedthroughthefundstransfer
systemmaybesatisfied,totheextentpermittedbytherulesofthesystem,bysettingoff
andapplyingagainstthesender'sobligationtherightofthesendertoreceivepayment
fromthereceivingbankoftheamountofanyotherpaymentordertransmittedtothe
senderbythereceivingbankthroughthefundstransfersystem.Theaggregatebalanceof
obligationsowedbyeachsendertoeachreceivingbankinthefundstransfersystemmay
besatisfied,totheextentpermittedbytherulesofthesystem,bysettingoffandapplying
againstthatbalancetheaggregatebalanceofobligationsowedtothesenderbyother
membersofthesystem.Theaggregatebalanceisdeterminedaftertherightofsetoffstated
inthesecondsentenceofthissubsectionhasbeenexercised.
(c)Iftwobankstransmitpaymentorderstoeachotherunderanagreementthat
settlementoftheobligationsofeachbanktotheotherunderSection4A402willbemade
attheendofthedayorotherperiod,thetotalamountowedwithrespecttoallorders
transmittedbyonebankshallbesetoffagainstthetotalamountowedwithrespecttoall
orderstransmittedbytheotherbank.Totheextentofthesetoff,eachbankhasmade
paymenttotheother.
(d)Inacasenotcoveredbysubsection(a),thetimewhenpaymentofthesender's
obligationunderSection4A402(b)or4A402(c)occursisgovernedbyapplicable
principlesoflawthatdeterminewhenanobligationissatisfied.
4A404.OBLIGATIONOFBENEFICIARY'SBANKTOPAYANDGIVENOTICETO
BENEFICIARY.
(a)SubjecttoSections4A211(e),4A405(d),and4A405(e),ifabeneficiary'sbank
acceptsapaymentorder,thebankisobligedtopaytheamountoftheordertothe
beneficiaryoftheorder.Paymentisdueonthepaymentdateoftheorder,butif
acceptanceoccursonthepaymentdateafterthecloseofthefundstransferbusinessdayof
thebank,paymentisdueonthenextfundstransferbusinessday.Ifthebankrefusesto
payafterdemandbythebeneficiaryandreceiptofnoticeofparticularcircumstancesthat
willgiverisetoconsequentialdamagesasaresultofnonpayment,thebeneficiarymay
recoverdamagesresultingfromtherefusaltopaytotheextentthebankhadnoticeofthe
damages,unlessthebankprovesthatitdidnotpaybecauseofareasonabledoubt
concerningtherightofthebeneficiarytopayment.
(b)Ifapaymentorderacceptedbythebeneficiary'sbankinstructspaymenttoanaccount
ofthebeneficiary,thebankisobligedtonotifythebeneficiaryofreceiptoftheorderbefore
midnightofthenextfundstransferbusinessdayfollowingthepaymentdate.Ifthe
paymentorderdoesnotinstructpaymenttoanaccountofthebeneficiary,thebankis
requiredtonotifythebeneficiaryonlyifnoticeisrequiredbytheorder.Noticemaybe
givenbyfirstclassmailoranyothermeansreasonableinthecircumstances.Ifthebank
[ 243 ]
failstogivetherequirednotice,thebankisobligedtopayinteresttothebeneficiaryonthe
amountofthepaymentorderfromthedaynoticeshouldhavebeengivenuntilthedaythe
beneficiarylearnedofreceiptofthepaymentorderbythebank.Nootherdamagesare
recoverable.Reasonableattorney'sfeesarealsorecoverableifdemandforinterestismade
andrefusedbeforeanactionisbroughtontheclaim.
(c)Therightofabeneficiarytoreceivepaymentanddamagesasstatedinsubsection(a)
maynotbevariedbyagreementorafundstransfersystemrule.Therightofabeneficiary
tobenotifiedasstatedinsubsection(b)maybevariedbyagreementofthebeneficiaryor
byafundstransfersystemruleifthebeneficiaryisnotifiedoftherulebeforeinitiationof
thefundstransfer.
4A405.PAYMENTBYBENEFICIARY'SBANKTOBENEFICIARY.
(a)Ifthebeneficiary'sbankcreditsanaccountofthebeneficiaryofapaymentorder,
paymentofthebank'sobligationunderSection4A404(a)occurswhenandtotheextent
(i)thebeneficiaryisnotifiedoftherighttowithdrawthecredit,(ii)thebanklawfully
appliesthecredittoadebtofthebeneficiary,or(iii)fundswithrespecttotheorderare
otherwisemadeavailabletothebeneficiarybythebank.
(b)Ifthebeneficiary'sbankdoesnotcreditanaccountofthebeneficiaryofapayment
order,thetimewhenpaymentofthebank'sobligationunderSection4A404(a)occursis
governedbyprinciplesoflawthatdeterminewhenanobligationissatisfied.
(c)Exceptasstatedinsubsections(d)and(e),ifthebeneficiary'sbankpaysthe
beneficiaryofapaymentorderunderaconditiontopaymentoragreementofthe
beneficiarygivingthebanktherighttorecoverpaymentfromthebeneficiaryifthebank
doesnotreceivepaymentoftheorder,theconditiontopaymentoragreementisnot
enforceable.
(d)Afundstransfersystemrulemayprovidethatpaymentsmadetobeneficiariesoffunds
transfersmadethroughthesystemareprovisionaluntilreceiptofpaymentbythe
beneficiary'sbankofthepaymentorderitaccepted.Abeneficiary'sbankthatmakesa
paymentthatisprovisionalundertheruleisentitledtorefundfromthebeneficiaryif(i)
therulerequiresthatboththebeneficiaryandtheoriginatorbegivennoticeofthe
provisionalnatureofthepaymentbeforethefundstransferisinitiated,(ii)thebeneficiary,
thebeneficiary'sbankandtheoriginator'sbankagreedtobeboundbytherule,and(iii)
thebeneficiary'sbankdidnotreceivepaymentofthepaymentorderthatitaccepted.Ifthe
beneficiaryisobligedtorefundpaymenttothebeneficiary'sbank,acceptanceofthe
paymentorderbythebeneficiary'sbankisnullifiedandnopaymentbytheoriginatorof
thefundstransfertothebeneficiaryoccursunderSection4A406.
(e)Thissubsectionappliestoafundstransferthatincludesapaymentordertransmitted
overafundstransfersystemthat(i)netsobligationsmultilaterallyamongparticipants,
and(ii)hasineffectalosssharingagreementamongparticipantsforthepurposeof
providingfundsnecessarytocompletesettlementoftheobligationsofoneormore
participantsthatdonotmeettheirsettlementobligations.Ifthebeneficiary'sbankinthe
fundstransferacceptsapaymentorderandthesystemfailstocompletesettlement
pursuanttoitsruleswithrespecttoanypaymentorderinthefundstransfer,(i)the
[ 244 ]
acceptancebythebeneficiary'sbankisnullifiedandnopersonhasanyrightorobligation
basedontheacceptance,(ii)thebeneficiary'sbankisentitledtorecoverpaymentfromthe
beneficiary,(iii)nopaymentbytheoriginatortothebeneficiaryoccursunderSection4A
406,and(iv)subjecttoSection4A402(e),eachsenderinthefundstransferisexcused
fromitsobligationtopayitspaymentorderunderSection4A402(c)becausethefunds
transferhasnotbeencompleted.
4A406.PAYMENTBYORIGINATORTOBENEFICIARY;DISCHARGEOFUNDERLYING
OBLIGATION.
(a)SubjecttoSections4A211(e),4A405(d),and4A405(e),theoriginatorofafunds
transferpaysthebeneficiaryoftheoriginator'spaymentorder(i)atthetimeapayment
orderforthebenefitofthebeneficiaryisacceptedbythebeneficiary'sbankinthefunds
transferand(ii)inanamountequaltotheamountoftheorderacceptedbythe
beneficiary'sbank,butnotmorethantheamountoftheoriginator'sorder.
(b)Ifpaymentundersubsection(a)ismadetosatisfyanobligation,theobligationis
dischargedtothesameextentdischargewouldresultfrompaymenttothebeneficiaryof
thesameamountinmoney,unless(i)thepaymentundersubsection(a)wasmadebya
meansprohibitedbythecontractofthebeneficiarywithrespecttotheobligation,(ii)the
beneficiary,withinareasonabletimeafterreceivingnoticeofreceiptoftheorderbythe
beneficiary'sbank,notifiedtheoriginatorofthebeneficiary'srefusalofthepayment,(iii)
fundswithrespecttotheorderwerenotwithdrawnbythebeneficiaryorappliedtoadebt
ofthebeneficiary,and(iv)thebeneficiarywouldsufferalossthatcouldreasonablyhave
beenavoidedifpaymenthadbeenmadebyameanscomplyingwiththecontract.If
paymentbytheoriginatordoesnotresultindischargeunderthissection,theoriginatoris
subrogatedtotherightsofthebeneficiarytoreceivepaymentfromthebeneficiary'sbank
underSection4A404(a).
(c)Forthepurposeofdeterminingwhetherdischargeofanobligationoccursunder
subsection(b),ifthebeneficiary'sbankacceptsapaymentorderinanamountequaltothe
amountoftheoriginator'spaymentorderlesschargesofoneormorereceivingbanksin
thefundstransfer,paymenttothebeneficiaryisdeemedtobeintheamountofthe
originator'sorderunlessupondemandbythebeneficiarytheoriginatordoesnotpaythe
beneficiarytheamountofthedeductedcharges.
(d)Rightsoftheoriginatororofthebeneficiaryofafundstransferunderthissectionmay
bevariedonlybyagreementoftheoriginatorandthebeneficiary.
4A501.VARIATIONBYAGREEMENTANDEFFECTOFFUNDSTRANSFERSYSTEMRULE.
(a)ExceptasotherwiseprovidedinthisArticle,therightsandobligationsofapartytoa
fundstransfermaybevariedbyagreementoftheaffectedparty.
(b)"Fundstransfersystemrule"meansaruleofanassociationofbanks(i)governing
transmissionofpaymentordersbymeansofafundstransfersystemoftheassociationor
rightsandobligationswithrespecttothoseorders,or(ii)totheextenttherulegoverns
[ 245 ]
rightsandobligationsbetweenbanksthatarepartiestoafundstransferinwhichaFederal
ReserveBank,actingasanintermediarybank,sendsapaymentordertothebeneficiary's
bank.ExceptasotherwiseprovidedinthisArticle,afundstransfersystemrulegoverning
rightsandobligationsbetweenparticipatingbanksusingthesystemmaybeeffectiveeven
iftheruleconflictswiththisArticleandindirectlyaffectsanotherpartytothefunds
transferwhodoesnotconsenttotherule.Afundstransfersystemrulemayalsogovern
rightsandobligationsofpartiesotherthanparticipatingbanksusingthesystemtothe
extentstatedinSections4A404(c),4A405(d),and4A507(c).
4A502.CREDITORPROCESSSERVEDONRECEIVINGBANK;SETOFFBYBENEFICIARY'S
BANK.
(a)Asusedinthissection,"creditorprocess"meanslevy,attachment,garnishment,notice
oflien,sequestration,orsimilarprocessissuedbyoronbehalfofacreditororother
claimantwithrespecttoanaccount.
(b)Thissubsectionappliestocreditorprocesswithrespecttoanauthorizedaccountofthe
senderofapaymentorderifthecreditorprocessisservedonthereceivingbank.Forthe
purposeofdeterminingrightswithrespecttothecreditorprocess,ifthereceivingbank
acceptsthepaymentorderthebalanceintheauthorizedaccountisdeemedtobereduced
bytheamountofthepaymentordertotheextentthebankdidnototherwisereceive
paymentoftheorder,unlessthecreditorprocessisservedatatimeandinamanner
affordingthebankareasonableopportunitytoactonitbeforethebankacceptsthe
paymentorder.
(c)Ifabeneficiary'sbankhasreceivedapaymentorderforpaymenttothebeneficiary's
accountinthebank,thefollowingrulesapply:
(1)Thebankmaycreditthebeneficiary'saccount.Theamountcreditedmaybeset
offagainstanobligationowedbythebeneficiarytothebankormaybeappliedto
satisfycreditorprocessservedonthebankwithrespecttotheaccount.
(2)Thebankmaycreditthebeneficiary'saccountandallowwithdrawalofthe
amountcreditedunlesscreditorprocesswithrespecttotheaccountisservedata
timeandinamanneraffordingthebankareasonableopportunitytoacttoprevent
withdrawal.
(3)Ifcreditorprocesswithrespecttothebeneficiary'saccounthasbeenservedand
thebankhashadareasonableopportunitytoactonit,thebankmaynotrejectthe
paymentorderexceptforareasonunrelatedtotheserviceofprocess.
(d)Creditorprocesswithrespecttoapaymentbytheoriginatortothebeneficiary
pursuanttoafundstransfermaybeservedonlyonthebeneficiary'sbankwithrespectto
thedebtowedbythatbanktothebeneficiary.Anyotherbankservedwiththecreditor
processisnotobligedtoactwithrespecttotheprocess.
[ 246 ]
4A503.INJUNCTIONORRESTRAININGORDERWITHRESPECTTOFUNDSTRANSFER.
Forpropercauseandincompliancewithapplicablelaw,acourtmayrestrain(i)aperson
fromissuingapaymentordertoinitiateafundstransfer,(ii)anoriginator'sbankfrom
executingthepaymentorderoftheoriginator,or(iii)thebeneficiary'sbankfromreleasing
fundstothebeneficiaryorthebeneficiaryfromwithdrawingthefunds.Acourtmaynot
otherwiserestrainapersonfromissuingapaymentorder,payingorreceivingpaymentof
apaymentorder,orotherwiseactingwithrespecttoafundstransfer.
4A504.ORDERINWHICHITEMSANDPAYMENTORDERSMAYBECHARGEDTO
ACCOUNT;ORDEROFWITHDRAWALSFROMACCOUNT.
(a)Ifareceivingbankhasreceivedmorethanonepaymentorderofthesenderoroneor
morepaymentordersandotheritemsthatarepayablefromthesender'saccount,thebank
maychargethesender'saccountwithrespecttothevariousordersanditemsinany
sequence.
(b)Indeterminingwhetheracredittoanaccounthasbeenwithdrawnbytheholderofthe
accountorappliedtoadebtoftheholderoftheaccount,creditsfirstmadetotheaccount
arefirstwithdrawnorapplied.
4A505.PRECLUSIONOFOBJECTIONTODEBITOFCUSTOMER'SACCOUNT.
Ifareceivingbankhasreceivedpaymentfromitscustomerwithrespecttoapayment
orderissuedinthenameofthecustomerassenderandacceptedbythebank,andthe
customerreceivednotificationreasonablyidentifyingtheorder,thecustomerisprecluded
fromassertingthatthebankisnotentitledtoretainthepaymentunlessthecustomer
notifiesthebankofthecustomer'sobjectiontothepaymentwithinoneyearafterthe
notificationwasreceivedbythecustomer.
4A506.RATEOFINTEREST.
(a)If,underthisArticle,areceivingbankisobligedtopayinterestwithrespecttoa
paymentorderissuedtothebank,theamountpayablemaybedetermined(i)by
agreementofthesenderandreceivingbank,or(ii)byafundstransfersystemruleifthe
paymentorderistransmittedthroughafundstransfersystem.
(b)Iftheamountofinterestisnotdeterminedbyanagreementorruleasstatedin
subsection(a),theamountiscalculatedbymultiplyingtheapplicableFederalFundsrate
bytheamountonwhichinterestispayable,andthenmultiplyingtheproductbythe
numberofdaysforwhichinterestispayable.TheapplicableFederalFundsrateisthe
averageoftheFederalFundsratespublishedbytheFederalReserveBankofNewYorkfor
eachofthedaysforwhichinterestispayabledividedby360.TheFederalFundsratefor
anydayonwhichapublishedrateisnotavailableisthesameasthepublishedrateforthe
nextprecedingdayforwhichthereisapublishedrate.Ifareceivingbankthataccepteda
paymentorderisrequiredtorefundpaymenttothesenderoftheorderbecausethefunds
transferwasnotcompleted,butthefailuretocompletewasnotduetoanyfaultbythe
bank,theinterestpayableisreducedbyapercentageequaltothereserverequirementon
depositsofthereceivingbank.
[ 247 ]
4A507.CHOICEOFLAW.
(a)Thefollowingrulesapplyunlesstheaffectedpartiesotherwiseagreeorsubsection(c)
applies:
(1)Therightsandobligationsbetweenthesenderofapaymentorderandthe
receivingbankaregovernedbythelawofthejurisdictioninwhichthereceiving
bankislocated.
(2)Therightsandobligationsbetweenthebeneficiary'sbankandthebeneficiary
aregovernedbythelawofthejurisdictioninwhichthebeneficiary'sbankis
located.
(3)Theissueofwhenpaymentismadepursuanttoafundstransferbythe
originatortothebeneficiaryisgovernedbythelawofthejurisdictioninwhichthe
beneficiary'sbankislocated.
(b)Ifthepartiesdescribedineachparagraphofsubsection(a)havemadeanagreement
selectingthelawofaparticularjurisdictiontogovernrightsandobligationsbetweeneach
other,thelawofthatjurisdictiongovernsthoserightsandobligations,whetherornotthe
paymentorderorthefundstransferbearsareasonablerelationtothatjurisdiction.
(c)Afundstransfersystemrulemayselectthelawofaparticularjurisdictiontogovern(i)
rightsandobligationsbetweenparticipatingbankswithrespecttopaymentorders
transmittedorprocessedthroughthesystem,or(ii)therightsandobligationsofsomeor
allpartiestoafundstransferanypartofwhichiscarriedoutbymeansofthesystem.A
choiceoflawmadepursuanttoclause(i)isbindingonparticipatingbanks.Achoiceoflaw
madepursuanttoclause(ii)isbindingontheoriginator,othersender,orareceivingbank
havingnoticethatthefundstransfersystemmightbeusedinthefundstransferandofthe
choiceoflawbythesystemwhentheoriginator,othersender,orreceivingbankissuedor
acceptedapaymentorder.Thebeneficiaryofafundstransferisboundbythechoiceoflaw
if,whenthefundstransferisinitiated,thebeneficiaryhasnoticethatthefundstransfer
systemmightbeusedinthefundstransferandofthechoiceoflawbythesystem.Thelaw
ofajurisdictionselectedpursuanttothissubsectionmaygovern,whetherornotthatlaw
bearsareasonablerelationtothematterinissue.
(d)Intheeventofinconsistencybetweenanagreementundersubsection(b)andachoice
oflawruleundersubsection(c),theagreementundersubsection(b)prevails.
(e)Ifafundstransferismadebyuseofmorethanonefundstransfersystemandthereis
inconsistencybetweenchoiceoflawrulesofthesystems,thematterinissueisgoverned
bythelawoftheselectedjurisdictionthathasthemostsignificantrelationshiptothe
matterinissue.
[ 248 ]
M.I.C.NOTES[UCCARTICLE4A:FUNDSTRANSFER]
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[ 258 ]
U.C.C.ARTICLE5LETTERSOFCREDIT
5101.ShortTitle.
5102.Definitions.
5103.Scope.
5104.FormalRequirements.
5105.Consideration.
5106.Issuance,Amendment,Cancellation,andDuration.
5107.Confirmer,NominatedPerson,andAdviser.
5108.Issuer'sRightsandObligations
5109.FraudandForgery.
5110.Warranties.
5111.Remedies.
5112.TransferofLetterofCredit.
5113.TransferbyOperationofLaw.
5114.AssignmentofProceeds.
5115.StatuteofLimitations.
5116.ChoiceofLawandForum.
5117.SubrogationofIssuer,Applicant,andNominatedPerson.
5118.SecurityInterestofIssuerorNominatedPerson.
[ 259 ]
5101.ShortTitle.
ThisArticleshallbeknownandmaybecitedasUniformCommercialCodeLettersof
Credit.
5102.Definitions.
(a)Inthisarticle:
(1)"Adviser"meansapersonwho,attherequestoftheissuer,aconfirmer,or
anotheradviser,notifiesorrequestsanotheradvisertonotifythebeneficiarythata
letterofcredithasbeenissued,confirmed,oramended.
(2)"Applicant"meansapersonatwhoserequestorforwhoseaccountaletterof
creditisissued.Thetermincludesapersonwhorequestsanissuertoissuealetter
ofcreditonbehalfofanotherifthepersonmakingtherequestundertakesan
obligationtoreimbursetheissuer.
(3)"Beneficiary"meansapersonwhounderthetermsofaletterofcreditis
entitledtohaveitscomplyingpresentationhonored.Thetermincludesapersonto
whomdrawingrightshavebeentransferredunderatransferableletterofcredit.
(4)"Confirmer"meansanominatedpersonwhoundertakes,attherequestorwith
theconsentoftheissuer,tohonorapresentationunderaletterofcreditissuedby
another.
(5)"Dishonor"ofaletterofcreditmeansfailuretimelytohonorortotakean
interimaction,suchasacceptanceofadraft,thatmayberequiredbytheletterof
credit.
(6)"Document"meansadraftorotherdemand,documentoftitle,investment
security,certificate,invoice,orotherrecord,statement,orrepresentationoffact,
law,right,oropinion(i)whichispresentedinawrittenorothermediumpermitted
bytheletterofcreditor,unlessprohibitedbytheletterofcredit,bythestandard
practicereferredtoinSection5108(e)and(ii)whichiscapableofbeingexamined
forcompliancewiththetermsandconditionsoftheletterofcredit.Adocument
maynotbeoral.
(7)"Goodfaith"meanshonestyinfactintheconductortransactionconcerned.
(8)"Honor"ofaletterofcreditmeansperformanceoftheissuer'sundertakingin
theletterofcredittopayordeliveranitemofvalue.Unlesstheletterofcredit
otherwiseprovides,"honor"occurs(i)uponpayment,(ii)iftheletterofcredit
providesforacceptance,uponacceptanceofadraftand,atmaturity,itspayment,
or(iii)iftheletterofcreditprovidesforincurringadeferredobligation,upon
incurringtheobligationand,atmaturity,itsperformance.
[ 260 ]
(9)"Issuer"meansabankorotherpersonthatissuesaletterofcredit,butdoesnot
includeanindividualwhomakesanengagementforpersonal,family,orhousehold
purposes.
(10)"Letterofcredit"meansadefiniteundertakingthatsatisfiestherequirements
ofSection5104byanissuertoabeneficiaryattherequestorfortheaccountofan
applicantor,inthecaseofafinancialinstitution,toitselforforitsownaccount,to
honoradocumentarypresentationbypaymentordeliveryofanitemofvalue.
(11)"Nominatedperson"meansapersonwhomtheissuer(i)designatesor
authorizestopay,accept,negotiate,orotherwisegivevalueunderaletterofcredit
and(ii)undertakesbyagreementorcustomandpracticetoreimburse.
(12)"Presentation"meansdeliveryofadocumenttoanissuerornominatedperson
forhonororgivingofvalueunderaletterofcredit.
(13)"Presenter"meansapersonmakingapresentationasoronbehalfofa
beneficiaryornominatedperson.
(14)"Record"meansinformationthatisinscribedonatangiblemedium,orthatis
storedinanelectronicorothermediumandisretrievableinperceivableform.
(15)"Successorofabeneficiary"meansapersonwhosucceedstosubstantiallyall
oftherightsofabeneficiarybyoperationoflaw,includingacorporationwithor
intowhichthebeneficiaryhasbeenmergedorconsolidated,anadministrator,
executor,personalrepresentative,trusteeinbankruptcy,debtorinpossession,
liquidator,andreceiver.
(b)DefinitionsinotherArticlesapplyingtothisarticleandthesectionsinwhichthey
appearare:
"Accept"or"Acceptance"Section3409
"Value"Sections3303,4211
(c)Article1containscertainadditionalgeneraldefinitionsandprinciplesofconstruction
andinterpretationapplicablethroughoutthisarticle.
5103.Scope.
(a)Thisarticleappliestolettersofcreditandtocertainrightsandobligationsarisingout
oftransactionsinvolvinglettersofcredit.
(b)Thestatementofaruleinthisarticledoesnotbyitselfrequire,imply,ornegate
applicationofthesameoradifferentruletoasituationnotprovidedfor,ortoapersonnot
specified,inthisarticle.
(c)Withtheexceptionofthissubsection,subsections(a)and(d),Sections5102(a)(9)and
(10),5106(d),and5114(d),andexcepttotheextentprohibitedinSections1302and5
[ 261 ]
117(d),theeffectofthisarticlemaybevariedbyagreementorbyaprovisionstatedor
incorporatedbyreferenceinanundertaking.Aterminanagreementorundertaking
generallyexcusingliabilityorgenerallylimitingremediesforfailuretoperformobligations
isnotsufficienttovaryobligationsprescribedbythisarticle.
(d)Rightsandobligationsofanissuertoabeneficiaryoranominatedpersonundera
letterofcreditareindependentoftheexistence,performance,ornonperformanceofa
contractorarrangementoutofwhichtheletterofcreditarisesorwhichunderliesit,
includingcontractsorarrangementsbetweentheissuerandtheapplicantandbetweenthe
applicantandthebeneficiary.
5104.FormalRequirements.
Aletterofcredit,confirmation,advice,transfer,amendment,orcancellationmaybeissued
inanyformthatisarecordandisauthenticated(i)byasignatureor(ii)inaccordancewith
theagreementofthepartiesorthestandardpracticereferredtoinSection5108(e).
5105.Consideration.
Considerationisnotrequiredtoissue,amend,transfer,orcancelaletterofcredit,advice,
orconfirmation.
5106.Issuance,Amendment,Cancellation,andDuration.
(a)Aletterofcreditisissuedandbecomesenforceableaccordingtoitstermsagainstthe
issuerwhentheissuersendsorotherwisetransmitsittothepersonrequestedtoadviseor
tothebeneficiary.Aletterofcreditisrevocableonlyifitsoprovides.
(b)Afteraletterofcreditisissued,rightsandobligationsofabeneficiary,applicant,
confirmer,andissuerarenotaffectedbyanamendmentorcancellationtowhichthat
personhasnotconsentedexcepttotheextenttheletterofcreditprovidesthatitis
revocableorthattheissuermayamendorcanceltheletterofcreditwithoutthatconsent.
(c)Ifthereisnostatedexpirationdateorotherprovisionthatdeterminesitsduration,a
letterofcreditexpiresoneyearafteritsstateddateofissuanceor,ifnoneisstated,after
thedateonwhichitisissued.
(d)Aletterofcreditthatstatesthatitisperpetualexpiresfiveyearsafteritsstateddateof
issuance,orifnoneisstated,afterthedateonwhichitisissued.
5107.Confirmer,NominatedPerson,andAdviser.
(a)Aconfirmerisdirectlyobligatedonaletterofcreditandhastherightsandobligations
ofanissuertotheextentofitsconfirmation.Theconfirmeralsohasrightsagainstand
obligationstotheissuerasiftheissuerwereanapplicantandtheconfirmerhadissuedthe
letterofcreditattherequestandfortheaccountoftheissuer.
(b)Anominatedpersonwhoisnotaconfirmerisnotobligatedtohonororotherwisegive
valueforapresentation.
[ 262 ]
(c)Apersonrequestedtoadvisemaydeclinetoactasanadviser.Anadviserthatisnota
confirmerisnotobligatedtohonororgivevalueforapresentation.Anadviserundertakes
totheissuerandtothebeneficiaryaccuratelytoadvisethetermsoftheletterofcredit,
confirmation,amendment,oradvicereceivedbythatpersonandundertakestothe
beneficiarytochecktheapparentauthenticityoftherequesttoadvise.Eveniftheadviceis
inaccurate,theletterofcredit,confirmation,oramendmentisenforceableasissued.
(d)Apersonwhonotifiesatransfereebeneficiaryofthetermsofaletterofcredit,
confirmation,amendment,oradvicehastherightsandobligationsofanadviserunder
subsection(c).Thetermsinthenoticetothetransfereebeneficiarymaydifferfromthe
termsinanynoticetothetransferorbeneficiarytotheextentpermittedbytheletterof
credit,confirmation,amendment,oradvicereceivedbythepersonwhosonotifies.
5108.Issuer'sRightsandObligations
(a)ExceptasotherwiseprovidedinSection5109,anissuershallhonorapresentation
that,asdeterminedbythestandardpracticereferredtoinsubsection(e),appearsonits
facestrictlytocomplywiththetermsandconditionsoftheletterofcredit.Exceptas
otherwiseprovidedinSection5113andunlessotherwiseagreedwiththeapplicant,an
issuershalldishonorapresentationthatdoesnotappearsotocomply.
(b)Anissuerhasareasonabletimeafterpresentation,butnotbeyondtheendofthe
seventhbusinessdayoftheissuerafterthedayofitsreceiptofdocuments:
(1)tohonor,
(2)iftheletterofcreditprovidesforhonortobecompletedmorethanseven
businessdaysafterpresentation,toacceptadraftorincuradeferredobligation,or
(3)togivenoticetothepresenterofdiscrepanciesinthepresentation.
(c)Exceptasotherwiseprovidedinsubsection(d),anissuerisprecludedfromasserting
asabasisfordishonoranydiscrepancyiftimelynoticeisnotgiven,oranydiscrepancynot
statedinthenoticeiftimelynoticeisgiven.
(d)Failuretogivethenoticespecifiedinsubsection(b)ortomentionfraud,forgery,or
expirationinthenoticedoesnotprecludetheissuerfromassertingasabasisfordishonor
fraudorforgeryasdescribedinSection5109(a)orexpirationoftheletterofcreditbefore
presentation.
(e)Anissuershallobservestandardpracticeoffinancialinstitutionsthatregularlyissue
lettersofcredit.Determinationoftheissuer'sobservanceofthestandardpracticeisa
matterofinterpretationforthecourt.Thecourtshallofferthepartiesareasonable
opportunitytopresentevidenceofthestandardpractice.
(f)Anissuerisnotresponsiblefor:
(1)theperformanceornonperformanceoftheunderlyingcontract,arrangement,or
transaction,
[ 263 ]
(2)anactoromissionofothers,or
(3)observanceorknowledgeoftheusageofaparticulartradeotherthanthe
standardpracticereferredtoinsubsection(e).
(g)IfanundertakingconstitutingaletterofcreditunderSection5102(a)(10)contains
nondocumentaryconditions,anissuershalldisregardthenondocumentaryconditionsand
treatthemasiftheywerenotstated.
(h)Anissuerthathasdishonoredapresentationshallreturnthedocumentsorholdthem
atthedisposalof,andsendadvicetothateffectto,thepresenter.
(i)Anissuerthathashonoredapresentationaspermittedorrequiredbythisarticle:
(1)isentitledtobereimbursedbytheapplicantinimmediatelyavailablefundsnot
laterthanthedateofitspaymentoffunds;
(2)takesthedocumentsfreeofclaimsofthebeneficiaryorpresenter;
(3)isprecludedfromassertingarightofrecourseonadraftunderSections3414
and3415;
(4)exceptasotherwiseprovidedinSections5110and5117,isprecludedfrom
restitutionofmoneypaidorothervaluegivenbymistaketotheextentthemistake
concernsdiscrepanciesinthedocumentsortenderwhichareapparentontheface
ofthepresentation;and
(5)isdischargedtotheextentofitsperformanceundertheletterofcreditunless
theissuerhonoredapresentationinwhicharequiredsignatureofabeneficiarywas
forged.
5109.FraudandForgery.
(a)Ifapresentationismadethatappearsonitsfacestrictlytocomplywiththetermsand
conditionsoftheletterofcredit,butarequireddocumentisforgedormaterially
fraudulent,orhonorofthepresentationwouldfacilitateamaterialfraudbythebeneficiary
ontheissuerorapplicant:
(1)theissuershallhonorthepresentation,ifhonorisdemandedby(i)anominated
personwhohasgivenvalueingoodfaithandwithoutnoticeofforgeryormaterial
fraud,(ii)aconfirmerwhohashonoreditsconfirmationingoodfaith,(iii)aholder
induecourseofadraftdrawnundertheletterofcreditwhichwastakenafter
acceptancebytheissuerornominatedperson,or(iv)anassigneeoftheissuer'sor
nominatedperson'sdeferredobligationthatwastakenforvalueandwithoutnotice
offorgeryormaterialfraudaftertheobligationwasincurredbytheissueror
nominatedperson;and
(2)theissuer,actingingoodfaith,mayhonorordishonorthepresentationinany
othercase.
[ 264 ]
(b)Ifanapplicantclaimsthatarequireddocumentisforgedormateriallyfraudulentor
thathonorofthepresentationwouldfacilitateamaterialfraudbythebeneficiaryonthe
issuerorapplicant,acourtofcompetentjurisdictionmaytemporarilyorpermanently
enjointheissuerfromhonoringapresentationorgrantsimilarreliefagainsttheissueror
otherpersonsonlyifthecourtfindsthat:
(1)thereliefisnotprohibitedunderthelawapplicabletoanaccepteddraftor
deferredobligationincurredbytheissuer;
(2)abeneficiary,issuer,ornominatedpersonwhomaybeadverselyaffectedis
adequatelyprotectedagainstlossthatitmaysufferbecausethereliefisgranted;
(3)alloftheconditionstoentitleapersontothereliefunderthelawofthisState
havebeenmet;and
(4)onthebasisoftheinformationsubmittedtothecourt,theapplicantismore
likelythannottosucceedunderitsclaimofforgeryormaterialfraudandtheperson
demandinghonordoesnotqualifyforprotectionundersubsection(a)(1).
5110.Warranties.
(a)Ifitspresentationishonored,thebeneficiarywarrants:
(1)totheissuer,anyotherpersontowhompresentationismade,andtheapplicant
thatthereisnofraudorforgeryofthekinddescribedinSection5109(a);and
(2)totheapplicantthatthedrawingdoesnotviolateanyagreementbetweenthe
applicantandbeneficiaryoranyotheragreementintendedbythemtobe
augmentedbytheletterofcredit.
(b)Thewarrantiesinsubsection(a)areinadditiontowarrantiesarisingunderArticle3,
4,7,and8becauseofthepresentationortransferofdocumentscoveredbyanyofthose
articles.
5111.Remedies.
(a)Ifanissuerwrongfullydishonorsorrepudiatesitsobligationtopaymoneyundera
letterofcreditbeforepresentation,thebeneficiary,successor,ornominatedperson
presentingonitsownbehalfmayrecoverfromtheissuertheamountthatisthesubjectof
thedishonororrepudiation.Iftheissuer'sobligationundertheletterofcreditisnotfor
thepaymentofmoney,theclaimantmayobtainspecificperformanceor,attheclaimant's
election,recoveranamountequaltothevalueofperformancefromtheissuer.Ineither
case,theclaimantmayalsorecoverincidentalbutnotconsequentialdamages.The
claimantisnotobligatedtotakeactiontoavoiddamagesthatmightbeduefromtheissuer
underthissubsection.If,althoughnotobligatedtodoso,theclaimantavoidsdamages,the
claimant'srecoveryfromtheissuermustbereducedbytheamountofdamagesavoided.
Theissuerhastheburdenofprovingtheamountofdamagesavoided.Inthecaseof
repudiationtheclaimantneednotpresentanydocument.
[ 265 ]
(b)Ifanissuerwrongfullydishonorsadraftordemandpresentedunderaletterofcredit
orhonorsadraftordemandinbreachofitsobligationtotheapplicant,theapplicantmay
recoverdamagesresultingfromthebreach,includingincidentalbutnotconsequential
damages,lessanyamountsavedasaresultofthebreach.
(c)Ifanadviserornominatedpersonotherthanaconfirmerbreachesanobligationunder
thisarticleoranissuerbreachesanobligationnotcoveredinsubsection(a)or(b),a
persontowhomtheobligationisowedmayrecoverdamagesresultingfromthebreach,
includingincidentalbutnotconsequentialdamages,lessanyamountsavedasaresultof
thebreach.Totheextentoftheconfirmation,aconfirmerhastheliabilityofanissuer
specifiedinthissubsectionandsubsections(a)and(b).
(d)Anissuer,nominatedperson,oradviserwhoisfoundliableundersubsection(a),(b),
or(c)shallpayinterestontheamountowedthereunderfromthedateofwrongful
dishonororotherappropriatedate.
(e)Reasonableattorney'sfeesandotherexpensesoflitigationmustbeawardedtothe
prevailingpartyinanactioninwhicharemedyissoughtunderthisarticle.
(f)Damagesthatwouldotherwisebepayablebyapartyforbreachofanobligationunder
thisarticlemaybeliquidatedbyagreementorundertaking,butonlyinanamountorbya
formulathatisreasonableinlightoftheharmanticipated.
5112.TransferofLetterofCredit.
(a)ExceptasotherwiseprovidedinSection5113,unlessaletterofcreditprovidesthatit
istransferable,therightofabeneficiarytodraworotherwisedemandperformanceunder
aletterofcreditmaynotbetransferred.
(b)Evenifaletterofcreditprovidesthatitistransferable,theissuermayrefuseto
recognizeorcarryoutatransferif:
(1)thetransferwouldviolateapplicablelaw;or
(2)thetransferorortransfereehasfailedtocomplywithanyrequirementstatedin
theletterofcreditoranyotherrequirementrelatingtotransferimposedbythe
issuerwhichiswithinthestandardpracticereferredtoinSection5108(e)oris
otherwisereasonableunderthecircumstances.
5113.TransferbyOperationofLaw.
(a)Asuccessorofabeneficiarymayconsenttoamendments,signandpresentdocuments,
andreceivepaymentorotheritemsofvalueinthenameofthebeneficiarywithout
disclosingitsstatusasasuccessor.
(b)Asuccessorofabeneficiarymayconsenttoamendments,signandpresentdocuments,
andreceivepaymentorotheritemsofvalueinitsownnameasthedisclosedsuccessorof
thebeneficiary.Exceptasotherwiseprovidedinsubsection(e),anissuershallrecognizea
disclosedsuccessorofabeneficiaryasbeneficiaryinfullsubstitutionforitspredecessor
[ 266 ]
uponcompliancewiththerequirementsforrecognitionbytheissuerofatransferof
drawingrightsbyoperationoflawunderthestandardpracticereferredtoinSection5
108(e)or,intheabsenceofsuchapractice,compliancewithotherreasonableprocedures
sufficienttoprotecttheissuer.
(c)Anissuerisnotobligedtodeterminewhetherapurportedsuccessorisasuccessorofa
beneficiaryorwhetherthesignatureofapurportedsuccessorisgenuineorauthorized.
(d)Honorofapurportedsuccessor'sapparentlycomplyingpresentationundersubsection
(a)or(b)hastheconsequencesspecifiedinSection5108(i)evenifthepurported
successorisnotthesuccessorofabeneficiary.Documentssignedinthenameofthe
beneficiaryorofadisclosedsuccessorbyapersonwhoisneitherthebeneficiarynorthe
successorofthebeneficiaryareforgeddocumentsforthepurposesofSection5109.
(e)Anissuerwhoserightsofreimbursementarenotcoveredbysubsection(d)or
substantiallysimilarlawandanyconfirmerornominatedpersonmaydeclinetorecognize
apresentationundersubsection(b).
(f)Abeneficiarywhosenameischangedaftertheissuanceofaletterofcredithasthe
samerightsandobligationsasasuccessorofabeneficiaryunderthissection.
5114.AssignmentofProceeds.
(a)Inthissection,"proceedsofaletterofcredit"meansthecash,check,accepteddraft,or
otheritemofvaluepaidordelivereduponhonororgivingofvaluebytheissuerorany
nominatedpersonundertheletterofcredit.Thetermdoesnotincludeabeneficiary's
drawingrightsordocumentspresentedbythebeneficiary.
(b)Abeneficiarymayassignitsrighttopartoralloftheproceedsofaletterofcredit.The
beneficiarymaydosobeforepresentationasapresentassignmentofitsrighttoreceive
proceedscontingentuponitscompliancewiththetermsandconditionsoftheletterof
credit.
(c)Anissuerornominatedpersonneednotrecognizeanassignmentofproceedsofa
letterofcredituntilitconsentstotheassignment.
(d)Anissuerornominatedpersonhasnoobligationtogiveorwithholditsconsenttoan
assignmentofproceedsofaletterofcredit,butconsentmaynotbeunreasonablywithheld
iftheassigneepossessesandexhibitstheletterofcreditandpresentationoftheletterof
creditisaconditiontohonor.
(e)Rightsofatransfereebeneficiaryornominatedpersonareindependentofthe
beneficiary'sassignmentoftheproceedsofaletterofcreditandaresuperiortothe
assignee'srighttotheproceeds.
(f)Neithertherightsrecognizedbythissectionbetweenanassigneeandanissuer,
transfereebeneficiary,ornominatedpersonnortheissuer'sornominatedperson's
paymentofproceedstoanassigneeorathirdpersonaffecttherightsbetweentheassignee
andanypersonotherthantheissuer,transfereebeneficiary,ornominatedperson.The
[ 267 ]
modeofcreatingandperfectingasecurityinterestinorgrantinganassignmentofa
beneficiary'srightstoproceedsisgovernedbyArticle9orotherlaw.Againstpersons
otherthantheissuer,transfereebeneficiary,ornominatedperson,therightsand
obligationsarisinguponthecreationofasecurityinterestorotherassignmentofa
beneficiary'srighttoproceedsanditsperfectionaregovernedbyArticle9orotherlaw.
5115.StatuteofLimitations.
Anactiontoenforcearightorobligationarisingunderthisarticlemustbecommenced
withinoneyearaftertheexpirationdateoftherelevantletterofcreditoroneyearafterthe
[claimforrelief][causeofaction]accrues,whicheveroccurslater.A[claimforrelief]
[causeofaction]accrueswhenthebreachoccurs,regardlessoftheaggrievedparty'slack
ofknowledgeofthebreach.
5116.ChoiceofLawandForum.
(a)Theliabilityofanissuer,nominatedperson,oradviserforactionoromissionis
governedbythelawofthejurisdictionchosenbyanagreementintheformofarecord
signedorotherwiseauthenticatedbytheaffectedpartiesinthemannerprovidedin
Section5104orbyaprovisionintheperson'sletterofcredit,confirmation,orother
undertaking.Thejurisdictionwhoselawischosenneednotbearanyrelationtothe
transaction.
(b)Unlesssubsection(a)applies,theliabilityofanissuer,nominatedperson,oradviser
foractionoromissionisgovernedbythelawofthejurisdictioninwhichthepersonis
located.Thepersonisconsideredtobelocatedattheaddressindicatedintheperson's
undertaking.Ifmorethanoneaddressisindicated,thepersonisconsideredtobelocated
attheaddressfromwhichtheperson'sundertakingwasissued.Forthepurposeof
jurisdiction,choiceoflaw,andrecognitionofinterbranchlettersofcredit,butnot
enforcementofajudgment,allbranchesofabankareconsideredseparatejuridicalentities
andabankisconsideredtobelocatedattheplacewhereitsrelevantbranchisconsidered
tobelocatedunderthissubsection.
(c)Exceptasotherwiseprovidedinthissubsection,theliabilityofanissuer,nominated
person,oradviserisgovernedbyanyrulesofcustomorpractice,suchastheUniform
CustomsandPracticeforDocumentaryCredits,towhichtheletterofcredit,confirmation,
orotherundertakingisexpresslymadesubject.If(i)thisarticlewouldgoverntheliability
ofanissuer,nominatedperson,oradviserundersubsection(a)or(b),(ii)therelevant
undertakingincorporatesrulesofcustomorpractice,and(iii)thereisconflictbetweenthis
articleandthoserulesasappliedtothatundertaking,thoserulesgovernexcepttothe
extentofanyconflictwiththenonvariableprovisionsspecifiedinSection5103(c).
(d)IfthereisconflictbetweenthisarticleandArticle3,4,4A,or9,thisarticlegoverns.
(e)Theforumforsettlingdisputesarisingoutofanundertakingwithinthisarticlemaybe
choseninthemannerandwiththebindingeffectthatgoverninglawmaybechosenin
accordancewithsubsection(a).
[ 268 ]
5117.SubrogationofIssuer,Applicant,andNominatedPerson.
(a)Anissuerthathonorsabeneficiary'spresentationissubrogatedtotherightsofthe
beneficiarytothesameextentasiftheissuerwereasecondaryobligoroftheunderlying
obligationowedtothebeneficiaryandoftheapplicanttothesameextentasiftheissuer
werethesecondaryobligoroftheunderlyingobligationowedtotheapplicant.
(b)Anapplicantthatreimbursesanissuerissubrogatedtotherightsoftheissueragainst
anybeneficiary,presenter,ornominatedpersontothesameextentasiftheapplicantwere
thesecondaryobligoroftheobligationsowedtotheissuerandhastherightsof
subrogationoftheissuertotherightsofthebeneficiarystatedinsubsection(a).
(c)Anominatedpersonwhopaysorgivesvalueagainstadraftordemandpresented
underaletterofcreditissubrogatedtotherightsof:
(1)theissueragainsttheapplicanttothesameextentasifthenominatedperson
wereasecondaryobligoroftheobligationowedtotheissuerbytheapplicant;
(2)thebeneficiarytothesameextentasifthenominatedpersonwereasecondary
obligoroftheunderlyingobligationowedtothebeneficiary;and
(3)theapplicanttosameextentasifthenominatedpersonwereasecondary
obligoroftheunderlyingobligationowedtotheapplicant.
(d)Notwithstandinganyagreementortermtothecontrary,therightsofsubrogation
statedinsubsections(a)and(b)donotariseuntiltheissuerhonorstheletterofcreditor
otherwisepaysandtherightsinsubsection(c)donotariseuntilthenominatedperson
paysorotherwisegivesvalue.Untilthen,theissuer,nominatedperson,andtheapplicant
donotderiveunderthissectionpresentorprospectiverightsformingthebasisofaclaim,
defense,orexcuse.
5118.SecurityInterestofIssuerorNominatedPerson.
(a)Anissuerornominatedpersonhasasecurityinterestinadocumentpresentedundera
letterofcreditandanyidentifiableproceedsofthecollateraltotheextentthattheissueror
nominatedpersonhonorsorgivesvalueforthepresentation.
(b)Subjecttosubsection(c),aslongasandtotheextentthatanissuerornominated
personhasnotbeenreimbursedorhasnototherwiserecoveredthevaluegivenwith
respecttoasecurityinterestinadocumentundersubsection(a),thesecurityinterest
continuesandissubjecttoArticle9,but:
(1)asecurityagreementisnotnecessarytomakethesecurityinterestenforceable
underSection9203(b)(3);
(2)ifthedocumentispresentedinamediumotherthanawrittenorothertangible
medium,thesecurityinterestisperfected;and
[ 269 ]
(3)ifthedocumentispresentedinawrittenorothertangiblemediumandisnota
certificatedsecurity,chattelpaper,adocumentoftitle,aninstrument,oraletterof
credit,solongasthedebtordoesnothavepossessionofthedocument,thesecurity
interestisperfectedandhaspriorityoveraconflictingsecurityinterestinthe
document.
TRANSITIONPROVISIONS
SECTION[].EFFECTIVEDATE.
This[Act]shallbecomeeffectiveon_______________,199___.
SECTION[].REPEAL.
This[Act][repeals][amends][insertcitationtoexistingArticle5].
SECTION[].APPLICABILITY.
This[Act]appliestoaletterofcreditthatisissuedonoraftertheeffectivedateofthis
[Act].This[Act]doesnotapplytoatransaction,event,obligation,ordutyarisingoutofor
associatedwithaletterofcreditthatwasissuedbeforetheeffectivedateofthis[Act].
SECTION[].SAVINGSCLAUSE.
Atransactionarisingoutoforassociatedwithaletterofcreditthatwasissuedbeforethe
effectivedateofthis[Act]andtherights,obligations,andinterestsflowingfromthat
transactionaregovernedbyanystatuteorotherlawamendedorrepealedbythis[Act]as
ifrepealoramendmenthadnotoccurredandmaybeterminated,completed,
consummated,orenforcedunderthatstatuteorotherlaw.
[ 270 ]
M.I.C.NOTES[UCCARTICLE5:LETTERSOFCREDIT]
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[ 280 ]
ALTERNATIVEA
REPEALEROFU.C.C.ARTICLE6BULKTRANSFERS
1.Repeal.
2.Amendment.
3.Amendment.
4.SavingsClause.
ALTERNATIVEB
[REVISED]U.C.C.ARTICLE6BULKSALES
6101.ShortTitle.
6103.ApplicabilityofArticle..
6104.ObligationsofBuyer.
6105.NoticetoClaimants.
6106.ScheduleofDistribution.
6107.LiabilityforNoncompliance.
6108.BulkSalesbyAuction;BulkSalesConductedbyLiquidator.
6109.WhatConstitutesFiling;DutiesofFilingOfficer;InformationFromFilingOfficer.
6110.LimitationofActions.
[ 281 ]
ALTERNATIVEA
1.Repeal.
Article6andSection9111oftheUniformCommercialCodeareherebyrepealed,effective
_______________.
2.Amendment.
Section1105(2)oftheUniformCommercialCodeisherebyamendedtoreadasfollows:
(2)WhereoneofthefollowingprovisionsofthisActspecifiestheapplicablelaw,that
provisiongovernsandacontraryagreementiseffectiveonlytotheextentpermittedbythe
law(includingtheconflictoflawsrules)sospecified:
Rightsofcreditorsagainstsoldgoods.Section2402.
ApplicabilityoftheArticleonLeases.Sections2A105and2A106.
ApplicabilityoftheArticleonBankDepositsandCollections.Section4102.
ApplicabilityoftheArticleonInvestmentSecurities.Section8106.
PerfectionprovisionsoftheArticleonSecuredTransactions.Section9103.
3.Amendment.
Section2403(4)oftheUniformCommercialCodeisherebyamendedtoreadasfollows:
ArticlesonSecuredTransactions(Article9)andDocumentsofTitle(Article7).
4.SavingsClause.
RightsandobligationsthataroseunderArticle6andSection9111oftheUniform
CommercialCodebeforetheirrepealremainvalidandmaybeenforcedasthoughthose
statuteshadnotbeenrepealed.]
LegislativeNote:TotakeaccountofdifferencesbetweenformerArticle9andrevised
Article9,aStatethatrepealsArticle6afterrevisedArticle9takeseffectmustmakethe
followingchangestoAlternativeA.First,inasmuchasrevisedArticle9containsno
counterpartofformerSection9111,thereferencetothatsectioninSection1ofthe
repealershouldbedeleted,andSection4oftherepealbillshouldalludetoformerSection
9111.Second,thelastentryinSection1105(2)shouldbeamendedasshownabovein
thisAppendix.
[ENDOFALTERNATIVEA]
[ 282 ]
ALTERNATIVEB
6101.ShortTitle.
ThisArticleshallbeknownandmaybecitedasUniformCommercialCodeBulkSales.
(1)InthisArticle,unlessthecontextotherwiserequires:
(a)"Assets"meanstheinventorythatisthesubjectofabulksaleandanytangible
andintangiblepersonalpropertyusedorheldforuseprimarilyin,orarisingfrom,
theseller'sbusinessandsoldinconnectionwiththatinventory,butthetermdoes
notinclude:
(i)fixtures(Section9102(a)(41))otherthanreadilyremovablefactoryand
officemachines;
(ii)thelessee'sinterestinaleaseofrealproperty;or
(iii)propertytotheextentitisgenerallyexemptfromcreditorprocessunder
nonbankruptcylaw.
(b)"Auctioneer"meansapersonwhomthesellerengagestodirect,conduct,
control,orberesponsibleforasalebyauction.
(c)"Bulksale"means:
(i)inthecaseofasalebyauctionorasaleorseriesofsalesconductedbya
liquidatorontheseller'sbehalf,asaleorseriesofsalesnotintheordinary
courseoftheseller'sbusinessofmorethanhalfoftheseller'sinventory,as
measuredbyvalueonthedateofthebulksaleagreement,ifonthatdatethe
auctioneerorliquidatorhasnotice,orafterreasonableinquirywouldhave
hadnotice,thatthesellerwillnotcontinuetooperatethesameorasimilar
kindofbusinessafterthesaleorseriesofsales;and
(ii)inallothercases,asalenotintheordinarycourseoftheseller'sbusiness
ofmorethanhalftheseller'sinventory,asmeasuredbyvalueonthedateof
thebulksaleagreement,ifonthatdatethebuyerhasnotice,orafter
reasonableinquirywouldhavehadnotice,thatthesellerwillnotcontinueto
operatethesameorasimilarkindofbusinessafterthesale.
(d)"Claim"meansarighttopaymentfromtheseller,whetherornottherightis
reducedtojudgment,liquidated,fixed,matured,disputed,secured,legal,or
equitable.Thetermincludescostsofcollectionandattorney'sfeesonlytothe
[ 283 ]
extentthatthelawsofthisstatepermittheholderoftheclaimtorecovertheminan
actionagainsttheobligor.
(e)"Claimant"meansapersonholdingaclaimincurredintheseller'sbusiness
otherthan:
(i)anunsecuredandunmaturedclaimforemploymentcompensationand
benefits,includingcommissionsandvacation,severance,andsickleavepay;
(ii)aclaimforinjurytoanindividualortoproperty,orforbreachof
warranty,unless:
(A)arightofactionfortheclaimhasaccrued;
(B)theclaimhasbeenassertedagainsttheseller;and
(C)thesellerknowstheidentityofthepersonassertingtheclaimand
thebasisuponwhichthepersonhasassertedit;and
(StatesToSelectOneAlternative)
ALTERNATIVEA
[(iii)aclaimfortaxesowingtoagovernmentalunit.]
ALTERNATIVEB
[(iii)aclaimfortaxesowingtoagovernmentalunit,if:
(A)astatutegoverningtheenforcementoftheclaimpermitsor
requiresnoticeofthebulksaletobegiventothegovernmentalunitin
amannerotherthanbycompliancewiththerequirementsofthis
Article;and
(B)noticeisgiveninaccordancewiththestatute.]
(f)"Creditor"meansaclaimantorotherpersonholdingaclaim.
(g)
(i)"Dateofthebulksale"means:
(A)ifthesaleisbyauctionorisconductedbyaliquidatoronthe
seller'sbehalf,thedateonwhichmorethantenpercentofthenet
proceedsispaidtoorforthebenefitoftheseller;and
(B)inallothercases,thelaterofthedateonwhich:
(I)morethantenpercentofthenetcontractpriceispaidtoor
forthebenefitoftheseller;or
[ 284 ]
(II)morethantenpercentoftheassets,asmeasuredbyvalue,
aretransferredtothebuyer.
(ii)Forpurposesofthissubsection:
(A)Deliveryofanegotiableinstrument(Section3104(1)[sic])toor
forthebenefitofthesellerinexchangeforassetsconstitutespayment
ofthecontractpriceprotanto;
(B)Totheextentthatthecontractpriceisdepositedinanescrow,the
contractpriceispaidtoorforthebenefitofthesellerwhentheseller
acquirestheunconditionalrighttoreceivethedepositorwhenthe
depositisdeliveredtothesellerorforthebenefitoftheseller,
whicheverisearlier;and
(C)Anassetistransferredwhenapersonholdinganunsecuredclaim
cannolongerobtainthroughjudicialproceedingsrightstotheasset
thataresuperiortothoseofthebuyerarisingasaresultofthebulk
sale.Apersonholdinganunsecuredclaimcanobtainthosesuperior
rightstoatangibleassetatleastuntilthebuyerhasanunconditional
right,underthebulksaleagreement,topossesstheasset,anda
personholdinganunsecuredclaimcanobtainthosesuperiorrightsto
anintangibleassetatleastuntilthebuyerhasanunconditionalright,
underthebulksaleagreement,tousetheasset.
(h)"Dateofthebulksaleagreement"means:
(i)inthecaseofasalebyauctionorconductedbyaliquidator(subsection
(c)(i)),thedateonwhichthesellerengagestheauctioneerorliquidator;and
(ii)inallothercases,thedateonwhichabulksaleagreementbecomes
enforceablebetweenthebuyerandtheseller.
(i)"Debt"meansliabilityonaclaim.
(j)"Liquidator"meansapersonwhoisregularlyengagedinthebusinessof
disposingofassetsforbusinessescontemplatingliquidationordissolution.
(k)"Netcontractprice"meansthenewconsiderationthebuyerisobligatedtopay
fortheassetsless:
(i)theamountofanyproceedsofthesaleofanasset,totheextentthe
proceedsareappliedinpartialortotalsatisfactionofadebtsecuredbythe
asset;and
(ii)theamountofanydebttotheextentitissecuredbyasecurityinterestor
lienthatisenforceableagainsttheassetbeforeandafterithasbeensoldtoa
buyer.Ifadebtissecuredbyanassetandotherpropertyoftheseller,the
amountofthedebtsecuredbyasecurityinterestorlienthatisenforceable
[ 285 ]
againsttheassetisdeterminedbymultiplyingthedebtbyafraction,the
numeratorofwhichisthevalueofthenewconsiderationfortheassetonthe
dateofthebulksaleandthedenominatorofwhichisthevalueofallproperty
securingthedebtonthedateofthebulksale.
(l)"Netproceeds"meansthenewconsiderationreceivedforassetssoldatasaleby
auctionorasaleconductedbyaliquidatorontheseller'sbehalfless:
(i)commissionsandreasonableexpensesofthesale;
(ii)theamountofanyproceedsofthesaleofanasset,totheextentthe
proceedsareappliedinpartialortotalsatisfactionofadebtsecuredbythe
asset;and
(iii)theamountofanydebttotheextentitissecuredbyasecurityinterest
orlienthatisenforceableagainsttheassetbeforeandafterithasbeensold
toabuyer.Ifadebtissecuredbyanassetandotherpropertyoftheseller,
theamountofthedebtsecuredbyasecurityinterestorlienthatis
enforceableagainsttheassetisdeterminedbymultiplyingthedebtbya
fraction,thenumeratorofwhichisthevalueofthenewconsiderationforthe
assetonthedateofthebulksaleandthedenominatorofwhichisthevalue
ofallpropertysecuringthedebtonthedateofthebulksale.
(m)Asaleis"intheordinarycourseoftheseller'sbusiness"ifthesalecomports
withusualorcustomarypracticesinthekindofbusinessinwhichtheselleris
engagedorwiththeseller'sownusualorcustomarypractices.
(n)"UnitedStates"includesitsterritoriesandpossessionsandtheCommonwealth
ofPuertoRico.
(o)"Value"meansfairmarketvalue.
(p)"Verified"meanssignedandsworntooraffirmed.
(2)ThefollowingdefinitionsinotherArticlesapplytothisArticle:
(a)"Buyer."Section2103(1)(a).
(b)"Equipment."Section9102(a)(33).
(c)"Inventory."Section9102(a)(48).
(d)"Sale."Section2106(1).
(e)"Seller."Section2103(1)(d).
(3)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
[ 286 ]
6103.APPLICABILITYOFARTICLE.
(1)Exceptasotherwiseprovidedinsubsection(3),thisArticleappliestoabulksaleif:
(a)theseller'sprincipalbusinessisthesaleofinventoryfromstock;and
(b)onthedateofthebulksaleagreementthesellerislocatedinthisstateor,ifthe
sellerislocatedinajurisdictionthatisnotapartoftheUnitedStates,theseller's
majorexecutiveofficeintheUnitedStatesisinthisstate.
(2)Asellerisdeemedtobelocatedathis[orher]placeofbusiness.Ifasellerhasmore
thanoneplaceofbusiness,thesellerisdeemedlocatedathis[orher]chiefexecutiveoffice.
(3)ThisArticledoesnotapplyto:
(a)atransfermadetosecurepaymentorperformanceofanobligation;
(b)atransferofcollateraltoasecuredpartypursuanttoSection9609;
(c)asaleofcollateralpursuanttoSection9610;
(d)retentionofcollateralpursuanttoSection9620;
(e)asaleofanassetencumberedbyasecurityinterestorlienif(i)alltheproceeds
ofthesaleareappliedinpartialortotalsatisfactionofthedebtsecuredbythe
securityinterestorlienor(ii)thesecurityinterestorlienisenforceableagainstthe
assetafterithasbeensoldtothebuyerandthenetcontractpriceiszero;
(f)ageneralassignmentforthebenefitofcreditorsortoasubsequenttransferby
theassignee;
(g)asalebyanexecutor,administrator,receiver,trusteeinbankruptcy,orany
publicofficerunderjudicialprocess;
(h)asalemadeinthecourseofjudicialoradministrativeproceedingsforthe
dissolutionorreorganizationofanorganization;
(i)asaletoabuyerwhoseprincipalplaceofbusinessisintheUnitedStatesand
who:
(i)notearlierthan21daysbeforethedateofthebulksale,(A)obtainsfrom
theselleraverifiedanddatedlistofclaimantsofwhomthesellerhasnotice
threedaysbeforethesellersendsordeliversthelisttothebuyeror(B)
conductsareasonableinquirytodiscovertheclaimants;
(ii)assumesinfullthedebtsowedtoclaimantsofwhomthebuyerhas
knowledgeonthedatethebuyerreceivesthelistofclaimantsfromtheseller
oronthedatethebuyercompletesthereasonableinquiry,asthecasemay
be;
[ 287 ]
(iii)isnotinsolventaftertheassumption;and
(iv)giveswrittennoticeoftheassumptionnotlaterthan30daysafterthe
dateofthebulksalebysendingordeliveringanoticetotheclaimants
identifiedinsubparagraph(ii)orbyfilinganoticeintheofficeofthe
[SecretaryofState];
(j)asaletoabuyerwhoseprincipalplaceofbusinessisintheUnitedStatesand
who:
(i)assumesinfullthedebtsthatwereincurredintheseller'sbusinessbefore
thedateofthebulksale;
(ii)isnotinsolventaftertheassumption;and
(iii)giveswrittennoticeoftheassumptionnotlaterthan30daysafterthe
dateofthebulksalebysendingordeliveringanoticetoeachcreditorwhose
debtisassumedorbyfilinganoticeintheofficeofthe[SecretaryofState];
(k)asaletoaneworganizationthatisorganizedtotakeoverandcontinuethe
businessofthesellerandthathasitsprincipalplaceofbusinessintheUnitedStates
if:
(i)thebuyerassumesinfullthedebtsthatwereincurredintheseller's
businessbeforethedateofthebulksale;
(ii)thesellerreceivesnothingfromthesaleexceptaninterestinthenew
organizationthatissubordinatetotheclaimsagainsttheorganization
arisingfromtheassumption;and
(iii)thebuyergiveswrittennoticeoftheassumptionnotlaterthan30days
afterthedateofthebulksalebysendingordeliveringanoticetoeach
creditorwhosedebtisassumedorbyfilinganoticeintheofficeofthe
[SecretaryofState];
(l)asaleofassetshaving:
(i)avalue,netofliensandsecurityinterests,oflessthan$10,000.Ifadebtis
securedbyassetsandotherpropertyoftheseller,thenetvalueoftheassets
isdeterminedbysubtractingfromtheirvalueanamountequaltothe
productofthedebtmultipliedbyafraction,thenumeratorofwhichisthe
valueoftheassetsonthedateofthebulksaleandthedenominatorofwhich
isthevalueofallpropertysecuringthedebtonthedateofthebulksale;or
(ii)avalueofmorethan$25,000,000onthedateofthebulksaleagreement;
or
(m)asalerequiredby,andmadepursuantto,statute.
[ 288 ]
(4)Thenoticeundersubsection(3)(i)(iv)muststate:(i)thatasalethatmayconstitutea
bulksalehasbeenorwillbemade;(ii)thedateorprospectivedateofthebulksale;(iii)the
individual,partnership,orcorporatenamesandtheaddressesofthesellerandbuyer;(iv)
theaddresstowhichinquiriesaboutthesalemaybemade,ifdifferentfromtheseller's
address;and(v)thatthebuyerhasassumedorwillassumeinfullthedebtsowedto
claimantsofwhomthebuyerhasknowledgeonthedatethebuyerreceivesthelistof
claimantsfromthesellerorcompletesareasonableinquirytodiscovertheclaimants.
(5)Thenoticeundersubsections(3)(j)(iii)and(3)(k)(iii)muststate:(i)thatasalethat
mayconstituteabulksalehasbeenorwillbemade;(ii)thedateorprospectivedateofthe
bulksale;(iii)theindividual,partnership,orcorporatenamesandtheaddressesofthe
sellerandbuyer;(iv)theaddresstowhichinquiriesaboutthesalemaybemade,if
differentfromtheseller'saddress;and(v)thatthebuyerhasassumedorwillassumethe
debtsthatwereincurredintheseller'sbusinessbeforethedateofthebulksale.
(6)Forpurposesofsubsection(3)(l),thevalueofassetsispresumedtobeequaltothe
pricethebuyeragreestopayfortheassets.However,inasalebyauctionorasale
conductedbyaliquidatorontheseller'sbehalf,thevalueofassetsispresumedtobethe
amounttheauctioneerorliquidatorreasonablyestimatestheassetswillbringatauctionor
uponliquidation.
6104.ObligationsofBuyer.
(1)InabulksaleasdefinedinSection6102(1)(c)(ii)thebuyershall:
(a)obtainfromtheselleralistofallbusinessnamesandaddressesusedbythe
sellerwithinthreeyearsbeforethedatethelistissentordeliveredtothebuyer;
(b)unlessexcusedundersubsection(2),obtainfromtheselleraverifiedanddated
listofclaimantsofwhomthesellerhasnoticethreedaysbeforethesellersendsor
deliversthelisttothebuyerandincluding,totheextentknownbytheseller,the
addressofandtheamountclaimedbyeachclaimant;
(c)obtainfromthesellerorprepareascheduleofdistribution(Section6106(1));
(d)givenoticeofthebulksaleinaccordancewithSection6105;
(e)unlessexcusedunderSection6106(4),distributethenetcontractpricein
accordancewiththeundertakingsofthebuyerinthescheduleofdistribution;and
(f)unlessexcusedundersubsection(2),makeavailablethelistofclaimants
(subsection(1)(b))by:
(i)promptlysendingordeliveringacopyofthelistwithoutchargetoany
claimantwhosewrittenrequestisreceivedbythebuyernolaterthansix
monthsafterthedateofthebulksale;
[ 289 ]
(ii)permittinganyclaimanttoinspectandcopythelistatanyreasonable
houruponrequestreceivedbythebuyernolaterthansixmonthsafterthe
dateofthebulksale;or
(iii)filingacopyofthelistintheofficeofthe[SecretaryofState]nolater
thanthetimeforgivinganoticeofthebulksale(Section6105(5)).Alist
filedinaccordancewiththissubparagraphmuststatetheindividual,
partnership,orcorporatenameandamailingaddressoftheseller.
(2)AbuyerwhogivesnoticeinaccordancewithSection6105(2)isexcusedfrom
complyingwiththerequirementsofsubsections(1)(b)and(1)(f).
6105.NOTICETOCLAIMANTS.
(1)Exceptasotherwiseprovidedinsubsection(2),tocomplywithSection6104(1)(d)the
buyershallsendordeliverawrittennoticeofthebulksaletoeachclaimantonthelistof
claimants(Section6104(1)(b))andtoanyotherclaimantofwhomthebuyerhas
knowledgeatthetimethenoticeofthebulksaleissentordelivered.
(2)AbuyermaycomplywithSection6104(1)(d)byfilingawrittennoticeofthebulksale
intheofficeofthe[SecretaryofState]if:
(a)onthedateofthebulksaleagreementthesellerhas200ormoreclaimants,
exclusiveofclaimantsholdingsecuredormaturedclaimsforemployment
compensationandbenefits,includingcommissionsandvacation,severance,and
sickleavepay;or
(b)thebuyerhasreceivedaverifiedstatementfromthesellerstatingthat,asofthe
dateofthebulksaleagreement,thenumberofclaimants,exclusiveofclaimants
holdingsecuredormaturedclaimsforemploymentcompensationandbenefits,
includingcommissionsandvacation,severance,andsickleavepay,is200ormore.
(3)Thewrittennoticeofthebulksalemustbeaccompaniedbyacopyofthescheduleof
distribution(Section6106(1))andstateatleast:
(a)thatthesellerandbuyerhaveenteredintoanagreementforasalethatmay
constituteabulksaleunderthelawsoftheStateof_______________;
(b)thedateoftheagreement;
(c)thedateonorafterwhichmorethantenpercentoftheassetswereorwillbe
transferred;
(d)thedateonorafterwhichmorethantenpercentofthenetcontractpricewasor
willbepaid,ifthedateisnotstatedinthescheduleofdistribution;
(e)thenameandamailingaddressoftheseller;
[ 290 ]
(f)anyotherbusinessnameandaddresslistedbythesellerpursuanttoSection6
104(1)(a);
(g)thenameofthebuyerandanaddressofthebuyerfromwhichinformation
concerningthesalecanbeobtained;
(h)astatementindicatingthetypeofassetsordescribingtheassetsitembyitem;
(i)themannerinwhichthebuyerwillmakeavailablethelistofclaimants(Section
6104(1)(f)),ifapplicable;and
(j)ifthesaleisintotalorpartialsatisfactionofanantecedentdebtowedbythe
seller,theamountofthedebttobesatisfiedandthenameofthepersontowhomit
isowed.
(4)Forpurposesofsubsections(3)(e)and(3)(g),thenameofapersonistheperson's
individual,partnership,orcorporatename.
(5)Thebuyershallgivenoticeofthebulksalenotlessthan45daysbeforethedateofthe
bulksaleand,ifthebuyergivesnoticeinaccordancewithsubsection(1),notmorethan30
daysafterobtainingthelistofclaimants.
(6)Awrittennoticesubstantiallycomplyingwiththerequirementsofsubsection(3)is
effectiveeventhoughitcontainsminorerrorsthatarenotseriouslymisleading.
(7)Aformsubstantiallyasfollowsissufficienttocomplywithsubsection(3):
NoticeofSale
(1)__________________________,whoseaddressis__________________________,isdescribedin
thisnoticeasthe"seller."
(2)_________________________,whoseaddressis_________________________,isdescribedin
thisnoticeasthe"buyer."
(3)Thesellerhasdisclosedtothebuyerthatwithinthepastthreeyearstheseller
hasusedotherbusinessnames,operatedatotheraddresses,orboth,asfollows:
______________________________________________.
(4)Thesellerandthebuyerhaveenteredintoanagreementdated________________,
forasalethatmayconstituteabulksaleunderthelawsofthestateof
__________________________.
(5)Thedateonorafterwhichmorethantenpercentoftheassetsthatarethe
subjectofthesalewereorwillbetransferredis_______________,and[ifnotstatedin
thescheduleofdistribution]thedateonorafterwhichmorethantenpercentofthe
netcontractpricewasorwillbepaidis_______________.
(6)Thefollowingassetsarethesubjectofthesale:__________________________.
[ 291 ]
(7)[Ifapplicable]Thebuyerwillmakeavailabletoclaimantsoftheselleralistof
theseller'sclaimantsinthefollowingmanner:________________.
(8)[Ifapplicable]Thesaleistosatisfy$_______ofanantecedentdebtowedbythe
sellerto_________________________.
(9)Acopyofthescheduleofdistributionofthenetcontractpriceaccompaniesthis
notice.
[EndofNotice]
6106.ScheduleofDistribution.
(1)Thesellerandbuyershallagreeonhowthenetcontractpriceistobedistributedand
setforththeiragreementinawrittenscheduleofdistribution.
(2)Thescheduleofdistributionmayprovidefordistributiontoanypersonatanytime,
includingdistributionoftheentirenetcontractpricetotheseller.
(3)Thebuyer'sundertakingsinthescheduleofdistributionrunonlytotheseller.
However,abuyerwhofailstodistributethenetcontractpriceinaccordancewiththe
buyer'sundertakingsinthescheduleofdistributionisliabletoacreditoronlyasprovided
inSection6107(1).
(4)Ifthebuyerundertakesinthescheduleofdistributiontodistributeanypartofthenet
contractpricetoapersonotherthantheseller,and,afterthebuyerhasgivennoticein
accordancewithSection6105,someoralloftheanticipatednetcontractpriceisor
becomesunavailablefordistributionasaconsequenceofthebuyer'sorseller'shaving
compliedwithanorderofcourt,legalprocess,statute,orruleoflaw,thebuyerisexcused
fromanyobligationarisingunderthisArticleorunderanycontractwiththesellerto
distributethenetcontractpriceinaccordancewiththebuyer'sundertakingsinthe
scheduleifthebuyer:
(a)distributesthenetcontractpriceremainingavailableinaccordancewithany
prioritiesforpaymentstatedinthescheduleofdistributionand,totheextentthat
thepriceisinsufficienttopayallthedebtshavingagivenpriority,distributesthe
priceprorataamongthosedebtsshowninthescheduleashavingthesamepriority;
(b)distributesthenetcontractpriceremainingavailableinaccordancewithan
orderofcourt;
(c)commencesaproceedingforinterpleaderinacourtofcompetentjurisdiction
andisdischargedfromtheproceeding;or
(d)reachesanewagreementwiththesellerforthedistributionofthenetcontract
priceremainingavailable,setsforththenewagreementinanamendedscheduleof
distribution,givesnoticeoftheamendedschedule,anddistributesthenetcontract
priceremainingavailableinaccordancewiththebuyer'sundertakingsinthe
amendedschedule.
[ 292 ]
(5)Thenoticeundersubsection(4)(d)mustidentifythebuyerandtheseller,statethe
filingnumber,ifany,oftheoriginalnotice,setforththeamendedschedule,andbegivenin
accordancewithsubsection(1)or(2)ofSection6105,whicheverisapplicable,atleast14
daysbeforethebuyerdistributesanypartofthenetcontractpriceremainingavailable.
(6)Ifthesellerundertakesinthescheduleofdistributiontodistributeanypartofthenet
contractprice,and,afterthebuyerhasgivennoticeinaccordancewithSection6105,some
oralloftheanticipatednetcontractpriceisorbecomesunavailablefordistributionasa
consequenceofthebuyer'sorseller'shavingcompliedwithanorderofcourt,legalprocess,
statute,orruleoflaw,thesellerandanypersonincontrolofthesellerareexcusedfrom
anyobligationarisingunderthisArticleorunderanyagreementwiththebuyerto
distributethenetcontractpriceinaccordancewiththeseller'sundertakingsinthe
scheduleiftheseller:
(a)distributesthenetcontractpriceremainingavailableinaccordancewithany
prioritiesforpaymentstatedinthescheduleofdistributionand,totheextentthat
thepriceisinsufficienttopayallthedebtshavingagivenpriority,distributesthe
priceprorataamongthosedebtsshowninthescheduleashavingthesamepriority;
(b)distributesthenetcontractpriceremainingavailableinaccordancewithan
orderofcourt;
(c)commencesaproceedingforinterpleaderinacourtofcompetentjurisdiction
andisdischargedfromtheproceeding;or
(d)preparesawrittenamendedscheduleofdistributionofthenetcontractprice
remainingavailablefordistribution,givesnoticeoftheamendedschedule,and
distributesthenetcontractpriceremainingavailableinaccordancewiththe
amendedschedule.
(7)Thenoticeundersubsection(6)(d)mustidentifythebuyerandtheseller,statethe
filingnumber,ifany,oftheoriginalnotice,setforththeamendedschedule,andbegivenin
accordancewithsubsection(1)or(2)ofSection6105,whicheverisapplicable,atleast14
daysbeforethesellerdistributesanypartofthenetcontractpriceremainingavailable.
6107.LiabilityforNoncompliance.
(1)Exceptasprovidedinsubsection(3),andsubjecttothelimitationinsubsection(4):
(a)abuyerwhofailstocomplywiththerequirementsofSection6104(1)(e)with
respecttoacreditorisliabletothecreditorfordamagesintheamountoftheclaim,
reducedbyanyamountthatthecreditorwouldnothaverealizedifthebuyerhad
complied;and
(b)abuyerwhofailstocomplywiththerequirementsofanyothersubsectionof
Section6104withrespecttoaclaimantisliabletotheclaimantfordamagesinthe
amountoftheclaim,reducedbyanyamountthattheclaimantwouldnothave
realizedifthebuyerhadcomplied.
[ 293 ]
(2)Inanactionundersubsection(1),thecreditorhastheburdenofestablishingthe
validityandamountoftheclaim,andthebuyerhastheburdenofestablishingtheamount
thatthecreditorwouldnothaverealizedifthebuyerhadcomplied.
(3)Abuyerwho:
(a)madeagoodfaithandcommerciallyreasonableefforttocomplywiththe
requirementsofSection6104(1)ortoexcludethesalefromtheapplicationofthis
ArticleunderSection6103(3);or
(b)onorafterthedateofthebulksaleagreement,butbeforethedateofthebulk
sale,heldagoodfaithandcommerciallyreasonablebeliefthatthisArticledoesnot
applytotheparticularsaleisnotliabletocreditorsforfailuretocomplywiththe
requirementsofSection6104.Thebuyerhastheburdenofestablishingthegood
faithandcommercialreasonablenessoftheeffortorbelief.
(4)Inasinglebulksalethecumulativeliabilityofthebuyerforfailuretocomplywiththe
requirementsofSection6104(1)maynotexceedanamountequalto:
(a)iftheassetsconsistonlyofinventoryandequipment,twicethenetcontract
price,lesstheamountofanypartofthenetcontractpricepaidtoorappliedforthe
benefitoftheselleroracreditor;or
(b)iftheassetsincludepropertyotherthaninventoryandequipment,twicethenet
valueoftheinventoryandequipmentlesstheamountoftheportionofanypartof
thenetcontractpricepaidtoorappliedforthebenefitoftheselleroracreditor
whichisallocabletotheinventoryandequipment.
(5)Forthepurposesofsubsection(4)(b),the"netvalue"ofanassetisthevalueofthe
assetless(i)theamountofanyproceedsofthesaleofanasset,totheextenttheproceeds
areappliedinpartialortotalsatisfactionofadebtsecuredbytheassetand(ii)theamount
ofanydebttotheextentitissecuredbyasecurityinterestorlienthatisenforceable
againsttheassetbeforeandafterithasbeensoldtoabuyer.Ifadebtissecuredbyan
assetandotherpropertyoftheseller,theamountofthedebtsecuredbyasecurityinterest
orlienthatisenforceableagainsttheassetisdeterminedbymultiplyingthedebtbya
fraction,thenumeratorofwhichisthevalueoftheassetonthedateofthebulksaleand
thedenominatorofwhichisthevalueofallpropertysecuringthedebtonthedateofthe
bulksale.Theportionofapartofthenetcontractpricepaidtoorappliedforthebenefitof
theselleroracreditorthatis"allocabletotheinventoryandequipment"istheportionthat
bearsthesameratiotothatpartofthenetcontractpriceasthenetvalueoftheinventory
andequipmentbearstothenetvalueofalloftheassets.
(6)Apaymentmadebythebuyertoapersontowhomthebuyeris,orbelieveshe[orshe]
is,liableundersubsection(1)reducesprotantothebuyer'scumulativeliabilityunder
subsection(4).
(7)Noactionmaybebroughtundersubsection(1)(b)byoronbehalfofaclaimantwhose
claimisunliquidatedorcontingent.
[ 294 ]
(8)Abuyer'sfailuretocomplywiththerequirementsofSection6104(1)doesnot(i)
impairthebuyer'srightsinortitletotheassets,(ii)renderthesaleineffective,void,or
voidable,(iii)entitleacreditortomorethanasinglesatisfactionofhis[orher]claim,or
(iv)createliabilityotherthanasprovidedinthisArticle.
(9)Paymentofthebuyer'sliabilityundersubsection(1)dischargesprotantotheseller's
debttothecreditor.
(10)Unlessotherwiseagreed,abuyerhasanimmediaterightofreimbursementfromthe
sellerforanyamountpaidtoacreditorinpartialortotalsatisfactionofthebuyer'sliability
undersubsection(1).
(11)Ifthesellerisanorganization,apersonwhoisindirectorindirectcontrolofthe
seller,andwhoknowingly,intentionally,andwithoutlegaljustificationfails,orcausesthe
sellertofail,todistributethenetcontractpriceinaccordancewiththescheduleof
distributionisliabletoanycreditortowhomthesellerundertooktomakepaymentunder
theschedulefordamagescausedbythefailure.
6108.BulkSalesbyAuction;BulkSalesConductedbyLiquidator.
(1)Sections6104,6105,6106,and6107applytoabulksalebyauctionandabulksale
conductedbyaliquidatorontheseller'sbehalfwiththefollowingmodifications:
(a)"buyer"referstoauctioneerorliquidator,asthecasemaybe;
(b)"netcontractprice"referstonetproceedsoftheauctionornetproceedsofthe
sale,asthecasemaybe;
(c)thewrittennoticerequiredunderSection6105(3)mustbeaccompaniedbya
copyofthescheduleofdistribution(Section6106(1))andstateatleast:
(i)thatthesellerandtheauctioneerorliquidatorhaveenteredintoan
agreementforauctionorliquidationservicesthatmayconstitutean
agreementtomakeabulksaleunderthelawsoftheStateof_______________;
(ii)thedateoftheagreement;
(iii)thedateonorafterwhichtheauctionbeganorwillbeginorthedateon
orafterwhichtheliquidatorbeganorwillbegintosellassetsontheseller's
behalf;
(iv)thedateonorafterwhichmorethantenpercentofthenetproceedsof
thesalewereorwillbepaid,ifthedateisnotstatedinthescheduleof
distribution;
(v)thenameandamailingaddressoftheseller;
(vi)anyotherbusinessnameandaddresslistedbythesellerpursuantto
Section6104(1)(a);
[ 295 ]
(vii)thenameoftheauctioneerorliquidatorandanaddressofthe
auctioneerorliquidatorfromwhichinformationconcerningthesalecanbe
obtained;
(viii)astatementindicatingthetypeofassetsordescribingtheassetsitem
byitem;
(ix)themannerinwhichtheauctioneerorliquidatorwillmakeavailablethe
listofclaimants(Section6104(1)(f)),ifapplicable;and
(x)ifthesaleisintotalorpartialsatisfactionofanantecedentdebtowedby
theseller,theamountofthedebttobesatisfiedandthenameoftheperson
towhomitisowed;and
(d)inasinglebulksalethecumulativeliabilityoftheauctioneerorliquidatorfor
failuretocomplywiththerequirementsofthissectionmaynotexceedtheamount
ofthenetproceedsofthesaleallocabletoinventoryandequipmentsoldlessthe
amountoftheportionofanypartofthenetproceedspaidtoorappliedforthe
benefitofacreditorwhichisallocabletotheinventoryandequipment.
(2)Apaymentmadebytheauctioneerorliquidatortoapersontowhomtheauctioneeror
liquidatoris,orbelieveshe[orshe]is,liableunderthissectionreducesprotantothe
auctioneer'sorliquidator'scumulativeliabilityundersubsection(1)(d).
(3)Aformsubstantiallyasfollowsissufficienttocomplywithsubsection(1)(c):
NoticeofSale
(1)_________________________,whoseaddressis__________________________,isdescribedin
thisnoticeasthe"seller."
(2)_________________________,whoseaddressis__________________________,isdescribedin
thisnoticeasthe"auctioneer"or"liquidator."
(3)Thesellerhasdisclosedtotheauctioneerorliquidatorthatwithinthepast
threeyearsthesellerhasusedotherbusinessnames,operatedatotheraddresses,
orboth,asfollows:_______________________.
(4)Thesellerandtheauctioneerorliquidatorhaveenteredintoanagreement
dated________________forauctionorliquidationservicesthatmayconstitutean
agreementtomakeabulksaleunderthelawsoftheStateof___________________.
(5)Thedateonorafterwhichtheauctionbeganorwillbeginorthedateonorafter
whichtheliquidatorbeganorwillbegintosellassetsontheseller'sbehalfis
_______________,and[ifnotstatedinthescheduleofdistribution]thedateonorafter
whichmorethantenpercentofthenetproceedsofthesalewereorwillbepaidis
_______________.
[ 296 ]
(6)Thefollowingassetsarethesubjectofthesale:
_________________________________________________.
(7)[Ifapplicable]Theauctioneerorliquidatorwillmakeavailabletoclaimantsof
theselleralistoftheseller'sclaimantsinthefollowingmanner:
________________________.
(8)[Ifapplicable]Thesaleistosatisfy$_______ofanantecedentdebtowedbythe
sellerto_________________________.
(9)Acopyofthescheduleofdistributionofthenetproceedsaccompaniesthis
notice.
[EndofNotice]
(4)Apersonwhobuysatabulksalebyauctionorconductedbyaliquidatorneednot
complywiththerequirementsofSection6104(1)andisnotliableforthefailureofan
auctioneerorliquidatortocomplywiththerequirementsofthissection.
6109.WhatConstitutesFiling;DutiesofFilingOfficer;InformationFromFilingOfficer.
(1)Presentationofanoticeorlistofclaimantsforfilingandtenderofthefilingfeeor
acceptanceofthenoticeorlistbythefilingofficerconstitutesfilingunderthisArticle.
(2)Thefilingofficershall:
(a)markeachnoticeorlistwithafilenumberandwiththedateandhouroffiling;
(b)holdthenoticeorlistoracopyforpublicinspection;
(c)indexthenoticeorlistaccordingtoeachnamegivenforthesellerandforthe
buyer;and
(d)noteintheindexthefilenumberandtheaddressesofthesellerandbuyergiven
inthenoticeorlist.
(3)Ifthepersonfilinganoticeorlistfurnishesthefilingofficerwithacopy,thefiling
officeruponrequestshallnoteuponthecopythefilenumberanddateandhourofthe
filingoftheoriginalandsendordeliverthecopytotheperson.
(4)Thefeeforfilingandindexingandforstampingacopyfurnishedbythepersonfilingto
showthedateandplaceoffilingis$________forthefirstpageand$_________foreach
additionalpage.Thefeeforindexingeachnamemorethantwois$________.
(5)Uponrequestofanyperson,thefilingofficershallissueacertificateshowingwhether
anynoticeorlistwithrespecttoaparticularsellerorbuyerisonfileonthedateandhour
statedinthecertificate.Ifanoticeorlistisonfile,thecertificatemustgivethedateand
houroffilingofeachnoticeorlistandthenameandaddressofeachseller,buyer,
auctioneer,orliquidator.Thefeeforthecertificateis$________iftherequestforthe
[ 297 ]
certificateisinthestandardformprescribedbythe[SecretaryofState]andotherwiseis$
_________.Uponrequestofanyperson,thefilingofficershallfurnishacopyofanyfiled
noticeorlistforafeeof$________.
(6)Thefilingofficershallkeepeachnoticeorlistfortwoyearsafteritisfiled.
6110.LimitationofActions.
(1)Exceptasprovidedinsubsection(2),anactionunderthisArticleagainstabuyer,
auctioneer,orliquidatormustbecommencedwithinoneyearafterthedateofthebulk
sale.
(2)Ifthebuyer,auctioneer,orliquidatorconcealsthefactthatthesalehasoccurred,the
limitationistolledandanactionunderthisArticlemaybecommencedwithintheearlierof
(i)oneyearafterthepersonbringingtheactiondiscoversthatthesalehasoccurredor(ii)
oneyearafterthepersonbringingtheactionshouldhavediscoveredthatthesalehas
occurred,butnolaterthantwoyearsafterthedateofthebulksale.Complete
noncompliancewiththerequirementsofthisArticledoesnotofitselfconstitute
concealment.
(3)AnactionunderSection6107(11)mustbecommencedwithinoneyearafterthe
allegedviolationoccurs.
[ENDOFALTERNATIVEB]
[ 298 ]
M.I.C.NOTES[UCCARTICLE6:BULKSALES]
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[ 308 ]
U.C.C.ARTICLE7DOCUMENTSOFTITLE
PART1.GENERAL
7101.ShortTitle.
7103.RelationofArticletoTreaty,Statute,Tariff,ClassificationorRegulation.
7104.NegotiableandNonnegotiableWarehouseReceipt,BillofLadingorOther
DocumentofTitle.
7105.ConstructionAgainstNegativeImplication.
PART2.WAREHOUSERECEIPTS:SPECIALPROVISIONS
7201.WhoMayIssueaWarehouseReceipt;StorageUnderGovernmentBond.
7202.FormofWarehouseReceipt;EssentialTerms;OptionalTerms.
7203.LiabilityforNonreceiptorMisdescription.
7204.DutyofCare;ContractualLimitationofWarehouseman'sLiability.
7205.TitleUnderWarehouseReceiptDefeatedinCertainCases.
7206.TerminationofStorageatWarehouseman'sOption.
7207.GoodsMustBeKeptSeparate;FungibleGoods.
7208.AlteredWarehouseReceipts.
7209.LienofWarehouseman.
7210.EnforcementofWarehouseman'sLien.
PART3.BILLSOFLADING:SPECIALPROVISIONS
7301.LiabilityforNonreceiptorMisdescription;"SaidtoContain";"Shipper'sLoadand
Count";ImproperHandling.
7302.ThroughBillsofLadingandSimilarDocuments.
7303.Diversion;Reconsignment;ChangeofInstructions.
7304.BillsofLadinginaSet.
7305.DestinationBills.
7306.AlteredBillsofLading.
7307.LienofCarrier.
7308.EnforcementofCarrier'sLien.
7309.DutyofCare;ContractualLimitationofCarrier'sLiability.
PART4.WAREHOUSERECEIPTSANDBILLSOFLADING:GENERALOBLIGATIONS
7401.IrregularitiesinIssueofReceiptorBillorConductofIssuer.
7402.DuplicateReceiptorBill;Overissue.
7403.ObligationofWarehousemanorCarriertoDeliver;Excuse.
7404.NoLiabilityforGoodFaithDeliveryPursuanttoReceiptorBill.
PART5.WAREHOUSERECEIPTSANDBILLSOFLADING:NEGOTIATIONANDTRANSFER
7501.FormofNegotiationandRequirementsof"DueNegotiation".
[ 309 ]
7502.RightsAcquiredbyDueNegotiation.
7503.DocumentofTitletoGoodsDefeatedinCertainCases.
7504.RightsAcquiredintheAbsenceofDueNegotiation;EffectofDiversion;Seller's
StoppageofDelivery.
7505.IndorserNotaGuarantorforOtherParties.
7506.DeliveryWithoutIndorsement:RighttoCompelIndorsement.
7507.WarrantiesonNegotiationorTransferofReceiptorBill.
7508.WarrantiesofCollectingBankastoDocuments.
7509.ReceiptorBill:WhenAdequateComplianceWithCommercialContract.
PART6.WAREHOUSERECEIPTSANDBILLSOFLADING:MISCELLANEOUSPROVISIONS
7601.LostandMissingDocuments.
7602.AttachmentofGoodsCoveredbyaNegotiableDocument.
7603.ConflictingClaims;Interpleader.
[ 310 ]
PART1.GENERAL
7101.ShortTitle.
ThisarticlemaybecitedasUniformCommercialCodeDocumentsofTitle.
(a)InthisArticle,unlessthecontextotherwiserequires:
(1)"Bailee"meansapersonthatbyawarehousereceipt,billoflading,orother
documentoftitleacknowledgespossessionofgoodsandcontractstodeliverthem.
(2)"Carrier"meansapersonthatissuesabilloflading.
(3)"Consignee"meansapersonnamedinabillofladingtowhichortowhoseorder
thebillpromisesdelivery.
(4)"Consignor"meansapersonnamedinabillofladingasthepersonfromwhich
thegoodshavebeenreceivedforshipment.
(5)"Deliveryorder"meansarecordthatcontainsanordertodelivergoodsdirected
toawarehouse,carrier,orotherpersonthatintheordinarycourseofbusiness
issueswarehousereceiptsorbillsoflading.
(6)"Goodfaith"meanshonestyinfactandtheobservanceofreasonablecommercial
standardsoffairdealing.
(7)"Goods"meansallthingsthataretreatedasmovableforthepurposesofa
contractforstorageortransportation.
(8)"Issuer"meansabaileethatissuesadocumentoftitleor,inthecaseofan
unaccepteddeliveryorder,thepersonthatordersthepossessorofgoodstodeliver.
Thetermincludesapersonforwhichanagentoremployeepurportstoactin
issuingadocumentiftheagentoremployeehasrealorapparentauthoritytoissue
documents,eveniftheissuerdidnotreceiveanygoods,thegoodswere
misdescribed,orinanyotherrespecttheagentoremployeeviolatedtheissuer's
instructions.
(9)"Personentitledunderthedocument"meanstheholder,inthecaseofa
negotiabledocumentoftitle,orthepersontowhichdeliveryofthegoodsistobe
madebythetermsof,orpursuanttoinstructionsinarecordunder,anonnegotiable
documentoftitle.
(10)"Record"meansinformationthatisinscribedonatangiblemediumorthatis
storedinanelectronicorothermediumandisretrievableinperceivableform.
(11)"Sign"means,withpresentintenttoauthenticateoradoptarecord:
[ 311 ]
(A)toexecuteoradoptatangiblesymbol;or
(B)toattachtoorlogicallyassociatewiththerecordanelectronicsound,
symbol,orprocess.
(12)"Shipper"meansapersonthatentersintoacontractoftransportationwitha
carrier.
(13)"Warehouse"meansapersonengagedinthebusinessofstoringgoodsforhire.
(b)Definitionsinotherarticlesapplyingtothisarticleandthesectionsinwhichthey
appearare:
(1)"Contractforsale",Section2106.
(2)"Lesseeinordinarycourseofbusiness",Section2A103.
(3)"Receipt"ofgoods,Section2103.
(c)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
interpretationapplicablethroughoutthisarticle.
7103.RelationofArticletoTreatyorStatute.
(a)ThisarticleissubjecttoanytreatyorstatuteoftheUnitedStatesoraregulatorystatute
ofthisStatetotheextentthetreaty,statute,orregulatorystatuteisapplicable.
(b)Thisarticledoesnotrepealormodifyanylawprescribingtheformorcontentsofa
documentoftitleortheservicesorfacilitiestobeaffordedbyabailee,orotherwise
regulatingabailee'sbusinessesinrespectsnotspecificallytreatedinthisarticle.However,
violationoftheselawsdoesnotaffectthestatusofadocumentoftitlethatotherwise
complieswiththedefinitionofadocumentoftitle.
(c)This[Act]modifies,limits,andsupersedesthefederalElectronicSignaturesinGlobal
andNationalCommerceAct(15U.S.C.Section7001,et.seq.)butdoesnotmodify,limit,or
supersedeSection101(c)ofthatact(15U.S.C.Section7001(c))orauthorizeelectronic
deliveryofanyofthenoticesdescribedinSection103(b)ofthatact(15U.S.C.Section
7003(b)).
(d)TotheextentthereisaconflictbetweentheUniformElectronicTransactionsActand
thisarticle,thisarticlegoverns.
7104.NegotiableandNonnegotiableDocumentofTitle.
(a)Adocumentoftitleisnegotiableifbyitstermsthegoodsaretobedeliveredtobearer
ortotheorderofanamedperson.
(b)Adocumentoftitleotherthanonedescribedinsubsection(a)isnonnegotiable.Abillof
ladingthatstatesthatthegoodsareconsignedtoanamedpersonisnotmadenegotiable
[ 312 ]
byaprovisionthatthegoodsaretobedeliveredonlyagainstanorderinarecordsignedby
thesameoranothernamedperson.
(c)Adocumentoftitleisnonnegotiableif,atthetimeitisissued,thedocumenthasa
conspicuouslegend,howeverexpressed,thatitisnonnegotiable.
7105.ReissuanceinAlternativeMedium.
(a)Uponrequestofapersonentitledunderanelectronicdocumentoftitle,theissuerof
theelectronicdocumentmayissueatangibledocumentoftitleasasubstituteforthe
electronicdocumentif:
(1)thepersonentitledundertheelectronicdocumentsurrenderscontrolofthe
documenttotheissuer;and
(2)thetangibledocumentwhenissuedcontainsastatementthatitisissuedin
substitutionfortheelectronicdocument.
(b)Uponissuanceofatangibledocumentoftitleinsubstitutionforanelectronicdocument
oftitleinaccordancewithsubsection(a):
(1)theelectronicdocumentceasestohaveanyeffectorvalidity;and
(2)thepersonthatprocuredissuanceofthetangibledocumentwarrantstoall
subsequentpersonsentitledunderthetangibledocumentthatthewarrantorwasa
personentitledundertheelectronicdocumentwhenthewarrantorsurrendered
controloftheelectronicdocumenttotheissuer.
(c)Uponrequestofapersonentitledunderatangibledocumentoftitle,theissuerofthe
tangibledocumentmayissueanelectronicdocumentoftitleasasubstituteforthetangible
documentif:
(1)thepersonentitledunderthetangibledocumentsurrenderspossessionofthe
documenttotheissuer;and
(2)theelectronicdocumentwhenissuedcontainsastatementthatitisissuedin
substitutionforthetangibledocument.
(d)Uponissuanceoftheelectronicdocumentoftitleinsubstitutionforatangible
documentoftitleinaccordancewithsubsection(c):
(1)thetangibledocumentceasestohaveanyeffectorvalidity;and
(2)thepersonthatprocuredissuanceoftheelectronicdocumentwarrantstoall
subsequentpersonsentitledundertheelectronicdocumentthatthewarrantorwas
apersonentitledunderthetangibledocumentwhenthewarrantorsurrendered
possessionofthetangibledocumenttotheissuer.
[ 313 ]
7106.ControlofElectronicDocumentofTitle.
(a)Apersonhascontrolofanelectronicdocumentoftitleifasystememployedfor
evidencingthetransferofinterestsintheelectronicdocumentreliablyestablishesthat
personasthepersontowhichtheelectronicdocumentwasissuedortransferred.
(b)Asystemsatisfiessubsection(a),andapersonisdeemedtohavecontrolofan
electronicdocumentoftitle,ifthedocumentiscreated,stored,andassignedinsucha
mannerthat:
(1)asingleauthoritativecopyofthedocumentexistswhichisunique,identifiable,
and,exceptasotherwiseprovidedinparagraphs(4),(5),and(6),unalterable;
(2)theauthoritativecopyidentifiesthepersonassertingcontrolas:
(A)thepersontowhichthedocumentwasissued;or
(B)iftheauthoritativecopyindicatesthatthedocumenthasbeen
transferred,thepersontowhichthedocumentwasmostrecently
transferred;
(3)theauthoritativecopyiscommunicatedtoandmaintainedbytheperson
assertingcontroloritsdesignatedcustodian;
(4)copiesoramendmentsthataddorchangeanidentifiedassigneeofthe
authoritativecopycanbemadeonlywiththeconsentofthepersonasserting
control;
(5)eachcopyoftheauthoritativecopyandanycopyofacopyisreadilyidentifiable
asacopythatisnottheauthoritativecopy;and
(6)anyamendmentoftheauthoritativecopyisreadilyidentifiableasauthorizedor
unauthorized.
PART2.WAREHOUSERECEIPTS:SPECIALPROVISIONS
7201.PersonThatMayIssueaWarehouseReceipt;StorageUnderBond.
(a)Awarehousereceiptmaybeissuedbyanywarehouse.
(b)Ifgoods,includingdistilledspiritsandagriculturalcommodities,arestoredundera
statuterequiringabondagainstwithdrawaloralicensefortheissuanceofreceiptsinthe
natureofwarehousereceipts,areceiptissuedforthegoodsisdeemedtobeawarehouse
receiptevenifissuedbyapersonthatistheownerofthegoodsandisnotawarehouse.
[ 314 ]
7202.FormofWarehouseReceipt.
(a)Awarehousereceiptneednotbeinanyparticularform.
(b)Unlessawarehousereceiptprovidesforeachofthefollowing,thewarehouseisliable
fordamagescausedtoapersoninjuredbyitsomission:
(1)thelocationofthewarehousefacilitywherethegoodsarestored;
(2)thedateofissueofthereceipt;
(3)theuniqueidentificationcodeofthereceipt;
(4)astatementwhetherthegoodsreceivedwillbedeliveredtothebearer,toa
namedperson,ortoanamedpersonoritsorder;
(5)therateofstorageandhandlingcharges,butifgoodsarestoredunderafield
warehousingarrangement,astatementofthatfactissufficientonanonnegotiable
receipt;
(6)adescriptionofthegoodsorthepackagescontainingthem;
(7)thesignatureofthewarehouseoritsagent;
(8)ifthereceiptisissuedforgoodsthatthewarehouseowns,eithersolely,jointly,
orincommonwithothers,thefactofthatownership;and
(9)astatementoftheamountofadvancesmadeandofliabilitiesincurredforwhich
thewarehouseclaimsalienorsecurityinterest,butifthepreciseamountof
advancesmadeorofliabilitiesincurredis,atthetimeoftheissueofthereceipt,
unknowntothewarehouseortoitsagentthatissuedthereceipt,astatementofthe
factthatadvanceshavebeenmadeorliabilitiesincurredandthepurposeofthe
advancesorliabilitiesissufficient.
(c)Awarehousemayinsertinitsreceiptanytermsthatarenotcontraryto[theUniform
CommercialCode]anddonotimpairitsobligationofdeliveryunderSection7403orits
dutyofcareunderSection7204.Anycontraryprovisionsareineffective.
7203.LiabilityforNonreceiptorMisdescription.
Apartytoorpurchaserforvalueingoodfaithofadocumentoftitle,otherthanabillof
lading,thatreliesuponthedescriptionofthegoodsinthedocumentmayrecoverfromthe
issuerdamagescausedbythenonreceiptormisdescriptionofthegoods,excepttothe
extentthat:
(1)thedocumentconspicuouslyindicatesthattheissuerdoesnotknowwhetherall
orpartofthegoodsinfactwerereceivedorconformtothedescription,suchasa
caseinwhichthedescriptionisintermsofmarksorlabelsorkind,quantity,or
condition,orthereceiptordescriptionisqualifiedby"contents,condition,and
[ 315 ]
qualityunknown","saidtocontain",orwordsofsimilarimport,iftheindicationis
true;or
(2)thepartyorpurchaserotherwisehasnoticeofthenonreceiptormisdescription.
7204.DutyofCare;ContractualLimitationofWarehouse'sLiability.
(a)Awarehouseisliablefordamagesforlossoforinjurytothegoodscausedbyitsfailure
toexercisecarewithregardtothegoodsthatareasonablycarefulpersonwouldexercise
undersimilarcircumstances.However,unlessotherwiseagreed,thewarehouseisnot
liablefordamagesthatcouldnothavebeenavoidedbytheexerciseofthatcare.
(b)Damagesmaybelimitedbyaterminthewarehousereceiptorstorageagreement
limitingtheamountofliabilityincaseoflossordamagebeyondwhichthewarehouseis
notliable.Suchalimitationisnoteffectivewithrespecttothewarehouse'sliabilityfor
conversiontoitsownuse.Thewarehouse'sliability,onrequestofthebailorinarecordat
thetimeofsigningsuchstorageagreementorwithinareasonabletimeafterreceiptofthe
warehousereceipt,maybeincreasedonpartorallofthegoodscoveredbythestorage
agreementorthewarehousereceipt.Inthisevent,increasedratesmaybechargedbased
onanincreasedvaluationofthegoods.
(c)Reasonableprovisionsastothetimeandmannerofpresentingclaimsandcommencing
actionsbasedonthebailmentmaybeincludedinthewarehousereceiptorstorage
agreement.
(d)Thissectiondoesnotimpairorrepeal[Insertreferencetoanystatutethatimposesa
higherresponsibilityuponthewarehouseorinvalidatescontractuallimitationsthatwould
bepermissibleunderthisArticle.]
7205.TitleUnderWarehouseReceiptDefeatedinCertainCases.
Abuyerinordinarycourseofbusinessoffungiblegoodsgoodsanddeliveredbya
warehousethatisalsointhebusinessofbuyingandsellingsuchgoodstakesthegoodsfree
ofanyclaimunderawarehousereceiptevenifthereceiptisnegotiableandhasbeenduly
negotiated.
7206.TerminationofStorageatWarehouse'sOption.
(a)Awarehouse,bygivingnoticetothepersononwhoseaccountthegoodsareheldand
anyotherpersonknowntoclaimaninterestinthegoods,mayrequirepaymentofany
chargesandremovalofthegoodsfromthewarehouseattheterminationoftheperiodof
storagefixedbythedocumentoftitleor,ifaperiodisnotfixed,withinastatedperiodnot
lessthan30daysafterthewarehousegivesnotice.Ifthegoodsarenotremovedbeforethe
datespecifiedinthenotice,thewarehousemaysellthempursuanttoSection7210.
(b)Ifawarehouseingoodfaithbelievesthatgoodsareabouttodeteriorateordeclinein
valuetolessthantheamountofitslienwithinthetimeprovidedinsubsection(a)and
Section7210,thewarehousemayspecifyinthenoticegivenundersubsection(a)any
[ 316 ]
reasonableshortertimeforremovalofthegoodsand,ifthegoodsarenotremoved,may
sellthematpublicsaleheldnotlessthanoneweekafterasingleadvertisementorposting.
(c)If,asaresultofaqualityorconditionofthegoodsofwhichthewarehousedidnothave
noticeatthetimeofdeposit,thegoodsareahazardtootherproperty,thewarehouse
facilities,orotherpersons,thewarehousemaysellthegoodsatpublicorprivatesale
withoutadvertisementorpostingonreasonablenotificationtoallpersonsknowntoclaim
aninterestinthegoods.Ifthewarehouse,afterareasonableeffort,isunabletosellthe
goods,itmaydisposeoftheminanylawfulmanneranddoesnotincurliabilitybyreasonof
thatdisposition.
(d)Awarehouseshalldeliverthegoodstoanypersonentitledtothemunderthisarticle
uponduedemandmadeatanytimebeforesaleorotherdispositionunderthissection.
(e)Awarehousemaysatisfyitslienfromtheproceedsofanysaleordispositionunderthis
sectionbutshallholdthebalancefordeliveryonthedemandofanypersontowhichthe
warehousewouldhavebeenboundtodeliverthegoods.
7207.GoodsMustBeKeptSeparate;FungibleGoods.
(a)Unlessthewarehousereceiptprovidesotherwise,awarehouseshallkeepseparatethe
goodscoveredbyeachreceiptsoastopermitatalltimesidentificationanddeliveryof
thosegoods.However,differentlotsoffungiblegoodsmaybecommingled.
(b)Ifdifferentlotsoffungiblegoodsarecommingled,thegoodareownedincommonby
thepersonsentitledtheretoandthewarehouseisseverallyliabletoeachownerforthat
owner'sshare.If,becauseofoverissue,amassoffungiblegoodsisinsufficienttomeetall
thereceiptsthewarehousehasissuedagainstit,thepersonsentitledincludeallholdersto
whichoverissuedreceiptshavebeendulynegotiated.
7208.AlteredWarehouseReceipts.
Ifablankinanegotiabletangiblewarehousereceipthasbeenfilledinwithoutauthority,a
goodfaithpurchaserforvalueandwithoutnoticeofthelackofauthoritymaytreatthe
insertionasauthorized.Anyotherunauthorizedalterationleavesanytangibleorelectronic
warehousereceiptenforceableagainsttheissueraccordingtoitsoriginaltenor.
7209.LienofWarehouse.
(a)Awarehousehasalienagainstthebailoronthegoodscoveredbyawarehousereceipt
orstorageagreementorontheproceedsthereofinitspossessionforchargesforstorageor
transportation,includingdemurrageandterminalcharges,insurance,labor,orother
charges,presentorfuture,inrelationtothegoods,andforexpensesnecessaryfor
preservationofthegoodsorreasonablyincurredintheirsalepursuanttolaw.Iftheperson
onwhoseaccountthegoodsareheldisliableforsimilarchargesorexpensesinrelationto
othergoodswheneverdepositedanditisstatedinthewarehousereceiptorstorage
agreementthatalienisclaimedforchargesandexpensesinrelationtoothergoods,the
warehousealsohasalienagainstthegoodscoveredbythewarehousereceiptorstorage
agreementorontheproceedsthereofinitspossessionforthosechargesandexpenses,
[ 317 ]
whetherornottheothergoodshavebeendeliveredbythewarehouse.However,asagainst
apersontowhichanegotiablewarehousereceiptisdulynegotiated,awarehouse'slienis
limitedtochargesinanamountorataratespecifiedinthewarehousereceiptor,ifno
chargesaresospecified,toareasonablechargeforstorageofthespecificgoodscoveredby
thereceiptsubsequenttothedateofthereceipt.
(b)ThewarehousemayalsoreserveasecurityinterestunderArticle9againstthebailor
forthemaximumamountspecifiedonthereceiptforchargesotherthanthosespecifiedin
subsection(a),suchasformoneyadvancedandinterest.Asecurityinterestisgovernedby
Article9.
(c)Awarehouse'slienforchargesandexpensesundersubsection(a)orasecurityinterest
undersubsection(b)isalsoeffectiveagainstanypersonthatsoentrustedthebailorwith
possessionofthegoodsthatapledgeofthembythebailortoagoodfaithpurchaserfor
valuewouldhavebeenvalid.However,thelienorsecurityinterestisnoteffectiveagainsta
personthatbeforeissuanceofadocumentoftitlehadalegalinterestoraperfected
securityinterestinthegoodsandthatdidnot:
(1)deliverorentrustthegoodsoranydocumentcoveringthegoodstothebailoror
thebailor'snomineewithactualorapparentauthoritytoship,store,orsell;orwith
powertoobtaindeliveryunderSection7403;orwithpowerofdispositionunder
Sections2403,2A304(2),2A305(2)or9320orotherstatuteorruleoflaw;or
(2)acquiesceintheprocurementbythebailororitsnomineeofanydocument.
(d)Awarehouse'slienonhouseholdgoodsforchargesandexpensesinrelationtothe
goodsundersubsection(a)isalsoeffectiveagainstallpersonsifthedepositorwasthelegal
possessorofthegoodsatthetimeofdeposit.Inthissubsection,"householdgoods"means
furniture,furnishings,orpersonaleffectsusedbythedepositorinadwelling.
(e)Awarehouselosesitslienonanygoodsthatitvoluntarilydeliversorunjustifiably
refusestodeliver.
7210.EnforcementofWarehouse'sLien.
(a)Exceptasotherwiseprovidedinsubsection(b),awarehouse'slienmaybeenforcedby
publicorprivatesaleofthegoods,inbulkorinpackages,atanytimeorplaceandonany
termsthatarecommerciallyreasonable,afternotifyingallpersonsknowntoclaiman
interestinthegoods.Thenotificationmustincludeastatementoftheamountdue,the
natureoftheproposedsale,andthetimeandplaceofanypublicsale.Thefactthatabetter
pricecouldhavebeenobtainedbyasaleatadifferenttimeorinadifferentmethodfrom
thatselectedbythewarehouseisnotofitselfsufficienttoestablishthatthesalewasnot
madeinacommerciallyreasonablemanner.Thewarehousehassoldinacommercially
reasonablemannerifthewarehousesellsthegoodsintheusualmannerinanyrecognized
markettherefor,sellsatthepricecurrentinthatmarketatthetimeofthesale,orhas
otherwisesoldinconformitywithcommerciallyreasonablepracticesamongdealersinthe
typeofgoodssold.Asaleofmoregoodsthanapparentlynecessarytobeofferedtoensure
satisfactionoftheobligationisnotcommerciallyreasonable,exceptincasescoveredbythe
precedingsentence.
[ 318 ]
(b)Awarehouse'slienongoods,otherthangoodsstoredbyamerchantinthecourseofits
business,maybeenforcedonlyifthefollowingrequirementsaresatisfied:
(1)Allpersonsknowntoclaimaninterestinthegoodsmustbenotified.
(2)Thenotificationmustincludeanitemizedstatementoftheclaim,adescriptionof
thegoodssubjecttothelien,ademandforpaymentwithinaspecifiedtimenotless
than10daysafterreceiptofthenotification,andaconspicuousstatementthat
unlesstheclaimispaidwithinthattimethegoodswillbeadvertisedforsaleand
soldbyauctionataspecifiedtimeandplace.
(3)Thesalemustconformtothetermsofthenotification.
(4)Thesalemustbeheldatthenearestsuitableplacetowherethegoodsareheld
orstored.
(5)Aftertheexpirationofthetimegiveninthenotification,anadvertisementofthe
salemustbepublishedonceaweekfortwoweeksconsecutivelyinanewspaperof
generalcirculationwherethesaleistobeheld.Theadvertisementmustincludea
descriptionofthegoods,thenameofthepersononwhoseaccountthegoodsare
beingheld,andthetimeandplaceofthesale.Thesalemusttakeplaceatleast15
daysafterthefirstpublication.Ifthereisnonewspaperofgeneralcirculationwhere
thesaleistobeheld,theadvertisementmustbepostedatleast10daysbeforethe
saleinnotlessthansixconspicuousplacesintheneighborhoodoftheproposed
sale.
(c)Beforeanysalepursuanttothissection,anypersonclaimingarightinthegoodsmay
paytheamountnecessarytosatisfythelienandthereasonableexpensesincurredin
complyingwiththissection.Inthatevent,thegoodsmaynotbesoldbutmustberetained
bythewarehousesubjecttothetermsofthereceiptandthisarticle.
(d)Awarehousemaybuyatanypublicsaleheldpursuanttothissection.
(e)Apurchaseringoodfaithofgoodssoldtoenforceawarehouse'slientakesthegoods
freeofanyrightsofpersonsagainstwhichthelienwasvalid,despitethewarehouse's
noncompliancewiththissection.
(f)Awarehousemaysatisfyitslienfromtheproceedsofanysalepursuanttothissection
butshallholdthebalance,ifany,fordeliveryondemandtoanypersontowhichthe
warehousewouldhavebeenboundtodeliverthegoods.
(g)Therightsprovidedbythissectionareinadditiontoallotherrightsallowedbylawtoa
creditoragainstadebtor.
(h)Ifalienisongoodsstoredbyamerchantinthecourseofitsbusiness,thelienmaybe
enforcedinaccordancewithsubsection(a)or(b).
(i)Awarehouseisliablefordamagescausedbyfailuretocomplywiththerequirementsfor
saleunderthissectionand,incaseofwillfulviolation,isliableforconversion.
[ 319 ]
PART3.BILLSOFLADING:SPECIALPROVISIONS
7301.LiabilityforNonreceiptorMisdescription;"SaidtoContain";"Shipper'sLoadand
Count";ImproperHandling.
(a)Aconsigneeofanonnegotiablebillofladingwhichhasgivenvalueingoodfaith,ora
holdertowhichanegotiablebillhasbeendulynegotiated,relyinguponthedescriptionof
thegoodsinthebilloruponthedateshowninthebill,mayrecoverfromtheissuer
damagescausedbythemisdatingofthebillorthenonreceiptormisdescriptionofthe
goods,excepttotheextentthatthedocumentoftitleindicatesthattheissuerdoesnot
knowwhetheranypartorallofthegoodsinfactwerereceivedorconformtothe
description,suchasinacaseinwhichthedescriptionisintermsofmarksorlabelsorkind,
quantity,orconditionorthereceiptordescriptionisqualifiedby"contentsorconditionof
contentsofpackagesunknown","saidtocontain","shipper'sweight,loadandcount,"or
wordsofsimilarimport,ifthatindicationistrue.
(b)Ifgoodsareloadedbytheissuerofthebilloflading,theissuershallcountthepackages
ofgoodsifshippedinpackagesandascertainthekindandquantityifshippedinbulkand
wordssuchas"shipper'sweight,loadandcount,"orwordsofsimilarimportindicating
thatthedescriptionwasmadebytheshipperareineffectiveexceptastogoodsconcealed
bypackages.
(c)Ifbulkgoodsareloadedbyashipperthatmakesavailabletotheissuerofthebillof
ladingadequatefacilitiesforweighingthosegoods,theissuershallascertainthekindand
quantitywithinareasonabletimeafterreceivingtheshipper'srequestinarecordtodoso.
Inthatcase,"shipper'sweight"orwordsofsimilarimportareineffective.
(d)Theissuer,byincludinginthebillofladingthewords"shipper'sweight,loadand
count,"orwordsofsimilarimport,mayindicatethatthegoodswereloadedbytheshipper,
and,ifthatstatementistrue,theissuerisnotliablefordamagescausedbytheimproper
loading.However,omissionofsuchwordsdoesnotimplyliabilityfordamagescausedby
improperloading.
(e)Ashipperguaranteestotheissuertheaccuracyatthetimeofshipmentofthe
description,marks,labels,number,kind,quantity,condition,andweight,asfurnishedby
theshipper,andtheshippershallindemnifytheissueragainstdamagecausedby
inaccuraciesinthoseparticulars.Thisrightoftheissuertothatindemnitydoesnotlimitits
responsibilityorliabilityunderthecontractofcarriagetoanypersonotherthanthe
shipper.
7302.ThroughBillsofLadingandSimilarDocumentsofTitle.
(a)Theissuerofathroughbillofladingorotherdocumentoftitleembodyingan
undertakingtobeperformedinpartbyapersonactingasitsagentorbyaperforming
carrierisliabletoanypersonentitledtorecoveronthedocumentforanybreachbythe
otherpersonortheperformingcarrierofitsobligationunderthedocument.However,to
theextentthatthebillcoversanundertakingtobeperformedoverseasorinterritorynot
contiguoustothecontinentalUnitedStatesoranundertakingincludingmattersotherthan
[ 320 ]
transportation,thisliabilityforbreachbytheotherpersonortheperformingcarriermay
bevariedbyagreementoftheparties.
(b)Ifgoodscoveredbyathroughbillofladingorotherdocumentoftitleembodyingan
undertakingtobeperformedinpartbyapersonotherthantheissuerarereceivedbythat
person,thepersonissubject,withrespecttoitsownperformancewhilethegoodsareinits
possession,totheobligationoftheissuer.Theperson'sobligationisdischargedbydelivery
ofthegoodstoanotherpersonpursuanttothedocumentanddoesnotincludeliabilityfor
breachbyanyotherpersonorbytheissuer.
(c)Theissuerofathroughbillofladingorotherdocumentoftitledescribedinsubsection
(a)isentitledtorecoverfromtheperformingcarrier,orotherpersoninpossessionofthe
goodswhenthebreachoftheobligationunderthedocumentoccurred:
(1)theamountitmayberequiredtopaytoanypersonentitledtorecoveronthe
documentforthebreach,asmaybeevidencedbyanyreceipt,judgment,or
transcriptofjudgment,and;
(2)theamountofanyexpensereasonablyincurredbytheissuerindefendingany
actioncommencedbyanypersonentitledtorecoveronthedocumentforthe
breach.
7303.Diversion;Reconsignment;ChangeofInstructions.
(a)Unlessthebillofladingotherwiseprovides,acarriermaydeliverthegoodstoaperson
ordestinationotherthanthatstatedinthebillormayotherwisedisposeofthegoods,
withoutliabilityformisdelivery,oninstructionsfrom:
(1)theholderofanegotiablebill;
(2)theconsignoronanonnegotiablebilleveniftheconsigneehasgivencontrary
instructions;
(3)theconsigneeonanonnegotiablebillintheabsenceofcontraryinstructions
fromtheconsignor,ifthegoodshavearrivedatthebilleddestinationorifthe
consigneeisinpossessionofthetangiblebillorincontroloftheelectronicbill;or
(4)theconsigneeonanonnegotiablebill,iftheconsigneeisentitledasagainstthe
consignortodisposeofthegoods.
(b)Unlessinstructionsdescribedinsubsection(a)areincludedinanegotiablebillof
lading,apersontowhichthebillisdulynegotiatedmayholdthebaileeaccordingtothe
originalterms.
7304.TangibleBillsofLadinginaSet.
(a)Exceptascustomaryininternationaltransportation,atangiblebillofladingmaynotbe
issuedinasetofparts.Theissuerisliablefordamagescausedbyviolationofthis
subsection.
[ 321 ]
(b)Ifatangiblebillofladingislawfullyissuedinasetofparts,eachofwhichcontainsan
identificationcodeandisexpressedtobevalidonlyifthegoodshavenotbeendelivered
againstanyotherpart,thewholeofthepartsconstitutesonebill.
(c)Ifatangiblenegotiablebillofladingislawfullyissuedinasetofpartsanddifferent
partsarenegotiatedtodifferentpersons,thetitleoftheholdertowhichthefirstdue
negotiationismadeprevailsastoboththedocumentoftitleandthegoodsevenifanylater
holdermayhavereceivedthegoodsfromthecarrieringoodfaithanddischargedthe
carrier'sobligationbysurrenderingitspart.
(d)Apersonthatnegotiatesortransfersasinglepartofatangiblebillofladingissuedina
setisliabletoholdersofthatpartasifitwerethewholeset.
(e)ThebaileeisobligedtodeliverinaccordancewithPart4againstthefirstpresented
partofatangiblebillofladinglawfullyissuedinaset.Deliveryinthismannerdischarges
thebailee'sobligationonthewholebill.
7305.DestinationBills.
(a)Insteadofissuingabillofladingtotheconsignorattheplaceofshipment,acarrier,at
therequestoftheconsignor,mayprocurethebilltobeissuedatdestinationoratanyother
placedesignatedintherequest.
(b)Uponrequestofanypersonentitledasagainstacarriertocontrolthegoodswhilein
transitandonsurrenderofpossessionorcontrolofanyoutstandingbillofladingorother
receiptcoveringthegoods,theissuer,subjecttoSection7105,mayprocureasubstitute
billtobeissuedatanyplacedesignatedintherequest.
7306.AlteredBillsofLading.
Anunauthorizedalterationorfillinginofablankinabillofladingleavesthebill
enforceableaccordingtoitsoriginaltenor.
7307.LienofCarrier.
(a)Acarrierhasalienonthegoodscoveredbyabillofladingorontheproceedsthereofin
itspossessionforchargesafterthedateofthecarrier'sreceiptofthegoodsforstorageor
transportation,includingdemurrageandterminalcharges,andforexpensesnecessaryfor
preservationofthegoodsincidenttotheirtransportationorreasonablyincurredintheir
salepursuanttolaw.However,againstapurchaserforvalueofanegotiablebilloflading,a
carrier'slienislimitedtochargesstatedinthebillortheapplicabletariffsor,ifnocharges
arestated,areasonablecharge.
(b)Alienforchargesandexpensesundersubsection(a)ongoodsthatthecarrierwas
requiredbylawtoreceivefortransportationiseffectiveagainsttheconsignororany
personentitledtothegoodsunlessthecarrierhadnoticethattheconsignorlacked
authoritytosubjectthegoodstothosechargesandexpenses.Anyotherlienunder
subsection(a)iseffectiveagainsttheconsignorandanypersonthatpermittedthebailorto
[ 322 ]
havecontrolorpossessionofthegoodsunlessthecarrierhadnoticethatthebailorlacked
authority.
(c)Acarrierlosesitslienonanygoodsthatitvoluntarilydeliversorunjustifiablyrefuses
todeliver.
7308.EnforcementofCarrier'sLien.
(a)Acarrier'slienongoodsmaybeenforcedbypublicorprivatesaleofthegoods,inbulk
orinpackages,atanytimeorplaceandonanytermsthatarecommerciallyreasonable,
afternotifyingallpersonsknowntoclaimaninterestinthegoods.Thenotificationmust
includeastatementoftheamountdue,thenatureoftheproposedsale,andthetimeand
placeofanypublicsale.Thefactthatabetterpricecouldhavebeenobtainedbyasaleata
differenttimeorinadifferentmethodfromthatselectedbythecarrierisnotofitself
sufficienttoestablishthatthesalewasnotmadeinacommerciallyreasonablemanner.The
carrierhassoldgoodsinacommerciallyreasonablemannerifthecarriersellsthegoodsin
theusualmannerinanyrecognizedmarkettherefor,sellsatthepricecurrentinthat
marketatthetimeofthesale,orhasotherwisesoldinconformitywithcommercially
reasonablepracticesamongdealersinthetypeofgoodssold.Asaleofmoregoodsthan
apparentlynecessarytobeofferedtoensuresatisfactionoftheobligationisnot
commerciallyreasonable,exceptincasescoveredbytheprecedingsentence.
(b)Beforeanysalepursuanttothissection,anypersonclaimingarightinthegoodsmay
paytheamountnecessarytosatisfythelienandthereasonableexpensesincurredin
complyingwiththissection.Inthatevent,thegoodsmaynotbesoldbutmustberetained
bythecarrier,subjecttothetermsofthebillofladingandthisarticle.
(c)Acarriermaybuyatanypublicsalepursuanttothissection.
(d)Apurchaseringoodfaithofgoodssoldtoenforceacarrier'slientakesthegoodsfreeof
anyrightsofpersonsagainstwhichthelienwasvalid,despitethecarrier'snoncompliance
withthissection.
(e)Acarriermaysatisfyitslienfromtheproceedsofanysalepursuanttothissectionbut
shallholdthebalance,ifany,fordeliveryondemandtoanypersontowhichthecarrier
wouldhavebeenboundtodeliverthegoods.
(f)Therightsprovidedbythissectionareinadditiontoallotherrightsallowedbylawtoa
creditoragainstadebtor.
(g)Acarrier'slienmaybeenforcedpursuanttoeithersubsection(a)ortheprocedureset
forthinSection7210(b).
(h)Acarrierisliablefordamagescausedbyfailuretocomplywiththerequirementsfor
saleunderthissectionand,incaseofwillfulviolation,isliableforconversion.
[ 323 ]
7309.DutyofCare;ContractualLimitationofCarrier'sLiability.
(a)Acarrierthatissuesabilloflading,whethernegotiableornonnegotiable,shallexercise
thedegreeofcareinrelationtothegoodswhichareasonablycarefulpersonwould
exerciseundersimilarcircumstances.Thissubsectiondoesnotaffectanystatute,
regulation,orruleoflawthatimposesliabilityuponacommoncarrierfordamagesnot
causedbyitsnegligence.
(b)Damagesmaybelimitedbyaterminthebillofladingorinatransportationagreement
thatthecarrier'sliabilitymaynotexceedavaluestatedinthebillortransportation
agreementifthecarrier'sratesaredependentuponvalueandtheconsignorisaffordedan
opportunitytodeclareahighervalueandtheconsignorisadvisedoftheopportunity.
However,suchalimitationisnoteffectivewithrespecttothecarrier'sliabilityfor
conversiontoitsownuse.
(c)Reasonableprovisionsastothetimeandmannerofpresentingclaimsandcommencing
actionsbasedontheshipmentmaybeincludedinabillofladingoratransportation
agreement.
PART4.WAREHOUSERECEIPTSANDBILLSOFLADING:GENERALOBLIGATIONS
7401.IrregularitiesinIssueofReceiptorBillorConductofIssuer.
Theobligationsimposedbythisarticleonanissuerapplytoadocumentoftitleevenif:
(1)thedocumentdoesnotcomplywiththerequirementsofthisarticleorofany
otherstatute,rule,orregulationregardingitsissue,form,orcontent;
(2)theissuerviolatedlawsregulatingtheconductofitsbusiness;
(3)thegoodscoveredbythedocumentwereownedbythebaileewhenthe
documentwasissued;or
(4)thepersonissuingthedocumentisnotawarehousebutthedocumentpurports
tobeawarehousereceipt.
7402.DuplicateDocumentofTitle;Overissue.
Aduplicateoranyotherdocumentoftitlepurportingtocovergoodsalreadyrepresented
byanoutstandingdocumentofthesameissuerdoesnotconferanyrightinthegoods,
exceptasprovidedinthecaseoftangiblebillsofladinginasetofparts,overissueof
documentsforfungiblegoods,substitutesforlost,stolen,ordestroyeddocuments,or
substitutedocumentsissuedpursuanttoSection7105.Theissuerisliablefordamages
causedbyitsoverissueorfailuretoidentifyaduplicatedocumentbyaconspicuous
notation.
[ 324 ]
7403.ObligationofWarehouseorCarriertoDeliver;Excuse.
(a)Abaileeshalldeliverthegoodstoapersonentitledunderadocumentoftitleifthe
personcomplieswithsubsections(b)and(c),unlessandtotheextentthatthebailee
establishesanyofthefollowing:
(1)deliveryofthegoodstoapersonwhosereceiptwasrightfulasagainstthe
claimant;
(2)damagetoordelay,loss,ordestructionofthegoodsforwhichthebaileeisnot
liable;
(3)previoussaleorotherdispositionofthegoodsinlawfulenforcementofalienor
onawarehouse'slawfulterminationofstorage;
(4)theexercisebyasellerofitsrighttostopdeliverypursuanttoSection2705or
byalessorofitsrighttostopdeliverypursuanttoSection2A526;
(5)adiversion,reconsignment,orotherdispositionpursuanttoSection7303;
(6)release,satisfaction,oranyotherfactaffordingapersonaldefenseagainstthe
claimant;or
(7)anyotherlawfulexcuse.
(b)Apersonclaiminggoodscoveredbyadocumentoftitleshallsatisfythebailee'slienif
thebaileesorequestsorthebaileeisprohibitedbylawfromdeliveringthegoodsuntilthe
chargesarepaid.
(c)Unlessapersonclaimingthegoodsisoneagainstwhichthedocumentoftitledoesnot
conferarightunderSection7503(a):
(1)thepersonclaimingunderadocumentshallsurrenderpossessionorcontrolof
anyoutstandingnegotiabledocumentcoveringthegoodsforcancellationor
indicationofpartialdeliveries;and
(2)thebaileeshallcancelthedocumentorconspicuouslyindicateinthedocument
thepartialdeliveryorbeliabletoanypersontowhichthedocumentisduly
negotiated.
7404.NoLiabilityforGoodFaithDeliveryPursuanttoDocumentofTitle.
Abaileethatingoodfaithhasreceivedgoodsanddeliveredorotherwisedisposedofthe
goodsaccordingtothetermsofadocumentoftitleorpursuanttothisarticleisnotliable
forthegoodsevenif:
(1)thepersonfromwhichthebaileereceivedthegoodsdidnothaveauthorityto
procurethedocumentortodisposeofthegoods;or
[ 325 ]
(2)thepersontowhichthebaileedeliveredthegoodsdidnothaveauthorityto
receivethegoods.
PART5.WAREHOUSERECEIPTSANDBILLSOFLADING:NEGOTIATIONANDTRANSFER
7501.FormofNegotiationandRequirementsofDueNegotiation.
(a)Thefollowingrulesapplytoanegotiabletangibledocumentoftitle:
(1)Ifthedocument'soriginaltermsruntotheorderofanamedperson,the
documentisnegotiatedbythenamedperson'sindorsementanddelivery.Afterthe
namedperson'sindorsementinblankortobearer,anypersonmaynegotiatethe
documentbydeliveryalone.
(2)Ifthedocument'soriginaltermsruntobearer,itisnegotiatedbydeliveryalone.
(3)Ifthedocument'soriginaltermsruntotheorderofanamedpersonanditis
deliveredtothenamedperson,theeffectisthesameasifthedocumenthadbeen
negotiated.
(4)Negotiationofthedocumentafterithasbeenindorsedtoanamedperson
requiresindorsementbythenamedpersonaswellasdelivery.
(5)Adocumentisdulynegotiatedifitisnegotiatedinthemannerstatedinthis
subsectiontoaholderthatpurchasesitingoodfaith,withoutnoticeofanydefense
againstorclaimtoitonthepartofanyperson,andforvalue,unlessitisestablished
thatthenegotiationisnotintheregularcourseofbusinessorfinancingorinvolves
receivingthedocumentinsettlementorpaymentofamonetaryobligation.
(b)Thefollowingrulesapplytoanegotiableelectronicdocumentoftitle:
(1)Ifthedocument'soriginaltermsruntotheorderofanamedpersonortobearer,
thedocumentisnegotiatedbydeliveryofthedocumenttoanotherperson.
Indorsementbythenamedpersonisnotrequiredtonegotiatethedocument.
(2)Ifthedocument'soriginaltermsruntotheorderofanamedpersonandthe
namedpersonhascontrolofthedocument,theeffectisthesameasifthedocument
hadbeennegotiated.
(3)Adocumentisdulynegotiatedifitisnegotiatedinthemannerstatedinthis
subsectiontoaholderthatpurchasesitingoodfaith,withoutnoticeofanydefense
againstorclaimtoitonthepartofanyperson,andforvalue,unlessitisestablished
thatthenegotiationisnotintheregularcourseofbusinessorfinancingorinvolves
takingdeliveryofthedocumentinsettlementorpaymentofamonetaryobligation.
(c)Indorsementofanonnegotiabledocumentoftitleneithermakesitnegotiablenoradds
tothetransferee'srights.
[ 326 ]
(d)Thenaminginanegotiablebillofladingofapersontobenotifiedofthearrivalofthe
goodsdoesnotlimitthenegotiabilityofthebillorconstitutenoticetoapurchaserofthe
billofanyinterestofthatpersoninthegoods.
7502.RightsAcquiredbyDueNegotiation.
(a)SubjecttoSections7205and7503,aholdertowhichanegotiabledocumentoftitle
hasbeendulynegotiatedacquiresthereby:
(1)titletothedocument;
(2)titletothegoods;
(3)allrightsaccruingunderthelawofagencyorestoppel,includingrightstogoods
deliveredtothebaileeafterthedocumentwasissued;and
(4)thedirectobligationoftheissuertoholdordeliverthegoodsaccordingtothe
termsofthedocumentfreeofanydefenseorclaimbytheissuerexceptthose
arisingunderthetermsofthedocumentorunderthisarticle.Inthecaseofa
deliveryorder,thebailee'sobligationaccruesonlyuponthebailee'sacceptanceof
thedeliveryorderandtheobligationacquiredbytheholderisthattheissuerand
anyindorserwillprocuretheacceptanceofthebailee.
(b)SubjecttoSection7503,titleandrightsacquiredbyduenegotiationarenotdefeated
byanystoppageofthegoodsrepresentedbythedocumentoftitleorbysurrenderofthe
goodsbythebaileeandarenotimpairedevenif:
(1)theduenegotiationoranypriorduenegotiationconstitutedabreachofduty;
(2)anypersonhasbeendeprivedofpossessionofanegotiabletangibledocument
orcontrolofanegotiableelectronicdocumentbymisrepresentation,fraud,
accident,mistake,duress,loss,theft,orconversion;or
(3)aprevioussaleorothertransferofthegoodsordocumenthasbeenmadetoa
thirdperson.
7503.DocumentofTitletoGoodsDefeatedinCertainCases.
(a)Adocumentoftitleconfersnorightingoodsagainstapersonthatbeforeissuanceof
thedocumenthadalegalinterestoraperfectedsecurityinterestinthegoodsandthatdid
not:
(1)deliverorentrustthegoodsoranydocumentcoveringthegoodstothebailoror
thebailor'snomineewithactualorapparentauthoritytoship,store,orsell;with
powertoobtaindeliveryunderSection7403;orwithpowerofdispositionunder
Section2403,2A304(2),2A305(2),or9320orotherstatuteorruleoflaw;or
(2)acquiesceintheprocurementbythebailororitsnomineeofanydocument.
[ 327 ]
(b)Titletogoodsbaseduponanunaccepteddeliveryorderissubjecttotherightsofany
persontowhichanegotiablewarehousereceiptorbillofladingcoveringthegoodshas
beendulynegotiated.ThattitlemaybedefeatedunderSection7504tothesameextentas
therightsoftheissueroratransfereefromtheissuer.
(c)Titletogoodsbaseduponabillofladingissuedtoafreightforwarderissubjecttothe
rightsofanypersontowhichabillissuedbythefreightforwarderisdulynegotiated.
However,deliverybythecarrierinaccordancewithPart4pursuanttoitsownbilloflading
dischargesthecarrier'sobligationtodeliver.
7504.RightsAcquiredintheAbsenceofDueNegotiation;EffectofDiversion;Stoppage
ofDelivery.
(a)Atransfereeofadocumentoftitle,whethernegotiableornonnegotiable,towhichthe
documenthasbeendeliveredbutnotdulynegotiated,acquiresthetitleandrightsthatits
transferorhadorhadactualauthoritytoconvey.
(b)Inthecaseofanonnegotiabledocumentoftitle,untilbutnotafterthebaileereceives
noticeofthetransfer,therightsofthetransfereemaybedefeated:
(1)bythosecreditorsofthetransferorthatcouldtreatthetransferasvoidunder
Section2402or2A308;
(2)byabuyerfromthetransferorinordinarycourseofbusinessifthebaileehas
deliveredthegoodstothebuyerorreceivednotificationofthebuyer'srights;
(3)byalesseefromthetransferorinordinarycourseofbusinessifthebaileehas
deliveredthegoodstothelesseeorreceivednotificationofthelessee'srights;or
(4)asagainstthebailee,bygoodfaithdealingsofthebaileewiththetransferor.
(c)Adiversionorotherchangeofshippinginstructionsbytheconsignorina
nonnegotiablebillofladingwhichcausesthebaileenottodeliverthegoodstothe
consigneedefeatstheconsignee'stitletothegoodsifthegoodshavebeendeliveredtoa
buyerinordinarycourseofbusinessoralesseeinordinarycourseofbusinessandinany
eventdefeatstheconsignee'srightsagainstthebailee.
(d)Deliveryofthegoodspursuanttoanonnegotiabledocumentoftitlemaybestoppedby
asellerunderSection2705oralessorunderSection2A526,subjecttotherequirements
ofduenotificationinthosesections.Abaileehonoringtheseller'sorlessor'sinstructionsis
entitledtobeindemnifiedbythesellerorlessoragainstanyresultinglossorexpense.
7505.IndorserNotaGuarantorforOtherParties.
Theindorsementofatangibledocumentoftitleissuedbyabaileedoesnotmakethe
indorserliableforanydefaultbythebaileeorpreviousindorsers.
[ 328 ]
7506.DeliveryWithoutIndorsement:RighttoCompelIndorsement.
Thetransfereeofanegotiabletangibledocumentoftitlehasaspecificallyenforceableright
tohaveitstransferorsupplyanynecessaryindorsement,butthetransferbecomesa
negotiationonlyasofthetimetheindorsementissupplied.
7507.WarrantiesonNegotiationorTransferofDocumentofTitle.
Ifapersonnegotiatesordeliversadocumentoftitleforvalue,otherwisethanasamere
intermediaryunderSection7508,unlessotherwiseagreed,thetransferorwarrantstoits
immediatepurchaseronlyinadditiontoanywarrantymadeinsellingorleasingthegoods
that:
(1)thedocumentisgenuine;
(2)thetransferordoesnothaveknowledgeofanyfactthatwouldimpairthe
document'svalidityorworth;and
(3)thenegotiationordeliveryisrightfulandfullyeffectivewithrespecttothetitle
tothedocumentandthegoodsitrepresents.
7508.WarrantiesofCollectingBankastoDocumentsofTitle.
Acollectingbankorotherintermediaryknowntobeentrustedwithdocumentsoftitleon
behalfofanotherorwithcollectionofadraftorotherclaimagainstdeliveryofdocuments
warrantsbythedeliveryofthedocumentsonlyitsowngoodfaithandauthorityevenifthe
collectingbankorotherintermediaryhaspurchasedormadeadvancesagainsttheclaimor
drafttobecollected.
7509.AdequateComplianceWithCommercialContract.
Whetheradocumentoftitleisadequatetofulfilltheobligationsofacontractforsale,a
contractforlease,ortheconditionsofaletterofcreditisdeterminedbyArticle2,2A,or5.
PART6.WAREHOUSERECEIPTSANDBILLSOFLADING:MISCELLANEOUSPROVISIONS
7601.Lost,Stolen,orDestroyedDocumentsofTitle.
(a)Ifadocumentoftitleislost,stolen,ordestroyed,acourtmayorderdeliveryofthe
goodsorissuanceofasubstitutedocumentandthebaileemaywithoutliabilitytoany
personcomplywiththeorder.Ifthedocumentwasnegotiable,acourtmaynotorder
deliveryofthegoodsorissuanceofasubstitutedocumentwithouttheclaimant'sposting
securityunlessitfindsthatanypersonthatmaysufferlossasaresultofnonsurrenderof
possessionorcontrolofthedocumentisadequatelyprotectedagainsttheloss.Ifthe
documentwasnonnegotiable,thecourtmayrequiresecurity.Thecourtmayalsoorder
paymentofthebailee'sreasonablecostsandattorney'sfeesinanyactionunderthis
subsection.
[ 329 ]
(b)Abaileethatwithoutcourtorderdeliversgoodstoapersonclaimingunderamissing
negotiabledocumentoftitleisliabletoanypersoninjuredthereby.Ifthedeliveryisnotin
goodfaith,thebaileeisliableforconversion.Deliveryingoodfaithisnotconversionifthe
claimantpostssecuritywiththebaileeinanamountatleastdoublethevalueofthegoods
atthetimeofpostingtoindemnifyanypersoninjuredbythedeliverywhichfilesanotice
ofclaimwithinoneyearafterthedelivery.
7602.AttachmentofGoodsCoveredbyaNegotiableDocument.
Unlessadocumentoftitlewasoriginallyissuedupondeliveryofthegoodsbyapersonthat
didnothavepowertodisposeofthem,aliendoesnotattachbyvirtueofanyjudicial
processtogoodsinthepossessionofabaileeforwhichanegotiabledocumentoftitleis
outstandingunlesspossessionorcontrolofthedocumentisfirstsurrenderedtothebailee
orthedocument'snegotiationisenjoined.Thebaileemaynotbecompelledtodeliverthe
goodspursuanttoprocessuntilpossessionorcontrolofthedocumentissurrenderedto
thebaileeortothecourt.Apurchaserofthedocumentforvaluewithoutnoticeofthe
processorinjunctiontakesfreeofthelienimposedbyjudicialprocess.
7603.ConflictingClaims;Interpleader.
Ifmorethanonepersonclaimstitletoorpossessionofthegoods,thebaileeisexcused
fromdeliveryuntilthebaileehasareasonabletimetoascertainthevalidityoftheadverse
claimsortocommenceanactionforinterpleader.Thebaileemayassertaninterpleader
eitherindefendinganactionfornondeliveryofthegoodsorbyoriginalaction.
7701.EffectiveDate.
This[Act]takeseffecton______,20___.
7702.Repeals.
[ExistingArticle7]and[Section10104oftheUniformCommercialCode]arerepealed.
7703.Applicability.
This[Act]appliestoadocumentoftitlethatisissuedorabailmentthatarisesonorafter
theeffectivedateofthis[Act].This[Act]doesnotapplytoadocumentoftitlethatisissued
orabailmentthatarisesbeforetheeffectivedateofthis[Act]evenifthedocumentoftitle
orbailmentwouldbesubjecttothis[Act]ifthedocumentoftitlehadbeenissuedor
bailmenthadarisenaftertheeffectivedateofthis[Act].This[Act]doesnotapplytoaright
ofactionthathasaccruedbeforetheeffectivedateofthis[Act].
7704.SavingsClause.
Adocumentoftitleissuedorabailmentthatarisesbeforetheeffectivedateofthis[Act]
andtherights,obligations,andinterestsflowingfromthatdocumentorbailmentare
governedbyanystatuteorotherruleamendedorrepealedbythis[Act]asifamendment
[ 330 ]
orrepealhadnotoccurredandmaybeterminated,completed,consummated,orenforced
underthatstatuteorotherrule.
[ 331 ]
M.I.C.NOTES[UCCARTICLE7:DOCUMENTSOFTITLE]
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[ 341 ]
U.C.C.ARTICLE8INVESTMENTSECURITIES
PART1.SHORTTITLEANDGENERALMATTERS
8101.SHORTTITLE.
8102.DEFINITIONS.
8103.RULESFORDETERMININGWHETHERCERTAINOBLIGATIONSANDINTERESTS
ARESECURITIESORFINANCIALASSETS.
8104.ACQUISITIONOFSECURITYORFINANCIALASSETORINTERESTTHEREIN.
8105.NOTICEOFADVERSECLAIM.
8106.CONTROL.
8107.WHETHERINDORSEMENT,INSTRUCTION,ORENTITLEMENTORDERIS
EFFECTIVE.
8108.WARRANTIESINDIRECTHOLDING.
8109.WARRANTIESININDIRECTHOLDING.
8110.APPLICABILITY;CHOICEOFLAW.
8111.CLEARINGCORPORATIONRULES.
8112.CREDITOR'SLEGALPROCESS.
8113.STATUTEOFFRAUDSINAPPLICABLE.
8114.EVIDENTIARYRULESCONCERNINGCERTIFICATEDSECURITIES.
8115.SECURITIESINTERMEDIARYANDOTHERSNOTLIABLETOADVERSECLAIMANT.
8116.SECURITIESINTERMEDIARYASPURCHASERFORVALUE.
PART2.ISSUEANDISSUER
8201.ISSUER.
8202.ISSUER'SRESPONSIBILITYANDDEFENSES;NOTICEOFDEFECTORDEFENSE.
8203.STALENESSASNOTICEOFDEFECTORDEFENSE.
8204.EFFECTOFISSUER'SRESTRICTIONONTRANSFER.
8205.EFFECTOFUNAUTHORIZEDSIGNATUREONSECURITYCERTIFICATE.
8206.COMPLETIONORALTERATIONOFSECURITYCERTIFICATE.
8207.RIGHTSANDDUTIESOFISSUERWITHRESPECTTOREGISTEREDOWNERS.
8208.EFFECTOFSIGNATUREOFAUTHENTICATINGTRUSTEE,REGISTRAR,OR
TRANSFERAGENT.
8209.ISSUER'SLIEN.
8210.OVERISSUE.
PART3.TRANSFEROFCERTIFICATEDANDUNCERTIFICATEDSECURITIES
8301.DELIVERY.
8302.RIGHTSOFPURCHASER.
8303.PROTECTEDPURCHASER.
8304.INDORSEMENT.
8305.INSTRUCTION.
8306.EFFECTOFGUARANTEEINGSIGNATURE,INDORSEMENT,ORINSTRUCTION.
8307.PURCHASER'SRIGHTTOREQUISITESFORREGISTRATIONOFTRANSFER.
[ 342 ]
PART4.REGISTRATION
8401.DUTYOFISSUERTOREGISTERTRANSFER.
8402.ASSURANCETHATINDORSEMENTORINSTRUCTIONISEFFECTIVE.
8403.DEMANDTHATISSUERNOTREGISTERTRANSFER.
8404.WRONGFULREGISTRATION.
8405.REPLACEMENTOFLOST,DESTROYED,ORWRONGFULLYTAKENSECURITY
CERTIFICATE.
8406.OBLIGATIONTONOTIFYISSUEROFLOST,DESTROYED,ORWRONGFULLY
TAKENSECURITYCERTIFICATE.
8407.AUTHENTICATINGTRUSTEE,TRANSFERAGENT,ANDREGISTRAR.
PART5.SECURITYENTITLEMENTS
8501.SECURITIESACCOUNT;ACQUISITIONOFSECURITYENTITLEMENTFROM
SECURITIESINTERMEDIARY.
8502.ASSERTIONOFADVERSECLAIMAGAINSTENTITLEMENTHOLDER.
8503.PROPERTYINTERESTOFENTITLEMENTHOLDERINFINANCIALASSETHELDBY
8504.DUTYOFSECURITIESINTERMEDIARYTOMAINTAINFINANCIALASSET.
8505.DUTYOFSECURITIESINTERMEDIARYWITHRESPECTTOPAYMENTSAND
DISTRIBUTIONS.
8506.DUTYOFSECURITIESINTERMEDIARYTOEXERCISERIGHTSASDIRECTEDBY
ENTITLEMENTHOLDER.
8507.DUTYOFSECURITIESINTERMEDIARYTOCOMPLYWITHENTITLEMENTORDER.
8508.DUTYOFSECURITIESINTERMEDIARYTOCHANGEENTITLEMENTHOLDER'S
POSITIONTOOTHERFORMOFSECURITYHOLDING.
8509.SPECIFICATIONOFDUTIESOFSECURITIESINTERMEDIARYBYOTHERSTATUTE
ORREGULATION;MANNEROFPERFORMANCEOFDUTIESOFSECURITIES
INTERMEDIARYANDEXERCISEOFRIGHTSOFENTITLEMENTHOLDER.
8510.RIGHTSOFPURCHASEROFSECURITYENTITLEMENTFROMENTITLEMENT
HOLDER.
8511.PRIORITYAMONGSECURITYINTERESTSANDENTITLEMENTHOLDERS.
[ 343 ]
PART1.SHORTTITLEANDGENERALMATTERS
8101.SHORTTITLE.
ThisArticlemaybecitedasUniformCommercialCodeInvestmentSecurities.
8102.DEFINITIONS.
(a)InthisArticle:
(1)"Adverseclaim"meansaclaimthataclaimanthasapropertyinterestina
financialassetandthatitisaviolationoftherightsoftheclaimantforanother
persontohold,transfer,ordealwiththefinancialasset.
(2)"Bearerform,"asappliedtoacertificatedsecurity,meansaforminwhichthe
securityispayabletothebearerofthesecuritycertificateaccordingtoitstermsbut
notbyreasonofanindorsement.
(3)"Broker"meansapersondefinedasabrokerordealerunderthefederal
securitieslaws,butwithoutexcludingabankactinginthatcapacity.
(4)"Certificatedsecurity"meansasecuritythatisrepresentedbyacertificate.
(5)"Clearingcorporation"means:
(i)apersonthatisregisteredasa"clearingagency"underthefederal
securitieslaws;
(ii)afederalreservebank;or
(iii)anyotherpersonthatprovidesclearanceorsettlementserviceswith
respecttofinancialassetsthatwouldrequireittoregisterasaclearing
agencyunderthefederalsecuritieslawsbutforanexclusionorexemption
fromtheregistrationrequirement,ifitsactivitiesasaclearingcorporation,
includingpromulgationofrules,aresubjecttoregulationbyafederalorstate
governmentalauthority.
(6)"Communicate"meansto:
(i)sendasignedwriting;or
(ii)transmitinformationbyanymechanismagreeduponbythepersons
transmittingandreceivingtheinformation.
(7)"Entitlementholder"meansapersonidentifiedintherecordsofasecurities
intermediaryasthepersonhavingasecurityentitlementagainstthesecurities
intermediary.IfapersonacquiresasecurityentitlementbyvirtueofSection8
501(b)(2)or(3),thatpersonistheentitlementholder.
[ 344 ]
(8)"Entitlementorder"meansanotificationcommunicatedtoasecurities
intermediarydirectingtransferorredemptionofafinancialassettowhichthe
entitlementholderhasasecurityentitlement.
(9)"Financialasset,"exceptasotherwiseprovidedinSection8103,means:
(i)asecurity;
(ii)anobligationofapersonorashare,participation,orotherinterestina
personorinpropertyoranenterpriseofaperson,whichis,orisofatype,
dealtinortradedonfinancialmarkets,orwhichisrecognizedinanyareain
whichitisissuedordealtinasamediumforinvestment;or
(iii)anypropertythatisheldbyasecuritiesintermediaryforanotherperson
inasecuritiesaccountifthesecuritiesintermediaryhasexpresslyagreed
withtheotherpersonthatthepropertyistobetreatedasafinancialasset
underthisArticle.
Ascontextrequires,thetermmeanseithertheinterestitselforthemeansby
whichaperson'sclaimtoitisevidenced,includingacertificatedor
uncertificatedsecurity,asecuritycertificate,orasecurityentitlement.
(10)[reserved]
(11)"Indorsement"meansasignaturethataloneoraccompaniedbyotherwordsis
madeonasecuritycertificateinregisteredformoronaseparatedocumentforthe
purposeofassigning,transferring,orredeemingthesecurityorgrantingapowerto
assign,transfer,orredeemit.
(12)"Instruction"meansanotificationcommunicatedtotheissuerofan
uncertificatedsecuritywhichdirectsthatthetransferofthesecurityberegistered
orthatthesecurityberedeemed.
(13)"Registeredform,"asappliedtoacertificatedsecurity,meansaforminwhich:
(i)thesecuritycertificatespecifiesapersonentitledtothesecurity;and
(ii)atransferofthesecuritymayberegistereduponbooksmaintainedfor
thatpurposebyoronbehalfoftheissuer,orthesecuritycertificatesostates.
(14)"Securitiesintermediary"means:
(i)aclearingcorporation;or
(ii)aperson,includingabankorbroker,thatintheordinarycourseofits
businessmaintainssecuritiesaccountsforothersandisactinginthat
capacity.
[ 345 ]
(15)"Security,"exceptasotherwiseprovidedinSection8103,meansanobligation
ofanissuerorashare,participation,orotherinterestinanissuerorinpropertyor
anenterpriseofanissuer:
(i)whichisrepresentedbyasecuritycertificateinbearerorregisteredform,
orthetransferofwhichmayberegistereduponbooksmaintainedforthat
purposebyoronbehalfoftheissuer;
(ii)whichisoneofaclassorseriesorbyitstermsisdivisibleintoaclassor
seriesofshares,participations,interests,orobligations;and
(iii)which:
(A)is,orisofatype,dealtinortradedonsecuritiesexchangesor
securitiesmarkets;or
(B)isamediumforinvestmentandbyitstermsexpresslyprovides
thatitisasecuritygovernedbythisArticle.
(16)"Securitycertificate"meansacertificaterepresentingasecurity.
(17)"Securityentitlement"meanstherightsandpropertyinterestofan
entitlementholderwithrespecttoafinancialassetspecifiedinPart5.
(18)"Uncertificatedsecurity"meansasecuritythatisnotrepresentedbya
certificate.
AppropriatepersonSection8107
ControlSection8106
DeliverySection8301
InvestmentcompanysecuritySection8103
IssuerSection8201
OverissueSection8210
ProtectedpurchaserSection8303
SecuritiesaccountSection8501
(c)Inaddition,Article1containsgeneraldefinitionsandprinciplesofconstructionand
[ 346 ]
(d)Thecharacterizationofaperson,business,ortransactionforpurposesofthisArticle
doesnotdeterminethecharacterizationoftheperson,business,ortransactionfor
purposesofanyotherlaw,regulation,orrule.
8103.RULESFORDETERMININGWHETHERCERTAINOBLIGATIONSANDINTERESTSARE
SECURITIESORFINANCIALASSETS.
(a)Ashareorsimilarequityinterestissuedbyacorporation,businesstrust,jointstock
company,orsimilarentityisasecurity.
(b)An"investmentcompanysecurity"isasecurity."Investmentcompanysecurity"means
ashareorsimilarequityinterestissuedbyanentitythatisregisteredasaninvestment
companyunderthefederalinvestmentcompanylaws,aninterestinaunitinvestmenttrust
thatissoregistered,orafaceamountcertificateissuedbyafaceamountcertificate
companythatissoregistered.Investmentcompanysecuritydoesnotincludeaninsurance
policyorendowmentpolicyorannuitycontractissuedbyaninsurancecompany.
(c)Aninterestinapartnershiporlimitedliabilitycompanyisnotasecurityunlessitis
dealtinortradedonsecuritiesexchangesorinsecuritiesmarkets,itstermsexpressly
providethatitisasecuritygovernedbythisArticle,oritisaninvestmentcompany
security.However,aninterestinapartnershiporlimitedliabilitycompanyisafinancial
assetifitisheldinasecuritiesaccount.
(d)AwritingthatisasecuritycertificateisgovernedbythisArticleandnotbyArticle3,
eventhoughitalsomeetstherequirementsofthatArticle.However,anegotiable
instrumentgovernedbyArticle3isafinancialassetifitisheldinasecuritiesaccount.
(e)Anoptionorsimilarobligationissuedbyaclearingcorporationtoitsparticipantsisnot
asecurity,butisafinancialasset.
(f)Acommoditycontract,asdefinedinSection9102(a)(15),isnotasecurityorafinancial
asset.
(g)AdocumentoftitleisnotafinancialassetunlessSection8102(a)(9)(iii)applies.
8104.ACQUISITIONOFSECURITYORFINANCIALASSETORINTERESTTHEREIN.
(a)Apersonacquiresasecurityoraninteresttherein,underthisArticle,if:
(1)thepersonisapurchasertowhomasecurityisdeliveredpursuanttoSection8
301;or
(2)thepersonacquiresasecurityentitlementtothesecuritypursuanttoSection8
501.
(b)Apersonacquiresafinancialasset,otherthanasecurity,oraninteresttherein,under
thisArticle,ifthepersonacquiresasecurityentitlementtothefinancialasset.
[ 347 ]
(c)Apersonwhoacquiresasecurityentitlementtoasecurityorotherfinancialassethas
therightsspecifiedinPart5,butisapurchaserofanysecurity,securityentitlement,or
otherfinancialassetheldbythesecuritiesintermediaryonlytotheextentprovidedin
Section8503.
(d)Unlessthecontextshowsthatadifferentmeaningisintended,apersonwhois
requiredbyotherlaw,regulation,rule,oragreementtotransfer,deliver,present,
surrender,exchange,orotherwiseputinthepossessionofanotherpersonasecurityor
financialassetsatisfiesthatrequirementbycausingtheotherpersontoacquireaninterest
inthesecurityorfinancialassetpursuanttosubsection(a)or(b).
8105.NOTICEOFADVERSECLAIM.
(a)Apersonhasnoticeofanadverseclaimif:
(1)thepersonknowsoftheadverseclaim;
(2)thepersonisawareoffactssufficienttoindicatethatthereisasignificant
probabilitythattheadverseclaimexistsanddeliberatelyavoidsinformationthat
wouldestablishtheexistenceoftheadverseclaim;or
(3)thepersonhasaduty,imposedbystatuteorregulation,toinvestigatewhether
anadverseclaimexists,andtheinvestigationsorequiredwouldestablishthe
existenceoftheadverseclaim.
(b)Havingknowledgethatafinancialassetorinterestthereinisorhasbeentransferred
byarepresentativeimposesnodutyofinquiryintotherightfulnessofatransactionandis
notnoticeofanadverseclaim.However,apersonwhoknowsthatarepresentativehas
transferredafinancialassetorinterestthereininatransactionthatis,orwhoseproceeds
arebeingused,fortheindividualbenefitoftherepresentativeorotherwiseinbreachof
dutyhasnoticeofanadverseclaim.
(c)Anactoreventthatcreatesarighttoimmediateperformanceoftheprincipal
obligationrepresentedbyasecuritycertificateorsetsadateonorafterwhichthe
certificateistobepresentedorsurrenderedforredemptionorexchangedoesnotitself
constitutenoticeofanadverseclaimexceptinthecaseofatransfermorethan:
(1)oneyearafteradatesetforpresentmentorsurrenderforredemptionor
exchange;or
(2)sixmonthsafteradatesetforpaymentofmoneyagainstpresentationor
surrenderofthecertificate,ifmoneywasavailableforpaymentonthatdate.
(d)Apurchaserofacertificatedsecurityhasnoticeofanadverseclaimifthesecurity
certificate:
(1)whetherinbearerorregisteredform,hasbeenindorsed"forcollection"or"for
surrender"orforsomeotherpurposenotinvolvingtransfer;or
[ 348 ]
(2)isinbearerformandhasonitanunambiguousstatementthatitistheproperty
ofapersonotherthanthetransferor,butthemerewritingofanameonthe
certificateisnotsuchastatement.
(e)FilingofafinancingstatementunderArticle9isnotnoticeofanadverseclaimtoa
financialasset.
8106.CONTROL.
(a)Apurchaserhas"control"ofacertificatedsecurityinbearerformifthecertificated
securityisdeliveredtothepurchaser.
(b)Apurchaserhas"control"ofacertificatedsecurityinregisteredformifthecertificated
securityisdeliveredtothepurchaser,and:
(1)thecertificateisindorsedtothepurchaserorinblankbyaneffective
indorsement;or
(2)thecertificateisregisteredinthenameofthepurchaser,uponoriginalissueor
registrationoftransferbytheissuer.
(c)Apurchaserhas"control"ofanuncertificatedsecurityif:
(1)theuncertificatedsecurityisdeliveredtothepurchaser;or
(2)theissuerhasagreedthatitwillcomplywithinstructionsoriginatedbythe
purchaserwithoutfurtherconsentbytheregisteredowner.
(d)Apurchaserhas"control"ofasecurityentitlementif:
(1)thepurchaserbecomestheentitlementholder;or
(2)thesecuritiesintermediaryhasagreedthatitwillcomplywithentitlement
ordersoriginatedbythepurchaserwithoutfurtherconsentbytheentitlement
holder,or
(3)anotherpersonhascontrolofthesecurityentitlementonbehalfofthepurchaser
or,havingpreviouslyacquiredcontrolofthesecurityentitlement,acknowledges
thatithascontrolonbehalfofthepurchaser.
(e)Ifaninterestinasecurityentitlementisgrantedbytheentitlementholdertothe
entitlementholder'sownsecuritiesintermediary,thesecuritiesintermediaryhascontrol.
(f)Apurchaserwhohassatisfiedtherequirementsofsubsection(c)or(d)hascontrol
eveniftheregisteredownerinthecaseofsubsection(c)ortheentitlementholderinthe
caseofsubsection(d)retainstherighttomakesubstitutionsfortheuncertificatedsecurity
orsecurityentitlement,tooriginateinstructionsorentitlementorderstotheissueror
securitiesintermediary,orotherwisetodealwiththeuncertificatedsecurityorsecurity
entitlement.
[ 349 ]
(g)Anissuerorasecuritiesintermediarymaynotenterintoanagreementofthekind
describedinsubsection(c)(2)or(d)(2)withouttheconsentoftheregisteredowneror
entitlementholder,butanissuerorasecuritiesintermediaryisnotrequiredtoenterinto
suchanagreementeventhoughtheregisteredownerorentitlementholdersodirects.An
issuerorsecuritiesintermediarythathasenteredintosuchanagreementisnotrequiredto
confirmtheexistenceoftheagreementtoanotherpartyunlessrequestedtodosobythe
registeredownerorentitlementholder.
8107.WHETHERINDORSEMENT,INSTRUCTION,ORENTITLEMENTORDERISEFFECTIVE.
(a)"Appropriateperson"means:
(1)withrespecttoanindorsement,thepersonspecifiedbyasecuritycertificateor
byaneffectivespecialindorsementtobeentitledtothesecurity;
(2)withrespecttoaninstruction,theregisteredownerofanuncertificatedsecurity;
(3)withrespecttoanentitlementorder,theentitlementholder;
(4)ifthepersondesignatedinparagraph(1),(2),or(3)isdeceased,thedesignated
person'ssuccessortakingunderotherlaworthedesignatedperson'spersonal
representativeactingfortheestateofthedecedent;or
(5)ifthepersondesignatedinparagraph(1),(2),or(3)lackscapacity,the
designatedperson'sguardian,conservator,orothersimilarrepresentativewhohas
powerunderotherlawtotransferthesecurityorfinancialasset.
(b)Anindorsement,instruction,orentitlementorderiseffectiveif:
(1)itismadebytheappropriateperson;
(2)itismadebyapersonwhohaspowerunderthelawofagencytotransferthe
securityorfinancialassetonbehalfoftheappropriateperson,including,inthecase
ofaninstructionorentitlementorder,apersonwhohascontrolunderSection8
106(c)(2)or(d)(2);or
(3)theappropriatepersonhasratifieditorisotherwiseprecludedfromasserting
itsineffectiveness.
(c)Anindorsement,instruction,orentitlementordermadebyarepresentativeiseffective
evenif:
(1)therepresentativehasfailedtocomplywithacontrollinginstrumentorwiththe
lawoftheStatehavingjurisdictionoftherepresentativerelationship,includingany
lawrequiringtherepresentativetoobtaincourtapprovalofthetransaction;or
(2)therepresentative'sactioninmakingtheindorsement,instruction,or
entitlementorderorusingtheproceedsofthetransactionisotherwiseabreachof
duty.
[ 350 ]
(d)Ifasecurityisregisteredinthenameoforspeciallyindorsedtoapersondescribedasa
representative,orifasecuritiesaccountismaintainedinthenameofapersondescribedas
arepresentative,anindorsement,instruction,orentitlementordermadebythepersonis
effectiveeventhoughthepersonisnolongerservinginthedescribedcapacity.
(e)Effectivenessofanindorsement,instruction,orentitlementorderisdeterminedasof
thedatetheindorsement,instruction,orentitlementorderismade,andanindorsement,
instruction,orentitlementorderdoesnotbecomeineffectivebyreasonofanylaterchange
ofcircumstances.
8108.WARRANTIESINDIRECTHOLDING.
(a)Apersonwhotransfersacertificatedsecuritytoapurchaserforvaluewarrantstothe
purchaser,andanindorser,ifthetransferisbyindorsement,warrantstoanysubsequent
purchaser,that:
(1)thecertificateisgenuineandhasnotbeenmateriallyaltered;
(2)thetransferororindorserdoesnotknowofanyfactthatmightimpairthe
validityofthesecurity;
(3)thereisnoadverseclaimtothesecurity;
(4)thetransferdoesnotviolateanyrestrictionontransfer;
(5)ifthetransferisbyindorsement,theindorsementismadebyanappropriate
person,oriftheindorsementisbyanagent,theagenthasactualauthoritytoacton
behalfoftheappropriateperson;and
(6)thetransferisotherwiseeffectiveandrightful.
(b)Apersonwhooriginatesaninstructionforregistrationoftransferofanuncertificated
securitytoapurchaserforvaluewarrantstothepurchaserthat:
(1)theinstructionismadebyanappropriateperson,oriftheinstructionisbyan
agent,theagenthasactualauthoritytoactonbehalfoftheappropriateperson;
(2)thesecurityisvalid;
(3)thereisnoadverseclaimtothesecurity;and
(4)atthetimetheinstructionispresentedtotheissuer:
(i)thepurchaserwillbeentitledtotheregistrationoftransfer;
(ii)thetransferwillberegisteredbytheissuerfreefromallliens,security
interests,restrictions,andclaimsotherthanthosespecifiedinthe
instruction;
[ 351 ]
(iii)thetransferwillnotviolateanyrestrictionontransfer;and
(iv)therequestedtransferwillotherwisebeeffectiveandrightful.
(c)Apersonwhotransfersanuncertificatedsecuritytoapurchaserforvalueanddoesnot
originateaninstructioninconnectionwiththetransferwarrantsthat:
(1)theuncertificatedsecurityisvalid;
(2)thereisnoadverseclaimtothesecurity;
(3)thetransferdoesnotviolateanyrestrictionontransfer;and
(4)thetransferisotherwiseeffectiveandrightful.
(d)Apersonwhoindorsesasecuritycertificatewarrantstotheissuerthat:
(1)thereisnoadverseclaimtothesecurity;and
(2)theindorsementiseffective.
(e)Apersonwhooriginatesaninstructionforregistrationoftransferofanuncertificated
securitywarrantstotheissuerthat:
(1)theinstructioniseffective;and
(2)atthetimetheinstructionispresentedtotheissuerthepurchaserwillbe
entitledtotheregistrationoftransfer.
(f)Apersonwhopresentsacertificatedsecurityforregistrationoftransferorforpayment
orexchangewarrantstotheissuerthatthepersonisentitledtotheregistration,payment,
orexchange,butapurchaserforvalueandwithoutnoticeofadverseclaimstowhom
transferisregisteredwarrantsonlythatthepersonhasnoknowledgeofanyunauthorized
signatureinanecessaryindorsement.
(g)Ifapersonactsasagentofanotherindeliveringacertificatedsecuritytoapurchaser,
theidentityoftheprincipalwasknowntothepersontowhomthecertificatewas
delivered,andthecertificatedeliveredbytheagentwasreceivedbytheagentfromthe
principalorreceivedbytheagentfromanotherpersonatthedirectionoftheprincipal,the
persondeliveringthesecuritycertificatewarrantsonlythatthedeliveringpersonhas
authoritytoactfortheprincipalanddoesnotknowofanyadverseclaimtothecertificated
security.
(h)Asecuredpartywhoredeliversasecuritycertificatereceived,orafterpaymentandon
orderofthedebtordeliversthesecuritycertificatetoanotherperson,makesonlythe
warrantiesofanagentundersubsection(g).
(i)Exceptasotherwiseprovidedinsubsection(g),abrokeractingforacustomermakesto
theissuerandapurchaserthewarrantiesprovidedinsubsections(a)through(f).Abroker
[ 352 ]
thatdeliversasecuritycertificatetoitscustomer,orcausesitscustomertoberegisteredas
theownerofanuncertificatedsecurity,makestothecustomerthewarrantiesprovidedin
subsection(a)or(b),andhastherightsandprivilegesofapurchaserunderthissection.
Thewarrantiesofandinfavorofthebrokeractingasanagentareinadditiontoapplicable
warrantiesgivenbyandinfavorofthecustomer.
8109.WARRANTIESININDIRECTHOLDING.
(a)Apersonwhooriginatesanentitlementordertoasecuritiesintermediarywarrantsto
thesecuritiesintermediarythat:
(1)theentitlementorderismadebyanappropriateperson,oriftheentitlement
orderisbyanagent,theagenthasactualauthoritytoactonbehalfofthe
appropriateperson;and
(2)thereisnoadverseclaimtothesecurityentitlement.
(b)Apersonwhodeliversasecuritycertificatetoasecuritiesintermediaryforcredittoa
securitiesaccountororiginatesaninstructionwithrespecttoanuncertificatedsecurity
directingthattheuncertificatedsecuritybecreditedtoasecuritiesaccountmakestothe
securitiesintermediarythewarrantiesspecifiedinSection8108(a)or(b).
(c)Ifasecuritiesintermediarydeliversasecuritycertificatetoitsentitlementholderor
causesitsentitlementholdertoberegisteredastheownerofanuncertificatedsecurity,the
securitiesintermediarymakestotheentitlementholderthewarrantiesspecifiedinSection
8108(a)or(b).
8110.APPLICABILITY;CHOICEOFLAW.
(a)Thelocallawoftheissuer'sjurisdiction,asspecifiedinsubsection(d),governs:
(1)thevalidityofasecurity;
(2)therightsanddutiesoftheissuerwithrespecttoregistrationoftransfer;
(3)theeffectivenessofregistrationoftransferbytheissuer;
(4)whethertheissuerowesanydutiestoanadverseclaimanttoasecurity;and
(5)whetheranadverseclaimcanbeassertedagainstapersontowhomtransferofa
certificatedoruncertificatedsecurityisregisteredorapersonwhoobtainscontrol
ofanuncertificatedsecurity.
(b)Thelocallawofthesecuritiesintermediary'sjurisdiction,asspecifiedinsubsection(e),
governs:
(1)acquisitionofasecurityentitlementfromthesecuritiesintermediary;
[ 353 ]
(2)therightsanddutiesofthesecuritiesintermediaryandentitlementholder
arisingoutofasecurityentitlement;
(3)whetherthesecuritiesintermediaryowesanydutiestoanadverseclaimanttoa
securityentitlement;and
(4)whetheranadverseclaimcanbeassertedagainstapersonwhoacquiresa
securityentitlementfromthesecuritiesintermediaryorapersonwhopurchasesa
securityentitlementorinterestthereinfromanentitlementholder.
(c)Thelocallawofthejurisdictioninwhichasecuritycertificateislocatedatthetimeof
deliverygovernswhetheranadverseclaimcanbeassertedagainstapersontowhomthe
securitycertificateisdelivered.
(d)"Issuer'sjurisdiction"meansthejurisdictionunderwhichtheissuerofthesecurityis
organizedor,ifpermittedbythelawofthatjurisdiction,thelawofanotherjurisdiction
specifiedbytheissuer.AnissuerorganizedunderthelawofthisStatemayspecifythelaw
ofanotherjurisdictionasthelawgoverningthemattersspecifiedinsubsection(a)(2)
through(5).
(e)Thefollowingrulesdeterminea"securitiesintermediary'sjurisdiction"forpurposesof
thissection:
(1)Ifanagreementbetweenthesecuritiesintermediaryanditsentitlementholder
governingthesecuritiesaccountexpresslyprovidesthataparticularjurisdictionis
thesecuritiesintermediary'sjurisdictionforpurposesofthispart,thisarticle,or
thisact,thatjurisdictionisthesecuritiesintermediary'sjurisdiction.
(2)Ifparagraph(1)doesnotapplyandanagreementbetweenthesecurities
intermediaryanditsentitlementholderexpresslyprovidesthattheagreementis
governedbythelawofaparticularjurisdiction,thatjurisdictionisthesecurities
intermediary'sjurisdiction.
(3)Ifneitherparagraph(i)norparagraph(ii)appliesandanagreementbetween
thesecuritiesintermediaryanditsentitlementholdergoverningthesecurities
accountexpresslyprovidesthatthesecuritiesaccountismaintainedatanofficeina
particularjurisdiction,thatjurisdictionisthesecuritiesintermediary'sjurisdiction.
(4)Ifnoneoftheprecedingparagraphsapplies,thesecuritiesintermediary's
jurisdictionisthejurisdictioninwhichtheofficeidentifiedinanaccountstatement
astheofficeservingtheentitlementholder'saccountislocated.
(5)Ifnoneoftheprecedingparagraphsapplies,thesecuritiesintermediary's
jurisdictionisthejurisdictioninwhichthechiefexecutiveofficeofthesecurities
intermediaryislocated.
(f)Asecuritiesintermediary'sjurisdictionisnotdeterminedbythephysicallocationof
certificatesrepresentingfinancialassets,orbythejurisdictioninwhichisorganizedthe
issuerofthefinancialassetwithrespecttowhichanentitlementholderhasasecurity
[ 354 ]
entitlement,orbythelocationoffacilitiesfordataprocessingorotherrecordkeeping
concerningtheaccount.
8111.CLEARINGCORPORATIONRULES.
Aruleadoptedbyaclearingcorporationgoverningrightsandobligationsamongthe
clearingcorporationanditsparticipantsintheclearingcorporationiseffectiveevenifthe
ruleconflictswiththis[Act]andaffectsanotherpartywhodoesnotconsenttotherule.
8112.CREDITOR'SLEGALPROCESS.
(a)Theinterestofadebtorinacertificatedsecuritymaybereachedbyacreditoronlyby
actualseizureofthesecuritycertificatebytheofficermakingtheattachmentorlevy,
exceptasotherwiseprovidedinsubsection(d).However,acertificatedsecurityforwhich
thecertificatehasbeensurrenderedtotheissuermaybereachedbyacreditorbylegal
processupontheissuer.
(b)Theinterestofadebtorinanuncertificatedsecuritymaybereachedbyacreditoronly
bylegalprocessupontheissueratitschiefexecutiveofficeintheUnitedStates,exceptas
otherwiseprovidedinsubsection(d).
(c)Theinterestofadebtorinasecurityentitlementmaybereachedbyacreditoronlyby
legalprocessuponthesecuritiesintermediarywithwhomthedebtor'ssecuritiesaccount
ismaintained,exceptasotherwiseprovidedinsubsection(d).
(d)Theinterestofadebtorinacertificatedsecurityforwhichthecertificateisinthe
possessionofasecuredparty,orinanuncertificatedsecurityregisteredinthenameofa
securedparty,orasecurityentitlementmaintainedinthenameofasecuredparty,maybe
reachedbyacreditorbylegalprocessuponthesecuredparty.
(e)Acreditorwhosedebtoristheownerofacertificatedsecurity,uncertificatedsecurity,
orsecurityentitlementisentitledtoaidfromacourtofcompetentjurisdiction,by
injunctionorotherwise,inreachingthecertificatedsecurity,uncertificatedsecurity,or
securityentitlementorinsatisfyingtheclaimbymeansallowedatlaworinequityin
regardtopropertythatcannotreadilybereachedbyotherlegalprocess.
8113.STATUTEOFFRAUDSINAPPLICABLE.
Acontractormodificationofacontractforthesaleorpurchaseofasecurityisenforceable
whetherornotthereisawritingsignedorrecordauthenticatedbyapartyagainstwhom
enforcementissought,evenifthecontractormodificationisnotcapableofperformance
withinoneyearofitsmaking.
8114.EVIDENTIARYRULESCONCERNINGCERTIFICATEDSECURITIES.
Thefollowingrulesapplyinanactiononacertificatedsecurityagainsttheissuer:
(1)Unlessspecificallydeniedinthepleadings,eachsignatureonasecuritycertificateorin
anecessaryindorsementisadmitted.
[ 355 ]
(2)Iftheeffectivenessofasignatureisputinissue,theburdenofestablishing
effectivenessisonthepartyclaimingunderthesignature,butthesignatureispresumedto
begenuineorauthorized.
(3)Ifsignaturesonasecuritycertificateareadmittedorestablished,productionofthe
certificateentitlesaholdertorecoveronitunlessthedefendantestablishesadefenseora
defectgoingtothevalidityofthesecurity.
(4)Ifitisshownthatadefenseordefectexists,theplaintiffhastheburdenofestablishing
thattheplaintifforsomepersonunderwhomtheplaintiffclaimsisapersonagainstwhom
thedefenseordefectcannotbeasserted.
8115.SECURITIESINTERMEDIARYANDOTHERSNOTLIABLETOADVERSECLAIMANT.
Asecuritiesintermediarythathastransferredafinancialassetpursuanttoaneffective
entitlementorder,orabrokerorotheragentorbaileethathasdealtwithafinancialasset
atthedirectionofitscustomerorprincipal,isnotliabletoapersonhavinganadverse
claimtothefinancialasset,unlessthesecuritiesintermediary,orbrokerorotheragentor
bailee:
(1)tooktheactionafterithadbeenservedwithaninjunction,restrainingorder,or
otherlegalprocessenjoiningitfromdoingso,issuedbyacourtofcompetent
jurisdiction,andhadareasonableopportunitytoactontheinjunction,restraining
order,orotherlegalprocess;or
(2)actedincollusionwiththewrongdoerinviolatingtherightsoftheadverse
claimant;or
(3)inthecaseofasecuritycertificatethathasbeenstolen,actedwithnoticeofthe
adverseclaim.
8116.SECURITIESINTERMEDIARYASPURCHASERFORVALUE.
Asecuritiesintermediarythatreceivesafinancialassetandestablishesasecurity
entitlementtothefinancialassetinfavorofanentitlementholderisapurchaserforvalue
ofthefinancialasset.Asecuritiesintermediarythatacquiresasecurityentitlementtoa
financialassetfromanothersecuritiesintermediaryacquiresthesecurityentitlementfor
valueifthesecuritiesintermediaryacquiringthesecurityentitlementestablishesasecurity
entitlementtothefinancialassetinfavorofanentitlementholder.
PART2.ISSUEANDISSUER
8201.ISSUER.
(a)Withrespecttoanobligationonoradefensetoasecurity,an"issuer"includesaperson
that:
(1)placesorauthorizestheplacingofitsnameonasecuritycertificate,otherthan
asauthenticatingtrustee,registrar,transferagent,orthelike,toevidenceashare,
[ 356 ]
participation,orotherinterestinitspropertyorinanenterprise,ortoevidenceits
dutytoperformanobligationrepresentedbythecertificate;
(2)createsashare,participation,orotherinterestinitspropertyorinan
enterprise,orundertakesanobligation,thatisanuncertificatedsecurity;
(3)directlyorindirectlycreatesafractionalinterestinitsrightsorproperty,ifthe
fractionalinterestisrepresentedbyasecuritycertificate;or
(4)becomesresponsiblefor,orinplaceof,anotherpersondescribedasanissuerin
thissection.
(b)Withrespecttoanobligationonordefensetoasecurity,aguarantorisanissuertothe
extentofitsguaranty,whetherornotitsobligationisnotedonasecuritycertificate.
(c)Withrespecttoaregistrationofatransfer,issuermeansapersononwhosebehalf
transferbooksaremaintained.
8202.ISSUER'SRESPONSIBILITYANDDEFENSES;NOTICEOFDEFECTORDEFENSE.
(a)Evenagainstapurchaserforvalueandwithoutnotice,thetermsofacertificated
securityincludetermsstatedonthecertificateandtermsmadepartofthesecurityby
referenceonthecertificatetoanotherinstrument,indenture,ordocumentortoa
constitution,statute,ordinance,rule,regulation,order,orthelike,totheextenttheterms
referredtodonotconflictwithtermsstatedonthecertificate.Areferenceunderthis
subsectiondoesnotofitselfchargeapurchaserforvaluewithnoticeofadefectgoingto
thevalidityofthesecurity,evenifthecertificateexpresslystatesthatapersonacceptingit
admitsnotice.Thetermsofanuncertificatedsecurityincludethosestatedinany
instrument,indenture,ordocumentorinaconstitution,statute,ordinance,rule,regulation,
order,orthelike,pursuanttowhichthesecurityisissued.
(b)Thefollowingrulesapplyifanissuerassertsthatasecurityisnotvalid:
(1)Asecurityotherthanoneissuedbyagovernmentorgovernmentalsubdivision,
agency,orinstrumentality,eventhoughissuedwithadefectgoingtoitsvalidity,is
validinthehandsofapurchaserforvalueandwithoutnoticeoftheparticular
defectunlessthedefectinvolvesaviolationofaconstitutionalprovision.Inthat
case,thesecurityisvalidinthehandsofapurchaserforvalueandwithoutnoticeof
thedefect,otherthanonewhotakesbyoriginalissue.
(2)Paragraph(1)appliestoanissuerthatisagovernmentorgovernmental
subdivision,agency,orinstrumentalityonlyiftherehasbeensubstantial
compliancewiththelegalrequirementsgoverningtheissueortheissuerhas
receivedasubstantialconsiderationfortheissueasawholeorfortheparticular
securityandastatedpurposeoftheissueisoneforwhichtheissuerhaspowerto
borrowmoneyorissuethesecurity.
(c)ExceptasotherwiseprovidedinSection8205,lackofgenuinenessofacertificated
securityisacompletedefense,evenagainstapurchaserforvalueandwithoutnotice.
[ 357 ]
(d)Allotherdefensesoftheissuerofasecurity,includingnondeliveryandconditional
deliveryofacertificatedsecurity,areineffectiveagainstapurchaserforvaluewhohas
takenthecertificatedsecuritywithoutnoticeoftheparticulardefense.
(e)Thissectiondoesnotaffecttherightofapartytocancelacontractforasecurity"when,
asandifissued"or"whendistributed"intheeventofamaterialchangeinthecharacterof
thesecuritythatisthesubjectofthecontractorintheplanorarrangementpursuantto
whichthesecurityistobeissuedordistributed.
(f)Ifasecurityisheldbyasecuritiesintermediaryagainstwhomanentitlementholder
hasasecurityentitlementwithrespecttothesecurity,theissuermaynotassertany
defensethattheissuercouldnotassertiftheentitlementholderheldthesecuritydirectly.
8203.STALENESSASNOTICEOFDEFECTORDEFENSE.
Afteranactorevent,otherthanacallthathasbeenrevoked,creatingarighttoimmediate
performanceoftheprincipalobligationrepresentedbyacertificatedsecurityorsettinga
dateonorafterwhichthesecurityistobepresentedorsurrenderedforredemptionor
exchange,apurchaserischargedwithnoticeofanydefectinitsissueordefenseofthe
issuer,iftheactorevent:
(1)requiresthepaymentofmoney,thedeliveryofacertificatedsecurity,the
registrationoftransferofanuncertificatedsecurity,oranyofthemonpresentation
orsurrenderofthesecuritycertificate,themoneyorsecurityisavailableonthe
datesetforpaymentorexchange,andthepurchasertakesthesecuritymorethan
oneyearafterthatdate;or
(2)isnotcoveredbyparagraph(1)andthepurchasertakesthesecuritymorethan
twoyearsafterthedatesetforsurrenderorpresentationorthedateonwhich
performancebecamedue.
8204.EFFECTOFISSUER'SRESTRICTIONONTRANSFER.
Arestrictionontransferofasecurityimposedbytheissuer,evenifotherwiselawful,is
ineffectiveagainstapersonwithoutknowledgeoftherestrictionunless:
(1)thesecurityiscertificatedandtherestrictionisnotedconspicuouslyonthe
securitycertificate;or
(2)thesecurityisuncertificatedandtheregisteredownerhasbeennotifiedofthe
restriction.
8205.EFFECTOFUNAUTHORIZEDSIGNATUREONSECURITYCERTIFICATE.
Anunauthorizedsignatureplacedonasecuritycertificatebeforeorinthecourseofissueis
ineffective,butthesignatureiseffectiveinfavorofapurchaserforvalueofthecertificated
securityifthepurchaseriswithoutnoticeofthelackofauthorityandthesigninghasbeen
doneby:
[ 358 ]
(1)anauthenticatingtrustee,registrar,transferagent,orotherpersonentrustedby
theissuerwiththesigningofthesecuritycertificateorofsimilarsecurity
certificates,ortheimmediatepreparationforsigningofanyofthem;or
(2)anemployeeoftheissuer,orofanyofthepersonslistedinparagraph(1),
entrustedwithresponsiblehandlingofthesecuritycertificate.
8206.COMPLETIONORALTERATIONOFSECURITYCERTIFICATE.
(a)Ifasecuritycertificatecontainsthesignaturesnecessarytoitsissueortransferbutis
incompleteinanyotherrespect:
(1)anypersonmaycompleteitbyfillingintheblanksasauthorized;and
(2)eveniftheblanksareincorrectlyfilledin,thesecuritycertificateascompletedis
enforceablebyapurchaserwhotookitforvalueandwithoutnoticeofthe
incorrectness.
(b)Acompletesecuritycertificatethathasbeenimproperlyaltered,eveniffraudulently,
remainsenforceable,butonlyaccordingtoitsoriginalterms.
8207.RIGHTSANDDUTIESOFISSUERWITHRESPECTTOREGISTEREDOWNERS.
(a)Beforeduepresentmentforregistrationoftransferofacertificatedsecurityin
registeredformorofaninstructionrequestingregistrationoftransferofanuncertificated
security,theissuerorindenturetrusteemaytreattheregisteredownerastheperson
exclusivelyentitledtovote,receivenotifications,andotherwiseexercisealltherightsand
powersofanowner.
(b)ThisArticledoesnotaffecttheliabilityoftheregisteredownerofasecurityforacall,
assessment,orthelike.
8208.EFFECTOFSIGNATUREOFAUTHENTICATINGTRUSTEE,REGISTRAR,ORTRANSFER
AGENT.
(a)Apersonsigningasecuritycertificateasauthenticatingtrustee,registrar,transfer
agent,orthelike,warrantstoapurchaserforvalueofthecertificatedsecurity,ifthe
purchaseriswithoutnoticeofaparticulardefect,that:
(1)thecertificateisgenuine;
(2)theperson'sownparticipationintheissueofthesecurityiswithintheperson's
capacityandwithinthescopeoftheauthorityreceivedbythepersonfromthe
issuer;and
(3)thepersonhasreasonablegroundstobelievethatthecertificatedsecurityisin
theformandwithintheamounttheissuerisauthorizedtoissue.
[ 359 ]
(b)Unlessotherwiseagreed,apersonsigningundersubsection(a)doesnotassume
responsibilityforthevalidityofthesecurityinotherrespects.
8209.ISSUER'SLIEN.
Alieninfavorofanissueruponacertificatedsecurityisvalidagainstapurchaseronlyif
therightoftheissuertothelienisnotedconspicuouslyonthesecuritycertificate.
8210.OVERISSUE.
(a)Inthissection,"overissue"meanstheissueofsecuritiesinexcessoftheamountthe
issuerhascorporatepowertoissue,butanoverissuedoesnotoccurifappropriateaction
hascuredtheoverissue.
(b)Exceptasotherwiseprovidedinsubsections(c)and(d),theprovisionsofthisArticle
whichvalidateasecurityorcompelitsissueorreissuedonotapplytotheextentthat
validation,issue,orreissuewouldresultinoverissue.
(c)Ifanidenticalsecuritynotconstitutinganoverissueisreasonablyavailablefor
purchase,apersonentitledtoissueorvalidationmaycompeltheissuertopurchasethe
securityanddeliveritifcertificatedorregisteritstransferifuncertificated,against
surrenderofanysecuritycertificatethepersonholds.
(d)Ifasecurityisnotreasonablyavailableforpurchase,apersonentitledtoissueor
validationmayrecoverfromtheissuerthepricethepersonorthelastpurchaserforvalue
paidforitwithinterestfromthedateoftheperson'sdemand.
PART3.TRANSFEROFCERTIFICATEDANDUNCERTIFICATEDSECURITIES
8301.DELIVERY.
(a)Deliveryofacertificatedsecuritytoapurchaseroccurswhen:
(1)thepurchaseracquirespossessionofthesecuritycertificate;
(2)anotherperson,otherthanasecuritiesintermediary,eitheracquirespossession
ofthesecuritycertificateonbehalfofthepurchaseror,havingpreviouslyacquired
possessionofthecertificate,acknowledgesthatitholdsforthepurchaser;or
(3)asecuritiesintermediaryactingonbehalfofthepurchaseracquirespossession
ofthesecuritycertificate,onlyifthecertificateisinregisteredformandis(i)
registeredinthenameofthepurchaser,(ii)payabletotheorderofthepurchaser,
or(iii)speciallyindorsedtothepurchaserbyaneffectiveindorsementandhasnot
beenindorsedtothesecuritiesintermediaryorinblank.
(b)Deliveryofanuncertificatedsecuritytoapurchaseroccurswhen:
(1)theissuerregistersthepurchaserastheregisteredowner,uponoriginalissueor
registrationoftransfer;or
[ 360 ]
(2)anotherperson,otherthanasecuritiesintermediary,eitherbecomesthe
registeredowneroftheuncertificatedsecurityonbehalfofthepurchaseror,having
previouslybecometheregisteredowner,acknowledgesthatitholdsforthe
purchaser.
8302.RIGHTSOFPURCHASER.
(a)Exceptasotherwiseprovidedinsubsections(b)and(c),apurchaserofacertificatedor
uncertificatedsecurityacquiresallrightsinthesecuritythatthetransferorhadorhad
powertotransfer.
(b)Apurchaserofalimitedinterestacquiresrightsonlytotheextentoftheinterest
purchased.
(c)Apurchaserofacertificatedsecuritywhoasapreviousholderhadnoticeofanadverse
claimdoesnotimproveitspositionbytakingfromaprotectedpurchaser.
8303.PROTECTEDPURCHASER.
(a)"Protectedpurchaser"meansapurchaserofacertificatedoruncertificatedsecurity,or
ofaninteresttherein,who:
(1)givesvalue;
(2)doesnothavenoticeofanyadverseclaimtothesecurity;and
(3)obtainscontrolofthecertificatedoruncertificatedsecurity.
(b)Inadditiontoacquiringtherightsofapurchaser,aprotectedpurchaseralsoacquires
itsinterestinthesecurityfreeofanyadverseclaim.
8304.INDORSEMENT.
(a)Anindorsementmaybeinblankorspecial.Anindorsementinblankincludesan
indorsementtobearer.Aspecialindorsementspecifiestowhomasecurityistobe
transferredorwhohaspowertotransferit.Aholdermayconvertablankindorsementto
aspecialindorsement.
(b)Anindorsementpurportingtobeonlyofpartofasecuritycertificaterepresenting
unitsintendedbytheissuertobeseparatelytransferableiseffectivetotheextentofthe
indorsement.
(c)Anindorsement,whetherspecialorinblank,doesnotconstituteatransferuntil
deliveryofthecertificateonwhichitappearsor,iftheindorsementisonaseparate
document,untildeliveryofboththedocumentandthecertificate.
(d)Ifasecuritycertificateinregisteredformhasbeendeliveredtoapurchaserwithouta
necessaryindorsement,thepurchasermaybecomeaprotectedpurchaseronlywhenthe
indorsementissupplied.However,againstatransferor,atransferiscompleteupon
[ 361 ]
deliveryandthepurchaserhasaspecificallyenforceablerighttohaveanynecessary
indorsementsupplied.
(e)Anindorsementofasecuritycertificateinbearerformmaygivenoticeofanadverse
claimtothecertificate,butitdoesnototherwiseaffectarighttoregistrationthatthe
holderpossesses.
(f)Unlessotherwiseagreed,apersonmakinganindorsementassumesonlytheobligations
providedinSection8108andnotanobligationthatthesecuritywillbehonoredbythe
issuer.
8305.INSTRUCTION.
(a)Ifaninstructionhasbeenoriginatedbyanappropriatepersonbutisincompleteinany
otherrespect,anypersonmaycompleteitasauthorizedandtheissuermayrelyonitas
completed,eventhoughithasbeencompletedincorrectly.
(b)Unlessotherwiseagreed,apersoninitiatinganinstructionassumesonlythe
obligationsimposedbySection8108andnotanobligationthatthesecuritywillbe
honoredbytheissuer.
8306.EFFECTOFGUARANTEEINGSIGNATURE,INDORSEMENT,ORINSTRUCTION.
(a)Apersonwhoguaranteesasignatureofanindorserofasecuritycertificatewarrants
thatatthetimeofsigning:
(1)thesignaturewasgenuine;
(2)thesignerwasanappropriatepersontoindorse,orifthesignatureisbyan
agent,theagenthadactualauthoritytoactonbehalfoftheappropriateperson;and
(3)thesignerhadlegalcapacitytosign.
(b)Apersonwhoguaranteesasignatureoftheoriginatorofaninstructionwarrantsthat
atthetimeofsigning:
(1)thesignaturewasgenuine;
(2)thesignerwasanappropriatepersontooriginatetheinstruction,orifthe
signatureisbyanagent,theagenthadactualauthoritytoactonbehalfofthe
appropriateperson,ifthepersonspecifiedintheinstructionastheregistered
ownerwas,infact,theregisteredowner,astowhichfactthesignatureguarantor
doesnotmakeawarranty;and
(3)thesignerhadlegalcapacitytosign.
(c)Apersonwhospeciallyguaranteesthesignatureofanoriginatorofaninstruction
makesthewarrantiesofasignatureguarantorundersubsection(b)andalsowarrantsthat
atthetimetheinstructionispresentedtotheissuer:
[ 362 ]
(1)thepersonspecifiedintheinstructionastheregisteredownerofthe
uncertificatedsecuritywillbetheregisteredowner;and
(2)thetransferoftheuncertificatedsecurityrequestedintheinstructionwillbe
registeredbytheissuerfreefromallliens,securityinterests,restrictions,andclaims
otherthanthosespecifiedintheinstruction.
(d)Aguarantorundersubsections(a)and(b)oraspecialguarantorundersubsection(c)
doesnototherwisewarranttherightfulnessofthetransfer.
(e)Apersonwhoguaranteesanindorsementofasecuritycertificatemakesthewarranties
ofasignatureguarantorundersubsection(a)andalsowarrantstherightfulnessofthe
transferinallrespects.
(f)Apersonwhoguaranteesaninstructionrequestingthetransferofanuncertificated
securitymakesthewarrantiesofaspecialsignatureguarantorundersubsection(c)and
alsowarrantstherightfulnessofthetransferinallrespects.
(g)Anissuermaynotrequireaspecialguarantyofsignature,aguarantyofindorsement,
oraguarantyofinstructionasaconditiontoregistrationoftransfer.
(h)Thewarrantiesunderthissectionaremadetoapersontakingordealingwiththe
securityinrelianceontheguaranty,andtheguarantorisliabletothepersonforloss
resultingfromtheirbreach.Anindorserororiginatorofaninstructionwhosesignature,
indorsement,orinstructionhasbeenguaranteedisliabletoaguarantorforanyloss
sufferedbytheguarantorasaresultofbreachofthewarrantiesoftheguarantor.
8307.PURCHASER'SRIGHTTOREQUISITESFORREGISTRATIONOFTRANSFER.
Unlessotherwiseagreed,thetransferorofasecurityonduedemandshallsupplythe
purchaserwithproofofauthoritytotransferorwithanyotherrequisitenecessaryto
obtainregistrationofthetransferofthesecurity,butifthetransferisnotforvalue,a
transferorneednotcomplyunlessthepurchaserpaysthenecessaryexpenses.Ifthe
transferorfailswithinareasonabletimetocomplywiththedemand,thepurchasermay
rejectorrescindthetransfer.
PART4.REGISTRATION
8401.DUTYOFISSUERTOREGISTERTRANSFER.
(a)Ifacertificatedsecurityinregisteredformispresentedtoanissuerwitharequestto
registertransferoraninstructionispresentedtoanissuerwitharequesttoregister
transferofanuncertificatedsecurity,theissuershallregisterthetransferasrequestedif:
(1)underthetermsofthesecuritythepersonseekingregistrationoftransferis
eligibletohavethesecurityregisteredinitsname;
(2)theindorsementorinstructionismadebytheappropriatepersonorbyanagent
whohasactualauthoritytoactonbehalfoftheappropriateperson;
[ 363 ]
(3)reasonableassuranceisgiventhattheindorsementorinstructionisgenuineand
authorized(Section8402);
(4)anyapplicablelawrelatingtothecollectionoftaxeshasbeencompliedwith;
(5)thetransferdoesnotviolateanyrestrictionontransferimposedbytheissuerin
accordancewithSection8204;
(6)ademandthattheissuernotregistertransferhasnotbecomeeffectiveunder
Section8403,ortheissuerhascompliedwithSection8403(b)butnolegalprocess
orindemnitybondisobtainedasprovidedinSection8403(d);and
(7)thetransferisinfactrightfuloristoaprotectedpurchaser.
(b)Ifanissuerisunderadutytoregisteratransferofasecurity,theissuerisliabletoa
personpresentingacertificatedsecurityoraninstructionforregistrationortothe
person'sprincipalforlossresultingfromunreasonabledelayinregistrationorfailureor
refusaltoregisterthetransfer.
8402.ASSURANCETHATINDORSEMENTORINSTRUCTIONISEFFECTIVE.
(a)Anissuermayrequirethefollowingassurancethateachnecessaryindorsementor
eachinstructionisgenuineandauthorized:
(1)inallcases,aguarantyofthesignatureofthepersonmakinganindorsementor
originatinganinstructionincluding,inthecaseofaninstruction,reasonable
assuranceofidentity;
(2)iftheindorsementismadeortheinstructionisoriginatedbyanagent,
appropriateassuranceofactualauthoritytosign;
(3)iftheindorsementismadeortheinstructionisoriginatedbyafiduciary
pursuanttoSection8107(a)(4)or(a)(5),appropriateevidenceofappointmentor
incumbency;
(4)ifthereismorethanonefiduciary,reasonableassurancethatallwhoare
requiredtosignhavedoneso;and
(5)iftheindorsementismadeortheinstructionisoriginatedbyapersonnot
coveredbyanotherprovisionofthissubsection,assuranceappropriatetothecase
correspondingasnearlyasmaybetotheprovisionsofthissubsection.
(b)Anissuermayelecttorequirereasonableassurancebeyondthatspecifiedinthis
section.
(c)Inthissection:
[ 364 ]
(1)"Guarantyofthesignature"meansaguarantysignedbyoronbehalfofaperson
reasonablybelievedbytheissuertoberesponsible.Anissuermayadoptstandards
withrespecttoresponsibilityiftheyarenotmanifestlyunreasonable.
(2)"Appropriateevidenceofappointmentorincumbency"means:
(i)inthecaseofafiduciaryappointedorqualifiedbyacourt,acertificate
issuedbyorunderthedirectionorsupervisionofthecourtoranofficer
thereofanddatedwithin60daysbeforethedateofpresentationfortransfer;
or
(ii)inanyothercase,acopyofadocumentshowingtheappointmentora
certificateissuedbyoronbehalfofapersonreasonablybelievedbyanissuer
toberesponsibleor,intheabsenceofthatdocumentorcertificate,other
evidencetheissuerreasonablyconsidersappropriate.
8403.DEMANDTHATISSUERNOTREGISTERTRANSFER.
(a)Apersonwhoisanappropriatepersontomakeanindorsementororiginatean
instructionmaydemandthattheissuernotregistertransferofasecurityby
communicatingtotheissueranotificationthatidentifiestheregisteredownerandthe
issueofwhichthesecurityisapartandprovidesanaddressforcommunicationsdirected
tothepersonmakingthedemand.Thedemandiseffectiveonlyifitisreceivedbythe
issueratatimeandinamanneraffordingtheissuerreasonableopportunitytoactonit.
(b)Ifacertificatedsecurityinregisteredformispresentedtoanissuerwitharequestto
registertransferoraninstructionispresentedtoanissuerwitharequesttoregister
transferofanuncertificatedsecurityafterademandthattheissuernotregistertransfer
hasbecomeeffective,theissuershallpromptlycommunicateto(i)thepersonwhoinitiated
thedemandattheaddressprovidedinthedemandand(ii)thepersonwhopresentedthe
securityforregistrationoftransferorinitiatedtheinstructionrequestingregistrationof
transferanotificationstatingthat:
(1)thecertificatedsecurityhasbeenpresentedforregistrationoftransferorthe
instructionforregistrationoftransferoftheuncertificatedsecurityhasbeen
received;
(2)ademandthattheissuernotregistertransferhadpreviouslybeenreceived;and
(3)theissuerwillwithholdregistrationoftransferforaperiodoftimestatedinthe
notificationinordertoprovidethepersonwhoinitiatedthedemandanopportunity
toobtainlegalprocessoranindemnitybond.
(c)Theperioddescribedinsubsection(b)(3)maynotexceed30daysafterthedateof
communicationofthenotification.Ashorterperiodmaybespecifiedbytheissuerifitis
notmanifestlyunreasonable.
(d)Anissuerisnotliabletoapersonwhoinitiatedademandthattheissuernotregister
transferforanylossthepersonsuffersasaresultofregistrationofatransferpursuantto
[ 365 ]
aneffectiveindorsementorinstructionifthepersonwhoinitiatedthedemanddoesnot,
withinthetimestatedintheissuer'scommunication,either:
(1)obtainanappropriaterestrainingorder,injunction,orotherprocessfroma
courtofcompetentjurisdictionenjoiningtheissuerfromregisteringthetransfer;or
(2)filewiththeissueranindemnitybond,sufficientintheissuer'sjudgmentto
protecttheissuerandanytransferagent,registrar,orotheragentoftheissuer
involvedfromanylossitortheymaysufferbyrefusingtoregisterthetransfer.
(e)Thissectiondoesnotrelieveanissuerfromliabilityforregisteringtransferpursuantto
anindorsementorinstructionthatwasnoteffective.
8404.WRONGFULREGISTRATION.
(a)ExceptasotherwiseprovidedinSection8406,anissuerisliableforwrongful
registrationoftransferiftheissuerhasregisteredatransferofasecuritytoapersonnot
entitledtoit,andthetransferwasregistered:
(1)pursuanttoanineffectiveindorsementorinstruction;
(2)afterademandthattheissuernotregistertransferbecameeffectiveunder
Section8403(a)andtheissuerdidnotcomplywithSection8403(b);
(3)aftertheissuerhadbeenservedwithaninjunction,restrainingorder,orother
legalprocessenjoiningitfromregisteringthetransfer,issuedbyacourtof
competentjurisdiction,andtheissuerhadareasonableopportunitytoactonthe
injunction,restrainingorder,orotherlegalprocess;or
(4)byanissueractingincollusionwiththewrongdoer.
(b)Anissuerthatisliableforwrongfulregistrationoftransferundersubsection(a)on
demandshallprovidethepersonentitledtothesecuritywithalikecertificatedor
uncertificatedsecurity,andanypaymentsordistributionsthatthepersondidnotreceive
asaresultofthewrongfulregistration.Ifanoverissuewouldresult,theissuer'sliabilityto
providethepersonwithalikesecurityisgovernedbySection8210.
(c)Exceptasotherwiseprovidedinsubsection(a)orinalawrelatingtothecollectionof
taxes,anissuerisnotliabletoanownerorotherpersonsufferinglossasaresultofthe
registrationofatransferofasecurityifregistrationwasmadepursuanttoaneffective
indorsementorinstruction.
8405.REPLACEMENTOFLOST,DESTROYED,ORWRONGFULLYTAKENSECURITY
CERTIFICATE.
(a)Ifanownerofacertificatedsecurity,whetherinregisteredorbearerform,claimsthat
thecertificatehasbeenlost,destroyed,orwrongfullytaken,theissuershallissueanew
certificateiftheowner:
[ 366 ]
(1)sorequestsbeforetheissuerhasnoticethatthecertificatehasbeenacquiredby
aprotectedpurchaser;
(2)fileswiththeissuerasufficientindemnitybond;and
(3)satisfiesotherreasonablerequirementsimposedbytheissuer.
(b)If,aftertheissueofanewsecuritycertificate,aprotectedpurchaseroftheoriginal
certificatepresentsitforregistrationoftransfer,theissuershallregisterthetransfer
unlessanoverissuewouldresult.Inthatcase,theissuer'sliabilityisgovernedbySection8
210.Inadditiontoanyrightsontheindemnitybond,anissuermayrecoverthenew
certificatefromapersontowhomitwasissuedoranypersontakingunderthatperson,
exceptaprotectedpurchaser.
8406.OBLIGATIONTONOTIFYISSUEROFLOST,DESTROYED,ORWRONGFULLYTAKEN
SECURITYCERTIFICATE.
Ifasecuritycertificatehasbeenlost,apparentlydestroyed,orwrongfullytaken,andthe
ownerfailstonotifytheissuerofthatfactwithinareasonabletimeaftertheownerhas
noticeofitandtheissuerregistersatransferofthesecuritybeforereceivingnotification,
theownermaynotassertagainsttheissueraclaimforregisteringthetransferunder
Section8404oraclaimtoanewsecuritycertificateunderSection8405.
8407.AUTHENTICATINGTRUSTEE,TRANSFERAGENT,ANDREGISTRAR.
Apersonactingasauthenticatingtrustee,transferagent,registrar,orotheragentforan
issuerintheregistrationofatransferofitssecurities,intheissueofnewsecurity
certificatesoruncertificatedsecurities,orinthecancellationofsurrenderedsecurity
certificateshasthesameobligationtotheholderorownerofacertificatedor
uncertificatedsecuritywithregardtotheparticularfunctionsperformedastheissuerhas
inregardtothosefunctions.
PART5.SECURITYENTITLEMENTS
8501.SECURITIESACCOUNT;ACQUISITIONOFSECURITYENTITLEMENTFROM
(a)"Securitiesaccount"meansanaccounttowhichafinancialassetisormaybecredited
inaccordancewithanagreementunderwhichthepersonmaintainingtheaccount
undertakestotreatthepersonforwhomtheaccountismaintainedasentitledtoexercise
therightsthatcomprisethefinancialasset.
(b)Exceptasotherwiseprovidedinsubsections(d)and(e),apersonacquiresasecurity
entitlementifasecuritiesintermediary:
(1)indicatesbybookentrythatafinancialassethasbeencreditedtotheperson's
securitiesaccount;
[ 367 ]
(2)receivesafinancialassetfromthepersonoracquiresafinancialassetforthe
personand,ineithercase,acceptsitforcredittotheperson'ssecuritiesaccount;or
(3)becomesobligatedunderotherlaw,regulation,orruletocreditafinancialasset
totheperson'ssecuritiesaccount.
(c)Ifaconditionofsubsection(b)hasbeenmet,apersonhasasecurityentitlementeven
thoughthesecuritiesintermediarydoesnotitselfholdthefinancialasset.
(d)Ifasecuritiesintermediaryholdsafinancialassetforanotherperson,andthefinancial
assetisregisteredinthenameof,payabletotheorderof,orspeciallyindorsedtotheother
person,andhasnotbeenindorsedtothesecuritiesintermediaryorinblank,theother
personistreatedasholdingthefinancialassetdirectlyratherthanashavingasecurity
entitlementwithrespecttothefinancialasset.
(e)Issuanceofasecurityisnotestablishmentofasecurityentitlement.
8502.ASSERTIONOFADVERSECLAIMAGAINSTENTITLEMENTHOLDER.
Anactionbasedonanadverseclaimtoafinancialasset,whetherframedinconversion,
replevin,constructivetrust,equitablelien,orothertheory,maynotbeassertedagainsta
personwhoacquiresasecurityentitlementunderSection8501forvalueandwithout
noticeoftheadverseclaim.
8503.PROPERTYINTERESTOFENTITLEMENTHOLDERINFINANCIALASSETHELDBY
(a)Totheextentnecessaryforasecuritiesintermediarytosatisfyallsecurityentitlements
withrespecttoaparticularfinancialasset,allinterestsinthatfinancialassetheldbythe
securitiesintermediaryareheldbythesecuritiesintermediaryfortheentitlementholders,
arenotpropertyofthesecuritiesintermediary,andarenotsubjecttoclaimsofcreditorsof
thesecuritiesintermediary,exceptasotherwiseprovidedinSection8511.
(b)Anentitlementholder'spropertyinterestwithrespecttoaparticularfinancialasset
undersubsection(a)isaproratapropertyinterestinallinterestsinthatfinancialasset
heldbythesecuritiesintermediary,withoutregardtothetimetheentitlementholder
acquiredthesecurityentitlementorthetimethesecuritiesintermediaryacquiredthe
interestinthatfinancialasset.
(c)Anentitlementholder'spropertyinterestwithrespecttoaparticularfinancialasset
undersubsection(a)maybeenforcedagainstthesecuritiesintermediaryonlybyexercise
oftheentitlementholder'srightsunderSections8505through8508.
(d)Anentitlementholder'spropertyinterestwithrespecttoaparticularfinancialasset
undersubsection(a)maybeenforcedagainstapurchaserofthefinancialassetorinterest
thereinonlyif:
(1)insolvencyproceedingshavebeeninitiatedbyoragainstthesecurities
intermediary;
[ 368 ]
(2)thesecuritiesintermediarydoesnothavesufficientinterestsinthefinancial
assettosatisfythesecurityentitlementsofallofitsentitlementholderstothat
financialasset;
(3)thesecuritiesintermediaryviolateditsobligationsunderSection8504by
transferringthefinancialassetorinterestthereintothepurchaser;and
(4)thepurchaserisnotprotectedundersubsection(e).
Thetrusteeorotherliquidator,actingonbehalfofallentitlementholdershaving
securityentitlementswithrespecttoaparticularfinancialasset,mayrecoverthe
financialasset,orinteresttherein,fromthepurchaser.Ifthetrusteeorother
liquidatorelectsnottopursuethatright,anentitlementholderwhosesecurity
entitlementremainsunsatisfiedhastherighttorecoveritsinterestinthefinancial
assetfromthepurchaser.
(e)Anactionbasedontheentitlementholder'spropertyinterestwithrespecttoa
particularfinancialassetundersubsection(a),whetherframedinconversion,replevin,
constructivetrust,equitablelien,orothertheory,maynotbeassertedagainstany
purchaserofafinancialassetorinterestthereinwhogivesvalue,obtainscontrol,anddoes
notactincollusionwiththesecuritiesintermediaryinviolatingthesecurities
intermediary'sobligationsunderSection8504.
8504.DUTYOFSECURITIESINTERMEDIARYTOMAINTAINFINANCIALASSET.
(a)Asecuritiesintermediaryshallpromptlyobtainandthereaftermaintainafinancial
assetinaquantitycorrespondingtotheaggregateofallsecurityentitlementsithas
establishedinfavorofitsentitlementholderswithrespecttothatfinancialasset.The
securitiesintermediarymaymaintainthosefinancialassetsdirectlyorthroughoneor
moreothersecuritiesintermediaries.
(b)Excepttotheextentotherwiseagreedbyitsentitlementholder,asecurities
intermediarymaynotgrantanysecurityinterestsinafinancialassetitisobligatedto
maintainpursuanttosubsection(a).
(c)Asecuritiesintermediarysatisfiesthedutyinsubsection(a)if:
(1)thesecuritiesintermediaryactswithrespecttothedutyasagreeduponbythe
entitlementholderandthesecuritiesintermediary;or
(2)intheabsenceofagreement,thesecuritiesintermediaryexercisesduecarein
accordancewithreasonablecommercialstandardstoobtainandmaintainthe
financialasset.
(d)Thissectiondoesnotapplytoaclearingcorporationthatisitselftheobligorofan
optionorsimilarobligationtowhichitsentitlementholdershavesecurityentitlements.
[ 369 ]
8505.DUTYOFSECURITIESINTERMEDIARYWITHRESPECTTOPAYMENTSAND
DISTRIBUTIONS.
(a)Asecuritiesintermediaryshalltakeactiontoobtainapaymentordistributionmadeby
theissuerofafinancialasset.Asecuritiesintermediarysatisfiesthedutyif:
accordancewithreasonablecommercialstandardstoattempttoobtainthepayment
ordistribution.
(b)Asecuritiesintermediaryisobligatedtoitsentitlementholderforapaymentor
distributionmadebytheissuerofafinancialassetifthepaymentordistributionis
receivedbythesecuritiesintermediary.
8506.DUTYOFSECURITIESINTERMEDIARYTOEXERCISERIGHTSASDIRECTEDBY
ENTITLEMENTHOLDER.
Asecuritiesintermediaryshallexerciserightswithrespecttoafinancialassetifdirectedto
dosobyanentitlementholder.Asecuritiesintermediarysatisfiesthedutyif:
(2)intheabsenceofagreement,thesecuritiesintermediaryeitherplacesthe
entitlementholderinapositiontoexercisetherightsdirectlyorexercisesduecare
inaccordancewithreasonablecommercialstandardstofollowthedirectionofthe
entitlementholder.
8507.DUTYOFSECURITIESINTERMEDIARYTOCOMPLYWITHENTITLEMENTORDER.
(a)Asecuritiesintermediaryshallcomplywithanentitlementorderiftheentitlement
orderisoriginatedbytheappropriateperson,thesecuritiesintermediaryhashad
reasonableopportunitytoassureitselfthattheentitlementorderisgenuineand
authorized,andthesecuritiesintermediaryhashadreasonableopportunitytocomplywith
theentitlementorder.Asecuritiesintermediarysatisfiesthedutyif:
accordancewithreasonablecommercialstandardstocomplywiththeentitlement
order.
(b)Ifasecuritiesintermediarytransfersafinancialassetpursuanttoanineffective
entitlementorder,thesecuritiesintermediaryshallreestablishasecurityentitlementin
favorofthepersonentitledtoit,andpayorcreditanypaymentsordistributionsthatthe
[ 370 ]
persondidnotreceiveasaresultofthewrongfultransfer.Ifthesecuritiesintermediary
doesnotreestablishasecurityentitlement,thesecuritiesintermediaryisliabletothe
entitlementholderfordamages.
8508.DUTYOFSECURITIESINTERMEDIARYTOCHANGEENTITLEMENTHOLDER'S
POSITIONTOOTHERFORMOFSECURITYHOLDING.
Asecuritiesintermediaryshallactatthedirectionofanentitlementholdertochangea
securityentitlementintoanotheravailableformofholdingforwhichtheentitlement
holderiseligible,ortocausethefinancialassettobetransferredtoasecuritiesaccountof
theentitlementholderwithanothersecuritiesintermediary.Asecuritiesintermediary
satisfiesthedutyif:
(1)thesecuritiesintermediaryactsasagreeduponbytheentitlementholderand
thesecuritiesintermediary;or
accordancewithreasonablecommercialstandardstofollowthedirectionofthe
entitlementholder.
8509.SPECIFICATIONOFDUTIESOFSECURITIESINTERMEDIARYBYOTHERSTATUTEOR
REGULATION;MANNEROFPERFORMANCEOFDUTIESOFSECURITIESINTERMEDIARYAND
EXERCISEOFRIGHTSOFENTITLEMENTHOLDER.
(a)IfthesubstanceofadutyimposeduponasecuritiesintermediarybySections8504
through8508isthesubjectofotherstatute,regulation,orrule,compliancewiththat
statute,regulation,orrulesatisfiestheduty.
(b)Totheextentthatspecificstandardsfortheperformanceofthedutiesofasecurities
intermediaryortheexerciseoftherightsofanentitlementholderarenotspecifiedby
otherstatute,regulation,orruleorbyagreementbetweenthesecuritiesintermediaryand
entitlementholder,thesecuritiesintermediaryshallperformitsdutiesandtheentitlement
holdershallexerciseitsrightsinacommerciallyreasonablemanner.
(c)TheobligationofasecuritiesintermediarytoperformthedutiesimposedbySections
8504through8508issubjectto:
(1)rightsofthesecuritiesintermediaryarisingoutofasecurityinterestundera
securityagreementwiththeentitlementholderorotherwise;and
(2)rightsofthesecuritiesintermediaryunderotherlaw,regulation,rule,or
agreementtowithholdperformanceofitsdutiesasaresultofunfulfilledobligations
oftheentitlementholdertothesecuritiesintermediary.
(d)Sections8504through8508donotrequireasecuritiesintermediarytotakeany
actionthatisprohibitedbyotherstatute,regulation,orrule.
[ 371 ]
8510.RIGHTSOFPURCHASEROFSECURITYENTITLEMENTFROMENTITLEMENT
HOLDER.
(a)InacasenotcoveredbythepriorityrulesinArticle9ortherulesstatedinsubsection
(c),anactionbasedonanadverseclaimtoafinancialassetorsecurityentitlement,
whetherframedinconversion,replevin,constructivetrust,equitablelien,orothertheory,
maynotbeassertedagainstapersonwhopurchasesasecurityentitlement,oraninterest
therein,fromanentitlementholderifthepurchasergivesvalue,doesnothavenoticeofthe
adverseclaim,andobtainscontrol.
(b)Ifanadverseclaimcouldnothavebeenassertedagainstanentitlementholderunder
Section8502,theadverseclaimcannotbeassertedagainstapersonwhopurchasesa
securityentitlement,oraninteresttherein,fromtheentitlementholder.
(c)InacasenotcoveredbythepriorityrulesinArticle9,apurchaserforvalueofa
securityentitlement,oraninteresttherein,whoobtainscontrolhaspriorityovera
purchaserofasecurityentitlement,oraninteresttherein,whodoesnotobtaincontrol.
Exceptasotherwiseprovidedinsubsection(d),purchaserswhohavecontrolrank
accordingtopriorityintimeof:
(1)thepurchaser'sbecomingthepersonforwhomthesecuritiesaccount,inwhich
thesecurityentitlementiscarried,ismaintained,ifthepurchaserobtainedcontrol
underSection8106(d)(1);
(2)thesecuritiesintermediary'sagreementtocomplywiththepurchaser's
entitlementorderswithrespecttosecurityentitlementscarriedortobecarriedin
thesecuritiesaccountinwhichthesecurityentitlementiscarried,ifthepurchaser
obtainedcontrolunderSection8106(d)(2);or
(3)ifthepurchaserobtainedcontrolthroughanotherpersonunderSection8
106(d)(3),thetimeonwhichprioritywouldbebasedunderthissubsectionifthe
otherpersonwerethesecuredparty.
(d)Asecuritiesintermediaryaspurchaserhaspriorityoveraconflictingpurchaserwho
hascontrolunlessotherwiseagreedbythesecuritiesintermediary.
8511.PRIORITYAMONGSECURITYINTERESTSANDENTITLEMENTHOLDERS.
(a)Exceptasotherwiseprovidedinsubsections(b)and(c),ifasecuritiesintermediary
doesnothavesufficientinterestsinaparticularfinancialassettosatisfybothits
obligationstoentitlementholderswhohavesecurityentitlementstothatfinancialasset
anditsobligationtoacreditorofthesecuritiesintermediarywhohasasecurityinterestin
thatfinancialasset,theclaimsofentitlementholders,otherthanthecreditor,havepriority
overtheclaimofthecreditor.
(b)Aclaimofacreditorofasecuritiesintermediarywhohasasecurityinterestina
financialassetheldbyasecuritiesintermediaryhaspriorityoverclaimsofthesecurities
intermediary'sentitlementholderswhohavesecurityentitlementswithrespecttothat
financialassetifthecreditorhascontroloverthefinancialasset.
[ 372 ]
(c)Ifaclearingcorporationdoesnothavesufficientfinancialassetstosatisfybothits
obligationstoentitlementholderswhohavesecurityentitlementswithrespecttoa
financialassetanditsobligationtoacreditoroftheclearingcorporationwhohasasecurity
interestinthatfinancialasset,theclaimofthecreditorhaspriorityovertheclaimsof
entitlementholders.
PART6.TRANSITIONPROVISIONSFORREVISEDARTICLE8ANDCONFORMING
AMENDMENTSTOARTICLES1,4,5,9,AND10
8601.EFFECTIVEDATE.
This[Act]takeseffect....
8602.REPEALS.
This[Act]repeals....
8603.SAVINGSCLAUSE.
(a)This[Act]doesnotaffectanactionorproceedingcommencedbeforethis[Act]takes
effect.
(b)Ifasecurityinterestinasecurityisperfectedatthedatethis[Act]takeseffect,andthe
actionbywhichthesecurityinterestwasperfectedwouldsufficetoperfectasecurity
interestunderthis[Act],nofurtheractionisrequiredtocontinueperfection.Ifasecurity
interestinasecurityisperfectedatthedatethis[Act]takeseffectbuttheactionbywhich
thesecurityinterestwasperfectedwouldnotsufficetoperfectasecurityinterestunder
this[Act],thesecurityinterestremainsperfectedforaperiodoffourmonthsafterthe
effectivedateandcontinuesperfectedthereafterifappropriateactiontoperfectunderthis
[Act]istakenwithinthatperiod.Ifasecurityinterestisperfectedatthedatethis[Act]
takeseffectandthesecurityinterestcanbeperfectedbyfilingunderthis[Act],afinancing
statementsignedbythesecuredpartyinsteadofthedebtormaybefiledwithinthatperiod
tocontinueperfectionorthereaftertoperfect.
[ 373 ]
M.I.C.NOTES[UCCARTICLE8:INVESTMENTSECURITIES]
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[ 383 ]
U.C.C.ARTICLE9SECUREDTRANSACTIONS
[Subpart1.ShortTitle,Definitions,andGeneralConcepts]
9101.SHORTTITLE.
9103.PURCHASEMONEYSECURITYINTEREST;APPLICATIONOFPAYMENTS;BURDEN
OFESTABLISHING.
9104.CONTROLOFDEPOSITACCOUNT.
9105.CONTROLOFELECTRONICCHATTELPAPER.
9106.CONTROLOFINVESTMENTPROPERTY.
9107.CONTROLOFLETTEROFCREDITRIGHT.
9108.SUFFICIENCYOFDESCRIPTION.
[Subpart2.ApplicabilityofArticle]
9109.SCOPE.
9110.SECURITYINTERESTSARISINGUNDERARTICLE2OR2A.
PART2.EFFECTIVENESSOFSECURITYAGREEMENT;ATTACHMENTOFSECURITY
INTEREST;RIGHTSOFPARTIESTOSECURITYAGREEMENT
[Subpart1.EffectivenessandAttachment]
9201.GENERALEFFECTIVENESSOFSECURITYAGREEMENT.
9202.TITLETOCOLLATERALIMMATERIAL.
9203.ATTACHMENTANDENFORCEABILITYOFSECURITYINTEREST;PROCEEDS;
SUPPORTINGOBLIGATIONS;FORMALREQUISITES.
9204.AFTERACQUIREDPROPERTY;FUTUREADVANCES.
9205.USEORDISPOSITIONOFCOLLATERALPERMISSIBLE.
9206.SECURITYINTERESTARISINGINPURCHASEORDELIVERYOFFINANCIALASSET.
[Subpart2.RightsandDuties]
9207.RIGHTSANDDUTIESOFSECUREDPARTYHAVINGPOSSESSIONORCONTROLOF
COLLATERAL.
9208.ADDITIONALDUTIESOFSECUREDPARTYHAVINGCONTROLOFCOLLATERAL.
9209.DUTIESOFSECUREDPARTYIFACCOUNTDEBTORHASBEENNOTIFIEDOF
ASSIGNMENT.
9210.REQUESTFORACCOUNTING;REQUESTREGARDINGLISTOFCOLLATERALOR
STATEMENTOFACCOUNT.
PART3.PERFECTIONANDPRIORITY
[Subpart1.LawGoverningPerfectionandPriority]
[ 384 ]
9301.LAWGOVERNINGPERFECTIONANDPRIORITYOFSECURITYINTERESTS.
9302.LAWGOVERNINGPERFECTIONANDPRIORITYOFAGRICULTURALLIENS.
9303.LAWGOVERNINGPERFECTIONANDPRIORITYOFSECURITYINTERESTSIN
GOODSCOVEREDBYACERTIFICATEOFTITLE.
DEPOSITACCOUNTS.
INVESTMENTPROPERTY.
LETTEROFCREDITRIGHTS.
9307.LOCATIONOFDEBTOR.
9308.WHENSECURITYINTERESTORAGRICULTURALLIENISPERFECTED;
CONTINUITYOFPERFECTION.
9309.SECURITYINTERESTPERFECTEDUPONATTACHMENT.
9310.WHENFILINGREQUIREDTOPERFECTSECURITYINTERESTORAGRICULTURAL
LIEN;SECURITYINTERESTSANDAGRICULTURALLIENSTOWHICHFILINGPROVISIONS
DONOTAPPLY.
9311.PERFECTIONOFSECURITYINTERESTSINPROPERTYSUBJECTTOCERTAIN
STATUTES,REGULATIONS,ANDTREATIES.
9312.PERFECTIONOFSECURITYINTERESTSINCHATTELPAPER,DEPOSITACCOUNTS,
DOCUMENTS,GOODSCOVEREDBYDOCUMENTS,INSTRUMENTS,INVESTMENT
PROPERTY,LETTEROFCREDITRIGHTS,ANDMONEY;PERFECTIONBYPERMISSIVE
FILING;TEMPORARYPERFECTIONWITHOUTFILINGORTRANSFEROFPOSSESSION.
9313.WHENPOSSESSIONBYORDELIVERYTOSECUREDPARTYPERFECTSSECURITY
INTERESTWITHOUTFILING.
9314.PERFECTIONBYCONTROL.
9315.SECUREDPARTY'SRIGHTSONDISPOSITIONOFCOLLATERALANDINPROCEEDS.
9316.CONTINUEDPERFECTIONOFSECURITYINTERESTFOLLOWINGCHANGEIN
GOVERNINGLAW.
[Subpart3.Priority]
9317.INTERESTSTHATTAKEPRIORITYOVERORTAKEFREEOFUNPERFECTED
SECURITYINTERESTORAGRICULTURALLIEN.
9318.NOINTERESTRETAINEDINRIGHTTOPAYMENTTHATISSOLD;RIGHTSAND
TITLEOFSELLEROFACCOUNTORCHATTELPAPERWITHRESPECTTOCREDITORSAND
PURCHASERS.
9319.RIGHTSANDTITLEOFCONSIGNEEWITHRESPECTTOCREDITORSAND
PURCHASERS.
9320.BUYEROFGOODS.
9321.LICENSEEOFGENERALINTANGIBLEANDLESSEEOFGOODSINORDINARY
COURSEOFBUSINESS.
9322.PRIORITIESAMONGCONFLICTINGSECURITYINTERESTSINAND
AGRICULTURALLIENSONSAMECOLLATERAL.
9323.FUTUREADVANCES.
9324.PRIORITYOFPURCHASEMONEYSECURITYINTERESTS.
9325.PRIORITYOFSECURITYINTERESTSINTRANSFERREDCOLLATERAL.
9326.PRIORITYOFSECURITYINTERESTSCREATEDBYNEWDEBTOR.
9327.PRIORITYOFSECURITYINTERESTSINDEPOSITACCOUNT.
[ 385 ]
9328.PRIORITYOFSECURITYINTERESTSININVESTMENTPROPERTY.
9329.PRIORITYOFSECURITYINTERESTSINLETTEROFCREDITRIGHT.
9330.PRIORITYOFPURCHASEROFCHATTELPAPERORINSTRUMENT.
9331.PRIORITYOFRIGHTSOFPURCHASERSOFINSTRUMENTS,DOCUMENTS,AND
SECURITIESUNDEROTHERARTICLES;PRIORITYOFINTERESTSINFINANCIALASSETS
ANDSECURITYENTITLEMENTSUNDERARTICLE8.
9332.TRANSFEROFMONEY;TRANSFEROFFUNDSFROMDEPOSITACCOUNT.
9333.PRIORITYOFCERTAINLIENSARISINGBYOPERATIONOFLAW.
9334.PRIORITYOFSECURITYINTERESTSINFIXTURESANDCROPS.
9335.ACCESSIONS.
9336.COMMINGLEDGOODS.
9337.PRIORITYOFSECURITYINTERESTSINGOODSCOVEREDBYCERTIFICATEOF
TITLE.
9338.PRIORITYOFSECURITYINTERESTORAGRICULTURALLIENPERFECTEDBY
FILEDFINANCINGSTATEMENTPROVIDINGCERTAININCORRECTINFORMATION.
9339.PRIORITYSUBJECTTOSUBORDINATION.
[Subpart4.RightsofBank]
9340.EFFECTIVENESSOFRIGHTOFRECOUPMENTORSETOFFAGAINSTDEPOSIT
ACCOUNT.
9341.BANK'SRIGHTSANDDUTIESWITHRESPECTTODEPOSITACCOUNT.
9342.BANK'SRIGHTTOREFUSETOENTERINTOORDISCLOSEEXISTENCEOF
CONTROLAGREEMENT.
PART4.RIGHTSOFTHIRDPARTIES
9401.ALIENABILITYOFDEBTOR'SRIGHTS.
9402.SECUREDPARTYNOTOBLIGATEDONCONTRACTOFDEBTORORINTORT.
9403.AGREEMENTNOTTOASSERTDEFENSESAGAINSTASSIGNEE.
9404.RIGHTSACQUIREDBYASSIGNEE;CLAIMSANDDEFENSESAGAINSTASSIGNEE.
9405.MODIFICATIONOFASSIGNEDCONTRACT.
9406.DISCHARGEOFACCOUNTDEBTOR;NOTIFICATIONOFASSIGNMENT;
IDENTIFICATIONANDPROOFOFASSIGNMENT;RESTRICTIONSONASSIGNMENTOF
ACCOUNTS,CHATTELPAPER,PAYMENTINTANGIBLES,ANDPROMISSORYNOTES
INEFFECTIVE.
9407.RESTRICTIONSONCREATIONORENFORCEMENTOFSECURITYINTERESTIN
LEASEHOLDINTERESTORINLESSOR'SRESIDUALINTEREST.
9408.RESTRICTIONSONASSIGNMENTOFPROMISSORYNOTES,HEALTHCARE
INSURANCERECEIVABLES,ANDCERTAINGENERALINTANGIBLESINEFFECTIVE.
9409.RESTRICTIONSONASSIGNMENTOFLETTEROFCREDITRIGHTSINEFFECTIVE.
PART5.FILING
[Subpart1.FilingOffice;ContentsandEffectivenessofFinancingStatement]
9501.FILINGOFFICE.
9502.CONTENTSOFFINANCINGSTATEMENT;RECORDOFMORTGAGEASFINANCING
STATEMENT;TIMEOFFILINGFINANCINGSTATEMENT.
[ 386 ]
9503.NAMEOFDEBTORANDSECUREDPARTY.
9504.INDICATIONOFCOLLATERAL.
9505.FILINGANDCOMPLIANCEWITHOTHERSTATUTESANDTREATIESFOR
CONSIGNMENTS,LEASES,OTHERBAILMENTS,ANDOTHERTRANSACTIONS.
9506.EFFECTOFERRORSOROMISSIONS.
9507.EFFECTOFCERTAINEVENTSONEFFECTIVENESSOFFINANCINGSTATEMENT.
9508.EFFECTIVENESSOFFINANCINGSTATEMENTIFNEWDEBTORBECOMESBOUND
BYSECURITYAGREEMENT.
9509.PERSONSENTITLEDTOFILEARECORD.
9510.EFFECTIVENESSOFFILEDRECORD.
9511.SECUREDPARTYOFRECORD.
9512.AMENDMENTOFFINANCINGSTATEMENT.
9513.TERMINATIONSTATEMENT.
9514.ASSIGNMENTOFPOWERSOFSECUREDPARTYOFRECORD.
9515.DURATIONANDEFFECTIVENESSOFFINANCINGSTATEMENT;EFFECTOF
LAPSEDFINANCINGSTATEMENT.
9516.WHATCONSTITUTESFILING;EFFECTIVENESSOFFILING.
9517.EFFECTOFINDEXINGERRORS.
9518.CLAIMCONCERNINGINACCURATEORWRONGFULLYFILEDRECORD.
[Subpart2.DutiesandOperationofFilingOffice]
9519.NUMBERING,MAINTAINING,ANDINDEXINGRECORDS;COMMUNICATING
INFORMATIONPROVIDEDINRECORDS.
9520.ACCEPTANCEANDREFUSALTOACCEPTRECORD.
9521.UNIFORMFORMOFWRITTENFINANCINGSTATEMENTANDAMENDMENT.
9522.MAINTENANCEANDDESTRUCTIONOFRECORDS.
9523.INFORMATIONFROMFILINGOFFICE;SALEORLICENSEOFRECORDS.
9524.DELAYBYFILINGOFFICE.
9525.FEES.
9526.FILINGOFFICERULES.
9527.DUTYTOREPORT.
PART6.DEFAULT
[Subpart1.DefaultandEnforcementofSecurityInterest]
9601.RIGHTSAFTERDEFAULT;JUDICIALENFORCEMENT;CONSIGNORORBUYEROF
ACCOUNTS,CHATTELPAPER,PAYMENTINTANGIBLES,ORPROMISSORYNOTES.
9602.WAIVERANDVARIANCEOFRIGHTSANDDUTIES.
9603.AGREEMENTONSTANDARDSCONCERNINGRIGHTSANDDUTIES.
9604.PROCEDUREIFSECURITYAGREEMENTCOVERSREALPROPERTYORFIXTURES.
9605.UNKNOWNDEBTORORSECONDARYOBLIGOR.
9606.TIMEOFDEFAULTFORAGRICULTURALLIEN.
9607.COLLECTIONANDENFORCEMENTBYSECUREDPARTY.
9608.APPLICATIONOFPROCEEDSOFCOLLECTIONORENFORCEMENT;LIABILITYFOR
DEFICIENCYANDRIGHTTOSURPLUS.
9609.SECUREDPARTY'SRIGHTTOTAKEPOSSESSIONAFTERDEFAULT.
9610.DISPOSITIONOFCOLLATERALAFTERDEFAULT.
[ 387 ]
9611.NOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL.
9612.TIMELINESSOFNOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL.
9613.CONTENTSANDFORMOFNOTIFICATIONBEFOREDISPOSITIONOF
COLLATERAL:GENERAL.
9614.CONTENTSANDFORMOFNOTIFICATIONBEFOREDISPOSITIONOF
COLLATERAL:CONSUMERGOODSTRANSACTION.
9615.APPLICATIONOFPROCEEDSOFDISPOSITION;LIABILITYFORDEFICIENCYAND
RIGHTTOSURPLUS.
9616.EXPLANATIONOFCALCULATIONOFSURPLUSORDEFICIENCY.
9617.RIGHTSOFTRANSFEREEOFCOLLATERAL.
9618.RIGHTSANDDUTIESOFCERTAINSECONDARYOBLIGORS.
9619.TRANSFEROFRECORDORLEGALTITLE.
9620.ACCEPTANCEOFCOLLATERALINFULLORPARTIALSATISFACTIONOF
OBLIGATION;COMPULSORYDISPOSITIONOFCOLLATERAL.
9621.NOTIFICATIONOFPROPOSALTOACCEPTCOLLATERAL.
9622.EFFECTOFACCEPTANCEOFCOLLATERAL.
9623.RIGHTTOREDEEMCOLLATERAL.
9624.WAIVER.
[Subpart2.NoncompliancewithArticle]
9625.REMEDIESFORSECUREDPARTY'SFAILURETOCOMPLYWITHARTICLE.
9626.ACTIONINWHICHDEFICIENCYORSURPLUSISINISSUE.
9627.DETERMINATIONOFWHETHERCONDUCTWASCOMMERCIALLYREASONABLE.
9628.NONLIABILITYANDLIMITATIONONLIABILITYOFSECUREDPARTY;LIABILITY
OFSECONDARYOBLIGOR.
PART7.TRANSITION
9701.EFFECTIVEDATE.
9702.SAVINGSCLAUSE.
9703.SECURITYINTERESTPERFECTEDBEFOREEFFECTIVEDATE.
9704.SECURITYINTERESTUNPERFECTEDBEFOREEFFECTIVEDATE.
9705.EFFECTIVENESSOFACTIONTAKENBEFOREEFFECTIVEDATE.
9706.WHENINITIALFINANCINGSTATEMENTSUFFICESTOCONTINUE
EFFECTIVENESSOFFINANCINGSTATEMENT.
9707.AMENDMENTOFPREEFFECTIVEDATEFINANCINGSTATEMENT.
9708.PERSONSENTITLEDTOFILEINITIALFINANCINGSTATEMENTOR
CONTINUATIONSTATEMENT.
9709.PRIORITY.
[ 388 ]
[Subpart1.ShortTitle,Definitions,andGeneralConcepts]
9101.SHORTTITLE.
ThisarticlemaybecitedasUniformCommercialCodeSecuredTransactions.
(a)[Article9definitions.]
Inthisarticle:
(1)"Accession"meansgoodsthatarephysicallyunitedwithothergoodsinsucha
mannerthattheidentityoftheoriginalgoodsisnotlost.
(2)"Account",exceptasusedin"accountfor",meansarighttopaymentofa
monetaryobligation,whetherornotearnedbyperformance,(i)forpropertythat
hasbeenoristobesold,leased,licensed,assigned,orotherwisedisposedof,(ii)for
servicesrenderedortoberendered,(iii)forapolicyofinsuranceissuedortobe
issued,(iv)forasecondaryobligationincurredortobeincurred,(v)forenergy
providedortobeprovided,(vi)fortheuseorhireofavesselunderacharteror
othercontract,(vii)arisingoutoftheuseofacreditorchargecardorinformation
containedonorforusewiththecard,or(viii)aswinningsinalotteryorothergame
ofchanceoperatedorsponsoredbyaState,governmentalunitofaState,orperson
licensedorauthorizedtooperatethegamebyaStateorgovernmentalunitofa
State.Thetermincludeshealthcareinsurancereceivables.Thetermdoesnot
include(i)rightstopaymentevidencedbychattelpaperoraninstrument,(ii)
commercialtortclaims,(iii)depositaccounts,(iv)investmentproperty,(v)letter
ofcreditrightsorlettersofcredit,or(vi)rightstopaymentformoneyorfunds
advancedorsold,otherthanrightsarisingoutoftheuseofacreditorchargecard
orinformationcontainedonorforusewiththecard.
(3)"Accountdebtor"meansapersonobligatedonanaccount,chattelpaper,or
generalintangible.Thetermdoesnotincludepersonsobligatedtopayanegotiable
instrument,eveniftheinstrumentconstitutespartofchattelpaper.
(4)"Accounting",exceptasusedin"accountingfor",meansarecord:
(A)authenticatedbyasecuredparty;
(B)indicatingtheaggregateunpaidsecuredobligationsasofadatenotmore
than35daysearlieror35dayslaterthanthedateoftherecord;and
(C)identifyingthecomponentsoftheobligationsinreasonabledetail.
(5)"Agriculturallien"meansaninterest,otherthanasecurityinterest,infarm
products:
[ 389 ]
(A)whichsecurespaymentorperformanceofanobligationfor:
(i)goodsorservicesfurnishedinconnectionwithadebtor'sfarming
operation;or
(ii)rentonrealpropertyleasedbyadebtorinconnectionwithits
farmingoperation;
(B)whichiscreatedbystatuteinfavorofapersonthat:
(i)intheordinarycourseofitsbusinessfurnishedgoodsorservices
toadebtorinconnectionwithadebtor'sfarmingoperation;or
(ii)leasedrealpropertytoadebtorinconnectionwiththedebtor's
farmingoperation;and
(C)whoseeffectivenessdoesnotdependontheperson'spossessionofthe
personalproperty.
(6)"Asextractedcollateral"means:
(A)oil,gas,orothermineralsthataresubjecttoasecurityinterestthat:
(i)iscreatedbyadebtorhavinganinterestinthemineralsbefore
extraction;and
(ii)attachestothemineralsasextracted;or
(B)accountsarisingoutofthesaleatthewellheadormineheadofoil,gas,or
othermineralsinwhichthedebtorhadaninterestbeforeextraction.
(7)"Authenticate"means:
(A)tosign;or
(B)toexecuteorotherwiseadoptasymbol,orencryptorsimilarlyprocessa
recordinwholeorinpart,withthepresentintentoftheauthenticating
persontoidentifythepersonandadoptoracceptarecord.
(8)"Bank"meansanorganizationthatisengagedinthebusinessofbanking.The
termincludessavingsbanks,savingsandloanassociations,creditunions,andtrust
companies.
(9)"Cashproceeds"meansproceedsthataremoney,checks,depositaccounts,or
thelike.
(10)"Certificateoftitle"meansacertificateoftitlewithrespecttowhichastatute
providesforthesecurityinterestinquestiontobeindicatedonthecertificateasa
[ 390 ]
conditionorresultofthesecurityinterest'sobtainingpriorityovertherightsofa
liencreditorwithrespecttothecollateral.
(11)"Chattelpaper"meansarecordorrecordsthatevidencebothamonetary
obligationandasecurityinterestinspecificgoods,asecurityinterestinspecific
goodsandsoftwareusedinthegoods,asecurityinterestinspecificgoodsand
licenseofsoftwareusedinthegoods,aleaseofspecificgoods,oraleaseofspecific
goodsandlicenseofsoftwareusedinthegoods.Inthisparagraph,"monetary
obligation"meansamonetaryobligationsecuredbythegoodsorowedundera
leaseofthegoodsandincludesamonetaryobligationwithrespecttosoftwareused
inthegoods.Thetermdoesnotinclude(i)chartersorothercontractsinvolvingthe
useorhireofavesselor(ii)recordsthatevidencearighttopaymentarisingoutof
theuseofacreditorchargecardorinformationcontainedonorforusewiththe
card.Ifatransactionisevidencedbyrecordsthatincludeaninstrumentorseriesof
instruments,thegroupofrecordstakentogetherconstituteschattelpaper.
(12)"Collateral"meansthepropertysubjecttoasecurityinterestoragricultural
lien.Thetermincludes:
(A)proceedstowhichasecurityinterestattaches;
(B)accounts,chattelpaper,paymentintangibles,andpromissorynotesthat
havebeensold;and
(C)goodsthatarethesubjectofaconsignment.
(13)"Commercialtortclaim"meansaclaimarisingintortwithrespecttowhich:
(A)theclaimantisanorganization;or
(B)theclaimantisanindividualandtheclaim:
(i)aroseinthecourseoftheclaimant'sbusinessorprofession;and
(ii)doesnotincludedamagesarisingoutofpersonalinjurytoorthe
deathofanindividual.
(14)"Commodityaccount"meansanaccountmaintainedbyacommodity
intermediaryinwhichacommoditycontractiscarriedforacommoditycustomer.
(15)"Commoditycontract"meansacommodityfuturescontract,anoptionona
commodityfuturescontract,acommodityoption,oranothercontractifthecontract
oroptionis:
(A)tradedonorsubjecttotherulesofaboardoftradethathasbeen
designatedasacontractmarketforsuchacontractpursuanttofederal
commoditieslaws;or
[ 391 ]
(B)tradedonaforeigncommodityboardoftrade,exchange,ormarket,and
iscarriedonthebooksofacommodityintermediaryforacommodity
customer.
(16)"Commoditycustomer"meansapersonforwhichacommodityintermediary
carriesacommoditycontractonitsbooks.
(17)"Commodityintermediary"meansapersonthat:
(A)isregisteredasafuturescommissionmerchantunderfederal
commoditieslaw;or
(B)intheordinarycourseofitsbusinessprovidesclearanceorsettlement
servicesforaboardoftradethathasbeendesignatedasacontractmarket
pursuanttofederalcommoditieslaw.
(18)"Communicate"means:
(A)tosendawrittenorothertangiblerecord;
(B)totransmitarecordbyanymeansagreeduponbythepersonssending
andreceivingtherecord;or
(C)inthecaseoftransmissionofarecordtoorbyafilingoffice,totransmita
recordbyanymeansprescribedbyfilingofficerule.
(19)"Consignee"meansamerchanttowhichgoodsaredeliveredinaconsignment.
(20)"Consignment"meansatransaction,regardlessofitsform,inwhichaperson
deliversgoodstoamerchantforthepurposeofsaleand:
(A)themerchant:
(i)dealsingoodsofthatkindunderanameotherthanthenameof
thepersonmakingdelivery;
(ii)isnotanauctioneer;and
(iii)isnotgenerallyknownbyitscreditorstobesubstantially
engagedinsellingthegoodsofothers;
(B)withrespecttoeachdelivery,theaggregatevalueofthegoodsis$1,000
ormoreatthetimeofdelivery;
(C)thegoodsarenotconsumergoodsimmediatelybeforedelivery;and
(D)thetransactiondoesnotcreateasecurityinterestthatsecuresan
obligation.
[ 392 ]
(21)"Consignor"meansapersonthatdeliversgoodstoaconsigneeina
consignment.
(22)"Consumerdebtor"meansadebtorinaconsumertransaction.
(23)"Consumergoods"meansgoodsthatareusedorboughtforuseprimarilyfor
personal,family,orhouseholdpurposes.
(24)"Consumergoodstransaction"meansaconsumertransactioninwhich:
(A)anindividualincursanobligationprimarilyforpersonal,family,or
householdpurposes;and
(B)asecurityinterestinconsumergoodssecurestheobligation.
(25)"Consumerobligor"meansanobligorwhoisanindividualandwhoincurred
theobligationaspartofatransactionenteredintoprimarilyforpersonal,family,or
householdpurposes.
(26)"Consumertransaction"meansatransactioninwhich(i)anindividualincurs
anobligationprimarilyforpersonal,family,orhouseholdpurposes,(ii)asecurity
interestsecurestheobligation,and(iii)thecollateralisheldoracquiredprimarily
forpersonal,family,orhouseholdpurposes.Thetermincludesconsumergoods
transactions.
(27)"Continuationstatement"meansanamendmentofafinancingstatement
which:
(A)identifies,byitsfilenumber,theinitialfinancingstatementtowhichit
relates;and
(B)indicatesthatitisacontinuationstatementfor,orthatitisfiledto
continuetheeffectivenessof,theidentifiedfinancingstatement.
(28)"Debtor"means:
(A)apersonhavinganinterest,otherthanasecurityinterestorotherlien,in
thecollateral,whetherornotthepersonisanobligor;
(B)asellerofaccounts,chattelpaper,paymentintangibles,orpromissory
notes;or
(C)aconsignee.
(29)"Depositaccount"meansademand,time,savings,passbook,orsimilaraccount
maintainedwithabank.Thetermdoesnotincludeinvestmentpropertyoraccounts
evidencedbyaninstrument.
[ 393 ]
(30)"Document"meansadocumentoftitleorareceiptofthetypedescribedin
Section7201(2).
(31)"Electronicchattelpaper"meanschattelpaperevidencedbyarecordor
recordsconsistingofinformationstoredinanelectronicmedium.
(32)"Encumbrance"meansaright,otherthananownershipinterest,inreal
property.Thetermincludesmortgagesandotherliensonrealproperty.
(33)"Equipment"meansgoodsotherthaninventory,farmproducts,orconsumer
goods.
(34)"Farmproducts"meansgoods,otherthanstandingtimber,withrespectto
whichthedebtorisengagedinafarmingoperationandwhichare:
(A)cropsgrown,growing,ortobegrown,including:
(i)cropsproducedontrees,vines,andbushes;and
(ii)aquaticgoodsproducedinaquaculturaloperations;
(B)livestock,bornorunborn,includingaquaticgoodsproducedin
aquaculturaloperations;
(C)suppliesusedorproducedinafarmingoperation;or
(D)productsofcropsorlivestockintheirunmanufacturedstates.
(35)"Farmingoperation"meansraising,cultivating,propagating,fattening,grazing,
oranyotherfarming,livestock,oraquaculturaloperation.
(36)"Filenumber"meansthenumberassignedtoaninitialfinancingstatement
pursuanttoSection9519(a).
(37)"Filingoffice"meansanofficedesignatedinSection9501astheplacetofilea
financingstatement.
(38)"Filingofficerule"meansaruleadoptedpursuanttoSection9526.
(39)"Financingstatement"meansarecordorrecordscomposedofaninitial
financingstatementandanyfiledrecordrelatingtotheinitialfinancingstatement.
(40)"Fixturefiling"meansthefilingofafinancingstatementcoveringgoodsthat
areoraretobecomefixturesandsatisfyingSection9502(a)and(b).Theterm
includesthefilingofafinancingstatementcoveringgoodsofatransmittingutility
whichareoraretobecomefixtures.
(41)"Fixtures"meansgoodsthathavebecomesorelatedtoparticularrealproperty
thataninterestinthemarisesunderrealpropertylaw.
[ 394 ]
(42)"Generalintangible"meansanypersonalproperty,includingthingsinaction,
otherthanaccounts,chattelpaper,commercialtortclaims,depositaccounts,
documents,goods,instruments,investmentproperty,letterofcreditrights,letters
ofcredit,money,andoil,gas,orothermineralsbeforeextraction.Thetermincludes
paymentintangiblesandsoftware.
(43)"Goodfaith"meanshonestyinfactandtheobservanceofreasonable
commercialstandardsoffairdealing.
(44)"Goods"meansallthingsthataremovablewhenasecurityinterestattaches.
Thetermincludes(i)fixtures,(ii)standingtimberthatistobecutandremoved
underaconveyanceorcontractforsale,(iii)theunbornyoungofanimals,(iv)crops
grown,growing,ortobegrown,evenifthecropsareproducedontrees,vines,or
bushes,and(v)manufacturedhomes.Thetermalsoincludesacomputerprogram
embeddedingoodsandanysupportinginformationprovidedinconnectionwitha
transactionrelatingtotheprogramif(i)theprogramisassociatedwiththegoodsin
suchamannerthatitcustomarilyisconsideredpartofthegoods,or(ii)by
becomingtheownerofthegoods,apersonacquiresarighttousetheprogramin
connectionwiththegoods.Thetermdoesnotincludeacomputerprogram
embeddedingoodsthatconsistsolelyofthemediuminwhichtheprogramis
embedded.Thetermalsodoesnotincludeaccounts,chattelpaper,commercialtort
claims,depositaccounts,documents,generalintangibles,instruments,investment
property,letterofcreditrights,lettersofcredit,money,oroil,gas,orother
mineralsbeforeextraction.
(45)"Governmentalunit"meansasubdivision,agency,department,county,parish,
municipality,orotherunitofthegovernmentoftheUnitedStates,aState,ora
foreigncountry.Thetermincludesanorganizationhavingaseparatecorporate
existenceiftheorganizationiseligibletoissuedebtonwhichinterestisexempt
fromincometaxationunderthelawsoftheUnitedStates.
(46)"Healthcareinsurancereceivable"meansaninterestinorclaimunderapolicy
ofinsurancewhichisarighttopaymentofamonetaryobligationforhealthcare
goodsorservicesprovided.
(47)"Instrument"meansanegotiableinstrumentoranyotherwritingthat
evidencesarighttothepaymentofamonetaryobligation,isnotitselfasecurity
agreementorlease,andisofatypethatinordinarycourseofbusinessis
transferredbydeliverywithanynecessaryindorsementorassignment.Theterm
doesnotinclude(i)investmentproperty,(ii)lettersofcredit,or(iii)writingsthat
evidencearighttopaymentarisingoutoftheuseofacreditorchargecardor
informationcontainedonorforusewiththecard.
(48)"Inventory"meansgoods,otherthanfarmproducts,which:
(A)areleasedbyapersonaslessor;
(B)areheldbyapersonforsaleorleaseortobefurnishedunderacontract
ofservice;
[ 395 ]
(C)arefurnishedbyapersonunderacontractofservice;or
(D)consistofrawmaterials,workinprocess,ormaterialsusedorconsumed
inabusiness.
(49)"Investmentproperty"meansasecurity,whethercertificatedoruncertificated,
securityentitlement,securitiesaccount,commoditycontract,orcommodity
account.
(50)"Jurisdictionoforganization",withrespecttoaregisteredorganization,means
thejurisdictionunderwhoselawtheorganizationisorganized.
(51)"Letterofcreditright"meansarighttopaymentorperformanceunderaletter
ofcredit,whetherornotthebeneficiaryhasdemandedorisatthetimeentitledto
demandpaymentorperformance.Thetermdoesnotincludetherightofa
beneficiarytodemandpaymentorperformanceunderaletterofcredit.
(52)"Liencreditor"means:
(A)acreditorthathasacquiredalienonthepropertyinvolvedby
attachment,levy,orthelike;
(B)anassigneeforbenefitofcreditorsfromthetimeofassignment;
(C)atrusteeinbankruptcyfromthedateofthefilingofthepetition;or
(D)areceiverinequityfromthetimeofappointment.
(53)"Manufacturedhome"meansastructure,transportableinoneormore
sections,which,inthetravelingmode,iseightbodyfeetormoreinwidthor40
bodyfeetormoreinlength,or,whenerectedonsite,is320ormoresquarefeet,and
whichisbuiltonapermanentchassisanddesignedtobeusedasadwellingwithor
withoutapermanentfoundationwhenconnectedtotherequiredutilities,and
includestheplumbing,heating,airconditioning,andelectricalsystemscontained
therein.Thetermincludesanystructurethatmeetsalloftherequirementsofthis
paragraphexceptthesizerequirementsandwithrespecttowhichthemanufacturer
voluntarilyfilesacertificationrequiredbytheUnitedStatesSecretaryofHousing
andUrbanDevelopmentandcomplieswiththestandardsestablishedunderTitle42
oftheUnitedStatesCode.
(54)"Manufacturedhometransaction"meansasecuredtransaction:
(A)thatcreatesapurchasemoneysecurityinterestinamanufacturedhome,
otherthanamanufacturedhomeheldasinventory;or
(B)inwhichamanufacturedhome,otherthanamanufacturedhomeheldas
inventory,istheprimarycollateral.
[ 396 ]
(55)"Mortgage"meansaconsensualinterestinrealproperty,includingfixtures,
whichsecurespaymentorperformanceofanobligation.
(56)"Newdebtor"meansapersonthatbecomesboundasdebtorunderSection9
203(d)byasecurityagreementpreviouslyenteredintobyanotherperson.
(57)"Newvalue"means(i)money,(ii)money'sworthinproperty,services,ornew
credit,or(iii)releasebyatransfereeofaninterestinpropertypreviously
transferredtothetransferee.Thetermdoesnotincludeanobligationsubstituted
foranotherobligation.
(58)"Noncashproceeds"meansproceedsotherthancashproceeds.
(59)"Obligor"meansapersonthat,withrespecttoanobligationsecuredbya
securityinterestinoranagriculturallienonthecollateral,(i)owespaymentor
otherperformanceoftheobligation,(ii)hasprovidedpropertyotherthanthe
collateraltosecurepaymentorotherperformanceoftheobligation,or(iii)is
otherwiseaccountableinwholeorinpartforpaymentorotherperformanceofthe
obligation.Thetermdoesnotincludeissuersornominatedpersonsunderaletterof
credit.
(60)"Originaldebtor",exceptasusedinSection9310(c),meansapersonthat,as
debtor,enteredintoasecurityagreementtowhichanewdebtorhasbecomebound
underSection9203(d).
(61)"Paymentintangible"meansageneralintangibleunderwhichtheaccount
debtor'sprincipalobligationisamonetaryobligation.
(62)"Personrelatedto",withrespecttoanindividual,means:
(A)thespouseoftheindividual;
(B)abrother,brotherinlaw,sister,orsisterinlawoftheindividual;
(C)anancestororlinealdescendantoftheindividualortheindividual's
spouse;or
(D)anyotherrelative,bybloodormarriage,oftheindividualorthe
individual'sspousewhosharesthesamehomewiththeindividual.
(63)"Personrelatedto",withrespecttoanorganization,means:
(A)apersondirectlyorindirectlycontrolling,controlledby,orunder
commoncontrolwiththeorganization;
(B)anofficerordirectorof,orapersonperformingsimilarfunctionswith
respectto,theorganization;
[ 397 ]
(C)anofficerordirectorof,orapersonperformingsimilarfunctionswith
respectto,apersondescribedinsubparagraph(A);
(D)thespouseofanindividualdescribedinsubparagraph(A),(B),or(C);or
(E)anindividualwhoisrelatedbybloodormarriagetoanindividual
describedinsubparagraph(A),(B),(C),or(D)andsharesthesamehome
withtheindividual.
(64)"Proceeds",exceptasusedinSection9609(b),meansthefollowingproperty:
(A)whateverisacquireduponthesale,lease,license,exchange,orother
dispositionofcollateral;
(B)whateveriscollectedon,ordistributedonaccountof,collateral;
(C)rightsarisingoutofcollateral;
(D)totheextentofthevalueofcollateral,claimsarisingoutoftheloss,
nonconformity,orinterferencewiththeuseof,defectsorinfringementof
rightsin,ordamageto,thecollateral;or
(E)totheextentofthevalueofcollateralandtotheextentpayabletothe
debtororthesecuredparty,insurancepayablebyreasonofthelossor
nonconformityof,defectsorinfringementofrightsin,ordamageto,the
collateral.
(65)"Promissorynote"meansaninstrumentthatevidencesapromisetopaya
monetaryobligation,doesnotevidenceanordertopay,anddoesnotcontainan
acknowledgmentbyabankthatthebankhasreceivedfordepositasumofmoney
orfunds.
(66)"Proposal"meansarecordauthenticatedbyasecuredpartywhichincludesthe
termsonwhichthesecuredpartyiswillingtoacceptcollateralinfullorpartial
satisfactionoftheobligationitsecurespursuanttoSections9620,9621,and9
622.
(67)"Publicfinancetransaction"meansasecuredtransactioninconnectionwith
which:
(A)debtsecuritiesareissued;
(B)alloraportionofthesecuritiesissuedhaveaninitialstatedmaturityof
atleast20years;and
(C)thedebtor,obligor,securedparty,accountdebtororotherperson
obligatedoncollateral,assignororassigneeofasecuredobligation,or
assignororassigneeofasecurityinterestisaStateoragovernmentalunitof
aState.
[ 398 ]
(68)"Pursuanttocommitment",withrespecttoanadvancemadeorothervalue
givenbyasecuredparty,meanspursuanttothesecuredparty'sobligation,whether
ornotasubsequenteventofdefaultorothereventnotwithinthesecuredparty's
controlhasrelievedormayrelievethesecuredpartyfromitsobligation.
(69)"Record",exceptasusedin"forrecord","ofrecord","recordorlegaltitle",and
"recordowner",meansinformationthatisinscribedonatangiblemediumorwhich
(70)"Registeredorganization"meansanorganizationorganizedsolelyunderthe
lawofasingleStateortheUnitedStatesandastowhichtheStateortheUnited
Statesmustmaintainapublicrecordshowingtheorganizationtohavebeen
organized.
(71)"Secondaryobligor"meansanobligortotheextentthat:
(A)theobligor'sobligationissecondary;or
(B)theobligorhasarightofrecoursewithrespecttoanobligationsecured
bycollateralagainstthedebtor,anotherobligor,orpropertyofeither.
(72)"Securedparty"means:
(A)apersoninwhosefavorasecurityinterestiscreatedorprovidedfor
underasecurityagreement,whetherornotanyobligationtobesecuredis
outstanding;
(B)apersonthatholdsanagriculturallien;
(C)aconsignor;
(D)apersontowhichaccounts,chattelpaper,paymentintangibles,or
promissorynoteshavebeensold;
(E)atrustee,indenturetrustee,agent,collateralagent,orother
representativeinwhosefavorasecurityinterestoragriculturallienis
createdorprovidedfor;or
(F)apersonthatholdsasecurityinterestarisingunderSection2401,2505,
2711(3),2A508(5),4210,or5118.
(73)"Securityagreement"meansanagreementthatcreatesorprovidesfora
securityinterest.
(74)"Send",inconnectionwitharecordornotification,means:
(A)todepositinthemail,deliverfortransmission,ortransmitbyanyother
usualmeansofcommunication,withpostageorcostoftransmission
[ 399 ]
providedfor,addressedtoanyaddressreasonableunderthecircumstances;
or
(B)tocausetherecordornotificationtobereceivedwithinthetimethatit
wouldhavebeenreceivedifproperlysentundersubparagraph(A).
(75)"Software"meansacomputerprogramandanysupportinginformation
providedinconnectionwithatransactionrelatingtotheprogram.Thetermdoes
notincludeacomputerprogramthatisincludedinthedefinitionofgoods.
(76)"State"meansaStateoftheUnitedStates,theDistrictofColumbia,PuertoRico,
theUnitedStatesVirginIslands,oranyterritoryorinsularpossessionsubjecttothe
jurisdictionoftheUnitedStates.
(77)"Supportingobligation"meansaletterofcreditrightorsecondaryobligation
thatsupportsthepaymentorperformanceofanaccount,chattelpaper,adocument,
ageneralintangible,aninstrument,orinvestmentproperty.
(78)"Tangiblechattelpaper"meanschattelpaperevidencedbyarecordorrecords
consistingofinformationthatisinscribedonatangiblemedium.
(79)"Terminationstatement"meansanamendmentofafinancingstatementwhich:
(A)identifies,byitsfilenumber,theinitialfinancingstatementtowhichit
relates;and
(B)indicateseitherthatitisaterminationstatementorthattheidentified
financingstatementisnolongereffective.
(80)"Transmittingutility"meansapersonprimarilyengagedinthebusinessof:
(A)operatingarailroad,subway,streetrailway,ortrolleybus;
(B)transmittingcommunicationselectrically,electromagnetically,orby
light;
(C)transmittinggoodsbypipelineorsewer;or
(D)transmittingorproducingandtransmittingelectricity,steam,gas,or
water.
(b)[Definitionsinotherarticles.]
Thefollowingdefinitionsinotherarticlesapplytothisarticle:
"Applicant"Section5102.
"Beneficiary"Section5102.
[ 400 ]
"Broker"Section8102.
"Certificatedsecurity"Section8102.
"Check"Section3104.
"Clearingcorporation"Section8102.
"Contractforsale"Section2106.
"Customer"Section4104.
"Entitlementholder"Section8102.
"Financialasset"Section8102.
"Holderinduecourse"Section3302.
"Issuer"(withrespecttoaletterofcreditorletterofcreditright)Section5102.
"Issuer"(withrespecttoasecurity)Section8201.
"Issuer"(withrespecttodocumentsoftitle)Section7102.
"Lease"Section2A103.
"Leaseagreement"Section2A103.
"Leasecontract"Section2A103.
"Leaseholdinterest"Section2A103.
"Lessee"Section2A103.
"Lesseeinordinarycourseofbusiness"Section2A103.
"Lessor"Section2A103.
"Lessor'sresidualinterest"Section2A103.
"Letterofcredit"Section5102.
"Merchant"Section2104.
"Negotiableinstrument"Section3104.
"Nominatedperson"Section5102.
"Note"Section3104.
[ 401 ]
"Proceedsofaletterofcredit"Section5114.
"Prove"Section3103.
"Sale"Section2106.
"Securitiesaccount"Section8501.
"Securitiesintermediary"Section8102.
"Security"Section8102.
"Securitycertificate"Section8102.
"Securityentitlement"Section8102.
"Uncertificatedsecurity"Section8102.
(c)[Article1definitionsandprinciples.]
Article1containsgeneraldefinitionsandprinciplesofconstructionand
interpretationapplicablethroughoutthisarticle.
9103.PURCHASEMONEYSECURITYINTEREST;APPLICATIONOFPAYMENTS;BURDENOF
ESTABLISHING.
(a)[Definitions.]
Inthissection:
(1)"purchasemoneycollateral"meansgoodsorsoftwarethatsecuresapurchase
moneyobligationincurredwithrespecttothatcollateral;and
(2)"purchasemoneyobligation"meansanobligationofanobligorincurredasallor
partofthepriceofthecollateralorforvaluegiventoenablethedebtortoacquire
rightsinortheuseofthecollateralifthevalueisinfactsoused.
(b)[Purchasemoneysecurityinterestingoods.]
Asecurityinterestingoodsisapurchasemoneysecurityinterest:
(1)totheextentthatthegoodsarepurchasemoneycollateralwithrespecttothat
securityinterest;
(2)ifthesecurityinterestisininventorythatisorwaspurchasemoneycollateral,
alsototheextentthatthesecurityinterestsecuresapurchasemoneyobligation
incurredwithrespecttootherinventoryinwhichthesecuredpartyholdsorhelda
purchasemoneysecurityinterest;and
[ 402 ]
(3)alsototheextentthatthesecurityinterestsecuresapurchasemoneyobligation
incurredwithrespecttosoftwareinwhichthesecuredpartyholdsorhelda
purchasemoneysecurityinterest.
(c)[Purchasemoneysecurityinterestinsoftware.]
Asecurityinterestinsoftwareisapurchasemoneysecurityinteresttotheextent
thatthesecurityinterestalsosecuresapurchasemoneyobligationincurredwith
respecttogoodsinwhichthesecuredpartyholdsorheldapurchasemoney
securityinterestif:
(1)thedebtoracquireditsinterestinthesoftwareinanintegrated
transactioninwhichitacquiredaninterestinthegoods;and
(2)thedebtoracquireditsinterestinthesoftwarefortheprincipalpurpose
ofusingthesoftwareinthegoods.
(d)[Consignor'sinventorypurchasemoneysecurityinterest.]
Thesecurityinterestofaconsignoringoodsthatarethesubjectofaconsignmentis
apurchasemoneysecurityinterestininventory.
(e)[Applicationofpaymentinnonconsumergoodstransaction.]
Inatransactionotherthanaconsumergoodstransaction,iftheextenttowhicha
securityinterestisapurchasemoneysecurityinterestdependsontheapplication
ofapaymenttoaparticularobligation,thepaymentmustbeapplied:
(1)inaccordancewithanyreasonablemethodofapplicationtowhichthe
partiesagree;
(2)intheabsenceoftheparties'agreementtoareasonablemethod,in
accordancewithanyintentionoftheobligormanifestedatorbeforethetime
ofpayment;or
(3)intheabsenceofanagreementtoareasonablemethodandatimely
manifestationoftheobligor'sintention,inthefollowingorder:
(A)toobligationsthatarenotsecured;and
(B)ifmorethanoneobligationissecured,toobligationssecuredby
purchasemoneysecurityinterestsintheorderinwhichthose
obligationswereincurred.
(f)[Nolossofstatusofpurchasemoneysecurityinterestinnonconsumergoods
transaction.]
Inatransactionotherthanaconsumergoodstransaction,apurchasemoney
securityinterestdoesnotloseitsstatusassuch,evenif:
[ 403 ]
(1)thepurchasemoneycollateralalsosecuresanobligationthatisnota
purchasemoneyobligation;
(2)collateralthatisnotpurchasemoneycollateralalsosecuresthe
purchasemoneyobligation;or
(3)thepurchasemoneyobligationhasbeenrenewed,refinanced,
consolidated,orrestructured.
(g)[Burdenofproofinnonconsumergoodstransaction.]
Inatransactionotherthanaconsumergoodstransaction,asecuredpartyclaiming
apurchasemoneysecurityinteresthastheburdenofestablishingtheextentto
whichthesecurityinterestisapurchasemoneysecurityinterest.
(h)[Nonconsumergoodstransactions;noinference.]
Thelimitationoftherulesinsubsections(e),(f),and(g)totransactionsotherthan
consumergoodstransactionsisintendedtoleavetothecourtthedeterminationof
theproperrulesinconsumergoodstransactions.Thecourtmaynotinferfromthat
limitationthenatureoftheproperruleinconsumergoodstransactionsandmay
continuetoapplyestablishedapproaches.
9104.CONTROLOFDEPOSITACCOUNT.
(a)[Requirementsforcontrol.]
Asecuredpartyhascontrolofadepositaccountif:
(1)thesecuredpartyisthebankwithwhichthedepositaccountismaintained;
(2)thedebtor,securedparty,andbankhaveagreedinanauthenticatedrecordthat
thebankwillcomplywithinstructionsoriginatedbythesecuredpartydirecting
dispositionofthefundsinthedepositaccountwithoutfurtherconsentbythe
debtor;or
(3)thesecuredpartybecomesthebank'scustomerwithrespecttothedeposit
account.
(b)[Debtor'srighttodirectdisposition.]
Asecuredpartythathassatisfiedsubsection(a)hascontrol,evenifthedebtor
retainstherighttodirectthedispositionoffundsfromthedepositaccount.
9105.CONTROLOFELECTRONICCHATTELPAPER.
[ 404 ]
Asecuredpartyhascontrolofelectronicchattelpaperiftherecordorrecordscomprising
thechattelpaperarecreated,stored,andassignedinsuchamannerthat:
(1)asingleauthoritativecopyoftherecordorrecordsexistswhichisunique,
identifiableand,exceptasotherwiseprovidedinparagraphs(4),(5),and(6),
unalterable;
(2)theauthoritativecopyidentifiesthesecuredpartyastheassigneeoftherecord
orrecords;
(3)theauthoritativecopyiscommunicatedtoandmaintainedbythesecuredparty
oritsdesignatedcustodian;
(4)copiesorrevisionsthataddorchangeanidentifiedassigneeoftheauthoritative
copycanbemadeonlywiththeparticipationofthesecuredparty;
(5)eachcopyoftheauthoritativecopyandanycopyofacopyisreadilyidentifiable
asacopythatisnottheauthoritativecopy;and
(6)anyrevisionoftheauthoritativecopyisreadilyidentifiableasanauthorizedor
unauthorizedrevision.
9106.CONTROLOFINVESTMENTPROPERTY.
(a)[ControlunderSection8106.]
Apersonhascontrolofacertificatedsecurity,uncertificatedsecurity,orsecurity
entitlementasprovidedinSection8106.
(b)[Controlofcommoditycontract.]
Asecuredpartyhascontrolofacommoditycontractif:
(1)thesecuredpartyisthecommodityintermediarywithwhichthe
commoditycontractiscarried;or
(2)thecommoditycustomer,securedparty,andcommodityintermediary
haveagreedthatthecommodityintermediarywillapplyanyvalue
distributedonaccountofthecommoditycontractasdirectedbythesecured
partywithoutfurtherconsentbythecommoditycustomer.
(c)[Effectofcontrolofsecuritiesaccountorcommodityaccount.]
Asecuredpartyhavingcontrolofallsecurityentitlementsorcommoditycontracts
carriedinasecuritiesaccountorcommodityaccounthascontroloverthesecurities
accountorcommodityaccount.
[ 405 ]
9107.CONTROLOFLETTEROFCREDITRIGHT.
Asecuredpartyhascontrolofaletterofcreditrighttotheextentofanyrighttopayment
orperformancebytheissueroranynominatedpersoniftheissuerornominatedperson
hasconsentedtoanassignmentofproceedsoftheletterofcreditunderSection5114(c)or
otherwiseapplicablelaworpractice.
9108.SUFFICIENCYOFDESCRIPTION.
(a)[Sufficiencyofdescription.]
Exceptasotherwiseprovidedinsubsections(c),(d),and(e),adescriptionof
personalorrealpropertyissufficient,whetherornotitisspecific,ifitreasonably
identifieswhatisdescribed.
(b)[Examplesofreasonableidentification.]
Exceptasotherwiseprovidedinsubsection(d),adescriptionofcollateral
reasonablyidentifiesthecollateralifitidentifiesthecollateralby:
(1)specificlisting;
(2)category;
(3)exceptasotherwiseprovidedinsubsection(e),atypeofcollateral
definedin[theUniformCommercialCode];
(4)quantity;
(5)computationalorallocationalformulaorprocedure;or
(6)exceptasotherwiseprovidedinsubsection(c),anyothermethod,ifthe
identityofthecollateralisobjectivelydeterminable.
(c)[Supergenericdescriptionnotsufficient.]
Adescriptionofcollateralas"allthedebtor'sassets"or"allthedebtor'spersonal
property"orusingwordsofsimilarimportdoesnotreasonablyidentifythe
collateral.
(d)[Investmentproperty.]
Exceptasotherwiseprovidedinsubsection(e),adescriptionofasecurity
entitlement,securitiesaccount,orcommodityaccountissufficientifitdescribes:
(1)thecollateralbythosetermsorasinvestmentproperty;or
(2)theunderlyingfinancialassetorcommoditycontract.
[ 406 ]
(e)[Whendescriptionbytypeinsufficient.]
Adescriptiononlybytypeofcollateraldefinedin[theUniformCommercialCode]is
aninsufficientdescriptionof:
(1)acommercialtortclaim;or
(2)inaconsumertransaction,consumergoods,asecurityentitlement,a
securitiesaccount,oracommodityaccount.
[Subpart2.ApplicabilityofArticle]
9109.SCOPE.
(a)[Generalscopeofarticle.]
Exceptasotherwiseprovidedinsubsections(c)and(d),thisarticleappliesto:
(1)atransaction,regardlessofitsform,thatcreatesasecurityinterestin
personalpropertyorfixturesbycontract;
(2)anagriculturallien;
(3)asaleofaccounts,chattelpaper,paymentintangibles,orpromissory
notes;
(4)aconsignment;
(5)asecurityinterestarisingunderSection2401,2505,2711(3),or2A
508(5),asprovidedinSection9110;and
(6)asecurityinterestarisingunderSection4210or5118.
(b)[Securityinterestinsecuredobligation.]
Theapplicationofthisarticletoasecurityinterestinasecuredobligationisnot
affectedbythefactthattheobligationisitselfsecuredbyatransactionorinterestto
whichthisarticledoesnotapply.
(c)[Extenttowhicharticledoesnotapply.]
Thisarticledoesnotapplytotheextentthat:
(1)astatute,regulation,ortreatyoftheUnitedStatespreemptsthisarticle;
(2)anotherstatuteofthisStateexpresslygovernsthecreation,perfection,
priority,orenforcementofasecurityinterestcreatedbythisStateora
governmentalunitofthisState;
[ 407 ]
(3)astatuteofanotherState,aforeigncountry,oragovernmentalunitof
anotherStateoraforeigncountry,otherthanastatutegenerallyapplicable
tosecurityinterests,expresslygovernscreation,perfection,priority,or
enforcementofasecurityinterestcreatedbytheState,country,or
governmentalunit;or
(4)therightsofatransfereebeneficiaryornominatedpersonunderaletter
ofcreditareindependentandsuperiorunderSection5114.
(d)[Inapplicabilityofarticle.]
Thisarticledoesnotapplyto:
(1)alandlord'slien,otherthananagriculturallien;
(2)alien,otherthananagriculturallien,givenbystatuteorotherruleoflaw
forservicesormaterials,butSection9333applieswithrespecttopriorityof
thelien;
(3)anassignmentofaclaimforwages,salary,orothercompensationofan
employee;
(4)asaleofaccounts,chattelpaper,paymentintangibles,orpromissory
notesaspartofasaleofthebusinessoutofwhichtheyarose;
(5)anassignmentofaccounts,chattelpaper,paymentintangibles,or
promissorynoteswhichisforthepurposeofcollectiononly;
(6)anassignmentofarighttopaymentunderacontracttoanassigneethat
isalsoobligatedtoperformunderthecontract;
(7)anassignmentofasingleaccount,paymentintangible,orpromissory
notetoanassigneeinfullorpartialsatisfactionofapreexisting
indebtedness;
(8)atransferofaninterestinoranassignmentofaclaimunderapolicyof
insurance,otherthananassignmentbyortoahealthcareproviderofa
healthcareinsurancereceivableandanysubsequentassignmentoftheright
topayment,butSections9315and9322applywithrespecttoproceeds
andprioritiesinproceeds;
(9)anassignmentofarightrepresentedbyajudgment,otherthana
judgmenttakenonarighttopaymentthatwascollateral;
(10)arightofrecoupmentorsetoff,but:
(A)Section9340applieswithrespecttotheeffectivenessofrightsof
recoupmentorsetoffagainstdepositaccounts;and
[ 408 ]
(B)Section9404applieswithrespecttodefensesorclaimsofan
accountdebtor;
(11)thecreationortransferofaninterestinorlienonrealproperty,
includingaleaseorrentsthereunder,excepttotheextentthatprovisionis
madefor:
(A)liensonrealpropertyinSections9203and9308;
(B)fixturesinSection9334;
(C)fixturefilingsinSections9501,9502,9512,9516,and9519;
and
(D)securityagreementscoveringpersonalandrealpropertyin
Section9604;
(12)anassignmentofaclaimarisingintort,otherthanacommercialtort
claim,butSections9315and9322applywithrespecttoproceedsand
prioritiesinproceeds;or
(13)anassignmentofadepositaccountinaconsumertransaction,but
Sections9315and9322applywithrespecttoproceedsandprioritiesin
proceeds.
9110.SECURITYINTERESTSARISINGUNDERARTICLE2OR2A.
AsecurityinterestarisingunderSection2401,2505,2711(3),or2A508(5)issubjectto
thisarticle.However,untilthedebtorobtainspossessionofthegoods:
(1)thesecurityinterestisenforceable,evenifSection9203(b)(3)hasnotbeen
satisfied;
(2)filingisnotrequiredtoperfectthesecurityinterest;
(3)therightsofthesecuredpartyafterdefaultbythedebtoraregovernedby
Article2or2A;and
(4)thesecurityinteresthaspriorityoveraconflictingsecurityinterestcreatedby
thedebtor.
[ 409 ]
PART2.EFFECTIVENESSOFSECURITYAGREEMENT;ATTACHMENTOFSECURITY
INTEREST;RIGHTSOFPARTIESTOSECURITYAGREEMENT
[Subpart1.EffectivenessandAttachment]
9201.GENERALEFFECTIVENESSOFSECURITYAGREEMENT.
(a)[Generaleffectiveness.]
Exceptasotherwiseprovidedin[theUniformCommercialCode],asecurity
agreementiseffectiveaccordingtoitstermsbetweentheparties,against
purchasersofthecollateral,andagainstcreditors.
(b)[Applicableconsumerlawsandotherlaw.]
Atransactionsubjecttothisarticleissubjecttoanyapplicableruleoflawwhich
establishesadifferentruleforconsumersand[insertreferenceto(i)anyother
statuteorregulationthatregulatestherates,charges,agreements,andpracticesfor
loans,creditsales,orotherextensionsofcreditand(ii)anyconsumerprotection
statuteorregulation].
(c)[Otherapplicablelawcontrols.]
Incaseofconflictbetweenthisarticleandaruleoflaw,statute,orregulation
describedinsubsection(b),theruleoflaw,statute,orregulationcontrols.Failureto
complywithastatuteorregulationdescribedinsubsection(b)hasonlytheeffect
thestatuteorregulationspecifies.
(d)[Furtherdeferencetootherapplicablelaw.]
Thisarticledoesnot:
(1)validateanyrate,charge,agreement,orpracticethatviolatesaruleof
law,statute,orregulationdescribedinsubsection(b);or
(2)extendtheapplicationoftheruleoflaw,statute,orregulationtoa
transactionnototherwisesubjecttoit.
9202.TITLETOCOLLATERALIMMATERIAL.
Exceptasotherwiseprovidedwithrespecttoconsignmentsorsalesofaccounts,chattel
paper,paymentintangibles,orpromissorynotes,theprovisionsofthisarticlewithregard
torightsandobligationsapplywhethertitletocollateralisinthesecuredpartyorthe
debtor.
[ 410 ]
9203.ATTACHMENTANDENFORCEABILITYOFSECURITYINTEREST;PROCEEDS;
SUPPORTINGOBLIGATIONS;FORMALREQUISITES.
(a)[Attachment.]
Asecurityinterestattachestocollateralwhenitbecomesenforceableagainstthe
debtorwithrespecttothecollateral,unlessanagreementexpresslypostponesthe
timeofattachment.
(b)[Enforceability.]
Exceptasotherwiseprovidedinsubsections(c)through(i),asecurityinterestis
enforceableagainstthedebtorandthirdpartieswithrespecttothecollateralonlyif
:
(1)valuehasbeengiven;
(2)thedebtorhasrightsinthecollateralorthepowertotransferrightsin
thecollateraltoasecuredparty;and
(3)oneofthefollowingconditionsismet:
(A)thedebtorhasauthenticatedasecurityagreementthatprovidesa
descriptionofthecollateraland,ifthesecurityinterestcoverstimber
tobecut,adescriptionofthelandconcerned;
(B)thecollateralisnotacertificatedsecurityandisinthepossession
ofthesecuredpartyunderSection9313pursuanttothedebtor's
securityagreement;
(C)thecollateralisacertificatedsecurityinregisteredformandthe
securitycertificatehasbeendeliveredtothesecuredpartyunder
Section8301pursuanttothedebtor'ssecurityagreement;or
(D)thecollateralisdepositaccounts,electronicchattelpaper,
investmentproperty,orletterofcreditrights,andthesecuredparty
hascontrolunderSection9104,9105,9106,or9107pursuantto
thedebtor'ssecurityagreement.
(c)[OtherUCCprovisions.]
Subsection(b)issubjecttoSection4210onthesecurityinterestofacollecting
bank,Section5118onthesecurityinterestofaletterofcreditissuerornominated
person,Section9110onasecurityinterestarisingunderArticle2or2A,and
Section9206onsecurityinterestsininvestmentproperty.
(d)[Whenpersonbecomesboundbyanotherperson'ssecurityagreement.]
[ 411 ]
Apersonbecomesboundasdebtorbyasecurityagreemententeredintobyanother
personif,byoperationoflawotherthanthisarticleorbycontract:
(1)thesecurityagreementbecomeseffectivetocreateasecurityinterestin
theperson'sproperty;or
(2)thepersonbecomesgenerallyobligatedfortheobligationsoftheother
person,includingtheobligationsecuredunderthesecurityagreement,and
acquiresorsucceedstoallorsubstantiallyalloftheassetsoftheother
person.
(e)[Effectofnewdebtorbecomingbound.]
Ifanewdebtorbecomesboundasdebtorbyasecurityagreemententeredintoby
anotherperson:
(1)theagreementsatisfiessubsection(b)(3)withrespecttoexistingor
afteracquiredpropertyofthenewdebtortotheextentthepropertyis
describedintheagreement;and
(2)anotheragreementisnotnecessarytomakeasecurityinterestinthe
propertyenforceable.
(f)[Proceedsandsupportingobligations.]
Theattachmentofasecurityinterestincollateralgivesthesecuredpartytherights
toproceedsprovidedbySection9315andisalsoattachmentofasecurityinterest
inasupportingobligationforthecollateral.
(g)[Liensecuringrighttopayment.]
Theattachmentofasecurityinterestinarighttopaymentorperformancesecured
byasecurityinterestorotherlienonpersonalorrealpropertyisalsoattachmentof
asecurityinterestinthesecurityinterest,mortgage,orotherlien.
(h)[Securityentitlementcarriedinsecuritiesaccount.]
Theattachmentofasecurityinterestinasecuritiesaccountisalsoattachmentofa
securityinterestinthesecurityentitlementscarriedinthesecuritiesaccount.
(i)[Commoditycontractscarriedincommodityaccount.]
Theattachmentofasecurityinterestinacommodityaccountisalsoattachmentofa
securityinterestinthecommoditycontractscarriedinthecommodityaccount.
[ 412 ]
9204.AFTERACQUIREDPROPERTY;FUTUREADVANCES.
(a)[Afteracquiredcollateral.]
Exceptasotherwiseprovidedinsubsection(b),asecurityagreementmaycreateor
provideforasecurityinterestinafteracquiredcollateral.
(b)[Whenafteracquiredpropertyclausenoteffective.]
Asecurityinterestdoesnotattachunderatermconstitutinganafteracquired
propertyclauseto:
(1)consumergoods,otherthananaccessionwhengivenasadditional
security,unlessthedebtoracquiresrightsinthemwithin10daysafterthe
securedpartygivesvalue;or
(2)acommercialtortclaim.
(c)[Futureadvancesandothervalue.]
Asecurityagreementmayprovidethatcollateralsecures,orthataccounts,chattel
paper,paymentintangibles,orpromissorynotesaresoldinconnectionwith,future
advancesorothervalue,whetherornottheadvancesorvaluearegivenpursuantto
commitment.
9205.USEORDISPOSITIONOFCOLLATERALPERMISSIBLE.
(a)[Whensecurityinterestnotinvalidorfraudulent.]
Asecurityinterestisnotinvalidorfraudulentagainstcreditorssolelybecause:
(1)thedebtorhastherightorabilityto:
(A)use,commingle,ordisposeofallorpartofthecollateral,including
returnedorrepossessedgoods;
(B)collect,compromise,enforce,orotherwisedealwithcollateral;
(C)acceptthereturnofcollateralormakerepossessions;or
(D)use,commingle,ordisposeofproceeds;or
(2)thesecuredpartyfailstorequirethedebtortoaccountforproceedsorreplace
collateral.
(b)[Requirementsofpossessionnotrelaxed.]
[ 413 ]
Thissectiondoesnotrelaxtherequirementsofpossessionifattachment,perfection,
orenforcementofasecurityinterestdependsuponpossessionofthecollateralby
thesecuredparty.
9206.SECURITYINTERESTARISINGINPURCHASEORDELIVERYOFFINANCIALASSET.
(a)[Securityinterestwhenpersonbuysthroughsecuritiesintermediary.]
Asecurityinterestinfavorofasecuritiesintermediaryattachestoaperson's
securityentitlementif:
(1)thepersonbuysafinancialassetthroughthesecuritiesintermediaryina
transactioninwhichthepersonisobligatedtopaythepurchasepricetothe
securitiesintermediaryatthetimeofthepurchase;and
(2)thesecuritiesintermediarycreditsthefinancialassettothebuyer'ssecurities
accountbeforethebuyerpaysthesecuritiesintermediary.
(b)[Securityinterestsecuresobligationtopayforfinancialasset.]
Thesecurityinterestdescribedinsubsection(a)securestheperson'sobligationto
payforthefinancialasset.
(c)[Securityinterestinpaymentagainstdeliverytransaction.]
Asecurityinterestinfavorofapersonthatdeliversacertificatedsecurityorother
financialassetrepresentedbyawritingattachestothesecurityorotherfinancial
assetif:
(1)thesecurityorotherfinancialasset:
(A)intheordinarycourseofbusinessistransferredbydeliverywithany
necessaryindorsementorassignment;and
(B)isdeliveredunderanagreementbetweenpersonsinthebusinessof
dealingwithsuchsecuritiesorfinancialassets;and
(2)theagreementcallsfordeliveryagainstpayment.
(d)[Securityinterestsecuresobligationtopayfordelivery.]
Thesecurityinterestdescribedinsubsection(c)securestheobligationtomake
paymentforthedelivery.
[ 414 ]
[Subpart2.RightsandDuties]
9207.RIGHTSANDDUTIESOFSECUREDPARTYHAVINGPOSSESSIONORCONTROLOF
COLLATERAL.
(a)[Dutyofcarewhensecuredpartyinpossession.]
Exceptasotherwiseprovidedinsubsection(d),asecuredpartyshallusereasonable
careinthecustodyandpreservationofcollateralinthesecuredparty'spossession.
Inthecaseofchattelpaperoraninstrument,reasonablecareincludestaking
necessarystepstopreserverightsagainstpriorpartiesunlessotherwiseagreed.
(b)[Expenses,risks,duties,andrightswhensecuredpartyinpossession.]
Exceptasotherwiseprovidedinsubsection(d),ifasecuredpartyhaspossessionof
collateral:
(1)reasonableexpenses,includingthecostofinsuranceandpaymentoftaxesor
othercharges,incurredinthecustody,preservation,use,oroperationofthe
collateralarechargeabletothedebtorandaresecuredbythecollateral;
(2)theriskofaccidentallossordamageisonthedebtortotheextentofadeficiency
inanyeffectiveinsurancecoverage;
(3)thesecuredpartyshallkeepthecollateralidentifiable,butfungiblecollateral
maybecommingled;and
(4)thesecuredpartymayuseoroperatethecollateral:
(A)forthepurposeofpreservingthecollateraloritsvalue;
(B)aspermittedbyanorderofacourthavingcompetentjurisdiction;or
(C)exceptinthecaseofconsumergoods,inthemannerandtotheextent
agreedbythedebtor.
(c)[Dutiesandrightswhensecuredpartyinpossessionorcontrol.]
Exceptasotherwiseprovidedinsubsection(d),asecuredpartyhavingpossession
ofcollateralorcontrolofcollateralunderSection9104,9105,9106,or9107:
(1)mayholdasadditionalsecurityanyproceeds,exceptmoneyorfunds,received
fromthecollateral;
(2)shallapplymoneyorfundsreceivedfromthecollateraltoreducethesecured
obligation,unlessremittedtothedebtor;and
(3)maycreateasecurityinterestinthecollateral.
[ 415 ]
(d)[Buyerofcertainrightstopayment.]
Ifthesecuredpartyisabuyerofaccounts,chattelpaper,paymentintangibles,or
promissorynotesoraconsignor:
(1)subsection(a)doesnotapplyunlessthesecuredpartyisentitledunderan
agreement:
(A)tochargebackuncollectedcollateral;or
(B)otherwisetofullorlimitedrecourseagainstthedebtororasecondary
obligorbasedonthenonpaymentorotherdefaultofanaccountdebtoror
otherobligoronthecollateral;and
(2)subsections(b)and(c)donotapply.
9208.ADDITIONALDUTIESOFSECUREDPARTYHAVINGCONTROLOFCOLLATERAL.
(a)[Applicabilityofsection.]
Thissectionappliestocasesinwhichthereisnooutstandingsecuredobligationand
thesecuredpartyisnotcommittedtomakeadvances,incurobligations,or
otherwisegivevalue.
(b)[Dutiesofsecuredpartyafterreceivingdemandfromdebtor.]
Within10daysafterreceivinganauthenticateddemandbythedebtor:
(1)asecuredpartyhavingcontrolofadepositaccountunderSection9104(a)(2)
shallsendtothebankwithwhichthedepositaccountismaintainedan
authenticatedstatementthatreleasesthebankfromanyfurtherobligationto
complywithinstructionsoriginatedbythesecuredparty;
(2)asecuredpartyhavingcontrolofadepositaccountunderSection9104(a)(3)
shall:
(A)paythedebtorthebalanceondepositinthedepositaccount;or
(B)transferthebalanceondepositintoadepositaccountinthedebtor's
name;
(3)asecuredparty,otherthanabuyer,havingcontrolofelectronicchattelpaper
underSection9105shall:
(A)communicatetheauthoritativecopyoftheelectronicchattelpapertothe
debtororitsdesignatedcustodian;
(B)ifthedebtordesignatesacustodianthatisthedesignatedcustodianwith
whichtheauthoritativecopyoftheelectronicchattelpaperismaintainedfor
[ 416 ]
thesecuredparty,communicatetothecustodiananauthenticatedrecord
releasingthedesignatedcustodianfromanyfurtherobligationtocomply
withinstructionsoriginatedbythesecuredpartyandinstructingthe
custodiantocomplywithinstructionsoriginatedbythedebtor;and
(C)takeappropriateactiontoenablethedebtororitsdesignatedcustodian
tomakecopiesoforrevisionstotheauthoritativecopywhichaddorchange
anidentifiedassigneeoftheauthoritativecopywithouttheconsentofthe
securedparty;
(4)asecuredpartyhavingcontrolofinvestmentpropertyunderSection8
106(d)(2)or9106(b)shallsendtothesecuritiesintermediaryorcommodity
intermediarywithwhichthesecurityentitlementorcommoditycontractis
maintainedanauthenticatedrecordthatreleasesthesecuritiesintermediaryor
commodityintermediaryfromanyfurtherobligationtocomplywithentitlement
ordersordirectionsoriginatedbythesecuredparty;
(5)asecuredpartyhavingcontrolofaletterofcreditrightunderSection9107
shallsendtoeachpersonhavinganunfulfilledobligationtopayordeliverproceeds
oftheletterofcredittothesecuredpartyanauthenticatedreleasefromanyfurther
obligationtopayordeliverproceedsoftheletterofcredittothesecuredparty.
9209.DUTIESOFSECUREDPARTYIFACCOUNTDEBTORHASBEENNOTIFIEDOF
ASSIGNMENT.
Exceptasotherwiseprovidedinsubsection(c),thissectionappliesif:
(1)thereisnooutstandingsecuredobligation;and
(2)thesecuredpartyisnotcommittedtomakeadvances,incurobligations,or
otherwisegivevalue.
(b)[Dutiesofsecuredpartyafterreceivingdemandfromdebtor.]
Within10daysafterreceivinganauthenticateddemandbythedebtor,asecured
partyshallsendtoanaccountdebtorthathasreceivednotificationofanassignment
tothesecuredpartyasassigneeunderSection9406(a)anauthenticatedrecord
thatreleasestheaccountdebtorfromanyfurtherobligationtothesecuredparty.
(c)[Inapplicabilitytosales.]
Thissectiondoesnotapplytoanassignmentconstitutingthesaleofanaccount,
chattelpaper,orpaymentintangible.
[ 417 ]
9210.REQUESTFORACCOUNTING;REQUESTREGARDINGLISTOFCOLLATERALOR
STATEMENTOFACCOUNT.
(a)[Definitions.]
Inthissection:
(1)"Request"meansarecordofatypedescribedinparagraph(2),(3),or(4).
(2)"Requestforanaccounting"meansarecordauthenticatedbyadebtor
requestingthattherecipientprovideanaccountingoftheunpaidobligations
securedbycollateralandreasonablyidentifyingthetransactionorrelationshipthat
isthesubjectoftherequest.
(3)"Requestregardingalistofcollateral"meansarecordauthenticatedbyadebtor
requestingthattherecipientapproveorcorrectalistofwhatthedebtorbelievesto
bethecollateralsecuringanobligationandreasonablyidentifyingthetransactionor
relationshipthatisthesubjectoftherequest.
(4)"Requestregardingastatementofaccount"meansarecordauthenticatedbya
debtorrequestingthattherecipientapproveorcorrectastatementindicatingwhat
thedebtorbelievestobetheaggregateamountofunpaidobligationssecuredby
collateralasofaspecifieddateandreasonablyidentifyingthetransactionor
relationshipthatisthesubjectoftherequest.
(b)[Dutytorespondtorequests.]
Subjecttosubsections(c),(d),(e),and(f),asecuredparty,otherthanabuyerof
accounts,chattelpaper,paymentintangibles,orpromissorynotesoraconsignor,
shallcomplywitharequestwithin14daysafterreceipt:
(1)inthecaseofarequestforanaccounting,byauthenticatingandsendingtothe
debtoranaccounting;and
(2)inthecaseofarequestregardingalistofcollateralorarequestregardinga
statementofaccount,byauthenticatingandsendingtothedebtoranapprovalor
correction.
(c)[Requestregardinglistofcollateral;statementconcerningtypeofcollateral.]
Asecuredpartythatclaimsasecurityinterestinallofaparticulartypeofcollateral
ownedbythedebtormaycomplywitharequestregardingalistofcollateralby
sendingtothedebtoranauthenticatedrecordincludingastatementtothateffect
within14daysafterreceipt.
(d)[Requestregardinglistofcollateral;nointerestclaimed.]
Apersonthatreceivesarequestregardingalistofcollateral,claimsnointerestin
thecollateralwhenitreceivestherequest,andclaimedaninterestinthecollateral
[ 418 ]
atanearliertimeshallcomplywiththerequestwithin14daysafterreceiptby
sendingtothedebtoranauthenticatedrecord:
(1)disclaiminganyinterestinthecollateral;and
(2)ifknowntotherecipient,providingthenameandmailingaddressofany
assigneeoforsuccessortotherecipient'sinterestinthecollateral.
(e)[Requestforaccountingorregardingstatementofaccount;nointerestinobligation
claimed.]
Apersonthatreceivesarequestforanaccountingorarequestregardinga
statementofaccount,claimsnointerestintheobligationswhenitreceivesthe
request,andclaimedaninterestintheobligationsatanearliertimeshallcomply
withtherequestwithin14daysafterreceiptbysendingtothedebtoran
authenticatedrecord:
(1)disclaiminganyinterestintheobligations;and
(2)ifknowntotherecipient,providingthenameandmailingaddressofany
assigneeoforsuccessortotherecipient'sinterestintheobligations.
(f)[Chargesforresponses.]
Adebtorisentitledwithoutchargetooneresponsetoarequestunderthissection
duringanysixmonthperiod.Thesecuredpartymayrequirepaymentofacharge
notexceeding$25foreachadditionalresponse.
PART3.PERFECTIONANDPRIORITY
[Subpart1.LawGoverningPerfectionandPriority]
9301.LAWGOVERNINGPERFECTIONANDPRIORITYOFSECURITYINTERESTS.
ExceptasotherwiseprovidedinSections9303through9306,thefollowingrules
determinethelawgoverningperfection,theeffectofperfectionornonperfection,andthe
priorityofasecurityinterestincollateral:
(1)Exceptasotherwiseprovidedinthissection,whileadebtorislocatedinajurisdiction,
thelocallawofthatjurisdictiongovernsperfection,theeffectofperfectionor
nonperfection,andthepriorityofasecurityinterestincollateral.
(2)Whilecollateralislocatedinajurisdiction,thelocallawofthatjurisdictiongoverns
perfection,theeffectofperfectionornonperfection,andthepriorityofapossessory
securityinterestinthatcollateral.
(3)Exceptasotherwiseprovidedinparagraph(4),whilenegotiabledocuments,goods,
instruments,money,ortangiblechattelpaperislocatedinajurisdiction,thelocallawof
thatjurisdictiongoverns:
[ 419 ]
(A)perfectionofasecurityinterestinthegoodsbyfilingafixturefiling;
(B)perfectionofasecurityinterestintimbertobecut;and
(C)theeffectofperfectionornonperfectionandthepriorityofanonpossessory
securityinterestinthecollateral.
(4)Thelocallawofthejurisdictioninwhichthewellheadormineheadislocatedgoverns
perfection,theeffectofperfectionornonperfection,andthepriorityofasecurityinterest
inasextractedcollateral.
9302.LAWGOVERNINGPERFECTIONANDPRIORITYOFAGRICULTURALLIENS.
Whilefarmproductsarelocatedinajurisdiction,thelocallawofthatjurisdictiongoverns
perfection,theeffectofperfectionornonperfection,andthepriorityofanagriculturallien
onthefarmproducts.
9303.LAWGOVERNINGPERFECTIONANDPRIORITYOFSECURITYINTERESTSINGOODS
COVEREDBYACERTIFICATEOFTITLE.
Thissectionappliestogoodscoveredbyacertificateoftitle,evenifthereisnoother
relationshipbetweenthejurisdictionunderwhosecertificateoftitlethegoodsare
coveredandthegoodsorthedebtor.
(b)[Whengoodscoveredbycertificateoftitle.]
Goodsbecomecoveredbyacertificateoftitlewhenavalidapplicationforthe
certificateoftitleandtheapplicablefeearedeliveredtotheappropriateauthority.
Goodsceasetobecoveredbyacertificateoftitleattheearlierofthetimethe
certificateoftitleceasestobeeffectiveunderthelawoftheissuingjurisdictionor
thetimethegoodsbecomecoveredsubsequentlybyacertificateoftitleissuedby
anotherjurisdiction.
(c)[Applicablelaw.]
Thelocallawofthejurisdictionunderwhosecertificateoftitlethegoodsare
coveredgovernsperfection,theeffectofperfectionornonperfection,andthe
priorityofasecurityinterestingoodscoveredbyacertificateoftitlefromthetime
thegoodsbecomecoveredbythecertificateoftitleuntilthegoodsceasetobe
coveredbythecertificateoftitle.
[ 420 ]
DEPOSITACCOUNTS.
(a)[Lawofbank'sjurisdictiongoverns.]
Thelocallawofabank'sjurisdictiongovernsperfection,theeffectofperfectionor
nonperfection,andthepriorityofasecurityinterestinadepositaccountmaintained
withthatbank.
(b)[Bank'sjurisdiction.]
Thefollowingrulesdetermineabank'sjurisdictionforpurposesofthispart:
(1)Ifanagreementbetweenthebankandthedebtorgoverningthedepositaccount
expresslyprovidesthataparticularjurisdictionisthebank'sjurisdictionfor
purposesofthispart,thisarticle,or[theUniformCommercialCode],that
jurisdictionisthebank'sjurisdiction.
(2)Ifparagraph(1)doesnotapplyandanagreementbetweenthebankandits
customergoverningthedepositaccountexpresslyprovidesthattheagreementis
governedbythelawofaparticularjurisdiction,thatjurisdictionisthebank's
jurisdiction.
(3)Ifneitherparagraph(1)norparagraph(2)appliesandanagreementbetween
thebankanditscustomergoverningthedepositaccountexpresslyprovidesthatthe
depositaccountismaintainedatanofficeinaparticularjurisdiction,that
jurisdictionisthebank'sjurisdiction.
(4)Ifnoneoftheprecedingparagraphsapplies,thebank'sjurisdictionisthe
jurisdictioninwhichtheofficeidentifiedinanaccountstatementastheoffice
servingthecustomer'saccountislocated.
(5)Ifnoneoftheprecedingparagraphsapplies,thebank'sjurisdictionisthe
jurisdictioninwhichthechiefexecutiveofficeofthebankislocated.
INVESTMENTPROPERTY.
(a)[Governinglaw:generalrules.]
Exceptasotherwiseprovidedinsubsection(c),thefollowingrulesapply:
(1)Whileasecuritycertificateislocatedinajurisdiction,thelocallawofthat
jurisdictiongovernsperfection,theeffectofperfectionornonperfection,andthe
priorityofasecurityinterestinthecertificatedsecurityrepresentedthereby.
(2)Thelocallawoftheissuer'sjurisdictionasspecifiedinSection8110(d)governs
perfection,theeffectofperfectionornonperfection,andthepriorityofasecurity
interestinanuncertificatedsecurity.
[ 421 ]
(3)Thelocallawofthesecuritiesintermediary'sjurisdictionasspecifiedinSection
8110(e)governsperfection,theeffectofperfectionornonperfection,andthe
priorityofasecurityinterestinasecurityentitlementorsecuritiesaccount.
(4)Thelocallawofthecommodityintermediary'sjurisdictiongovernsperfection,
theeffectofperfectionornonperfection,andthepriorityofasecurityinterestina
commoditycontractorcommodityaccount.
(b)[Commodityintermediary'sjurisdiction.]
Thefollowingrulesdetermineacommodityintermediary'sjurisdictionforpurposes
ofthispart:
(1)Ifanagreementbetweenthecommodityintermediaryandcommoditycustomer
governingthecommodityaccountexpresslyprovidesthataparticularjurisdictionis
thecommodityintermediary'sjurisdictionforpurposesofthispart,thisarticle,or
[theUniformCommercialCode],thatjurisdictionisthecommodityintermediary's
jurisdiction.
(2)Ifparagraph(1)doesnotapplyandanagreementbetweenthecommodity
intermediaryandcommoditycustomergoverningthecommodityaccountexpressly
providesthattheagreementisgovernedbythelawofaparticularjurisdiction,that
jurisdictionisthecommodityintermediary'sjurisdiction.
(3)Ifneitherparagraph(1)norparagraph(2)appliesandanagreementbetween
thecommodityintermediaryandcommoditycustomergoverningthecommodity
accountexpresslyprovidesthatthecommodityaccountismaintainedatanofficein
aparticularjurisdiction,thatjurisdictionisthecommodityintermediary's
jurisdiction.
(4)Ifnoneoftheprecedingparagraphsapplies,thecommodityintermediary's
jurisdictionisthejurisdictioninwhichtheofficeidentifiedinanaccountstatement
astheofficeservingthecommoditycustomer'saccountislocated.
(5)Ifnoneoftheprecedingparagraphsapplies,thecommodityintermediary's
jurisdictionisthejurisdictioninwhichthechiefexecutiveofficeofthecommodity
intermediaryislocated.
(c)[Whenperfectiongovernedbylawofjurisdictionwheredebtorlocated.]
Thelocallawofthejurisdictioninwhichthedebtorislocatedgoverns:
(1)perfectionofasecurityinterestininvestmentpropertybyfiling;
(2)automaticperfectionofasecurityinterestininvestmentpropertycreatedbya
brokerorsecuritiesintermediary;and
(3)automaticperfectionofasecurityinterestinacommoditycontractor
commodityaccountcreatedbyacommodityintermediary.
[ 422 ]
LETTEROFCREDITRIGHTS.
(a)[Governinglaw:issuer'sornominatedperson'sjurisdiction.]
Subjecttosubsection(c),thelocallawoftheissuer'sjurisdictionoranominated
person'sjurisdictiongovernsperfection,theeffectofperfectionornonperfection,
andthepriorityofasecurityinterestinaletterofcreditrightiftheissuer's
jurisdictionornominatedperson'sjurisdictionisaState.
(b)[Issuer'sornominatedperson'sjurisdiction.]
Forpurposesofthispart,anissuer'sjurisdictionornominatedperson'sjurisdiction
isthejurisdictionwhoselawgovernstheliabilityoftheissuerornominatedperson
withrespecttotheletterofcreditrightasprovidedinSection5116.
(c)[Whensectionnotapplicable.]
ThissectiondoesnotapplytoasecurityinterestthatisperfectedonlyunderSection
9308(d).
9307.LOCATIONOFDEBTOR.
(a)["Placeofbusiness."]
Inthissection,"placeofbusiness"meansaplacewhereadebtorconductsitsaffairs.
(b)[Debtor'slocation:generalrules.]
Exceptasotherwiseprovidedinthissection,thefollowingrulesdeterminea
debtor'slocation:
(1)Adebtorwhoisanindividualislocatedattheindividual'sprincipalresidence.
(2)Adebtorthatisanorganizationandhasonlyoneplaceofbusinessislocatedat
itsplaceofbusiness.
(3)Adebtorthatisanorganizationandhasmorethanoneplaceofbusinessis
locatedatitschiefexecutiveoffice.
(c)[Limitationofapplicabilityofsubsection(b).]
Subsection(b)appliesonlyifadebtor'sresidence,placeofbusiness,orchief
executiveoffice,asapplicable,islocatedinajurisdictionwhoselawgenerally
requiresinformationconcerningtheexistenceofanonpossessorysecurityinterest
tobemadegenerallyavailableinafiling,recording,orregistrationsystemasa
conditionorresultofthesecurityinterest'sobtainingpriorityovertherightsofa
liencreditorwithrespecttothecollateral.Ifsubsection(b)doesnotapply,the
debtorislocatedintheDistrictofColumbia.
[ 423 ]
(d)[Continuationoflocation:cessationofexistence,etc.]
Apersonthatceasestoexist,havearesidence,orhaveaplaceofbusinesscontinues
tobelocatedinthejurisdictionspecifiedbysubsections(b)and(c).
(e)[LocationofregisteredorganizationorganizedunderStatelaw.]
AregisteredorganizationthatisorganizedunderthelawofaStateislocatedinthat
State.
(f)[Locationofregisteredorganizationorganizedunderfederallaw;bankbranchesand
agencies.]
Exceptasotherwiseprovidedinsubsection(i),aregisteredorganizationthatis
organizedunderthelawoftheUnitedStatesandabranchoragencyofabankthat
isnotorganizedunderthelawoftheUnitedStatesoraStatearelocated:
(1)intheStatethatthelawoftheUnitedStatesdesignates,ifthelawdesignatesa
Stateoflocation;
(2)intheStatethattheregisteredorganization,branch,oragencydesignates,ifthe
lawoftheUnitedStatesauthorizestheregisteredorganization,branch,oragencyto
designateitsStateoflocation;or
(3)intheDistrictofColumbia,ifneitherparagraph(1)norparagraph(2)applies.
(g)[Continuationoflocation:changeinstatusofregisteredorganization.]
Aregisteredorganizationcontinuestobelocatedinthejurisdictionspecifiedby
subsection(e)or(f)notwithstanding:
(1)thesuspension,revocation,forfeiture,orlapseoftheregisteredorganization's
statusassuchinitsjurisdictionoforganization;or
(2)thedissolution,windingup,orcancellationoftheexistenceoftheregistered
organization.
(h)[LocationofUnitedStates.]
TheUnitedStatesislocatedintheDistrictofColumbia.
(i)[Locationofforeignbankbranchoragencyiflicensedinonlyonestate.]
AbranchoragencyofabankthatisnotorganizedunderthelawoftheUnitedStates
oraStateislocatedintheStateinwhichthebranchoragencyislicensed,ifall
branchesandagenciesofthebankarelicensedinonlyoneState.
(j)[Locationofforeignaircarrier.]
[ 424 ]
AforeignaircarrierundertheFederalAviationActof1958,asamended,islocated
atthedesignatedofficeoftheagentuponwhichserviceofprocessmaybemadeon
behalfofthecarrier.
(k)[Sectionappliesonlytothispart.]
Thissectionappliesonlyforpurposesofthispart.
9308.WHENSECURITYINTERESTORAGRICULTURALLIENISPERFECTED;CONTINUITY
OFPERFECTION.
(a)[Perfectionofsecurityinterest.]
ExceptasotherwiseprovidedinthissectionandSection9309,asecurityinterestis
perfectedifithasattachedandalloftheapplicablerequirementsforperfectionin
Sections9310through9316havebeensatisfied.Asecurityinterestisperfected
whenitattachesiftheapplicablerequirementsaresatisfiedbeforethesecurity
interestattaches.
(b)[Perfectionofagriculturallien.]
Anagriculturallienisperfectedifithasbecomeeffectiveandalloftheapplicable
requirementsforperfectioninSection9310havebeensatisfied.Anagricultural
lienisperfectedwhenitbecomeseffectiveiftheapplicablerequirementsare
satisfiedbeforetheagriculturallienbecomeseffective.
(c)[Continuousperfection;perfectionbydifferentmethods.]
Asecurityinterestoragriculturallienisperfectedcontinuouslyifitisoriginally
perfectedbyonemethodunderthisarticleandislaterperfectedbyanothermethod
underthisarticle,withoutanintermediateperiodwhenitwasunperfected.
(d)[Supportingobligation.]
Perfectionofasecurityinterestincollateralalsoperfectsasecurityinterestina
supportingobligationforthecollateral.
(e)[Liensecuringrighttopayment.]
Perfectionofasecurityinterestinarighttopaymentorperformancealsoperfectsa
securityinterestinasecurityinterest,mortgage,orotherlienonpersonalorreal
propertysecuringtheright.
(f)[Securityentitlementcarriedinsecuritiesaccount.]
Perfectionofasecurityinterestinasecuritiesaccountalsoperfectsasecurity
interestinthesecurityentitlementscarriedinthesecuritiesaccount.
(g)[Commoditycontractcarriedincommodityaccount.]
[ 425 ]
Perfectionofasecurityinterestinacommodityaccountalsoperfectsasecurity
interestinthecommoditycontractscarriedinthecommodityaccount.
9309.SECURITYINTERESTPERFECTEDUPONATTACHMENT.
Thefollowingsecurityinterestsareperfectedwhentheyattach:
(1)apurchasemoneysecurityinterestinconsumergoods,exceptasotherwiseprovidedin
Section9311(b)withrespecttoconsumergoodsthataresubjecttoastatuteortreaty
describedinSection9311(a);
(2)anassignmentofaccountsorpaymentintangibleswhichdoesnotbyitselforin
conjunctionwithotherassignmentstothesameassigneetransferasignificantpartofthe
assignor'soutstandingaccountsorpaymentintangibles;
(3)asaleofapaymentintangible;
(4)asaleofapromissorynote;
(5)asecurityinterestcreatedbytheassignmentofahealthcareinsurancereceivableto
theproviderofthehealthcaregoodsorservices;
(6)asecurityinterestarisingunderSection2401,2505,2711(3),or2A508(5),untilthe
debtorobtainspossessionofthecollateral;
(7)asecurityinterestofacollectingbankarisingunderSection4210;
(8)asecurityinterestofanissuerornominatedpersonarisingunderSection5118;
(9)asecurityinterestarisinginthedeliveryofafinancialassetunderSection9206(c);
(10)asecurityinterestininvestmentpropertycreatedbyabrokerorsecurities
intermediary;
(11)asecurityinterestinacommoditycontractoracommodityaccountcreatedbya
commodityintermediary;
(12)anassignmentforthebenefitofallcreditorsofthetransferorandsubsequent
transfersbytheassigneethereunder;and
(13)asecurityinterestcreatedbyanassignmentofabeneficialinterestinadecedent's
estate.
[ 426 ]
9310.WHENFILINGREQUIREDTOPERFECTSECURITYINTERESTORAGRICULTURAL
LIEN;SECURITYINTERESTSANDAGRICULTURALLIENSTOWHICHFILINGPROVISIONSDO
NOTAPPLY.
(a)[Generalrule:perfectionbyfiling.]
Exceptasotherwiseprovidedinsubsection(b)andSection9312(b),afinancing
statementmustbefiledtoperfectallsecurityinterestsandagriculturalliens.
(b)[Exceptions:filingnotnecessary.]
Thefilingofafinancingstatementisnotnecessarytoperfectasecurityinterest:
(1)thatisperfectedunderSection9308(d),(e),(f),or(g);
(2)thatisperfectedunderSection9309whenitattaches;
(3)inpropertysubjecttoastatute,regulation,ortreatydescribedinSection9
311(a);
(4)ingoodsinpossessionofabaileewhichisperfectedunderSection9312(d)(1)
or(2);
(5)incertificatedsecurities,documents,goods,orinstrumentswhichisperfected
withoutfilingorpossessionunderSection9312(e),(f),or(g);
(6)incollateralinthesecuredparty'spossessionunderSection9313;
(7)inacertificatedsecuritywhichisperfectedbydeliveryofthesecuritycertificate
tothesecuredpartyunderSection9313;
(8)indepositaccounts,electronicchattelpaper,investmentproperty,orletterof
creditrightswhichisperfectedbycontrolunderSection9314;
(9)inproceedswhichisperfectedunderSection9315;or
(10)thatisperfectedunderSection9316.
(c)[Assignmentofperfectedsecurityinterest.]
Ifasecuredpartyassignsaperfectedsecurityinterestoragriculturallien,afiling
underthisarticleisnotrequiredtocontinuetheperfectedstatusofthesecurity
interestagainstcreditorsofandtransfereesfromtheoriginaldebtor.
[ 427 ]
9311.PERFECTIONOFSECURITYINTERESTSINPROPERTYSUBJECTTOCERTAIN
STATUTES,REGULATIONS,ANDTREATIES.
(a)[Securityinterestsubjecttootherlaw.]
Exceptasotherwiseprovidedinsubsection(d),thefilingofafinancingstatementis
notnecessaryoreffectivetoperfectasecurityinterestinpropertysubjectto:
(1)astatute,regulation,ortreatyoftheUnitedStateswhoserequirementsfora
securityinterest'sobtainingpriorityovertherightsofaliencreditorwithrespectto
thepropertypreemptSection9310(a);
(2)[listanycertificateoftitlestatutecoveringautomobiles,trailers,mobilehomes,
boats,farmtractors,orthelike,whichprovidesforasecurityinteresttobe
indicatedonthecertificateasaconditionorresultofperfection,andanynon
UniformCommercialCodecentralfilingstatute];or
(3)acertificateoftitlestatuteofanotherjurisdictionwhichprovidesforasecurity
interesttobeindicatedonthecertificateasaconditionorresultofthesecurity
interest'sobtainingpriorityovertherightsofaliencreditorwithrespecttothe
property.
(b)[Compliancewithotherlaw.]
Compliancewiththerequirementsofastatute,regulation,ortreatydescribedin
subsection(a)forobtainingpriorityovertherightsofaliencreditorisequivalentto
thefilingofafinancingstatementunderthisarticle.Exceptasotherwiseprovidedin
subsection(d)andSections9313and9316(d)and(e)forgoodscoveredbya
certificateoftitle,asecurityinterestinpropertysubjecttoastatute,regulation,or
treatydescribedinsubsection(a)maybeperfectedonlybycompliancewiththose
requirements,andasecurityinterestsoperfectedremainsperfected
notwithstandingachangeintheuseortransferofpossessionofthecollateral.
(c)[Durationandrenewalofperfection.]
Exceptasotherwiseprovidedinsubsection(d)andSection9316(d)and(e),
durationandrenewalofperfectionofasecurityinterestperfectedbycompliance
withtherequirementsprescribedbyastatute,regulation,ortreatydescribedin
subsection(a)aregovernedbythestatute,regulation,ortreaty.Inotherrespects,
thesecurityinterestissubjecttothisarticle.
(d)[Inapplicabilitytocertaininventory.]
Duringanyperiodinwhichcollateralsubjecttoastatutespecifiedinsubsection
(a)(2)isinventoryheldforsaleorleasebyapersonorleasedbythatpersonas
lessorandthatpersonisinthebusinessofsellinggoodsofthatkind,thissection
doesnotapplytoasecurityinterestinthatcollateralcreatedbythatperson.
[ 428 ]
9312.PERFECTIONOFSECURITYINTERESTSINCHATTELPAPER,DEPOSITACCOUNTS,
DOCUMENTS,GOODSCOVEREDBYDOCUMENTS,INSTRUMENTS,INVESTMENTPROPERTY,
LETTEROFCREDITRIGHTS,ANDMONEY;PERFECTIONBYPERMISSIVEFILING;
TEMPORARYPERFECTIONWITHOUTFILINGORTRANSFEROFPOSSESSION.
(a)[Perfectionbyfilingpermitted.]
Asecurityinterestinchattelpaper,negotiabledocuments,instruments,or
investmentpropertymaybeperfectedbyfiling.
(b)[Controlorpossessionofcertaincollateral.]
ExceptasotherwiseprovidedinSection9315(c)and(d)forproceeds:
(1)asecurityinterestinadepositaccountmaybeperfectedonlybycontrolunder
Section9314;
(2)andexceptasotherwiseprovidedinSection9308(d),asecurityinterestina
letterofcreditrightmaybeperfectedonlybycontrolunderSection9314;and
(3)asecurityinterestinmoneymaybeperfectedonlybythesecuredparty'staking
possessionunderSection9313.
(c)[Goodscoveredbynegotiabledocument.]
Whilegoodsareinthepossessionofabaileethathasissuedanegotiabledocument
coveringthegoods:
(1)asecurityinterestinthegoodsmaybeperfectedbyperfectingasecurity
interestinthedocument;and
(2)asecurityinterestperfectedinthedocumenthaspriorityoveranysecurity
interestthatbecomesperfectedinthegoodsbyanothermethodduringthattime.
(d)[Goodscoveredbynonnegotiabledocument.]
Whilegoodsareinthepossessionofabaileethathasissuedanonnegotiable
documentcoveringthegoods,asecurityinterestinthegoodsmaybeperfectedby:
(1)issuanceofadocumentinthenameofthesecuredparty;
(2)thebailee'sreceiptofnotificationofthesecuredparty'sinterest;or
(3)filingastothegoods.
(e)[Temporaryperfection:newvalue.]
Asecurityinterestincertificatedsecurities,negotiabledocuments,orinstrumentsis
perfectedwithoutfilingorthetakingofpossessionorcontrolforaperiodof20days
[ 429 ]
fromthetimeitattachestotheextentthatitarisesfornewvaluegivenunderan
authenticatedsecurityagreement.
(f)[Temporaryperfection:goodsordocumentsmadeavailabletodebtor.]
Aperfectedsecurityinterestinanegotiabledocumentorgoodsinpossessionofa
bailee,otherthanonethathasissuedanegotiabledocumentforthegoods,remains
perfectedfor20dayswithoutfilingifthesecuredpartymakesavailabletothe
debtorthegoodsordocumentsrepresentingthegoodsforthepurposeof:
(1)ultimatesaleorexchange;or
(2)loading,unloading,storing,shipping,transshipping,manufacturing,processing,
orotherwisedealingwiththeminamannerpreliminarytotheirsaleorexchange.
(g)[Temporaryperfection:deliveryofsecuritycertificateorinstrumenttodebtor.]
Aperfectedsecurityinterestinacertificatedsecurityorinstrumentremains
perfectedfor20dayswithoutfilingifthesecuredpartydeliversthesecurity
certificateorinstrumenttothedebtorforthepurposeof:
(1)ultimatesaleorexchange;or
(2)presentation,collection,enforcement,renewal,orregistrationoftransfer.
(h)[Expirationoftemporaryperfection.]
Afterthe20dayperiodspecifiedinsubsection(e),(f),or(g)expires,perfection
dependsuponcompliancewiththisarticle.
9313.WHENPOSSESSIONBYORDELIVERYTOSECUREDPARTYPERFECTSSECURITY
INTERESTWITHOUTFILING.
(a)[Perfectionbypossessionordelivery.]
Exceptasotherwiseprovidedinsubsection(b),asecuredpartymayperfecta
securityinterestinnegotiabledocuments,goods,instruments,money,ortangible
chattelpaperbytakingpossessionofthecollateral.Asecuredpartymayperfecta
securityinterestincertificatedsecuritiesbytakingdeliveryofthecertificated
securitiesunderSection8301.
(b)[Goodscoveredbycertificateoftitle.]
WithrespecttogoodscoveredbyacertificateoftitleissuedbythisState,asecured
partymayperfectasecurityinterestinthegoodsbytakingpossessionofthegoods
onlyinthecircumstancesdescribedinSection9316(d).
(c)[Collateralinpossessionofpersonotherthandebtor.]
[ 430 ]
Withrespecttocollateralotherthancertificatedsecuritiesandgoodscoveredbya
document,asecuredpartytakespossessionofcollateralinthepossessionofa
personotherthanthedebtor,thesecuredparty,oralesseeofthecollateralfromthe
debtorintheordinarycourseofthedebtor'sbusiness,when:
(1)thepersoninpossessionauthenticatesarecordacknowledgingthatitholds
possessionofthecollateralforthesecuredparty'sbenefit;or
(2)thepersontakespossessionofthecollateralafterhavingauthenticatedarecord
acknowledgingthatitwillholdpossessionofcollateralforthesecuredparty's
benefit.
(d)[Timeofperfectionbypossession;continuationofperfection.]
Ifperfectionofasecurityinterestdependsuponpossessionofthecollateralbya
securedparty,perfectionoccursnoearlierthanthetimethesecuredpartytakes
possessionandcontinuesonlywhilethesecuredpartyretainspossession.
(e)[Timeofperfectionbydelivery;continuationofperfection.]
Asecurityinterestinacertificatedsecurityinregisteredformisperfectedby
deliverywhendeliveryofthecertificatedsecurityoccursunderSection8301and
remainsperfectedbydeliveryuntilthedebtorobtainspossessionofthesecurity
certificate.
(f)[Acknowledgmentnotrequired.]
Apersoninpossessionofcollateralisnotrequiredtoacknowledgethatitholds
possessionforasecuredparty'sbenefit.
(g)[Effectivenessofacknowledgment;nodutiesorconfirmation.]
Ifapersonacknowledgesthatitholdspossessionforthesecuredparty'sbenefit:
(1)theacknowledgmentiseffectiveundersubsection(c)orSection8301(a),even
iftheacknowledgmentviolatestherightsofadebtor;and
(2)unlessthepersonotherwiseagreesorlawotherthanthisarticleotherwise
provides,thepersondoesnotoweanydutytothesecuredpartyandisnotrequired
toconfirmtheacknowledgmenttoanotherperson.
(h)[Securedparty'sdeliverytopersonotherthandebtor.]
Asecuredpartyhavingpossessionofcollateraldoesnotrelinquishpossessionby
deliveringthecollateraltoapersonotherthanthedebtororalesseeofthe
collateralfromthedebtorintheordinarycourseofthedebtor'sbusinessifthe
personwasinstructedbeforethedeliveryorisinstructedcontemporaneouslywith
thedelivery:
[ 431 ]
(1)toholdpossessionofthecollateralforthesecuredparty'sbenefit;or
(2)toredeliverthecollateraltothesecuredparty.
(i)[Effectofdeliveryundersubsection(h);nodutiesorconfirmation.]
Asecuredpartydoesnotrelinquishpossession,evenifadeliveryundersubsection
(h)violatestherightsofadebtor.Apersontowhichcollateralisdeliveredunder
subsection(h)doesnotoweanydutytothesecuredpartyandisnotrequiredto
confirmthedeliverytoanotherpersonunlessthepersonotherwiseagreesorlaw
otherthanthisarticleotherwiseprovides.
9314.PERFECTIONBYCONTROL.
(a)[Perfectionbycontrol.]
Asecurityinterestininvestmentproperty,depositaccounts,letterofcreditrights,
orelectronicchattelpapermaybeperfectedbycontrolofthecollateralunder
Section9104,9105,9106,or9107.
(b)[Specifiedcollateral:timeofperfectionbycontrol;continuationofperfection.]
Asecurityinterestindepositaccounts,electronicchattelpaper,orletterofcredit
rightsisperfectedbycontrolunderSection9104,9105,or9107whenthe
securedpartyobtainscontrolandremainsperfectedbycontrolonlywhilethe
securedpartyretainscontrol.
(c)[Investmentproperty:timeofperfectionbycontrol;continuationofperfection.]
AsecurityinterestininvestmentpropertyisperfectedbycontrolunderSection9
106fromthetimethesecuredpartyobtainscontrolandremainsperfectedby
controluntil:
(1)thesecuredpartydoesnothavecontrol;and
(2)oneofthefollowingoccurs:
(A)ifthecollateralisacertificatedsecurity,thedebtorhasoracquires
possessionofthesecuritycertificate;
(B)ifthecollateralisanuncertificatedsecurity,theissuerhasregisteredor
registersthedebtorastheregisteredowner;or
(C)ifthecollateralisasecurityentitlement,thedebtorisorbecomesthe
entitlementholder.
[ 432 ]
9315.SECUREDPARTY'SRIGHTSONDISPOSITIONOFCOLLATERALANDINPROCEEDS.
(a)[Dispositionofcollateral:continuationofsecurityinterestoragriculturallien;
proceeds.]
ExceptasotherwiseprovidedinthisarticleandinSection2403(2):
(1)asecurityinterestoragriculturalliencontinuesincollateralnotwithstanding
sale,lease,license,exchange,orotherdispositionthereofunlessthesecuredparty
authorizedthedispositionfreeofthesecurityinterestoragriculturallien;and
(2)asecurityinterestattachestoanyidentifiableproceedsofcollateral.
(b)[Whencommingledproceedsidentifiable.]
Proceedsthatarecommingledwithotherpropertyareidentifiableproceeds:
(1)iftheproceedsaregoods,totheextentprovidedbySection9336;and
(2)iftheproceedsarenotgoods,totheextentthatthesecuredpartyidentifiesthe
proceedsbyamethodoftracing,includingapplicationofequitableprinciples,thatis
permittedunderlawotherthanthisarticlewithrespecttocommingledpropertyof
thetypeinvolved.
(c)[Perfectionofsecurityinterestinproceeds.]
Asecurityinterestinproceedsisaperfectedsecurityinterestifthesecurityinterest
intheoriginalcollateralwasperfected.
(d)[Continuationofperfection.]
Aperfectedsecurityinterestinproceedsbecomesunperfectedonthe21stdayafter
thesecurityinterestattachestotheproceedsunless:
(1)thefollowingconditionsaresatisfied:
(A)afiledfinancingstatementcoverstheoriginalcollateral;
(B)theproceedsarecollateralinwhichasecurityinterestmaybeperfected
byfilingintheofficeinwhichthefinancingstatementhasbeenfiled;and
(C)theproceedsarenotacquiredwithcashproceeds;
(2)theproceedsareidentifiablecashproceeds;or
(3)thesecurityinterestintheproceedsisperfectedotherthanundersubsection(c)
whenthesecurityinterestattachestotheproceedsorwithin20daysthereafter.
(e)[Whenperfectedsecurityinterestinproceedsbecomesunperfected.]
[ 433 ]
Ifafiledfinancingstatementcoverstheoriginalcollateral,asecurityinterestin
proceedswhichremainsperfectedundersubsection(d)(1)becomesunperfectedat
thelaterof:
(1)whentheeffectivenessofthefiledfinancingstatementlapsesunderSection9
515oristerminatedunderSection9513;or
(2)the21stdayafterthesecurityinterestattachestotheproceeds.
9316.CONTINUEDPERFECTIONOFSECURITYINTERESTFOLLOWINGCHANGEIN
GOVERNINGLAW.
(a)[Generalrule:effectonperfectionofchangeingoverninglaw.]
Asecurityinterestperfectedpursuanttothelawofthejurisdictiondesignatedin
Section9301(1)or9305(c)remainsperfecteduntiltheearliestof:
(1)thetimeperfectionwouldhaveceasedunderthelawofthatjurisdiction;
(2)theexpirationoffourmonthsafterachangeofthedebtor'slocationtoanother
jurisdiction;or
(3)theexpirationofoneyearafteratransferofcollateraltoapersonthatthereby
becomesadebtorandislocatedinanotherjurisdiction.
(b)[Securityinterestperfectedorunperfectedunderlawofnewjurisdiction.]
Ifasecurityinterestdescribedinsubsection(a)becomesperfectedunderthelawof
theotherjurisdictionbeforetheearliesttimeoreventdescribedinthatsubsection,
itremainsperfectedthereafter.Ifthesecurityinterestdoesnotbecomeperfected
underthelawoftheotherjurisdictionbeforetheearliesttimeorevent,itbecomes
unperfectedandisdeemednevertohavebeenperfectedasagainstapurchaserof
thecollateralforvalue.
(c)[Possessorysecurityinterestincollateralmovedtonewjurisdiction.]
Apossessorysecurityinterestincollateral,otherthangoodscoveredbyacertificate
oftitleandasextractedcollateralconsistingofgoods,remainscontinuously
perfectedif:
(1)thecollateralislocatedinonejurisdictionandsubjecttoasecurityinterest
perfectedunderthelawofthatjurisdiction;
(2)thereafterthecollateralisbroughtintoanotherjurisdiction;and
(3)uponentryintotheotherjurisdiction,thesecurityinterestisperfectedunder
thelawoftheotherjurisdiction.
(d)[Goodscoveredbycertificateoftitlefromthisstate.]
[ 434 ]
Exceptasotherwiseprovidedinsubsection(e),asecurityinterestingoodscovered
byacertificateoftitlewhichisperfectedbyanymethodunderthelawofanother
jurisdictionwhenthegoodsbecomecoveredbyacertificateoftitlefromthisState
remainsperfecteduntilthesecurityinterestwouldhavebecomeunperfectedunder
thelawoftheotherjurisdictionhadthegoodsnotbecomesocovered.
(e)[Whensubsection(d)securityinterestbecomesunperfectedagainstpurchasers.]
Asecurityinterestdescribedinsubsection(d)becomesunperfectedasagainsta
purchaserofthegoodsforvalueandisdeemednevertohavebeenperfectedas
againstapurchaserofthegoodsforvalueiftheapplicablerequirementsfor
perfectionunderSection9311(b)or9313arenotsatisfiedbeforetheearlierof:
(1)thetimethesecurityinterestwouldhavebecomeunperfectedunderthelawof
theotherjurisdictionhadthegoodsnotbecomecoveredbyacertificateoftitlefrom
thisState;or
(2)theexpirationoffourmonthsafterthegoodshadbecomesocovered.
(f)[Changeinjurisdictionofbank,issuer,nominatedperson,securitiesintermediary,or
commodityintermediary.]
Asecurityinterestindepositaccounts,letterofcreditrights,orinvestment
propertywhichisperfectedunderthelawofthebank'sjurisdiction,theissuer's
jurisdiction,anominatedperson'sjurisdiction,thesecuritiesintermediary's
jurisdiction,orthecommodityintermediary'sjurisdiction,asapplicable,remains
perfecteduntiltheearlierof:
(1)thetimethesecurityinterestwouldhavebecomeunperfectedunderthelawof
thatjurisdiction;or
(2)theexpirationoffourmonthsafterachangeoftheapplicablejurisdictionto
anotherjurisdiction.
(g)[Subsection(f)securityinterestperfectedorunperfectedunderlawofnew
jurisdiction.]
Ifasecurityinterestdescribedinsubsection(f)becomesperfectedunderthelawof
theotherjurisdictionbeforetheearlierofthetimeortheendoftheperiod
describedinthatsubsection,itremainsperfectedthereafter.Ifthesecurityinterest
doesnotbecomeperfectedunderthelawoftheotherjurisdictionbeforetheearlier
ofthattimeortheendofthatperiod,itbecomesunperfectedandisdeemednever
tohavebeenperfectedasagainstapurchaserofthecollateralforvalue.
[ 435 ]
[Subpart3.Priority]
9317.INTERESTSTHATTAKEPRIORITYOVERORTAKEFREEOFSECURITYINTERESTOR
AGRICULTURALLIEN.
(a)[Conflictingsecurityinterestsandrightsofliencreditors.]
Asecurityinterestoragriculturallienissubordinatetotherightsof:
(1)apersonentitledtopriorityunderSection9322;and
(2)exceptasotherwiseprovidedinsubsection(e),apersonthatbecomesalien
creditorbeforetheearlierofthetime:
(A)thesecurityinterestoragriculturallienisperfected;or
(B)oneoftheconditionsspecifiedinSection9203(b)(3)ismetanda
financingstatementcoveringthecollateralisfiled.
(b)[Buyersthatreceivedelivery.]
Exceptasotherwiseprovidedinsubsection(e),abuyer,otherthanasecuredparty,
oftangiblechattelpaper,documents,goods,instruments,orasecuritycertificate
takesfreeofasecurityinterestoragriculturallienifthebuyergivesvalueand
receivesdeliveryofthecollateralwithoutknowledgeofthesecurityinterestor
agriculturallienandbeforeitisperfected.
(c)[Lesseesthatreceivedelivery.]
Exceptasotherwiseprovidedinsubsection(e),alesseeofgoodstakesfreeofa
securityinterestoragriculturallienifthelesseegivesvalueandreceivesdeliveryof
thecollateralwithoutknowledgeofthesecurityinterestoragriculturallienand
beforeitisperfected.
(d)[Licenseesandbuyersofcertaincollateral.]
Alicenseeofageneralintangibleorabuyer,otherthanasecuredparty,ofaccounts,
electronicchattelpaper,generalintangibles,orinvestmentpropertyotherthana
certificatedsecuritytakesfreeofasecurityinterestifthelicenseeorbuyergives
valuewithoutknowledgeofthesecurityinterestandbeforeitisperfected.
(e)[Purchasemoneysecurityinterest.]
ExceptasotherwiseprovidedinSections9320and9321,ifapersonfilesa
financingstatementwithrespecttoapurchasemoneysecurityinterestbeforeor
within20daysafterthedebtorreceivesdeliveryofthecollateral,thesecurity
interesttakespriorityovertherightsofabuyer,lessee,orliencreditorwhicharise
betweenthetimethesecurityinterestattachesandthetimeoffiling.
[ 436 ]
9318.NOINTERESTRETAINEDINRIGHTTOPAYMENTTHATISSOLD;RIGHTSANDTITLE
OFSELLEROFACCOUNTORCHATTELPAPERWITHRESPECTTOCREDITORSAND
PURCHASERS.
(a)[Sellerretainsnointerest.]
Adebtorthathassoldanaccount,chattelpaper,paymentintangible,orpromissory
notedoesnotretainalegalorequitableinterestinthecollateralsold.
(b)[Deemedrightsofdebtorifbuyer'ssecurityinterestunperfected.]
Forpurposesofdeterminingtherightsofcreditorsof,andpurchasersforvalueof
anaccountorchattelpaperfrom,adebtorthathassoldanaccountorchattelpaper,
whilethebuyer'ssecurityinterestisunperfected,thedebtorisdeemedtohave
rightsandtitletotheaccountorchattelpaperidenticaltothosethedebtorsold.
9319.RIGHTSANDTITLEOFCONSIGNEEWITHRESPECTTOCREDITORSAND
PURCHASERS.
(a)[Consigneehasconsignor'srights.]
Exceptasotherwiseprovidedinsubsection(b),forpurposesofdeterminingthe
rightsofcreditorsof,andpurchasersforvalueofgoodsfrom,aconsignee,whilethe
goodsareinthepossessionoftheconsignee,theconsigneeisdeemedtohaverights
andtitletothegoodsidenticaltothosetheconsignorhadorhadpowertotransfer.
(b)[Applicabilityofotherlaw.]
Forpurposesofdeterminingtherightsofacreditorofaconsignee,lawotherthan
thisarticledeterminestherightsandtitleofaconsigneewhilegoodsareinthe
consignee'spossessionif,underthispart,aperfectedsecurityinterestheldbythe
consignorwouldhavepriorityovertherightsofthecreditor.
9320.BUYEROFGOODS.
(a)[Buyerinordinarycourseofbusiness.]
Exceptasotherwiseprovidedinsubsection(e),abuyerinordinarycourseof
business,otherthanapersonbuyingfarmproductsfromapersonengagedin
farmingoperations,takesfreeofasecurityinterestcreatedbythebuyer'sseller,
evenifthesecurityinterestisperfectedandthebuyerknowsofitsexistence.
(b)[Buyerofconsumergoods.]
Exceptasotherwiseprovidedinsubsection(e),abuyerofgoodsfromapersonwho
usedorboughtthegoodsforuseprimarilyforpersonal,family,orhousehold
purposestakesfreeofasecurityinterest,evenifperfected,ifthebuyerbuys:
(1)withoutknowledgeofthesecurityinterest;
[ 437 ]
(2)forvalue;
(3)primarilyforthebuyer'spersonal,family,orhouseholdpurposes;and
(4)beforethefilingofafinancingstatementcoveringthegoods.
(c)[Effectivenessoffilingforsubsection(b).]
Totheextentthatitaffectsthepriorityofasecurityinterestoverabuyerofgoods
undersubsection(b),theperiodofeffectivenessofafilingmadeinthejurisdiction
inwhichthesellerislocatedisgovernedbySection9316(a)and(b).
(d)[Buyerinordinarycourseofbusinessatwellheadorminehead.]
Abuyerinordinarycourseofbusinessbuyingoil,gas,orothermineralsatthe
wellheadormineheadorafterextractiontakesfreeofaninterestarisingoutofan
encumbrance.
(e)[Possessorysecurityinterestnotaffected.]
Subsections(a)and(b)donotaffectasecurityinterestingoodsinthepossessionof
thesecuredpartyunderSection9313.
9321.LICENSEEOFGENERALINTANGIBLEANDLESSEEOFGOODSINORDINARYCOURSE
OFBUSINESS.
(a)["Licenseeinordinarycourseofbusiness."]
Inthissection,"licenseeinordinarycourseofbusiness"meansapersonthat
becomesalicenseeofageneralintangibleingoodfaith,withoutknowledgethatthe
licenseviolatestherightsofanotherpersoninthegeneralintangible,andinthe
ordinarycoursefromapersoninthebusinessoflicensinggeneralintangiblesof
thatkind.Apersonbecomesalicenseeintheordinarycourseifthelicensetothe
personcomportswiththeusualorcustomarypracticesinthekindofbusinessin
whichthelicensorisengagedorwiththelicensor'sownusualorcustomary
practices.
(b)[Rightsoflicenseeinordinarycourseofbusiness.]
Alicenseeinordinarycourseofbusinesstakesitsrightsunderanonexclusive
licensefreeofasecurityinterestinthegeneralintangiblecreatedbythelicensor,
evenifthesecurityinterestisperfectedandthelicenseeknowsofitsexistence.
(c)[Rightsoflesseeinordinarycourseofbusiness.]
Alesseeinordinarycourseofbusinesstakesitsleaseholdinterestfreeofasecurity
interestinthegoodscreatedbythelessor,evenifthesecurityinterestisperfected
andthelesseeknowsofitsexistence.
[ 438 ]
9322.PRIORITIESAMONGCONFLICTINGSECURITYINTERESTSINANDAGRICULTURAL
LIENSONSAMECOLLATERAL.
(a)[Generalpriorityrules.]
Exceptasotherwiseprovidedinthissection,priorityamongconflictingsecurity
interestsandagriculturalliensinthesamecollateralisdeterminedaccordingtothe
followingrules:
(1)Conflictingperfectedsecurityinterestsandagriculturalliensrankaccordingto
priorityintimeoffilingorperfection.Prioritydatesfromtheearlierofthetimea
filingcoveringthecollateralisfirstmadeorthesecurityinterestoragriculturallien
isfirstperfected,ifthereisnoperiodthereafterwhenthereisneitherfilingnor
perfection.
(2)Aperfectedsecurityinterestoragriculturallienhaspriorityoveraconflicting
unperfectedsecurityinterestoragriculturallien.
(3)Thefirstsecurityinterestoragriculturallientoattachorbecomeeffectivehas
priorityifconflictingsecurityinterestsandagriculturalliensareunperfected.
(b)[Timeofperfection:proceedsandsupportingobligations.]
Forthepurposesofsubsection(a)(1):
(1)thetimeoffilingorperfectionastoasecurityinterestincollateralisalsothe
timeoffilingorperfectionastoasecurityinterestinproceeds;and
(2)thetimeoffilingorperfectionastoasecurityinterestincollateralsupportedby
asupportingobligationisalsothetimeoffilingorperfectionastoasecurityinterest
inthesupportingobligation.
(c)[Specialpriorityrules:proceedsandsupportingobligations.]
Exceptasotherwiseprovidedinsubsection(f),asecurityinterestincollateral
whichqualifiesforpriorityoveraconflictingsecurityinterestunderSection9327,
9328,9329,9330,or9331alsohaspriorityoveraconflictingsecurityinterestin:
(1)anysupportingobligationforthecollateral;and
(2)proceedsofthecollateralif:
(A)thesecurityinterestinproceedsisperfected;
(B)theproceedsarecashproceedsorofthesametypeasthecollateral;and
(C)inthecaseofproceedsthatareproceedsofproceeds,allintervening
proceedsarecashproceeds,proceedsofthesametypeasthecollateral,oran
accountrelatingtothecollateral.
[ 439 ]
(d)[Firsttofilepriorityruleforcertaincollateral.]
Subjecttosubsection(e)andexceptasotherwiseprovidedinsubsection(f),ifa
securityinterestinchattelpaper,depositaccounts,negotiabledocuments,
instruments,investmentproperty,orletterofcreditrightsisperfectedbyamethod
otherthanfiling,conflictingperfectedsecurityinterestsinproceedsofthecollateral
rankaccordingtopriorityintimeoffiling.
(e)[Applicabilityofsubsection(d).]
Subsection(d)appliesonlyiftheproceedsofthecollateralarenotcashproceeds,
chattelpaper,negotiabledocuments,instruments,investmentproperty,orletterof
creditrights.
(f)[Limitationsonsubsections(a)through(e).]
Subsections(a)through(e)aresubjectto:
(1)subsection(g)andtheotherprovisionsofthispart;
(2)Section4210withrespecttoasecurityinterestofacollectingbank;
(3)Section5118withrespecttoasecurityinterestofanissuerornominated
person;and
(4)Section9110withrespecttoasecurityinterestarisingunderArticle2or2A.
(g)[Priorityunderagriculturallienstatute.]
Aperfectedagriculturallienoncollateralhaspriorityoveraconflictingsecurity
interestinoragriculturallienonthesamecollateralifthestatutecreatingthe
agriculturalliensoprovides.
9323.FUTUREADVANCES.
(a)[Whenprioritybasedontimeofadvance.]
Exceptasotherwiseprovidedinsubsection(c),forpurposesofdeterminingthe
priorityofaperfectedsecurityinterestunderSection9322(a)(1),perfectionofthe
securityinterestdatesfromthetimeanadvanceismadetotheextentthatthe
securityinterestsecuresanadvancethat:
(1)ismadewhilethesecurityinterestisperfectedonly:
(A)underSection9309whenitattaches;or
(B)temporarilyunderSection9312(e),(f),or(g);and
[ 440 ]
(2)isnotmadepursuanttoacommitmententeredintobeforeorwhilethesecurity
interestisperfectedbyamethodotherthanunderSection9309or9312(e),(f),or
(g).
(b)[Liencreditor.]
Exceptasotherwiseprovidedinsubsection(c),asecurityinterestissubordinateto
therightsofapersonthatbecomesaliencreditortotheextentthatthesecurity
interestsecuresanadvancemademorethan45daysafterthepersonbecomesa
liencreditorunlesstheadvanceismade:
(1)withoutknowledgeofthelien;or
(2)pursuanttoacommitmententeredintowithoutknowledgeofthelien.
(c)[Buyerofreceivables.]
Subsections(a)and(b)donotapplytoasecurityinterestheldbyasecuredparty
thatisabuyerofaccounts,chattelpaper,paymentintangibles,orpromissorynotes
oraconsignor.
(d)[Buyerofgoods.]
Exceptasotherwiseprovidedinsubsection(e),abuyerofgoodsotherthanabuyer
inordinarycourseofbusinesstakesfreeofasecurityinteresttotheextentthatit
securesadvancesmadeaftertheearlierof:
(1)thetimethesecuredpartyacquiresknowledgeofthebuyer'spurchase;or
(2)45daysafterthepurchase.
(e)[Advancesmadepursuanttocommitment:priorityofbuyerofgoods.]
Subsection(d)doesnotapplyiftheadvanceismadepursuanttoacommitment
enteredintowithoutknowledgeofthebuyer'spurchaseandbeforetheexpiration
ofthe45dayperiod.
(f)[Lesseeofgoods.]
Exceptasotherwiseprovidedinsubsection(g),alesseeofgoods,otherthanalessee
inordinarycourseofbusiness,takestheleaseholdinterestfreeofasecurityinterest
totheextentthatitsecuresadvancesmadeaftertheearlierof:
(1)thetimethesecuredpartyacquiresknowledgeofthelease;or
(2)45daysaftertheleasecontractbecomesenforceable.
(g)[Advancesmadepursuanttocommitment:priorityoflesseeofgoods.]
[ 441 ]
Subsection(f)doesnotapplyiftheadvanceismadepursuanttoacommitment
enteredintowithoutknowledgeoftheleaseandbeforetheexpirationofthe45day
period.
9324.PRIORITYOFPURCHASEMONEYSECURITYINTERESTS.
(a)[Generalrule:purchasemoneypriority.]
Exceptasotherwiseprovidedinsubsection(g),aperfectedpurchasemoney
securityinterestingoodsotherthaninventoryorlivestockhaspriorityovera
conflictingsecurityinterestinthesamegoods,and,exceptasotherwiseprovidedin
Section9327,aperfectedsecurityinterestinitsidentifiableproceedsalsohas
priority,ifthepurchasemoneysecurityinterestisperfectedwhenthedebtor
receivespossessionofthecollateralorwithin20daysthereafter.
(b)[Inventorypurchasemoneypriority.]
Subjecttosubsection(c)andexceptasotherwiseprovidedinsubsection(g),a
perfectedpurchasemoneysecurityinterestininventoryhaspriorityovera
conflictingsecurityinterestinthesameinventory,haspriorityoveraconflicting
securityinterestinchattelpaperoraninstrumentconstitutingproceedsofthe
inventoryandinproceedsofthechattelpaper,ifsoprovidedinSection9330,and,
exceptasotherwiseprovidedinSection9327,alsohaspriorityinidentifiablecash
proceedsoftheinventorytotheextenttheidentifiablecashproceedsarereceived
onorbeforethedeliveryoftheinventorytoabuyer,if:
(1)thepurchasemoneysecurityinterestisperfectedwhenthedebtorreceives
possessionoftheinventory;
(2)thepurchasemoneysecuredpartysendsanauthenticatednotificationtothe
holderoftheconflictingsecurityinterest;
(3)theholderoftheconflictingsecurityinterestreceivesthenotificationwithinfive
yearsbeforethedebtorreceivespossessionoftheinventory;and
(4)thenotificationstatesthatthepersonsendingthenotificationhasorexpectsto
acquireapurchasemoneysecurityinterestininventoryofthedebtoranddescribes
theinventory.
(c)[Holdersofconflictinginventorysecurityintereststobenotified.]
Subsections(b)(2)through(4)applyonlyiftheholderoftheconflictingsecurity
interesthadfiledafinancingstatementcoveringthesametypesofinventory:
(1)ifthepurchasemoneysecurityinterestisperfectedbyfiling,beforethedateof
thefiling;or
[ 442 ]
(2)ifthepurchasemoneysecurityinterestistemporarilyperfectedwithoutfiling
orpossessionunderSection9312(f),beforethebeginningofthe20dayperiod
thereunder.
(d)[Livestockpurchasemoneypriority.]
Subjecttosubsection(e)andexceptasotherwiseprovidedinsubsection(g),a
perfectedpurchasemoneysecurityinterestinlivestockthatarefarmproductshas
priorityoveraconflictingsecurityinterestinthesamelivestock,and,exceptas
otherwiseprovidedinSection9327,aperfectedsecurityinterestintheir
identifiableproceedsandidentifiableproductsintheirunmanufacturedstatesalso
haspriority,if:
(1)thepurchasemoneysecurityinterestisperfectedwhenthedebtorreceives
possessionofthelivestock;
(2)thepurchasemoneysecuredpartysendsanauthenticatednotificationtothe
holderoftheconflictingsecurityinterest;
(3)theholderoftheconflictingsecurityinterestreceivesthenotificationwithinsix
monthsbeforethedebtorreceivespossessionofthelivestock;and
(4)thenotificationstatesthatthepersonsendingthenotificationhasorexpectsto
acquireapurchasemoneysecurityinterestinlivestockofthedebtoranddescribes
thelivestock.
(e)[Holdersofconflictinglivestocksecurityintereststobenotified.]
Subsections(d)(2)through(4)applyonlyiftheholderoftheconflictingsecurity
interesthadfiledafinancingstatementcoveringthesametypesoflivestock:
(1)ifthepurchasemoneysecurityinterestisperfectedbyfiling,beforethedateof
thefiling;or
(2)ifthepurchasemoneysecurityinterestistemporarilyperfectedwithoutfiling
orpossessionunderSection9312(f),beforethebeginningofthe20dayperiod
thereunder.
(f)[Softwarepurchasemoneypriority.]
Exceptasotherwiseprovidedinsubsection(g),aperfectedpurchasemoney
securityinterestinsoftwarehaspriorityoveraconflictingsecurityinterestinthe
samecollateral,and,exceptasotherwiseprovidedinSection9327,aperfected
securityinterestinitsidentifiableproceedsalsohaspriority,totheextentthatthe
purchasemoneysecurityinterestinthegoodsinwhichthesoftwarewasacquired
forusehaspriorityinthegoodsandproceedsofthegoodsunderthissection.
(g)[Conflictingpurchasemoneysecurityinterests.]
[ 443 ]
Ifmorethanonesecurityinterestqualifiesforpriorityinthesamecollateralunder
subsection(a),(b),(d),or(f):
(1)asecurityinterestsecuringanobligationincurredasallorpartofthepriceof
thecollateralhaspriorityoverasecurityinterestsecuringanobligationincurredfor
valuegiventoenablethedebtortoacquirerightsinortheuseofcollateral;and
(2)inallothercases,Section9322(a)appliestothequalifyingsecurityinterests.
9325.PRIORITYOFSECURITYINTERESTSINTRANSFERREDCOLLATERAL.
(a)[Subordinationofsecurityinterestintransferredcollateral.]
Exceptasotherwiseprovidedinsubsection(b),asecurityinterestcreatedbya
debtorissubordinatetoasecurityinterestinthesamecollateralcreatedbyanother
personif:
(1)thedebtoracquiredthecollateralsubjecttothesecurityinterestcreatedbythe
otherperson;
(2)thesecurityinterestcreatedbytheotherpersonwasperfectedwhenthedebtor
acquiredthecollateral;and
(3)thereisnoperiodthereafterwhenthesecurityinterestisunperfected.
(b)[Limitationofsubsection(a)subordination.]
Subsection(a)subordinatesasecurityinterestonlyifthesecurityinterest:
(1)otherwisewouldhaveprioritysolelyunderSection9322(a)or9324;or
(2)arosesolelyunderSection2711(3)or2A508(5).
9326.PRIORITYOFSECURITYINTERESTSCREATEDBYNEWDEBTOR.
(a)[Subordinationofsecurityinterestcreatedbynewdebtor.]
Subjecttosubsection(b),asecurityinterestcreatedbyanewdebtorwhichis
perfectedbyafiledfinancingstatementthatiseffectivesolelyunderSection9508
incollateralinwhichanewdebtorhasoracquiresrightsissubordinatetoasecurity
interestinthesamecollateralwhichisperfectedotherthanbyafiledfinancing
statementthatiseffectivesolelyunderSection9508.
(b)[Priorityunderotherprovisions;multipleoriginaldebtors.]
Theotherprovisionsofthispartdeterminethepriorityamongconflictingsecurity
interestsinthesamecollateralperfectedbyfiledfinancingstatementsthatare
effectivesolelyunderSection9508.However,ifthesecurityagreementstowhicha
newdebtorbecameboundasdebtorwerenotenteredintobythesameoriginal
[ 444 ]
debtor,theconflictingsecurityinterestsrankaccordingtopriorityintimeofthe
newdebtor'shavingbecomebound.
9327.PRIORITYOFSECURITYINTERESTSINDEPOSITACCOUNT.
Thefollowingrulesgovernpriorityamongconflictingsecurityinterestsinthesamedeposit
account:
(1)Asecurityinterestheldbyasecuredpartyhavingcontrolofthedepositaccountunder
Section9104haspriorityoveraconflictingsecurityinterestheldbyasecuredpartythat
doesnothavecontrol.
(2)Exceptasotherwiseprovidedinparagraphs(3)and(4),securityinterestsperfectedby
controlunderSection9314rankaccordingtopriorityintimeofobtainingcontrol.
(3)Exceptasotherwiseprovidedinparagraph(4),asecurityinterestheldbythebank
withwhichthedepositaccountismaintainedhaspriorityoveraconflictingsecurity
interestheldbyanothersecuredparty.
(4)AsecurityinterestperfectedbycontrolunderSection9104(a)(3)haspriorityovera
securityinterestheldbythebankwithwhichthedepositaccountismaintained.
9328.PRIORITYOFSECURITYINTERESTSININVESTMENTPROPERTY.
Thefollowingrulesgovernpriorityamongconflictingsecurityinterestsinthesame
investmentproperty:
(1)Asecurityinterestheldbyasecuredpartyhavingcontrolofinvestmentpropertyunder
Section9106haspriorityoverasecurityinterestheldbyasecuredpartythatdoesnot
havecontroloftheinvestmentproperty.
(2)Exceptasotherwiseprovidedinparagraphs(3)and(4),conflictingsecurityinterests
heldbysecuredpartieseachofwhichhascontrolunderSection9106rankaccordingto
priorityintimeof:
(A)ifthecollateralisasecurity,obtainingcontrol;
(B)ifthecollateralisasecurityentitlementcarriedinasecuritiesaccountand:
(i)ifthesecuredpartyobtainedcontrolunderSection8106(d)(1),the
securedparty'sbecomingthepersonforwhichthesecuritiesaccountis
maintained;
(ii)ifthesecuredpartyobtainedcontrolunderSection8106(d)(2),the
securitiesintermediary'sagreementtocomplywiththesecuredparty's
entitlementorderswithrespecttosecurityentitlementscarriedortobe
carriedinthesecuritiesaccount;or
[ 445 ]
(iii)ifthesecuredpartyobtainedcontrolthroughanotherpersonunder
Section8106(d)(3),thetimeonwhichprioritywouldbebasedunderthis
paragraphiftheotherpersonwerethesecuredparty;or
(C)ifthecollateralisacommoditycontractcarriedwithacommodityintermediary,
thesatisfactionoftherequirementforcontrolspecifiedinSection9106(b)(2)with
respecttocommoditycontractscarriedortobecarriedwiththecommodity
intermediary.
(3)Asecurityinterestheldbyasecuritiesintermediaryinasecurityentitlementora
securitiesaccountmaintainedwiththesecuritiesintermediaryhaspriorityovera
conflictingsecurityinterestheldbyanothersecuredparty.
(4)Asecurityinterestheldbyacommodityintermediaryinacommoditycontractora
commodityaccountmaintainedwiththecommodityintermediaryhaspriorityovera
conflictingsecurityinterestheldbyanothersecuredparty.
(5)Asecurityinterestinacertificatedsecurityinregisteredformwhichisperfectedby
takingdeliveryunderSection9313(a)andnotbycontrolunderSection9314haspriority
overaconflictingsecurityinterestperfectedbyamethodotherthancontrol.
(6)Conflictingsecurityinterestscreatedbyabroker,securitiesintermediary,or
commodityintermediarywhichareperfectedwithoutcontrolunderSection9106rank
equally.
(7)Inallothercases,priorityamongconflictingsecurityinterestsininvestmentpropertyis
governedbySections9322and9323.
9329.PRIORITYOFSECURITYINTERESTSINLETTEROFCREDITRIGHT.
Thefollowingrulesgovernpriorityamongconflictingsecurityinterestsinthesameletter
ofcreditright:
(1)Asecurityinterestheldbyasecuredpartyhavingcontroloftheletterofcreditright
underSection9107hasprioritytotheextentofitscontroloveraconflictingsecurity
interestheldbyasecuredpartythatdoesnothavecontrol.
(2)SecurityinterestsperfectedbycontrolunderSection9314rankaccordingtopriority
intimeofobtainingcontrol.
9330.PRIORITYOFPURCHASEROFCHATTELPAPERORINSTRUMENT.
(a)[Purchaser'spriority:securityinterestclaimedmerelyasproceeds.]
Apurchaserofchattelpaperhaspriorityoverasecurityinterestinthechattelpaper
whichisclaimedmerelyasproceedsofinventorysubjecttoasecurityinterestif:
[ 446 ]
(1)ingoodfaithandintheordinarycourseofthepurchaser'sbusiness,the
purchasergivesnewvalueandtakespossessionofthechattelpaperorobtains
controlofthechattelpaperunderSection9105;and
(2)thechattelpaperdoesnotindicatethatithasbeenassignedtoanidentified
assigneeotherthanthepurchaser.
(b)[Purchaser'spriority:othersecurityinterests.]
Apurchaserofchattelpaperhaspriorityoverasecurityinterestinthechattelpaper
whichisclaimedotherthanmerelyasproceedsofinventorysubjecttoasecurity
interestifthepurchasergivesnewvalueandtakespossessionofthechattelpaper
orobtainscontrolofthechattelpaperunderSection9105ingoodfaith,inthe
ordinarycourseofthepurchaser'sbusiness,andwithoutknowledgethatthe
purchaseviolatestherightsofthesecuredparty.
(c)[Chattelpaperpurchaser'spriorityinproceeds.]
ExceptasotherwiseprovidedinSection9327,apurchaserhavingpriorityin
chattelpaperundersubsection(a)or(b)alsohaspriorityinproceedsofthechattel
papertotheextentthat:
(1)Section9322providesforpriorityintheproceeds;or
(2)theproceedsconsistofthespecificgoodscoveredbythechattelpaperorcash
proceedsofthespecificgoods,evenifthepurchaser'ssecurityinterestinthe
proceedsisunperfected.
(d)[Instrumentpurchaser'spriority.]
ExceptasotherwiseprovidedinSection9331(a),apurchaserofaninstrumenthas
priorityoverasecurityinterestintheinstrumentperfectedbyamethodotherthan
possessionifthepurchasergivesvalueandtakespossessionoftheinstrumentin
goodfaithandwithoutknowledgethatthepurchaseviolatestherightsofthe
securedparty.
(e)[Holderofpurchasemoneysecurityinterestgivesnewvalue.]
Forpurposesofsubsections(a)and(b),theholderofapurchasemoneysecurity
interestininventorygivesnewvalueforchattelpaperconstitutingproceedsofthe
inventory.
(f)[Indicationofassignmentgivesknowledge.]
Forpurposesofsubsections(b)and(d),ifchattelpaperoraninstrumentindicates
thatithasbeenassignedtoanidentifiedsecuredpartyotherthanthepurchaser,a
purchaserofthechattelpaperorinstrumenthasknowledgethatthepurchase
violatestherightsofthesecuredparty.
[ 447 ]
9331.PRIORITYOFRIGHTSOFPURCHASERSOFINSTRUMENTS,DOCUMENTS,AND
SECURITIESUNDEROTHERARTICLES;PRIORITYOFINTERESTSINFINANCIALASSETSAND
SECURITYENTITLEMENTSUNDERARTICLE8.
(a)[RightsunderArticles3,7,and8notlimited.]
Thisarticledoesnotlimittherightsofaholderinduecourseofanegotiable
instrument,aholdertowhichanegotiabledocumentoftitlehasbeenduly
negotiated,oraprotectedpurchaserofasecurity.Theseholdersorpurchaserstake
priorityoveranearliersecurityinterest,evenifperfected,totheextentprovidedin
Articles3,7,and8.
(b)[ProtectionunderArticle8.]
Thisarticledoesnotlimittherightsoforimposeliabilityonapersontotheextent
thatthepersonisprotectedagainsttheassertionofaclaimunderArticle8.
(c)[Filingnotnotice.]
Filingunderthisarticledoesnotconstitutenoticeofaclaimordefensetothe
holders,orpurchasers,orpersonsdescribedinsubsections(a)and(b).
9333.PRIORITYOFCERTAINLIENSARISINGBYOPERATIONOFLAW.
(a)["Possessorylien."]
Inthissection,"possessorylien"meansaninterest,otherthanasecurityinterestor
anagriculturallien:
(1)whichsecurespaymentorperformanceofanobligationforservicesormaterials
furnishedwithrespecttogoodsbyapersonintheordinarycourseoftheperson's
business;
(2)whichiscreatedbystatuteorruleoflawinfavoroftheperson;and
(3)whoseeffectivenessdependsontheperson'spossessionofthegoods.
(b)[Priorityofpossessorylien.]
Apossessorylienongoodshaspriorityoverasecurityinterestinthegoodsunless
thelieniscreatedbyastatutethatexpresslyprovidesotherwise.
9334.PRIORITYOFSECURITYINTERESTSINFIXTURESANDCROPS.
(a)[Securityinterestinfixturesunderthisarticle.]
Asecurityinterestunderthisarticlemaybecreatedingoodsthatarefixturesor
maycontinueingoodsthatbecomefixtures.Asecurityinterestdoesnotexistunder
[ 448 ]
thisarticleinordinarybuildingmaterialsincorporatedintoanimprovementon
land.
(b)[Securityinterestinfixturesunderrealpropertylaw.]
Thisarticledoesnotpreventcreationofanencumbranceuponfixturesunderreal
propertylaw.
(c)[Generalrule:subordinationofsecurityinterestinfixtures.]
Incasesnotgovernedbysubsections(d)through(h),asecurityinterestinfixtures
issubordinatetoaconflictinginterestofanencumbrancerorowneroftherelated
realpropertyotherthanthedebtor.
(d)[Fixturespurchasemoneypriority.]
Exceptasotherwiseprovidedinsubsection(h),aperfectedsecurityinterestin
fixtureshaspriorityoveraconflictinginterestofanencumbrancerorownerofthe
realpropertyifthedebtorhasaninterestofrecordinorisinpossessionofthereal
propertyand:
(1)thesecurityinterestisapurchasemoneysecurityinterest;
(2)theinterestoftheencumbrancerorownerarisesbeforethegoodsbecome
fixtures;and
(3)thesecurityinterestisperfectedbyafixturefilingbeforethegoodsbecome
fixturesorwithin20daysthereafter.
(e)[Priorityofsecurityinterestinfixturesoverinterestsinrealproperty.]
Aperfectedsecurityinterestinfixtureshaspriorityoveraconflictinginterestofan
encumbrancerorowneroftherealpropertyif:
(1)thedebtorhasaninterestofrecordintherealpropertyorisinpossessionofthe
realpropertyandthesecurityinterest:
(A)isperfectedbyafixturefilingbeforetheinterestoftheencumbranceror
ownerisofrecord;and
(B)haspriorityoveranyconflictinginterestofapredecessorintitleofthe
encumbrancerorowner;
(2)beforethegoodsbecomefixtures,thesecurityinterestisperfectedbyany
methodpermittedbythisarticleandthefixturesarereadilyremovable:
(A)factoryorofficemachines;
[ 449 ]
(B)equipmentthatisnotprimarilyusedorleasedforuseintheoperationof
therealproperty;or
(C)replacementsofdomesticappliancesthatareconsumergoods;
(3)theconflictinginterestisalienontherealpropertyobtainedbylegalor
equitableproceedingsafterthesecurityinterestwasperfectedbyanymethod
permittedbythisarticle;or
(4)thesecurityinterestis:
(A)createdinamanufacturedhomeinamanufacturedhometransaction;
and
(B)perfectedpursuanttoastatutedescribedinSection9311(a)(2).
(f)[Prioritybasedonconsent,disclaimer,orrighttoremove.]
Asecurityinterestinfixtures,whetherornotperfected,haspriorityovera
conflictinginterestofanencumbrancerorowneroftherealpropertyif:
(1)theencumbrancerorownerhas,inanauthenticatedrecord,consentedtothe
securityinterestordisclaimedaninterestinthegoodsasfixtures;or
(2)thedebtorhasarighttoremovethegoodsasagainsttheencumbranceror
owner.
(g)[Continuationofparagraph(f)(2)priority.]
Thepriorityofthesecurityinterestunderparagraph(f)(2)continuesfora
reasonabletimeifthedebtor'srighttoremovethegoodsasagainstthe
encumbrancerorownerterminates.
(h)[Priorityofconstructionmortgage.]
Amortgageisaconstructionmortgagetotheextentthatitsecuresanobligation
incurredfortheconstructionofanimprovementonland,includingtheacquisition
costoftheland,ifarecordedrecordofthemortgagesoindicates.Exceptas
otherwiseprovidedinsubsections(e)and(f),asecurityinterestinfixturesis
subordinatetoaconstructionmortgageifarecordofthemortgageisrecorded
beforethegoodsbecomefixturesandthegoodsbecomefixturesbeforethe
completionoftheconstruction.Amortgagehasthisprioritytothesameextentasa
constructionmortgagetotheextentthatitisgiventorefinanceaconstruction
mortgage.
(i)[Priorityofsecurityinterestincrops.]
[ 450 ]
Aperfectedsecurityinterestincropsgrowingonrealpropertyhaspriorityovera
conflictinginterestofanencumbrancerorowneroftherealpropertyifthedebtor
hasaninterestofrecordinorisinpossessionoftherealproperty.
(j)[Subsection(i)prevails.]
Subsection(i)prevailsoveranyinconsistentprovisionsofthefollowingstatutes:
[Listhereanystatutescontainingprovisionsinconsistentwithsubsection(i).]
9335.ACCESSIONS.
(a)[Creationofsecurityinterestinaccession.]
Asecurityinterestmaybecreatedinanaccessionandcontinuesincollateralthat
becomesanaccession.
(b)[Perfectionofsecurityinterest.]
Ifasecurityinterestisperfectedwhenthecollateralbecomesanaccession,the
securityinterestremainsperfectedinthecollateral.
(c)[Priorityofsecurityinterest.]
Exceptasotherwiseprovidedinsubsection(d),theotherprovisionsofthispart
determinethepriorityofasecurityinterestinanaccession.
(d)[Compliancewithcertificateoftitlestatute.]
Asecurityinterestinanaccessionissubordinatetoasecurityinterestinthewhole
whichisperfectedbycompliancewiththerequirementsofacertificateoftitle
statuteunderSection9311(b).
(e)[Removalofaccessionafterdefault.]
Afterdefault,subjecttoPart6,asecuredpartymayremoveanaccessionfromother
goodsifthesecurityinterestintheaccessionhaspriorityovertheclaimsofevery
personhavinganinterestinthewhole.
(f)[Reimbursementfollowingremoval.]
Asecuredpartythatremovesanaccessionfromothergoodsundersubsection(e)
shallpromptlyreimburseanyholderofasecurityinterestorotherlienon,orowner
of,thewholeoroftheothergoods,otherthanthedebtor,forthecostofrepairof
anyphysicalinjurytothewholeortheothergoods.Thesecuredpartyneednot
reimbursetheholderorownerforanydiminutioninvalueofthewholeortheother
goodscausedbytheabsenceoftheaccessionremovedorbyanynecessityfor
replacingit.Apersonentitledtoreimbursementmayrefusepermissiontoremove
[ 451 ]
untilthesecuredpartygivesadequateassurancefortheperformanceofthe
obligationtoreimburse.
9336.COMMINGLEDGOODS.
(a)["Commingledgoods."]
Inthissection,"commingledgoods"meansgoodsthatarephysicallyunitedwith
othergoodsinsuchamannerthattheiridentityislostinaproductormass.
(b)[Nosecurityinterestincommingledgoodsassuch.]
Asecurityinterestdoesnotexistincommingledgoodsassuch.However,asecurity
interestmayattachtoaproductormassthatresultswhengoodsbecome
commingledgoods.
(c)[Attachmentofsecurityinteresttoproductormass.]
Ifcollateralbecomescommingledgoods,asecurityinterestattachestotheproduct
ormass.
(d)[Perfectionofsecurityinterest.]
Ifasecurityinterestincollateralisperfectedbeforethecollateralbecomes
commingledgoods,thesecurityinterestthatattachestotheproductormassunder
subsection(c)isperfected.
(e)[Priorityofsecurityinterest.]
Exceptasotherwiseprovidedinsubsection(f),theotherprovisionsofthispart
determinethepriorityofasecurityinterestthatattachestotheproductormass
undersubsection(c).
(f)[Conflictingsecurityinterestsinproductormass]
Ifmorethanonesecurityinterestattachestotheproductormassundersubsection
(c),thefollowingrulesdeterminepriority:
(1)Asecurityinterestthatisperfectedundersubsection(d)haspriorityovera
securityinterestthatisunperfectedatthetimethecollateralbecomescommingled
goods.
(2)Ifmorethanonesecurityinterestisperfectedundersubsection(d),thesecurity
interestsrankequallyinproportiontothevalueofthecollateralatthetimeit
becamecommingledgoods.
[ 452 ]
9337.PRIORITYOFSECURITYINTERESTSINGOODSCOVEREDBYCERTIFICATEOF
TITLE.
If,whileasecurityinterestingoodsisperfectedbyanymethodunderthelawofanother
jurisdiction,thisStateissuesacertificateoftitlethatdoesnotshowthatthegoodsare
subjecttothesecurityinterestorcontainastatementthattheymaybesubjecttosecurity
interestsnotshownonthecertificate:
(1)abuyerofthegoods,otherthanapersoninthebusinessofsellinggoodsofthat
kind,takesfreeofthesecurityinterestifthebuyergivesvalueandreceivesdelivery
ofthegoodsafterissuanceofthecertificateandwithoutknowledgeofthesecurity
interest;and
(2)thesecurityinterestissubordinatetoaconflictingsecurityinterestinthegoods
thatattaches,andisperfectedunderSection9311(b),afterissuanceofthe
certificateandwithouttheconflictingsecuredparty'sknowledgeofthesecurity
interest.
9338.PRIORITYOFSECURITYINTERESTORAGRICULTURALLIENPERFECTEDBYFILED
FINANCINGSTATEMENTPROVIDINGCERTAININCORRECTINFORMATION.
Ifasecurityinterestoragriculturallienisperfectedbyafiledfinancingstatement
providinginformationdescribedinSection9516(b)(5)whichisincorrectatthetimethe
financingstatementisfiled:
(1)thesecurityinterestoragriculturallienissubordinatetoaconflictingperfected
securityinterestinthecollateraltotheextentthattheholderoftheconflicting
securityinterestgivesvalueinreasonablerelianceupontheincorrectinformation;
and
(2)apurchaser,otherthanasecuredparty,ofthecollateraltakesfreeofthe
securityinterestoragriculturallientotheextentthat,inreasonablerelianceupon
theincorrectinformation,thepurchasergivesvalueand,inthecaseofchattelpaper,
documents,goods,instruments,orasecuritycertificate,receivesdeliveryofthe
collateral.
9339.PRIORITYSUBJECTTOSUBORDINATION.
Thisarticledoesnotprecludesubordinationbyagreementbyapersonentitledtopriority.
[ 453 ]
[Subpart4.RightsofBank]
9340.EFFECTIVENESSOFRIGHTOFRECOUPMENTORSETOFFAGAINSTDEPOSIT
ACCOUNT.
(a)[Exerciseofrecoupmentorsetoff.]
Exceptasotherwiseprovidedinsubsection(c),abankwithwhichadepositaccount
ismaintainedmayexerciseanyrightofrecoupmentorsetoffagainstasecured
partythatholdsasecurityinterestinthedepositaccount.
(b)[Recoupmentorsetoffnotaffectedbysecurityinterest.]
Exceptasotherwiseprovidedinsubsection(c),theapplicationofthisarticletoa
securityinterestinadepositaccountdoesnotaffectarightofrecoupmentorsetoff
ofthesecuredpartyastoadepositaccountmaintainedwiththesecuredparty.
(c)[Whensetoffineffective.]
Theexercisebyabankofasetoffagainstadepositaccountisineffectiveagainsta
securedpartythatholdsasecurityinterestinthedepositaccountwhichisperfected
bycontrolunderSection9104(a)(3),ifthesetoffisbasedonaclaimagainstthe
debtor.
9341.BANK'SRIGHTSANDDUTIESWITHRESPECTTODEPOSITACCOUNT.
ExceptasotherwiseprovidedinSection9340(c),andunlessthebankotherwiseagreesin
anauthenticatedrecord,abank'srightsanddutieswithrespecttoadepositaccount
maintainedwiththebankarenotterminated,suspended,ormodifiedby:
(1)thecreation,attachment,orperfectionofasecurityinterestinthedeposit
account;
(2)thebank'sknowledgeofthesecurityinterest;or
(3)thebank'sreceiptofinstructionsfromthesecuredparty.
9342.BANK'SRIGHTTOREFUSETOENTERINTOORDISCLOSEEXISTENCEOFCONTROL
AGREEMENT.
Thisarticledoesnotrequireabanktoenterintoanagreementofthekinddescribedin
Section9104(a)(2),evenifitscustomersorequestsordirects.Abankthathasentered
intosuchanagreementisnotrequiredtoconfirmtheexistenceoftheagreementto
anotherpersonunlessrequestedtodosobyitscustomer.
[ 454 ]
PART4.RIGHTSOFTHIRDPARTIES
9401.ALIENABILITYOFDEBTOR'SRIGHTS.
(a)[Otherlawgovernsalienability;exceptions.]
Exceptasotherwiseprovidedinsubsection(b)andSections9406,9407,9408,
and9409,whetheradebtor'srightsincollateralmaybevoluntarilyor
involuntarilytransferredisgovernedbylawotherthanthisarticle.
(b)[Agreementdoesnotpreventtransfer.]
Anagreementbetweenthedebtorandsecuredpartywhichprohibitsatransferof
thedebtor'srightsincollateralormakesthetransferadefaultdoesnotpreventthe
transferfromtakingeffect.
9402.SECUREDPARTYNOTOBLIGATEDONCONTRACTOFDEBTORORINTORT.
Theexistenceofasecurityinterest,agriculturallien,orauthoritygiventoadebtorto
disposeoforusecollateral,withoutmore,doesnotsubjectasecuredpartytoliabilityin
contractortortforthedebtor'sactsoromissions.
9403.AGREEMENTNOTTOASSERTDEFENSESAGAINSTASSIGNEE.
(a)["Value."]
Inthissection,"value"hasthemeaningprovidedinSection3303(a).
(b)[Agreementnottoassertclaimordefense.]
Exceptasotherwiseprovidedinthissection,anagreementbetweenanaccount
debtorandanassignornottoassertagainstanassigneeanyclaimordefensethat
theaccountdebtormayhaveagainsttheassignorisenforceablebyanassigneethat
takesanassignment:
(1)forvalue;
(2)ingoodfaith;
(3)withoutnoticeofaclaimofapropertyorpossessoryrighttotheproperty
assigned;and
(4)withoutnoticeofadefenseorclaiminrecoupmentofthetypethatmaybe
assertedagainstapersonentitledtoenforceanegotiableinstrumentunderSection
3305(a).
(c)[Whensubsection(b)notapplicable.]
[ 455 ]
Subsection(b)doesnotapplytodefensesofatypethatmaybeassertedagainsta
holderinduecourseofanegotiableinstrumentunderSection3305(b).
(d)[Omissionofrequiredstatementinconsumertransaction.]
Inaconsumertransaction,ifarecordevidencestheaccountdebtor'sobligation,law
otherthanthisarticlerequiresthattherecordincludeastatementtotheeffectthat
therightsofanassigneearesubjecttoclaimsordefensesthattheaccountdebtor
couldassertagainsttheoriginalobligee,andtherecorddoesnotincludesucha
statement:
(1)therecordhasthesameeffectasiftherecordincludedsuchastatement;and
(2)theaccountdebtormayassertagainstanassigneethoseclaimsanddefenses
thatwouldhavebeenavailableiftherecordincludedsuchastatement.
(e)[Ruleforindividualunderotherlaw.]
Thissectionissubjecttolawotherthanthisarticlewhichestablishesadifferent
ruleforanaccountdebtorwhoisanindividualandwhoincurredtheobligation
(f)[Otherlawnotdisplaced.]
Exceptasotherwiseprovidedinsubsection(d),thissectiondoesnotdisplacelaw
otherthanthisarticlewhichgiveseffecttoanagreementbyanaccountdebtornot
toassertaclaimordefenseagainstanassignee.
9404.RIGHTSACQUIREDBYASSIGNEE;CLAIMSANDDEFENSESAGAINSTASSIGNEE.
(a)[Assignee'srightssubjecttoterms,claims,anddefenses;exceptions.]
Unlessanaccountdebtorhasmadeanenforceableagreementnottoassertdefenses
orclaims,andsubjecttosubsections(b)through(e),therightsofanassigneeare
subjectto:
(1)alltermsoftheagreementbetweentheaccountdebtorandassignorandany
defenseorclaiminrecoupmentarisingfromthetransactionthatgaverisetothe
contract;and
(2)anyotherdefenseorclaimoftheaccountdebtoragainsttheassignorwhich
accruesbeforetheaccountdebtorreceivesanotificationoftheassignment
authenticatedbytheassignorortheassignee.
(b)[Accountdebtor'sclaimreducesamountowedtoassignee.]
Subjecttosubsection(c)andexceptasotherwiseprovidedinsubsection(d),the
claimofanaccountdebtoragainstanassignormaybeassertedagainstanassignee
undersubsection(a)onlytoreducetheamounttheaccountdebtorowes.
[ 456 ]
(c)[Ruleforindividualunderotherlaw.]
(d)[Omissionofrequiredstatementinconsumertransaction.]
Inaconsumertransaction,ifarecordevidencestheaccountdebtor'sobligation,law
otherthanthisarticlerequiresthattherecordincludeastatementtotheeffectthat
theaccountdebtor'srecoveryagainstanassigneewithrespecttoclaimsand
defensesagainsttheassignormaynotexceedamountspaidbytheaccountdebtor
undertherecord,andtherecorddoesnotincludesuchastatement,theextentto
whichaclaimofanaccountdebtoragainsttheassignormaybeassertedagainstan
assigneeisdeterminedasiftherecordincludedsuchastatement.
(e)[Inapplicabilitytohealthcareinsurancereceivable.]
Thissectiondoesnotapplytoanassignmentofahealthcareinsurancereceivable.
9405.MODIFICATIONOFASSIGNEDCONTRACT.
(a)[Effectofmodificationonassignee.]
Amodificationoforsubstitutionforanassignedcontractiseffectiveagainstan
assigneeifmadeingoodfaith.Theassigneeacquirescorrespondingrightsunderthe
modifiedorsubstitutedcontract.Theassignmentmayprovidethatthemodification
orsubstitutionisabreachofcontractbytheassignor.Thissubsectionissubjectto
subsections(b)through(d).
(b)[Applicabilityofsubsection(a).]
Subsection(a)appliestotheextentthat:
(1)therighttopaymentorapartthereofunderanassignedcontracthasnotbeen
fullyearnedbyperformance;or
(2)therighttopaymentorapartthereofhasbeenfullyearnedbyperformanceand
theaccountdebtorhasnotreceivednotificationoftheassignmentunderSection9
406(a).
(c)[Ruleforindividualunderotherlaw.]
(d)[Inapplicabilitytohealthcareinsurancereceivable.]
[ 457 ]
9406.DISCHARGEOFACCOUNTDEBTOR;NOTIFICATIONOFASSIGNMENT;
IDENTIFICATIONANDPROOFOFASSIGNMENT;RESTRICTIONSONASSIGNMENTOF
ACCOUNTS,CHATTELPAPER,PAYMENTINTANGIBLES,ANDPROMISSORYNOTES
INEFFECTIVE.
(a)[Dischargeofaccountdebtor;effectofnotification.]
Subjecttosubsections(b)through(i),anaccountdebtoronanaccount,chattel
paper,orapaymentintangiblemaydischargeitsobligationbypayingtheassignor
until,butnotafter,theaccountdebtorreceivesanotification,authenticatedbythe
assignorortheassignee,thattheamountdueortobecomeduehasbeenassigned
andthatpaymentistobemadetotheassignee.Afterreceiptofthenotification,the
accountdebtormaydischargeitsobligationbypayingtheassigneeandmaynot
dischargetheobligationbypayingtheassignor.
(b)[Whennotificationineffective.]
Subjecttosubsection(h),notificationisineffectiveundersubsection(a):
(1)ifitdoesnotreasonablyidentifytherightsassigned;
(2)totheextentthatanagreementbetweenanaccountdebtorandasellerofa
paymentintangiblelimitstheaccountdebtor'sdutytopayapersonotherthanthe
sellerandthelimitationiseffectiveunderlawotherthanthisarticle;or
(3)attheoptionofanaccountdebtor,ifthenotificationnotifiestheaccountdebtor
tomakelessthanthefullamountofanyinstallmentorotherperiodicpaymentto
theassignee,evenif:
(A)onlyaportionoftheaccount,chattelpaper,orpaymentintangiblehas
beenassignedtothatassignee;
(B)aportionhasbeenassignedtoanotherassignee;or
(C)theaccountdebtorknowsthattheassignmenttothatassigneeislimited.
(c)[Proofofassignment.]
Subjecttosubsection(h),ifrequestedbytheaccountdebtor,anassigneeshall
seasonablyfurnishreasonableproofthattheassignmenthasbeenmade.Unlessthe
assigneecomplies,theaccountdebtormaydischargeitsobligationbypayingthe
assignor,eveniftheaccountdebtorhasreceivedanotificationundersubsection(a).
(d)[Termrestrictingassignmentgenerallyineffective.]
[ 458 ]
Exceptasotherwiseprovidedinsubsection(e)andSections2A303and9407,and
subjecttosubsection(h),aterminanagreementbetweenanaccountdebtorandan
assignororinapromissorynoteisineffectivetotheextentthatit:
(1)prohibits,restricts,orrequirestheconsentoftheaccountdebtororperson
obligatedonthepromissorynotetotheassignmentortransferof,orthecreation,
attachment,perfection,orenforcementofasecurityinterestin,theaccount,chattel
paper,paymentintangible,orpromissorynote;or
(2)providesthattheassignmentortransferorthecreation,attachment,perfection,
orenforcementofthesecurityinterestmaygiverisetoadefault,breach,rightof
recoupment,claim,defense,termination,rightoftermination,orremedyunderthe
account,chattelpaper,paymentintangible,orpromissorynote.
(e)[Inapplicabilityofsubsection(d)tocertainsales.]
Subsection(d)doesnotapplytothesaleofapaymentintangibleorpromissory
note.
(f)[Legalrestrictionsonassignmentgenerallyineffective.]
ExceptasotherwiseprovidedinSections2A303and9407andsubjectto
subsections(h)and(i),aruleoflaw,statute,orregulationthatprohibits,restricts,or
requirestheconsentofagovernment,governmentalbodyorofficial,oraccount
debtortotheassignmentortransferof,orcreationofasecurityinterestin,an
accountorchattelpaperisineffectivetotheextentthattheruleoflaw,statute,or
regulation:
(1)prohibits,restricts,orrequirestheconsentofthegovernment,governmental
bodyorofficial,oraccountdebtortotheassignmentortransferof,orthecreation,
attachment,perfection,orenforcementofasecurityinterestintheaccountor
chattelpaper;or
(2)providesthatthecreation,attachment,perfection,orenforcementofthe
securityinterestmaygiverisetoadefault,breach,rightofrecoupment,claim,
defense,termination,rightoftermination,orremedyundertheaccountorchattel
paper.
(g)[Subsection(b)(3)notwaivable.]
Subjecttosubsection(h),anaccountdebtormaynotwaiveorvaryitsoptionunder
subsection(b)(3).
(h)[Ruleforindividualunderotherlaw.]
[ 459 ]
(i)[Inapplicabilitytohealthcareinsurancereceivable.]
(j)[Sectionprevailsoverspecifiedinconsistentlaw.]
Thissectionprevailsoveranyinconsistentprovisionsofthefollowingstatutes,
rules,andregulations:
[Listhereanystatutes,rules,andregulationscontainingprovisionsinconsistent
withthissection.]
9407.RESTRICTIONSONCREATIONORENFORCEMENTOFSECURITYINTERESTIN
LEASEHOLDINTERESTORINLESSOR'SRESIDUALINTEREST.
(a)[Termrestrictingassignmentgenerallyineffective.]
Exceptasotherwiseprovidedinsubsection(b),aterminaleaseagreementis
ineffectivetotheextentthatit:
(1)prohibits,restricts,orrequirestheconsentofapartytotheleasetothethe
assignmentortransferof,orthecreation,attachment,perfection,orenforcementof
asecurityinterestinaninterestofapartyundertheleasecontractorinthelessor's
residualinterestinthegoods;or
(2)providesthattheassignmentortransferorthecreation,attachment,perfection,
orenforcementofthesecurityinterestmaygiverisetoadefault,breach,rightof
lease.
(b)[Effectivenessofcertainterms.]
ExceptasotherwiseprovidedinSection2A303(7),atermdescribedinsubsection
(a)(2)iseffectivetotheextentthatthereis:
(1)atransferbythelesseeofthelessee'srightofpossessionoruseofthegoodsin
violationoftheterm;or
(2)adelegationofamaterialperformanceofeitherpartytotheleasecontractin
violationoftheterm.
(c)[Securityinterestnotmaterialimpairment.]
Thecreation,attachment,perfection,orenforcementofasecurityinterestinthe
lessor'sinterestundertheleasecontractorthelessor'sresidualinterestinthe
goodsisnotatransferthatmateriallyimpairsthelessee'sprospectofobtaining
returnperformanceormateriallychangesthedutyoformateriallyincreasesthe
burdenorriskimposedonthelesseewithinthepurviewofSection2A303(4)
[ 460 ]
unless,andthenonlytotheextentthat,enforcementactuallyresultsinadelegation
ofmaterialperformanceofthelessor.
9408.RESTRICTIONSONASSIGNMENTOFPROMISSORYNOTES,HEALTHCARE
INSURANCERECEIVABLES,ANDCERTAINGENERALINTANGIBLESINEFFECTIVE.
(a)[Termrestrictingassignmentgenerallyineffective.]
Exceptasotherwiseprovidedinsubsection(b),aterminapromissorynoteorinan
agreementbetweenanaccountdebtorandadebtorwhichrelatestoahealthcare
insurancereceivableorageneralintangible,includingacontract,permit,license,or
franchise,andwhichtermprohibits,restricts,orrequirestheconsentoftheperson
obligatedonthepromissorynoteortheaccountdebtorto,theassignmentor
transferof,orcreation,attachment,orperfectionofasecurityinterestin,the
promissorynote,healthcareinsurancereceivable,orgeneralintangible,is
ineffectivetotheextentthattheterm:
(1)wouldimpairthecreation,attachment,orperfectionofasecurityinterest;or
(2)providesthattheassignmentortransferorthecreation,attachment,or
perfectionofthesecurityinterestmaygiverisetoadefault,breach,rightof
promissorynote,healthcareinsurancereceivable,orgeneralintangible.
(b)[Applicabilityofsubsection(a)tosalesofcertainrightstopayment.]
Subsection(a)appliestoasecurityinterestinapaymentintangibleorpromissory
noteonlyifthesecurityinterestarisesoutofasaleofthepaymentintangibleor
promissorynote.
(c)[Legalrestrictionsonassignmentgenerallyineffective.]
Aruleoflaw,statute,orregulationthatprohibits,restricts,orrequirestheconsent
ofagovernment,governmentalbodyorofficial,personobligatedonapromissory
note,oraccountdebtortotheassignmentortransferof,orcreationofasecurity
interestin,apromissorynote,healthcareinsurancereceivable,orgeneral
intangible,includingacontract,permit,license,orfranchisebetweenanaccount
debtorandadebtor,isineffectivetotheextentthattheruleoflaw,statute,or
regulation:
(1)wouldimpairthecreation,attachment,orperfectionofasecurityinterest;or
(2)providesthatthetheassignmentortransferorcreation,attachment,or
perfectionofthesecurityinterestmaygiverisetoadefault,breach,rightof
(d)[Limitationonineffectivenessundersubsections(a)and(c).]
[ 461 ]
Totheextentthataterminapromissorynoteorinanagreementbetweenan
accountdebtorandadebtorwhichrelatestoahealthcareinsurancereceivableor
generalintangibleoraruleoflaw,statute,orregulationdescribedinsubsection(c)
wouldbeeffectiveunderlawotherthanthisarticlebutisineffectiveunder
subsection(a)or(c),thecreation,attachment,orperfectionofasecurityinterestin
thepromissorynote,healthcareinsurancereceivable,orgeneralintangible:
(1)isnotenforceableagainstthepersonobligatedonthepromissorynoteorthe
accountdebtor;
(2)doesnotimposeadutyorobligationonthepersonobligatedonthepromissory
noteortheaccountdebtor;
(3)doesnotrequirethepersonobligatedonthepromissorynoteortheaccount
debtortorecognizethesecurityinterest,payorrenderperformancetothesecured
party,oracceptpaymentorperformancefromthesecuredparty;
(4)doesnotentitlethesecuredpartytouseorassignthedebtor'srightsunderthe
promissorynote,healthcareinsurancereceivable,orgeneralintangible,including
anyrelatedinformationormaterialsfurnishedtothedebtorinthetransaction
givingrisetothepromissorynote,healthcareinsurancereceivable,orgeneral
intangible;
(5)doesnotentitlethesecuredpartytouse,assign,possess,orhaveaccesstoany
tradesecretsorconfidentialinformationofthepersonobligatedonthepromissory
noteortheaccountdebtor;and
(6)doesnotentitlethesecuredpartytoenforcethesecurityinterestinthe
(e)[Sectionprevailsoverspecifiedinconsistentlaw.]
Thissectionprevailsoveranyinconsistentprovisionsofthefollowingstatutes,
rules,andregulations:
[Listhereanystatutes,rules,andregulationscontainingprovisionsinconsistent
withthissection.]
9409.RESTRICTIONSONASSIGNMENTOFLETTEROFCREDITRIGHTSINEFFECTIVE.
(a)[Termorlawrestrictingassignmentgenerallyineffective.]
Aterminaletterofcreditoraruleoflaw,statute,regulation,custom,orpractice
applicabletotheletterofcreditwhichprohibits,restricts,orrequirestheconsentof
anapplicant,issuer,ornominatedpersontoabeneficiary'sassignmentofor
creationofasecurityinterestinaletterofcreditrightisineffectivetotheextent
thatthetermorruleoflaw,statute,regulation,custom,orpractice:
[ 462 ]
(1)wouldimpairthecreation,attachment,orperfectionofasecurityinterestinthe
letterofcreditright;or
(2)providesthatthecreation,attachment,orperfectionofthesecurityinterestmay
giverisetoadefault,breach,rightofrecoupment,claim,defense,termination,right
oftermination,orremedyundertheletterofcreditright.
(b)[Limitationonineffectivenessundersubsection(a).]
Totheextentthataterminaletterofcreditisineffectiveundersubsection(a)but
wouldbeeffectiveunderlawotherthanthisarticleoracustomorpractice
applicabletotheletterofcredit,tothetransferofarighttodraworotherwise
demandperformanceundertheletterofcredit,ortotheassignmentofarightto
proceedsoftheletterofcredit,thecreation,attachment,orperfectionofasecurity
interestintheletterofcreditright:
(1)isnotenforceableagainsttheapplicant,issuer,nominatedperson,ortransferee
beneficiary;
(2)imposesnodutiesorobligationsontheapplicant,issuer,nominatedperson,or
transfereebeneficiary;and
(3)doesnotrequiretheapplicant,issuer,nominatedperson,ortransferee
beneficiarytorecognizethesecurityinterest,payorrenderperformancetothe
securedparty,oracceptpaymentorotherperformancefromthesecuredparty.
PART5.FILING
[Subpart1.FilingOffice;ContentsandEffectivenessofFinancingStatement]
9501.FILINGOFFICE.
(a)[Filingoffices.]
Exceptasotherwiseprovidedinsubsection(b),ifthelocallawofthisStategoverns
perfectionofasecurityinterestoragriculturallien,theofficeinwhichtofilea
financingstatementtoperfectthesecurityinterestoragriculturallienis:
(1)theofficedesignatedforthefilingorrecordingofarecordofamortgageonthe
relatedrealproperty,if:
(A)thecollateralisasextractedcollateralortimbertobecut;or
(B)thefinancingstatementisfiledasafixturefilingandthecollateralis
goodsthatareoraretobecomefixtures;or
(2)theofficeof[oranyofficedulyauthorizedby[]],inallothercases,includinga
caseinwhichthecollateralisgoodsthatareoraretobecomefixturesandthe
financingstatementisnotfiledasafixturefiling.
[ 463 ]
(b)[Filingofficefortransmittingutilities.]
Theofficeinwhichtofileafinancingstatementtoperfectasecurityinterestin
collateral,includingfixtures,ofatransmittingutilityistheofficeof[].Thefinancing
statementalsoconstitutesafixturefilingastothecollateralindicatedinthe
financingstatementwhichisoristobecomefixtures.
9502.CONTENTSOFFINANCINGSTATEMENT;RECORDOFMORTGAGEASFINANCING
STATEMENT;TIMEOFFILINGFINANCINGSTATEMENT.
(a)[Sufficiencyoffinancingstatement.]
Subjecttosubsection(b),afinancingstatementissufficientonlyifit:
(1)providesthenameofthedebtor;
(2)providesthenameofthesecuredpartyorarepresentativeofthesecuredparty;
and
(3)indicatesthecollateralcoveredbythefinancingstatement.
(b)[Realpropertyrelatedfinancingstatements.]
ExceptasotherwiseprovidedinSection9501(b),tobesufficient,afinancing
statementthatcoversasextractedcollateralortimbertobecut,orwhichisfiledas
afixturefilingandcoversgoodsthatareoraretobecomefixtures,mustsatisfy
subsection(a)andalso:
(1)indicatethatitcoversthistypeofcollateral;
(2)indicatethatitistobefiled[forrecord]intherealpropertyrecords;
(3)provideadescriptionoftherealpropertytowhichthecollateralisrelated
[sufficienttogiveconstructivenoticeofamortgageunderthelawofthisStateifthe
descriptionwerecontainedinarecordofthemortgageoftherealproperty];and
(4)ifthedebtordoesnothaveaninterestofrecordintherealproperty,providethe
nameofarecordowner.
(c)[Recordofmortgageasfinancingstatement.]
Arecordofamortgageiseffective,fromthedateofrecording,asafinancing
statementfiledasafixturefilingorasafinancingstatementcoveringasextracted
collateralortimbertobecutonlyif:
(1)therecordindicatesthegoodsoraccountsthatitcovers;
[ 464 ]
(2)thegoodsareoraretobecomefixturesrelatedtotherealpropertydescribedin
therecordorthecollateralisrelatedtotherealpropertydescribedintherecord
andisasextractedcollateralortimbertobecut;
(3)therecordsatisfiestherequirementsforafinancingstatementinthissection
otherthananindicationthatitistobefiledintherealpropertyrecords;and
(4)therecordis[duly]recorded.
(d)[Filingbeforesecurityagreementorattachment.]
Afinancingstatementmaybefiledbeforeasecurityagreementismadeorasecurity
interestotherwiseattaches.
9503.NAMEOFDEBTORANDSECUREDPARTY.
(a)[Sufficiencyofdebtor'sname.]
Afinancingstatementsufficientlyprovidesthenameofthedebtor:
(1)ifthedebtorisaregisteredorganization,onlyifthefinancingstatement
providesthenameofthedebtorindicatedonthepublicrecordofthedebtor's
jurisdictionoforganizationwhichshowsthedebtortohavebeenorganized;
(2)ifthedebtorisadecedent'sestate,onlyifthefinancingstatementprovidesthe
nameofthedecedentandindicatesthatthedebtorisanestate;
(3)ifthedebtorisatrustoratrusteeactingwithrespecttopropertyheldintrust,
onlyifthefinancingstatement:
(A)providesthenamespecifiedforthetrustinitsorganicdocumentsor,if
nonameisspecified,providesthenameofthesettlorandadditional
informationsufficienttodistinguishthedebtorfromothertrustshavingone
ormoreofthesamesettlors;and
(B)indicates,inthedebtor'snameorotherwise,thatthedebtorisatrustor
isatrusteeactingwithrespecttopropertyheldintrust;and
(4)inothercases:
(A)ifthedebtorhasaname,onlyifitprovidestheindividualor
organizationalnameofthedebtor;and
(B)ifthedebtordoesnothaveaname,onlyifitprovidesthenamesofthe
partners,members,associates,orotherpersonscomprisingthedebtor.
(b)[Additionaldebtorrelatedinformation.]
[ 465 ]
Afinancingstatementthatprovidesthenameofthedebtorinaccordancewith
subsection(a)isnotrenderedineffectivebytheabsenceof:
(1)atradenameorothernameofthedebtor;or
(2)unlessrequiredundersubsection(a)(4)(B),namesofpartners,members,
associates,orotherpersonscomprisingthedebtor.
(c)[Debtor'stradenameinsufficient.]
Afinancingstatementthatprovidesonlythedebtor'stradenamedoesnot
sufficientlyprovidethenameofthedebtor.
(d)[Representativecapacity.]
Failuretoindicatetherepresentativecapacityofasecuredpartyorrepresentative
ofasecuredpartydoesnotaffectthesufficiencyofafinancingstatement.
(e)[Multipledebtorsandsecuredparties.]
Afinancingstatementmayprovidethenameofmorethanonedebtorandthename
ofmorethanonesecuredparty.
9504.INDICATIONOFCOLLATERAL.
Afinancingstatementsufficientlyindicatesthecollateralthatitcoversifthefinancing
statementprovides:
(1)adescriptionofthecollateralpursuanttoSection9108;or
(2)anindicationthatthefinancingstatementcoversallassetsorallpersonalproperty.
9505.FILINGANDCOMPLIANCEWITHOTHERSTATUTESANDTREATIESFOR
CONSIGNMENTS,LEASES,OTHERBAILMENTS,ANDOTHERTRANSACTIONS.
(a)[Useoftermsotherthan"debtor"and"securedparty."]
Aconsignor,lessor,orotherbailorofgoods,alicensor,orabuyerofapayment
intangibleorpromissorynotemayfileafinancingstatement,ormaycomplywitha
statuteortreatydescribedinSection9311(a),usingtheterms"consignor",
"consignee","lessor","lessee","bailor","bailee","licensor","licensee","owner",
"registeredowner","buyer","seller",orwordsofsimilarimport,insteadofthe
terms"securedparty"and"debtor".
(b)[Effectoffinancingstatementundersubsection(a).]
Thispartappliestothefilingofafinancingstatementundersubsection(a)and,as
appropriate,tocompliancethatisequivalenttofilingafinancingstatementunder
Section9311(b),butthefilingorcomplianceisnotofitselfafactorindetermining
[ 466 ]
whetherthecollateralsecuresanobligation.Ifitisdeterminedforanotherreason
thatthecollateralsecuresanobligation,asecurityinterestheldbytheconsignor,
lessor,bailor,licensor,owner,orbuyerwhichattachestothecollateralisperfected
bythefilingorcompliance.
9506.EFFECTOFERRORSOROMISSIONS.
(a)[Minorerrorsandomissions.]
Afinancingstatementsubstantiallysatisfyingtherequirementsofthispartis
effective,evenifithasminorerrorsoromissions,unlesstheerrorsoromissions
makethefinancingstatementseriouslymisleading.
(b)[Financingstatementseriouslymisleading.]
Exceptasotherwiseprovidedinsubsection(c),afinancingstatementthatfails
sufficientlytoprovidethenameofthedebtorinaccordancewithSection9503(a)is
seriouslymisleading.
(c)[Financingstatementnotseriouslymisleading.]
Ifasearchoftherecordsofthefilingofficeunderthedebtor'scorrectname,using
thefilingoffice'sstandardsearchlogic,ifany,woulddiscloseafinancingstatement
thatfailssufficientlytoprovidethenameofthedebtorinaccordancewithSection9
503(a),thenameprovideddoesnotmakethefinancingstatementseriously
misleading.
(d)["Debtor'scorrectname."]
ForpurposesofSection9508(b),the"debtor'scorrectname"insubsection(c)
meansthecorrectnameofthenewdebtor.
9507.EFFECTOFCERTAINEVENTSONEFFECTIVENESSOFFINANCINGSTATEMENT.
(a)[Disposition.]
Afiledfinancingstatementremainseffectivewithrespecttocollateralthatissold,
exchanged,leased,licensed,orotherwisedisposedofandinwhichasecurity
interestoragriculturalliencontinues,evenifthesecuredpartyknowsofor
consentstothedisposition.
(b)[Informationbecomingseriouslymisleading.]
Exceptasotherwiseprovidedinsubsection(c)andSection9508,afinancing
statementisnotrenderedineffectiveif,afterthefinancingstatementisfiled,the
informationprovidedinthefinancingstatementbecomesseriouslymisleading
underSection9506.
(c)[Changeindebtor'sname.]
[ 467 ]
Ifadebtorsochangesitsnamethatafiledfinancingstatementbecomesseriously
misleadingunderSection9506:
(1)thefinancingstatementiseffectivetoperfectasecurityinterestincollateral
acquiredbythedebtorbefore,orwithinfourmonthsafter,thechange;and
(2)thefinancingstatementisnoteffectivetoperfectasecurityinterestincollateral
acquiredbythedebtormorethanfourmonthsafterthechange,unlessan
amendmenttothefinancingstatementwhichrendersthefinancingstatementnot
seriouslymisleadingisfiledwithinfourmonthsafterthechange.
9508.EFFECTIVENESSOFFINANCINGSTATEMENTIFNEWDEBTORBECOMESBOUNDBY
SECURITYAGREEMENT.
(a)[Financingstatementnamingoriginaldebtor.]
Exceptasotherwiseprovidedinthissection,afiledfinancingstatementnamingan
originaldebtoriseffectivetoperfectasecurityinterestincollateralinwhichanew
debtorhasoracquiresrightstotheextentthatthefinancingstatementwouldhave
beeneffectivehadtheoriginaldebtoracquiredrightsinthecollateral.
(b)[Financingstatementbecomingseriouslymisleading.]
Ifthedifferencebetweenthenameoftheoriginaldebtorandthatofthenewdebtor
causesafiledfinancingstatementthatiseffectiveundersubsection(a)tobe
seriouslymisleadingunderSection9506:
(1)thefinancingstatementiseffectivetoperfectasecurityinterestincollateral
acquiredbythenewdebtorbefore,andwithinfourmonthsafter,thenewdebtor
becomesboundunderSection9203(d);and
(2)thefinancingstatementisnoteffectivetoperfectasecurityinterestincollateral
acquiredbythenewdebtormorethanfourmonthsafterthenewdebtorbecomes
boundunderSection9203(d)unlessaninitialfinancingstatementprovidingthe
nameofthenewdebtorisfiledbeforetheexpirationofthattime.
(c)[Whensectionnotapplicable.]
Thissectiondoesnotapplytocollateralastowhichafiledfinancingstatement
remainseffectiveagainstthenewdebtorunderSection9507(a).
9509.PERSONSENTITLEDTOFILEARECORD.
(a)[Personentitledtofilerecord.]
Apersonmayfileaninitialfinancingstatement,amendmentthataddscollateral
coveredbyafinancingstatement,oramendmentthataddsadebtortoafinancing
statementonlyif:
[ 468 ]
(1)thedebtorauthorizesthefilinginanauthenticatedrecordorpursuantto
subsection(b)or(c);or
(2)thepersonholdsanagriculturallienthathasbecomeeffectiveatthetimeof
filingandthefinancingstatementcoversonlycollateralinwhichthepersonholds
anagriculturallien.
(b)[Securityagreementasauthorization.]
Byauthenticatingorbecomingboundasdebtorbyasecurityagreement,adebtoror
newdebtorauthorizesthefilingofaninitialfinancingstatement,andan
amendment,covering:
(1)thecollateraldescribedinthesecurityagreement;and
(2)propertythatbecomescollateralunderSection9315(a)(2),whetherornotthe
securityagreementexpresslycoversproceeds.
(c)[Acquisitionofcollateralasauthorization.]
Byacquiringcollateralinwhichasecurityinterestoragriculturalliencontinues
underSection9315(a)(1),adebtorauthorizesthefilingofaninitialfinancing
statement,andanamendment,coveringthecollateralandpropertythatbecomes
collateralunderSection9315(a)(2).
(d)[Personentitledtofilecertainamendments.]
Apersonmayfileanamendmentotherthananamendmentthataddscollateral
coveredbyafinancingstatementoranamendmentthataddsadebtortoafinancing
statementonlyif:
(1)thesecuredpartyofrecordauthorizesthefiling;or
(2)theamendmentisaterminationstatementforafinancingstatementastowhich
thesecuredpartyofrecordhasfailedtofileorsendaterminationstatementas
requiredbySection9513(a)or(c),thedebtorauthorizesthefiling,andthe
terminationstatementindicatesthatthedebtorauthorizedittobefiled.
(e)[Multiplesecuredpartiesofrecord.]
Ifthereismorethanonesecuredpartyofrecordforafinancingstatement,each
securedpartyofrecordmayauthorizethefilingofanamendmentundersubsection
(d).
[ 469 ]
9510.EFFECTIVENESSOFFILEDRECORD.
(a)[Filedrecordeffectiveifauthorized.]
Afiledrecordiseffectiveonlytotheextentthatitwasfiledbyapersonthatmayfile
itunderSection9509.
(b)[Authorizationbyonesecuredpartyofrecord.]
Arecordauthorizedbyonesecuredpartyofrecorddoesnotaffectthefinancing
statementwithrespecttoanothersecuredpartyofrecord.
(c)[Continuationstatementnottimelyfiled.]
Acontinuationstatementthatisnotfiledwithinthesixmonthperiodprescribedby
Section9515(d)isineffective.
9511.SECUREDPARTYOFRECORD.
(a)[Securedpartyofrecord.]
Asecuredpartyofrecordwithrespecttoafinancingstatementisapersonwhose
nameisprovidedasthenameofthesecuredpartyorarepresentativeofthe
securedpartyinaninitialfinancingstatementthathasbeenfiled.Ifaninitial
financingstatementisfiledunderSection9514(a),theassigneenamedintheinitial
financingstatementisthesecuredpartyofrecordwithrespecttothefinancing
statement.
(b)[Amendmentnamingsecuredpartyofrecord.]
Ifanamendmentofafinancingstatementwhichprovidesthenameofapersonasa
securedpartyorarepresentativeofasecuredpartyisfiled,thepersonnamedinthe
amendmentisasecuredpartyofrecord.IfanamendmentisfiledunderSection9
514(b),theassigneenamedintheamendmentisasecuredpartyofrecord.
(c)[Amendmentdeletingsecuredpartyofrecord.]
Apersonremainsasecuredpartyofrecorduntilthefilingofanamendmentofthe
financingstatementwhichdeletestheperson.
9512.AMENDMENTOFFINANCINGSTATEMENT.
[AlternativeA]
(a)[Amendmentofinformationinfinancingstatement.]
SubjecttoSection9509,apersonmayaddordeletecollateralcoveredby,continue
orterminatetheeffectivenessof,or,subjecttosubsection(e),otherwiseamendthe
informationprovidedin,afinancingstatementbyfilinganamendmentthat:
[ 470 ]
(1)identifies,byitsfilenumber,theinitialfinancingstatementtowhichthe
amendmentrelates;and
(2)iftheamendmentrelatestoaninitialfinancingstatementfiled[orrecorded]ina
filingofficedescribedinSection9501(a)(1),providestheinformationspecifiedin
Section9502(b).
[AlternativeB]
(a)[Amendmentofinformationinfinancingstatement.]
SubjecttoSection9509,apersonmayaddordeletecollateralcoveredby,continue
orterminatetheeffectivenessof,or,subjecttosubsection(e),otherwiseamendthe
informationprovidedin,afinancingstatementbyfilinganamendmentthat:
(1)identifies,byitsfilenumber,theinitialfinancingstatementtowhichthe
amendmentrelates;and
(2)iftheamendmentrelatestoaninitialfinancingstatementfiled[orrecorded]ina
filingofficedescribedinSection9501(a)(1),providesthedate[andtime]thatthe
initialfinancingstatementwasfiled[orrecorded]andtheinformationspecifiedin
Section9502(b).
[EndofAlternatives]
(b)[Periodofeffectivenessnotaffected.]
ExceptasotherwiseprovidedinSection9515,thefilingofanamendmentdoesnot
extendtheperiodofeffectivenessofthefinancingstatement.
(c)[Effectivenessofamendmentaddingcollateral.]
Afinancingstatementthatisamendedbyanamendmentthataddscollateralis
effectiveastotheaddedcollateralonlyfromthedateofthefilingoftheamendment.
(d)[Effectivenessofamendmentaddingdebtor.]
Afinancingstatementthatisamendedbyanamendmentthataddsadebtoris
effectiveastotheaddeddebtoronlyfromthedateofthefilingoftheamendment.
(e)[Certainamendmentsineffective.]
Anamendmentisineffectivetotheextentit:
(1)purportstodeletealldebtorsandfailstoprovidethenameofadebtortobe
coveredbythefinancingstatement;or
(2)purportstodeleteallsecuredpartiesofrecordandfailstoprovidethenameofa
newsecuredpartyofrecord.
[ 471 ]
9513.TERMINATIONSTATEMENT.
(a)[Consumergoods.]
Asecuredpartyshallcausethesecuredpartyofrecordforafinancingstatementto
fileaterminationstatementforthefinancingstatementifthefinancingstatement
coversconsumergoodsand:
(1)thereisnoobligationsecuredbythecollateralcoveredbythefinancing
statementandnocommitmenttomakeanadvance,incuranobligation,or
otherwisegivevalue;or
(2)thedebtordidnotauthorizethefilingoftheinitialfinancingstatement.
(b)[Timeforcompliancewithsubsection(a).]
Tocomplywithsubsection(a),asecuredpartyshallcausethesecuredpartyof
recordtofiletheterminationstatement:
(1)withinonemonthafterthereisnoobligationsecuredbythecollateralcovered
bythefinancingstatementandnocommitmenttomakeanadvance,incuran
obligation,orotherwisegivevalue;or
(2)ifearlier,within20daysafterthesecuredpartyreceivesanauthenticated
demandfromadebtor.
(c)[Othercollateral.]
Incasesnotgovernedbysubsection(a),within20daysafterasecuredparty
receivesanauthenticateddemandfromadebtor,thesecuredpartyshallcausethe
securedpartyofrecordforafinancingstatementtosendtothedebtora
terminationstatementforthefinancingstatementorfiletheterminationstatement
inthefilingofficeif:
(1)exceptinthecaseofafinancingstatementcoveringaccountsorchattelpaper
thathasbeensoldorgoodsthatarethesubjectofaconsignment,thereisno
obligationsecuredbythecollateralcoveredbythefinancingstatementandno
commitmenttomakeanadvance,incuranobligation,orotherwisegivevalue;
(2)thefinancingstatementcoversaccountsorchattelpaperthathasbeensoldbut
astowhichtheaccountdebtororotherpersonobligatedhasdischargedits
obligation;
(3)thefinancingstatementcoversgoodsthatwerethesubjectofaconsignmentto
thedebtorbutarenotinthedebtor'spossession;or
(4)thedebtordidnotauthorizethefilingoftheinitialfinancingstatement.
(d)[Effectoffilingterminationstatement.]
[ 472 ]
ExceptasotherwiseprovidedinSection9510,uponthefilingofatermination
statementwiththefilingoffice,thefinancingstatementtowhichthetermination
statementrelatesceasestobeeffective.ExceptasotherwiseprovidedinSection9
510,forpurposesofSections9519(g),9522(a),and9523(c),thefilingwiththe
filingofficeofaterminationstatementrelatingtoafinancingstatementthat
indicatesthatthedebtorisatransmittingutilityalsocausestheeffectivenessofthe
financingstatementtolapse.
9514.ASSIGNMENTOFPOWERSOFSECUREDPARTYOFRECORD.
(a)[Assignmentreflectedoninitialfinancingstatement.]
Exceptasotherwiseprovidedinsubsection(c),aninitialfinancingstatementmay
reflectanassignmentofallofthesecuredparty'spowertoauthorizeanamendment
tothefinancingstatementbyprovidingthenameandmailingaddressofthe
assigneeasthenameandaddressofthesecuredparty.
(b)[Assignmentoffiledfinancingstatement.]
Exceptasotherwiseprovidedinsubsection(c),asecuredpartyofrecordmay
assignofrecordallorpartofitspowertoauthorizeanamendmenttoafinancing
statementbyfilinginthefilingofficeanamendmentofthefinancingstatement
which:
(1)identifies,byitsfilenumber,theinitialfinancingstatementtowhichitrelates;
(2)providesthenameoftheassignor;and
(3)providesthenameandmailingaddressoftheassignee.
(c)[Assignmentofrecordofmortgage.]
Anassignmentofrecordofasecurityinterestinafixturecoveredbyarecordofa
mortgagewhichiseffectiveasafinancingstatementfiledasafixturefilingunder
Section9502(c)maybemadeonlybyanassignmentofrecordofthemortgagein
themannerprovidedbylawofthisStateotherthan[theUniformCommercial
Code].
9515.DURATIONANDEFFECTIVENESSOFFINANCINGSTATEMENT;EFFECTOFLAPSED
FINANCINGSTATEMENT.
(a)[Fiveyeareffectiveness.]
Exceptasotherwiseprovidedinsubsections(b),(e),(f),and(g),afiledfinancing
statementiseffectiveforaperiodoffiveyearsafterthedateoffiling.
(b)[Publicfinanceormanufacturedhometransaction.]
[ 473 ]
Exceptasotherwiseprovidedinsubsections(e),(f),and(g),aninitialfinancing
statementfiledinconnectionwithapublicfinancetransactionormanufactured
hometransactioniseffectiveforaperiodof30yearsafterthedateoffilingifit
indicatesthatitisfiledinconnectionwithapublicfinancetransactionor
manufacturedhometransaction.
(c)[Lapseandcontinuationoffinancingstatement.]
Theeffectivenessofafiledfinancingstatementlapsesontheexpirationofthe
periodofitseffectivenessunlessbeforethelapseacontinuationstatementisfiled
pursuanttosubsection(d).Uponlapse,afinancingstatementceasestobeeffective
andanysecurityinterestoragriculturallienthatwasperfectedbythefinancing
statementbecomesunperfected,unlessthesecurityinterestisperfectedotherwise.
Ifthesecurityinterestoragriculturallienbecomesunperfecteduponlapse,itis
deemednevertohavebeenperfectedasagainstapurchaserofthecollateralfor
value.
(d)[Whencontinuationstatementmaybefiled.]
Acontinuationstatementmaybefiledonlywithinsixmonthsbeforetheexpiration
ofthefiveyearperiodspecifiedinsubsection(a)orthe30yearperiodspecifiedin
subsection(b),whicheverisapplicable.
(e)[Effectoffilingcontinuationstatement.]
ExceptasotherwiseprovidedinSection9510,upontimelyfilingofacontinuation
statement,theeffectivenessoftheinitialfinancingstatementcontinuesforaperiod
offiveyearscommencingonthedayonwhichthefinancingstatementwouldhave
becomeineffectiveintheabsenceofthefiling.Upontheexpirationofthefiveyear
period,thefinancingstatementlapsesinthesamemannerasprovidedinsubsection
(c),unless,beforethelapse,anothercontinuationstatementisfiledpursuantto
subsection(d).Succeedingcontinuationstatementsmaybefiledinthesame
mannertocontinuetheeffectivenessoftheinitialfinancingstatement.
(f)[Transmittingutilityfinancingstatement.]
Ifadebtorisatransmittingutilityandafiledfinancingstatementsoindicates,the
financingstatementiseffectiveuntilaterminationstatementisfiled.
(g)[Recordofmortgageasfinancingstatement.]
Arecordofamortgagethatiseffectiveasafinancingstatementfiledasafixture
filingunderSection9502(c)remainseffectiveasafinancingstatementfiledasa
fixturefilinguntilthemortgageisreleasedorsatisfiedofrecordoritseffectiveness
otherwiseterminatesastotherealproperty.
[ 474 ]
9516.WHATCONSTITUTESFILING;EFFECTIVENESSOFFILING.
(a)[Whatconstitutesfiling.]
Exceptasotherwiseprovidedinsubsection(b),communicationofarecordtoa
filingofficeandtenderofthefilingfeeoracceptanceoftherecordbythefilingoffice
constitutesfiling.
(b)[Refusaltoacceptrecord;filingdoesnotoccur.]
Filingdoesnotoccurwithrespecttoarecordthatafilingofficerefusestoaccept
because:
(1)therecordisnotcommunicatedbyamethodormediumofcommunication
authorizedbythefilingoffice;
(2)anamountequaltoorgreaterthantheapplicablefilingfeeisnottendered;
(3)thefilingofficeisunabletoindextherecordbecause:
(A)inthecaseofaninitialfinancingstatement,therecorddoesnotprovidea
nameforthedebtor;
(B)inthecaseofanamendmentorcorrectionstatement,therecord:
(i)doesnotidentifytheinitialfinancingstatementasrequiredby
Section9512or9518,asapplicable;or
(ii)identifiesaninitialfinancingstatementwhoseeffectivenesshas
lapsedunderSection9515;
(C)inthecaseofaninitialfinancingstatementthatprovidesthenameofa
debtoridentifiedasanindividualoranamendmentthatprovidesanameofa
debtoridentifiedasanindividualwhichwasnotpreviouslyprovidedinthe
financingstatementtowhichtherecordrelates,therecorddoesnotidentify
thedebtor'slastname;or
(D)inthecaseofarecordfiled[orrecorded]inthefilingofficedescribedin
Section9501(a)(1),therecorddoesnotprovideasufficientdescriptionof
therealpropertytowhichitrelates;
(4)inthecaseofaninitialfinancingstatementoranamendmentthataddsa
securedpartyofrecord,therecorddoesnotprovideanameandmailingaddressfor
thesecuredpartyofrecord;
(5)inthecaseofaninitialfinancingstatementoranamendmentthatprovidesa
nameofadebtorwhichwasnotpreviouslyprovidedinthefinancingstatementto
whichtheamendmentrelates,therecorddoesnot:
[ 475 ]
(A)provideamailingaddressforthedebtor;
(B)indicatewhetherthedebtorisanindividualoranorganization;or
(C)ifthefinancingstatementindicatesthatthedebtorisanorganization,
provide:
(i)atypeoforganizationforthedebtor;
(ii)ajurisdictionoforganizationforthedebtor;or
(iii)anorganizationalidentificationnumberforthedebtororindicate
thatthedebtorhasnone;
(6)inthecaseofanassignmentreflectedinaninitialfinancingstatementunder
Section9514(a)oranamendmentfiledunderSection9514(b),therecorddoes
notprovideanameandmailingaddressfortheassignee;or
(7)inthecaseofacontinuationstatement,therecordisnotfiledwithinthesix
monthperiodprescribedbySection9515(d).
(c)[Rulesapplicabletosubsection(b).]
Forpurposesofsubsection(b):
(1)arecorddoesnotprovideinformationifthefilingofficeisunabletoreador
deciphertheinformation;and
(2)arecordthatdoesnotindicatethatitisanamendmentoridentifyaninitial
financingstatementtowhichitrelates,asrequiredbySection9512,9514,or9
518,isaninitialfinancingstatement.
(d)[Refusaltoacceptrecord;recordeffectiveasfiledrecord.]
Arecordthatiscommunicatedtothefilingofficewithtenderofthefilingfee,but
whichthefilingofficerefusestoacceptforareasonotherthanonesetforthin
subsection(b),iseffectiveasafiledrecordexceptasagainstapurchaserofthe
collateralwhichgivesvalueinreasonablerelianceupontheabsenceoftherecord
fromthefiles.
9517.EFFECTOFINDEXINGERRORS.
Thefailureofthefilingofficetoindexarecordcorrectlydoesnotaffecttheeffectivenessof
thefiledrecord.
[ 476 ]
9518.CLAIMCONCERNINGINACCURATEORWRONGFULLYFILEDRECORD.
(a)[Correctionstatement.]
Apersonmayfileinthefilingofficeacorrectionstatementwithrespecttoarecord
indexedthereundertheperson'snameifthepersonbelievesthattherecordis
inaccurateorwaswrongfullyfiled.
[AlternativeA]
(b)[Sufficiencyofcorrectionstatement.]
Acorrectionstatementmust:
(1)identifytherecordtowhichitrelatesbythefilenumberassignedtotheinitial
financingstatementtowhichtherecordrelates;
(2)indicatethatitisacorrectionstatement;and
(3)providethebasisfortheperson'sbeliefthattherecordisinaccurateand
indicatethemannerinwhichthepersonbelievestherecordshouldbeamendedto
cureanyinaccuracyorprovidethebasisfortheperson'sbeliefthattherecordwas
wrongfullyfiled.
[AlternativeB]
(b)[Sufficiencyofcorrectionstatement.]
Acorrectionstatementmust:
(1)identifytherecordtowhichitrelatesby:
(A)thefilenumberassignedtotheinitialfinancingstatementtowhichthe
recordrelates;and
(B)ifthecorrectionstatementrelatestoarecordfiled[orrecorded]ina
filingofficedescribedinSection9501(a)(1),thedate[andtime]thatthe
initialfinancingstatementwasfiled[orrecorded]andtheinformation
specifiedinSection9502(b);
(2)indicatethatitisacorrectionstatement;and
(3)providethebasisfortheperson'sbeliefthattherecordisinaccurateand
indicatethemannerinwhichthepersonbelievestherecordshouldbeamendedto
cureanyinaccuracyorprovidethebasisfortheperson'sbeliefthattherecordwas
wrongfullyfiled.
[EndofAlternatives]
[ 477 ]
(c)[Recordnotaffectedbycorrectionstatement.]
Thefilingofacorrectionstatementdoesnotaffecttheeffectivenessofaninitial
financingstatementorotherfiledrecord.
[Subpart2.DutiesandOperationofFilingOffice]
9519.NUMBERING,MAINTAINING,ANDINDEXINGRECORDS;COMMUNICATING
INFORMATIONPROVIDEDINRECORDS.
(a)[Filingofficeduties.]
Foreachrecordfiledinafilingoffice,thefilingofficeshall:
(1)assignauniquenumbertothefiledrecord;
(2)createarecordthatbearsthenumberassignedtothefiledrecordandthedate
andtimeoffiling;
(3)maintainthefiledrecordforpublicinspection;and
(4)indexthefiledrecordinaccordancewithsubsections(c),(d),and(e).
(b)[Filenumber.]
Afilenumber[assignedafterJanuary1,2002,]mustincludeadigitthat:
(1)ismathematicallyderivedfromorrelatedtotheotherdigitsofthefilenumber;
and
(2)aidsthefilingofficeindeterminingwhetheranumbercommunicatedasthefile
numberincludesasingledigitortranspositionalerror.
(c)[Indexing:general.]
Exceptasotherwiseprovidedinsubsections(d)and(e),thefilingofficeshall:
(1)indexaninitialfinancingstatementaccordingtothenameofthedebtorand
indexallfiledrecordsrelatingtotheinitialfinancingstatementinamannerthat
associateswithoneanotheraninitialfinancingstatementandallfiledrecords
relatingtotheinitialfinancingstatement;and
(2)indexarecordthatprovidesanameofadebtorwhichwasnotpreviously
providedinthefinancingstatementtowhichtherecordrelatesalsoaccordingtothe
namethatwasnotpreviouslyprovided.
(d)[Indexing:realpropertyrelatedfinancingstatement.]
[ 478 ]
Ifafinancingstatementisfiledasafixturefilingorcoversasextractedcollateralor
timbertobecut,[itmustbefiledforrecordand]thefilingofficeshallindexit:
(1)underthenamesofthedebtorandofeachownerofrecordshownonthe
financingstatementasiftheywerethemortgagorsunderamortgageofthereal
propertydescribed;and
(2)totheextentthatthelawofthisStateprovidesforindexingofrecordsof
mortgagesunderthenameofthemortgagee,underthenameofthesecuredpartyas
ifthesecuredpartywerethemortgageethereunder,or,ifindexingisbydescription,
asifthefinancingstatementwerearecordofamortgageoftherealproperty
described.
(e)[Indexing:realpropertyrelatedassignment.]
Ifafinancingstatementisfiledasafixturefilingorcoversasextractedcollateralor
timbertobecut,thefilingofficeshallindexanassignmentfiledunderSection9
514(a)oranamendmentfiledunderSection9514(b):
(1)underthenameoftheassignorasgrantor;and
(2)totheextentthatthelawofthisStateprovidesforindexingarecordofthe
assignmentofamortgageunderthenameoftheassignee,underthenameofthe
assignee.
[AlternativeA]
(f)[Retrievalandassociationcapability.]
Thefilingofficeshallmaintainacapability:
(1)toretrievearecordbythenameofthedebtorandbythefilenumberassignedto
theinitialfinancingstatementtowhichtherecordrelates;and
(2)toassociateandretrievewithoneanotheraninitialfinancingstatementand
eachfiledrecordrelatingtotheinitialfinancingstatement.
[AlternativeB]
(f)[Retrievalandassociationcapability.]
Thefilingofficeshallmaintainacapability:
(1)toretrievearecordbythenameofthedebtorand:
(A)ifthefilingofficeisdescribedinSection9501(a)(1),bythefilenumber
assignedtotheinitialfinancingstatementtowhichtherecordrelatesandthe
date[andtime]thattherecordwasfiled[orrecorded];or
[ 479 ]
(B)ifthefilingofficeisdescribedinSection9501(a)(2),bythefilenumber
assignedtotheinitialfinancingstatementtowhichtherecordrelates;and
(2)toassociateandretrievewithoneanotheraninitialfinancingstatementand
eachfiledrecordrelatingtotheinitialfinancingstatement.
[EndofAlternatives]
(g)[Removalofdebtor'sname.]
Thefilingofficemaynotremoveadebtor'snamefromtheindexuntiloneyearafter
theeffectivenessofafinancingstatementnamingthedebtorlapsesunderSection9
515withrespecttoallsecuredpartiesofrecord.
(h)[Timelinessoffilingofficeperformance.]
Thefilingofficeshallperformtheactsrequiredbysubsections(a)through(e)atthe
timeandinthemannerprescribedbyfilingofficerule,butnotlaterthantwo
businessdaysafterthefilingofficereceivestherecordinquestion.
[(i)[Inapplicabilitytorealpropertyrelatedfilingoffice.]
[Subsections][(b)][and][(h)]do[es]notapplytoafilingofficedescribedinSection
9501(a)(1).]
9520.ACCEPTANCEANDREFUSALTOACCEPTRECORD.
(a)[Mandatoryrefusaltoacceptrecord.]
AfilingofficeshallrefusetoacceptarecordforfilingforareasonsetforthinSection
9516(b)andmayrefusetoacceptarecordforfilingonlyforareasonsetforthin
Section9516(b).
(b)[Communicationconcerningrefusal.]
Ifafilingofficerefusestoacceptarecordforfiling,itshallcommunicatetothe
personthatpresentedtherecordthefactofandreasonfortherefusalandthedate
andtimetherecordwouldhavebeenfiledhadthefilingofficeacceptedit.The
communicationmustbemadeatthetimeandinthemannerprescribedbyfiling
officerulebut[,inthecaseofafilingofficedescribedinSection9501(a)(2),]inno
eventmorethantwobusinessdaysafterthefilingofficereceivestherecord.
(c)[Whenfiledfinancingstatementeffective.]
AfiledfinancingstatementsatisfyingSection9502(a)and(b)iseffective,evenif
thefilingofficeisrequiredtorefusetoacceptitforfilingundersubsection(a).
However,Section9338appliestoafiledfinancingstatementprovidinginformation
describedinSection9516(b)(5)whichisincorrectatthetimethefinancing
statementisfiled.
[ 480 ]
(d)[Separateapplicationtomultipledebtors.]
Ifarecordcommunicatedtoafilingofficeprovidesinformationthatrelatestomore
thanonedebtor,thispartappliesastoeachdebtorseparately.
9521.UNIFORMFORMOFWRITTENFINANCINGSTATEMENTANDAMENDMENT.
(a)[Initialfinancingstatementform.]
Afilingofficethatacceptswrittenrecordsmaynotrefusetoacceptawritteninitial
financingstatementinthefollowingformandformatexceptforareasonsetforthin
Section9516(b):
[ 481 ]
[ 482 ]
[ 483 ]
(b)[Amendmentform.]
Afilingofficethatacceptswrittenrecordsmaynotrefusetoacceptawrittenrecordinthe
followingformandformatexceptforareasonsetforthinSection9516(b):
[ 484 ]
[ 485 ]
[ 486 ]
9522.MAINTENANCEANDDESTRUCTIONOFRECORDS.
[AlternativeA]
(a)[Postlapsemaintenanceandretrievalofinformation.]
Thefilingofficeshallmaintainarecordoftheinformationprovidedinafiled
financingstatementforatleastoneyearaftertheeffectivenessofthefinancing
statementhaslapsedunderSection9515withrespecttoallsecuredpartiesof
record.Therecordmustberetrievablebyusingthenameofthedebtorandbyusing
thefilenumberassignedtotheinitialfinancingstatementtowhichtherecord
relates.
[AlternativeB]
(a)[Postlapsemaintenanceandretrievalofinformation.]
Thefilingofficeshallmaintainarecordoftheinformationprovidedinafiled
financingstatementforatleastoneyearaftertheeffectivenessofthefinancing
statementhaslapsedunderSection9515withrespecttoallsecuredpartiesof
record.Therecordmustberetrievablebyusingthenameofthedebtorand:
(1)iftherecordwasfiled[orrecorded]inthefilingofficedescribedinSection9
501(a)(1),byusingthefilenumberassignedtotheinitialfinancingstatementto
whichtherecordrelatesandthedate[andtime]thattherecordwasfiled[or
recorded];or
(2)iftherecordwasfiledinthefilingofficedescribedinSection9501(a)(2),by
usingthefilenumberassignedtotheinitialfinancingstatementtowhichtherecord
relates.
[EndofAlternatives]
(b)[Destructionofwrittenrecords.]
Excepttotheextentthatastatutegoverningdispositionofpublicrecordsprovides
otherwise,thefilingofficeimmediatelymaydestroyanywrittenrecordevidencinga
financingstatement.However,ifthefilingofficedestroysawrittenrecord,itshall
maintainanotherrecordofthefinancingstatementwhichcomplieswithsubsection
(a).
9523.INFORMATIONFROMFILINGOFFICE;SALEORLICENSEOFRECORDS.
(a)[Acknowledgmentoffilingwrittenrecord.]
Ifapersonthatfilesawrittenrecordrequestsanacknowledgmentofthefiling,the
filingofficeshallsendtothepersonanimageoftherecordshowingthenumber
assignedtotherecordpursuanttoSection9519(a)(1)andthedateandtimeofthe
[ 487 ]
filingoftherecord.However,ifthepersonfurnishesacopyoftherecordtothefiling
office,thefilingofficemayinstead:
(1)noteuponthecopythenumberassignedtotherecordpursuanttoSection9
519(a)(1)andthedateandtimeofthefilingoftherecord;and
(2)sendthecopytotheperson.
(b)[Acknowledgmentoffilingotherrecord.]
Ifapersonfilesarecordotherthanawrittenrecord,thefilingofficeshall
communicatetothepersonanacknowledgmentthatprovides:
(1)theinformationintherecord;
(2)thenumberassignedtotherecordpursuanttoSection9519(a)(1);and
(3)thedateandtimeofthefilingoftherecord.
(c)[Communicationofrequestedinformation.]
Thefilingofficeshallcommunicateorotherwisemakeavailableinarecordthe
followinginformationtoanypersonthatrequestsit:
(1)whetherthereisonfileonadateandtimespecifiedbythefilingoffice,butnota
dateearlierthanthreebusinessdaysbeforethefilingofficereceivestherequest,
anyfinancingstatementthat:
(A)designatesaparticulardebtor[or,iftherequestsostates,designatesa
particulardebtorattheaddressspecifiedintherequest];
(B)hasnotlapsedunderSection9515withrespecttoallsecuredpartiesof
record;and
(C)iftherequestsostates,haslapsedunderSection9515andarecordof
whichismaintainedbythefilingofficeunderSection9522(a);
(2)thedateandtimeoffilingofeachfinancingstatement;and
(3)theinformationprovidedineachfinancingstatement.
(d)[Mediumforcommunicatinginformation.]
Incomplyingwithitsdutyundersubsection(c),thefilingofficemaycommunicate
informationinanymedium.However,ifrequested,thefilingofficeshall
communicateinformationbyissuing[itswrittencertificate][arecordthatcanbe
admittedintoevidenceinthecourtsofthisStatewithoutextrinsicevidenceofits
authenticity].
[ 488 ]
(e)[Timelinessoffilingofficeperformance.]
Thefilingofficeshallperformtheactsrequiredbysubsections(a)through(d)atthe
timeandinthemannerprescribedbyfilingofficerule,butnotlaterthantwo
businessdaysafterthefilingofficereceivestherequest.
(f)[Publicavailabilityofrecords.]
Atleastweekly,the[insertappropriateofficialorgovernmentalagency][filing
office]shalloffertosellorlicensetothepubliconanonexclusivebasis,inbulk,
copiesofallrecordsfiledinitunderthispart,ineverymediumfromtimetotime
availabletothefilingoffice.
9524.DELAYBYFILINGOFFICE.
Delaybythefilingofficebeyondatimelimitprescribedbythispartisexcusedif:
(1)thedelayiscausedbyinterruptionofcommunicationorcomputerfacilities,war,
emergencyconditions,failureofequipment,orothercircumstancesbeyondcontrolofthe
filingoffice;and
(2)thefilingofficeexercisesreasonablediligenceunderthecircumstances.
9525.FEES.
(a)[Initialfinancingstatementorotherrecord:generalrule.]
Exceptasotherwiseprovidedinsubsection(e),thefeeforfilingandindexinga
recordunderthispart,otherthananinitialfinancingstatementofthekind
describedinsubsection(b),is[theamountspecifiedinsubsection(c),ifapplicable,
plus]:
(1)$__[X]______iftherecordiscommunicatedinwritingandconsistsofoneortwo
pages;
(2)$__[2X]______iftherecordiscommunicatedinwritingandconsistsofmorethan
twopages;and
(3)$__[1/2X]___iftherecordiscommunicatedbyanothermediumauthorizedby
filingofficerule.
(b)[Initialfinancingstatement:publicfinanceandmanufacturedhousingtransactions.]
Exceptasotherwiseprovidedinsubsection(e),thefeeforfilingandindexingan
initialfinancingstatementofthefollowingkindis[theamountspecifiedin
subsection(c),ifapplicable,plus]:
(1)$_____ifthefinancingstatementindicatesthatitisfiledinconnectionwitha
publicfinancetransaction;
[ 489 ]
(2)$_____ifthefinancingstatementindicatesthatitisfiledinconnectionwitha
manufacturedhometransaction.
[AlternativeA]
(c)[Numberofnames.]
Thenumberofnamesrequiredtobeindexeddoesnotaffecttheamountofthefee
insubsections(a)and(b).
[AlternativeB]
(c)[Numberofnames.]
Exceptasotherwiseprovidedinsubsection(e),ifarecordiscommunicatedin
writing,thefeeforeachnamemorethantworequiredtobeindexedis$______.
[EndofAlternatives]
(d)[Responsetoinformationrequest.]
Thefeeforrespondingtoarequestforinformationfromthefilingoffice,including
for[issuingacertificateshowing][communicating]whetherthereisonfileany
financingstatementnamingaparticulardebtor,is:
(1)$____iftherequestiscommunicatedinwriting;and
(2)$____iftherequestiscommunicatedbyanothermediumauthorizedbyfiling
officerule.
(e)[Recordofmortgage.]
Thissectiondoesnotrequireafeewithrespecttoarecordofamortgagewhichis
effectiveasafinancingstatementfiledasafixturefilingorasafinancingstatement
coveringasextractedcollateralortimbertobecutunderSection9502(c).
However,therecordingandsatisfactionfeesthatotherwisewouldbeapplicableto
therecordofthemortgageapply.
9526.FILINGOFFICERULES.
(a)[Adoptionoffilingofficerules.]
The[insertappropriategovernmentalofficialoragency]shalladoptandpublish
rulestoimplementthisarticle.Thefilingofficerulesmustbe[:
(1)]consistentwiththisarticle[;and
(2)adoptedandpublishedinaccordancewiththe[insertanyapplicablestate
administrativeprocedureact]].
[ 490 ]
(b)[Harmonizationofrules.]
Tokeepthefilingofficerulesandpracticesofthefilingofficeinharmonywiththe
rulesandpracticesoffilingofficesinotherjurisdictionsthatenactsubstantiallythis
part,andtokeepthetechnologyusedbythefilingofficecompatiblewiththe
technologyusedbyfilingofficesinotherjurisdictionsthatenactsubstantiallythis
part,the[insertappropriategovernmentalofficialoragency],sofarasisconsistent
withthepurposes,policies,andprovisionsofthisarticle,inadopting,amending,and
repealingfilingofficerules,shall:
(1)consultwithfilingofficesinotherjurisdictionsthatenactsubstantiallythispart;
and
(2)consultthemostrecentversionoftheModelRulespromulgatedbythe
InternationalAssociationofCorporateAdministratorsoranysuccessor
organization;and
(3)takeintoconsiderationtherulesandpracticesof,andthetechnologyusedby,
filingofficesinotherjurisdictionsthatenactsubstantiallythispart.
9527.DUTYTOREPORT.
The[insertappropriategovernmentalofficialoragency]shallreport[annuallyonorbefore
________]tothe[GovernorandLegislature]ontheoperationofthefilingoffice.Thereport
mustcontainastatementoftheextenttowhich:
(1)thefilingofficerulesarenotinharmonywiththerulesoffilingofficesinother
jurisdictionsthatenactsubstantiallythispartandthereasonsforthesevariations;and
(2)thefilingofficerulesarenotinharmonywiththemostrecentversionoftheModel
RulespromulgatedbytheInternationalAssociationofCorporateAdministrators,orany
successororganization,andthereasonsforthesevariations.
Part6.Default
[Subpart1.DefaultandEnforcementofSecurityInterest]
9601.RIGHTSAFTERDEFAULT;JUDICIALENFORCEMENT;CONSIGNORORBUYEROF
ACCOUNTS,CHATTELPAPER,PAYMENTINTANGIBLES,ORPROMISSORYNOTES.
(a)[Rightsofsecuredpartyafterdefault.]
Afterdefault,asecuredpartyhastherightsprovidedinthispartand,exceptas
otherwiseprovidedinSection9602,thoseprovidedbyagreementoftheparties.A
securedparty:
(1)mayreduceaclaimtojudgment,foreclose,orotherwiseenforcetheclaim,
securityinterest,oragriculturallienbyanyavailablejudicialprocedure;and
[ 491 ]
(2)ifthecollateralisdocuments,mayproceedeitherastothedocumentsorasto
thegoodstheycover.
(b)[Rightsanddutiesofsecuredpartyinpossessionorcontrol.]
AsecuredpartyinpossessionofcollateralorcontrolofcollateralunderSection9
104,9105,9106,or9107hastherightsanddutiesprovidedinSection9207.
(c)[Rightscumulative;simultaneousexercise.]
Therightsundersubsections(a)and(b)arecumulativeandmaybeexercised
simultaneously.
(d)[Rightsofdebtorandobligor.]
Exceptasotherwiseprovidedinsubsection(g)andSection9605,afterdefault,a
debtorandanobligorhavetherightsprovidedinthispartandbyagreementofthe
parties.
(e)[Lienoflevyafterjudgment.]
Ifasecuredpartyhasreduceditsclaimtojudgment,thelienofanylevythatmaybe
madeuponthecollateralbyvirtueofanexecutionbaseduponthejudgmentrelates
backtotheearliestof:
(1)thedateofperfectionofthesecurityinterestoragriculturallieninthecollateral;
(2)thedateoffilingafinancingstatementcoveringthecollateral;or
(3)anydatespecifiedinastatuteunderwhichtheagriculturallienwascreated.
(f)[Executionsale.]
Asalepursuanttoanexecutionisaforeclosureofthesecurityinterestor
agriculturallienbyjudicialprocedurewithinthemeaningofthissection.Asecured
partymaypurchaseatthesaleandthereafterholdthecollateralfreeofanyother
requirementsofthisarticle.
(g)[Consignororbuyerofcertainrightstopayment.]
ExceptasotherwiseprovidedinSection9607(c),thispartimposesnodutiesupon
asecuredpartythatisaconsignororisabuyerofaccounts,chattelpaper,payment
intangibles,orpromissorynotes.
9602.WAIVERANDVARIANCEOFRIGHTSANDDUTIES.
ExceptasotherwiseprovidedinSection9624,totheextentthattheygiverightstoa
debtororobligorandimposedutiesonasecuredparty,thedebtororobligormaynot
waiveorvarytherulesstatedinthefollowinglistedsections:
[ 492 ]
(1)Section9207(b)(4)(C),whichdealswithuseandoperationofthecollateralby
thesecuredparty;
(2)Section9210,whichdealswithrequestsforanaccountingandrequests
concerningalistofcollateralandstatementofaccount;
(3)Section9607(c),whichdealswithcollectionandenforcementofcollateral;
(4)Sections9608(a)and9615(c)totheextentthattheydealwithapplicationor
paymentofnoncashproceedsofcollection,enforcement,ordisposition;
(5)Sections9608(a)and9615(d)totheextentthattheyrequireaccountingforor
paymentofsurplusproceedsofcollateral;
(6)Section9609totheextentthatitimposesuponasecuredpartythattakes
possessionofcollateralwithoutjudicialprocessthedutytodosowithoutbreachof
thepeace;
(7)Sections9610(b),9611,9613,and9614,whichdealwithdispositionof
collateral;
(8)Section9615(f),whichdealswithcalculationofadeficiencyorsurpluswhena
dispositionismadetothesecuredparty,apersonrelatedtothesecuredparty,ora
secondaryobligor;
(9)Section9616,whichdealswithexplanationofthecalculationofasurplusor
deficiency;
(10)Sections9620,9621,and9622,whichdealwithacceptanceofcollateralin
satisfactionofobligation;
(11)Section9623,whichdealswithredemptionofcollateral;
(12)Section9624,whichdealswithpermissiblewaivers;and
(13)Sections9625and9626,whichdealwiththesecuredparty'sliabilityfor
failuretocomplywiththisarticle.
9603.AGREEMENTONSTANDARDSCONCERNINGRIGHTSANDDUTIES.
(a)[Agreedstandards.]
Thepartiesmaydeterminebyagreementthestandardsmeasuringthefulfillmentof
therightsofadebtororobligorandthedutiesofasecuredpartyunderarulestated
inSection9602ifthestandardsarenotmanifestlyunreasonable.
(b)[Agreedstandardsinapplicabletobreachofpeace.]
[ 493 ]
Subsection(a)doesnotapplytothedutyunderSection9609torefrainfrom
breachingthepeace.
9604.PROCEDUREIFSECURITYAGREEMENTCOVERSREALPROPERTYORFIXTURES.
(a)[Enforcement:personalandrealproperty.]
Ifasecurityagreementcoversbothpersonalandrealproperty,asecuredpartymay
proceed:
(1)underthispartastothepersonalpropertywithoutprejudicinganyrightswith
respecttotherealproperty;or
(2)astoboththepersonalpropertyandtherealpropertyinaccordancewiththe
rightswithrespecttotherealproperty,inwhichcasetheotherprovisionsofthis
partdonotapply.
(b)[Enforcement:fixtures.]
Subjecttosubsection(c),ifasecurityagreementcoversgoodsthatareorbecome
fixtures,asecuredpartymayproceed:
(1)underthispart;or
(2)inaccordancewiththerightswithrespecttorealproperty,inwhichcasethe
otherprovisionsofthispartdonotapply.
(c)[Removaloffixtures.]
Subjecttotheotherprovisionsofthispart,ifasecuredpartyholdingasecurity
interestinfixtureshaspriorityoverallownersandencumbrancersofthereal
property,thesecuredparty,afterdefault,mayremovethecollateralfromthereal
property.
(d)[Injurycausedbyremoval.]
Asecuredpartythatremovescollateralshallpromptlyreimburseany
encumbrancerorowneroftherealproperty,otherthanthedebtor,forthecostof
repairofanyphysicalinjurycausedbytheremoval.Thesecuredpartyneednot
reimbursetheencumbrancerorownerforanydiminutioninvalueofthereal
propertycausedbytheabsenceofthegoodsremovedorbyanynecessityof
replacingthem.Apersonentitledtoreimbursementmayrefusepermissionto
removeuntilthesecuredpartygivesadequateassurancefortheperformanceofthe
obligationtoreimburse.
[ 494 ]
9605.UNKNOWNDEBTORORSECONDARYOBLIGOR.
Asecuredpartydoesnotoweadutybasedonitsstatusassecuredparty:
(1)toapersonthatisadebtororobligor,unlessthesecuredpartyknows:
(A)thatthepersonisadebtororobligor;
(B)theidentityoftheperson;and
(C)howtocommunicatewiththeperson;or
(2)toasecuredpartyorlienholderthathasfiledafinancingstatementagainsta
person,unlessthesecuredpartyknows:
(A)thatthepersonisadebtor;and
(B)theidentityoftheperson.
9606.TIMEOFDEFAULTFORAGRICULTURALLIEN.
Forpurposesofthispart,adefaultoccursinconnectionwithanagriculturallienatthetime
thesecuredpartybecomesentitledtoenforcethelieninaccordancewiththestatuteunder
whichitwascreated.
9607.COLLECTIONANDENFORCEMENTBYSECUREDPARTY.
(a)[Collectionandenforcementgenerally.]
Ifsoagreed,andinanyeventafterdefault,asecuredparty:
(1)maynotifyanaccountdebtororotherpersonobligatedoncollateraltomake
paymentorotherwiserenderperformancetoorforthebenefitofthesecuredparty;
(2)maytakeanyproceedstowhichthesecuredpartyisentitledunderSection9
315;
(3)mayenforcetheobligationsofanaccountdebtororotherpersonobligatedon
collateralandexercisetherightsofthedebtorwithrespecttotheobligationofthe
accountdebtororotherpersonobligatedoncollateraltomakepaymentor
otherwiserenderperformancetothedebtor,andwithrespecttoanypropertythat
securestheobligationsoftheaccountdebtororotherpersonobligatedonthe
collateral;
(4)ifitholdsasecurityinterestinadepositaccountperfectedbycontrolunder
Section9104(a)(1),mayapplythebalanceofthedepositaccounttotheobligation
securedbythedepositaccount;and
[ 495 ]
(5)ifitholdsasecurityinterestinadepositaccountperfectedbycontrolunder
Section9104(a)(2)or(3),mayinstructthebanktopaythebalanceofthedeposit
accounttoorforthebenefitofthesecuredparty.
(b)[Nonjudicialenforcementofmortgage.]
Ifnecessarytoenableasecuredpartytoexerciseundersubsection(a)(3)theright
ofadebtortoenforceamortgagenonjudicially,thesecuredpartymayrecordinthe
officeinwhicharecordofthemortgageisrecorded:
(1)acopyofthesecurityagreementthatcreatesorprovidesforasecurityinterest
intheobligationsecuredbythemortgage;and
(2)thesecuredparty'sswornaffidavitinrecordableformstatingthat:
(A)adefaulthasoccurred;and
(B)thesecuredpartyisentitledtoenforcethemortgagenonjudicially.
(c)[Commerciallyreasonablecollectionandenforcement.]
Asecuredpartyshallproceedinacommerciallyreasonablemannerifthesecured
party:
(1)undertakestocollectfromorenforceanobligationofanaccountdebtororother
personobligatedoncollateral;and
(2)isentitledtochargebackuncollectedcollateralorotherwisetofullorlimited
recourseagainstthedebtororasecondaryobligor.
(d)[Expensesofcollectionandenforcement.]
Asecuredpartymaydeductfromthecollectionsmadepursuanttosubsection(c)
reasonableexpensesofcollectionandenforcement,includingreasonableattorney's
feesandlegalexpensesincurredbythesecuredparty.
(e)[Dutiestosecuredpartynotaffected.]
Thissectiondoesnotdeterminewhetheranaccountdebtor,bank,orotherperson
obligatedoncollateralowesadutytoasecuredparty.
9608.APPLICATIONOFPROCEEDSOFCOLLECTIONORENFORCEMENT;LIABILITYFOR
DEFICIENCYANDRIGHTTOSURPLUS.
(a)[Applicationofproceeds,surplus,anddeficiencyifobligationsecured.]
Ifasecurityinterestoragriculturalliensecurespaymentorperformanceofan
obligation,thefollowingrulesapply:
[ 496 ]
(1)Asecuredpartyshallapplyorpayoverforapplicationthecashproceeds
ofcollectionorenforcementunderSection9607inthefollowingorderto:
(A)thereasonableexpensesofcollectionandenforcementand,tothe
extentprovidedforbyagreementandnotprohibitedbylaw,
reasonableattorney'sfeesandlegalexpensesincurredbythesecured
party;
(B)thesatisfactionofobligationssecuredbythesecurityinterestor
agriculturallienunderwhichthecollectionorenforcementismade;
and
(C)thesatisfactionofobligationssecuredbyanysubordinatesecurity
interestinorotherlienonthecollateralsubjecttothesecurity
interestoragriculturallienunderwhichthecollectionorenforcement
ismadeifthesecuredpartyreceivesanauthenticateddemandfor
proceedsbeforedistributionoftheproceedsiscompleted.
(2)Ifrequestedbyasecuredparty,aholderofasubordinatesecurity
interestorotherlienshallfurnishreasonableproofoftheinterestorlien
withinareasonabletime.Unlesstheholdercomplies,thesecuredpartyneed
notcomplywiththeholder'sdemandunderparagraph(1)(C).
(3)Asecuredpartyneednotapplyorpayoverforapplicationnoncash
proceedsofcollectionandenforcementunderSection9607unlessthe
failuretodosowouldbecommerciallyunreasonable.Asecuredpartythat
appliesorpaysoverforapplicationnoncashproceedsshalldosoina
commerciallyreasonablemanner.
(4)Asecuredpartyshallaccounttoandpayadebtorforanysurplus,andthe
obligorisliableforanydeficiency.
(b)[Nosurplusordeficiencyinsalesofcertainrightstopayment.]
Iftheunderlyingtransactionisasaleofaccounts,chattelpaper,payment
intangibles,orpromissorynotes,thedebtorisnotentitledtoanysurplus,andthe
obligorisnotliableforanydeficiency.
9609.SECUREDPARTY'SRIGHTTOTAKEPOSSESSIONAFTERDEFAULT.
(a)[Possession;renderingequipmentunusable;dispositionondebtor'spremises.]
Afterdefault,asecuredparty:
(1)maytakepossessionofthecollateral;and
(2)withoutremoval,mayrenderequipmentunusableanddisposeofcollateralona
debtor'spremisesunderSection9610.
[ 497 ]
(b)[Judicialandnonjudicialprocess.]
Asecuredpartymayproceedundersubsection(a):
(1)pursuanttojudicialprocess;or
(2)withoutjudicialprocess,ifitproceedswithoutbreachofthepeace.
(c)[Assemblyofcollateral.]
Ifsoagreed,andinanyeventafterdefault,asecuredpartymayrequirethedebtor
toassemblethecollateralandmakeitavailabletothesecuredpartyataplacetobe
designatedbythesecuredpartywhichisreasonablyconvenienttobothparties.
9610.DISPOSITIONOFCOLLATERALAFTERDEFAULT.
(a)[Dispositionafterdefault.]
Afterdefault,asecuredpartymaysell,lease,license,orotherwisedisposeofanyor
allofthecollateralinitspresentconditionorfollowinganycommercially
reasonablepreparationorprocessing.
(b)[Commerciallyreasonabledisposition.]
Everyaspectofadispositionofcollateral,includingthemethod,manner,time,place,
andotherterms,mustbecommerciallyreasonable.Ifcommerciallyreasonable,a
securedpartymaydisposeofcollateralbypublicorprivateproceedings,byoneor
morecontracts,asaunitorinparcels,andatanytimeandplaceandonanyterms.
(c)[Purchasebysecuredparty.]
Asecuredpartymaypurchasecollateral:
(1)atapublicdisposition;or
(2)ataprivatedispositiononlyifthecollateralisofakindthatiscustomarilysold
onarecognizedmarketorthesubjectofwidelydistributedstandardprice
quotations.
(d)[Warrantiesondisposition.]
Acontractforsale,lease,license,orotherdispositionincludesthewarranties
relatingtotitle,possession,quietenjoyment,andthelikewhichbyoperationoflaw
accompanyavoluntarydispositionofpropertyofthekindsubjecttothecontract.
(e)[Disclaimerofwarranties.]
Asecuredpartymaydisclaimormodifywarrantiesundersubsection(d):
[ 498 ]
(1)inamannerthatwouldbeeffectivetodisclaimormodifythewarrantiesina
voluntarydispositionofpropertyofthekindsubjecttothecontractofdisposition;
or
(2)bycommunicatingtothepurchaserarecordevidencingthecontractfor
dispositionandincludinganexpressdisclaimerormodificationofthewarranties.
(f)[Recordsufficienttodisclaimwarranties.]
Arecordissufficienttodisclaimwarrantiesundersubsection(e)ifitindicates
"Thereisnowarrantyrelatingtotitle,possession,quietenjoyment,orthelikein
thisdisposition"oruseswordsofsimilarimport.
9611.NOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL.
(a)["Notificationdate."]
Inthissection,"notificationdate"meanstheearlierofthedateonwhich:
(1)asecuredpartysendstothedebtorandanysecondaryobligoranauthenticated
notificationofdisposition;or
(2)thedebtorandanysecondaryobligorwaivetherighttonotification.
(b)[Notificationofdispositionrequired.]
Exceptasotherwiseprovidedinsubsection(d),asecuredpartythatdisposesof
collateralunderSection9610shallsendtothepersonsspecifiedinsubsection(c)a
reasonableauthenticatednotificationofdisposition.
(c)[Personstobenotified.]
Tocomplywithsubsection(b),thesecuredpartyshallsendanauthenticated
notificationofdispositionto:
(1)thedebtor;
(2)anysecondaryobligor;and
(3)ifthecollateralisotherthanconsumergoods:
(A)anyotherpersonfromwhichthesecuredpartyhasreceived,beforethe
notificationdate,anauthenticatednotificationofaclaimofaninterestinthe
collateral;
(B)anyothersecuredpartyorlienholderthat,10daysbeforethenotification
date,heldasecurityinterestinorotherlienonthecollateralperfectedbythe
filingofafinancingstatementthat:
[ 499 ]
(i)identifiedthecollateral;
(ii)wasindexedunderthedebtor'snameasofthatdate;and
(iii)wasfiledintheofficeinwhichtofileafinancingstatement
againstthedebtorcoveringthecollateralasofthatdate;and
(C)anyothersecuredpartythat,10daysbeforethenotificationdate,helda
securityinterestinthecollateralperfectedbycompliancewithastatute,
regulation,ortreatydescribedinSection9311(a).
(d)[Subsection(b)inapplicable:perishablecollateral;recognizedmarket.]
Subsection(b)doesnotapplyifthecollateralisperishableorthreatenstodecline
speedilyinvalueorisofatypecustomarilysoldonarecognizedmarket.
(e)[Compliancewithsubsection(c)(3)(B).]
Asecuredpartycomplieswiththerequirementfornotificationprescribedby
subsection(c)(3)(B)if:
(1)notlaterthan20daysorearlierthan30daysbeforethenotificationdate,the
securedpartyrequests,inacommerciallyreasonablemanner,information
concerningfinancingstatementsindexedunderthedebtor'snameintheoffice
indicatedinsubsection(c)(3)(B);and
(2)beforethenotificationdate,thesecuredparty:
(A)didnotreceivearesponsetotherequestforinformation;or
(B)receivedaresponsetotherequestforinformationandsentan
authenticatednotificationofdispositiontoeachsecuredpartyorother
lienholdernamedinthatresponsewhosefinancingstatementcoveredthe
collateral.
9612.TIMELINESSOFNOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL.
(a)[Reasonabletimeisquestionoffact.]
Exceptasotherwiseprovidedinsubsection(b),whetheranotificationissentwithin
areasonabletimeisaquestionoffact.
(b)[10dayperiodsufficientinnonconsumertransaction.]
Inatransactionotherthanaconsumertransaction,anotificationofdispositionsent
afterdefaultand10daysormorebeforetheearliesttimeofdispositionsetforthin
thenotificationissentwithinareasonabletimebeforethedisposition.
[ 500 ]
9613.CONTENTSANDFORMOFNOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL:
GENERAL.
Exceptinaconsumergoodstransaction,thefollowingrulesapply:
(1)Thecontentsofanotificationofdispositionaresufficientifthenotification:
(A)describesthedebtorandthesecuredparty;
(B)describesthecollateralthatisthesubjectoftheintendeddisposition;
(C)statesthemethodofintendeddisposition;
(D)statesthatthedebtorisentitledtoanaccountingoftheunpaidindebtedness
andstatesthecharge,ifany,foranaccounting;and
(E)statesthetimeandplaceofapublicdispositionorthetimeafterwhichany
otherdispositionistobemade.
(2)Whetherthecontentsofanotificationthatlacksanyoftheinformationspecifiedin
paragraph(1)areneverthelesssufficientisaquestionoffact.
(3)Thecontentsofanotificationprovidingsubstantiallytheinformationspecifiedin
paragraph(1)aresufficient,evenifthenotificationincludes:(A)informationnotspecified
bythatparagraph;or(B)minorerrorsthatarenotseriouslymisleading.
(4)Aparticularphrasingofthenotificationisnotrequired.
(5)ThefollowingformofnotificationandtheformappearinginSection9614(3),when
completed,eachprovidessufficientinformation:
NOTIFICATIONOFDISPOSITIONOFCOLLATERAL
To:[Nameofdebtor,obligor,orotherpersontowhichthenotificationissent]
From:[Name,address,andtelephonenumberofsecuredparty]
NameofDebtor(s):[Includeonlyifdebtor(s)arenotanaddressee]
[Forapublicdisposition:]
Wewillsell[orleaseorlicense,asapplicable]the[describecollateral][tothe
highestqualifiedbidder]inpublicasfollows:
DayandDate:________
Time:________
Place:________
[ 501 ]
[Foraprivatedisposition:]
Wewillsell[orleaseorlicense,asapplicable]the[describecollateral]privately
sometimeafter[dayanddate].
Youareentitledtoanaccountingoftheunpaidindebtednesssecuredbythe
propertythatweintendtosell[orleaseorlicense,asapplicable][forachargeof$
________].
Youmayrequestanaccountingbycallingusat[telephonenumber]
[EndofForm]
9614.CONTENTSANDFORMOFNOTIFICATIONBEFOREDISPOSITIONOFCOLLATERAL:
CONSUMERGOODSTRANSACTION.
Inaconsumergoodstransaction,thefollowingrulesapply:
(1)Anotificationofdispositionmustprovidethefollowinginformation:
(A)theinformationspecifiedinSection9613(1);
(B)adescriptionofanyliabilityforadeficiencyofthepersontowhichthe
notificationissent;
(C)atelephonenumberfromwhichtheamountthatmustbepaidtothesecured
partytoredeemthecollateralunderSection9623isavailable;and
(D)atelephonenumberormailingaddressfromwhichadditionalinformation
concerningthedispositionandtheobligationsecuredisavailable.
(2)Aparticularphrasingofthenotificationisnotrequired.
(3)Thefollowingformofnotification,whencompleted,providessufficientinformation:
[Nameandaddressofsecuredparty]
[Date]
NOTICEOFOURPLANTOSELLPROPERTY
[Nameandaddressofanyobligorwhoisalsoadebtor]
Subject:[IdentificationofTransaction]
Wehaveyour[describecollateral],becauseyoubrokepromisesinouragreement.
[Forapublicdisposition:]
[ 502 ]
Wewillsell[describecollateral]atpublicsale.Asalecouldincludealeaseor
license.Thesalewillbeheldasfollows:
Date:_____
Time:_____
Place:_____
Youmayattendthesaleandbringbiddersifyouwant.
[Foraprivatedisposition:]
Wewillsell[describecollateral]atprivatesalesometimeafter[date].Asalecould
includealeaseorlicense.
Themoneythatwegetfromthesale(afterpayingourcosts)willreducetheamount
youowe.Ifwegetlessmoneythanyouowe,you[willorwillnot,asapplicable]]
stilloweusthedifference.Ifwegetmoremoneythanyouowe,youwillgetthe
extramoney,unlesswemustpayittosomeoneelse.
Youcangetthepropertybackatanytimebeforewesellitbypayingusthefull
amountyouowe(notjustthepastduepayments),includingourexpenses.Tolearn
theexactamountyoumustpay,callusat[telephonenumber]].
Ifyouwantustoexplaintoyouinwritinghowwehavefiguredtheamountthatyou
oweus,youmaycallusat"[telephonenumber]][orwriteusat[securedparty's
address]]andrequestawrittenexplanation.[Wewillchargeyou$_____forthe
explanationifwesentyouanotherwrittenexplanationoftheamountyouoweus
withinthelastsixmonths.]
Ifyouneedmoreinformationaboutthesalecallusat[telephonenumber]][or
writeusat[securedparty'saddress]].
Wearesendingthisnoticetothefollowingotherpeoplewhohaveaninterestin
[describecollateral]orwhoowemoneyunderyouragreement:
[Namesofallotherdebtorsandobligors,ifany]
[EndofForm]
(4)Anotificationintheformofparagraph(3)issufficient,evenifadditionalinformation
appearsattheendoftheform.
(5)Anotificationintheformofparagraph(3)issufficient,evenifitincludeserrorsin
informationnotrequiredbyparagraph(1),unlesstheerrorismisleadingwithrespectto
rightsarisingunderthisarticle.
[ 503 ]
(6)Ifanotificationunderthissectionisnotintheformofparagraph(3),lawotherthan
thisarticledeterminestheeffectofincludinginformationnotrequiredbyparagraph(1).
9615.APPLICATIONOFPROCEEDSOFDISPOSITION;LIABILITYFORDEFICIENCYAND
RIGHTTOSURPLUS.
(a)[Applicationofproceeds.]
Asecuredpartyshallapplyorpayoverforapplicationthecashproceedsof
dispositionunderSection9610inthefollowingorderto:
(1)thereasonableexpensesofretaking,holding,preparingfordisposition,
processing,anddisposing,and,totheextentprovidedforbyagreementandnot
prohibitedbylaw,reasonableattorney'sfeesandlegalexpensesincurredbythe
securedparty;
(2)thesatisfactionofobligationssecuredbythesecurityinterestoragriculturallien
underwhichthedispositionismade;
(3)thesatisfactionofobligationssecuredbyanysubordinatesecurityinterestinor
othersubordinatelienonthecollateralif:
(A)thesecuredpartyreceivesfromtheholderofthesubordinatesecurity
interestorotherlienanauthenticateddemandforproceedsbefore
distributionoftheproceedsiscompleted;and
(B)inacaseinwhichaconsignorhasaninterestinthecollateral,the
subordinatesecurityinterestorotherlienisseniortotheinterestofthe
consignor;and
(4)asecuredpartythatisaconsignorofthecollateralifthesecuredpartyreceives
fromtheconsignoranauthenticateddemandforproceedsbeforedistributionofthe
proceedsiscompleted.
(b)[Proofofsubordinateinterest.]
Ifrequestedbyasecuredparty,aholderofasubordinatesecurityinterestorother
lienshallfurnishreasonableproofoftheinterestorlienwithinareasonabletime.
Unlesstheholderdoesso,thesecuredpartyneednotcomplywiththeholder's
demandundersubsection(a)(3).
(c)[Applicationofnoncashproceeds.]
Asecuredpartyneednotapplyorpayoverforapplicationnoncashproceedsof
dispositionunderSection9610unlessthefailuretodosowouldbecommercially
unreasonable.Asecuredpartythatappliesorpaysoverforapplicationnoncash
proceedsshalldosoinacommerciallyreasonablemanner.
(d)[Surplusordeficiencyifobligationsecured.]
[ 504 ]
Ifthesecurityinterestunderwhichadispositionismadesecurespaymentor
performanceofanobligation,aftermakingthepaymentsandapplicationsrequired
bysubsection(a)andpermittedbysubsection(c):
(1)unlesssubsection(a)(4)requiresthesecuredpartytoapplyorpayovercash
proceedstoaconsignor,thesecuredpartyshallaccounttoandpayadebtorforany
surplus;and
(2)theobligorisliableforanydeficiency.
(e)[Nosurplusordeficiencyinsalesofcertainrightstopayment.]
Iftheunderlyingtransactionisasaleofaccounts,chattelpaper,payment
intangibles,orpromissorynotes:
(1)thedebtorisnotentitledtoanysurplus;and
(2)theobligorisnotliableforanydeficiency.
(f)[Calculationofsurplusordeficiencyindispositiontopersonrelatedtosecuredparty.]
Thesurplusordeficiencyfollowingadispositioniscalculatedbasedontheamount
ofproceedsthatwouldhavebeenrealizedinadispositioncomplyingwiththispart
toatransfereeotherthanthesecuredparty,apersonrelatedtothesecuredparty,
orasecondaryobligorif:
(1)thetransfereeinthedispositionisthesecuredparty,apersonrelatedtothe
securedparty,orasecondaryobligor;and
(2)theamountofproceedsofthedispositionissignificantlybelowtherangeof
proceedsthatacomplyingdispositiontoapersonotherthanthesecuredparty,a
personrelatedtothesecuredparty,orasecondaryobligorwouldhavebrought.
(g)[Cashproceedsreceivedbyjuniorsecuredparty.]
Asecuredpartythatreceivescashproceedsofadispositioningoodfaithand
withoutknowledgethatthereceiptviolatestherightsoftheholderofasecurity
interestorotherlienthatisnotsubordinatetothesecurityinterestoragricultural
lienunderwhichthedispositionismade:
(1)takesthecashproceedsfreeofthesecurityinterestorotherlien;
(2)isnotobligatedtoapplytheproceedsofthedispositiontothesatisfactionof
obligationssecuredbythesecurityinterestorotherlien;and
(3)isnotobligatedtoaccounttoorpaytheholderofthesecurityinterestorother
lienforanysurplus.
[ 505 ]
9616.EXPLANATIONOFCALCULATIONOFSURPLUSORDEFICIENCY.
(a)[Definitions.]
Inthissection:
(1)"Explanation"meansawritingthat:
(A)statestheamountofthesurplusordeficiency;
(B)providesanexplanationinaccordancewithsubsection(c)ofhowthe
securedpartycalculatedthesurplusordeficiency;
(C)states,ifapplicable,thatfuturedebits,credits,charges,including
additionalcreditservicechargesorinterest,rebates,andexpensesmayaffect
theamountofthesurplusordeficiency;and
(D)providesatelephonenumberormailingaddressfromwhichadditional
informationconcerningthetransactionisavailable.
(2)"Request"meansarecord:
(A)authenticatedbyadebtororconsumerobligor;
(B)requestingthattherecipientprovideanexplanation;and
(C)sentafterdispositionofthecollateralunderSection9610.
(b)[Explanationofcalculation.]
Inaconsumergoodstransactioninwhichthedebtorisentitledtoasurplusora
consumerobligorisliableforadeficiencyunderSection9615,thesecuredparty
shall:
(1)sendanexplanationtothedebtororconsumerobligor,asapplicable,afterthe
dispositionand:
(A)beforeorwhenthesecuredpartyaccountstothedebtorandpaysany
surplusorfirstmakeswrittendemandontheconsumerobligorafterthe
dispositionforpaymentofthedeficiency;and
(B)within14daysafterreceiptofarequest;or
(2)inthecaseofaconsumerobligorwhoisliableforadeficiency,within14days
afterreceiptofarequest,sendtotheconsumerobligorarecordwaivingthesecured
party'srighttoadeficiency.
(c)[Requiredinformation.]
[ 506 ]
Tocomplywithsubsection(a)(1)(B),awritingmustprovidethefollowing
informationinthefollowingorder:
(1)theaggregateamountofobligationssecuredbythesecurityinterestunder
whichthedispositionwasmade,and,iftheamountreflectsarebateofunearned
interestorcreditservicecharge,anindicationofthatfact,calculatedasofa
specifieddate:
(A)ifthesecuredpartytakesorreceivespossessionofthecollateralafter
default,notmorethan35daysbeforethesecuredpartytakesorreceives
possession;or
(B)ifthesecuredpartytakesorreceivespossessionofthecollateralbefore
defaultordoesnottakepossessionofthecollateral,notmorethan35days
beforethedisposition;
(2)theamountofproceedsofthedisposition;
(3)theaggregateamountoftheobligationsafterdeductingtheamountofproceeds;
(4)theamount,intheaggregateorbytype,andtypesofexpenses,including
expensesofretaking,holding,preparingfordisposition,processing,anddisposing
ofthecollateral,andattorney'sfeessecuredbythecollateralwhichareknownto
thesecuredpartyandrelatetothecurrentdisposition;
(5)theamount,intheaggregateorbytype,andtypesofcredits,includingrebatesof
interestorcreditservicecharges,towhichtheobligorisknowntobeentitledand
whicharenotreflectedintheamountinparagraph(1);and
(6)theamountofthesurplusordeficiency.
(d)[Substantialcompliance.]
Aparticularphrasingoftheexplanationisnotrequired.Anexplanationcomplying
substantiallywiththerequirementsofsubsection(a)issufficient,evenifitincludes
minorerrorsthatarenotseriouslymisleading.
(e)[Chargesforresponses.]
Adebtororconsumerobligorisentitledwithoutchargetooneresponsetoa
requestunderthissectionduringanysixmonthperiodinwhichthesecuredparty
didnotsendtothedebtororconsumerobligoranexplanationpursuantto
subsection(b)(1).Thesecuredpartymayrequirepaymentofachargenot
exceeding$25foreachadditionalresponse.
[ 507 ]
9617.RIGHTSOFTRANSFEREEOFCOLLATERAL.
(a)[Effectsofdisposition.]
Asecuredparty'sdispositionofcollateralafterdefault:
(1)transferstoatransfereeforvalueallofthedebtor'srightsinthecollateral;
(2)dischargesthesecurityinterestunderwhichthedispositionismade;and
(3)dischargesanysubordinatesecurityinterestorothersubordinatelien[other
thanlienscreatedunder[citeactsorstatutesprovidingforliens,ifany,thatarenot
tobedischarged]].
(b)[Rightsofgoodfaithtransferee.]
Atransfereethatactsingoodfaithtakesfreeoftherightsandinterestsdescribedin
subsection(a),evenifthesecuredpartyfailstocomplywiththisarticleorthe
requirementsofanyjudicialproceeding.
(c)[Rightsofothertransferee.]
Ifatransfereedoesnottakefreeoftherightsandinterestsdescribedinsubsection
(a),thetransfereetakesthecollateralsubjectto:
(1)thedebtor'srightsinthecollateral;
(2)thesecurityinterestoragriculturallienunderwhichthedispositionismade;
and
(3)anyothersecurityinterestorotherlien.
9618.RIGHTSANDDUTIESOFCERTAINSECONDARYOBLIGORS.
(a)[Rightsanddutiesofsecondaryobligor.]
Asecondaryobligoracquirestherightsandbecomesobligatedtoperformthe
dutiesofthesecuredpartyafterthesecondaryobligor:
(1)receivesanassignmentofasecuredobligationfromthesecuredparty;
(2)receivesatransferofcollateralfromthesecuredpartyandagreestoacceptthe
rightsandassumethedutiesofthesecuredparty;or
(3)issubrogatedtotherightsofasecuredpartywithrespecttocollateral.
(b)[Effectofassignment,transfer,orsubrogation.]
Anassignment,transfer,orsubrogationdescribedinsubsection(a):
[ 508 ]
(1)isnotadispositionofcollateralunderSection9610;and
(2)relievesthesecuredpartyoffurtherdutiesunderthisarticle.
9619.TRANSFEROFRECORDORLEGALTITLE.
(a)["Transferstatement."]
Inthissection,"transferstatement"meansarecordauthenticatedbyasecured
partystating:
(1)thatthedebtorhasdefaultedinconnectionwithanobligationsecuredby
specifiedcollateral;
(2)thatthesecuredpartyhasexerciseditspostdefaultremedieswithrespectto
thecollateral;
(3)that,byreasonoftheexercise,atransfereehasacquiredtherightsofthedebtor
inthecollateral;and
(4)thenameandmailingaddressofthesecuredparty,debtor,andtransferee.
(b)[Effectoftransferstatement.]
Atransferstatemententitlesthetransfereetothetransferofrecordofallrightsof
thedebtorinthecollateralspecifiedinthestatementinanyofficialfiling,recording,
registration,orcertificateoftitlesystemcoveringthecollateral.Ifatransfer
statementispresentedwiththeapplicablefeeandrequestformtotheofficialor
officeresponsibleformaintainingthesystem,theofficialorofficeshall:
(1)acceptthetransferstatement;
(2)promptlyamenditsrecordstoreflectthetransfer;and
(3)ifapplicable,issueanewappropriatecertificateoftitleinthenameofthe
transferee.
(c)[Transfernotadisposition;noreliefofsecuredparty'sduties.]
Atransferoftherecordorlegaltitletocollateraltoasecuredpartyunder
subsection(b)orotherwiseisnotofitselfadispositionofcollateralunderthis
articleanddoesnotofitselfrelievethesecuredpartyofitsdutiesunderthisarticle.
[ 509 ]
9620.ACCEPTANCEOFCOLLATERALINFULLORPARTIALSATISFACTIONOF
OBLIGATION;COMPULSORYDISPOSITIONOFCOLLATERAL.
(a)[Conditionstoacceptanceinsatisfaction.]
Exceptasotherwiseprovidedinsubsection(g),asecuredpartymayaccept
collateralinfullorpartialsatisfactionoftheobligationitsecuresonlyif:
(1)thedebtorconsentstotheacceptanceundersubsection(c);
(2)thesecuredpartydoesnotreceive,withinthetimesetforthinsubsection(d),a
notificationofobjectiontotheproposalauthenticatedby:
(A)apersontowhichthesecuredpartywasrequiredtosendaproposal
underSection9621;or
(B)anyotherperson,otherthanthedebtor,holdinganinterestinthe
collateralsubordinatetothesecurityinterestthatisthesubjectofthe
proposal;
(3)ifthecollateralisconsumergoods,thecollateralisnotinthepossessionofthe
debtorwhenthedebtorconsentstotheacceptance;and
(4)subsection(e)doesnotrequirethesecuredpartytodisposeofthecollateralor
thedebtorwaivestherequirementpursuanttoSection9624.
(b)[Purportedacceptanceineffective.]
Apurportedorapparentacceptanceofcollateralunderthissectionisineffective
unless:
(1)thesecuredpartyconsentstotheacceptanceinanauthenticatedrecordor
sendsaproposaltothedebtor;and
(2)theconditionsofsubsection(a)aremet.
(c)[Debtor'sconsent.]
Forpurposesofthissection:
(1)adebtorconsentstoanacceptanceofcollateralinpartialsatisfactionofthe
obligationitsecuresonlyifthedebtoragreestothetermsoftheacceptanceina
recordauthenticatedafterdefault;and
(2)adebtorconsentstoanacceptanceofcollateralinfullsatisfactionofthe
obligationitsecuresonlyifthedebtoragreestothetermsoftheacceptanceina
recordauthenticatedafterdefaultorthesecuredparty:
[ 510 ]
(A)sendstothedebtorafterdefaultaproposalthatisunconditionalor
subjectonlytoaconditionthatcollateralnotinthepossessionofthesecured
partybepreservedormaintained;
(B)intheproposal,proposestoacceptcollateralinfullsatisfactionofthe
obligationitsecures;and
(C)doesnotreceiveanotificationofobjectionauthenticatedbythedebtor
within20daysaftertheproposalissent.
(d)[Effectivenessofnotification.]
Tobeeffectiveundersubsection(a)(2),anotificationofobjectionmustbereceived
bythesecuredparty:
(1)inthecaseofapersontowhichtheproposalwassentpursuanttoSection9621,
within20daysafternotificationwassenttothatperson;and
(2)inothercases:
(A)within20daysafterthelastnotificationwassentpursuanttoSection9
621;or
(B)ifanotificationwasnotsent,beforethedebtorconsentstothe
acceptanceundersubsection(c).
(e)[Mandatorydispositionofconsumergoods.]
Asecuredpartythathastakenpossessionofcollateralshalldisposeofthecollateral
pursuanttoSection9610withinthetimespecifiedinsubsection(f)if:
(1)60percentofthecashpricehasbeenpaidinthecaseofapurchasemoney
securityinterestinconsumergoods;or
(2)60percentoftheprincipalamountoftheobligationsecuredhasbeenpaidinthe
caseofanonpurchasemoneysecurityinterestinconsumergoods.
(f)[Compliancewithmandatorydispositionrequirement.]
Tocomplywithsubsection(e),thesecuredpartyshalldisposeofthecollateral:
(1)within90daysaftertakingpossession;or
(2)withinanylongerperiodtowhichthedebtorandallsecondaryobligorshave
agreedinanagreementtothateffectenteredintoandauthenticatedafterdefault.
(g)[Nopartialsatisfactioninconsumertransaction.]
[ 511 ]
Inaconsumertransaction,asecuredpartymaynotacceptcollateralinpartial
satisfactionoftheobligationitsecures.
9621.NOTIFICATIONOFPROPOSALTOACCEPTCOLLATERAL.
(a)[Personstowhichproposaltobesent.]
Asecuredpartythatdesirestoacceptcollateralinfullorpartialsatisfactionofthe
obligationitsecuresshallsenditsproposalto:
(1)anypersonfromwhichthesecuredpartyhasreceived,beforethedebtor
consentedtotheacceptance,anauthenticatednotificationofaclaimofaninterestin
thecollateral;
(2)anyothersecuredpartyorlienholderthat,10daysbeforethedebtorconsented
totheacceptance,heldasecurityinterestinorotherlienonthecollateralperfected
bythefilingofafinancingstatementthat:
(A)identifiedthecollateral;
(B)wasindexedunderthedebtor'snameasofthatdate;and
(C)wasfiledintheofficeorofficesinwhichtofileafinancingstatement
againstthedebtorcoveringthecollateralasofthatdate;and
(3)anyothersecuredpartythat,10daysbeforethedebtorconsentedtothe
acceptance,heldasecurityinterestinthecollateralperfectedbycompliancewitha
statute,regulation,ortreatydescribedinSection9311(a).
(b)[Proposaltobesenttosecondaryobligorinpartialsatisfaction.]
Asecuredpartythatdesirestoacceptcollateralinpartialsatisfactionofthe
obligationitsecuresshallsenditsproposaltoanysecondaryobligorinadditionto
thepersonsdescribedinsubsection(a).
9622.EFFECTOFACCEPTANCEOFCOLLATERAL.
(a)[Effectofacceptance.]
Asecuredparty'sacceptanceofcollateralinfullorpartialsatisfactionofthe
obligationitsecures:
(1)dischargestheobligationtotheextentconsentedtobythedebtor;
(2)transferstothesecuredpartyallofadebtor'srightsinthecollateral;
(3)dischargesthesecurityinterestoragriculturallienthatisthesubjectofthe
debtor'sconsentandanysubordinatesecurityinterestorothersubordinatelien;
and
[ 512 ]
(4)terminatesanyothersubordinateinterest.
(b)[Dischargeofsubordinateinterestnotwithstandingnoncompliance.]
Asubordinateinterestisdischargedorterminatedundersubsection(a),evenifthe
securedpartyfailstocomplywiththisarticle.
9623.RIGHTTOREDEEMCOLLATERAL.
(a)[Personsthatmayredeem.]
Adebtor,anysecondaryobligor,oranyothersecuredpartyorlienholdermay
redeemcollateral.
(b)[Requirementsforredemption.]
Toredeemcollateral,apersonshalltender:
(1)fulfillmentofallobligationssecuredbythecollateral;and
(2)thereasonableexpensesandattorney'sfeesdescribedinSection9615(a)(1).
(c)[Whenredemptionmayoccur.]
Aredemptionmayoccuratanytimebeforeasecuredparty:
(1)hascollectedcollateralunderSection9607;
(2)hasdisposedofcollateralorenteredintoacontractforitsdispositionunder
Section9610;or
(3)hasacceptedcollateralinfullorpartialsatisfactionoftheobligationitsecures
underSection9622.
9624.WAIVER.
(a)[Waiverofdispositionnotification.]
Adebtororsecondaryobligormaywaivetherighttonotificationofdispositionof
collateralunderSection9611onlybyanagreementtothateffectenteredintoand
authenticatedafterdefault.
(b)[Waiverofmandatorydisposition.]
AdebtormaywaivetherighttorequiredispositionofcollateralunderSection9
620(e)onlybyanagreementtothateffectenteredintoandauthenticatedafter
default.
(c)[Waiverofredemptionright.]
[ 513 ]
Exceptinaconsumergoodstransaction,adebtororsecondaryobligormaywaive
therighttoredeemcollateralunderSection9623onlybyanagreementtothat
effectenteredintoandauthenticatedafterdefault.
[Subpart2.NoncompliancewithArticle]
9625.REMEDIESFORSECUREDPARTY'SFAILURETOCOMPLYWITHARTICLE.
(a)[Judicialordersconcerningnoncompliance.]
Ifitisestablishedthatasecuredpartyisnotproceedinginaccordancewiththis
article,acourtmayorderorrestraincollection,enforcement,ordispositionof
collateralonappropriatetermsandconditions.
(b)[Damagesfornoncompliance.]
Subjecttosubsections(c),(d),and(f),apersonisliablefordamagesintheamount
ofanylosscausedbyafailuretocomplywiththisarticle.Losscausedbyafailureto
complymayincludelossresultingfromthedebtor'sinabilitytoobtain,orincreased
costsof,alternativefinancing.
(c)[Personsentitledtorecoverdamages;statutorydamagesinconsumergoods
transaction.]
ExceptasotherwiseprovidedinSection9628:
(1)apersonthat,atthetimeofthefailure,wasadebtor,wasanobligor,orhelda
securityinterestinorotherlienonthecollateralmayrecoverdamagesunder
subsection(b)foritsloss;and
(2)ifthecollateralisconsumergoods,apersonthatwasadebtororasecondary
obligoratthetimeasecuredpartyfailedtocomplywiththispartmayrecoverfor
thatfailureinanyeventanamountnotlessthanthecreditservicechargeplus10
percentoftheprincipalamountoftheobligationorthetimepricedifferentialplus
10percentofthecashprice.
(d)[Recoverywhendeficiencyeliminatedorreduced.]
AdebtorwhosedeficiencyiseliminatedunderSection9626mayrecoverdamages
forthelossofanysurplus.However,adebtororsecondaryobligorwhosedeficiency
iseliminatedorreducedunderSection9626maynototherwiserecoverunder
subsection(b)fornoncompliancewiththeprovisionsofthispartrelatingto
collection,enforcement,disposition,oracceptance.
(e)[Statutorydamages:noncompliancewithspecifiedprovisions.]
Inadditiontoanydamagesrecoverableundersubsection(b),thedebtor,consumer
obligor,orpersonnamedasadebtorinafiledrecord,asapplicable,mayrecover
$500ineachcasefromapersonthat:
[ 514 ]
(1)failstocomplywithSection9208;
(2)failstocomplywithSection9209;
(3)filesarecordthatthepersonisnotentitledtofileunderSection9509(a);
(4)failstocausethesecuredpartyofrecordtofileorsendaterminationstatement
asrequiredbySection9513(a)or(c);
(5)failstocomplywithSection9616(b)(1)andwhosefailureispartofapattern,or
consistentwithapractice,ofnoncompliance;or
(6)failstocomplywithSection9616(b)(2).
(f)[Statutorydamages:noncompliancewithSection9210.]
Adebtororconsumerobligormayrecoverdamagesundersubsection(b)and,in
addition,$500ineachcasefromapersonthat,withoutreasonablecause,failsto
complywitharequestunderSection9210.ArecipientofarequestunderSection9
210whichneverclaimedaninterestinthecollateralorobligationsthatarethe
subjectofarequestunderthatsectionhasareasonableexcuseforfailuretocomply
withtherequestwithinthemeaningofthissubsection.
(g)[Limitationofsecurityinterest:noncompliancewithSection9210.]
Ifasecuredpartyfailstocomplywitharequestregardingalistofcollateralora
statementofaccountunderSection9210,thesecuredpartymayclaimasecurity
interestonlyasshowninthelistorstatementincludedintherequestasagainsta
personthatisreasonablymisledbythefailure.
9626.ACTIONINWHICHDEFICIENCYORSURPLUSISINISSUE.
(a)[Applicablerulesifamountofdeficiencyorsurplusinissue.]
Inanactionarisingfromatransaction,otherthanaconsumertransaction,inwhich
theamountofadeficiencyorsurplusisinissue,thefollowingrulesapply:
(1)Asecuredpartyneednotprovecompliancewiththeprovisionsofthispart
relatingtocollection,enforcement,disposition,oracceptanceunlessthedebtorora
secondaryobligorplacesthesecuredparty'scomplianceinissue.
(2)Ifthesecuredparty'scomplianceisplacedinissue,thesecuredpartyhasthe
burdenofestablishingthatthecollection,enforcement,disposition,oracceptance
wasconductedinaccordancewiththispart.
(3)ExceptasotherwiseprovidedinSection9628,ifasecuredpartyfailstoprove
thatthecollection,enforcement,disposition,oracceptancewasconductedin
accordancewiththeprovisionsofthispartrelatingtocollection,enforcement,
disposition,oracceptance,theliabilityofadebtororasecondaryobligorfora
[ 515 ]
deficiencyislimitedtoanamountbywhichthesumofthesecuredobligation,
expenses,andattorney'sfeesexceedsthegreaterof:
(A)theproceedsofthecollection,enforcement,disposition,oracceptance;or
(B)theamountofproceedsthatwouldhavebeenrealizedhadthe
noncomplyingsecuredpartyproceededinaccordancewiththeprovisionsof
thispartrelatingtocollection,enforcement,disposition,oracceptance.
(4)Forpurposesofparagraph(3)(B),theamountofproceedsthatwouldhavebeen
realizedisequaltothesumofthesecuredobligation,expenses,andattorney'sfees
unlessthesecuredpartyprovesthattheamountislessthanthatsum.
(5)IfadeficiencyorsurplusiscalculatedunderSection9615(f),thedebtoror
obligorhastheburdenofestablishingthattheamountofproceedsofthedisposition
issignificantlybelowtherangeofpricesthatacomplyingdispositiontoaperson
otherthanthesecuredparty,apersonrelatedtothesecuredparty,orasecondary
obligorwouldhavebrought.
(b)[Nonconsumertransactions;noinference.]
Thelimitationoftherulesinsubsection(a)totransactionsotherthanconsumer
transactionsisintendedtoleavetothecourtthedeterminationoftheproperrules
inconsumertransactions.Thecourtmaynotinferfromthatlimitationthenatureof
theproperruleinconsumertransactionsandmaycontinuetoapplyestablished
approaches.
9627.DETERMINATIONOFWHETHERCONDUCTWASCOMMERCIALLYREASONABLE.
(a)[Greateramountobtainableunderothercircumstances;nopreclusionofcommercial
reasonableness.]
Thefactthatagreateramountcouldhavebeenobtainedbyacollection,
enforcement,disposition,oracceptanceatadifferenttimeorinadifferentmethod
fromthatselectedbythesecuredpartyisnotofitselfsufficienttoprecludethe
securedpartyfromestablishingthatthecollection,enforcement,disposition,or
acceptancewasmadeinacommerciallyreasonablemanner.
(b)[Dispositionsthatarecommerciallyreasonable.]
Adispositionofcollateralismadeinacommerciallyreasonablemannerifthe
dispositionismade:
(1)intheusualmanneronanyrecognizedmarket;
(2)atthepricecurrentinanyrecognizedmarketatthetimeofthedisposition;or
(3)otherwiseinconformitywithreasonablecommercialpracticesamongdealersin
thetypeofpropertythatwasthesubjectofthedisposition.
[ 516 ]
(c)[Approvalbycourtoronbehalfofcreditors.]
Acollection,enforcement,disposition,oracceptanceiscommerciallyreasonableifit
hasbeenapproved:
(1)inajudicialproceeding;
(2)byabonafidecreditors'committee;
(3)byarepresentativeofcreditors;or
(4)byanassigneeforthebenefitofcreditors.
(d)[Approvalundersubsection(c)notnecessary;absenceofapprovalhasnoeffect.]
Approvalundersubsection(c)neednotbeobtained,andlackofapprovaldoesnot
meanthatthecollection,enforcement,disposition,oracceptanceisnot
commerciallyreasonable.
9628.NONLIABILITYANDLIMITATIONONLIABILITYOFSECUREDPARTY;LIABILITYOF
SECONDARYOBLIGOR.
(a)[Limitationofliabilityofsecuredpartyfornoncompliancewitharticle.]
Unlessasecuredpartyknowsthatapersonisadebtororobligor,knowsthe
identityoftheperson,andknowshowtocommunicatewiththeperson:
(1)thesecuredpartyisnotliabletotheperson,ortoasecuredpartyorlienholder
thathasfiledafinancingstatementagainsttheperson,forfailuretocomplywith
thisarticle;and
(2)thesecuredparty'sfailuretocomplywiththisarticledoesnotaffecttheliability
ofthepersonforadeficiency.
(b)[Limitationofliabilitybasedonstatusassecuredparty.]
Asecuredpartyisnotliablebecauseofitsstatusassecuredparty:
(1)toapersonthatisadebtororobligor,unlessthesecuredpartyknows:
(A)thatthepersonisadebtororobligor;
(B)theidentityoftheperson;and
(C)howtocommunicatewiththeperson;or
(2)toasecuredpartyorlienholderthathasfiledafinancingstatementagainsta
person,unlessthesecuredpartyknows:
[ 517 ]
(A)thatthepersonisadebtor;and
(B)theidentityoftheperson.
(c)[Limitationofliabilityifreasonablebeliefthattransactionnotaconsumergoods
transactionorconsumertransaction.]
Asecuredpartyisnotliabletoanyperson,andaperson'sliabilityforadeficiencyis
notaffected,becauseofanyactoromissionarisingoutofthesecuredparty's
reasonablebeliefthatatransactionisnotaconsumergoodstransactionora
consumertransactionorthatgoodsarenotconsumergoods,ifthesecuredparty's
beliefisbasedonitsreasonablerelianceon:
(1)adebtor'srepresentationconcerningthepurposeforwhichcollateralwastobe
used,acquired,orheld;or
(2)anobligor'srepresentationconcerningthepurposeforwhichasecured
obligationwasincurred.
(d)[Limitationofliabilityforstatutorydamages.]
AsecuredpartyisnotliabletoanypersonunderSection9625(c)(2)foritsfailure
tocomplywithSection9616.
(e)[Limitationofmultipleliabilityforstatutorydamages.]
AsecuredpartyisnotliableunderSection9625(c)(2)morethanoncewithrespect
toanyonesecuredobligation.
Part7.Transition
9701.EFFECTIVEDATE.
This[Act]takeseffectonJuly1,2001.
9702.SAVINGSCLAUSE.
(a)[Preeffectivedatetransactionsorliens.]
Exceptasotherwiseprovidedinthispart,this[Act]appliestoatransactionorlien
withinitsscope,evenifthetransactionorlienwasenteredintoorcreatedbefore
this[Act]takeseffect..
(b)[Continuingvalidity.]
Exceptasotherwiseprovidedinsubsection(c)andSections9703through9709:
(1)transactionsandliensthatwerenotgovernedby[formerArticle9],werevalidly
enteredintoorcreatedbeforethis[Act]takeseffect,andwouldbesubjecttothis
[ 518 ]
[Act]iftheyhadbeenenteredintoorcreatedafterthis[Act]takeseffect,andthe
rights,duties,andinterestsflowingfromthosetransactionsandliensremainvalid
afterthis[Act]takeseffect;and
(2)thetransactionsandliensmaybeterminated,completed,consummated,and
enforcedasrequiredorpermittedbythis[Act]orbythelawthatotherwisewould
applyifthis[Act]hadnottakeneffect.
(c)[Preeffectivedateproceedings.]
This[Act]doesnotaffectanaction,case,orproceedingcommencedbeforethis[Act]
takeseffect.
9703.SECURITYINTERESTPERFECTEDBEFOREEFFECTIVEDATE.
(a)[Continuingpriorityoverliencreditor:perfectionrequirementssatisfied.]
Asecurityinterestthatisenforceableimmediatelybeforethis[Act]takeseffectand
wouldhavepriorityovertherightsofapersonthatbecomesaliencreditoratthat
timeisaperfectedsecurityinterestunderthis[Act]if,whenthis[Act]takeseffect,
theapplicablerequirementsforenforceabilityandperfectionunderthis[Act]are
satisfiedwithoutfurtheraction.
(b)[Continuingpriorityoverliencreditor:perfectionrequirementsnotsatisfied.]
ExceptasotherwiseprovidedinSection9705,if,immediatelybeforethis[Act]
takeseffect,asecurityinterestisenforceableandwouldhavepriorityoverthe
rightsofapersonthatbecomesaliencreditoratthattime,buttheapplicable
requirementsforenforceabilityorperfectionunderthis[Act]arenotsatisfiedwhen
this[Act]takeseffect,thesecurityinterest:
(1)isaperfectedsecurityinterestforoneyearafterthis[Act]takeseffect;
(2)remainsenforceablethereafteronlyifthesecurityinterestbecomesenforceable
underSection9203beforetheyearexpires;and
(3)remainsperfectedthereafteronlyiftheapplicablerequirementsforperfection
underthis[Act]aresatisfiedbeforetheyearexpires.
9704.SECURITYINTERESTUNPERFECTEDBEFOREEFFECTIVEDATE.
Asecurityinterestthatisenforceableimmediatelybeforethis[Act]takeseffectbutwhich
wouldbesubordinatetotherightsofapersonthatbecomesaliencreditoratthattime:
(1)remainsanenforceablesecurityinterestforoneyearafterthis[Act]takeseffect;
(2)remainsenforceablethereafterifthesecurityinterestbecomesenforceableunder
Section9203whenthis[Act]takeseffectorwithinoneyearthereafter;and
[ 519 ]
(3)becomesperfected:
(A)withoutfurtheraction,whenthis[Act]takeseffectiftheapplicable
requirementsforperfectionunderthis[Act]aresatisfiedbeforeoratthattime;or
(B)whentheapplicablerequirementsforperfectionaresatisfiedifthe
requirementsaresatisfiedafterthattime.
9705.EFFECTIVENESSOFACTIONTAKENBEFOREEFFECTIVEDATE.
(a)[Preeffectivedateaction;oneyearperfectionperiodunlessreperfected.]
Ifaction,otherthanthefilingofafinancingstatement,istakenbeforethis[Act]
takeseffectandtheactionwouldhaveresultedinpriorityofasecurityinterestover
therightsofapersonthatbecomesaliencreditorhadthesecurityinterestbecome
enforceablebeforethis[Act]takeseffect,theactioniseffectivetoperfectasecurity
interestthatattachesunderthis[Act]withinoneyearafterthis[Act]takeseffect.An
attachedsecurityinterestbecomesunperfectedoneyearafterthis[Act]takeseffect
unlessthesecurityinterestbecomesaperfectedsecurityinterestunderthis[Act]
beforetheexpirationofthatperiod.
(b)[Preeffectivedatefiling.]
Thefilingofafinancingstatementbeforethis[Act]takeseffectiseffectivetoperfect
asecurityinteresttotheextentthefilingwouldsatisfytheapplicablerequirements
forperfectionunderthis[Act].
(c)[Preeffectivedatefilinginjurisdictionformerlygoverningperfection.]
This[Act]doesnotrenderineffectiveaneffectivefinancingstatementthat,before
this[Act]takeseffect,isfiledandsatisfiestheapplicablerequirementsfor
perfectionunderthelawofthejurisdictiongoverningperfectionasprovidedin
[formerSection9103].However,exceptasotherwiseprovidedinsubsections(d)
and(e)andSection9706,thefinancingstatementceasestobeeffectiveatthe
earlierof:
(1)thetimethefinancingstatementwouldhaveceasedtobeeffectiveunderthelaw
ofthejurisdictioninwhichitisfiled;or
(2)June30,2006.
(d)[Continuationstatement.]
Thefilingofacontinuationstatementafterthis[Act]takeseffectdoesnotcontinue
theeffectivenessofthefinancingstatementfiledbeforethis[Act]takeseffect.
However,uponthetimelyfilingofacontinuationstatementafterthis[Act]takes
effectandinaccordancewiththelawofthejurisdictiongoverningperfectionas
providedinPart3,theeffectivenessofafinancingstatementfiledinthesameoffice
[ 520 ]
inthatjurisdictionbeforethis[Act]takeseffectcontinuesfortheperiodprovidedby
thelawofthatjurisdiction.
(e)[Applicationofsubsection(c)(2)totransmittingutilityfinancingstatement.]
Subsection(c)(2)appliestoafinancingstatementthat,beforethis[Act]takeseffect,
isfiledagainstatransmittingutilityandsatisfiestheapplicablerequirementsfor
perfectionunderthelawofthejurisdictiongoverningperfectionasprovidedin
[formerSection9103]onlytotheextentthatPart3providesthatthelawofa
jurisdictionotherthanthejurisdictioninwhichthefinancingstatementisfiled
governsperfectionofasecurityinterestincollateralcoveredbythefinancing
statement.
(f)[ApplicationofPart5.]
Afinancingstatementthatincludesafinancingstatementfiledbeforethis[Act]
takeseffectandacontinuationstatementfiledafterthis[Act]takeseffectiseffective
onlytotheextentthatitsatisfiestherequirementsofPart5foraninitialfinancing
statement.
9706.WHENINITIALFINANCINGSTATEMENTSUFFICESTOCONTINUEEFFECTIVENESS
OFFINANCINGSTATEMENT.
(a)[Initialfinancingstatementinlieuofcontinuationstatement.]
ThefilingofaninitialfinancingstatementintheofficespecifiedinSection9501
continuestheeffectivenessofafinancingstatementfiledbeforethis[Act]takes
effectif:
(1)thefilingofaninitialfinancingstatementinthatofficewouldbeeffectiveto
perfectasecurityinterestunderthis[Act];
(2)thepreeffectivedatefinancingstatementwasfiledinanofficeinanotherState
oranotherofficeinthisState;and
(3)theinitialfinancingstatementsatisfiessubsection(c).
(b)[Periodofcontinuedeffectiveness.]
Thefilingofaninitialfinancingstatementundersubsection(a)continuesthe
effectivenessofthepreeffectivedatefinancingstatement:
(1)iftheinitialfinancingstatementisfiledbeforethis[Act]takeseffect,forthe
periodprovidedin[formerSection9403]withrespecttoafinancingstatement;
and
(2)iftheinitialfinancingstatementisfiledafterthis[Act]takeseffect,fortheperiod
providedinSection9515withrespecttoaninitialfinancingstatement.
[ 521 ]
(c)[Requirementsforinitialfinancingstatementundersubsection(a).]
Tobeeffectiveforpurposesofsubsection(a),aninitialfinancingstatementmust:
(1)satisfytherequirementsofPart5foraninitialfinancingstatement;
(2)identifythepreeffectivedatefinancingstatementbyindicatingtheofficein
whichthefinancingstatementwasfiledandprovidingthedatesoffilingandfile
numbers,ifany,ofthefinancingstatementandofthemostrecentcontinuation
statementfiledwithrespecttothefinancingstatement;and
(3)indicatethatthepreeffectivedatefinancingstatementremainseffective.
9707.AMENDMENTOFPREEFFECTIVEDATEFINANCINGSTATEMENT.
(a)["Preeffectivedatefinancingstatement".]
Inthissection,"preeffectivedatefinancingstatement"meansafinancing
statementfiledbeforethis[Act]takeseffect.
(b)[Applicablelaw.]
Afterthis[Act]takeseffect,apersonmayaddordeletecollateralcoveredby,
continueorterminatetheeffectivenessof,orotherwiseamendtheinformation
providedin,apreeffectivedatefinancingstatementonlyinaccordancewiththe
lawofthejurisdictiongoverningperfectionasprovidedinPart3.However,the
effectivenessofapreeffectivedatefinancingstatementalsomaybeterminatedin
accordancewiththelawofthejurisdictioninwhichthefinancingstatementisfiled.
(c)[Methodofamending:generalrule.]
Exceptasotherwiseprovidedinsubsection(d),ifthelawofthisStategoverns
perfectionofasecurityinterest,theinformationinapreeffectivedatefinancing
statementmaybeamendedafterthis[Act]takeseffectonlyif:
(1)thepreeffectivedatefinancingstatementandanamendmentarefiledinthe
officespecifiedinSection9501;
(2)anamendmentisfiledintheofficespecifiedinSection9501concurrentlywith,
orafterthefilinginthatofficeof,aninitialfinancingstatementthatsatisfiesSection
9706(c);or
(3)aninitialfinancingstatementthatprovidestheinformationasamendedand
satisfiesSection9706(c)isfiledintheofficespecifiedinSection9501.
(d)[Methodofamending:continuation.]
[ 522 ]
IfthelawofthisStategovernsperfectionofasecurityinterest,theeffectivenessofa
preeffectivedatefinancingstatementmaybecontinuedonlyunderSection9
705(d)and(f)or9706.
(e)[Methodofamending:additionalterminationrule.]
WhetherornotthelawofthisStategovernsperfectionofasecurityinterest,the
effectivenessofapreeffectivedatefinancingstatementfiledinthisStatemaybe
terminatedafterthis[Act]takeseffectbyfilingaterminationstatementintheoffice
inwhichthepreeffectivedatefinancingstatementisfiled,unlessaninitial
financingstatementthatsatisfiesSection9706(c)hasbeenfiledintheoffice
specifiedbythelawofthejurisdictiongoverningperfectionasprovidedinPart3as
theofficeinwhichtofileafinancingstatement.
9708.PERSONSENTITLEDTOFILEINITIALFINANCINGSTATEMENTORCONTINUATION
STATEMENT.
Apersonmayfileaninitialfinancingstatementoracontinuationstatementunderthispart
if:
(1)thesecuredpartyofrecordauthorizesthefiling;and
(2)thefilingisnecessaryunderthispart:
(A)tocontinuetheeffectivenessofafinancingstatementfiledbeforethis
[Act]takeseffect;or
(B)toperfectorcontinuetheperfectionofasecurityinterest.
9709.PRIORITY.
(a)[Lawgoverningpriority.]
This[Act]determinesthepriorityofconflictingclaimstocollateral.However,ifthe
relativeprioritiesoftheclaimswereestablishedbeforethis[Act]takeseffect,
[formerArticle9]determinespriority.
(b)[PriorityifsecurityinterestbecomesenforceableunderSection9203.]
ForpurposesofSection9322(a),thepriorityofasecurityinterestthatbecomes
enforceableunderSection9203ofthis[Act]datesfromthetimethis[Act]takes
effectifthesecurityinterestisperfectedunderthis[Act]bythefilingofafinancing
statementbeforethis[Act]takeseffectwhichwouldnothavebeeneffectiveto
perfectthesecurityinterestunder[formerArticle9].Thissubsectiondoesnotapply
toconflictingsecurityinterestseachofwhichisperfectedbythefilingofsucha
financingstatement.
[ 523 ]
M.I.C.NOTES[UCCARTICLE9:SECUREDTRANSACTIONS]
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