CHAPTER 219

An Act to be known as the Uniform Commercial Code, relating to certain
commercial transactions in or regarding personal property and con-
tracts and other documents concerning them, including Sales, Commer-
cial Paper, Bank Deposits and Collections, Letters of Credit, Bulk
Transfers, Warehouse Receipts, Bills of Lading, other Documents of
Title, Investment Securities, and Secured Transactions, including cer-
tain sales of accounts, chattel paper, and contract rights; providing for
public notice to third parties in certain circumstances; regulating
procedure, evidence and damages in certain court actions involving
such transactions, contracts or documents; to make uniform the law
with respect thereto; and to amend and reenact §§ 6-841, 8-18, 8-94,
8-114 as amended, 8-228, 8-517 as amended, 8-598, 55-96 of the Code of
Virginia, and to repeal §§ 6-68, 6-71 through 6-75; 6-858 through 6-421;
6-428 through 6-426; 6-426.1; 6-427 through 6-548; 6-548.1 through
6-548.8; 6-544 through 6-549; 6-550 through 6-558; 8-654.8, 11-5
through 11-7; 18.1-401 through 18.1-428; 48-27, 48-28, 48-44 through
48-61; 55-88 through 55-86; 55-88 through 55-94; 55-98, 55-99, 55-148
through 55-151; 56-120, 56-121, 56-126, 56-127, 61-1 through 61-52,
of the Code of Virginia, and all amendments thereof, the sections
amended and repealed relating generally to the same matters. 4
[S 1]

Approved March 27, 1964

Be it enacted by the General Assembly of Virginia as follows:

ARTICLE 1
GENERAL PROVISIONS

PART 1

SHORT TITLE, CONSTRUCTION, APPLICATION AND
SUBJECT MATTER OF THE ACT

8 1-101. Short Title. This Act shall be known and may be cited as
‘orm Commercial Code.
§$ 1-102. Purposes; Rules of Construction; Variation by Agreement.
(1) This Act shall be liberally construed and applied to promote its
rlying purposes and policies.
(2) Underlying purposes and policies of this Act are
(a) to simplify, clarify and modernize the law governing commercial
sactions;
(b) to permit the continued expansion of commercial practices
ugh custom, usage and agreement of the parties;
(c) to make uniform the law among the various jurisdictions.
(3) The effect of provisions of this Act may be varied by agreement,
pt as otherwise provided in this Act and except that the obligations of
| faith, diligence, reasonableness and care prescribed by this Act may
be disclaimed by agreement but the parties may by agreement deter-
» the standards by which the performance of such obligations is to be
sured if such standards are not manifestly unreasonable.
(4) The presence in certain provisions of this Act of the words ‘“un-
otherwise agreed” or words of similar import does not imply that the
t of other provisions may not be varied by agreement under subsection

(5) In this Act unless the context otherwise requires
(a) words in the singular number include the plural, and in the plural
include the singular;

(b) words of the masculine gender include the feminine and the neu-
ter, and when the sense so indicates words of the neuter gender may refer
to any gender.

§ 1-103. Supplementary General Principles of Law Applicable. Unless
displaced by the particular provisions of this Act, the principles of law and
equity, including the law merchant and the law relative to capacity to con-
tract, principal and agent, estoppel, fraud, misrepresentation, duress, coer-
cion, mistake, bankruptcy, or other validating or invalidating cause shall
supplement its provisions.

§ 1-104. Construction Against Implicit Repeal. This Act being a gen-
eral act intended as a unified coverage of its subject matter, no part of it
shall be deemed to be impliedly repealed by subsequent legislation if such
construction can reasonably be avoided.

§ 1-105. Territorial Application of the Act; Parties’ Power to Choose
Applicable Law. (1) Except as provided hereafter in this section, when a
transaction bears a reasonable relation to this State and also to another
state or nation the parties may agree that the law either of this State or of
such other state or nation shall govern their rights and duties. Failing
such agreement this Act applies to transactions bearing an appropriate
relation to this State.

(2) Where one of the following provisions of this Act specifies the
applicable law, that provision governs and a contrary agreement is effective
only to the extent permitted by the law (including the conflict of laws
rules) so specified:

Rights of creditors against sold goods. § 2-402.

Applicability of the Article on Bank Deposits and Collections. § 4-102.

Bulk transfers subject to the Article on Bulk Transfers. § 6-102.

Applicability of the Article on Investment Securities. § 8-106.

9 Tr heed and scope of the Article on Secured Transactions. §§ 9-102 and

§ 1-106. Remedies to Be Liberally Administered. (1) The remedies
provided by this Act shall be liberally administered to the end that the
aggrieved party may be put in as good a position as if the other party had
fully performed but neither consequential or special nor penal damages
may be had except as specifically provided in this Act or by other rule of
aw.

(2) Any right or obligation declared by this Act is enforceable by
agen unless the provision declaring it specifies a different and limited
effect.

§ 1-107. Waiver or Renunciation of Claim or Right After Breach.
Any claim or right arising out of an alleged breach can be discharged in
whole or in part without consideration by a written waiver or renunciation
signed and delivered by the aggrieved party.

§ 1-108. Severability. If any provision or clause of this Act or appli-
cation thereof to any person or circumstances is held invalid, such invalidi-
ty shall not affect other ‘provisions or applications of the Act which can be
given effect without the invalid provision or application, and to this end
the provisions of this Act are declared to be severable.

§ 1-109. Section Captions. Section captions are parts of this Act.

PART 2

GENERAL DEFINITIONS AND PRINCIPLES
OF INTERPRETATION

§ 1-201. General Definitions. Subject to additional definitions contained
in the subsequent Articles of this Act which are applicable to specific
Articles or Parts thereof, and unless the context otherwise requires, in this
ct:

(1) “Action” in the sense of a judicial proceeding includes recoup-
ment, counterclaim, set-off, suit in equity and any other proceedings in
which rights are determined.

(2) “Aggrieved party” means a party entitled to resort to a remedy.

(3) “Agreement” means the bargain of the parties in fact as found in
their language or by implication from other circumstances including course
of dealing or usage of trade or course of performance as provided in this
Act (§§ 1-205 and 2-208). Whether an agreement has legal consequences
is determined by the provisions of this Act, if applicable; otherwise by the
law of contracts (§ 1-103). (Compare ‘“Contract’”’.)

(4) “Bank” means any person engaged in the business of banking.

(5) “Bearer” means the person in possession of an instrument, docu-
ment of title, or security payable to bearer or indorsed in blank.

(6) “Bill of lading’? means a document evidencing the receipt of goods
for shipment issued by a person engaged in the business of transporting
or forwarding goods, and includes an airbill. ‘Airbill’” means a document
serving for air transportation as a bill of lading does for marine or rail
transportation, and includes an air consignment note or air waybill.

(7) “Branch” includes a separately incorporated foreign branch of a

(8) “Burden of establishing” a fact means the burden of persuading
the triers of fact that the existence of the fact is more probable than its
non-existence.

(9) “Buyer in ordinary course of business’ means a person who in
good faith and without knowledge that the sale to him is in violation of
the ownership rights or security interest of a third party in the goods
buys in ordinary course from a person in the business of selling goods of
that kind but does not include a pawnbroker. “Buying” may be for cash
or by exchange of other property or on secured or unsecured credit and
includes receiving goods or documents of title under a pre-existing con-
tract for sale but does not include a transfer in bulk or as security for or
in total or partial satisfaction of a money debt.

(10) “Conspicuous”: A term or clause is conspicuous when it is so
written that a reasonable person against whom it is to operate ought to
have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL
OF LADING) is conspicuous. Language in the body of a form is “conspicu-
ous” if it is in larger or other contrasting type or color. But in a telegram
any stated term is “conspicuous”. Whether a term or clause is “conspicu-
ous” or not is for decision by the court.

(11) “Contract” means the total legal obligation which results from
the parties’ agreement as affected by this Act and any other applicable
rules of law. (Compare “Agreement”.)

(12) “Creditor” includes a general creditor, a secured creditor, a lien
creditor and any representative of creditors, including an assignee for the
benefit of creditors, a trustee in bankruptcy, a receiver in equity and an
executor or administrator of an insolvent debtor’s or assignor’s estate.

(13) “Defendant” includes a person in the position of defendant in a
-ross-action or counterclaim.

(14) “Delivery” with respect to instruments, documents of title,
shattel paper or securities means voluntary transfer of possession.

(15) “Document of title’ includes bill of lading, dock warrant, dock re-
-eipt, warehouse receipt or order for the delivery of goods, and also any
»x9ther document which in the regular course of business or financing is
treated as adequately evidencing that the person in possession of it is en-
‘itled to receive, hold and dispose of the document and the goods it covers.
lo be a document of title a document must purport to be issued by or ad-
dressed to a bailee and purport to cover goods in the bailee’s possession
which are either identified or are fungible portions of an identified mass.

(16) “Fault” means wrongful act, omission or breach.

(17) “Fungible” with respect to goods or securities means goods or
securities of which any unit is, by nature or usage of trade, the equivalent
of any other like unit. Goods which are not fungible shall be deemed fungi-
ble for the purposes of this Act to the extent that under a particular agree-
ment or document unlike units are treated as equivalents.

(18) “Genuine” means free of forgery or counterfeiting.

(19) “Good faith” means honesty in fact in the conduct or transaction
concerned.

(20) “Holder” means a person who is in possession of a document of
title or an instrument or an investment security drawn, issued or indorsed
to him or to his order or to bearer or in blank.

(21) To “honor” is to pay or to accept and pay, or where a credit so
engages to purchase or discount a draft complying with the terms of the
credit.

(22) “Insolvency proceedings” includes any assignment for the bene-
fit of creditors or other proceedings intended to liquidate or rehabilitate
the estate of the person involved.

(28) A person is “insolvent”? who either has ceased to pay his debts
in the ordinary course of business or cannot pay his debts as they become
due or is insolvent within the meaning of the federal bankruptcy law.

(24) “Money” means a medium of exchange authorized or adopted by
a domestic or foreign government as a part of its currency.

(25) A person has “notice” of a fact when

(a) he has actual knowledge of it; or

(b) he has received a notice or notification of it; or

(c) from all the facts and circumstances known to him at the time
in question he has reason to know that it exists.

A person “knows” or has “knowledge” of a fact when he has actual
knowledge of it. “Discover” or “learn” or a word or phrase of similar im-
port refers to knowledge rather than to reason to know. The time and cir-
cumstances under which a notice or notification may cease to be effective
are not determined by this Act.

(26) A person “notifies” or “gives” a notice or notification to another
by taking such steps as may be reasonably required to inform the other
in ordinary course whether or not such other actually comes to know of it.
A person “receives” a notice or notification when

(a) it comes to his attention; or

(b) it is duly delivered at the place of business through which the
contract was made or at any other place held out by him as the place for
receipt of such communications.

(27) Notice, knowledge or a notice or notification received by an
organization is effective for a particular transaction from the time when
it is brought to the attention of the individual conducting that transaction,
and in any event from the time when it would have been brought to his
attention if the organization had exercised due diligence. An organization
exercises due diligence if it maintains reasonable routines for communi-
cating significant information to the person conducting the transaction
and there is reasonable compliance with the routines. Due diligence does
not require an individual acting for the organization to communicate in-
formation unless such communication is part of his regular duties or unless
he has reason to know of the transaction and that the transaction would
be materially affected by the information.

(28) “Organization” includes a corporation, government or govern-
mental subdivision or agency, business trust, estate, trust, partnership or
association, two or more persons having a joint or common interest, or any
other legal or commercial entity.

(29) “Party”, as distinct from “third party’, means a person who has
engaged in a transaction or made an agreement within this Act.

(30) “Person” includes an individual or an organization (See § 1-102).

(31) “Presumption” or “presumed” means that the trier of fact must
find the existence of the fact presumed unless and until evidence is intro-
duced which would support a finding of its non-existence.

(32) “Purchase” includes taking by sale, discount, negotiation, mort-
gage, pledge, lien, issue or re-issue, gift or any other voluntary transaction
creating an interest in property.

(383) “Purchaser” means a person who takes by purchase.

(34) “Remedy” means any remedial right to which an aggrieved
party is entitled with or without resort to a tribunal.

(35) “Representative” includes an agent, an officer of a corporation
or association, and a trustee, executor or administrator of an estate, or
any other person empowered to act for another.

(36) “Rights” includes remedies.

(87) “Security interest” means an interest in personal property or
fixtures which secures payment or performance of an obligation. The reten-
tion or reservation of title by a seller of goods notwithstanding shipment
or delivery to the buyer (§ 2-401) is limited in effect to a reservation of a
“security interest’. The term also includes any interest of a buyer of ac-
counts, chattel paper, or contract rights which is subject to Article 9. The
special property interest of a buyer of goods on identification of such goods
to a contract for sale under § 2-401 is not a “security interest”, but a buyer
may also acquire a “security interest’? by complying with Article 9. Unless
a lease or consignment is intended as security, reservation of title there-
under is not a “security interest” but a consignment is in any event sub-
ject to the provisions on consignment sales (§ 2-826). Whether a lease is
intended as security is to be determined by the facts of each case; how-
ever, (a) the inclusion of an option to purchase does not of itself make the
lease one intended for security, and (b) an agreement that upon compliance
with the terms of the lease the lessee shall become or has the option to
become the owner of the property for no additional consideration or for a
nominal consideration does make the lease one intended for security.

(38) “Send” in connection with any writing or notice means to deposit
in the mail or deliver for transmission by any other usual means of com-
munication with postage or cost of transmission provided for and properly
addressed and in the case of an instrument to an address specified thereon
or otherwise agreed, or if there be none to any address reasonable under
the circumstances. The receipt of any writing or notice within the time
at wales it would have arrived if properly sent has the effect of a proper
sending.

(39) “Signed” includes any symbol executed or adopted by a party
with present intention to authenticate a writing.

(40) “Surety” includes guarantor.

(41) “Telegram” includes a message transmitted by radio, teletype,
cable, any mechanical method of transmission, or the like.

(42) “Term” means that portion of an agreement which relates to a
particular matter.

(43) “Unauthorized” signature or indorsement means one made with-
out actual, implied or apparent authority and includes a forgery.

(44) “Value”. Except as otherwise provided with respect to nego-
tiable instruments and bank collections (§§ 3-303, 4-208 and 4-209) a person
gives “value” for rights if he acquires them

(a) in return for a binding commitment to extend credit or for the ex-
tension of immediately available credit whether or not drawn upon and
whether or not a charge-back is provided for in the event of difficulties
in collection; or

_ (b) as security for or in total or partial satisfaction of a pre-existing
Cc ; or
nes (c) by accepting delivery pursuant to a pre-existing contract for pur-
chase; or

(d) generally, in return for any consideration sufficient to support a
simple contract.

(45) ‘Warehouse receipt” means a receipt issued by a person engaged
in the business of storing goods for hire.

(46) “Written” or “writing” includes printing, typewriting or any
other intentional reduction to tangible form.

§ 1-202. Prima Facie Evidence by Third Party Documents. A docu-
ment in due form purporting to be a bill of lading, policy or certificate of in-
surance, official weigher’s or inspector’s certificate, consular invoice, or
any other document a tthorized or required by the contract to be issued
by a third party shall be prima facie evidence of its own authenticity and
genuineness and of the facts stated in the document by the third party.

§ 1-203. Obligation of Good Faith. Every contract or duty within this
Act imposes an obligation of good faith in its performance or enforcement.

§ 1-204. Time; Reasonable Time; “Seasonably”. (1) Whenever this
Act requires any action to be taken within a reasonable time, any time
which is not manifestly unreasonable may be fixed by agreement.

(2) What is a reasonable time for taking any action depends on the
nature, purpose and circumstances of such action.

(3) An action is taken ‘“‘seasonably” when it is taken at or within the
time agreed or if no time is agreed at or within a reasonable time.

§ 1-205. Course of Dealing and Usage of Trade. (1) A course of deal-
ing is a sequence of previous conduct between the parties to a particular
transaction which is fairly to be regarded as establishing a common basis
of understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an ex-
pectation that it will be observed with respect to the transaction in ques-
tion. The existence and scope of such a usage are to be proved as facts.
If it is established that such a usage is embodied in a written trade code or
similar writing the interpretation of the writing is for the court.

(3) A course of dealing between parties and any usage of trade in the
vocation or trade in which they are engaged or of which they are or should
be aware give particular meaning to and supplement or qualify terms of an
agreement.

(4) The express terms of an agreement and an applicable course of
dealing or usage of trade shall be construed wherever reasonable as con-
sistent with each other; but when such construction is unreasonable ex-
press terms control both course of dealing and usage of trade and course
of dealing controls usage of trade.

(5) An applicable usage of trade in the place where any part of per-
formance is to occur shall be used in interpreting the agreement as to that
part of the performance.

(6) Evidence of a relevant usage of trade offered by one party is not
admissible unless and until he has given the other party such notice as
the court finds sufficient to prevent unfair surprise to the latter.

§ 1-206. Statute of Frauds for Kinds of Personal Property Not Other-
wise Covered. (1) Except in the cases described in subsection (2) of this
section a contract for the sale of personal property is not enforceable by
way of action or defense beyond five thousand dollars in amount or value
of remedy unless there is some writing which indicates that a contract for
sale has been made between the parties at a defined or stated price, reason-
ably identifies the subject matter, and is signed by the party against whom
rcement is sought or by his authorized agent.

(2) Subsection (1) of this section does not apply to contracts for th

of goods (§ 2-201) nor of securities (§ 8-319) nor to security agree

ts (§ 9-208).

§ 1-207. Performance or Acceptance Under Reservation of Rights. /
y who with explicit reservation of rights performs or promises per
nance or assents to performance in a manner demanded or offered b:
other party does not thereby prejudice the rights reserved. Such word
without prejudice’, “under protest” or the like are sufficient.

§ 1-208. Option to Accelerate at Will. A term providing that one part
is successor in interest may accelerate payment or performance or re
e collateral or additional collateral ‘‘at will’ or ‘‘when he deems himsel
cure’ or in words of similar import shall be construed to mean that h
1 have power to do so only if he in good faith believes that the prospec
ayment or performance is impaired. The burden of establishing lac!
ood faith is on the party against whom the power has been exercised.

ARTICLE 2
SALES
PART 1

SHORT TITLE, GENERAL CONSTRUCTION AND
SUBJECT MATTER

§ 2-101. Short Title. This Article shall be known and may be cite
Jniform Commercial Code—Sales.
§ 2-102. Scope; Certain Security and Other Transactions Exclude
n This Article. Unless the context otherwise requires, this Articl
ies to transactions in goods; it does not apply to any transaction whicl
ough in the form of an unconditional contract to sell or present sal
tended to operate only as a security transaction nor does this Articl
uir or repeal any statute regulating sales to consumers, farmers o
r specified classes of buyers.
§ 2-103. Definitions and Index of Definitions. (1) In this Article un
the context otherwise requires

) “Buyer” means a person who buys or contracts to buy goods.
(b) “Good faith” in the case of a merchant means honesty in fac
vane of reasonable commercial standards of fair dealing i:
trade.
(c) “Receipt” of goods means taking physical possession of them.
(d) “Seller” means a person who sells or contracts to sell goods.
(2) Other definitions applying to this Article or to specified Part
eof, and the sections in which they appear are:
“‘“Acceptance’”’. § 2-606.
“‘Banker’s credit”. § 2-325.
‘‘Between merchants”. § 2-104.
“Cancellation”. § 2-106(4).
“Commercial unit”. § 2-105.
‘“‘Confirmed credit”. § 2-325.
“Conforming to contract”. § 2-106.
“Contract for sale”. § 2-106.
“Cover”. § 2-712.
“Entrusting’. § 2-403.
“Financing agency”. § 2-104.
“Future goods’. § 2-105.
“Goods”. § 2-105.
“Identification”. § 2-501.
“Installment contract’. 9 ew
“Letter of credit”. § 2-
“Lot”. § 2-105.

“Merchant”. § 2-104.

“Overseas”. § 2-323.

“Person in position of seller’. § 2-707.

“Present sale’. § 2-106.

‘Sale’. § 2-106.

‘Sale on approval”. § 2-826.

“Sale or return”. § 2-326.

“Termination’”’. § 2-106.

(3) The following definitions in other Articles apply to this Article:

“Check”. § 3-10

“Consignee’”’. § "7102.

“Consignor”. § 7-102.

“Consumer goods”. g 9-109.

“Dishonor”. § 3-507.

“Draft”. § 3-104.

(4) In addition Article 1 contains general definitions and principles
of construction and interpretation applicable throughout this Article.

§ 2-104. Definitions: “Merchant”; “Between Merchants”; “Financing
Agency”. (1) “Merchant” means a person who deals in goods of the kind
or otherwise by his occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the transaction or to
whom such knowledge or skill may be attributed by his employment of an
agent or broker or other intermediary who by his occupation holds him-
self out as having such knowledge or skill.

(2) “Financing agency” means a bank, finance company or other per-
son who in the ordinary course of business makes advances against goods
or documents of title or who by arrangement with either the seller or the
buyer intervenes in ordinary course to make or collect payment due or
claimed under the contract for sale, as by purchasing or paying the seller’s
draft or making advances against it or by merely taking it for collection
whether or not documents of title accompany the draft. “Financing
agency” includes also a bank or other person who similarly intervenes be-
tween persons who are in the position of seller and buyer in respect to the
goods (§ 2-707).

(3) “Between merchants” means in any transaction with respect to
which both parties are chargeable with the knowledge or skill of mer-
chants.

§ 2-105. Definitions: Transferability; “Goods”; “Future” Goods;
“Lot”; “Commercial Unit”. (1) “Goods” means all things (including
specially manufactured goods) which are movable at the time of identifi-
cation to the contract for sale other than the money in which the price is
to be paid, investment securities (Article 8) and things in action. “Goods”
also includes the unborn young of animals and growing crops and other
identified things attached to realty as described in the section on goods to
be severed from realty (§ 2-107).

(2) Goods must be both existing and identified before any interest
in them can pass. Goods which are not both existing and identified are
“future” goods. A purported present sale of future goods or of any interest
therein operates as a contract to sell.

(3) There may be a sale of a part interest in existing identified goods.

(4) An undivided share in an identified bulk of fungible goods is suf-
ficiently identified to be sold although the quantity of the bulk is not deter-
mined. Any agreed proportion of such a bulk or any quantity thereof
agreed upon by number, weight or other measure may to the extent of
the seller’s interest in the bulk be sold to the buyer who then becomes an
owner in common.
(5) “Lot” means a parcel or a single article which is the subject
matter of a separate sale or delivery, whether or not it is sufficient to
perform the contract.

(6) “Commercial unit” means such a unit of goods as by commercial
usage is a single whole for purposes of sale and division of which material-
ly impairs its character or value on the market or in use. A commercial
unit may be a single article (as a machine) or a set of articles (as a suite
of furniture or an assortment of sizes) or a quantity (as a bale, gross, or
carload) or any other unit treated in use or in the relevant market as a
single whole.

§ 2-106. Definitions: “Contract”; “Agreement”; “Contract for Sale”;
“Sale”; “Present Sale”; “Conforming” to Contract; “Termination”; “Can-
cellation”. (1) In this Article unless the context otherwise requires ‘‘con-
tract” and “agreement” are limited to those relating to the present or fu-
ture sale of goods. “Contract for sale’ includes both a present sale of goods
and a contract to sell goods at a future time. A “‘sale” consists in the
passing of title from the seller to the buyer for a price (§ 2-401). A
“present sale” means a sale which is accomplished by the making of the
contract.

(2) Goods or conduct including any part of a performance are “con-
forming” or conform to the contract when they are in accordance with the
obligations under the contract.

(3) “Termination” occurs when either party pursuant to a power
created by agreement or law puts an end to the contract otherwise than
for its breach. On “termination” all obligations which are still executory
on both sides are discharged but any right based on prior breach or per-
formance survives.

(4) “Cancellation” occurs when either party puts an end to the con-
tract for breach by the other and its effect is the same as that of “termina-
tion” except that the cancelling party also retains any remedy for breach
of the whole contract or any unperformed balance.

§ 2-107. Goods to Be Severed From Realty: Recording. (1) A con-
tract for the sale of timber, minerals or the like or a structure or its ma-
terials to be removed from realty is a contract for the sale of goods within
this Article if they are to be severed by the seller but until severance a
purported present sale thereof which is not effective as a transfer of an
interest in land is effective only as a contract to sell.

(2) A contract for the sale apart from the land of growing crops or
other things attached to realty and capable of severance without material
harm thereto but not described in subsection (1) is a contract for the sale
of goods within this Article whether the subject matter is to be severed
by the buyer or by the seller even though it forms part of the realty at the
time of contracting, and the parties can by identification effect a present
sale before severance.

(3) The provisions of this section are subject to any third party
rights provided by the law relating to realty records, and the contract for
sale may be executed and recorded as a document transferring an interest
in land and shall then constitute notice to third parties of the buyer’s
rights under the contract for sale.

PART 2

FORM, FORMATION AND READJUSTMENT
OF CONTRACT

§ 2-201. Formal Requirements; Statute of Frauds. (1) Except as
otherwise provided in this section a contract for the sale of goods for the
price of $500 or more is not enforceable by way of action or defense unless
there is some writing sufficient to indicate that a contract for sale has been
made between the parties and signed by the party against whom enforce-
ment is sought or by his authorized agent or broker. A writing is not in-
sufficient because it omits or incorrectly states a term agr upon but
the contract is not enforceable under this paragraph beyond the quantity
of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in con-
firmation of the contract and sufficient against the sender is received and
the party receiving it has reason to know its contents, it satisfies the re-
quirements of subsection (1) against such party unless written notice of
objection to its contents is given within ten days after it is received.

(3) A contract which does not satisfy the requirements of subsection
(1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and
are not suitable for sale to others in the ordinary course of the seller’s
business and the seller, before notice of repudiation is received and under
circumstances which reasonably indicate that the goods are for the buyer,
has made either a substantial beginning of their manufacture or commit-
ments for their procurement; or

(b) if the party against whom enforcement is sought admits in his
pleading, testimony or otherwise in court that a contract for sale was
made, but the contract is not enforceable under this provision beyond the
quantity of goods admitted; or

(c) with respect to goods for which payment has been made and ac-
cepted or which have been received and accepted (§ 2-606).

2-202. Final Written Expression: Parol or Extrinsic Evidence.
Terms with respect to which the confirmatory memoranda of the parties
agree or which are otherwise set forth in a writing intended by the parties
as a final expression of their agreement with respect to such terms as are
included therein may not be contradicted by evidence of any prior agree-
ment or of a contemporaneous oral agreement but may be explained or
supplemented

(a) by course of dealing or usage of trade (§ 1-205) or by course of
performance (§ 2-208); and

(b) by evidence of consistent additional terms unless the court finds
the writing to have been intended also as a complete and exclusive state-
ment of the terms of the agreement.

§ 2-203. Seals Inoperative. The affixing of a seal to a writing evi-
dencing a contract for sale or an offer to buy or sell goods does not con-
stitute the writing a sealed instrument and the law with respect to sealed
instruments does not apply to such a contract or offer.

§ 2-204. Formation in General. (1) A contract for sale of goods may
be made in any manner sufficient to show agreement, including conduct by
both parties which recognizes the existence of such a contract.

(2) An agreement sufficient to constitute a contract for sale may be
found even though the moment of its making is undetermined.

(3) Even though one or more terms are left open a contract for sale
does not fail for indefiniteness if the parties have intended to make a con-
tract and there is a reasonably certain basis for giving an appropriate
remedy.

§ 2-205. Firm Offers. An offer by a merchant to buy or sell goods in
a signed writing which by its terms gives assurance that it will be held
open is not revocable, for lack of consideration, during the time stated or
if no time is stated for a reasonable time, but in no event may such period
of irrevocability exceed three months; but any such term of assurance on
a form supplied by the offeree must be separately signed by the offeror.

§ 2-206. Offer and Acceptance in Formation of Contract. (1) Unless
otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting accept-
ance in any manner and by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current ship-
ment shall be construed as inviting acceptance either by a prompt promise
to ship or by the prompt or current shipment of conforming or non-con-
forming goods, but such a shipment of non-conforming goods does not
constitute an acceptance if the seller seasonably notifies the buyer that
the shipment is offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable
mode of acceptance an offeror who is not notified of acceptance within a
reasonable time may treat the offer as having lapsed before acceptance.

§ 2-207. Additional Terms in Acceptance or Confirmation. (1) A
definite and seasonable expression of acceptance or a written confirmation
which is sent within a reasonable time operates as an acceptance even
though it states terms additional to or different from those offered or
agreed upon, unless acceptance is expressly made conditional on assent to
the additional or different terms.

(2) The additional terms are to be construed as proposals for addition
to the contract. Between merchants such terms become part of the con-
tract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is
given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a con-
tract is sufficient to establish a contract for sale although the writings of
the parties do not otherwise establish a contract. In such case the terms
of the particular contract consist of those terms on which the writings of
the parties agree, together with any supplementary terms incorporated
under any other provisions of this Act.

§ 2-208. Course of Performance or Practical Construction. (1) Where
the contract for sale involves repeated occasions for performance by either
party with knowledge of the nature of the performance and opportunity
for objection to it by the other, any course of performance accepted or
acquiesced in without objection shall be relevant to determine the meaning
of the agreement.

(2) The express terms of the agreement and any such course of per-
formance, as well as any course of dealing and usage of trade, shall be con-
strued whenever reasonable as consistent with each other; but when such
construction is unreasonable, express terms shall control course of per-
formance and course of performance shall control both course of dealing
and usage of trade (§ 1-205).

(3) Subject to the provisions of the next section on modification and
waiver, such course of performance shall be relevant to show a waiver or
modification of any term inconsistent with such course of performance.

§ 2-209. Modification, Rescission and Waiver. (1) An agreement
modifying a contract within this Article needs no consideration to be bind-
ing.

(2) A signed agreement which excludes modification or rescission ex-
cept by a signed writing cannot be otherwise modified or rescinded, but
except as between merchants such a requirement on a form supplied by
the merchant must be separately signed by the other party.

(3) The requirements of the statute of frauds section of this Article
(§ 2-201) must be satisfied if the contract as modified is within its pro-
visions.
(4) Although an attempt at modification or rescission does not satisfy
the requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of
the contract may retract the waiver by reasonable notification received by
the other party that strict performance will be required of any term
waived, unless the retraction would be unjust in view of a material change
of position in reliance on the waiver.

§ 2-210. Delegation of Performance; Assignment of Rights. (1) A
party may perform his duty through a delegate unless otherwise agreed
or unless the other party has a substantial interest in having his original
promisor ‘perform or control the acts required by the contract. No dele-
gation of performance relieves the party delegating of any duty to per-
form or any liability for breach.

(2) Unless otherwise agreed all rights of either seller or buyer can
be assigned except where the assignment would materially change the
duty of the other party, or increase materially the burden or risk imposed
on him by his contract, or impair materially his chance of obtaining return
performance. A right to damages for breach of the whole contract or a
right arising out of the assignor’s due performance of his entire obliga-
tion can be assigned despite agreement otherwise.

(3) Unless the circumstances indicate the contrary a prohibition of
assignment of “‘the contract” is to be construed as barring only the dele-
gation to the assignee of the assignor’s performance.

(4) An assignment of “the contract” or of “all my rights under the
contract” or an assignment in similar general terms is an assignment of
rights and unless the language or the circumstances (as in an assignment
for security) indicate the contrary, it is a delegation of performance of
the duties of the assignor and its acceptance by the assignee constitutes
a promise by him to perform those duties. This promise is enforceable by
either the assignor or the other party to the original contract.

(5) The other party may treat any assignment which delegates per-
formance as creating reasonable grounds for insecurity and may without
prejudice to his rights against the assignor demand assurances from the
assignee (§ 2-609).

PART 3

GENERAL OBLIGATION AND CONSTRUCTION
OF CONTRACT

§ 2-301. General Obligations of Parties. The obligation of the seller
is to transfer and deliver and that of the buyer is to accept and pay in
accordance with the contract.

§ 2-302. Unconscionable Contract or Clause. (1) If the court as a
matter of law finds the contract or any clause of the contract to have
been unconscionable at the time it was made the court may refuse to en-
force the contract, or it may enforce the remainder of the contract without
the unconscionable clause, or it may so limit the application of any uncon-
scionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or
any clause thereof may be unconscionable the parties shall be afforded a
reasonable opportunity to present evidence as to its commercial setting,
purpose and effect to aid the court in making the determination.

§ 2-303. Allocation or Division of Risks. Where this Article allocates
a risk or a burden as between the parties “unless otherwise agreed”, the
agreement may not only shift the allocation but may also divide the risk
or burden.

§ 2-304. Price Payable in Money, Goods, Realty, or Otherwise. (1) The
price can be made payable in money or otherwise. If it is payable in whole

a in part in goods each party is a seller of the goods which he is to trans-
er.
(2) Even though all or part of the price is payable in an interest in
realty the transfer of the goods and the seller’s obligations with reference
to them are subject to this Article, but not the transfer of the interest in
realty or the transferor’s obligations in connection therewith.

§ 2-305. Open Price Term. (1) The parties if they so intend can con-
clude a contract for sale even though the price is not settled. In such a
case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or

(b) the price is left to be agreed by the parties and they fail to agree;
or

(c) the price is to be fixed in terms of some agreed market or other
standard as set or recorded by a third person or agency and it is not so
set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price
for him to fix in good faith.

(3) When a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one party the other may at his
option treat the contract as cancelled or himself fix a reasonable price.

(4) Where, however, the parties intend not to be bound unless the
price be fixed or agreed and it is not fixed or agreed there is no contract.
In such a case the buyer must return any goods already received or if
unable so to do must pay their reasonable value at the time of delivery
and the seller must return any portion of the price paid on account.

; 2-306. Output, Requirements and Exclusive Dealings. (1) A term
which measures the quantity by the output of the seller or the require-
ments of the buyer means such actual output or requirements as may
occur in good faith, except that no quantity unreasonably disproportionate
to any stated estimate or in the absence of a stated estimate to any
normal or otherwise comparable prior output or requirements may be
tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive
dealing in the kind of goods concerned imposes unless otherwise agreed
an obligation by the seller to use best efforts to supply the goods and by
the buyer to use best efforts to promote their sale.

§ 2-307. Delivery in Single Lot or Several Lots. Unless otherwise
agreed all goods called for by a contract for sale must be tendered in a
single delivery and payment is due only on such tender but where the cir-
cumstances give either party the right to make or demand delivery in lots
the price if it can be apportioned may be demanded for each lot.

g. 2-308. Absence of Specified Place for Delivery. Unless otherwise
agre

(a) the place for delivery of goods is the seller’s place of business or
if he has none his residence; but

(b) in a contract for sale of identified goods which to the knowledge

of the parties at the time of contracting are in some other place, that place
is the place for their delivery; and

h (c) documents of title may be delivered through customary banking
channels.

_ § 2-309. Absence of Specific Time Provisions; Notice of Termina-
tion. (1) The time for shipment or delivery or any other action under a
contract if not provided in this Article or agreed upon shall be a reason-
able time.

(2) Where the contract provides for successive performances but is
indefinite in duration it is valid for a reasonable time but unless otherwise
agreed may be terminated at any time by either party.

(3) Termination of a contract by one party except on the happening
of an agreed event requires that reasonable notification be received by the
other pariy and an agreement dispensing with notification is invalid if
its operation would be unconscionable.

§ 2-310. Open Time for Payment or Running of Credit; Authority to
Ship Under Reservation. Unless otherwise agreed

(a) payment is due at the time and place at which the buyer is to
receive the goods even though the place of shipment is the place of
delivery; and

(b) if the seller is authorized to send the goods he may ship them
under reservation, and may tender the documents of title, but the buyer
may inspect the goods after their arrival before payment is due unless
such inspection is inconsistent with the terms of the contract (§ 2-513) ; and

(c) if delivery is authorized and made by way of documents of title
otherwise than by subsection (b) then payment is due at the time and
place at which the buyer is to receive the documents regardless of where
the goods are to be received; and

(d) where the seller is required or authorized to ship the goods on
credit the credit period runs from the time of shipment but post-dating
the invoice or delaying its dispatch will correspondingly delay the start-
ing of the credit period.

§ 2-311. Options and Cooperation Respecting Performance. (1) An
agreement for sale which is otherwise sufficiently definite (subsection (3)
of § 2-204) to be a contract is not made invalid by the fact that it leaves
particulars of performance to be specified by one of the parties. Any such
specification must be made in good faith and within limits set by com-
mercial reasonableness.

(2) Unless otherwise agreed specifications relating to assortment of
the goods are at the buyer’s option and except as otherwise provided in
subsections (1)(c) and (3) of § 2-319 specifications or arrangements re-
lating to shipment are at the seller’s option.

(3) Where such specification would materially affect the other party’s
performance but is not seasonably made or where one party’s cooperation
is necessary to the agreed performance of the other but is not seasonably
forthcoming, the other party in addition to all other remedies

(a) is excused for any resulting delay in his own performance: and

(b) may also either proceed to perform in any reasonable manner or
after the time for a material part of his own performance treat the failure
to Specify or to cooperate as a breach by failure to deliver or accept the
goods.

_§ 2-312. Warranty of Title and Against Infringement; Buyer’s Obli-
gation Against Infringement. (1) Subject to subsection (2) there is in
a contract for sale a warranty by the seller that

(a) the title conveyed shall be good, and its transfer rightful; and

(b) the goods shall be delivered free from any security interest or
other lien or encumbrance of which the buyer at the time of contracting
has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified
only by specific language or by circumstances which give the buyer rea-
son to know that the person selling does not claim title in himself or that
ne is purporting to sell only such right or title as he or a third person may

ave.

(3) Unless otherwise agreed a seller who is a merchant regularly
dealing in goods of the kind warrants that the goods shall be delivered
free of the rightful claim of any third person by way of infringement or
the like but a buyer who furnishes specifications to the seller must hold
the seller harmless against any such claim which arises out of compliance
with the specifications.

§ 2-313. Express Warranties by Affirmation, Promise, Description,
Sample. (1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis of the
bargain creates an express warranty that the goods shall conform to the
affirmation or promise.

(b) Any description of the goods which is made part of the basis of
the bargain creates an express warranty that the goods shall conform to
the description.

(c) Any sample or model which is made part of the basis of the bar-
gain creates an express warranty that the whole of the goods shall con-
form to the sample or model.

(2) It is not necessary to the creation of an express warranty that
the seller use formal words such as “warrant” or “guarantee” or that he
have a specific intention to make a warranty, but an affirmation merely
of the value of the goods or a statement purporting to be merely the seller’s
opinion or commendation of the goods does not create a warranty.

§ 2-314. Implied Warranty: Merchantability; Usage of Trade. (1) Un-
less excluded or modified (§ 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a mer-
chant with respect to goods of that kind. Under this section the serving
for value of food or drink to be consumed either on the premises or else-
where is a sale.

(2) Goods to be merchantable must be at least such as

(a) pass without objection in the trade under the contract descrip-
tion; and

(b) in the case of fungible goods, are of fair average quality within
the description; and

3 (c) are fit for the ordinary purposes for which such goods are used;
an

(d) run, within the variations permitted by the agreement, of even
kind, quality and quantity within each unit and among all units involved;
an

(e) are adequately contained, packaged, and labeled as the agreement
may require; and

(f) conform to the promises or affirmations of fact made on the con-
tainer or label if any.

(3) Unless excluded or modified (§ 2-316) other implied warranties
may arise from course of dealing or usage of trade.

§ 2-315. Implied Warranty: Fitness for Particular Purpose. Where
the seller at the time of contracting has reason to know any particular
purpose for which the goods are required and that the buyer is relying
on the seller’s skill or judgment to select or furnish suitable goods, there
is unless excluded or modified under the next section an implied warranty
that the goods shall be fit for such purpose.

§ 2-316. Exclusion or Modification of Warranties. (1) Words or con-
duct relevant to the creation of an express warranty and words or conduct
tending to negate or limit warranty shall be construed wherever reasonable
as consistent with each other; but subject to the provisions of this Article
on parol or extrinsic evidence (§ 2-202) negation or limitation is inopera-
tive to the extent that such construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied war-
ranty of merchantability or any part of it the language must mention mer-
chantability and in case of a writing must be conspicuous, and to exclude
or modify any implied warranty of fitness the exclusion must be by a
writing and conspicuous. Language to exclude all implied warranties of
fitness is sufficient if it states, for example, that ‘“‘There are no warranties
which extend beyond the description on the face hereof.”
(83) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warran-
ties are excluded by expressions like “as is’, “with all faults” or other
language which in common understanding calls the buyer’s attention to
the exclusion of warranties and makes plain that there is no implied war-
ranty; and

(b) when the buyer before entering into the contract has examined
the goods or the sample or model as fully as he desired or has refused to
examine the goods there is no implied warranty with regard to defects
une ar examination ought in the circumstances to have revealed to

im; an

(c) an implied warranty can also be excluded or modified by course
of dealing or course of performance or usage of trade.

(4) Remedies for breach of warranty can be limited in accordance
with the provisions of this Article on liquidation or limitation of damages
and on contractual modification of remedy (§§ 2-718 and 2-719).

2-317. Cumulation and Conflict of Warranties Express or Implied.
Warranties whether express or implied shall be construed as consistent
with each other and as cumulative, but if such construction is unreason-
able the intention of the parties shall determine which warranty is domi-
nant. In ascertaining that intention the following rules apply:

(a) Exact or technical specifications displace an inconsistent sample
or model or general language of description.

(b) A sample from an existing bulk displaces inconsistent general
language of description.

(c) Express warranties displace inconsistent implied warranties other
than an implied warranty of fitness for a particular purpose.

§ 2-318. When Lack of Privity No Defense in Action Against Manu-
facturer or Seller of Goods. Lack of privity between plaintiff and defendant
shall be no defense in any action brought against the manufacturer or seller
of goods to recover damages for breach of warranty, express or implied,
or for negligence, although the plaintiff did not purchase the goods from the
defendant, if the plaintiff was a person whom the manufacturer or seller
might reasonably have expected to use, consume, or be affected by the
goods; however, this section shall not be construed to affect any litigation
pending on June twenty-nine, nineteen hundred sixty-two.

§ 2-319. F.O.B. and F.A.S. Terms. (1) Unless otherwise agreed the
term F.O.B. (which means ‘free on board”) at a named place, even though
used only in connection with the stated price, is a delivery term under
whic

(a) when the term is F.O.B. the place of shipment, the seller must at
that place ship the goods in the manner provided in this Article (§ 2-504)
and bear the expense and risk of putting them into the possession of the
carrier; or

(b) when the term is F.O.B. the place of destination, the seller must
at his own expense and risk transport the goods to that place and there
tender delivery of them in the manner provided in this Article (§ 2-503) ;

(c) when under either (a) or (b) the term is also F.O.B. vessel, car
or other vehicle, the seller must in addition at his own expense and risk
load the goods on board. If the term is F.O.B. vessel the buyer must name
the vessel and in an appropriate case the seller must comply with the pro-
visions of this Article on the form of bill of lading (§ 2-823).

(2) Unless otherwise agreed the term F.A.S. vessel (which means
“free alongside’) at a named port, even though used only in connection
with the stated price, is a delivery term under which the seller must

(a) at his own expense and risk deliver the goods alongside the ves-
sel in the manner usual in that port or on a dock designated and provided
by the buyer; and
(b) obtain and tender a receipt for the goods in exchange for which
the carrier is under a duty to issue a bill of lading.

(3) Unless otherwise agreed in any case falling within subsection
(1) (a) or (c) or subsection (2) the buyer must seasonably give any need-
ed instructions for making delivery, including when the term is F.A:S.
or F.O.B. the loading berth of the vessel and in an appropriate case its
name and sailing date. The seller may treat the failure of needed instruc-
tions as a failure of cooperation under this Article (§ 2-811). He may also
at his option move the goods in any reasonable manner preparatory to
delivery or shipment.

(4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed
the buyer must make payment against tender of the required documents
and the seller may not tender nor the buyer demand delivery of the goods
in substitution for the documents.

§ 2-320. C.LF. and C. & F. Terms. (1) The term C.I.F. means that
the price includes in a lump sum the cost of the goods and the insurance
and freight to the named destination. The term C. & F. or C.F. means
that the price so includes cost and freight to the named destination.

(2) Unless otherwise agreed and even though used only in connection
with the stated price and destination, the term C.I.F. destination or its
equivalent requires the seller at his own expense and risk to

(a) put the goods into the possession of a carrier at the port for ship-
ment and obtain a negotiable bill or bills of lading covering the entire trans-
portation to the named destination; and

(b) load the goods and obtain a receipt from the carrier (which may
be contained in the bill of lading) showing that the freight has been paid
or provided for; and

(c) obtain a policy or certificate of insurance, including any war risk
insurance, of a kind and on terms then current at the port of shipment in
the usual amount, in the currency of the contract, shown to cover the same
goods covered by the bill of lading and providing for payment of loss to the
order of the buyer or for the account of whom it may concern; but the
seller may add to the price the amount of the premium for any such war
risk insurance; and

(d) prepare an invoice of the goods and procure any other documents
required to effect shipment or to comply with the contract; and

(e) forward and tender with commercial promptness all the docu-
ments in due form and with any indorsement necessary to perfect the
buyer’s rights.

(3) Unless otherwise agreed the term C. & F. or its equivalent has
the same effect and imposes upon the seller the same obligations and risks
as a C.I.F. term except the obligation as to insurance.

(4) Under the term C.I.F. or C. & F. unless otherwise agreed the
buyer must make payment against tender of the required documents and
the seller may not tender nor the buyer demand delivery of the goods in
substitution for the documents.

2-321. C.LF. or C. & F.: “Net Landed Weights”; “Payment on Ar-
rival”; Warranty of Condition on Arrival. Under a contract containing a
term C.1LF. or C. & F.

(1) Where the price is based on or is to be adjusted according to “net
landed weights”, ‘delivered weights”, “out turn” quantity or quality or
the like, unless otherwise agreed the seller must reasonably estimate the
price. The payment due on tender of the documents called for by the con-
tract is the amount so estimated, but after final adjustment of the price
a settlement must be made with commercial promptness.

(2) An agreement described in subsection (1) or any warranty of
quality or condition of the goods on arrival places upon the seller the risk
of ordinary deterioration, shrinkage and the like in transportation but has
no effect on the place or time of identification to the contract for sale or
delivery or on the passing of the risk of loss.

(3) Unless otherwise agreed where the contract provides for payment
ou or after arrival of the goods the seller must before payment allow such
preliminary inspection as is feasible; but if the goods are lost delivery
of the documents and payment are due when the goods should have arrived.

§ 2-322. Delivery “Ex-Ship”. (1) Unless otherwise agreed a term for
delivery of goods ‘‘ex-ship’”’ (which means from the carrying vessel) or in
equivalent language is not restricted to a particular ship and requires de-
livery from a ship which has reached a place at the named port of destina-
tion where goods of the kind are usually discharged.

(2) Under such a term unless otherwise agreed

(a) the seller must discharge all liens arising out of the carriage and
furnish the buyer with a direction which puts the carrier under a duty
to deliver the goods; and

(b) the risk of loss does not pass to the buyer until the goods leave
the ship’s tackle or are otherwise properly unloaded.

2-323. Form of Bill of Lading Required in Overseas Shipment;
“Overseas”. (1) Where the contract contemplates overseas shipment and
contains a term C.I.F. or C. &. F. or F.O.B. vessel, the seller unless other-
wise agreed must obtain a negotiable bill of lading stating that the goods
have been loaded on board or, in the case of a term C.I.F. or C. & F., re-
ceived for shipment.

(2) Where in a case within subsection (1) a bill of lading has been
issued in a set of parts, unless otherwise agreed if the documents are not
to be sent from abroad the buyer may demand tender of the full set; other-
wise only one part of the bill of lading need be tendered. Even if the agree-
ment expressly requires a full set

(a) due tender of a single part is acceptable within the provisions of
this Article on cure of improper delivery (subsection (1) of § 2-508); and

(b) even though the full set is demanded, if the documents are sent
from abroad the person tendering an incomplete set may nevertheless re-
quire payment upon furnishing an indemnity which the buyer in good
faith deems adequate.

(3) A shipment by water or by air or a contract contemplating such
shipment is “overseas” insofar as by usage of trade or agreement it is
subject to the commercial, financing or shipping practices characteristic of
international deep water commerce.

§ 2-324. “No Arrival, No Sale” Term. Under a term “no arrival, no
sale” or terms of like meaning, unless otherwise agreed,

(a) the seller must properly ship conforming goods and if they arrive
by any means he must tender them on arrival but he assumes no obliga-
tion that the goods will arrive unless he has caused the non-arrival; and

(b) where without fault of the seller the goods are in part lost or have
so deteriorated as no longer to conform to the contract or arrive after the
contract time, the buyer may proceed as if there had been casualty to iden-
tified goods (§ 2-613).

§ 2-325. “Letter of Credit” Term; “Confirmed Credit”. (1) Failure
of the buyer seasonably to furnish an agreed letter of credit is a breach
of the contract for sale.

(2) The delivery to seller of a proper letter of credit suspends the
buyer’s obligation to pay. If the letter of credit is dishonored, the seller
my on seasonable notification to the buyer require payment directly from

im.

(3) Unless otherwise agreed the term “letter of credit” or ‘“‘banker’s

credit” in a contract for sale means an irrevocable credit issued by a financ-
ing agency of good repute and, where the shipment is overseas, of goo
international repute. The term “confirmed credit” means that the credi
must also carry the direct obligation of such an agency which does busines:
in the seller’s financial market.

§ 2-326. Sale on Approval and Sale or Return; Consignment Sale:
and Rights of Creditors. (1) Unless otherwise agreed, if delivered good:
may be returned by the buyer even though they conform to the contract
the transaction is

(a) a “sale on approval” if the goods are delivered primarily fo)
use an

(b) a “sale or return” if the goods are delivered primarily for resale

(2) Except as provided in subsection (3), goods held on approval are
not subject to the claims of the buyer’s creditors until acceptance; goods
held on sale or return are subject to such claims while in the buyer’s pos-
session.

(3) Where goods are delivered to a person for sale and such person
maintains a place of business at which he deals in goods of the kind in-
volved, under a name other than the name of the person making delivery,
then with respect to claims of creditors of the person conducting the busi-
ness the goods are deemed to be on sale or return. The provisions of this
subsection are applicable even though an agreement purports to reserve
title to the person making delivery until payment or resale or uses such
words as “on consignment” or ‘on memorandum’. However, this sub-
section is not applicable if the person making delivery

(a) complies with an applicable law providing for a consignor’s in-
terest or the like to be evidenced by a sign, or

(b) establishes that the person conducting the business is generally
known by his creditors to be substantially engaged in selling the goods of
others, or

(c) complies with the filing provisions of the Article on Secured
Transactions (Article 9).

(4) Any “or return” term of a contract for sale is to be treated as a
separate contract for sale within the statute of frauds section of this
Article (§ 2-201) and as contradicting the sale aspect of the contract with-
in the provisions of this Article on parol or extrinsic evidence (§ 2-202).

2-327. Special Incidents of Sale on Approval and Sale or Return.
(1) Under a sale on approval unless otherwise agreed

(a) although the goods are identified to the contract the risk of loss
and the title do not pass to the buyer until acceptance; and

(b) use of the goods consistent with the purpose of trial is not accept-
ance but failure seasonably to notify the seller of election to return the
zoods 1s acceptance, and if the goods conform to the contract acceptance
of any part is acceptance of the whole; and

(c) after due notification of election to return, the return is at the
seller’s risk and expense but a merchant buyer must follow any reasonable
instructions.

(2) Under a sale or return unless otherwise agreed

(a) the option to return extends to the whole or any commercial unit
of the goods while in substantially their original condition, but must he
2xercised seasonably; and

(b) the return is at the buyer’s risk and expense.

§ 2-328. Sale by Auction. (1) In a sale by auction if goods are put
1p in lots each lot is the subject of a separate sale.

(2) A sale by auction is complete when the auctioneer so announces
oy the fall of the hammer or in other customary manner. Where a bid is
made while the hammer is falling in acceptance of a prior bid the auctioneer
may in his discretion reopen the bidding or declare the goods sold under
the bid on which the hammer was falling.

(3) Such a sale is with reserve unless the goods are in explicit terms
put up without reserve. In an auction with reserve the auctioneer may
withdraw the goods at any time until he announces completion of the sale.
In an auction without reserve, after the auctioneer calls for bids on an
article or lot, that article or lot cannot be withdrawn unless no bid is made
within a reasonable time. In either case a bidder may retract his bid until
the auctioneer’s announcement of completion of the sale, but a bidder’s
retraction does not revive any previous bid.

(4) If the auctioneer knowingly receives a bid on the seller’s behalf
or the seller makes or procures such a bid, and notice has not been given
that liberty for such bidding is reserved, the buyer may at his option avoid
the sale or take the goods at the price of the last good faith bid prior to the
completion of the sale. This subsection shall not apply to any bid at a
forced sale.

PART 4

TITLE, CREDITORS AND GOOD FAITH PURCHASERS

§ 2-401. Passing of Title; Reservation for Security; Limited Applica-
tion of This Section. Each provision of this Article with regard to the
rights, obligations and remedies of the seller, the buyer, purchasers or
other third parties applies irrespective of title to the goods except where
the provision refers to such title. Insofar as situations are not covered by
the other provisions of this Article and matters concerning title become
material the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to their
identification to the contract (§ 2-501), and unless otherwise explicitly
agreed the buyer acquires by their identification a special property as
limited by this Act. Any retention or reservation by the seller of the title
(property) in goods shipped or delivered to the buyer is limited in effect
to a reservation of a security interest. Subject to these provisions and to
the provisions of the Article on Secured Transactions (Article 9), title to
goods passes from the seller to the buyer in any manner and on any condi-
tions explicitly agreed on by the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at
the time and place at which the seller completes his performance with
reference to the physical delivery of the goods, despite any reservation of
a security interest and even though a document of title is to be delivered
at a different time or place; and in particular and despite any reservation
of a security interest by the bill of lading

(a) if the contract requires or authorizes the seller to send the goods
to the buyer but does not require him to deliver them at destination, title
passes to the buyer at the time and place of shipment; but

(b) if the contract requires delivery at destination, title passes on
tender there.

(3) Unless otherwise explicitly agreed where delivery is to be made
without moving the goods,

(a) if the seller is to deliver a document of title, title passes at the
time when and the place where he delivers such documents; or

(b) if the goods are at the time of contracting already identified and
no documents are to be delivered, title passes at the time and place of
contracting.

(4) A rejection or other refusal by the buyer to receive or retain the
goods, whether or not justified, or a justified revocation of acceptance, re-
vests title to the goods in the seller. Such revesting occurs by operation
of law and is not a “sale”.

§ 2-402. Rights of Seller’s Creditors Against Sold Goods. (1) Except
as provided in subsections (2) and (8), rights of unsecured creditors of
the seller with respect to goods which have been identified to a contrac!
for sale are subject to the buyer’s rights to recover the goods under thi:
Article (§§ 2-502 and 2-716).

(2) A creditor of the seller may treat a sale or an identification o:
goods to a contract for sale as void if as against him a retention uf posses
sion by the seller is fraudulent under any rule of law of the state where
the goods are situated, except that retention of possession in good fait!
and current course of trade by a merchant-seller for a commercially rea-.
sonable time after a sale or identification is not fraudulent.

(3) Nothing in this Article shall be deemed to impair the rights o!
creditors of the seller

(a) under the provisions of the Article on Secured Transactions
(Article 9); or

(b) where identification to the contract or delivery is made not ir
current course of trade but in satisfaction of or as security for a pre-
existing claim for money, security or the like and is made under circum-
stances which under any rule of law of the state where the goods are
situated would apart from this Article constitute the transaction a fraudu-
lent transfer or voidable preference.

§ 2-403. Power to Transfer; Good Faith Purchase of Goods; “En-
trusting”. (1) A purchaser of goods acquires all title which his trans-
feror had or had power to transfer except that a purchaser of a limited
interest acquires rights only to the extent of the interest purchased. A
person with voidable title has power to transfer a good title to a good
faith purchaser for value. When goods have been delivered under a trans-
action of purchase the purchaser has such power even though

(a) the transferor was deceived as to the identity of the purchaser, or

(b) the delivery was in exchange for a check which is later dis-
honored, or

(c) it was agreed that the transaction was to be a “cash sale’, or

(d) the delivery was procured through fraud punishable as larcenous
under the criminal law.

(2) Any entrusting of possession of goods to a merchant who deals
in goods of that kind gives him power to transfer all rights of the entruster
to a buyer in ordinary course of business.

(3) “Entrusting” includes any delivery and any acquiescence in reten-
tion of possession regardless of any condition expressed between the par-
ties to the delivery or acquiescence and regardless of whether the procure-
ment of the entrusting or the possessor’s disposition of the goods have been
such as to be larcenous under the criminal law.

(4) The rights of other purchasers of goods and of lien creditors are
governed by the Articles on Secured Transactions (Article 9), Bulk Trans-
fers (Article 6) and Documents of Title (Article 7).

PART 5
PERFORMANCE

§ 2-501. Insurable Interest in Goods; Manner of Identification of
Goods. (1) The buyer obtains a special property and an insurable interest
in goods by identification of existing goods as goods to which the contract
refers even though the goods so identified are non-conforming and he has
an option to return or reject them. Such identification can be made at any
time and in any manner explicitly agreed to by the parties. In the absence
of explicit agreement identification occurs

(a) when the contract is made if it is for the sale of goods already
existing and identified;

(b) if the contract is for the sale of future goods other than those
described in paragraph (c), when goods are shipped, marked or otherwise
designated by the seller as goods to which the contract refers;
(c) when the crops are planted or otherwise become growing crops
or the young are conceived if the contract is for the sale of unborn young
to be born within twelve months after contracting or for the sale of crops
to be harvested within twelve months or the next normal harvest season
after contracting whichever is longer.

(2) The seller retains an insurable interest in goods so long as title
to or any security interest in the goods remains in him and where the iden-
tification is by the seller alone he may until default or insolvency or notifi-
cation to the buyer that the identification is final substitute other goods for
those identified.

(3) Nothing in this section impairs any insurable interest recognized
under any other statute or rule of law.

§ 2-502. Buyer’s Right to Goods on Seller’s Insolvency. (1) Subject
to subsection (2) and even though the goods have not been shipped a
buyer who has paid a part or all of the price of goods in which he has a
special property under the provisions of the immediately preceding section
may on making and keeping good a tender of any unpaid portion of their
price recover them from the seller if the seller becomes insolvent within
ten days after receipt of the first installment on their price.

(2) If the identification creating his special property has been made
by the buyer he acquires the right to recover the goods only if they con-
form to the contract for sale.

§ 2-503. Manner of Seller’s Tender of Delivery. (1)Tender of delivery
requires that the seller put and hold conforming goods at the buyer’s dis-
position and give the buyer any notification reasonably necessary to enable
him to take delivery. The manner, time and place for tender are determined
by the agreement and this Article, and in particular

(a) tender must be at a reasonable hour, and if it is of goods they
must be kept available for the period reasonably necessary to enable the
buyer to take possession; but

(b) unless otherwise agreed the buyer must furnish facilities reason-
ably suited to the receipt of the goods.

(2) Where the case is within the next section respecting shipment
tender requires that the seller comply with its provisions.

(3) Where the seller is required to deliver at a particular destination
tender requires that he comply with subsection (1) and also in any appro-
priate case tender documents as described in subsections (4) and (5) of
this section.

(4) Where goods are in the possession of a bailee and are to be
delivered without being moved

(a) tender requires that the seller either tender a negotiable docu-
ment of title covering such goods or procure acknowledgment by the
bailee of the buyer’s right to possession of the goods; but

(b) tender to the buyer of a non-negotiable document of title or of
a written direction to the bailee to deliver is sufficient tender unless the
buyer seasonably objects, and receipt by the bailee of notification of the
buyer’s rights fixes those rights as against the bailee and all third persons;
but risk of loss of the goods and of any failure by the bailee to honor the
non-negotiable document of title or to obey the direction remains on the
seller until the buyer has had a reasonable time to present the document
or direction, and a refusal by the bailee to honor the document or to obey
the direction defeats the tender.

(5) Where the contract requires the seller to deliver documents

(a) he must tender all such documents in correct form, except as pro-
vided in this Article with respect to bills of lading in a set (subsection (2)
of § 2-323); and

(b) tender through customary banking channels is sufficient and dis-
honor of a draft accompanying the documents constitutes non-acceptance
or rejection.

§ 2-504. Shipment by Seller. Where the seller is required or author-
ized to send the goods to the buyer and the contract does not require him
to deliver them at a particular destination, then unless otherwise agreed

e must

(a) put the goods in the possession of such a carrier and make such
a contract for their transportation as may be reasonable having regard
to the nature of the goods and other circumstances of the case; and

(b) obtain and promptly deliver or tender in due form any document
necessary to enable the buyer to obtain possession of the goods or other-
wise required by the agreement or by usage of trade; and

(c) promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper
contract under paragraph (a) is a ground for rejection only if material
delay or loss ensues.

§ 2-505. Seller’s Shipment Under Reservation. (1) Where the seller
has identified goods to the contract by or before shipment:

(a) his procurement of a negotiable bill of lading to his own order
or otherwise reserves in him a security interest in the goods. His procure-
ment of the bill to the order of a financing agency or of the buyer indicates
in addition only the seller’s expectation of transferring that interest to
the person named.

(b) a non-negotiable bill of lading to himself or his nominee reserves
possession of the goods as security but except in a case of conditional
delivery (subsection (2) of § 2-507) a non-negotiable bill of lading naming
the buyer as consignee reserves no security interest even though the seller
retains possession of the bill of lading.

(2) When shipment by the seller with reservation of a security in-
terest is in violation of the contract for sale it constitutes an improper
contract for transportation within the preceding section but impairs neither
the rights given to the buyer by shipment and identification of the goods
to the contract nor the seller’s powers as a holder of a negotiable document.

§ 2-506. Rights of Financing Agency. (1) A financing agency by
paying or purchasing for value a draft which relates to a shipment of goods
acquires to the extent of the payment or purchase and in addition to its
own rights under the draft and any document of title securing it any rights
of the shipper in the goods including the right to stop delivery and the
shipper’s right to have the draft honored by the buyer.

(2) The right to reimbursement of a financing agency which has in
good faith honored or purchased the draft under commitment to or au-
thority from the buyer is not impaired by subsequent discovery of defects
with reference to any relevant document which was apparently regular on
its face.

2-507. Effect of Seller’s Tender; Delivery on Condition. (1) Tender
of delivery is a condition to the buyer’s duty to accept the goods and, unless
otherwise agreed, to his duty to pay for them. Tender entitles the seller
to acceptance of the goods and to payment according to the contract.

(2) Where payment is due and demanded on the delivery to the buyer
of goods or documents of title, his right as against the seller to retain or
dispose of them is conditional upon his making the payment due.

§ 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.
(1) Where any tender or delivery by the seller is rejected because non-
conforming and the time for performance has not yet expired, the seller
may seasonably notify the buyer of his intention to cure and may then
within the contract time make a conforming delivery.

(2) Where the buyer rejects a non-conforming tender which the seller
had reasonable grounds to believe would be acceptable with or without
money allowance the seller may if he seasonably notifies the buyer have a
further reasonable time to substitute a conforming tender.

§ 2-509. Risk of Loss in the Absence of Breach. (1) Where the con-
tract requires or authorizes the seller to ship the goods by carrier

(a) if it does not require him to deliver them at a particular destina-
tion, the risk of loss passes to the buyer when the goods are duly delivered
to the carrier even though the shipment is under reservation (§ 2-505) ; but

(b) if it does require him to deliver them at a particular destination
and the goods are there duly tendered while in the possession of the carrier,
the risk of loss passes to the buyer when the goods are there duly so ten-
dered as to enable the buyer to take delivery.

(2) Where the goods are held by a bailee to be delivered without being
moved, the risk of loss passes to the buyer

(a) on his receipt of a negotiable document of title covering the
goods; or

(b) on acknowledgment by the bailee of the buyer’s right to posses-
sion of the goods; or

(c) after his receipt of a non-negotiable document of title or other
written direction to deliver, as provided in subsection (4) (b) of § 2-503.

In any case not within subsection (1) or (2), the risk of loss
passes to the buyer on his receipt of the goods if the seller is a merchant;
otherwise the risk passes to the buyer on tender of delivery.

(4) The provisions of this section are subject to contrary agreement
of the parties and to the provisions of this Article on sale on approval
(§ 2-827) and on effect of breach on risk of loss (§ 2-510).

§ 2-510. Effect of Breach on Risk of Loss. (1) Where a tender or
delivery of goods so fails to conform to the contract as to give a right of
rejection the risk of their loss remains on the seller until cure or acceptance.

(2) Where the buyer rightfully revokes acceptance he may to the
extent of any deficiency in his effective insurance coverage treat the risk
of loss as having rested on the seller from the beginning.

(3) Where the buyer as to conforming goods already identified to
the contract for sale repudiates or is otherwise in breach before risk of
their loss has passed to him, the seller may to the extent of any deficiency
in his effective insurance coverage treat the risk of loss as resting on the
buyer for a commercially reasonable time.

§ 2-511. Tender of Payment by Buyer; Payment by Check. (1) Un-
less otherwise agreed tender of payment is a condition to the seller’s duty
to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in
any manner current in the ordinary course of business unless the seller
demands payment in legal tender and gives any extension of time reason-
ably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an instru-
ment on an obligation (§ 3-802), payment by check is conditional and is
defeated as between the parties by dishonor of the check on due present-
ment.

§ 2-512. Payment by Buyer Before Inspection. (1) Where the contract
requires payment before inspection non-conformity of the goods does not
excuse the buyer from so making payment unless

(a) the non-conformity appears without inspection; or

(b) despite tender of the required documents the circumstances would
justify injunction against honor under the provisions of this Act (§ 5-114).

(2) Payment pursuant to subsection (1) does not constitute an ac-
ceptance of goods or impair the buyer’s right to inspect or any of his
remedies.
§ 2-513. Buyer’s Right to Inspection of Goods. (1) Unless otherwise
agreed and subject to subsection (3), where goods are tendered or delivered
or identified to the contract for sale, the buyer has a right before payment
or acceptance to inspect them at any reasonable place and time and in any
reasonable manner. When the seller is required or authorized to send the
goods to the buyer, the inspection may be after their arrival.

(2) Expenses of inspection must be borne by the buyer but may be
recovered from the seller if the goods do not conform and are rejected.

(3) Unless otherwise agreed and subject to the provisions of this
Article on C.I.F. contracts (subsection (8) of § 2-321), the buyer is not
entitled to inspect the goods before payment of the price when the con-
tract provides

(a) for delivery “C.O.D.” or on other like terms; or

(b) for payment against documents of title, except where such pay-
ment is due only after the goods are to become available for inspection.

(4) A place or method of inspection fixed by the parties is presumed
to be exclusive but unless otherwise expressly agreed it does not postpone
identification or shift the place for delivery or for passing the risk of loss.
If compliance becomes impossible, inspection shall be as provided in this
section unless the place or method fixed was clearly intended as an in-
dispensable condition failure of which avoids the contract.

§ 2-514. When Documents Deliverable on Acceptance; When on Pay-
ment. Unless otherwise agreed documents against which a draft is drawn
are to be delivered to the drawee on acceptance of the draft if it is payable
more than three days after presentment; otherwise, only on payment.

§ 2-515. Preserving Evidence of Goods in Dispute. In furtherance of
the adjustment of any claim or dispute

(a) either party on reasonable notification to the other and for the
purpose of ascertaining the facts and preserving evidence has the right to
inspect, test and sample the goods including such of them as may be in
the possession or control of the other; and

(b) the parties may agree to a third party inspection or survey to
determine the conformity or condition of the goods and may agree that
the findings shall be binding upon them in any subsequent litigation or
adjustment.

PART 6
BREACH, REPUDIATION AND EXCUSE

§ 2-601. Buyer’s Rights on Improper Delivery. Subject to the pro-
visions of this Article on breach in installment contracts (§ 2-612) and
unless otherwise agreed under the sections on contractual limitations of
remedy (§§ 2-718 and 2-719), if the goods or the tender of delivery fail in
any respect to conform to the contract, the buyer may

(a) reject the whole; or

(b) accept the whole: or

(c) accept any commercial unit or units and reject the rest.

§ 2-602. Manner and Effect of Rightful Rejection. (1) Rejection of
goods must be within a reasonable time after their delivery or tender. It
is ineffective unless the buyer seasonably notifies the seller.

(2) Subject to the provisions of the two following sections on rejected
goods (§§ 2-603 and 2-604),

(a) after rejection any exercise of ownership by the buyer with
respect to any commercial unit is wrongful as against the seller; and

(b) if the buyer has before rejection taken physical possession of
goods in which he does not have a security interest under the provisions
of this Article (subsection (3) of § 2-711), he is under a duty after rejec-
tion to hold them with reasonable care at the seller’s disposition for a time
sufficient to permit the seller to remove them; but
(c) the buyer has no further obligations with regard to goods right-
fully rejected.

(3) The seller’s rights with respect to goods wrongfully rejected are
governed by the provisions of this Article on Seller’s remedies in general
(§ 2-703).

: 2-603. Merchant Buyer’s Duties as to Rightfully Rejected Goods.
(1) Subject to any security interest in the buyer (subsection (3) of § 2-
711), when the seller has no agent or place of business at the market of
rejection a merchant buyer is under a duty after rejection of goods in his
possession or control to follow any reasonable instructions received from
the seller with respect to the goods and in the absence of such instructions
to make reasonable efforts to sell them for the seller’s account if they are
perishable or threaten to decline in value speedily. Instructions are not
reasonable if on demand indemnity for expenses is not forthcoming.

(2) When the buyer sells goods under subsection (1), he is entitled
to reimbursement from the seller or out of the proceeds for reasonable ex-
penses of caring for and selling them, and if the expenses include no selling
commission then to such commission as is usual in the trade or if there is
none to a reasonable sum not exceeding ten per cent on the gross proceeds.

(3) In complying with this section the buyer is held only to good
faith and good faith conduct hereunder is neither acceptance nor conver-
sion nor the basis of an action for damages.

§ 2-604. Buyer’s Options as to Salvage of Rightfully Rejected Goods.
Subject to the provisions of the immediately preceding section on perish-
ables if the seller gives no instructions within a reasonable time after
notification of rejection the buyer may store the rejected goods for the
seller’s account or reship them to him or resell them for the seller’s account
with reimbursement as provided in the preceding section. Such action is
not acceptance or conversion.

§ 2-605. Waiver of Buyer’s Objections by Failure to Particularize.
(1) The buyer’s failure to state in connection with rejection a particular
defect which is ascertainable by reasonable inspection precludes him from
relying on the unstated defect to justify rejection or to establish breach

(a) where the seller could have cured it if stated seasonably; or

(b) between merchants when the seller has after rejection made a
request in writing for a full and final written statement of all defects on
which the buyer proposes to rely.

(2) Payment against documents made without reservation of rights
precludes recovery of the payment for defects apparent on the face of
the documents.

§ 2-606. What Constitutes Acceptance of Goods. (1) Acceptance of
goods occurs when the buyer

(a) after a reasonable opportunity to inspect the goods signifies to
the seller that the goods are conforming or that he will take or retain
them in spite of their non-conformity; or

(b) fails to make an effective rejection (subsection (1) of § 2-602),
but such acceptance does not occur until the buyer has had a reasonable
opportunity to inspect them; or

(c) does any act inconsistent with the seller’s ownership; but if such
act is wrongful as against the seller it is an acceptance only if ratified

y him.
(2) Acceptance of a part of any commercial unit is acceptance of
that entire unit.

2-607. Effect of Acceptance; Notice of Breach; Burden of Estab-
lishing Breach After Acceptance; Notice of Claim or Litigation to Person
Answerable Over. (1) The buyer must pay at the contract rate for any
goods accepted.
(2) Acceptance of goods by the buyer precludes rejection of the goods
accepted and if made with knowledge of a non-conformity cannot be re-
voked because of it unless the acceptance was on the reasonable assump-
tion that the non-conformity would be seasonably cured but acceptance
does not of itself impair any other remedy provided by this Article for
non-conformity.

(3) Where a tender has been accepted

(a) the buyer must within a reasonable time after he discovers or
should have discovered any breach notify the seller of breach or be barred
from any remedy; and

(b) if the claim is one for infringement or the like (subsection (3)
of § 2-312) and the buyer is sued as a result of such a breach he must so
notify the seller within a reasonable time after he receives notice of the
litigation or be barred from any remedy over for liability established by
the litigation.

(4) The burden is on the buyer to establish any breach with respect
to the goods accepted.

(5) Where the buyer is sued for breach of a warranty or other obli-
gation for which his seller is answerable over

(a) he may give his seller written notice of the litigation. If the
notice states that the seller may come in and defend and that if the seller
does not do so he will be bound in any action against him by his buyer by
any determination of fact common to the two litigations, then unless the
tong — seasonable receipt of the notice does come in and defend he is
so bound.

(b) if the claim is one for infringement or the like (subsection (3)
of § 2-312) the original seller may demand in writing that his buyer turn
over to him control of the litigation including settlement or else be barred
from any remedy over and if he also agrees to bear all expense and to
satisfy any adverse judgment, then unless the buyer after seasonable re-
ceipt of the demand does turn over control the buyer is so barred.

(6) The provisions of subsections (3), (4) and (5) apply to any obli-
gation of a buyer to hold the seller harmless against infringement or the
like (subsection (3) of § 2-312).

§ 2-608. Revocation of Acceptance in Whole or in Part. (1) The
buyer may revoke his acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be
cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance
or by the seller’s assurances.

(2) Revocation of acceptance must occur within a reasonable time
after the buyer discovers or should have discovered the ground for it and
before any substantial change in condition of the goods which is not caused
by their own defects. It is not effective until the buyer notifies the seller
of it.

(3) A buyer who so revokes has the same rights and duties with re-
gard to the goods involved as if he had rejected them.

§ 2-609. Right to Adequate Assurance of Performance. (1) A con-
tract for sale imposes an obligation on each party that the other’s expecta-
tion of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either
party the other may in writing demand adequate assurance of due per-
formance and until he receives such assurance may if commercially rea-
sonable suspend any performance for which he has not already received
the agreed return.
(2) Between merchants the reasonableness of grounds for insecurity
and the adequacy of any assurance offered shall be determined according
to commercial standards.

(3) Acceptance of any improper delivery or payment does not preju-
dice the aggrieved party’s right to demand adequate assurance of future
performance.

(4) After receipt of a justified demand failure to provide within a
reasonable time not exceeding thirty days such assurance of due per-
formance as is adequate under the circumstances of the particular case is
a repudiation of the contract.

2-610. Anticipatory Repudiation. When either party repudiates the
contract with respect to a performance not yet due the loss of which will
substantially impair the value of the contract to the other, the aggrieved
party may

(a) for a commercially reasonable time await performance by the re-
pudiating party; or

(b) resort to any remedy for breach (§ 2-703 or § 2-711), even though
he has notified the repudiating party that he would await the latter’s per-
formance and has urged retraction; and

(c) in either case suspend his own performance or proceed in accord-
ance with the provisions of this Article on the seller’s right to identify
egal - contract notwithstanding breach or to salvage unfinished goods
(§ 2- ;

§ 2-611. Retraction of Anticipatory Repudiation. (1) Until the re-
pudiating party’s next performance is due he can retract his repudiation
unless the aggrieved party has since the repudiation cancelled or materially
Tee aed = position or otherwise indicated that he considers the repudia-
tion :

(2) Retraction may be by any method which clearly indicates to the
aggrieved party that the repudiating party intends to perform, but must
include any assurance justifiably demanded under the provisions of this
Article (§ 2-609).

(3) Retraction reinstates the repudiating party’s rights under the
contract with due excuse and allowance to the aggrieved party for any
delay occasioned by the repudiation.

§ 2-612. “Installment Contract”; Breach. (1) An “installment con-
tract’’ is one which requires or authorizes the delivery of goods in separate
lots to be separately accepted, even though the contract contains a clause
“each delivery is a separate contract” or its equivalent.

(2) The buyer may reject any installment which is non-conforming
if the non-conformity substantially impairs the value of that installment
and cannot be cured or if the non-conformity is a defect in the required
documents; but if the non-conformity does not fall within subsection (3)
and the seller gives adequate assurance of its cure the buyer must accept
that installment.

(3) Whenever non-conformity or default with respect to one or more
installments substantially impairs the value of the whole contract there
is a breach of the whole. But the aggrieved party reinstates the contract
if he accepts a non-conforming installment without seasonably notifying
of cancellation or if he brings an action with respect only to past install-
ments or demands performance as to future installments.

§ 2-613. Casualty to Identified Goods. Where the contract requires
for its performance goods identified when the contract is made, and the
goods suffer casualty without fault of either party before the risk of loss
passes to the buyer, or in a proper case under a “no arrival, no sale” term
(§ 2-324) then

(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer
to conform to the contract the buyer may nevertheless demand inspection
and at his option either treat the contract as avoided or accept the goods
with due allowance from the contract price for the deterioration or the
deficiency in quantity but without further right against the seller.

§ 2-614. Substituted Performance. (1) Where without fault of either
party the agreed berthing, loading, or unloading facilities fail or an agreed
type of carrier becomes unavailable or the agreed manner of delivery
otherwise becomes commercially impracticable but a commercially reason-
able substitute is available, such substitute performance must be tendered
and accepted.

(2) If the agreed means or manner of payment fails because of do-
mestic or foreign governmental regulation, the seller may withhold or stop
delivery unless the buyer provides a means or manner of payment which
is commercially a substantial equivalent. If delivery has already been
taken, payment by the means or in the manner provided by the regulation
discharges the buyer’s obligation unless the regulation is discriminatory,
oppressive or predatory

§ 2-615. Excuse by Failure of Presupposed Conditions. Except so far
as a seller may have assumed a greater obligation and subject to the pre-
ceding section on substituted performance:

(a) Delay in delivery or non-delivery in whole or in part by a seller
who complies with paragraphs (b) and (c) is not a breach of his duty
under a contract for sale if performance as agreed has been made imprac-
ticable by the occurrence of a contingency the non-occurrence of which
was a basic assumption on which the contract was made or by compliance
in good faith with any applicable foreign or domestic governmental regu-
lation or order whether or not it later proves to be invalid.

(b) Where the causes mentioned in paragraph (a) affect only a part
of the seller’s capacity to perform, he must allocate production and deliver-
ies among his customers but may at his option include regular customers
not then under contract as well as his own requirements for further manu-
facture. He may so allocate in any manner which is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be
delay or non-delivery and, when allocation is required under paragraph
(b), of the estimated quota thus made available for the buyer.

§ 2-616. Procedure on Notice Claiming Excuse. (1) Where the buyer
receives notification of a material or indefinite delay or an allocation justi-
fied under the preceding section he may by written notification to the
seller as to any delivery concerned, and where the prospective deficiency
substantially impairs the value of the whole contract under the provisions
of this Article relating to breach of installment contracts (§ 2-612), then
also as to the whole,

(a) terminate and thereby discharge any unexecuted portion of the
contract; or

(b) modify the contract by agreeing to take his available quota in
substitution.

(2) If after receipt of such notification from the seller the buyer fails
so to modify the contract within a reasonable time not exceeding thirty
days the contract lapses with respect to any deliveries affected.

(3) The provisions of this section may not be negated by agreement
except in so far as the seller has assumed a greater obligation under the
preceding section.

PART 7

REMEDIES

§ 2-701. Remedies for Breach of Collateral Contracts Not Impaired.
Remedies for breach of any obligation or promise collateral or ancillary to
a contract for sale are not impaired by the provisions of this Article.

§ 2-702. Seller’s Remedies on Discovery of Buyer’s Insolvency. (1)
Where the seller discovers the buyer to be insolvent he may refuse delivery
except for cash including payment for all goods theretofore delivered under
the contract, and stop delivery under this Article (§ 2-705).

(2) Where the seller discovers that the buyer has received goods on
credit while insolvent he may reclaim the goods upon demand made within
ten days after the receipt, but if misrepresentation of solvency has been
made to the particular seller in writing within three months before delivery
the ten day limitation does not apply. Except as provided in this subsec-
tion the seller may not base a right to reclaim goods on the buyer’s fraudu-
lent or innocent misrepresentation of solvency or of intent to pay.

(3) The seller’s right to reclaim under subsection (2) is subject to
the rights of a buyer in ordinary course or other good faith purchaser or
lien creditor under this Article (§ 2-403). Successful reclamation of goods
excludes all other remedies with respect to them.

§ 2-703. Seller’s Remedies in General. Where the buyer wrongfully
rejects or revokes acceptance of goods or fails to make a payment due on
or before delivery or repudiates with respect to a part or the whole, then
with respect to any goods directly affected and, if the breach is of the
whole contract (§ 2-612), then also with respect to the whole undelivered
balance, the aggrieved seller may

(a) withhold delivery of such goods;

(b) stop delivery by any bailee as hereafter provided (§ 2-705) ;

(c) proceed under the next section respecting goods still unidentified
to the contract;

(d) resell and recover damages as hereafter provided (§ 2-706) ;

(e) recover damages for non-acceptance (§ 2-708) or in a proper case
the price (§ 2-709);

(f) cancel.

2-704. Seller’s Right to Identify Goods to the Contract Notwith-
standing Breach or to Salvage Unfinished Goods. (1) An aggrieved seller
under the preceding section may

(a) identify to the contract conforming goods not already identified
if at the time he learned of the breach they are in his possession or control;

(b) treat as the subject of resale goods which have demonstrably
peen intended for the particular contract even though those goods are un-

nished.

(2) Where the goods are unfinished an aggrieved seller may in the
exercise of reasonable commercial judgment for the purposes of avoiding
loss and of effective realization either complete the manufacture and wholly
identify the goods to the contract or cease manufacture and resell for
scrap or salvage value or proceed in any other reasonable manner.

§ 2-705. Seller’s Stoppage of Delivery in Transit or Otherwise. (1) The
seller may stop delivery of goods in the possession of a carrier or other
bailee when he discovers the buyer to be insolvent (§ 2-702) and may stop
delivery of carload, truckload, planeload or larger shipments of express or
freight when the buyer repudiates or fails to make a payment due before
delivery or if for any other reason the seller has a right to withhold or re-
claim the goods.

(2) As against such buyer the seller may stop delivery until

(a) receipt of the goods by the buyer; or

(b) acknowledgment to the buyer by any bailee of the goods except
a carrier that the bailee holds the goods for the buyer; or

(c) such acknowledgment to the buyer by a carrier by reshipment
or as warehouseman; or

(d) negotiation to the buyer of any negotiable document of title
covering the goods.

(3) (a) To stop delivery the seller must so notify as to enable the
bailee by reasonable diligence to prevent delivery of the goods.

(b) After such notification the bailee must hold and deliver the goods
according to the directions of the seller but the seller is liable to the bailee
for any ensuing charges or damages.

(c) If a negotiable document of title has been issued for goods the
bailee is not obliged to obey a notification to stop until surrender of the
document. oo

(d) A carrier who has issued a non-negotiable bill of lading is not
obliged to obey a notification to stop received from a person other than
the consignor.

§ 2-706. Seller’s Resale Including Contract for Resale. (1) Under the
conditions stated in § 2-703 on seller’s remedies, the seller may resell the
goods concerned or the undelivered balance thereof. Where the resale is
made in good faith and in a commercially reasonable manner the seller
may recover the difference between the resale price and the contract price
together with any incidental damages allowed under the provisions of this
Article (§ 2-710), but less expenses saved in consequence of the buyer’s

reach.

(2) Except as otherwise provided in subsection (3) or unless other-
wise agreed resale may be at public or private sale including sale by way
of one or more contracts to sell or of identification to an existing contract
of the seller. Sale may be as a unit or in parcels and at any time and place
and on any terms but every aspect of the sale including the method, man-
ner, time, place and terms must be commercially reasonable. The resale
must be reasonably identified as referring to the broken contract, but it is
not necessary that the goods be in existence or that any or all of them
have been identified to the contract before the breach.

(3) Where the resale is at private sale the seller must give the buyer
reasonable notification of his intention to resell.

(4) Where the resale is at public sale

(a) only identified goods can be sold except where there is a recog-
nized market for a public sale of futures in goods of the kind; and

(b) it must be made at a usual place or market for public sale if one
is reasonably available and except in the case of goods which are perish-
able or threaten to decline in value speedily the seller must give the buyer
reasonable notice of the time and place of the resale; and

(c) if the goods are not to be within the view of those attending the
sale the notification of sale must state the place where the goods are
located and provide for their reasonable inspection by prospective bidders:
an

(d) the seller may buy.

(5) A purchaser who buys in good faith at a resale takes the goods
free of any rights of the original buyer even though the seller fails to
comply with one or more of the requirements of this section.

(6) The seller is not accountable to the buyer for any profit made on
any resale. A person in the position of a seller (§ 2-707) or a buyer who
has rightfully rejected or justifiably revoked acceptance must account for
any excess over the amount of his security interest, as hereinafter defined
(subsection (3) of § 2-711).

§ 2-707. “Person in the Position of a Seller’. (1) A “person in the
position of a seller” includes as against a principal an agent who has paid
or become responsible for the price of goods on behalf of his principal or
anyone who otherwise holds a security interest or other right in goods
similar to that of a seller.

(2) A person in the position of a seller may as provided in this Article
withhold or stop delivery (§ 2-705) and resell (§ 2-706) and recover inci-
dental damages (§ 2-710).

§ 2-708. Seller's Damages for Non-acceptance or Repudiation. (1)
Subject to subsection (2) and to the provisions of this Article with respect
to proof of market price (§ 2-723), the measure of damages for non-
acceptance or repudiation by the buyer is the difference between the mar-
ket price at the time and place for tender and the unpaid contract price
together with any incidental damages provided in this Article (§ 2-710),
but less expenses saved in consequence of the buyer’s breach.

(2) If the measure of damages provided in subsection (1) is inade-
quate to put the seller in as good a position as performance would have
done then the measure of damages is the profit (including reasonable over-
head) which the seller would have made from full performance by the
buyer, together with any incidental damages provided in this Article
(§ 2-710), due allowance for costs reasonably incurred and due credit for
payments or proceeds of resale.

§ 2-709. Action for the Price. (1) When the buyer fails to pay the
price as it becomes due the seller may recover, together with any inci-
dental damages under the next section, the price

(a) of goods accepted or of conforming goods lost or damaged within
a commercially reasonable time after risk of their loss has passed to the
buyer; and

(b) of goods identified to the contract if the seller is unable after rea-
sonable effort to resell them at a reasonable price or the circumstances
reasonably indicate that such effort will be unavailing.

(2) Where the seller sues for the price he must hold for the buyer
any goods which have been identified to the contract and are still in his
control except that if resale becomes possible he may resell them at any
time prior to the collection of the judgment. The net proceeds of any such
resale must be credited to the buyer and payment of the judgment en-
titles him to any goods not resold.

(3) After the buyer has wrongfully rejected or revoked acceptance
of the goods or has failed to make a payment due or has repudiated
(§ 2-610), a seller who is held not entitled to the price under this section
shall nevertheless be awarded damages for non-acceptance under the pre-
ceding section.

§ 2-710. Seller’s Incidental Damages. Incidental damages to an ag-
grieved seller include any commercially reasonable charges, expenses or
commissions incurred in stopping delivery, in the transportation, care and
custody of goods after the buyer’s breach, in connection with return or
resale of the goods or otherwise resulting from the breach.

§ 2-711. Buyer’s Remedies in General; Buyer’s Security Interest in
Rejected Goods. (1) Where the seller fails to make delivery or repudiates
or the buyer rightfully rejects or justifiably revokes acceptance then with
respect to any goods involved, and with respect to the whole if the breach
goes to the whole contract (§ 2-612), the buyer may cancel and whether or
not he has done so may in addition to recovering so much of the price as
has been paid

(a) ‘cover’ and have damages under the next section as to all the
goods affected whether or not they have been identified to the contract; or

(b) recover damages for non-delivery as provided in this Article (§ 2-

(2) Where the seller fails to deliver or repudiates the buyer may also

(a) if the goods have been identified recover them as provided in this
Article (§ 2-502); or

(b) in a proper case obtain specific performance or replevy the goods
as provided in this Article (§ 2-716).
(3) On rightful rejection or justifiable revocation of acceptance a
buyer has a security interest in goods in his possession or control for any
payments made on their price and any expenses reasonably incurred in
their inspection, receipt, transportation, care and custody and may hold
such goods and resell them in like manner as an aggrieved seller (§ 2-706).

2-712. “Cover”; Buyer’s Procurement of Substitute Goods. (1)
After a breach within the preceding section the buyer may “cover” by
making in good faith and without unreasonable delay any reasonable pur-
chase of or contract to purchase goods in substitution for those due from
the seller.

(2) The buyer may recover from the seller as damages the difference
between the cost of cover and the contract price together with any incl-
dental or consequential damages as hereinafter defined (§ 2-715), but less
expenses saved in consequence of the seller’s breach.

(3) Failure of the buyer to effect cover within this section does not
bar him from any other remedy.

§ 2-713. Buyer’s Damages for Non-Delivery or Repudiation. (1) Sub-
ject to the provisions of this Article with respect to proof of market price
(§ 2-723), the measure of damages for non-delivery or repudiation by the
seller is the difference between the market price at the time when the
buyer learned of the breach and the contract price together with any inci-
dental and consequential damages provided in this Article (§ 2-715), but
less expenses saved in consequence of the seller’s breach.

(2) Market price is to be determined as of the place for tender or,
in cases of rejection after arrival or revocation of acceptance, as of the
place of arrival.

§ 2-714. Buyer’s Damages for Breach in Regard to Accepted Goods.
(1) Where the buyer has accepted goods and given notification (subsection
(3) of § 2-607) he may recover as damages for any non-conformity of
tender the loss resulting in the ordinary course of events from the seller’s
breach as determined in any manner which is reasonable.

(2) The measure of damages for breach of warranty is the difference
at the time and place of acceptance between the value of the goods ac-
cepted and the value they would have had if they had been as warranted,
unless Special circumstances show proximate damages of a different
amount.

(3) In a proper case any incidental and consequential damages under
the next section may also be recovered.

§ 2-715. Buyer’s Incidental and Consequential Damages. (1) Inci-
dental damages resulting from the seller’s breach include expenses reason-
ably incurred in inspection, receipt, transportation and care and custody
of goods rightfully rejected, any commercially reasonable charges, ex-
penses or commissions in connection with effecting cover and any other
reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller’s breach include

(a) any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to know
and which could not reasonably be prevented by cover or otherwise; and

(b) injury to person or property proximately resulting from any
breach of warranty.

§ 2-716. Buyer’s Right to Specific Performance or Replevin. (1) Spe-
cific performance may be decreed where the goods are unique or in other
proper circumstances.

(2) The decree for specific performance may include such terms and
conditions as to payment of the price, damages, or other relief as the
court may deem just.

(3) The buyer has a right of replevin for goods identified to the con-
tract if after reasonable effort he is unable to effect cover for such goods
or the circumstances reasonably indicate that such effort will be unavail-
ing or if the goods have been shipped under reservation and satisfaction
of the security interest in them has been made or tendered.

§ 2-717. Deduction of Damages From the Price. The buyer on noti-
fying the seller of his intention to do so may deduct all or any part of the
damages resulting from any breach of the contract from any part of the
price still due under the same contract.

§ 2-718. Liquidation or Limitation of Damages; Deposits. (1) Dam-
ages for breach by either party may be liquidated in the agreement but
only at an amount which is reasonable in the light of the anticipated or
actual harm caused by the breach, the difficulties of proof of loss, and
the inconvenience or non-feasibility of otherwise obtaining an adequate
remedy. A term fixing unreasonably large liquidated damages is void as
a penalty.

(2) Where the seller justifiably withholds delivery of goods because
of the buyer’s breach, the buyer is entitled to restitution of any amount
by which the sum of his payments exceeds

(a) the amount to which the seller is entitled by virtue of terms
liquidating the seller’s damages in accordance with subsection (1), or

(b) in the absence of such terms, twenty per cent of the value of the
total performance for which the buyer is obligated under the contract or
$500, whichever is smaller.

(3) The buyer’s right to restitution under subsection (2) is subject
to offset to the extent that the seller establishes

(a) a right to recover damages under the provisions of this Article
other than subsection (1), and

(b) the amount or value of any benefits received by the buyer di-
rectly or indirectly by reason of the contract.

Where a seller has received payment in goods their reasonable
value or the proceeds of their resale shall be treated as payments for the
purposes of subsection (2); but if the seller has notice of the buyer’s
breach before reselling goods received in part performance, his resale is
subject to the conditions laid down in this Article on resale by an ag-
grieved seller (§ 2-706).

§ 2-719. Contractual Modification or Limitation of Remedy. (1) Sub-
ject to the provisions of subsections (2) and (3) of this section and of
the preceding section on liquidation and limitation of damages,

(a) the agreement may provide for remedies in addition to or in
substitution for those provided in this Article and may limit or alter the
measure of damages recoverable under this Article, as by limiting the
buyer’s remedies to return of the goods and repayment of the price or to
repair and replacement of non-conforming goods or parts; and

(b) resort to a remedy as provided is optional unless the remedy is
expressly agreed to be exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to
fail of its essential purpose, remedy may be had as provided in this Act.

(3) Consequential damages may be limited or excluded unless the
limitation or exclusion is unconscionable. Limitation of consequential
damages for injury to the person in the case of consumer goods is prima
facie unconscionable but limitation of damages where the loss is com-
mercial is not.

§ 2-720. Effect of “Cancellation” or “Rescission” on Claims for Ante-
cedent Breach. Unless the contrary intention clearly appears, expressions
of “cancellation” or “rescission” of the contract or the like shall not be
construed as a renunciation or discharge of any claim in damages for an
antecedent breach.
§ 2-721. Remedies for Fraud. Remedies for material misrepresenta-
tion or fraud include all remedies available under this Article for non-
fraudulent breach. Neither rescission or a claim for rescission of the con-
tract for sale nor rejection or return of the goods shall bar or be deemed
inconsistent with a claim for damages or other remedy.

§ 2-722. Who Can Sue Third Parties for Injury to Goods. Where a
third party so deals with goods which have been identified to a contract
for sale as to cause actionable injury to a party to that contract

(a) a right of action against the third party is in either party to
the contract for sale who has title to or a security interest or a special
property or an insurable interest in the goods; and if the goods have been
destroyed or converted a right of action is also in the party who either
bore the risk of loss under the contract for sale or has since the injury
assumed that risk as against the other;

(b) if at the time of the injury the party plaintiff did not bear the
risk of loss as against the other party to the contract for sale and there
igs no arrangement between them for disposition of the recovery, his suit
or settlement is, subject to his own interest, as a fiduciary for the other
party to the contract;

(c) either party may with the consent of the other sue for the bene-
fitof whom it may concern.

2-723. Proof of Market Price: Time and Place. (1) If an action
based on anticipatory repudiation comes to trial before the time for per-
formance with respect to some or all of the goods, any damages based on
market price (§ 2-708 or § 2-713) shall be determined according to the
price of such goods prevailing at the time when the aggrieved party
learned of the repudiation.

(2) If evidence of a price prevailing at the times or places described
in this Article is not readily available the price prevailing within any rea-
sonable time before or after the time described or at any other place
which in commercial judgment or under usage of trade would serve as a
reasonable substitute for the one described may be used, making any
proper allowance for the cost of transporting the goods to or from such
other place.

(3) Evidence of a relevant price prevailing at a time or place other
than the one described in this Article offered by one party is not admis-
sible unless and until he has given the other party such notice as the
court finds sufficient to prevent unfair surprise.

§ 2-724. Admissibility of Market Quotations. Whenever the prevail-
ing price or value of any goods regularly bought and sold in any established
commodity market is in issue, reports in official publications or trade jour-
nals or in newspapers or periodicals of general circulation published as the
reports of such market shall be admissible in evidence. The circumstances
of the preparation of such a report may be shown to affect its weight but
not its admissibility.

§ 2-725. Statute of Limitations in Contracts for Sale. (1) An action
for breach of any contract for sale must be commenced within four years
after the cause of action has accrued. By the original agreement the
parties may reduce the period of limitation to not less than one year but
may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of
the aggrieved party’s lack of knowledge of the breach. A breach of war-
ranty occurs when tender of delivery is made, except that where a war-
ranty explicitly extends to future performance of the goods and discovery
of the breach must await the time of such performance the cause of action
accrues when the breach is or should have been discovered.

(3) Where an action commenced within the time limited by subsec-
tion (1) is so terminated as to leave available a remedy by another action
for the same breach such other action may be commenced after the ex-
piration of the time limited and within six months after the termination
of the first action unless the termination resulted from voluntary discon-
tinuance or from dismissal for failure or neglect to prosecute.

(4) This section does not alter the law on tolling of the statute of
limitations nor does it apply to causes of action which have accrued
before this Act becomes effective.

ARTICLE 3
COMMERCIAL PAPER

PART 1
SHORT TITLE, FORM AND INTERPRETATION

§ 3-101. Short Title. This Article shall be known and may be cited as
Uniform Commercial Code—Commercial Paper.

§ 3-102. Definitions and Index of Definitions. (1) In this Article
unless the context otherwise requires

(a) “Issue” means the first delivery of an instrument to a holder or
a remitter.

(b) An “order” is a direction to pay and must be more than an author-
ization or request. It must identify the person to pay with reasonable
certainty. It may be addressed to one or more such persons jointly or in
the alternative but not in succession.

(c) A “promise” is an undertaking to pay and must be more than an
acknowledgement of an obligation.

(d) “Secondary party” means a drawer or endorser.

(e) “Instrument” means a negotiable instrument.

(2) Other definitions applying to this Article and the sections in which
they appear are:

“Acceptance’’. § 3-410.

“Accommodation party”. § 3-415.

“Alteration”. § 3-407.

“Certificate of deposit’. § 3-104.

“Certification”. § 3-411.

“Check”. § 3-104.

“Definite time’. § 3-109.

“Dishonor”. § 3-507.

“Draft”. § 3-104.

“Holder in due course”. § 3-302.

“Negotiation”. § 3-202.

“Note”. § 3-104.

“Notice of dishonor’. § 3-508.

“On demand”. § 3-108

“Presentment’’. § 3-504,

“Protest”. § 3-509.

“Restrictive Indorsement”’. § 3-205.

‘Signature’. § 3-401.

(3) The following definitions in other Articles apply to this Article:

“Account”. § 4-104.

“Banking Day”. § 4-104.

“Clearing house’. § 4-104.

“Collecting bank’’. § 4-105.

“Customer”. § 4-104.

“Depositary Bank’. § 4-105.

“Documentary Draft’. § 4-104.

“Intermediary Bank’’. § 4-105.

“Item”. § 4-104.
“Midnight deadline’. § 4-104.

‘Payor bank’. § 4-105. .

(4) In addition Article 1 contains general definitions and principles
of construction and interpretation applicable throughout this Article.

§ 3-103. Limitations on Scope of Article. (1) This Article does not
apply to money, documents of title or investment securities.

(2) The provisions of this Article are subject to the provisions of the
Article on Bank Deposits and Collections (Article 4) and Secured Trans-
actions (Article 9).

§ 3-104. Form of Negotiable Instruments; “Draft”; “Check”; “Cer-
tificate of Deposit”; “Note”. (1) Any writing to be a negotiable instrument
within this Article must

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay a sum certain
in money and no other promise, order, obligation or power given by the
maker or drawer except as authorized by this Article; and

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer.

(2) A writing which complies with the requirements of this section is

(a) a “draft” (“bill of exchange’) if it is an order;

(b) a “check” if it is a draft drawn on a bank and payable on demand;

(c) a “certificate of deposit” if it is an acknowledgment by a bank of
receipt of money with an engagement to repay it; ,

(d) a “note” if it is a promise other than a certificate of deposit.

(3) As used in other Articles of this Act, and as the context may
require, the terms “‘draft’’, ‘“‘check”’, “certificate of deposit’ and “note” may
refer to instruments which are not negotiable within this Article as well as
to instruments which are so negotiable.

§ 3-105. When Promise or Order Unconditional. (1) A promise or
order otherwise unconditional is not made conditional by the fact that the
instrument

(a) is subject to implied or constructive conditions; or

(b) states its consideration, whether performed or promised, or the
transaction which gave rise to the instrument, or that the promise or order
is made or the instrument matures in accordance with or “as per” such
transaction ; or

(c) refers to or states that it arises out of a separate agreement or
refers to a separate agreement for rights as to prepayment or acceleration;
or

(d) states that it is drawn under a letter of credit; or

(e) states that it is secured, whether by mortgage, reservation of title
or otherwise; or

(f) indicates a particular account to be debited or any other fund or
source from which reimbursement is expected; or

(g) is limited to payment out of a particular fund or the proceeds of a
particular source, if the instrument is issued by a government or govern-
mental agency or unit; or

(h) is limited to payment out of the entire assets of a partnership,
unincorporated association, trust or estate by or on behalf of which the
instrument is issued.

(2) A promise or order is not unconditional if the instrument

(a) states that it is subject to or governed by any other agreement; or

(b) states that it is to be paid only out of a particular fund or source
except as provided in this section.

§ 3-106. Sum Certain. (1) The sum payable is a sum certain even
though it is to be paid
(a) with stated interest or by stated installments; or

(b) with stated different rates of interest before and after default or
a specified date; or

(c) with a stated discount or addition if paid before or after the date
fixed for payment; or

(d) with exchange or less exchange, whether at a fixed rate or at the
current rate; or

(e) with costs of collection or an attorney’s fee or both upon default.

) Nothing in this section shall validate any term which is otherwise
illegal.

§ 3-107. Money. (1) An instrument is payable in money if the medium
of exchange in which it is payable is money at the time the instrument is
made. An instrument payable in “currency” or “current funds” is payable
in money.

(2) A promise or order to pay a sum stated in a foreign currency is
for a sum certain in money and, unless a different medium of payment is
specified in the instrument, may be satisfied by payment of that number
of dollars which the stated foreign currency will purchase at the buying
sight rate for that currency on the day on which the instrument is payable
or, if payable on demand, on the day of demand. If such an instrument
specifies a foreign currency as the medium of payment the instrument
is payable in that currency.

§ 3-108. Payable on Demand. Instruments payable on demand include
those payable at sight or on presentation and those in which no time for
payment is stated.

§ 3-109. Definite Time. (1) An instrument is payable at a definite
time if by its terms it is payable

(a) on or before a stated date or at a fixed period after a stated date;
or

(b) at a fixed period after sight; or

(c) at a definite time subject to any acceleration; or

(d) ata definite time subject to extension at the option of the holder,
or to extension to a further definite time at the option of the maker or
acceptor or automatically upon or after a specified act or event.

(2) An instrument which by its terms is otherwise payable only upon
an act or event uncertain as to time of occurrence is not payable at a definite
time even though the act or event has occurred.

§ 3-110. Payable to Order. (1) An instrument is payable to order
when by its terms it is payable to the order or assigns of any person therein
specified with reasonable certainty, or to him or his order, or when it is
conspicuously designated on its face as “exchange” or the like and names
a payee. It may be payable to the order of

(a) the maker or drawer; or

(b) the drawee; or

(c) a payee who is not maker, drawer or drawee; or

(d) two or more payees together or in the alternative; or

(e) an estate, trust or fund, in which case it is payable to the order
of the representative of such estate, trust or fund or his successors; or

(f) an office, or an officer by his title as such in which case it is pay-
able to the principal but the incumbent of the office or his successors may
act as if he or they were the holder; or

(g) a partnership or unincorporated association, in which case it is
payable to the partnership or association and may be indorsed or trans-
ferred by any person thereto authorized.

(2) An instrument not payable to order is not made so payable by
such words as “‘payable upon return of this instrument properly indorsed.”

(3) An instrument made payable both to order and to bearer is pay-
able to order unless the bearer words are handwritten or typewritten.

§ 3-111. Payable to Bearer. An instrument is payable to bearer wher
by its terms it is payable to

(a) bearer or the order of bearer; or

(b) a specified person or bearer; or

(c) “cash” or the order of ‘“‘cash’’, or any other indication which does
not purport to designate a specific payee.

3-112. Terms and Omissions Not Affecting Negotiability. (1) The
negotiability of an instrument is not affected by

(a) the omission of a statement of any consideration or of the place
where the instrument is drawn or payable; or

(b) a statement that collateral has been given to secure obligation:
either on the instrument or otherwise of an obligor on the instrument o!
that in case of default on those obligations the holder may realize or
or dispose of the collateral; or

(c) a promise or power to maintain or protect collateral, to give addi
tional collateral, to furnish financial information or to do or refrain fron
doing any other act for the protection of the obligation expressed in thi
instrument not involving the payment of money on account of the indebted
ness evidenced by the instrument; or

(d) a term authorizing a confession of judgment on the instrumen
if it is not paid when due; or

(e) a term purporting to waive the benefit of any law intended fo:
the advantage or protection of any obligor; or

f) a term in a draft providing that the payee by indorsing or cash
ing it acknowledges full satisfaction of an obligation of the drawer; or

(zg) a statement in a draft drawn in a set of parts (§ 3-801) to th
effect that the order is effective only if no other part has been honored.

; (2) Nothing in this section shall validate any term which is otherwis«
illega

§ 3-113. Seal. An instrument otherwise negotiable is within thi:
Article even though it is under a seal.

§ 3-114. Date, Antedating, Postdating. (1) The negotiability of a)
instrument is not affected by the fact that it is undated, antedated o:
postdated.

(2) Where an instrument is antedated or postdated the time whel
it is payable is determined by the stated date if the instrument is payabl
on demand or at a fixed period after date.

(3) Where the instrument or any signature thereon is dated, the dat
is presumed to be correct.

§ 3-115. Incomplete Instruments. (1) When a paper whose content:
at the time of signing show that it is intended to become an instrumen
is signed while still incomplete in any necessary respect it cannot be en
forced until completed, but when it is completed in accordance with author
ity given it is effective as completed.

(2) If the completion is unauthorized the rules as to material altera
tion apply (§ 3-407), even though the paper was not delivered by th
maker or drawer; but the burden of establishing that any completion i
unauthorized is on the party so asserting.

§ 3-116. Instruments Payable to Two or More Persons. An instru
ment payable to the order of two or more persons

(a) if in the alternative is payable to any one of them and may b
negotiated, discharged or enforced by any of them who has possession of it

(b) if not in the alternative is payable to all of them and may be nego
tiated, discharged or enforced only by all of them.

3-117. Instruments Payable With Words of Description. An instru
ment made payable to a named person with the addition of words describ
ing
(a) as agent or officer of a specified person is payable to his principa
but the agent or officer may act as if he were the holder;

(b) as any other fiduciary for a specified person or purpose is payable
to the payee and may be negotiated, discharged or enforced by him;

(c) in any other manner is payable to the payee unconditionally and
the additional words are without effect on subsequent parties.

3-118. Ambiguous Terms and Rules of Construction. The following
rules apply to every instrument:

(a) Where there is doubt whether the instrument is a draft or a note
the holder may treat it as either. A draft drawn on the drawer is effective
as a note.

(b) Handwritten terms control typewritten and printed terms, and
typewritten control printed.

(c) Words control figures except that if the words are ambiguous
figures control.

(d) Unless otherwise specified a provision for interest means interest
at the judgment rate at the place of payment from the date of the instru-
ment, or if it is undated from the date of issue.

(e) Unless the instrument otherwise specifies two or more persons
who sign aS maker, acceptor or drawer or indorser and as a part of the
same transaction are jointly and severally liable even though the instru-
ment contains such words as “I promise to pay.”

(f) Unless otherwise specified consent to extension authorizes a single
extension for not longer than the original period. A consent to extension,
expressed in the instrument, is binding on secondary parties and accommo-
dation makers. A holder may not exercise his option to extend an instru-
ment over the objection of a maker or acceptor or other party who in accord-
ance with § 3-604 tenders full payment when the instrument is due.

§ 3-119. Other Writings Affecting Instrument. (1) As between the
obligor and his immediate obligee or any transferee the terms of an instru-
ment may be modified or affected by any other written agreement executed
as a part of the same transaction, except that a holder in due course is not
affected by any limitation of his rights arising out of the separate written
agreement if he had no notice of the limitation when he took the instru-
ment.

(2) A separate agreement does not affect the negotiability of an in-
strument.

§ 3-120. Instruments “Payable Through” Bank. An instrument which
states that it is “payable through” a bank or the like designates that bank
as a collecting bank to make presentment but does not of itself authorize
the bank to pay the instrument.

Instruments Payable at Bank. A note or acceptance which
states that it j is payable at a bank is not of itself an order to the bank to pay
it, but the bank may consider it an authorization to pay.

§ 3-122. Accrual of Cause of Action. (1) A cause of action against a
maker or an acceptor accrues

(a) in the case of a time instrument on the day after maturity;

(b) in the case of a demand instrument upon its date or, if no date is
stated, on the date of issue.

(2) A cause of action against the obligor of a demand or time cer-
tificate of deposit accrues upon demand, but demand on a time certificate
may not be made until on or after the date of maturity.

(3) A cause of action against a drawer of a draft or an indorser of
any instrument accrues upon demand following dishonor of the instru-
ment. Notice of dishonor is a demand.

(4) Unless an instrument provides otherwise, interest runs at the rate
provided by law for a judgment
(a) in the case of a maker, acceptor or other primary obligor of a de-
mand instrument, from the date of demand;
(b) in all other cases from the date of accrual of the cause of action.

PART 2
TRANSFER AND NEGOTIATION

§ 3-201. Transfer: Right to Indorsement. (1) Transfer of an instru-
ment vests in the transferee such rights as the transferor has therein, ex-
cept that a transferee who has himself been a party to any fraud or ille-
gality affecting the instrument or who as a prior holder had notice of a
defense or claim against it cannot improve his position by taking from 2
later holder in due course.

(2) A transfer of a security interest in an instrument vests the fore-
going rights in the transferee to the extent of the interest transferred.

(3) Unless otherwise agreed any transfer for value of an instrument
not then payable to bearer gives the transferee the specifically enforceable
right to have the unqualified indorsement of the transferor. Negotiation
takes effect only when the indorsement is made and until that time there
is no presumption that the transferee is the owner.

§ 3-202. Negotiation. (1) Negotiation is the transfer of an instrument
in such form that the transferee >ecomes a holder. If the instrument is
payable to order it is negotiated by delivery with any necessary indorse-
ment; if payable to bearer it is negotiated by delivery.

(2) An indorsement must be written by or on behalf of the holder
and on the instrument or on a paper so firmly affixed thereto as to become
a part thereof.

(3) An indorsement is effective for negotiation only when it conveys
the entire instrument or any unpaid residue. If it purports to be of less it
operates only as a partial assignment.

(4) Words of assignment, condition, waiver, guaranty, limitation or
disclaimer of liability and the like accompanying an indorsement do not
affect its character as an indorsement.

§ 3-203. Wrong or Misspelled Name. Where an instrument is made
payable to a person under a misspelled name or one other than his own he
may indorse in that name or his own or both; but signature in both names
may be required by a person paying or giving value for the instrument.

§ 3-204. Special Indorsement; Blank Indorsement. (1) A special in-
dorsement specifies the person to whom or to whose order it makes the
instrument payable. Any instrument specially indorsed becomes payable
to the order of the special indorsee and may be further negotiated only by
his indorsement.

(2) An indorsement in blank specifies no particular indorsee and may
consist of a mere signature. An instrument payable to order and indorsed
in blank becomes payable to bearer and may be negotiated by delivery alone
until specially indorsed.

(3) The holder may convert a blank indorsement into a special in-
jlorsement by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement.

§ 3-205. Restrictive Indorsements. An indorsement is restrictive
Which either

(a) is conditional; or

(b) purports to prohibit further transfer of the instrument; or

(c) includes the words “for collection”, “for deposit”, “pay any bank”,
or like terms signifying a purpose of deposit or collection; or

(d) otherwise states that it is for the benefit of use of the indorser
or of another person.

§ 3-206. Effect of Restrictive Indorsement. (1) No restrictive indorse-
nent prevents further transfer or negotiation of the instrument.
(2) An intermediary bank, or a payor bank which is not the depositary
bank, is neither given notice nor otherwise affected by a restrictive in-
dorsement of any person except the bank’s immediate transferor or the
person presenting for payment.

(3) Except for an intermediary bank, any transferee under an indorse-
ment which is conditional or includes the words “for collection’, ‘‘for de-
posit”, “pay any bank’, or like terms (subparagraphs (a) and (c) of
§ 3-205) must pay or apply any value given by him for or on the security
of the instrument consistently with the indorsement and to the extent
that he does so he becomes a holder for value. In addition such transferee
is a holder in due course if he otherwise complies with the requirements
of § 3-302 on what constitutes a holder in due course.

(4) The first taker under an indorsement for the benefit of the in-
dorser or another person (subparagraph (d) of § 3-205) must pay or ap-
ply any value given by him for or on the security of the instrument con-
sistently with the indorsement and to the extent that he does so he be-
comes a holder for value. In addition such taker is a holder in due course
if he otherwise complies with the requirements of § 3-302 on what consti-
tutes a holder in due course. A later holder for value is neither given notice
nor otherwise affected by such restrictive indorsement unless he has
knowledge that a fiduciary or other person has negotiated the instrument
in any transaction for his own benefit or otherwise in breach of duty
(subsection (2) of § 3-804).

§ 3-207. Negotiation Effective Although It May Be Rescinded. (1)
Negotiation is effective to transfer the instrument although the nego-
tiation is

(a) made by an infant, a corporation exceeding its powers, or any
other person without capacity; or

(b) obtained by fraud, duress or mistake of any kind; or

(c) part of an illegal transaction; or

(d) made in breach of duty.

(2) Except as against a subsequent holder in due course such nego-
tiation is in an appropriate case subject to rescission, the declaration of a
constructive trust or any other remedy permitted by law.

§ 3-208. Reacquisition. Where an instrument is returned to or re-
acquired by a prior party he may cancel any indorsement which is not
necessary to his title and reissue or further negotiate the instrument, but
any intervening party is discharged as against the reacquiring party and
subsequent holders not in due course and if his indorsement has been
cancelled is discharged as against subsequent holders in due course as well.

PART 3
RIGHTS OF A HOLDER

§ 3-301. Rights of a Holder. The holder of an instrument whether
or not he is the owner may transfer or negotiate it and, except as other-
wise provided in § 3-603 on payment or satisfaction, discharge it or enforce
payment in his own name.

§ 3-302. Holder in Due Course. (1) A holder in due course is a holder
who takes the instrument

(a) for value; and

(b) in good faith; and

(c) without notice that it is overdue or has been dishonored or of any
defense against or claim to it on the part of any person.

(2) A payee may be a holder in due course.

(3) A holder does not become a holder in due course of an instrument:

(a) by purchase of it at judicial sale or by taking it under legal
process; or

(b) by acquiring it in taking over an estate; or
(c) by purchasing it as part of a bulk transaction not in regular course
of business of the transferor.

(4) A purchaser of a limited interest can be a holder in due course
only to the extent of the interest purchased.

§ 3-303. Taking for Value. A holder takes the instrument for value

(a) to the extent that the agreed consideration has been performed
or that he acquires a security interest in or a lien on the instrument other-
wise than by legal process; or

(b) when he takes the instrument in payment of or as security for
an antecedent claim against any person whether or not the claim is due; or

(c) when he gives a negotiable instrument for it or makes an irrevoc-
able commitment to a third person.

§ 3-304. Notice to Purchaser. (1) The purchaser has notice of a claim
or defense if

(a) the instrument is so incomplete, bears such visible evidence of
forgery or alteration, or is otherwise so irregular as to call into question
ts validity, terms or ownership or to create an ambiguity as to the party

pay; or

(b) the purchaser has notice that the obligation of any party is
voidable in whole or in part, or that all parties have been discharged.

(2) The purchaser has notice of a claim against the instrument when
ne has knowledge that a fiduciary has negotiated the instrument in pay-
ment of or as security for his own debt or in any transaction for his own
benefit or otherwise in breach of duty.

(3) The purchaser has notice that an instrument is overdue if he has
reason to know

(a) that any part of the principal amount is overdue or that there is
an uncured default in payment of another instrument of the same series; or

(b) that acceleration of the instrument has been made; or

(c) that he is taking a demand instrument after demand has been
nade or more than a reasonable length of time after its issue. A reasonable
ime for a check drawn and payable within the states and territories of
he United States and the District of Columbia is presumed to be thirty days.

(4) Knowledge of the following facts does not of itself give the pur-
e-haser notice of a defense or claim.

(a) that the instrument is antedated or postdated;

(b) that it was issued or negotiated in return for an executory promise
yr accompanied by a separate agreement, unless the purchaser has notice
hat a defense or claim has arisen from the terms thereof;

(c) that any party has signed for accommodation;

(d) that an incomplete instrument has been completed, unless the pur-
-haser has notice of any improper completion;

(e) that any person negotiating the instrument is or was a fiduciary ;

(f) that there has been default in payment of interest on the instru-
nent or in payment of any other instrument, except one of the same series.

(5) The filing or recording of a document does not of itself constitute
10tice within the provisions of this Article to a person who would otherwise
ye a holder in due course.

(6) To be effective notice must be received at such time and in such
nanner as to give a reasonable opportunity to act on it.

(7) In any event, to constitute notice of a claim or defense, the pur-
haser must have knowledge of the claim or defense or knowledge of such
acts that his action in taking the instrument amounts to bad faith. If the
urchaser is an organization and maintains within the organization reason-
ible routines for communicating significant information to the appropriate
art of the organization apparently concerned, the individual conducting the
ransaction on behalf of the purchaser must have the knowledge.
§ 3-305. Rights of a Holder in Due Course. To the extent that a holder
is a holder in due course he takes the instrument free from

(1) all claims to it on the part of any person; and

(2) all defenses of any party to the instrument with whom the holder
has not dealt except

(a) infancy, to the extent that it is a defense to a simple contract; and

(b) such other incapacity, or duress, or illegality of the transaction,
as renders the obligation of the party a nullity; and

(c) such misrepresentation as has induced the party to sign the in-
strument with neither knowledge nor reasonable opportunity to obtain
knowledge of its character or its essential terms; and

(d) discharge in insolvency proceedings; and

(e) any other discharge of which the holder has notice when he takes
the instrument.

§ 3-306. Rights of One Not Holder in Due Course. Unless he has the
rights of a holder in due course any person takes the instrument subject tu

(a) all valid claims to it on the part of any person; and

(b) all defenses of any party which would be available in an action
on a simple contract; and

(c) the defenses of want or failure of consideration, nonperformance
of any condition precedent, non-delivery, or delivery for a special purpose
(§ 3-408) ; and

(d) the defense that he or a person through whom he holds the in-
strument acquired it by theft, or that payment or satisfaction to such
holder would be inconsistent with the terms of a restrictive indorsement.
The claim of any third person to the instrument is not otherwise available
as a defense to any party liable thereon unless the third person himself de-
fends the action for such party.

3-307. Burden of Establishing Signatures, Defenses and Due Course.
(1) Unless specifically denied in the pleadings each signature on an instru-
ment is admitted. When the effectiveness of a signature is put in issue

(a) the burden of establishing it is on the party claiming under the
signature; but

(b) the signature is presumed to be genuine or authorized except
where the action is to enforce the obligation of a purported signer who has
died or become incompetent before proof is required.

(2) When signatures are admitted or established, production of the
instrument entitles a holder to recover on it unless the defendant estab-
lishes a defense.

(3) After it is shown that a defense exists a person claiming the
rights of a holder in due course has the burden of establishing that he or
some person under whom he claims is in all respects a holder in due course.

PART 4
LIABILITY OF PARTIES

§ 3-401. Signature. (1) No person is liable on an instrument unless
his signature appears thereon.

(2) A signature is made by use of any name, including any trade or
assumed name, upon an instrument, or by any word or mark used in lieu
of a written signature.

§ 3-402. Signature in Ambiguous Capacity. Unless the instrument
clearly indicates that a signature is made in some other capacity it is an
indorsement.

§ 3-403. Signature by Authorized Representative. (1) A signature
may be made by an agent or other representative, and his authority to
make it may be established as in other cases of representation. No par-
ticular form of appointment is necessary to establish such authority.
(2) An authorized representative who signs his own name to an
instrument

(a) is personally obligated if the instrument neither names the per-
son represented nor shows that the representative signed in a representa-
tive capacity ;

(b) except as otherwise established between the immediate parties,
is personally obligated if the instrument names the person represented but
does not show that the representative signed in a representative capacity,
or if the instrument does not name the person represented but does show
that the representative signed in a representative capacity.

(3) Except as otherwise established the name of an organization pre-
ceded or followed by the name and office of an authorized individual is a
signature made in a representative capacity.

§ 3-404. Unauthorized Signatures. (1) Any unauthorized signature
is wholly inoperative as that of the person whose name is signed unless
he ratifies it or is precluded from denying it; but it operates as the signa-
ture of the unauthorized signer in favor of any person who in good faith
pays the instrument or takes it for value.

(2) Any unauthorized signature may be ratified for all purposes of
this Article. Such ratification does not of itself affect any rights of the
person ratifying against the actual signer.

§ 3-405. Impostors; Signature in Name of Payee. (1) An indorse-
ment by any person in the name of a named payee is effective if

(a) an impostor by use of the mails or otherwise has induced the
maker or drawer to issue the instrument to him or his confederate in the
name of the payee; or

(b) a person signing as or on behalf of a maker or drawer intends the
payee to have no interest in the instrument; or

(c) an agent or employee of the maker or drawer has supplied him
with the name of the payee intending the latter to have no such interest.

(2) Nothing in this section shall affect the criminal or civil liability
of the person so indorsing.

§ 3-406. Negligence Contributing to Alteration or Unauthorized Signa-
ture. Any person who by his negligence substantially contributes to a ma-
terial alteration of the instrument or to the making of an unauthorized
signature is precluded from asserting the alteration or lack of authority
against a holder in due course or against a drawee or other payor who pays
the instrument in good faith and in accordance with the reasonable com-
mercial standards of the drawee’s or payor’s business.

§ 3-407. Alteration. (1) Any alteration of an instrument is material
which changes the contract of any party thereto in any respect, including
any such change in

(a) the number or relations of the parties; or

(b) an incomplete instrument, by completing it otherwise than as
authorized; or

(c) the writing as signed, by adding to it or by removing any part of it.

(2) As against any person other than a subsequent holder in due
course

_ (a) alteration by the holder which is both fraudulent and material
discharges any party whose contract is thereby changed unless that party
assents or is precluded from asserting the defense:

(b) no other alteration discharges any party and the instrument may
be enforced according to its original tenor, or as to incomplete instruments
according to the authority given.

___ (3) A subsequent holder in due course may in all cases enforce the
instrument according to its original tenor, and when an incomplete instru-
ment has been completed, he may enforce it as completed.

§ 3-408. Consideration. Want or failure of consideration is a defense
as against any person not having the rights of a holder in due course
(§ 3-305), except that no consideration is necessary for an instrument or
obligation thereon given in payment of or as security for an antecedent
obligation of any kind. Nothing in this section shall be taken to displace
any statute outside this Act under which a promise is enforceable not-
withstanding lack or failure of consideration. Partial failure of considera-
tion is a defense pro tanto whether or not the failure is in an ascertained
or liquidated amount.

§ 3-409. Draft Not an Assignment. (1) A check or other draft does
not of itself operate as an assignment of any funds in the hands of the
drawee available for its payment, and the drawee is not liable on the in-
strument until he accepts it.

(2) Nothing in this section shall affect any liability in contract, tort
or otherwise arising from any letter of credit or other obligation or repre-
sentation which is not an acceptance.

3-410. Definition and Operation of Acceptance. (1) Acceptance is
the drawee’s signed engagement to honor the draft as presented. It must
be written on the draft, and may consist of his signature alone. It becomes
operative when completed by delivery or notification.

(2) A draft may be accepted although it has not been signed by the
drawer or is otherwise incomplete or is overdue or has been dishonored.

(3) Where the draft is payable at a fixed period after sight and the
acceptor fails to date his acceptance the holder may complete it by sup-
plying a date in good faith.

§ 3-411. Certification of a Check. (1) Certification of a check is ac-
ceptance. Where a holder procures certification the drawer and all prior
indorsers are discharged.

h (2) Unless otherwise agreed a bank has no obligation to certify a
check.

(3) A bank may certify a check before returning it for lack of proper
indorsement. If it does so the drawer is discharged.

§ 3-412. Acceptance Varying Draft. (1) Where the drawee’s proffered
acceptance in any manner varies the draft as presented the holder may
refuse the acceptance and treat the draft as dishonored in which case the
drawee is entitled to have his acceptance cancelled.

(2) The terms of the draft are not varied by an acceptance to pay at
any particular bank or place in the United States, unless the acceptance
states that the draft is to be paid only at such bank or place.

(3) Where the holder assents to an acceptance varying the terms of the
draft each drawer and indorser who does not affirmatively assent is dis-
charged.

§ 3-413. Contract of Maker, Drawer and Acceptor. (1) The maker
or acceptor engages that he will pay the instrument according to its tenor
at the time of his engagement or as completed pursuant to § 3-115 on in-
complete instruments.

(2) The drawer engages that upon dishonor of the draft and any
necessary notice of dishonor or protest he will pay the amount of the draft
to the holder or to any indorser who takes it up. The drawer may disclaim
this liability by drawing without recourse.

(3) By making, drawing or accepting the party admits as against
all subsequent parties including the drawee the existence of the payee and
his then capacity to indorse.

§ 3-414. Contract of Indorser; Order of Liability. (1) Unless the in-
dorsement otherwise specifies (as by such words as “without recourse’’)
every indorser engages that upon dishonor and any necessary notice of dis-
honor and protest he will pay the instrument according to its tenor at the
time of his indorsement to the holder or to any subsequent indorser who
takes it up, even though the indorser who takes it up was not obligated
to do so.

(2) Unless they otherwise agree indorsers are liable to one another
in the order in which they indorse, which is presumed to be the order in
which their signatures appear on the instrument.

§ 3-415. Contract of Accommodation Party. (1) An accommodation
party is one who signs the instrument in any capacity for the purpose of
lending his name to another party to it.

(2) When the instrument has been taken for value before it is due
the accommodation party is liable in the capacity in which he has signed
even though the taker knows of the accommodation.

(3) As against a holder in due course and without notice of the ac-
commodation oral proof of the accommodation is not admissible to give
the accommodation party the benefit of discharges dependent on his char-
acter as such. In other cases the accommodation character may be shown
by oral proof.

(4) An indorsement which shows that it is not in the chain of title
is notice of its accommodation character.

(5) An accommodation party is not liable to the party accommodated,
and if he pays the instrument has a right of recourse on the instrument
against such party.

§ 3-416. Contract of Guarantor. (1) “Payment guaranteed” or equi-
valent words added to a signature mean that the signer engages that if the
instrument is not paid when due he will pay it according to its tenor with-
out resort by the holder to any other party.

(2) “Collection guaranteed” or equivalent words added to a signature
mean that the signer engages that if the instrument is not paid when due
he will pay it according to its tenor, but only after the holder has reduced
his claim against the maker or acceptor to judgment and execution has
been returned unsatisfied, or after the maker or acceptor has become in-
solvent or it is otherwise apparent that it is useless to proceed against him.

(3) Words of guaranty which do not otherwise specify guarantee
payment.

(4) No words of guaranty added to the signature of a sole maker or
acceptor affect his liability on the instrument. Such words added to the
signature of one of two or more makers or acceptors create a presumption
that the signature is for the accommodation of the others.

(5) When words of guaranty are used presentment, notice of dishonor
and protest are not necessary to charge the user.

(6) Any guaranty written on the instrument is enforcible notwith-
standing any statute of frauds.

§ 3-417. Warranties on Presentment and Transfer. (1) Any persun
who obtains payment or acceptance and any prior transferor warrants to
a person who in good faith pays or accepts that

(a) he has a good title to the instrument or is authorized to obtain
payment or acceptance on behalf of one who has a good title; and

(b) he has no knowledge that the signature of the maker or drawer
is unauthorized, except that this warranty is not given by a holder in due
course acting in good faith

(1) to a maker with respect to the maker’s own signature; or

(i1) to a drawer with respect to the drawer’s own signature, whether
or not the drawer is also the drawee; or

(ii1) to an acceptor of a draft if the holder in due course took the draft
after the acceptance or obtained the acceptance without knowledge that
the drawer’s signature was unauthorized; and

(c) the instrument has not been materially altered, except that this
warranty is not given by a holder in due course acting in good faith

(i) to the maker of a note; or
(ii) to the drawer of a draft whether or not the drawer is also the
drawee; or

(iii) to the acceptor of a draft with respect to an alteration made prior
to the acceptance if the holder in due course took the draft after the ac-
ceptance, even though the acceptance provided “payable as originally
drawn” or equivalent terms; or :

(iv) to the acceptor of a draft with respect to an alteration made after
the acceptance.

(2) Any person who transfers an instrument and receives consider-
ation warrants to his transferee and if the transfer is by indorsement to
any subsequent holder who takes the instrument in good faith that

(a) he has a good title to the instrument or is authorized to obtain
payment or acceptance on behalf of one who has a good title and the trans-
fer is otherwise rightful; and

(b) all signatures are genuine or authorized; and

(c) the instrument has not been materially altered; and

(d) no defense of any party is good against him; and

(e) he has no knowledge of any insolvency proceeding instituted with
respect to the maker or acceptor or the drawer of an unaccepted instrument.

(3) By transferring “without recourse” the transferor limits the obli-
gation stated in subsection (2) (d) to a warranty that he has no knowledge
of such a defense.

(4) A selling agent or broker who does not disclose the fact that he
is acting only as such gives the warranties provided in this section, but if
he makes such disclosure warrants only his good faith and authority.

§ 3-418. Finality of Payment or Acceptance. Except for recovery
of bank payments as provided in the Article on Bank Deposits and Collec-
tions (Article 4) and except for liability for breach of warranty on pre-
sentment under the preceding section, payment or acceptance of any in-
strument is final in favor of a holder in due course, or a person who has in
good faith changed his position in reliance on the payment.

§ 3-419. Conversion of Instrument; Innocent Representative. (1) An
instrument is converted when

(a) a drawee to whom it is delivered for acceptance refuses to return
it on demand; or

(b) any person to whom it is delivered for payment refuses on demand
either to pay or to return it; or

(c) it is paid on a forged indorsement.

(2) In an action against a drawee under subsection (1) the measure
of the drawee’s liability is the face amount of the instrument. In any other
action under subsection (1) the measure of liability is presumed to
be the face amount of the instrument.

(3) Subject to the provisions of this Act concerning restrictive in-
dorsements a representative, including a depositary or collecting bank,
who has in good faith and in accordance with the reasonable commercial
standards applicable to the business of such representative dealt with an
instrument or its proceeds on behalf of one who was not the true owner
is not liable in conversion or otherwise to the true owner beyond the
amount of any proceeds remaining in his hands.

(4) An intermediary bank or payor bank which is not a depositary
bank is not liable in conversion solely by reason of the fact that proceeds
of an item indorsed restrictively (§§ 3-205 and 3-206) are not paid or ap-
plied consistently with the restrictive indorsement of an indorser other
than its immediate transferor.

PART 5
PRESENTMENT, NOTICE OF DISHONOR AND PROTEST
§ 3-501. When Presentment, Notice of Dishonor, and Protest Neces-
sary or Permissible. (1) Unless excused (§ 3-511) presentment is neces-
sary to charge secondary parties as follows:

(a) presentment for acceptance is necessary to charge the drawer
and indorsers of a draft where the draft so provides, or is payable else-
where than at the residence or place of business of the drawee, or its date
of payment depends upon such presentment. The holder may at his option
present for acceptance any other draft payable at a stated date;

(b) presentment for payment is necessary to charge any indorser;

(c) in the case of any drawer, the acceptor of a draft payable at a
bank or the maker of a note payable at a bank, presentment for payment
is necessary, but failure to make presentment discharges such drawer,
acceptor or maker only as stated in § 3-502(1) (b).

(2) Unless excused (§ 3-511)

(a) notice of any dishonor is necessary to charge any indorser;

(b) in the case of any drawer, the acceptor of a draft payable at a
bank or the maker of a note payable at a bank, notice of any dishonor is
necessary, but failure to give such notice discharges such drawer, acceptor
or maker only as stated in § 3-502(1) (b)

(3) Unless excused (§ 3-511) protest of any dishonor is necessary to
charge the drawer and indorsers of any draft which on its face appears to
be drawn or payable outside of the states and territories of the United
States and the District of Columbia. The holder may at his option make
protest of any dishonor of any other instrument and in the case of a foreign
draft may on insolvency of the acceptor before maturity make protest for
better security.

(4) Notwithstanding any provision of this section, neither present-
ment nor notice of dishonor nor protest is necessary to charge an indorser
who has indorsed an instrument after maturity.

§ 3-502. Unexcused Delay; Discharge. (1) Where without excuse any
necessary presentment or notice of dishonor is delayed beyond the time
when it is due

(a) any indorser is discharged; and

(b) any drawer or the acceptor of a draft payable at a bank or the
maker of a note payable at a bank who because the drawee or payor bank
becomes insolvent during the delay is deprived of funds maintained with
the drawee or payor bank to cover the instrument may discharge his
liability by written assignment to the holder of his rights against the
drawee or payor bank in respect of such funds, but such drawer, acceptor
or maker is not otherwise discharged.

(2) Where without excuse a necessary protest is delayed beyond the
time when it is due any drawer or indorser is discharged.

§ 3-503. Time of Presentment. (1) Unless a different time is ex-
pressed in the instrument the time for any presentment is determined as

ollows:

(a) where an instrument is payable at or a fixed period after a stated
date any presentment for acceptance must be made on or before the date
it is payable;

(b) where an instrument is payable after sight it must either be pre-
sented for acceptance or negotiated within a reasonable time after date
or issue whichever is later;

(c) where an instrument shows the date on which it is payable pre-
sentment for payment is due on that date;

(d) where an instrument is accelerated presentment for payment is
due within a reasonable time after the acceleration ;

(e) with respect to the liability of any secondary party presentment
for acceptance or payment of any other instrument is due within a reason-
able time after such party becomes liable thereon.
(2) A reasonable time for presentment is determined by the nature
of the instrument, any usage of banking or trade and the facts of the
particular case. In the case of an uncertified check which is drawn and
payable within the United States and which is not a draft drawn by a bank
the following are presumed to be reasonable periods within which to pre-
sent for payment or to initiate bank collection:

(a) with respect to the liability of the drawer, thirty days after date
or issue whichever is later; and

(b) with respect to the liability of an indorser, seven days after his
indorsement.

(3) Where any presentment is due on a day which is not a full busi-
ness day for either the person making presentment or the party to pay or
accept, presentment is due on the next following day which is a full busi-
ness day for both parties.

(4) Presentment to be sufficient must be made at a reasonable hour,
and if at a bank during its banking day.

§ 3-504. How Presentment Made. (1) Presentment is a demand for
acceptance or payment made upon the maker, acceptor, drawee or other
payor by or on behalf of the holder.

(2) Presentment may be made

(a) by mail, in which event the time of presentment is determincd
by the time of receipt of the mail; or

(b) through a clearing house; or

(c) at the place of acceptance or payment specified in the instrument
or if there be none at the place of business or residence of the party to ac-
cept or pay. If neither the party to accept or pay nor anyone authorized
to act for him is present or accessible at such place presentment is excused.

(3) It may be made

(a) to any one of two or more makers, acceptors, drawees or other
payors; or .

(b) to any person who has authority to make or refuse the accept-
ance or payment.

(4) A draft accepted or a note made payable at a bank in the United
States must be presented at such bank.

(5) In the cases described in § 4-210 presentment may be made in the
manner and with the result stated in that section.

§ 3-505. Rights of Party to Whom Presentment Is Made. (1) The
party to whom presentment is made may without dishonor require

(a) exhibition of the instrument; and

(b) reasonable identification of the person making presentment and
evidence of his authority to make it if made for another; and

(c) that the instrument be produced for acceptance or payment at a
place specified in it, or if there be none at any place reasonable in the cir-
cumstances; and

(d) a signed receipt on the instrument for any partial or full pay-
ment and its surrender upon full payment.

(2) failure to comply with any such requirement invalidates the pre-
sentment but the person presenting has a reasonable time in which to
comply and the time for acceptance or payment runs from the time of com-
pliance.

3-506. Time Allowed for Acceptance or Payment. (1) Acceptance
may be deferred without dishonor until the close of the next business day
following presentment. The holder may also in a good faith effort to obtain
acceptance and without either dishonor of the instrument or discharge of
secondary parties allow postponement of acceptance for an additional
business day.

(2) Except as a longer time is allowed in the case of documentary
drafts drawn under a letter of credit, and unless an earlier time is agreed
to by the party to pay, payment of an instrument may be deferred without
dishonor pending reasonable examination to determine whether it is prop-
erly payable, but payment must be made in any event before the close of
business on the day of presentment.

§ 3-507. Dishonor; Holder’s Right of Recourse; Term Allowing Re-
Presentment. (1) An instrument is dishonored when

(a) a necessary or optional presentment is duly made and due accept-
ance or payment is refused or cannot be obtained within the prescribed
time or in case of bank collections the instrument is seasonably returned
by the midnight deadline (§ 4-301); or

(b) presentment is excused and the instrument is not duly accepted
or paid.

(2) Subject to any necessary notice of dishonor and protest, the holder
has upon dishonor an immediate right of recourse against the drawers and
indorsers.

(3) Return of an instrument for lack of proper indorsement is not
dishonor.

(4) A term in a draft or an indorsement thereof allowing a stated
time for re-presentment in the event of any dishonor of the draft by non-
acceptance if a time draft or by nonpayment if a sight draft gives the
holder as against any secondary party bound by the term an option to waive
the dishonor without affecting the liability of the secondary party and he
may present again up to the end of the stated time.

§ 3-508. Notice of Dishonor. (1) Notice of dishonor may be given
to any person who may be liable on the instrument by or on behalf of the
holder or any party who has himself received notice, or any other party
who can be compelled to pay the instrument. In addition an agent or bank
in whose hands the instrument is dishonored may give notice to his prin-
cipal or customer or to another agent or bank from which the instrument
was received.

(2) Any necessary notice must be given by a bank before its midnight
deadline and by any other person before midnight of the third business
day after dishonor or receipt of nctice of dishonor.

(3) Notice may be given in any reasonable manner. It may be oral
or written and in any terms which identify the instrument and state that
it has been dishonored. A misdescription which does not mislead the party
notified does not vitiate the notice. Sending the instrument bearing a stamp,
ticket or writing stating that acceptance or payment has been refused or
sending a notice of debit with respect to the instrument is sufficient.

(4) Written notice is given when sent although it is not received.

(5) Notice to one partner is notice to each although the firm has been
dissolved.

(6) When any party is in insolvency proceedings instituted after the
issue of the instrument notice may be given either to the party or to the
representative of his estate.

(7) When any party is dead or incompetent notice may be sent to his
last known address or given to his personal representative.

(8) Notice operates for the benefit of all parties who have rights on
the instrument against the party notified.

§ 3-509. Protest; Noting for Protest. (1) A protest is a certificate
of dishonor made under the hand and seal of a United States consul or
vice consul or a notary public or other person authorized to certify dis-
honor by the law of the place where dishonor occurs. It may be made upon
information satisfactory to such person.

(2) The protest must identify the instrument and certify either that
due presentment has been made or the reason why it is excused and that
the instrument has been dishonored by nonacceptance or nonpayment.

(3) The protest may also certify that notice of dishonor has been given
to all parties or to specified parties.

(4) Subject to subsection (5) any necessary protest is due by the
time that notice of dishonor is due.

(5) If, before protest is due, an instrument has been noted for protest
by the officer to make protest, the protest may be made at any time there-
after as of the date of the noting.

§ 3-510. Evidence of Dishonor and Notice of Dishonor. The following
are admissible as evidence and create a presumption of dishonor and of any
notice of dishonor therein shown:

(a) a document regular in form as provided in the preceding section
which purports to be a protest;

(b) the purported stamp or writing of the drawee, payor bank or
presenting bank on the instrument or accompanying it stating that ac-
ceptance or payment has been refused for reasons consistent with dishonor;

(c) any book or record of the drawee, payor bank, or any collecting
bank kept in the usual course of business which shows dishonor, even
though there is no evidence of who made the entry.

§ 3-511. Waived or Excused Presentment, Protest or Notice of Dis-
honor or Delay Therein. (1) Delay in presentment, protest or notice of
dishonor is excused when the party is without notice that it is due or when
the delay is caused by circumstances beyond his control and he exercises
reasonable diligence after the cause of the delay ceases to operate.

(2) Presentment or notice or protest as the case may be is entirely
excused when

(a) the party to be charged has waived it expressly or by implication
either before or after it is due; or

(b) such party has himself dishonored the instrument or has counter-
manded payment or otherwise has no reason to expect or right to require
that the instrument be accepted or paid; or

(c) by reasonable diligence the presentment or protest cannot be made
or the notice given.

(3) Presentment is also entirely excused when

(a) the maker, acceptor or drawee of any instrument except a docu-
mentary draft is dead or in insolvency proceedings instituted after the
issue of the instrument; or

(b) acceptance or payment is refused but not for want of proper
presentment.

(4) Where a draft has been dishonored by nonacceptance a later pre-
sentment for payment and any notice of dishonor and protest for nonpay-
ment are excused unless in the meantime the instrument has been accepted.

(5) A waiver of protest is also a waiver of presentment and of notice
of dishonor even though protest is not required.

Where a waiver of presentment or notice or protest is embodied
in the instrument itself it is binding upon all parties; but where it is written
above the signature of an indorser it binds him only.

PART 6
DISCHARGE

§ 3-601. Discharge of Parties. (1) The extent of the discharge of
any party from liability on an instrument is governed by the sections on

(a) payment or satisfaction (§ 3-603); or

(b) tender of payment (§ 3-604); or

(c) cancellation or renunciation (§ 3-605) ; or

(d) impairment of right of recourse or of collateral (§ 3-606) ; or

(e) reacquisition of the instrument by a prior party (§ 3-208); or

(f) fraudulent and material alteration (§ 3-407) ; or

(g) certification of a check (§ 3-411); or

(h) acceptance varying a draft (§ 3-412); or
(i) unexcused delay in presentment or notice of dishonor or protest
(§ 3-502).

(2) Any party is also discharged from his liability on an instrument
to another party by any other act or agreement with such party which
would discharge his simple contract for the payment of money.

(3) The liability of all parties is discharged when any party who has
himself no right of action or recourse on the instrument

(a) reacquires the instrument in his own right; or

(b) is discharged under any provision of this Article, except as other-
wise provided with respect to discharge for impairment of recourse or of
collateral (§ 3-606).

§ 3-602. Effect of Discharge Against Holder in Due Course. No dis-
charge of any party provided by this Article is effective against a sub-
sequent holder in due course unless he has notice thereof when he takes
the instrument.

§ 3-603. Payment or Satisfaction. (1) The liability of any party is dis-
charged to the extent of his payment or satisfaction to the holder even
though it is made with knowledge of a claim of another person to the in-
strument unless prior to such payment or satisfaction the person making
the claim either supplies indemnity deemed adequate by the party seeking
the discharge or enjoins payment or satisfaction by order of a court of
competent jurisdiction in an action in which the adverse claimant and
the holder are parties. This subsection does not, however, result in the
discharge of the liability

(a) of a party who in bad faith pays or satisfies a holder who acquired
the instrument by theft or who (unless having the rights of a holder in
due course) holds through one who so acquired it; or

(b) of a party (other than an intermediary bank or a payor bank
which is not a depositary bank) who pays or satisfies the holder of an
instrument which has been restrictively indorsed in a manner not consis-
tent with the terms of such restrictive indorsement.

(2) Payment or satisfaction may be made with the consent of the
holder by any person including a stranger to the instrument. Surrender
‘s the ri nn to such a person gives him the rights of a transferee

§ 3-604. Tender of Payment. (1) Any party making tender of full
payment to a holder when or after it is due is discharged to the extent of
all subsequent liability for interest, costs and attorney’s fees.

(2) The holder’s refusal of such tender wholly discharges any party
who has a right of recourse against the party making the tender.

(3) Where the maker or acceptor of an instrument payable otherwise
than on demand is able and ready to pay at every place of payment specified
in the instrument when it is due, it is equivalent to tender; provided, how-
ever, that in the case of an instrument which states that it is payable at a
bank the maker or acceptor shall not be considered able and ready to pay
unless he has specifically ordered the bank to pay the instrument out of
funds on deposit with or otherwise provided to the bank for such payment.

§ 3-605. Cancellation and Renunciation. (1) The holder of an instru-
ment may even without consideration discharge any party

(a) in any manner apparent on the face of the instrument or the in-
dorsement, as by intentionally cancelling the instrument or the party’s
signature by destruction or mutilation, or by striking out the party’s signa-
ure; or

(b) by renouncing his rights by a writing signed and delivered or
by surrender of the instrument to the party to be discharged.

(2) Neither cancellation nor renunciation without surrender of the
instrument affects the title thereto.
§ 3-606. Impairment of Recourse or of Collateral. (1) The holder
discharges any party to the instrument to the extent that without such
party’s consent the holder

(a) without express reservation of rights releases or agrees not to
sue any person against whom the party has to the knowledge of the holder
a right of recourse or agrees to suspend the right to enforce against such
person the instrument or collateral or otherwise discharges such person,
except that failure or delay in effecting any required presentment, protest
or notice of dishonor with respect to any such person does not discharge
any party as to whom presentment, protest or notice of dishonor is effective
or unnecessary ; or

(b) unjustifiably impairs any collateral for the instrument given by
or on behalf of the party or any person against whom he has a right of
recourse.

(2) By express reservation of rights against a party with a right of
recourse the holder preserves

(a) all his rights against such party as of the time when the instru-
ment was originally due; and

(b) the right of the party to pay the instrument as of that time; and

(c) all rights of such party to recourse against others.

PART 7
ADVICE OF INTERNATIONAL SIGHT DRAFT

3-701. Letter of Advice of International Sight Draft. (1) A “letter
of advice” is a drawer’s communication to the drawee that a described
draft has been drawn.

(2) Unless otherwise agreed when a bank receives from another bank
a letter of advice of an international sight draft the drawee bank may
immediately debit the drawer’s account and stop the running of interest
pro tanto. Such a debit and any resulting credit to any account covering
outstanding drafts leaves in the drawer full power to stop payment or
otherwise dispose of the amount and creates no trust or interest in favor
of the holder.

(3) Unless otherwise agreed and except where a draft is drawn under
a credit issued by the drawee, the drawee of an international sight draft
owes the drawer no duty to pay an unadvised draft but if it does so and
the draft is genuine, may appropriately debit the drawer’s account.

PART 8
MISCELLANEOUS

§ 3-801. Drafts ina Set. (1) Where a draft is drawn in a set of parts,
each of which is numbered and expressed to be an order only if no other
part has been honored, the whole of the parts constitutes one draft but a
taker of any part may become a holder in due course of the draft.

(2) Any person who negotiates, indorses or accepts a single part of
a draft drawn in a set thereby becomes liable to any holder in due course
of that part as if it were the whole set, but as between different holders
in due course to whom different parts have been negotiated the holder
whose title first accrues has all rights to the draft and its proceeds.

(3) As against the drawee the first presented part of a draft drawn
in a set is the part entitled to payment, or if a time draft to acceptance
and payment. Acceptance of any subsequently presented part renders the
drawee liable thereon under subsection (2). With respect both to a holder
and to the drawer payment of a subsequently presented part of a draft
payable at sight has the same effect as payment of a check notwithstanding
an effective stop order (§ 4-407).

(4) Except as otherwise provided in this section, where any part of a
draft in a set is discharged by payment or otherwise the whole draft is
discharged.

§ 3-802. Effect of Instrument on Obligation for Which It Is Given.
(1) Unless otherwise agreed where an instrument is taken for an under-
lying obligation

(a) the obligation is pro tanto discharged if a bank is drawer, maker
or acceptor of the instrument and there is no recourse on the instrument
against the underlying obligor; and

(b) in any other case the obligation is suspended pro tanto until the
instrument is due or if it is payable on demand until its presentment. If
the instrument is dishonored action may be maintained on either the in-
strument or the obligation; discharge of the underlying obligor on the in-
strument also discharges him on the obligation.

(2) The taking in good faith of a check which is not postdated does
not of itself so extend the time on the original obligation as to discharge
a surety.

§ 3-803. Notice to Third Party. Where a defendant is sued for breach
of an obligation for which a third person is answerable over under this
Article he may give the third person written notice of the litigation, and
the person notified may then give similar notice to any other person who
is answerable over to him under this Article. If the notice states that the
person notified may come in and defend and that if the person notified does
not do so he will in any action against him by the person giving the notice
be bound by any determination of fact common to the two litigations, then
unless after seasonable receipt of the notice the person notified does come
in and defend he is so bound.

§ 3-804. Lost, Destroyed or Stolen Instruments. The owner of an
instrument which is lost, whether by destruction, theft or otherwise, may
maintain an action in his own name and recover from any party liable
thereon upon due proof of his ownership, the facts which prevent his pro-
duction of the instrument and its terms. The court may require security
indemnifying the defendant against loss by reason of further claims on
the instrument.

§ 3-805. Instruments Not Payable to Order or to Bearer. This Article
applies to any instrument whose terms do not preclude transfer and which
is otherwise negotiable within this Article but which is not payable to order
or to bearer, except that there can be no holder in due course of such an

instrument.
ARTICLE 4
BANK DEPOSITS AND COLLECTIONS
PART 1 |
GENERAL PROVISIONS AND DEFINITIONS

§ 4-101. Short Title. This Article shal] be known and may be cited
as Uniform Commercial Code—Bank Deposits and Collections.

§ 4-102. Applicability. (1) To the extent that items within this Article
are also within the scope of Articles 3 and 8, they are subject to the pro-
visions of those Articles. In the event of conflict the provisions of this
Article govern those of Article 3 but the provisions of Article 8 govern
those of this Article.

(2) The liability of a bank for action or non-action with respect to
any item handled by it for purposes of presentment, payment or collection
is governed by the law of the place where the bank is located. In the case
of action or non-action by or at a branch or separate office of a bank, its
liability is governed by the law of the place where the branch or separate
office is located.

§ 4-103. Variation by Agreement; Measure of Damages; Certain Ac-
tion Constituting Ordinary Care. (1) The effect of the provisions of this
Article may be varied by agreement except that no agreement can disclaim
a bank’s responsibility for its own lack of good faith or failure to exer-
cise ordinary care or can limit the measure of damages for such lack or
failure; but the parties may by agreement determine the standards by
which such responsibility is to be measured if such standards are not
manifestly unreasonable.

(2) Federal Reserve regulations and operating letters, clearing house
rules, and the like, have the effect of agreements under subsection (1),
whether or not specifically assented to by all parties interested in items

andled.

(3) Action or non-action approved by this Article or pursuant to
Federal Reserve regulations or operating letters constitutes the exercise
of ordinary care and, in the absence of special instructions, action or non-
action consistent with clearing house rules and the like or with a general
banking usage not disapproved by this Article, prima facie constitutes the
exercise of ordinary care.

(4) The specification or approval of certain procedures by this Article
does not constitute disapproval of other procedures which may be reason-
able under the circumstances.

(5) The measure of damages for failure to exercise ordinary care
in handling an item is the amount of the item reduced by an amount which
could not have been realized by the use of ordinary care, and where there
is bad faith it includes other damages, if any, suffered by the party as a
proximate consequence.

§ 4-104. Definitions and Index of Definitions. (1) In this Article unless
the context otherwise requires

(a) “Account” means any account with a bank and includes a check-
ing, time, interest or savings account;

7 (b) “Afternoon” means the period of a day between noon and mid-
night;

(c) “Banking day” means that part of any day on which a bank is
open to the public for carrying on substantially all of its banking functions;

(d) “Clearing house” means any association of banks or other payors
regularly clearing items;

(e) “Customer” means any person having an account with a bank
or for whom a bank has agreed to collect items and includes a bank carry-
Ing an account with another bank;

(f) ‘Documentary draft” means any negotiable or non-negotiable draft
with accompanying documents, securities or other papers to be delivered
against honor of the draft;

(g) ‘Item’? means any instrument for the payment of money even
though it is not negotiable but does not include money;

(h) “Midnight deadline” with respect to a bank is midnight on its
next banking day following the banking day on which it receives the rele-
vant item or notice or from which the time for taking action commences
to run, whichever is later;

(i) “Properly payable” includes the availability of funds for pay-
ment at the time of decision to pay or dishonor;

(j) ‘Settle’ means to pay in cash, by clearing house settlement, in
a charge or credit or by remittance, or otherwise as instructed. A settle-
ment may be either provisional or final;

(k) “Suspends payments” with respect to a bank means that it has
been closed by order of the supervisory authorities, that a public officer has
been appointed to take it over or that it ceases or refuses to make payments
in the ordinary course of business.

(2) Other definitions applying to this Article and the sections in which
they appear are:

“Collacting hank’? g 4.105.
“Depositary bank” § 4-105
“Intermediary bank” § 4-105.
“Payor bank” § 4-105.
“Presenting bank” § 4-105.
“Remitting bank” § 4-105.
(3) The following definitions in other Articles apply to this Article:
‘“‘Acceptance’”’ § 3-410.
“Certificate of deposit” § 3-104.
“Certification” § 3-411.
“Check’”’ § 3-104.
“Draft” § 3-104.
“Holder in due course’”’ § 3-302.
“Notice of dishonor’ § 3-508.
“Presentment” § 3-504.
“Protest” § 3-509.
“Secondary party” § 3-102.

(4) In addition Article 1 contains general definitions and principles of
construction and interpretation applicable throughout this Article.

4-105. “Depositary Bank”; “Intermediary Bank”; “Collecting Bank” ;
“Payor Bank”; “Presenting Bank”; “Remitting Bank”. In this Article
unless the context otherwise requires:

(a) “Depositary bank’ means the first bank to which an item is trans-
ferred for collection even though it is also the payor bank;

(b) “Payor bank’ means a bank by which an item is payable as drawn
or accepted;

(c) “Intermediary bank” means any bank to which an item is trans-
ferred in course of collection except the depositary or payor bank;

(d) “Collecting bank” means any bank handling the item for collection
except the payor bank;

(e) “Presenting bank” means any bank presenting an item except a
payor bank;

(f) “Remitting bank” means any payor or intermediary bank remitt-
ing for an item.

§ 4-106. Separate Office of a Bank. A branch or separate office of a
bank maintaining its own deposit ledgers is a separate bank for the pur-
pose of computing the time within which and determining the place at
or to which action may be taken or notices or orders shall be given under
this Article and under Article 3.

§ 4-107. Time of Receipt of Items. (1) For the purpose of allowing
time to process items, prove balances and make the necessary entries on
its books to determine its position for the day, a bank may fix an afternoon
hour of two P.M. or later as a cut-off hour for the handling of money and
items and the making of entries on its books.

(2) Any item or deposit of money received on any day after a cut-off
hour so fixed or after the close of the banking day may be treated as being
received at the opening of the next banking day.

§ 4-108. Delays. (1) Unless otherwise instructed, a collecting bank
in a good faith effort to secure payment may, in the case of specific items
and with or without the approval of any person involved, waive, modify or
extend time limits imposed or permitted by this Act for a period not in
excess of an additional banking day without discharge of secondary parties
and without liability to its transferor or any prior party.

(2) Delay by a collecting bank or payor bank beyond time limits pre-
scribed or permitted by this Act or by instructions is excused if caused
by interruption of communication facilities, suspension of payments by
another bank, war, emergency conditions or other circumstances beyond
the control of the bank provided it exercises such diligence as the circum-
stances require.
§ 4-109. Process of Posting. The “process of posting’ means the usual
procedure followed by a payor bank in determining to pay an item and in
recording the payment including one or more of the following or other
steps as determined by the bank:

(a) verification of any signature;

(b) ascertaining that sufficient funds are available;

(c) affixing a “paid” or other stamp;

(d) entering a charge or entry to a customer’s account;

(e) correcting or reversing an entry or erroneous action with respect

to the item.
PART 2

COLLECTION OF ITEMS; DEPOSITARY AND
COLLECTING BANKS

§ 4-201. Presumption and Duration of Agency Status of Collecting
Banks and Provisional Status of Credits; Applicability of Article; Item
Indorsed “Pay Any Bank”. (1) Unless a contrary intent clearly appears
and prior to the time that a settlement given by a collecting bank for an
item is or becomes final (subsection (3) of § 4-211 and §§ 4-212 and
4-213) the bank is an agent or subagent of the owner of the item and any
settlement given for the item is provisional. This provision applies re-
gardless of the form of indorsement or lack of indorsement and even though
credit given for the item is subject to immediate withdrawal as of right
or is in fact withdrawn; but the continuance of ownership of an item by
its owner and any rights of the owner to proceeds of the item are subject
to rights of a collecting bank such as those resulting from outstanding ad-
vances on the item and valid rights of setoff. When an item is handled
by banks for purposes of presentment, payment and collection, the relevant
provisions of this Article apply even though action of parties clearly estab-
lishes that a particular bank has purchased the item and is the owner of it.

(2) After an item has been indorsed with the words “pay any bank”
or the like, only a bank may acquire the rights of a holder

(a) until the item has been returned to the customer initiating collec-
tion; or

(b) until the item has been specially indorsed by a bank to a person
who is not a bank.

§ 4-202. Responsibility for Collection; When Action Seasonable. (1)
A collecting bank must use ordinary care in

(a) presenting an item or sending it for presentment; and

(b) sending notice of dishonor or nonpayment or returning an item
other than a documentary draft to the bank’s transferor or directly to the
depositary bank under subsection (2) of § 4-212 after learning that the item
has not been paid or accepted, as the case may be; and

(c) settling for an item when the bank receives final settlement; and

(d) making or providing for any necessary protest; and

(e) notifying its transferor of any loss or delay in transit within a
reasonable time after discovery thereof.

(2) A collecting bank taking proper action before its midnight dead-
line following receipt of an item, notice or payment acts seasonably; taking
proper action within a reasonably longer time may be seasonable but the
bank has the burden of so establishing.

(3) Subject to subsection (1) (a), a bank is not liable for the in-
solvency, neglect, misconduct, mistake or default of another bank or per-
son or for loss or destruction of an item in transit or in the possession of
others.

§ 4-203. Effect of Instructions. Subject to the provisions of Article 3
concerning conversion of instruments (§ 3-419) and the provisions of both
Article 3 and this Article concerning restrictive indorsements only a collect-
ing bank’s transferor can give instructions which affect the bank or con-
stitute notice to it and a collecting bank is not liable to prior parties for
any action taken pursuant to such instructions or in accordance with
any agreement with its transferor.

§ 4-204. Methods of Sending and Presenting; Sending Direct to Payor
Bank. (1) A collecting bank must send items by reasonably prompt
method taking into consideration any relevant instructions, the nature of
the item, the number of such items on hand, and the cost of collection in-
volved and the method generally used by it or others to present such items.

(2) A collecting bank may send

(a) any item direct to the payor bank;

(b) any item to any non-bank payor if authorized by its transferor;
an

(c) any item other than documentary drafts to any non-bank payor,
if authorized by Federal Reserve regulation or operating letter, clearing
house rule or the like.

(3) Presentment may be made by a presenting bank at a place where
the payor bank has requested that presentment be made.

§ 4-205. Supplying Missing Indorsement; No Notice from Prior In-
dorsement. (1) A depositary bank which has taken an item for collection
may supply any indorsement of the customer which is necessary to title
unless the item contains the words “payee’s indorsement required” or the
like. In the absence of such a requirement a statement placed on the item
by the depositary bank to the effect that the item was deposited by a cus-
tomer or credited to his account is effective as the customer’s indorsement.

(2) An intermediary bank, or payor bank which is not a depositary
bank, is neither given notice nor otherwise affected by a restrictive in-
dorsement of any person except the bank’s immediate transferor.

5 4-206. Transfer Between Banks. Any agreed method which identi-
fies the transferor bank is sufficient for the item’s further transfer to
another bank.

§ 4-207. Warranties of Customer and Collecting Bank on Transfer or
Presentment of Items; Time for Claims. (1) Each customer or collecting
bank who obtains payment or acceptance of an item and each prior cus-
tomer and collecting bank warrants to the payor bank or other payor who
in good faith pays or accepts the item that

(a) he has a good title to the item or is authorized to obtain payment
or acceptance on behalf of one who has a good title; and

he has no knowledge that the signature of the maker or drawer
is unauthorized, except that this warranty is not given by any customer or
collecting bank that is a holder in due course and acts in good faith

(i) to a maker with respect to the maker’s own signature; or

(11) to a drawer with respect to the drawer’s own signature, whether
or not the drawer is also the drawee; or

(ili) to an acceptor of an item if the holder in due course took the item
after the acceptance or obtained the acceptance without knowledge that
the drawer’s signature was unauthorized; and

(c) the item has not been materially altered, except that this warranty
is not given by any customer or collecting bank that is a holder in due
course and acts in good faith

(i) to the maker of a note; or

(ii) to the drawer of a draft whether or not the drawer is also the
drawee; or |

(i111) to the acceptor of an item with respect to an alteration made
prior to the acceptance if the holder in due course took the item after the
acceptance, even though the acceptance provided “payable as originally
drawn” or equivalent terms; or
(iv) to the acceptor of an item with respect to an alteration made
after the acceptance.

(2) Each customer and collecting bank who transfers an item and
receives a settlement or other consideration for it warrants to his transferee
and to any subsequent collecting bank who takes the item in good faith that

(a) he has a good title to the item or is authorized to obtain pay-
ment or acceptance on behalf of one who has a good title and the transfer
is otherwise rightful; and

(b) all signatures are genuine or authorized; and

(c) the item has not been materially altered; and

(d) no defense of any party is good against him; and

(e) he has no knowledge of any insolvency proceeding instituted with
respect to the maker or acceptor or the drawer of an unaccepted item.

In addition each customer and collecting bank so transferring an item
and receiving a settlement or other consideration engages that upon dis-
honor and any necessary notice of dishonor and protest he will take up
the item.

(3) The warranties and the engagement to honor set forth in the two
preceding subsections arise notwithstanding the absence of indorsement
or words of guaranty or warranty in the transfer or presentment and a
collecting bank remains liable for their breach despite remittance to its
transferor. Damages for breach of such warranties or engagement to honor
shall not exceed the consideration received by the customer or collecting
bank responsible plus finance charges and expenses related to the item,

y.

(4) Unless a claim for breach of warranty under this section is made
within a reasonable time after the person claiming learns of the breach, the
person liable is discharged to the extent of any loss caused by the delay
in making claim.

§ 4-208. Security Interest of Collecting Bank in Items, Accompanying
Documents and Proceeds. (1) A bank has a security interest in an item
and any accompanying documents or the proceeds of either

(a) in case of an item deposited in an account to the extent to which
credit given for the item has been withdrawn or applied;

(b) in case of an item for which it has given credit available for with-
drawal as of right, to the extent of the credit given whether or not the
credit is drawn upon and whether or not there is a right of charge-back; or

(c) if it makes an advance on or against the item.

(2) When credit which has been given for several items received at
one time or pursuant to a single agreement is withdrawn or applied in part
the security interest remains upon all the items, any accompanying docu-
ments or the proceeds of either. For the purpose of this section, credits
first given are first withdrawn.

(3) Receipt by a collecting bank of a final settlement for an item is
a realization on its security interest in the item, accompanying documents
and proceeds. To the extent and so long as the bank does not receive final
settlement for the item or give up possession of the item or accompanying
documents for purposes other than collection, the security interest con-
tinues and is subject to the provisions of Article 9 except that

(a) no security agreement is necessary to make the security interest
enforceable (subsection (1) (b) of § 9-203); and

(b) no filing is required to perfect the security interest; and

(c) the security interest has priority over conflicting perfected secur-
ity interests in the item, accompanying documents or proceeds.

4-209. When Bank Gives Value for Purposes of Holder in Due Course.
For purposes of determining its status as a holder in due course, the bank
has given value to the extent that it has a security interest in an item
provided that the bank otherwise complies with the requirements of § 3-302
on what constitutes a holder in due course.

4-210. Presentment by Notice of Item Not Payable by, Through or
at a Bank; Liability of Secondary Parties. (1) Unless otherwise instructed,
a collecting bank may present an item not payable by, through or at a bank
by sending to the party to accept or pay a written notice that the bank
holds the item for acceptance or payment. The notice must be sent in time
to be received on or before the day when presentment is due and the bank
must meet any requirement of the party to accept or pay under § 3-505
by the close of the bank’s next banking day after it knows of the require-
ment.

(2) Where presentment is made by notice and neither honor nor re-
quest for compliance with a requirement under § 3-505 is received by the
close of business on the day after maturity or in the case of demand items
by the close of business on the third banking day after notice was sent,
the presenting bank may treat the item as dishonored and charge any
secondary party by sending him notice of the facts.

4-211. Media of Remittance; Provisional and Final Settlement in
Remittance Cases. (1) A collecting bank may take in settlement of an
item

(a) a check of the remitting bank or of another bank on any bank
except the remitting bank; or

(b) a cashier’s check or similar primary obligation of a remitting
bank which is a member of or clears through a member of the same clear-
ing house or group as the collecting bank; or

(c) appropriate authority to charge an account of the remitting bank
or of another bank with the collecting bank; or

(d) if the item is drawn upon or payable by a person other than a
bank, a cashier’s check, certified check or other bank check or obligation.

(2) If before its midnight deadline the collecting bank properly dis-
honors a remittance check or authorization to charge on itself or presents
or forwards for collection a remittance instrument of or on another bank
which is of a kind approved by subsection (1) or has not been authorized
by it, the collecting bank is not liable to prior parties in the event of the
dishonor of such check, instrument or authorization.

(3) A settlement for an item by means of a remittance instrument
or authorization to charge is or becomes a final settlement as to both the
person making and the person receiving the settlement

(a) if the remittance instrument or authorization to charge is of a
kind approved by subsection (1) or has not been authorized by the person
receiving the settlement and in either case the person receiving the settle-
ment acts seasonably before its midnight deadline in presenting, forward-
ing for collection or paying the instrument or authorization,—at the time
the remittance instrument or authorization is finally paid by the payor
by which it is payable;

(b) if the person receiving the settlement has authorized remittance
by a non-bank check or obligation or by a cashier’s check or similar primary
obligation of or a check upon the payor or other remitting bank which is
not of a kind approved by subsection (1) (b),—at the time of the receipt
of such remittance check or obligation; or

(c) if in a case not covered by subparagraphs (a) or (b) the person
receiving the settlement fails to seasonably present, forward for collection,
pay or return a remittance instrument or authorization to it to charge
before its midnight deadline,—at such midnight deadline.

§ 4-212. Right of Charge-Back or Refund. (1) If a collecting bank
has made provisional settlement with its customer for an item and itself
fails by reason of dishonor, suspension of payments by a bank or otherwise
to receive a settlement for the item which is or becomes final, the bank may
revoke the settlement given by it, charge back the amount of any credit
given for the item to its customer’s account or obtain refund from its
customer whether or not it is able to return the item if by its midnignt
deadline or within a longer reasonable time after it learns the facts it re-
turns the item or sends notification of the facts. These rights to revoke,
charge-back and obtain refund terminate if and when a settlement for
the item received by the bank is or becomes final (subsection (3) of § 4-211
and subsections (2) and (3) of § 4-213).

(2) Within the time and manner prescribed by this section and
§ 4-301, an intermediary or payor bank, as the case may be, may return
an unpaid item directly to the depositary bank and may send for collection
a draft on the depositary bank and obtain reimbursement. In such case,
if the depositary bank has received provisional settlement for the item,
it must reimburse the bank drawing the draft and any provisional credits
for the item between banks shall become and remain final.

(3) A depositary bank which is also the payor may charge-back the
amount of an item to its customer’s account or obtain refund in accordance
with the section governing return of an item received by a payor bank
for credit on its books (§ 4-301).

(4) The right to charge-back is not affected by

(a) prior use of the credit given for the item; or

(b) failure by any bank to exercise ordinary care with respect tu
the item but any bank so failing remains liable.

(5) A failure to charge-back or claim refund does not affect other
rights of the bank against the customer or any other party.

(6) If credit is given in dollars as the equivalent of the value of an
item payable in a foreign currency the dollar amount of any charge-back
or refund shall be calculated on the basis of the buying sight rate for the
foreign currency prevailing on the day when the person entitled to the
charge-back or refund learns that it will not receive payment in ordinary
course.

§ 4-213. Final Payment of Item by Payor Bank; When Provisional
Debits and Credits Become Final; When Certain Credits Become Available
for Withdrawal. (1) An item is finally paid by a payor bank when the bank
has done any of the following, whichever happens first:

(a) paid the item in cash; or

(b) settled for the item without reserving a right to revoke the settle-
ment and without having such right under statute, clearing house rule or
agreement; or

(c) completed the process of posting the item to the indicated account
of the drawer, maker or other person to be charged therewith; or

(d) made a provisional settlement for the item and failed to revoke
the settlement in the time and manner permitted by statute, clearing house
rule or agreement.

Upon a final payment under subparagraphs (b), (c) or (d) the payor
bank shall be accountable for the amount of the item.

(2) If provisional settlement for an item between the presenting
and payor banks is made through a clearing house or by debits or credits
in an account between them, then to the extent that provisional debits
or credits for the item are entered in accounts between the presenting and
payor banks or between the presenting and successive prior collecting
banks seriatim, they become final upon final payment of the item by the
payor bank.

(3) If a collecting bank receives a settlement for an item which is or
becomes final (subsection (3) of § 4-211, subsection (2) of § 4-213) the
bank is accountable to its customer for the amount of the item and any
provisional credit given for the item in an account with its customer be-
comes final.
(4) Subject to any right of the bank to apply the credit to an obliga-
tion of the customer, credit given by a bank for an item in an account with
its customer becomes available for withdrawal as of right

(a) in any case where the bank has received a provisional settlement
for the item,—when such settlement becomes final and the bank has had
a reasonable time to learn that the settlement is final;

(b) in any case where the bank is both a depositary bank and a payor
bank and the item is finally paid,—at the opening of the bank’s second
banking day following receipt of the item.

(5) A deposit of money in a bank is final when made but, subject to
any right of the bank to apply the deposit to an obligation of the customer,
the deposit becomes available for withdrawal as of right at the opening
of the bank’s next banking day following receipt of the deposit.

§ 4-214. Insolvency and Preference. (1) Any item in or coming into
the possession of a payor or collecting bank which suspends payment and
which item is not finally paid shall be returned by the receiver, trustee
or agent in charge of the closed bank to the presenting bank or the closed
bank’s customer.

(2) If a payor bank finally pays an item and suspends payments with-
out making a settlement for the item with its customer or the presenting
bank which settlement is or becomes final, the owner of the item has a
preferred claim against the payor bank.

(3) If a payor bank gives or a collecting bank gives or receives a pro-
visional settlement for an item and thereafter suspends payments, the
suspension does not prevent or interfere with the settlement becoming
final if such finality occurs automatically upon the lapse of certain time
or the happening of certain events (subsection (3) of § 4-211, subsections
(1) (d), (2) and (3) of § 4-218).

(4) If a collecting bank receives from subsequent parties settlement
for an item which settlement is or becomes final and suspends payments
without making a settlement for the item with its customer which is or
becomes final, the owner of the item has a preferred claim against such
collecting bank.

PART 8
COLLECTION OF ITEMS: PAYOR BANKS

§ 4-301. Deferred Posting; Recovery of Payment by Return of Items;
Time of Dishonor. (1) Where an authorized settlement for a demand item
(other than a documentary draft) received by a payor bank otherwise
than for immediate payment over the counter has been made before mid-
night of the banking day of receipt the payor bank may revoke the settle-
ment and recover any payment if before it has made final payment (sub-
section (1) of § 4-213) and before its midnight deadline it

(a) returns the item; or

(b) sends written notice of dishonor or nonpayment if the item is heid
for protest or is otherwise unavailable for return.

(2) If a demand item is received by a payor bank for credit on its
books it may return such item or send notice of dishonor and may revoke
any credit given or recover the amount thereof withdrawn by its customer,
if it acts within the time limit and in the manner specified in the preceding
subsection.

(3) Unless previous notice of dishonor has been sent an item is dis-
honored at the time when for purposes of dishonor it is returned or notice
sent in accordance with this section.

(4) An item is returned:

(a) as to an item received through a clearing house, when it is de-
livered to the presenting or last collecting bank or to the clearing house
or is gent or delivered in accordance with its rules; or
(b) in all other cases, when it is sent or delivered to the bank’s cus-
tomer or transferor or pursuant to his instructions.

§ 4-302. Payor Bank’s Responsibility for Late Return of Item. In
the absence of a valid defense such as breach of a presentment warranty
(subsection (1) of § 4-207), settlement effected or the like, if an item
is presented on and received by a payor bank the bank is accountable for
the amount of

(a) a demand item other than a documentary draft whether properly
payable or not if the bank, in any case where it is not also the depositary
bank, retains the item beyond midnight of the banking day of receipt
without settling for it or, regardless of whether it is also the depositary
bank, does not pay or return the item or send notice of dishonor until after
its midnight deadline; or

(b) any other properly payable item unless within the time allowed for
acceptance or payment of that item the bank either accepts or pays the
item or returns it and accompanying documents.

§ 4-303. When Items Subject to Notice, Stop-Order, Legal Process or
Setoff ; Order in Which Items May be Charged or Certified. (1) Any knowl-
edge, notice or stop-order received by, legal process served upon or setoff
exercised by a payor bank, whether or not effective under other rules of
law to terminate, suspend or modify the bank’s right or duty to pay an
item or to charge its customer’s account for the item, comes too late to so
terminate, suspend or modify such right or duty if the knowledge, notice,
stop-order or legal process is received or served and a reasonable time for
the bank to act thereon expires or the setoff is exercised after the bank
has done any of the following:

(a) accepted or certified the item;

(b) paid the item in cash;

(c) settled for the item without reserving a right to revoke the settle-
ment and without having such right under statute, clearing house rule or
agreement;

(d) completed the process of posting the item to the indicated account
of the drawer, maker or other person to be charged therewith or other-
wise has evidenced by examination of such indicated account and by action
its decision to pay the item; or

(e) become accountable for the amount of the item under subsection
(1) (d) of § 4-213 and § 4-302 dealing with the payor bank’s respon-
sibility for late return of items.

(2) Subject to the provisions of subsection (1) items may be accepted,
paid, certified or charged to the indicated account of its customer in any
order convenient to the bank.

PART 4

RELATIONSHIP BETWEEN PAYOR BANK
AND ITS CUSTOMER

§ 4-401. When Bank May Charge Customer’s Account. (1) As against
its customer, a bank may charge against his account any item which is
otherwise properly payable from that account even though the charge
creates an overdraft.

(2) A bank which in good faith makes payment to a holder may charge
the indicated account of its customer according to

(a) the original tenor of his altered item; or

(b) the tenor of his completed item, even though the bank knows
the item has been completed unless the bank has notice that the completion
was improper.

§ 4-402. Bank’s Liability to Customer for Wrongful Dishonor. A
payor bank is liable to its customer for damages proximately caused by
the wrongful dishonor of an item. When the dishonor occurs through mis-
take liability is limited to actual damages proved. If so proximately caused
and proved damages may include damages for an arrest or prosecution of
the customer or other consequential damages. Whether any consequential
damages are proximately caused by the wrongful dishonor is a question
of fact to be determined in each case.

§ 4-403. Customer’s Right to Stop Payment; Burden of Proof of Loss.
(1) A customer may by order to his bank stop payment of any item payable
for his account but the order must be received at such time and in such
manner as to afford the bank a reasonable opportunity to act on it prior
to any action by the bank with respect to the item described in § 4-303.

(2) An oral order is binding upon the bank only for fourteen calendar
days unless confirmed in writing within that period. A written order is
effective for only six months unless renewed in writing.

(3) The burden of establishing the fact and amount of loss resulting
from the payment of an item contrary to a binding stop payment order
is on the customer.

§ 4-404. Bank Not Obligated to Pay Check More Than Six Months Old.
A bank is under no obligation to a customer having a checking account to
pay a check, other than a certified check, which is presented more than six
months after its date, but it may charge its customer’s account for a pay-
ment made thereafter in good faith.

§ 4-405. Death or Incompetence of Customer. (1) A payor or collect-
ing bank’s authority to accept, pay or collect an item or to account for pro-
ceeds of its collection if otherwise effective is not rendered ineffective by
incompetence of a customer of either bank existing at the time the item
is issued or its collection is undertaken if the bank does not know of an
adjudication of incompetence. Neither death nor incompetence of a cus-
tomer revokes such authority to accept, pay, collect or account until the
bank knows of the fact of death or of an adjudication of incompetence and
has reasonable opportunity to act on it.

(2) Even with knowledge a bank may for ten days after the date of
death pay or certify checks drawn on or prior to that date unless ordered
to stop payment by a person claiming an interest in the account.

§ 4-406. Customer’s Duty to Discover and Report Unauthorized Signa-
ture or Alteration. (1) When a bank sends to its customer a statement of
account accompanied by items paid in good faith in support of the debit
entries or holds the statement and items pursuant to a request or instruc-
tions of its customer or otherwise in a reasonable manner makes the state-
ment and items available to the customer, the customer must exercise
reasonable care and promptness to examine the statement and items to
discover his unauthorized signature or any alteration on an item and must
notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to
an item to comply with the duties imposed on the customer by subsection
(1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if the
bank also establishes that it suffered a loss by reason of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer
on any other item paid in good faith by the bank after the first item and
statement was available to the customer for a reasonable period not ex-
ceeding fourteen calendar days and before the bank receives notification
from the customer of any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer
a. lack of ordinary care on the part of the bank in paying the
item (8s).

(4) Without regard to care or lack of care of either the customer or
the bank a customer who does not within one year from the time the state-
men and items are made available to the customer (subsection (1)) dis-
cover and report his unauthorized signature or any alteration on the face
or back of the item or does not within three years from that time discover
and report any unauthorized indorsement is precluded from asserting
against the bank such unauthorized signature or indorsement or such
alteration.

(5) If under this section a payor bank has a valid defense against a
claim of a customer upon or resulting from payment of an item and waives
or fails upon request to assert the defense the bank may not assert against
any collecting bank or other prior party presenting or transferring the
item a claim based upon the unauthorized signature or alteration giving
rise to the customer’s claim.

§ 4-407. Payor Bank’s Right to Subrogation on Improper Payment.
If a payor bank has paid an item over the stop payment order of the drawer
or maker or otherwise under circumstances giving a basis for objection by
the drawer or maker, to prevent unjust enrichment and only to the extent
necessary to prevent loss to the bank by reason of its payment of the item,
the payor bank shall be subrogated to the rights

(a) of any holder in due course on the item against the drawer or
maker; and

(b) of the payee or any other holder of the item against the drawer
or maker either on the item or under the transaction out of which the item
arose; and

(c) of the drawer or maker against the payee or any other holder of
the item with respect to the transaction out of which the item arose.

PART 5
COLLECTION OF DOCUMENTARY DRAFTS

§ 4-501. Handling of Documentary Drafts; Duty to Send for Present-
ment and to Notify Customer of Dishonor. A bank which takes a docu-
mentary draft for collection must present or send the draft and accompany-
ing documents for presentment and upon learning that the draft has not
been paid or accepted in due course must seasonably notify its customer
of such fact even though it may have discounted or bought the draft or
extended credit available for withdrawal as of right.

4-502. Presentment of “On Arrival” Drafts. When a draft or the
relevant instructions require presentment “‘on arrival’, ‘‘when goods arrive”
or the like, the collecting bank need not present until in its judgment a rea-
sonable time for arrival of the goods has expired. Refusal to pay or accept
because the goods have not arrived is not dishonor; the bank must notify
its transferor of such refusal but need not present the draft again until it
is instructed to do so or learns of the arrival of the goods.

§ 4-503. Responsibility of Presenting Bank for Documents and Goods;
Report of Reasons for Dishonor; Referee in Case of Need. Unless othcr-
wise instructed and except as provided in Article 5 a bank presenting a
documentary draft

(a) must deliver the documents to the drawee on acceptance of the
draft if it is payable more than three days after presentment; otherwise,
only on payment; and

(b) upon dishonor, either in the case of presentment for acceptance
or presentment for payment, may seek and follow instructions from any
referee in case of need designated in the draft or if the presenting bank
does not choose to utilize his services it must use diligence and good faith
to ascertain the reason for dishonor, must notify its transferor of the dis-
honor and of the results of its effort to ascertain the reasons therefor and
must request instructions.

But the presenting bank is under no obligation with respect to goods
represented by the documents except to follow any reasonable instructions
seasonably received; it has a right to reimbursement for any expense in-
curred in following instructions and to prepayment of or indemnity for
such expenses.

§ 4-504. Privilege of Presenting Bank to Deal With Goods; Security
Interest for Expenses. (1) A presenting bank which, following the dishonor
of a documentary draft, has seasonably requested instructions but does not
receive them within a reasonable time may store, sell, or otherwise deal
with the goods in any reasonable manner.

(2) For its reasonable expenses incurred by action under subsection
(1) the presenting bank has a lien upon the goods or their proceeds, which
may be foreclosed in the same manner as an unpaid seller’s lien.

ARTICLE 5
LETTERS OF CREDIT

§ 5-101. Short Title. This Article shall be known and may be cited
as Uniform Commercial Code—Letters of Credit.

§ 5-102. Scope. (1) This Article applies

(a) to acredit issued by a bank if the credit requires a documentary
draft or a documentary demand for payment; and

(b) to a credit issued by a person other than a bank if the credit re-
quires that the draft or demand for payment be accompanied by a docu-
ment of title; and

__ (c) to a credit issued by a bank or other person if the credit is not
within subparagraphs (a) or (b) but conspicuously states that it is a
letter of credit or is conspicuously so entitled.

(2) Unless the engagement meets the requirements of subsection
(1), this Article does not apply to engagements to make advances or to
honor drafts or demands for payment, to authorities to pay or purchase,
to guarantees or to general agreements.

(3) This Article deals with some but not all of the rules and con-
cepts of letters of credit as such rules or concepts have developed prior
to this act or may hereafter develop. The fact that this Article states
a rule does not by itself require, imply or negate application of the
same or a converse rule to a situation not provided for or to a person not
specified by this Article.

§ 5-103. Definitions. (1) In this Article unless the context other-
wise requires

(a) “Credit” or “letter of credit”? means an engagement by a bank
or other person made at the request of a customer and of a kind within
the scope of this Article (§ 5-102) that the issuer will honor drafts
or other demands for payment upon compliance with the conditions
specified in the credit. A credit may be either revocable or irrevocable.
The engagement may be either an agreement to honor or a statement
that the bank or other person is authorized to honor.

(b) A “documentary draft” or a “documentary demand for pay-
ment”? is one honor of which is conditioned upon the presentation of
a document or documents. “Document” means any paper including
“ocument of title, security, invoice, certificate, notice of default and

e like.

(c) An “issuer” is a bank or other person issuing a credit.

(d) A “beneficiary” of a credit is a person who is entitled under
its terms to draw or demand payment.

(e) An “advising bank’ is a bank which gives notification of the
issuance of a credit by another bank.

(f) A “confirming bank” is a bank which engages either that it
will itself honor a credit already issued by another bank or that such
a credit will be honored by the issuer or a third bank.
(g) A “customer” is a buyer or other person who causes an issuer
to issue a credit. The term also includes a bank which procures issuance
or confirmation on behalf of that bank’s customer.

(2) Other definitions applying to this Article and the sections in
which they appear are:

“Notation of Credit”. § 5-108.

“Presenter”. § 5-112(3).

(3) Definitions in other Articles applying to this Article and the
sections in which they appear are:

“Accept” or ‘‘Acceptance’”’. § 3-410.

“Contract for sale’. § 2-106.

“Draft”. § 3-104.

“Holder in due course’’. § 3-302.

“Midnight deadline”. § 4-104.

“Security”. § 8-102.

(4) In addition, Article 1 contains general definitions and princi-
ples of construction and interpretation applicable throughout this Article.

§ 5-104. Formal Requirements; Signing. (1) Except as otherwise
required in subsection (1)(c) of § 5-102 on scope, no particular form of
phrasing is required for a credit. A credit must be in writing and
signed by the issuer and a confirmation must be in writing and signed
by the confirming bank. A modification of the terms of a credit or
confirmation must be signed by the issuer or confirming bank.

(2) A telegram may be a sufficient signed writing if it identifies
its sender by an authorized authentication. The authentication may be
in code and the authorized naming of the issuer in an advice of credit
is a sufficient signing.

§ 5-105. Consideration. No consideration is necessary to establish
a credit or to enlarge or otherwise modify its terms.

§ 5-106. Time and Effect of Establishment of Credit. (1) Unless
otherwise agreed a credit is established

(a) as regards the customer as soon as a letter of credit is sent to
him or the letter of credit or an authorized written advice of its issu-
ance is sent to the beneficiary; and

(b) as regards the beneficiary when he receives a letter of credit
or an authorized written advice of its issuance.

(2) Unless otherwise agreed once an irrevocable credit is estab-
lished as regards the customer it can be modified or revoked only with
the consent of the customer and once it is established as regards the
beneficiary it can be modified or revoked only with his consent.

(3) Unless otherwise agreed after a revocable credit is established
it may be modified or revoked by the issuer without notice to or con-
sent from the customer or beneficiary.

(4) Notwithstanding any modification or revocation of a revocable
credit any person authorized to honor or negotiate under the terms of
the original credit is entitled to reimbursement for or honor of any
draft or demand for payment duly honored or negotiated before receipt
of notice of the modification or revocation and the issuer in turn is
entitled to reimbursement from its customer.

§ 5-107. Advice of Credit; Confirmation; Error in Statement of
Terms. (1) Unless otherwise specified an advising bank by advising a
credit issued by another bank does not assume any obligation to honor
drafts drawn or demands for payment made under the credit but it does
assume obligation for the accuracy of its own statement.

(2) A confirming bank by confirming a credit becomes directly
obligated on the credit to the extent of its confirmation as though it
were its issuer and acquires the rights of an issuer.
(3) Even though an advising bank incorrectly advises the terms
of a credit it has been authorized to advise the credit is established as
against the issuer to the extent of its original terms.

(4) Unless otherwise specified the customer bears as against the
issuer all risks of transmission and reasonable translation or interpre-
tation of any message relating to a credit.

§ 5-108. “Notation Credit”; Exhaustion of Credit. (1) A credit
which specifies that any person purchasing or paying drafts or demands
for payment made under it must note the amount of the draft or de-
mand on the letter or advice of credit is a “notation credit”.

(2) Under a notation credit

(a) a person paying the beneficiary or purchasing a draft or de-
mand for payment from him acquires a right to honor only if the ap-
propriate notation is made and by transferring or forwarding for honor
the documents under the credit such a person warrants to the issuer
that the notation has been made; and

(b) unless the credit or a signed statement that an appropriate no-
tation has been made accompanies the draft or demand for payment
the issuer may delay honor until evidence of notation has been procured
which is satisfactory to it but its obligation and that of its customer
continue for a reasonable time not exceeding thirty days to obtain such
evidence.

(3) If the credit is not a notation credit

(a) the issuer may honor complying drafts or demands for pay-
ment presented to it in the order in which they are presented and is
discharged pro tanto by honor of any such draft or demand;

(b) as between competing good faith purchasers of complying drafts
or demands the person first purchasing has priority over a subsequent
purchaser even though the later purchased draft or demand has been
first honored.

§ 5-109. Issuer’s Obligation to Its Customer. (1) An issuer’s obli-
gation to its customer includes good faith and observance of any general
banking usage but unless otherwise agreed does not include liability or
responsibility

(a) for performance of the underlying contract for sale or other
transaction between the customer and the beneficiary; or

(b) for any act or omission of any person other than itself or its
own branch or for loss or destruction of a draft, demand or document
in transit or in the possession of others; or

(c) based on knowledge or lack of knowledge of any usage of any
particular trade.

(2) An issuer must examine documents with care so as to ascer-
tain that on their face they appear to comply with the terms of the
credit but unless otherwise agreed assumes no liability or responsibility
for the genuineness, falsification or effect of any document which ap-
pears on such examination to be regular on its face.

(3) A non-bank issuer is not bound by any banking usage of which
it has no knowledge.

§ 5-110. Availability of Credit in Portions; Presenter’s Reservation
of Lien or Claim. (1) Unless otherwise specified a credit may be used
in portions in the discretion of the beneficiary.

(2) Unless otherwise specified a person by presenting a documen-
tary draft or demand for payment under a credit relinquishes upon its
honor all claims to the documents and a person by transferring such
draft or demand or causing such presentment authorizes such relin-
quishment. An explicit reservation of claim makes the draft or demand
non-complying.
§ 5-111. Warranties on Transfer and Presentment. (1) Unless
otherwise agreed the beneficiary by transferring or presenting a docu-
mentary draft or demand for payment warrants to all interested parties
that the necessary conditions of the credit have been complied with.
This is in addition to any warranties arising under Articles 3, 4, 7 and 8.

(2) Unless otherwise agreed a negotiating, advising, confirming,
collecting or issuing bank presenting or transferring a draft or demand
for payment under a credit warrants only the matters warranted by a
collecting bank under Article 4 and any such bank transferring a docu-
ment warrants only the matters warranted by an intermediary under
Articles 7 and 8.

§ 5-112. Time Allowed for Honor or Rejection; Withholding Honor
vr Rejection by Consent; “Presenter”. (1) A bank to which a documentary
draft or demand for payment is presented under a credit may without dis-
honor of the draft, demand or credit

(a) defer honor until the close of the third banking day following re-
ceipt of the documents; and

(b) further defer honor if the presenter has expressly or impliedly
consented thereto.

Failure to honor within the time here specified constitutes dishonor of
the draft or demand and of the credit except as otherwise provided in sub-
section (4) of § 5-114 on conditional payment.

(2) Upon dishonor the bank may unless otherwise instructed fulfill
its duty to return the draft or demand and the documents by holding them
at the disposal of the presenter and sending him an advice to that effect.

(3) “Presenter” means any person presenting a draft or demand for
payment for honor under a credit even though that person is a confirming
bank or other correspondent which is acting under an issuer’s authoriza-
tion.

§ 5-113. Indemnities. (1) A bank seeking to obtain (whether for it-
self or another) honor, negotiation or reimbursement under a credit may
give an indemnity to induce such honor, negotiation or reimbursement.

(2) An indemnity agreement inducing honor, negotiation or reim-
bursement

(a) unless otherwise explicitly agreed applies to defects in the docu-
ments but not in the goods; and

(b) unless a longer time is explicitly agreed expires at the end of
ten business days following receipt of the documents by the ultimate cus-
tomer unless notice of objection is sent before such expiration date. The
ultimate customer may send notice of objection to the person from whom
he received the documents and any bank receiving such notice is under a
duty to send notice to its transferor before its midnight deadline.

§ 5-114. Issuer’s Duty and Privilege to Honor; Right to Reimburse-
ment. (1) An issuer must honor a draft or demand for payment which
complies with the terms of the relevant credit regardless of whether the
goods or documents conform to the underlying contract for sale or other
contract between the customer and the beneficiary. The issuer is not ex-
cused from honor of such a draft or demand by reason of an additional
general term that all documents must be satisfactory to the issuer, but
an issuer may require that specified documents must be satisfactory to it.

(2) Unless otherwise agreed when documents appear on their face
to comply with the terms of a credit but a required document does not in
fact conform to the warranties made on negotiation or transfer of a docu-
ment of title (§ 7-507) or of a security (§ 8-306) or is forged or fraudulent
or there is fraud in the transaction
(a) the issuer must honor the draft or demand for payment if honor
is demanded by a negotiating bank or other holder of the draft or demand
which has taken the draft or demand under the credit and under circum-
stances which would make it a holder in due course (§ 3-302) and in an
appropriate case would make it a person to whom a document of title has
been duly negotiated (§ 7-502) or a bona fide purchaser of a security
(§ 8-302); and

(b) in all other cases as against its customer, an issuer acting in good
faith may honor the draft or demand for payment despite notification from
the customer of fraud, forgery or other defect not apparent on the face
of the documents but a court of appropriate jurisdiction may enjoin such
honor.

(3) Unless otherwise agreed an issuer which has duly honored a draft
or demand for payment is entitled to immediate reimbursement of any
payment made under the credit and to be put in effectively available funds
not later than the day before maturity of any acceptance made under the

t.

§ 5-115. Remedy for Improper Dishonor or Anticipatory Repudiation.
(1) When an issuer wrongfully dishonors a draft or demand for payment
presented under a credit the person entitled to honor has with respect to
any documents the rights of a person in the position of a seller (§ 2-707)
and may recover from the issuer the face amount of the draft or demand
together with incidental damages under § 2-710 on seller’s incidental dam-
ages and interest but less any amount realized by resale or other use or
disposition of the subject matter of the transaction. In the event no re-
sale or other utilization is made the documents, goods or other subject
matter involved in the transaction must be turned over to the issuer on
payment of judgment.

(2) When an issuer wrongfully cancels or otherwise repudiates a
credit before presentment of a draft or demand for payment drawn under it
the beneficiary has the rights of a seller after anticipatory repudiation by
the buyer under § 2-610 if he learns of the repudiation in time reason-
ably to avoid procurement of the required documents. Otherwise the
beneficiary has an immediate right of action for wrongful dishonor.

§ 5-116. Transfer and Assignment. (1) The right to draw under a
credit can be transferred or assigned only when the credit is expressly
designated as transferable or assignable.

(2) Even though the credit specifically states that it is nontrans-
ferable or nonassignable the beneficiary may before performance of the
conditions of the credit assign his right to proceeds. Such an assignment
is an assignment of a contract right under Article 9 on Secured Trans-
actions and is governed by that Article except that

(a) the assignment is ineffective until the letter of credit or advice
of credit is delivered to the assignee which delivery constitutes perfection
of the security interest under Article 9; and

(b) the issuer may honor drafts or demands for payment drawn
under the credit until it receives a notification of the assignment signed
by the beneficiary which reasonably identifies the credit involved in the
assignment and contains a request to pay the assignee; and

(c) after what reasonably appears to be such a notification has been
received the issuer may without dishonor refuse to accept or pay even to
a person otherwise entitled to honor until the letter of credit or advice of
credit is exhibited to the issuer.

(3) Except where the beneficiary has effectively assigned his right
to draw or his right to proceeds, nothing in this section limits his right
to transfer or negotiate drafts or demands drawn under the credit.

§ 5-117. Insolvency of Bank Holding Funds for Documentary Credit.
(1) Where an issuer or an advising or confirming bank or a bank which
has for a customer procured issuance of a credit by another bank becomes
insolvent before final payment under the credit and the credit is one to
which this Article is made applicable by paragraphs (a) or (b) of § 5-102
(1) on scope, the receipt or allocation of funds or collateral to secure or
meet obligations under the credit shall have the following results:

(a) to the extent of any funds or collateral turned over after or
before the insolvency as indemnity against or specifically for the purpose
of payment of drafts or demands for payment drawn under the designated
credit, the drafts or demands are entitled to payment in preference over
depositors or other general creditors of the issuer or bank; and

(b) on expiration of the credit or surrender of the beneficiary’s rights
under it unused any person who has given such funds or collateral is
similarly entitled to return thereof; and

(c) a change to a general or current account with a bank if spe-
cifically consented to for the purpose of indemnity against or payment of
drafts or demands for payment drawn under the designated credit falls
under the same rules as if the funds had been drawn out in cash and then
turned over with specific instructions.

(2) After honor or reimbursement under this section the customer
or other person for whose account the insolvent bank has acted is entitled
to receive the documents involved.

ARTICLE 6
BULK TRANSFERS

§ 6-101. Short Title. This Article shall be known and may be cited
as Uniform Commercial Code—Bulk Transfers.

§ 6-102. “Bulk Transfer”; Transfers of Equipment; Enterprises Sub-
ject to This Article; Bulk Transfers Subject to This Article. (1) A “bulk
transfer” is any transfer in bulk and not in the ordinary course of the
transferor’s business of a major part of the materials, supplies, mer-
chandise or other inventory (§ 9-109) of an enterprise subject to this

rticle.

(2) A transfer of a substantial part of the equipment (§ 9-109) of
such an enterprise is a bulk transfer if it is made in connection with a bulk
transfer of inventory, but not otherwise.

(3) The enterprises subject to this Article are all those whose prin-
cipal business is the sale of merchandise from stock, including those who
manufacture what they sell.

(4) Except as limited by the following section all bulk transfers of
goods located within this state are subject to this Article.

§ 6-103. Transfers Excepted From This Article. The following trans-
fers are not subject to this Article:

(1) Those made to give security for the performance of an obligation;

(2) General assignments for the benefit of all the creditors of the
transferor, and subsequent transfers by the assignee thereunder:

(3) Transfers in settlement or realization of a lien or other security
interest ;

(4) Sales by executors, administrators, receivers, trustees in bank-
ruptcy, or any public officer under judicial process;

(5) Sales made in the course of judicial or administrative proceedings
for the dissolution or reorganization of a corporation and of which notice
is sent to the creditors of the corporation pursuant to order of the court or
administrative agency;

(6) Transfers to a person maintaining a known place of business in
this State who becomes bound to pay the debts of the transferor in full
aie gives public notice of that fact, and who is solvent after becoming so

ound;

(7) A transfer to a new business enterprise organized to take over
and continue the business, if public notice of the transaction is given and
the new enterprise assumes the debts of the transferor and he receives
nothing from the transaction except an interest in the new enterprise
junior to the claims of creditors;

(8) Transfers of property which is exempt from execution.

Public notice under subsection (6) or subsection (7) may be given
by publishing once a week for two consecutive weeks in a newspaper of
general circulation where the transferor had its principal place of business
in this state an advertisement including the names and addresses of the
transferor and transferee and the effective date of the transfer.

§ 6-104. Schedule of Property, List of Creditors. (1) Except as pro-
vided with respect to auction sales (§ 6-108), a bulk transfer subject to
this Article is ineffective against any creditor of the transferor unless:

(a) The transferee requires the transferor to furnish a list of his
existing creditors prepared as stated in this section; and

(b) The parties prepare a schedule of the property transferred suffici-
ent to identify it; and

(c) The transferee preserves the list and schedule for six months
next following the transfer and permits inspection of either or both and
copying therefrom at all reasonable hours by any creditor of the trans-
feror, or files the list and schedule in the clerk’s office where deeds are
admitted to record of the county or city in which is located the principal
place of business of the transferor, if an individual or partnership, or the
registered office of the transferor, if a corporation.

(2) The list of creditors must be signed and sworn to or affirmed by
the transferor or his agent. It must contain the names and business ad-
dresses of all creditors of the transferor, with the amounts when known,
and also the names of all persons who are known to the transferor to assert
claims against him even though such claims are disputed. If the trans-
feror is the obligor of an outstanding issue of bonds, debentures or the like
as to which there is an indenture trustee, the list of creditors need include
only the name and address of the indenture trustee and the aggregate out-
standing principal amount of the issue.

(3) Responsibility for the completeness and accuracy of the list of
creditors rests on the transferor, and the transfer is not rendered ineffec-
tive by errors or omissions therein unless the transferee is shown to have
had knowledge.

§ 6-105. Notice to Creditors. In addition to the requirements of the
preceding section, any bulk transfer subject to this Article except one
made by auction sale (§ 6-108) is ineffective against any creditor of the
transferor unless at least ten days before he takes possession of the goods
or pays for them, whichever happens first, the transferee gives notice of
the transfer in the manner and to the persons hereafter provided (§ 6-107).

§ 6-106. Omitted

§ 6-107. The Notice. (1) The notice to creditors (§ 6-105) shall state:

(a) that a bulk transfer is about to be made; and

(b) the names and business addresses of the transferor and transferee,
and all other business names and addresses used by the transferor within
three years last past so far as known to the transferee; and

(c) whether or not all the debts of the transferor are to be paid in
full as they fall due as a result of the transaction, and if so, the address to
which creditors should send their bills.

(2) If the debts of the transferor are not to be paid in full as they fall
saa or if the transferee is in doubt on that point then the notice shall state

er:

(a) the location and general description of the property to be trans-
ferred and the estimated total of the transferor’s debts;

(b) the address where the schedule of property and list of creditors
(§ 6-104) may be inspected;
(c) whether the transfer is to pay existing debts and if so the amount
of such debts and to whom owing;

(d) whether the transfer is for new consideration and if so the amount
of such consideration and the time and place of payment;

(3) The notice in any case shall be delivered personally or sent by
registered or certified mail to all the persons shown on the list of creditors
furnished by the transferor (§ 6-104) and to all other persons who are
known to the transferee to hold or assert claims against the transferor.

6-108. Auction Sales; “Auctioneer”. (1) A bulk transfer is subject
to this Article even though it is by sale at auction, but only in the manner
and with the results stated in this section.

(2) The transferor shall furnish a list of his creditors and assist in
the preparation of a schedule of the property to be sold, both prepared as
before stated (§ 6-104).

(3) The person or persons other than the transferor who direct, con-
trol or are responsible for the auction are collectively called the “‘auc-
tioneer”’. The auctioneer shall:

(a) receive and retain the list of creditors and prepare and retain
the schedule of property for the period stated in this Article (§ 6-104) ;

(b) give notice of the auction personally or by registered or certified
mail at least ten days before it occurs to all persons shown on the list of
creditors and to all other persons who are known to him to hold or assert
claims against the transferor.

(4) Failure of the auctioneer to perform any of these duties does
not affect the validity of the sale or the title of the purchasers, but if the
auctioneer knows that the auction constitutes a bulk transfer such failure
renders the auctioneer liable to the creditors of the transferor as a class
for the sums owing to them from the transferor up to but not exceeding
the net proceeds of the auction. If the auctioneer consists of several per-
sons their liability is joint and several.

§ 6-109. What Creditors Protected. The creditors of the transferor
mentioned in this Article are those holding claims based on transactions or
events occurring before the bulk transfer, but creditors who become such
in notice to creditors is given (§§ 6-105 and 6-107) are not entitled to
notice.

§ 6-110. Subsequent Transfers. When the title of a transferee to prop-
erty 1s subject to a defect by reason of his noncompliance with the require-
ments of this Article, then:

(1) a purchaser of any of such property from such transferee who
pays no value or who takes with notice of such noncompliance takes sub-
ject to such defect, but

(2) a purchaser for value in good faith and without such notice takes
free of such defect. .

6-111. Limitation of Actions and Levies. No action under this
Article shall be brought nor levy made more than six months after the
date on which the transferee took possession of the goods unless the
transfer has been concealed. If the transfer has been concealed, actions
may be brought or levies made within six months after its discovery.

ARTICLE 7

WAREHOUSE RECEIPTS, BILLS OF LADING AND OTHER
DOCUMENTS OF TITLE
PART 1
GENERAL
§ 7-101. Short Title. This Article shall be known and may be cited
as Uniform Commercial Code—Documents of Title.
§ 7-102. Definitions and Index of Definitions. (1) In this Article, un-
less the context otherwise requires:

(a) “Bailee” means the person who by a warehouse receipt, bill of lad-
ing or other document of title acknowledges possession of goods and con-
tracts to deliver them.

(b) ‘‘Consignee” means the person named in a bill to whom or to whose
order the bill promises delivery.

(c) “Consignor” means the person named in a bill as the person from
whom the goods have been received for shipment.

(d) “Delivery order” means a written order to deliver goods directed
to a warehouseman, carrier or other person who in the ordinary course of
business issues warehouse receipts or bills of lading.

(e) “Document” means document of title as defined in the general
definitions in Article 1 (§ 1-201).

(f) “Goods” means all things which are treated as movable for the
purposes of a contract of storage or transportation.

(g) “Issuer” means a bailee who issues a document except that in re-
lation to an unaccepted delivery order it means the person who orders the
possessor of goods to deliver. Issuer includes any person for whom an
agent or employee purports to act in issuing a document if the agent or
employee has real or apparent authority to issue documents, notwithstand-
ing that the issuer received no goods or that the goods were misdescribed
or that in any other respect the agent or employee violated his instructions.

(h) “Warehouseman”’ is a person engaged in the business of storing
goods for hire.

(2) Other definitions applying to this Article or to specified Parts
thereof, and the sections in which they appear are:

“Duly negotiate”. § 7-501.

“Person entitled under the document”. § 7-403(4).

(3) Definitions in other Articles applying to this Article and the
sections in which they appear are:

“Contract for sale’. § 2-106.

“Overseas”. § 2-323.

“Receipt”’ of goods. g 2-103.

(4) In addition Article 1 contains general definitions and principles
of construction and interpretation applicable throughout this Article.

§ 7-103. Relation of Article to Treaty, Statute, Tariff, Classification
or Regulation. To the extent that any treaty or statute of the United States,
regulatory statute of this State or tariff, classification or regulation filed
or issued pursuant thereto is applicable, the provisions of this Article are
subject thereto.

§ 7-104. Negotiable and Nonnegotiable Warehouse Receipt, Bill of
Lading or Other Document of Title. (1) A warehouse receipt, bill of lading
or other document of title is negotiable

(a) if by its terms the goods are to be delivered to bearer or to the
order of a named person; or

(b) where recognized in overseas trade, if it runs to a named person
or assigns.

(2) Any other document is nonnegotiable. A bill of lading in which
it is stated that the goods are consigned to a named person is not made
negotiable by a provision that the goods are to be delivered only against
a written order signed by the same or another named person.

§ 7-105. Construction Against Negative Implication. The omission
from either Part 2 or Part 3 of this Article of a provision corresponding
to a provision made in the other Part does not imply that a corresponding
rule of law is not applicable.
§ 7-201. Who May Issue a Warehouse Receipt; Storage Under Govern-
ment Bond. (1) A warehouse receipt may be issued by any warehouseman.

(2) Where goods including distilled spirits and agricultural commodi-
ties are stored under a statute requiring a bond against withdrawal or a
license for the issuance of receipts in the nature of warehouse receipts,
a receipt issued for the goods has like effect as a warehouse receipt even
though issued by a person who is the owner of the goods and is not a ware-
houseman.

§ 7-202. Form of Warehouse Receipt; Essential Terms; Optional
Terms. (1) A warehouse receipt need not be in any particular form.

(2) Unless a warehouse receipt embodies within its written or printed
terms each of the following, the warehouseman is liable for damages caused
by the omission to a person injured thereby:

(a) the location of the warehouse where the goods are stored;

(b) the date of issue of the receipt;

(c) the consecutive number of the receipt;

(d) a statement whether the goods received will be delivered to the
bearer, to a specified person, or to a specified person or his order;

(e) the rate of storage and handling charges, except that where goods
are stored under a field warehousing arrangement a statement of that fact
is sufficient on a nonnegotiable receipt;

(f) a description of the goods or of the packages containing them;

(g) the signature of the warehouseman, which may be made by his
authorized agent;

(h) if the receipt is issued for goods of which the warehouseman is
owner, either solely or jointly or in common with others, the fact of such
ownership; and

(i) a statement of the amount of advances made and of liabilities in-
curred for which the warehouseman claims a lien or security interest
(§ 7-209). If the precise amount of such advances made or of such liabil-
ities incurred is, at the time of the issue of the receipt, unknown to the
warehouseman or to his agent who issues it, a statement of the fact that
advances have been made or liabilities incurred and the purpose thereof
is sufficient.

(3) A warehouseman may insert in his receipt any other terms which
are not contrary to the provisions of this Act and do not impair his obliga-
tion of delivery (§ 7-403) or his duty of care (§ 7-204). Any contrary
provisions shall be ineffective.

§ 7-203. Liability for Nonreceipt or Misdescription. A party to or
purchaser for value in good faith of a document of title other than a bill
of lading relying in either case upon the description therein of the goods
may recover from the issuer damages caused by the non-receipt or mis-
description of the goods, except to the extent that the document conspicu-
ously indicates that the issuer does not know whether any part or all of
the goods in fact were received or conform to the description, as where
the description is in terms of marks or labels or kind, quantity or condi-
tion, or the receipt or description is qualified by ‘‘contents, condition and
quality unknown”, “said to contain” or the like, if such indication be true,
or the party or purchaser otherwise has notice.

§ 7-204. Duty of Care; Contractual Limitation of Warehouseman’s
Liability. (1) A warehouseman is liable for damages for loss of or injury
to the goods caused by his failure to exercise such care in regard to them
as a reasonably careful man would exercise under like circumstances but
unless otherwise agreed he is not liable for damages which could not have
been avoided by the exercise of such care.
(2) Damages may be limited by a term in the warehouse receipt or
storage agreement limiting the amount of liability in case of loss or dam-
age, and setting forth a specific liability per article or item, or value per
unit of weight, beyond which the warehouseman shall not be liable ; pro-
vided, however, that such liability may on written request of the bailor at
the time of signing such storage agreement or within a reasonable time
after receipt of the warehouse receipt be increased on part or all of the
goods thereunder, in which event increased rates may be charged based on
such increased valuation, but that no such increase shall be permitted
contrary to a lawful limitation of liability contained in the warehouseman’s
tariff, if any. No such limitation is effective with respect to the warehouse-
man’s liability for conversion to his own use.

(3) Reasonable provisions as to the time and manner of presenting
claims and instituting actions based on the bailment may be included in
the warehouse receipt or tariff.

§ 7-205. Title Under Warehouse Receipt Defeated in Certain Cases. A
buyer in the ordinary course of business of fungible goods sold and de-
livered by a warehouseman who is also in the business of buying and selling
such goods takes free of any claim under a warehouse receipt even though
it has been duly negotiated.

7-206. Termination of Storage at Warehouseman’s Option. (1) A
warehouseman may on notifying the person on whose account the goods are
held and any other person known to claim an interest in the goods require
payment of any charges and removal of the goods from the warehouse
at the termination of the period of storage fixed by the document, or, if
no period is fixed, within a stated period not less than thirty days after
the notification. If the goods are not removed before the date specified in
the notification, the warehouseman may sell them in accordance with the
provisions of the section on enforcement of a warehouseman’s lien (§ 7-210).

(2) If a warehouseman in good faith believes that the goods are about
to deteriorate or decline in value to less than the amount of his lien within
the time prescribed in subsection (1) for notification, advertisement and
sale, the warehouseman may specify in the notification any reasonable
shorter time for removal of the goods and in case the goods are not removed,
may sell them at public sale held not less than one week after a single
advertisement or posting.

(3) If as a result of a quality or condition of the goods of which the
warehouseman had no notice at the time of deposit the goods are a hazard
to other property or to the warehouse or to persons, the warehouseman
may sell the goods at public or private sale without advertisement on rea-
sonable notification to all persons known to claim an interest in the goods.
If the warehouseman after a reasonable effort is unable to sell the goods
he may dispose of them in any lawful manner and shall incur no liability
by reason of such disposition.

The warehouseman must deliver the goods to any person entitled
to them under this Article upon due demand made at any time prior to sale
or other disposition under this section.

(5) The warehouseman may satisfy his lien from the proceeds of
any sale or disposition under this section but must hold the balance for
delivery on the demand of any person to whom he would have been bound
to deliver the goods.

§ 7-207. Goods Must Be Kept Separate; Fungible Goods. (1) Unless
the warehouse receipt otherwise provides, a warehouseman must keep
separate the goods covered by each receipt so as to permit at all times
identification and delivery of those goods except that different lots of
fungible goods may be commingled.

(2) Fungible goods so commingled are owned in common by the per-
sons entitled thereto and the warehouseman is severally liable to each owner
for that owner’s share. Where because of overissue a mass of fungible
goods is insufficient to meet all the receipts which the warehouseman has
issued against it, the persons entitled include all holders to whom over-
issued receipts have been duly negotiated.

§ 7-208. Altered Warehouse Receipts. Where a blank in a negotiable
warehouse receipt has been filled in without authority, a purchaser for
value and without notice of the want of authority may treat the insertion
as authorized. Any other unauthorized alteration leaves any receipt en-
forceable against the issuer according to its original tenor.

§ 7-209. Lien of Warehouseman. (1) A warehouseman has a lien
against the bailor on the goods covered by a warehouse receipt or on the
proceeds thereof in his possession for charges for storage or transportation
(including demurrage and terminal charges), insurance, labor, or charges
present or future in relation to the goods, and for expenses necessary for
preservation of the goods or reasonably incurred in their sale pursuant to
law. If the person on whose account the goods are held is liable for like
charges or expenses in relation to other goods whenever deposited and it is
stated in the receipt that a lien is claimed for charges and expenses in rela-
tion to other goods, the warehouseman also has a lien against him for such
charges and expenses whether or not the other goods have been delivered
by the warehouseman. But against a person to whom a negotiable ware-
house receipt is duly negotiated a warehouseman’s lien is limited to charges
In an amount or at a rate specified on the receipt or if no charges are so
specified then to a reasonable charge for storage of the goods covered by
the receipt subsequent to the date of the receipt.

2) The warehouseman may also reserve a security interest against
the bailor for a maximum amount specified on the receipt for charges other
than those specified in subsection (1), such as for money advanced and
interest. Such a security interest is governed by the Article on Secured
Transactions (Article 9).

(3) A warehouseman’s lien for charges and expenses under subsec-
tion (1) or a security interest under subsection (2) is also effective against
any person who so entrusted the bailor with possession of the goods that
a pledge of them by him to a good faith purchaser for value would have
been valid but is not effective against a person as to whom the document
confers no right in the goods covered by it under § 7-503.

(4) A warehouseman loses his lien on any goods which he voluntarily
delivers or which he unjustifiably refuses to deliver.

§ 7-210. Enforcement of Warehouseman’s Lien. (1) Except as pro-
vided in subsection (2), a warehouseman’s lien may be enforced by public
or private sale of the goods in bloc or in parcels, at any time or place and
on any terms which are commercially reasonable, after notifying all persons
known to claim an interest in the goods. Such notification must include
a statement of the amount due, the nature of the proposed sale and the
time and place of any public sale. ‘The fact that a better price could have
been obtained by a sale at a different time or in a different method from
that selected by the warehouseman is not of itself sufficient to establish
that the sale was not made in a commercially reasonable manner. If the
warehouseman either sells the goods in the usual manner in any recognized
market therefor, or if he sells at the price current in such market at the
time of his sale, or if he has otherwise sold in conformity with commercially
reasonable practices among dealers in the type of goods sold, he has sold
in a commercially reasonable manner. A sale of more goods than appar-
ently necessary to be offered to insure satisfaction of the obligation is not
commercially reasonable except in cases covered by the preceding sentence.

(2) A warehouseman’s lien on goods other thai goods stored by a
merchant in the course of his business may be enforced only as follows:

(a) All persons known to claim an interest in the goods must be notified.

(b) The notification must be delivered in person or sent by registered
or certified letter to the last known address of any person to be notified.

(c) The notification must include an itemized statement of the claim,
a description of the goods subject to the lien, a demand for payment within
a specified time not less than ten days after receipt of the notification, and
a conspicuous statement that unless the claim is paid within that time the
goods will be advertised for sale and sold by auction at a specified time and
place.

(d) The sale must conform to the terms of the notification.

(e) The sale must be held at the nearest suitable place to that where
the goods are held or stored.

(f) After the expiration of the time given in the notification, an ad-
vertisement of the sale must be published once a week for two weeks con-
secutively in a newspaper of general circulation where the sale is to be
held. The advertisement must include a description of the goods, the
name of the person on whose account they are being held, and the time
and place of the sale. The sale must take place at least fifteen days after
the first publication. If there is no newspaper of general circulation
where the sale is to be held, the advertisement must be posted at least
ten days before the sale in not less than six conspicuous places in the
neighborhood of the proposed sale.

(3) Before any sale pursuant to this section any person claiming a
right in the goods may pay the amount necessary to satisfy the lien and
the reasonable expenses incurred under this section. In that event the
goods must not be sold, but must be retained by the warehouseman sub-
ject to the terms of the receipt and this Article.

ui? The warehouseman may buy at any public sale pursuant to this
section.

(5) A purchaser in good faith of goods sold to enforce a warehouse-
man’s lien takes the goods free of any rights of persons against whom
the lien was valid, despite noncompliance by the warehouseman with the
requirements of this section.

(6) The warehouseman may satisfy his lien from the proceeds of
any sale pursuant to this section but must hold the balance, if any, for
delivery on demand to any person to whom he would have been bound
to deliver the goods.

(7) The rights provided by this section shall be in addition to all
other rights allowed by law to a creditor against his debtor.

(8) Where a lien is on goods stored by a merchant in the course of
ck rare the lien may be enforced in accordance with either subsection

or .

(9) The warehouseman is liable for damages caused by failure to
comply with the requirements for sale under this section and in case of
willful violation is liable for conversion.

PART 3

BILLS OF LADING: SPECIAL PROVISIONS

§ 7-301. Liability for Nonreceipt or Misdescription; “Said to Con-
tain”; “Shipper’s Load and Count”; Improper Handling. (1) A consignee
of a nonnegotiable bill who has given value in good faith or a holder to
whom a negotiable bill has been duly negotiated relying in either case
upon the description therein of the goods, or upon the date therein shown,
may recover from the issuer damages caused by the misdating of the bill
or the nonreceipt or misdescription of the goods, except to the extent that
the document indicates that the issuer does not know whether any part
or all of the goods in fact were received or conform to the description, as
where the description is in terms of marks or labels or kind, quantity, or
condition or the receipt or description is qualified by “contents or condi-
tion of contents of packages unknown”, “said to contain”, “shipper’s
weight, load and count” or the like, if such indication be true.

(2) When goods are loaded by an issuer who is a common carrier,
the issuer must count the packages of goods if package freight and
ascertain the kind and quantity if bulk freight. In such cases ‘‘shipper’s
weight, load and count” or other words indicating that the description
was made by the shipper are ineffective except as to freight concealed by
packages.

(3) When bulk freight is loaded by a shipper who makes available to
the issuer adequate facilities for weighing such freight, an issuer who is
a common carrier must ascertain the kind and quantity within a reasonable
time after receiving the written request of the shipper to do so. In such
cases “shipper’s weight” or other words of like purport are ineffective.

(4) The issuer may by inserting in the bill the words “shipper’s
weight, load and count” or other words of like purport indicate that the
goods were loaded by the shipper; and if such statement be true the issuer
shall not be liable for damages caused by the improper loading. But their
omission does not imply liability for such damages.

(5) The shipper shall be deemed to have guaranteed to the issuer
the accuracy at the time of shipment of the description, marks, labels,
number, kind, quantity, condition and weight, as furnished by him; and
the shipper shall indemnify the issuer against damage caused by inac-
curacies in such particulars. The right of the issuer to such indemnity
shall in no way limit his responsibility and liability under the contract of
carriage to any person other than the shipper.

§ 7-302. Through Bills of Lading and Similar Documents. (1) The
issuer of a through bill of lading or other document embodying an under-
taking to be performed in part by persons acting as its agents or by con-
necting carriers is liable to anyone entitled to recover on the document for
any breach by such other persons or by a connecting carrier of its obligation
under the document but to the extent that the bill covers an undertaking
to be performed overseas or in territory not contiguous to the continental
United States or an undertaking including matters other than transporta-
tion this liability may be varied by agreement of the parties.

(2) Where goods covered by a through bill of lading or other docu-
ment embodying an undertaking to be performed in part by persons other
than the issuer are received by any such person, he is subject with respect
to his own performance while the goods are in his possession to the obliga-
tion of the issuer. His obligation is discharged by delivery of the goods to
another such person pursuant to the document, and does not include liability
for breach by any other such persons or by the issuer.

(3) The issuer of such through bill of lading or other document shall
be entitled to recover from the connecting carrier or such other person in
possession of the goods when the breach of the obligation under the docu-
ment occurred, the amount it may be required to pay to anyone entitled
to recover on the document therefor, as may be evidenced by any receipt,
judgment, or transcript thereof, and the amount of any expense reasonably
incurred by it in defending any action brought by anyone entitled to recover
on the document therefor.

§ 7-303. Diversion; Reconsignment; Change of Instructions. (1) Un-
less the bill of lading otherwise provides, the carrier may deliver the goods
to a person or destination other than that stated in the bill or may other-
wise dispose of the goods on instructions from

(a) the holder of a negotiable bill; or

(b) the consignor on a nonnegotiable bill notwithstanding contrary
instructions from the consignee; or
(c) the consignee on a nonnegotiable bill in the absence of contrary
instructions from the consignor, if the goods have arrived at the billed
destination or if the consignee is in possession of the bill; or

(d) the consignee on a nonnegotiable bill if he is entitled as against
the consignor to dispose of them.

(2) Unless such instructions are noted on a negotiable bill of lading,
a person to whom the bill is duly negotiated can hold the bailee according
to the original terms.

§ 7-304. Bills of Lading in a Set. (1) Except where customary in
overseas transportation, a bill of lading must not be issued in a set of parts.
The issuer is liable for damages caused by violation of this subsection.

(2) Where a bill of lading is lawfully drawn in a set of parts, each
of which is numbered and expressed to be valid only if the goods have not
been delivered against any other part, the whole of the parts constitute
one bill.

(3) Where a bill of lading is lawfully issued in a set of parts and
different parts are negotiated to different persons, the title of the holder
to whom the first due negotiation is made prevails as to both the document
and the goods even though any later holder may have received the goods
from the carrier in good faith and discharged the carrier’s obligation by
surrender of his part.

(4) Any person who negotiates or transfers a single part of a bill of
lading drawn in a set is liable to holders of that part as if it were the
whole set.

(5) The bailee is obliged to deliver in accordance with Part 4 of this
Article against the first presented part of a bill of lading lawfully drawn
in a set. Such delivery discharges the bailee’s obligation on the whole bill.

§ 7-305. Destination Bills. (1) Instead of issuing a bill of lading to
the consignor at the place of shipment a carrier may at the request of the
consignor procure the bill to be issued at destination or at any other place
designated in the request.

(2) Upon request of anyone entitled as against the carrier to control
the goods while in transit and on surrender of any outstanding bill of
lading or other receipt covering such goods, the issuer may procure a sub-
stitute bill to be issued at any place designated in the request.

§ 7-306. Altered Bills of Lading. An unauthorized alteration or filling
in of a blank in a bill of lading leaves the bill enforceable according to its
original tenor.

7-307. Lien of Carrier. (1) A carrier has a lien on the goods covered
by a bill of lading for charges subsequent to the date of its receipt of the
goods for storage or transportation (including demurrage and terminal
charges) and for expenses necessary for preservation of the goods incident
to their transportation or reasonably incurred in their sale pursuant to law.
But against a purchaser for value of a negotiable bill of lading a carrier’s
lien is limited to charges stated in the bill or the applicable tariffs, or if no
charges are stated then to a reasonable charge.

(2) A lien for charges and expenses under subsection (1) on goods
which the carrier was required by law to receive for transportation is effec-
tive against the consignor or any person entitled to the goods unless the
carrier had notice that the consignor lacked authority to subject the goods
to such charges and expenses. Any other lien under subsection (1) is
effective against the consignor and any person who permitted the bailor to
have control or possession of the goods unless the carrier had notice that
the bailor lacked such authority.

(3) A carrier loses his lien on any goods which he voluntarily delivers
or which he unjustifiably refuses to deliver.

§ 7-308. Enforcement of Carrier’s Lien. (1) A carrier’s lien may be
enforced by public or private sale of the goods, in bloc or in parcels, at any
time or place and on any terms which are commercially reasonable, after
notifying all persons known to claim an interest in the goods. Such notifi-
cation must include a statement of the amount due, the nature of the
proposed sale and the time and place of any public sale. The fact that a
better price could have been obtained by a sale at a different time or in a
different method from that selected by the carrier is not of itself sufficient
to establish that the sale was not made in a commercially reasonable man-
ner. If the carrier either sells the goods in the usual manner in any recog-
nized market therefor or if he sells at the price current in such market
at the time of his sale or if he has otherwise sold in conformity with com-
mercially reasonable practices among dealers in the type of goods sold he
has sold in a commercially reasonable manner. A sale of more goods than
apparently necessary to be offered to ensure satisfaction of the obligation
is not commercially reasonable except in cases covered by the preceding
sentence.

(2) Before any sale pursuant to this section any person claiming a
right in the goods may pay the amount necessary to satisfy the lien and
the reasonable expenses incurred under this section. In that event the
goods must not be sold, but must be retained by the carrier subject to the
terms of the bill and this Article.

(3) The carrier may buy at any public sale pursuant to this section.

(4) A purchaser in good faith of goods sold to enforce a carrier’s lien
takes the goods free of any rights of persons against whom the lien was
valid, despite noncompliance by the carrier with the requirements of this
section.

(5) The carrier may satisfy his lien from the proceeds of any sale
pursuant to this section but must hold the balance, if any, for delivery
on demand to any person to whom he would have been bound to deliver
the goods.

(6) The rights provided by this section shall be in addition to all
other rights allowed by law to a creditor against his debtor.

(7) A carrier’s lien may be enforced in accordance with either sub-
section (1) or the procedure set forth in subsection (2) of § 7-210.

(8) The carrier is liable for damages caused by failure to comply with
the requirements for sale under this section and in case of willful violation
is liable for conversion.

§ 7-309. Duty of Care; Contractual Limitation of Carrier’s Liability.
(1) A carrier who issues a bill of lading whether negotiable or nonnego-
tiable must exercise the degree of care in relation to the goods which a
reasonably careful man would exercise under like circumstances. This sub-
section does not repeal or change any law or rule of law which imposes
liability upon a common carrier for damages not caused by its negligence.

(2) Damages may be limited by a provision that the carrier’s liability
shall not exceed a value stated in the document if the carrier’s rates are
dependent upon value and the consignor by the carrier’s tariff is afforded
an opportunity to declare a higher value or a value as lawfully provided
in the tariff, or where no tariff is filed he is otherwise advised of such
opportunity; but no such limitation is effective with respect to the carrier’s
liability for conversion to its own use.

(3) Reasonable provisions as to the time and manner of presenting
claims and instituting actions based on the shipment may be included in a
bill of lading or tariff.

PART 4

WAREHOUSE RECEIPTS AND BILLS OF LADING:
GENERAL OBLIGATIONS
§ 7-401. Irregularities in Issue of Receipt or Bill or Conduct of Issuer.
The obligations imposed by this Article on an issuer apply to a document
of title regardless of the fact that

(a) the document may not comply with the requirements of this Article
or of any other law or regulation regarding its issue, form or content; or

(b) the issuer may have violated laws regulating the conduct of his
business; or

(c) the goods covered by the document were owned by the bailee at
the time the document was issued; or

(d) the person issuing the document does not come within the defini-
tion of warehouseman if it purports to be a warehouse receipt.

§ 7-402. Duplicate Receipt or Bill; Overissue. Neither a duplicate nor
any other document of title purporting to cover goods already represented
by an outstanding document of the same issuer confers any right in the
goods, except as provided in the case of bills in a set, overissue of docu-
ments for fungible goods and substitutes for lost, stolen or destroyed docu-
ments. But the issuer is liable for damages caused by his overissue or
failure to identify a duplicate document as such by conspicuous notation
on its face.

§ 7-403. Obligation of Warehouseman or Carrier to Deliver; Excuse.
(1) The bailee must deliver the goods to a person entitled under the docu-
ment who complies with subsections (2) and (3), unless and to the extent
that the bailee establishes any of the following:

(a) delivery of the goods to a person whose receipt was rightful as
against the claimant;

(b) damage to or delay, loss or destruction of the goods for which the
bailee is not liable;

(c) previous sale or other disposition of the goods in lawful enforce-
ment of a lien or on warehouseman’s lawful termination of storage;

(d) the exercise by a seller of his right to stop delivery pursuant to
the provisions of the Article on Sales (§ 2-705) ;

(e) a diversion, reconsignment or other disposition pursuant to the
provisions of this Article (§ 7-303) or tariff regulating such right;

(f) release, satisfaction or any other fact affording a personal de-
fense against the claimant;

(g) any other lawful excuse.

(2) A person claiming goods covered by a document of title must
satisfy the bailee’s lien where the bailee so requests or where the bailee
is prohibited by law from delivering the goods until the charges are paid.

(3) Unless the person claiming is one against whom the document
confers no right under § 7-503 (1), he must surrender for cancellation
or notation of partial deliveries any outstanding negotiable document cover-
ing the goods, and the bailee must cancel the document or conspicuously
note the partial delivery thereon or be liable to any person to whom the
document is duly negotiated.

(4) “Person entitled under the document” means holder in the case
of a negotiable document, or the person to whom delivery is to be made
by the terms of or pursuant to written instructions under a nonnegotiable
document.

§ 7-404. No Liability for Good Faith Delivery Pursuant to Receipt
or Bill. A bailee who in good faith including observance of reasonable
commercial standards has received goods and delivered or otherwise dis-
posed of them according to the terms of the document of title or pursuant
to this Article is not liable therefor. This rule applies even though the
person from whom he received the goods had no authority to procure the
document or to dispose of the goods and even though the person to whom
he delivered the goods had no authority to receive them.
§ 7-501. Form of Negotiation and Requirements of “Due Negotiation”.
(1) A negotiable document of title running to the order of a named person
is negotiated by his indorsement and delivery. After his indorsement in
blank or to bearer any person can negotiate it by delivery alone.

(2) (a) A negotiable document of title is also negotiated by delivery
alone when by its original terms it runs to bearer.

(b) When a document running to the order of a named person is de-
livered to him the effect is the same as if the document had been negotiated.

(3) Negotiation of a negotiable document of title after it has been in-
dorsed to a specified person requires indorsement by the special indorsee as
well as delivery.

(4) A negotiable document of title is “duly negotiated” when it is
negotiated in the manner stated in this section to a holder who purchases
it in good faith without notice of any defense against or claim to it on the
part of any person and for value, unless it is established that the negotia-
tion is not in the regular course of business or financing or involves re-
ceiving the document in settlement or payment of a money obligation.

(5) Indorsement of a nonnegotiable document neither makes it nego-
tiable nor adds to the transferee’s rights.

(6) The naming in a negotiable bill of a person to be notified of the
arrival of the goods does not limit the negotiability of the bill nor constitute
notice to a purchaser thereof of any interest of such person in the goods.

§ 7-502. Rights Acquired by Due Negotiation. (1) Subject to the
following section and to the provisions of § 7-205 on fungible goods, a
holder to whom a negotiable document of title has been duly negotiated
acquires thereby:

(a) title to the document;

(b) title to the goods;

(c) all rights accruing under the law of agency or estoppel, including
rights to goods delivered to the bailee after the document was issued; and

(d) the direct obligation of the issuer to hold or deliver the goods ac-
cording to the terms of the document free of any defense or claim by him
except those arising under the terms of the document or under this Article.
In the case of a delivery order the bailee’s obligation accrues only upon
acceptance and the obligation acquired by the holder is that the issuer and
any indorser will procure the acceptance of the bailee.

(2) Subject to the following section, title and rights so acquired are
not defeated by any stoppage of the goods represented by the document
or by surrender of such goods by the bailee, and are not impaired even
though the negotiation or any prior negotiation constituted a breach of
duty or even though any person has been deprived of possession of the
document by misrepresentation, fraud, accident, mistake, duress, loss, theft
or conversion, or even though a previous sale or other transfer of the goods
or document has been made to a third person.

§ 7-503. Document of Title to Goods Defeated in Certain Cases. (1) A
document of title confers no right in goods against a person who before
issuance of the document had a legal interest or a perfected security in-
terest in them and who neither

(a) delivered or entrusted them or any document of title covering
them to the bailor or his nominee with actual or apparent authority to ship,
store or sell or with power to obtain delivery under this Article (§ 7-403)
or with power of disposition under this Act (§§ 2-403 and 9-807) or other
statute or rule of law; nor
(b) acquiesced in the procurement by the bailor or his nominee of any
document of title.

(2) Title to goods based upon an unaccepted delivery order is subject
to the rights of anyone to whom a negotiable warehouse receipt or bill of
lading covering the goods has been duly negotiated. Such a title may be
defeated under the next section to the same extent as the rights of the
issuer or a transferee from the issuer.

(3) Title to goods based upon a bill of lading issued to a freight for-
warder is subject to the rights of anyone to whom a bill issued by the
freight forwarder is duly negotiated; but delivery by the carrier in accord-
ance with Part 4 of this Article pursuant to its own bill of lading discharges
the carrier’s obligation to deliver.

§ 7-504. Rights Acquired in the Absence of Due Negotiation; Effect
of Diversion; Seller’s Stoppage of Delivery. (1) A transferee of a docu-
ment, whether negotiable or nonnegotiable, to whom the document has
been delivered but not duly negotiated, acquires the title and rights which
his transferor had or had actual authority to convey.

(2) In the case of a nonnegotiable document, until but not after the
bailee receives notification of the transfer, the rights of the transferee
may be defeated

(a) by those creditors of the transferor who could treat the sale us
void under § 2-402; or

(b) by a buyer from the transferor in ordinary course of business
if the bailee has delivered the goods to the buyer or received notification
of his rights; or

(c) as against the bailee by good faith dealings of the bailee with the
transferor.

(3) A diversion or other change of shipping instructions by the con-
signor in a nonnegotiable bill of lading which causes the bailee not to
deliver to the consignee defeats the consignee’s title to the goods if they
have been delivered to a buyer in ordinary course of business and in any
event defeats the consignee’s rights against the bailee.

(4) Delivery pursuant to a nonnegotiable document may be stopped
by a seller under § 2-705, and subject to the requirement of due notifica-
tion there provided. A bailee honoring the seller’s instructions is entitled
to be indemnified by the seller against any resulting loss or expense.

§ 7-505. Indorser Not a Guarantor for Other Parties. The indorse-
ment of a document of title issued by a bailee does not make the indorser
liable for any default by the bailee or by previous indorsers.

§ 7-506. Delivery Without Indorsement: Right to Compel Indorsement.
The transferee of a negotiable document of title has a specifically enforce-
able right to have his transferor supply any necessary indorsement but the
transfer becomes a negotiation only as of the time the indorsement is
supplied.

§ 7-507. Warranties on Negotiation or Transfer of Receipt or Bill.
Where a person negotiates or transfers a document of title for value other-
wise than as a mere intermediary under the next following section, then
unless otherwise agreed he warrants to his immediate purchaser only in
addition to any warranty made in selling the goods

(a) that the document is genuine; and

(b) that he has no knowledge of any fact which would impair its
validity or worth; and

(c) that his negotiation or transfer is rightful and fully effective with
respect to the title to the document and the goods it represents.

§ 7-508. Warranties of Collecting Bank as to Documents. A collecting
bank or other intermediary known to be entrusted with documents on be-
half of another or with collection of a draft or other claim against delivery
of documents warrants by such delivery of the documents only its own good
faith and authority. This rule applies even though the intermediary has
purchased or made advances against the claim or draft to be collected.

§ 7-509. Receipt or Bill: When Adequate Compliance With Commercial
Contract. The question whether a document is adequate to fulfill the ob-
ligations of a contract for sale or the conditions of a credit is governed by
the Articles on Sales (Article 2) and on Letters of Credit (Article 5).

PART 6
WAREHOUSE RECEIPTS AND BILLS OF LADING:
MISCELLANEOUS PROVISIONS

§ 7-601. Lost and Missing Documents. (1) If a document has been
lost, stolen or destroyed, a court may order delivery of the goods or issu-
ance of a substitute document and the bailee may without liability to any
person comply with such order. If the document was negotiable the claim-
ant must post security approved by the court to indemnify any person
who may suffer loss as a result of nonsurrender of the document. If the
document was not negotiable, such security may be required at the dis-
cretion of the court. The court may also in its discretion order payment of
the bailee’s reasonable costs and counsel fees.

(2) A bailee who without court order delivers goods to a person claim-
ing under a missing negotiable document is liable to any person injured
thereby, and if the delivery is not in good faith becomes liable for con-
version. Delivery in good faith is not conversion if made in accordance
with a filed classification or tariff or, where no classification or tariff is
filed, if the claimant posts security with the bailee in an amount at least
double the value of the goods at the time of posting to indemnify any
person injured by the delivery who files a notice of claim within one year
after the delivery.

§ 7-602. Attachment of Goods Covered by a Negotiable Document.
Except where the document was originally issued upon delivery of the
goods by a person who had no power to dispose of them, no lien attaches
by virtue of any judicial process to goods in the possession of a bailee for
which u negotiable document of title is outstanding unless the document
be first surrendered to the bailee or its negotiation enjoined, and the bailee
shall not be compelled to deliver the goods pursuant to process until the
document is surrendered to him or impounded by the court. One who pur-
chases the document for value without notice of the process or injunction
takes free of the lien imposed by judicial process.

§ 7-603. Conflicting Claims; Interpleader. If more than one person
claims title or possession of the goods, the bailee is excused from delivery
until he has had a reasonable time to ascertain the validity of the adverse
claims or to bring an action to compel all claimants to interplead and may
compel such interpleader, either in defending an action for nondelivery
of the goods, or by original action, whichever is appropriate.

ARTICLE 8
INVESTMENT SECURITIES

PART 1
SHORT TITLE AND GENERAL MATTERS

§ 8-101. Short Title. This Article shall be known and may be cited as
Uniform Commercial Code—Investment Securities.

§ 8-102. Definitions and Index of Definitions. (1) In this Article
unless the context otherwise requires

(a) A “security” is an instrument which

(i) 1s issued in bearer or registered form; and

(11) 18 of a type commonly dealt in upon securities exchanges or mar-
kets or commonly recognized in any area in which it is issued or dealt in
as a medium for investment; and

(iii) is either one of a class or series or by its terms is divisible into
a class or series of instruments; and

(iv) evidences a share, participation or other interest in property
or in an enterprise or evidences an obligation of the issuer.

(b) A writing which is a security is governed by this Article and not
by Uniform Commerical Code—Commercial Paper even though it also
meets the requirements of that Article. This Article does not apply toa
money.

(c) A security is in “registered form” when it specifies a person
entitled to the security or to the rights it evidences and when its transfer
may be registered upon books maintained for that purpose by or on
behalf of an issuer or the security so states.

(d) A security is in “bearer form” when it runs to bearer according
to its terms and not by reason of any indorsement.

(2) A “subsequent purchaser” is a person who takes other than by
original issue.

(3) A “clearing corporation” is a corporation all of the capital stock
of which is held by or for a national securities exchange or association
registered under a statute of the United States such as the Securities
Exchange Act of 1934.

(4) A “custodian bank” is any bank or trust company which is super-
vised and examined by state or federal authority having supervision over
banks and which is acting as custodian for a clearing corporation.

(5) Other definitions applying to this Article or to specified Parts
thereof and the sections in which they appear are:

“Adverse claim’. § 8-301.

“Bona fide purchaser’. § 8-302.

“Broker”. § 8-303.

“Guarantee of the signature’. § 8-402.

“Intermediary Bank’. § 4-105.

“Issuer”. § 8-201.

“Overissue’. § 8-104.

(6) In addition Article 1 contains general definitions and principles
of construction and interpretation applicable throughout this Article.

8-103. Issuer’s Lien. A lien upon a security in favor of an issuer
thereof is valid against a purchaser only if the right of the issuer to such
lien is noted conspicuously on the security.

§ 8-104. Effect of Overissue; “Overissue.” (1) The provisions of this
Article which validate a security or compel its issue or reissue do not apply
to the extent that validation, issue or reissue would result in overissue; but

(a) if an identical security which does not constitute an overissue is
reasonably available for purchase, the person entitled to issue or valida-
tion may compel the issuer to purchase and deliver such a security to him
against surrender of the security, if any, which he holds; or

(b) if a security is not so available for purchase, the person entitled
to issue or validation may recover from the issuer the price he or the last
purchaser for value paid for it with interest from the date of his demand.

_ (2) “Overissue” means the issue of securities in excess of the amount
which the issuer has corporate power to issue.

_§ 8-105. Securities Negotiable and Fungible; Presumptions. (1) Se-
curities governed by this Article are negotiable instruments and are
fungible.

(2) In any action on a security

(a) unless specifically denied in the pleadings, each signature on the
security or in a necessary indorsement is admitted;

(b) when the effectiveness of a signature is put in issue the burden
of establishing it is on the party claiming under the signature but the
signature is presumed to be genuine or authorized;

(c) when signatures are admitted or established production of the
instrument entitles a holder to recover on it unless the defendant estab-
lishes a defense or a defect going to the validity of the security; and

(d) after it is shown that a defense or defect exists the plaintiff has
the burden of establishing that he or some person under whom he claims
is a person against whom the defense or defect is ineffective (§ 8-202).

§ 8-106. Applicability. The validity of a security and the rights and
duties of the issuer with respect to registration of transfer are governed
by the law (including the conflict of laws rules) of the jurisdiction of
organization of the issuer.

§ 8-107. Action for Price. Where, pursuant to a contract to sell or a
sale, a security has been delivered or tendered to the purchaser, and the
purchaser wrongfully fails to pay for the security according to the terms
of the contract or the sale, the seller may in addition to any other remedy
recover the agreed price of the security. This provision does not affect the
remedy of a seller if the security has not been delivered or tendered.

PART 2
ISSUE—ISSUER

§ 8-201. “Issuer.” (1) With respect to obligations on or defenses to
a security “issuer” includes a person who

(a) places or authorizes the placing of his name on a security (other-
wise than as authenticating trustee, registrar, transfer agent or the like)
to evidence that it represents a share, participation or other interest in
his property or in an enterprise or to evidence his duty to perform an obli-
gation evidenced by the security; or

(b) directly or indirectly creates fractional interests in his rights or
property which fractional interests are evidenced by securities; or

(c) becomes responsible for or in place of any other person described
as an issuer in this section.

(2) With respect to obligations on or defenses to a security a guaran-
tor is an issuer to the extent of his guaranty whether or not his obligation
is noted on the security.

(3) With respect to registration of transfer (Part 4 of this Article)
“issuer”? means a person on whose behalf transfer books are maintained.

§ 8-202. Issuer’s Responsibility and Defenses; Notice of Defect or
Defense. (1) Even against a purchaser for value and without notice, the
terms of a security include those stated on the security and those made
part of the security by reference to another instrument, indenture or docu-
ment or to a constitution, statute, ordinance, rule, regulation, order or the
like to the extent that the terms so referred to do not conflict with the
stated terms. Such a reference does not of itself charge a purchaser for
value with notice of a defect going to the validity of the security even
though the security expressly states that a person accepting it admits
such notice.

(2) (a) A security other than one issued by a government or govern-
mental agency or unit even though issued with a defect going to its
validity is valid in the hands of a purchaser for value and without notice
of the particular defect unless the defect involves a violation of constitu-
tional provisions in which case the security is valid in the hands of a sub-
sequent purchaser for value and without notice of the defect.

(b) The rule of subparagraph (a) applies to an issuer which is a
government or governmental agency or unit only if either there has been
substantial compliance with the legal requirements governing the issue or
the issuer has received a substantial consideration for the issue as a whole
or for the particular security and a stated purpose of the issue is one for
which the issuer has power to borrow money or issue the security.

(3) Except as otherwise provided in the case of certain unauthorized
signatures on issue (§ 8-205), lack of genuineness of a security is a com-
plete defense even against a purchaser for value and without notice.

(4) All other defenses of the issuer including nondelivery and con-
ditional delivery of the security are ineffective against a purchaser for
value who has taken without notice of the particular defense.

(5) Nothing in this section shall be construed to affect the right of
a party to a “when, as and if issued” or a “when distributed” contract to
cancel the contract in the event of a material change in the character of
the security which is the subject of the contract or in the plan or arrange-
ment pursuant to which such security is to be issued or distributed.

§ 8-203. Staleness as Notice of Defects or Defenses. (1) After an
act or event which creates a right to immediate performance of the princi-
pal obligation evidenced by the security or which sets a date on or after
which the security is to be presented or surrendered for redemption or
exchange, a purchaser is charged with notice of any defect in its issue or
defense of the issuer

(a) if the act or event is one requiring the payment of money or the
delivery of securities or both on presentation or surrender of the security
and such funds or securities are available on the date set for payment or
exchange and he takes the security more than one year after that date;
an

(b) if the act or event is not covered by paragraph (a) and he takes
the security more than two years after the date set for surrender or pre-
sentation or the date on which such performance became due.

(2) A call which has been revoked is not within subsection (1).

§ 8-204. Effect of Issuer’s Restrictions on Transfer. Unless noted
conspicuously on the security a restriction on transfer imposed by the
issuer even though otherwise lawful is ineffective except against a person
with actual knowledge of it.

§ 8-205. Effect of Unauthorized Signature on Issue. An unauthorized
signature placed on a security prior to or in the course of issue is ineffec-
tive except that the signature is effective in favor of a purchaser for value
and without notice of the lack of authority if the signing has been done by

(a) an authenticating trustee, registrar, transfer agent or other per-
son entrusted by the issuer with the signing of the security or of similar
securities or their immediate preparation for signing; or

(b) an employee of the issuer or of any of the foregoing entrusted
with responsible handling of the security.

§ 8-206. Completion or Alteration of Instrument. (1)Where a se-
curity contains the signatures necessary to its issue or transfer but is
incomplete in any other respect

4 (a) any person may complete it by filling in the blanks as authorized;
an

(b) even though the blanks are incorrectly filled in, the security as
completed is enforceable by a purchaser who took it for value and with-
out notice of such incorrectness.

(2) A complete security which has been improperly altered even
though fraudulently remains enforceable but only according to its original

erms. |

_ § 8-207. Rights of Issuer With Respect to Registered Owners. (1)
Prior to due presentment for registration of transfer of a security in
registered form the issuer or indenture trustee may treat the registered
owner as the person exclusively entitled to vote, to receive notifications
and otherwise to exercise all the rights and powers of an owner.
(2) Nothing in this Article shall be construed to affect the liability
of the registered owner of a security for calls, assessments or the like.

§ 8-208. Effect of Signature of Authenticating Trustee, Registrar or
Transfer Agent. (1) A person placing his signature upon a security as
authenticating trustee, registrar, transfer agent or the like warrants to a
purchaser for value without notice of the particular defect that

(a) the security is genuine; and

(b) his own participation in the issue of the security is within his
capacity and within the scope of the authorization received by him from
the issuer; and

(c) he has reasonable grounds to believe that the security is in the
form and within the amount the issuer is authorized to issue.

(2) Unless otherwise agreed, a person by so placing his signature
does not assume responsibility for the validity of the security in other

respects.
PART 3
PURCHASE

§ 8-301. Rights Acquired by Purchaser; “Adverse Claim’; Title Ac-
quired by Bona Fide Purchaser. (1) Upon delivery of a security the pur-
chaser acquires the rights in the security which his transferor had or had
actual authority to convey except that a purchaser who has himself been
a party to any fraud or illegality affecting the security or who as a prior
holder had notice of an adverse claim cannot improve his position by taking
from a later bona fide purchaser. ‘‘Adverse claim” includes a claim that
a transfer was or would be wrongful or that a particular adverse person
is the owner of or has an interest in the security.

(2) A bona fide purchaser in addition to acquiring the rights of a
purchaser also acquires the security free of any adverse claim.

A purchaser of a limited interest acquires rights only to the ex-
tent of the interest purchased.

§ 8-302. “Bona Fide Purchaser.” A “bona fide purchaser” is a pur-
chaser for value in good faith and without notice of any adverse claim
who takes delivery of a security in bearer form or of one in registered
form issued to him or indorsed to him or in blank.

8-303. “Broker.” ‘Broker’? means a person engaged for all or part
of his time in the business of buying and selling securities, who in the
transaction concerned acts for, or buys a security from or sells a security
to a customer. Nothing in this Article determines the capacity in which
a person acts for purposes of any other statute or rule to which such per-
son is subject.

§ 8-304. Notice to Purchaser of Adverse Claims. (1) A purchaser
(including a broker for the seller or buyer but excluding an intermediary
bank) of a security is charged with notice of adverse claims if

(a) the security whether in bearer or registered form has been in-
dorsed ‘for collection” or “for surrender” or for some other purpose not
involving transfer; or

(b) the security is in bearer form and has on it an unambiguous state-
ment that it is the property of a person other than the transferor. The
mere writing of a name on a security is not such a statement.

(2) The fact that the purchaser (including a broker for the seller or
buyer) has notice that the security is held for a third person or is regis-
tered in the name of or indorsed by a fiduciary does not create a duty of
inquiry into the rightfulness of the transfer or constitute notice of adverse
claims. If, however, the purchaser (excluding an intermediary bank) has
knowledge that the proceeds are being used or that the transaction is for
the individual benefit of the fiduciary or otherwise in breach of duty, the
purchaser is charged with notice of adverse claims.
§ 8-305. Staleness as Notice of Adverse Claims. An act or event
which creates a right to immediate performance of the principal obliga-
tion evidenced by the security or which sets a date on or after which the
security is to be presented or surrendered for redemption or exchange does
not of itself constitute any notice of adverse claims except in the case of
a purchase

(a) after one year from any date set for such presentment or sur-
render for redemption or exchange; or

(b) after six months from any date set for payment of money against
presentation or surrender of the security if funds are available for pay-
ment on that date.

§ 8-306. Warranties on Presentment and Transfer. (1)A person who
presents a security for registration of transfer or for payment or ex-
change warrants to the issuer that he is entitled to the registration, pay-
ment or exchange. But a purchaser for value without notice of adverse
claims who receives a new, reissued or re-registered security on registra-
tion of transfer warrants only that he has no knowledge of any unau-
thorized signature (§ 8-311) in a necessary indorsement.

(2) A person by transferring a security to a purchaser for value war-
rants only that

(a) his transfer is effective and rightful; and

(b) the security is genuine and has not been materially altered; and

(c) he knows no fact which might impair the validity of the security.

(3) Where a security is delivered by an intermediary known to be
entrusted with delivery of the security on behalf of another or with col-
lection of a draft or other claim against such delivery, the intermediary
by such delivery warrants only his own good faith and authority even
though he has purchased or made advances against the claim to be col-
lected against the delivery.

(4) A pledgee or other holder for security who redelivers the security
received, or after payment and on order of the debtor delivers that security
to a third person makes only the warranties of an intermediary under
subsection (3).

(5) A broker gives to his customer and to the issuer and a purchaser
the warranties provided in this section and has the rights and privileges
of a purchaser under this section. The warranties of and in favor of the
broker acting as an agent are in addition to applicable warranties given
by and in favor of his customer.

§ 8-307. Effect of Delivery Without Indorsement; Right to Compel
Indorsement. Where a security in registered form has been delivered to a
purchaser without a necessary indorsement he may become a bona fide
purchaser only as of the time the indorsement is supplied, but against
the transferor the transfer is complete upon delivery and the purchaser
has a specifically enforceable right to have any necessary indorsement
supplied. :

§ 8-308. Indorsement, How Made; Special Indorsement; Indorser Not
a Guarantor; Partial Assignment. (1) An indorsement of a security in
registered form is made when an appropriate person signs on it or on a
separate document an assignment or transfer of the security or a power to
assign or transfer it or when the signature of such person is written with-
out more upon the back of the security.

(2) An indorsement may be in blank or special. An indorsement in
blank includes an indorsement to bearer. A special indorsement specifiies
the person to whom the security is to be transferred, or who has power to
transfer it. A holder may convert a blank indorsement into a special in-
dorsement. |

(3) “An appropriate person” in subsection (1) means
(a) the person specified by the security or by special indorsement to
be entitled to the security; or

(b) where the person so specified is described as a fiduciary but is
no longer serving in the described capacity,—either that person or his
successor; or

(c) where the security or indorsement so specifies more than one
person as fiduciaries and one or more are no longer serving in the de-
scribed capacity,—the remaining fiduciary or fiduciaries, whether or not
a successor has been appointed or qualified; or

(d) where the person so specified is an individual and is without ca-
pacity to act by virtue of death, incompetence, infancy or otherwise,—his
executor, administrator, guardian or like fiduciary; or

(e) where the security or indorsement so specifies more than one per-
son as tenants by the entirety or with right of survivorship and by reason
of death all cannot sign,—the survivor or survivors; or

(f) a person having power to sign under applicable law or controlling
instrument; or

(g) to the extent that any of the foregoing persons may act through
an agent,—his authorized agent.

(4) Unless otherwise agreed the indorser by his indorsement assumes
no obligation that the security will be honored by the issuer.

(5) An indorsement purporting to be only of part of a security repre-
senting units intended by the issuer to be separately transferable is effec-
tive to the extent of the indorsement.

(6) Whether the person signing is appropriate is determined as of
the date of signing and an indorsement by such a person does not become
unauthorized for the purposes of this Article by virtue of any subsequent
change of circumstances.

(7) Failure of a fiduciary to comply with a controlling instrument or
with the law of the state having jurisdiction of the fiduciary relationship,
including any law requiring the fiduciary to obtain court approval of the
transfer, does not render his indorsement unauthorized for the purposes
of this Article.

§ 8-309. Effect of Indorsement Without Delivery. An indorsement of
a security whether special or in blank does not constitute a transfer until
delivery of the security on which it appears or if the indorsement is on a
separate document until delivery of both the document and the security.

§ 8-310. Indorsement of Security in Bearer Form. An indorsement of
a security in bearer form may give notice of adverse claims (§ 8-304) but
does not otherwise affect any right to registration the holder may possess.

§ 8-311. Effect of Unauthorized Indorsement. Unless the owner has
ratified an unauthorized indorsement or is otherwise precluded from as-
serting its ineffectiveness

(a) he may assert its ineffectiveness against the issuer or any pur-
chaser other than a purchaser for value and without notice of adverse claims
who has in good faith received a new, reissued or re-registered security on
registration of transfer; and

(b) an issuer who registers the transfer of a security upon the unau-
thorized indorsement is subject to liability for improper registration (§ 8-

§ 8-312. Effect of Guaranteeing Signature or Indorsement. (1) Any
person guaranteeing a signature of an indorser of a security warrants
that at the time of signing

(a) the signature was genuine; and

(b) the signer was an appropriate person to indorse (§ 8-808); and

(c) the signer had legal capacity to sign.

But the guarantor does not otherwise warrant the rightfulness of the
particular transfer.
(2) Any person may guarantee an indorsement of a security and by
so doing warrants not only the signature (subsection 1) but also the right-
fulness of the particular transfer in all respects. But no issuer may re-
quire a guarantee of indorsement as a condition to registration of transfer.

(3) The foregoing warranties are made to any person taking or deal-
ing with the security in reliance on the guarantee and the guarantor is
liable to such person for any loss resulting from breach of the warranties.

§ 8-313. When Delivery to the Purchaser Occurs; Purchaser’s Broker
as Holder. (1) Delivery to a purchaser occurs when

(a) he or a person designated by him acquires possession of a se-
curity; or

(b) his broker acquires possession of a security specially indorsed to
or issued in the name of the purchaser; or

(c) his broker sends him confirmation of the purchase and also by
book entry or otherwise identifies a specific security in the broker’s posses-
sion as belonging to the purchaser; or

(d) with respect to an identified security to be delivered while still
in the possession of a third person when that person acknowledges that
he holds for the purchaser; or

(e) appropriate entries on the books of a clearing corporation are
made under § 8-320.

(2) The purchaser is the owner of a security held for him by his
broker, but is not the holder except as specified in subsections (b), (c) and
(e) of subsection (1). Where a security is part of a fungible bulk, the
purchaser is the owner of a proportionate property interest in the fungible
bulk and is a bona fide purchaser if when the broker takes delivery as a
holder neither he nor the purchaser has notice of any adverse claim and
the purchaser takes his interest for value.

(3) Notice of an adverse claim to the broker or to the purchaser after
the broker takes delivery as a holder without notice of any adverse claim is
not notice of the adverse claim to either the broker or the purchaser.

§ 8-314. Duty to Deliver, When Completed. (1) Unless otherwise
agreed where a sale of a security is made on an exchange or otherwise
through brokers

(a) the selling customer fulfills his duty to deliver when he places
such a security in the possession of the selling broker or of a person desig-
nated by the broker or if requested causes an acknowledgment to be made
to the selling broker that it is held for him; and

(b) the selling broker including a correspondent broker acting for a
selling customer fulfills his duty to deliver by placing the security or a
like security in the possession of the buying broker or a person designated
by him or by effecting clearance of the sale in accordance with the rules
of the exchange on which the transaction took place.

(2) Except as otherwise provided in this section and unless other-
wise agreed, a transferor’s duty to deliver a security under a contract of
purchase is not fulfilled until he places the security in form to be nego-
tiated by the purchaser in the possession of the purchaser or of a person
designated by him or at the purchaser’s request causes an acknowledg-
ment to be made to the purchaser that it is held for him. Unless made on
an exchange a sale to a broker purchasing for his own account is within
this subsection and not within subsection (1).

§ 8-315. Action Against Purchaser Based Upon Wrongful Transfer.
(1) Any person against whom the transfer of a security is wrongful for
any reason, including his incapacity, may against anyone except a bona
fide purchaser reclaim possession of the security or obtain possession of
any new security evidencing all or part of the same rights or have dam-
ages.
(2) If the transfer is wrongful because of an unauthorized indorse-
ment, the owner may also reclaim or obtain possession of the security or
new security even from a bona fide purchaser if the ineffectiveness of the
purported indorsement can be asserted against him under the provisions
of this Article on unauthorized indorsements (§ 8-311).

(83) The right to obtain or reclaim possession of a security may be
specifically enforced and its transfer enjoined and the security impounded
pending the litigation.

§ 8-316. Purchaser’s Right to Requisites for Registration of Transfer
on Books. Unless otherwise agreed the transferor must on due demand
supply his purchaser with any proof of his authority to transfer or with
any other requisite which may be necessary to obtain registration of the
transfer of the security but if the transfer is not for value a transferor
need not do so unless the purchaser furnishes the necessary expenses.
Failure to comply with a demand made within a reasonable time gives the
purchaser the right to reject or rescind the transfer.

§ 8-317. Attachment or Levy Upon Security. (1) No attachment or
levy upon a security or any share or other interest evidenced thereby
which is outstanding shall be valid until the security is actually seized by
the officer making the attachment or levy but a security which has been
surrendered to the issuer may be attached or levied upon at the source.

(2) A creditor whose debtor is the owner of a security shall be en-
titled to such aid from courts of appropriate jurisdiction, by injunction or
otherwise, in reaching such security or in satisfying the claim by means
thereof as is allowed at law or in equity in regard to property which can-
not readily be attached or levied upon by ordinary legal process.

§ 8-318. No Conversion by Good Faith Delivery. An agent or bailee
who in good faith (including observance of reasonable commercial stand-
ards if he is in the business of buying, selling or otherwise dealing with
securities) has received securities and sold, pledged or delivered them ac-
cording to the instructions of his principal is not liable for conversion or
for participation in breach of fiduciary duty although the principal had no
right to dispose of them.

§ 8-319. Statute of Frauds. A contract for the sale of securities is not
enforceable by way of action or defense unless

(a) there is some writing signed by the party against whom enforce-
ment is sought or by his authorized agent or broker sufficient to indicate
that a contract has been made for sale of a stated quantity of described
securities at a defined or stated price; or

(b) delivery of the security has been accepted or payment has been
made but the contract is enforceable under this provision only to the ex-
tent of such delivery or payment; or

(c) within a reasonable time a writing in confirmation of the sale or
purchase and sufficient against the sender under paragraph (a) has been
received by the party against whom enforcement is sought and he has
failed to send written objection to its contents within ten days after
its receipt; or

(d) the party against whom enforcement is sought admits in his
pleading, testimony or otherwise in court that a contract was made for
sale of a stated quantity of described securities at a defined or stated price.

§ 8-320. Transfer or Pledge within a Central Depository System. (1)
If a security

(a) is in the custody of a clearing corporation or of a custodian bank
or a nominee of either subject to the instructions of the clearing corpora-
ion; an

(b) is in bearer form or indorsed in blank by an appropriate person
or registered in the name of the clearing corporation or custodian bank
or a nominee of either; and

(c) is shown on the account of a transferor or pledgor on the books
of the clearing corporation;
then, in addition to other methods, a transfer or pledge of the security or
any interest therein may be effected by the making of appropriate entries
on the books of the clearing corporation reducing the account of the trans-
feror or pledgor and increasing the account of the transferee or pledgee by
the amount of the obligation or the number of shares or rights transferred
or pledged.

(2) Under this section entries may be with respect to like securities
or interests therein as a part of a fungible bulk and may refer merely to
a quantity of a particular security without reference to the name of the
registered owner, certificate or bond number or the like and, in appropriate
cases, may be on a net basis taking into account other transfers or pledges
uf the same security.

(3) A transfer or pledge under this section has the effect of a delivery
of a security in bearer form or duly indorsed in blank (§ 8-301) repre-
senting the amount of the obligation or the number of shares or rights
transferred or pledged. If a pledge or the creation of a security interest
is intended, the making of entries has the effect of a taking of delivery by
the pledgee or a secured party (§§ 9-304 and 9-305). A transferee or
pledgee under this section is a holder.

(4) A transfer or pledge under this section does not constitute a
registration of transfer under Part 4 of this Article.

(5) That entries made on the books of the clearing corporation as
provided in subsection (1) are not appropriate does not affect the validity
or effect of the entries nor the liabilities or obligations of the clearing corpo-
ration to any person adversely affected thereby.

PART 4
REGISTRATION

§ 8-401. Duty of Issuer to Register Transfer. (1) Where a security
in registered form is presented to the issuer with a request to register
transfer, the issuer is under a duty to register the transfer as requested if

(a) the security is indorsed by the appropriate person or persons
(§ 8-308) ; and

(b) reasonable assurance is given that those indorsements are genuine
and effective (§ 8-402); and

(c) the issuer has no duty to inquire into adverse claims or has dis-
charged any such duty (§ 8-403); and

(d) any applicable law relating to the collection of taxes has been com-
plied with; and

(e) the transfer is in fact rightful or is to a bona fide purchaser.

(2) Where an issuer is under a duty to register a transfer of a security
the issuer is also liable to the person presenting it for registration or his
principal for loss resulting from any unreasonable delay in registration or
from failure or refusal to register the transfer.

§ 8-402. Assurance that Indorsements Are Effective. (1) The issuer
may require the following assurance that each necessary indorsement
(§ 8-308) is genuine and effective

(a) in all cases, a guarantee of the signature (subsection (1) of
§8-312) of the person indorsing; and

(b) where the indorsement is by an agent, appropriate assurance of
authority to sign;

(c) where the endorsement is by a fiduciary, appropriate evidence of
appointment or incumbency;

(d) where there is more than one fiduciary, reasonable assurance that
all who are required to sign have done so;

(e) where the indorsement is by a person not covered by any of the
foregoing, assurance appropriate to the case corresponding as nearly as
may be to the foregoing.

(2) A “guarantee of the signature” in subsection (1) means a guar-
antee signed by or on behalf of a person reasonably believed by the issuer
to be responsible. The issuer may adopt standards with respect to respon-
sibility provided such standards are not manifestly unreasonable.

(3) “Appropriate evidence of appointment or incumbency” in subsec-
tion (1) means

(a) in the case of a fiduciary appointed or qualified by a court, a cer-
tificate issued by or under the direction or supervision of that court or an
officer thereof and dated within sixty days before the date of presentation
for transfer; or

(b) in any other case, a copy of a document showing the appointment
or a certificate issued by or on behalf of a person reasonably believed by
the issuer to be responsible or, in the absence of such a document or certifi-
cate, other evidence reasonably deemed by the issuer to be appropriate.
The issuer may adopt standards with respect to such evidence provided
such standards are not manifestly unreasonable. The issuer is not charged
with notice of the contents of any document obtained pursuant to this para-
graph (b) except to the extent that the contents relate directly to the
appointment or incumbency.

(4) The issuer may elect to require reasonable assurance beyond that
specified in this section but if it does so and for a purpose other than that
specified in subsection 3(b) both requires and obtains a copy of a will,
trust, indenture, articles of co-partnership, by-laws or other controlling
instrument it is charged with notice of all matters contained therein af-
fecting the transfer.

§ 8-403. Limited Duty of Inquiry. (1) An issuer to whom a security
is presented for registration is under a duty to inquire into adverse claims if

(a) a written notification of an adverse claim is received at a time
and in a manner which affords the issuer a reasonable opportunity to act
on it prior to the issuance of a new, reissued or re-registered security and
the notification identifies the claimant, the registered owner and the issue
of which the security is a part and provides an address for communications
directed to the claimant; or

(b) the issuer is charged with notice of an adverse claim from a con-
es ee which it has elected to require under subsection (4)
) -402.

(2) The issuer may discharge any duty of inquiry by any reasonable
means, including notifying an adverse claimant by registered or certified
mail at the address furnished by him or if there be no such address at his
residence or regular place of business that the security has been presented
for registration of transfer by a named person, and that the transfer will
be registered unless within thirty days from the date of mailing the noti-
fication, either

(a) an appropriate restraining order, injunction or other process is-
sues from a court of competent jurisdiction; or

(b) an indemnity bond sufficient in the issuer’s judgment to protect
the issuer and any transfer agent, registrar or other agent of the issuer
involved, from any loss which it or they may suffer by complying with the
adverse claim is filed with the issuer.

(3) Unless an issuer is charged with notice of an adverse claim from
a controlling instrument which it has elected to require under subsection
(4) of § 8-402 or receives notification of an adverse claim under subsection
(1) of this section, where a security presented for registration is indorsed
by the appropriate person or persons the issuer is under no duty to inquire
into adverse claims. In particular

(a) an issuer registering a security in the name of a person who is
a fiduciary or who is described as a fiduciary is not bound to inquire into
the existence, extent, or correct description of the fiduciary relationship
and thereafter the issuer may assume without inquiry that the newly
registered owner continues to be the fiduciary until the issuer receives
written notice that the fiduciary is no longer acting as such with respect
to the particular security ;

(b) an issuer registering transfer on an indorsement by a fiduciary
is not bound to inquire whether the transfer is made in compliance with
a controlling instrument or with the law of the state having jurisdiction
of the fiduciary relationship, including any law requiring the fiduciary to
obtain court approval of the transfer; and

(c) the issuer is not charged with notice of the contents of any court
record or file or other recorded or unrecorded document even though the
document is in its possession and even though the transfer is made on the
indorsement of a fiduciary to the fiduciary himself or to his nominee.

§ 8-404. Liability and Non-Liability for Registration. (1) Except as
otherwise provided in any law relating to the collection of taxes, the issuer
is not liable to the owner or any other person suffering loss as a result of
the registration of a transfer of a security if

(a) there were on or with the security the necessary indorsements
(§ 8-308); and

(b) the issuer had no duty to inquire into adverse claims or has dis-
charged any such duty (§ 8-403).

(2) Where an issuer has registered a transfer of a security to a
person not entitled to it the issuer on demand must deliver a like security
to the true owner unless

(a) the registration was pursuant to subsection (1); or

(b) the owner is precluded from asserting any claim for registering
the transfer under subsection (1) of the following section; or

(c) such delivery would result in overissue, in which case the issuer’s
liability is governed by § 8-104.

8-405. Lost, Destroyed and Stolen Securities. (1) Where a security
has been lost, apparently destroyed or wrongfully taken and the owner
fails to notify the issuer of that fact within a reasonable time after he has
notice of it and the issuer registers a transfer of the security before receiv-
ing such a notification, the owner is precluded from asserting against the
issuer any claim for registering the transfer under the preceding section
or any claim to a new security under this section.

(2) Where the owner of a security claims that the security has been
lost, destroyed or wrongfully taken, the issuer must issue a new security
in place of the original security if the owner

(a) so requests before the issuer has notice that the security has
been acquired by a bona fide purchaser; and

(b) files with the issuer a sufficient indemnity bond; and

(c) satisfies any other reasonable requirements imposed by the issuer.

(3) If, after the issue of the new security, a bona fide purchaser of
the original security presents it for registration of transfer, the issuer
must register the transfer unless registration would result in overissue,
in which event the issuer’s liability is governed by § 8-104. In addition
to any rights on the indemnity bond, the issuer may recover the new
security from the person to whom it was issued or any person taking
under him except a bona fide purchaser.

8-406. Duty of Authenticating Trustee, Transfer Agent or Registrar.
(1) ere a person acts as authenticating trustee, transfer agent, regi-
strar, or other agent for an issuer in the registration of transfers of its
securities or in the issue of new securities or in the cancellation of sur-
rendered securities

(a) he is under a duty to the issuer to exercise good faith and due
diligence in performing his functions; and

(b) he has with regard to the particular functions he performs the
same obligation to the holder or owner of the security and has the same
rights and privileges as the issuer has in regard to those functions.

(2) Notice to an authenticating trustee, transfer agent, registrar
or other such agent is notice to the issuer with respect to the functions
performed by the agent.

ARTICLE 9

SECURED TRANSACTIONS; SALES OF
ACCOUNTS, CONTRACT RIGHTS
AND CHATTEL PAPER

PART 1
SHORT TITLE, APPLICABILITY AND DEFINITIONS

§ 9-101. Short Title. This Article shall be known and may be cited
as Uniform Commercial Code—Secured Transactions.

9-102. Policy and Scope of Article. (1) Except as otherwise pro-
vided in § 9-103 on multiple state transactions and in § 9-104 on excluded
transactions, this Article applies so far as concerns any personal property
and fixtures within the jurisdiction of this state

(a) to any transaction (regardless of its form) which is intended to
create a security interest in personal property or fixtures including goods,
documents, instruments, general intangibles, chattel paper, accounts or
contract rights; and also

(b) to any sale of accounts, contract rights or chattel paper.

(2) This Article applies to security interests created by contract in-
cluding pledge, assignment, chattel mortgage, chattel trust, trust deed,
factor’s lien, equipment trust, conditional sale, trust receipt, other lien or
title retention contract and lease or consignment intended as security.
This Article does not apply to statutory liens except as provided in § 9-310.

(3) The application of this Article to a security interest in a secured
obligation is not affected by the fact that the obligation is itself secured
by a transaction or interest to which this Article does not apply.

§ 9-103. Accounts, Contract Rights, General Intangibles and Equip-
ment Relating to Another Jurisdiction; and Incoming Goods Already Sub-
ject to a Security Interest. (1) If the office where the assignor of accounts
or contract rights keeps his records concerning them is in this State, the
validity and perfection of a security interest therein and the possibility
and effect of proper filing is governed by this Article; otherwise by the
law (including the conflict of laws rules) of the jurisdiction where such of-
fice is located.

(2) If the chief place of business of a debtor is in this State, this
Article governs the validity and perfection of a security interest and the
possibility and effect of proper filing with regard to general intangibles or
with regard to goods of a type which are normally used in more than one
jurisdiction (such as automotive equipment, rolling stock, airplanes, road
building equipment, commercial harvesting equipment, construction
machinery and the like) if such goods are classified as equipment or classi-
fied as inventory by reason of their being leased by the debtor to others.
Otherwise, the law (including the conflict of laws rules) of the jurisdiction
where such chief place of business is located shall govern. If the chief place
of business is located in a jurisdiction which does not provide for perfection
of the security interest by filing or recording in that jurisdiction, then the
security interest may be perfected by filing in this State. For the purpose

of determining the validity and perfection of a security interest in an air-

plane, and chief place of business of a debtor who is a foreign air carrier
under the Federal Aviation Act of 1958, as amended, is the designated office

tie agent upon whom service of process may be made on behalf of the
ebtor.

(3) If personal property other than that governed by subsections (1)
and (2) is already subject to a security interest when it is brought into
this State, the validity of the security interest in this State is to be deter-
mined by the law (including the conflict of laws rules) of the jurisdiction
where the property was when the security interest attached. However, if
the parties to the transaction understood at the time that the security
interest attached that the property would be kept in this State and it was
brought into this State within 30 days after the security interest attached
for purposes other than transportation through this State, then the validity
of the security interest in this State is to be determined by the law of this
State. If the security interest was already perfected under the law of the
jurisdiction where the property was when the security interest attached
and before being brought into this State, the security interest continues
perfected in this State for four months and also thereafter if within the
four month period it is perfected in this State. The security interest may
also be perfected in this State after the expiration of the four month period:
in such case perfection dates from the time of perfection in this State. If
the security interest was not perfected under the law of the jurisdiction
where the property was when the security interest attached and before
being brought into this State, it may be perfected in this State; in such
case perfection dates from the time of perfection in this State.

(4) Notwithstanding subsections (2) and (3), if personal property is
covered by a certificate of title issued under a statute of this State or any
other jurisdiction which requires indication on a certificate of title of any
security interest in the property as a condition of perfection, then the per-
fection is governed by the law of the jurisdiction which issued the certifi-

te.

(5) Notwithstanding subsection (1) and § 9-302, if the office where
the assignor of accounts or contract rights keeps his records concerning
them is not located in a jurisdiction which is a part of the United States,
its territories or possessions, and the accounts or contract rights are within
the jurisdiction of this State or the transaction which creates the security
interest otherwise bears an appropriate relation to this State, this Article
governs the validity and perfection of the security interest and the security
interest may only be perfected by notification to the account debtor.

7 9-104. Transactions Excluded From Article. This Article does not
apply

(a) to a security interest subject to any statute of the United States
such as the Ship Mortgage Act, 1920, to the extent that such statute go-
verns the rights of parties to and third parties affected by transactions in
particular types of property; or

(b) to a landlord’s lien; or

(c) to a lien given by statute or other rule of law for services or
materials except as provided in § 9-310 on priority of such liens; or

(d) to a transfer of a claim for wages, salary or other compensation
of an employee; or

(e) to an equipment trust covering railway rolling stock; or

(f) to a sale of accounts, contract rights or chattel paper as part of
a sale of the business out of which they arose, or an assignment of accounts,
contract rights or chattel paper which is for the purpose of collection only,
or a transfer of a contract right to an assignee who is also to do the per-
formance under the contract; or
(zg) to a transfer of an interest or claim in or under any policy of in-
surance or contract for an annuity, including a variable annuity; or

(h) to a right represented by a judgment; or

(i) to any right of set-off; or

(j) except to the extent that provision is made for fixtures in § 9-313,
to the creation or transfer of an interest in or lien on real estate, including
a lease or rents thereunder; or

(k) toa transfer in whole or in part of any of the following: any claim
arising out of tort; any deposit, savings, passbook or like account main-
tained with a bank. savings and loan association, credit union or like organi-
zation.

§ 9-105. Definitions and Index of Definitions. (1) In this Article un-
less the context otherwise requires:

(a) “Account debtor” means the person who is obligated on an ac-
count, chattel paper, contract right or general intangible;

(b) “Chattel paper” means a writing or writings which evidence both
a monetary obligation and a security interest in or a lease of specific goods.
When a transaction is evidenced both by such a security agreement or a
lease and by an instrument or a series of instruments, the group of writ-
ings taken together constitutes chattel paper;

(c) “Collateral” means the property subject to a security interest,
and includes accounts, contract rights and chattel paper which have been

(d) “Debtor” means the person who owes payment or other perform-
ance of the obligation secured, whether or not he owns or has rights in
the collateral, and includes the seller of accounts, contract rights or chattel
paper. Where the debtor and the owner of the collateral are not the same
person, the term “debtor” means the owner of the collateral in any provi-
sion of the Article dealing with the collateral, the obligor in any provision
dealing with the obligation, and may include both where the context so
requir

(e) “Document” means document of title as defined in the general
definitions of Article 1 (§ 1-201);

(f) “Goods’”’ includes all things which are movable at the time the
security interest attaches or which are fixtures (§ 9-313), but does not
include money, documents, instruments, accounts, chattel paper, general
intangibles, contract rights and other things in action. ‘‘Goods” also in-
clude the unborn young of animals and growing crops;

(g) “Instrument” means a negotiable instrument (defined in § 3-104),
or a security (defined in § 8-102) or any other writing which evidences a
right to the payment of money and is not itself a security agreement or
lease and is of a type which is in ordinary course of business transferred
by delivery with any necessary indorsement or assignment;

(h) “Security agreement” means an agreement which creates or pro-
vides for a security interest;

(i) “Secured party” means a lender, seller or other person in whose
favor there is a security interest, including a person to whom accounts,
contract rights or chattel paper have been sold. When the holders of obli-
gations issued under an indenture of trust, equipment trust agreement or
the like are represented by a trustee or other person, the representative
is the secured party.

(2) Other definitions applying to this Article and the sections in which
they appear are:

“Account”. § 9-106.

“Consumer goods”. § 9-109(1).

“Contract right”. § 9-106.

“Equipment”. § 9-109(2).

“Farm products”. § 9-109(3).
“General intangibles”. § 9-106.

“Inventory”. § 9-109(4).

“Lien creditor’. § 9-301(3).

“Proceeds”. § 9-306(1).

‘Purchase money security interest’. § 9-107.

(3) The following definitions in other Articles apply to this Article:

“Check”. § 3-104.

“Contract for sale’. § 2-106.

“Holder in due course’. § 3-302.

“Note”. § 3-104.

“Sale”. § 2-106.

(4) In addition Article 1 contains general definitions and principles
of construction and interpretation applicable throughout this Article.

§ 9-106. Definitions: “Account”; “Contract Right’; “General Intangi-
bles”. “Account” means any right to payment for goods sold or leased or
for services rendered which is not evidenced by an instrument or chattel
paper. “Contract right” means any right to payment under a contract not
yet earned by performance and not evidenced by an instrument or chattel
paper. “General intangibles” means any personal property (including
things in action) other than goods, accounts, contract rights, chattel paper,
documents and instruments.

§ 9-107. Definitions: “Purchase Money Security Interest”. A security
interest is a “purchase money security interest” to the extent that it is

(a) taken or retained by seller of the collateral to secure all or part
of its price; or

(b) taken by a person who by making advances or incurring an obliga-
tion gives value to enable the debtor to acquire rights in or the use of
collateral if such value is in fact so used.

§ 9-108. When After-Acquired Collateral Not Security for Antecedent
Debt. Where a secured party makes an advance, incurs an obligation, re-
leases a perfected security interest, or otherwise gives new value which is
to be secured in whole or in part by after-acquired property his security
interest in the after-acquired collateral shall be deemed to be taken for
new value and not as security for an antecedent debt if the debtor acquires
his rights in such collateral either in the ordinary course of his business
or under a contract of purchase made pursuant to the security agreement
within a reasonable time after new value is given.

§ 9-109. Classification of Goods; “Consumer Goods”; “Equipment” ;
“Farm Products”; “Inventory”. Goods are

(1) “consumer goods” if they are used or bought for use primarily
for personal, family or household purposes;

(2) “equipment” if they are used or bought for use primarily in busi-
ness (including farming or a profession) or by a debtor who is a non-profit
organization or a governmental subdivision or agency or if the goods are
not included in the definitions of inventory, farm products or consumer
goods ;

(3) “farm products” if they are crops or livestock or supplies used
or produced in farming operations or if they are products of crops or live-
stock in their unmanufactured states (such as ginned cotton, wool-clip,
maple syrup, milk and eggs), and if they are in the possession of a debtor
engaged in raising, fattening, grazing or other farming operations. If
goods are farm products they are neither equipment nor inventory;

(4) “inventory” if they are held by a person who holds them for sale
or lease or to be furnished under contracts of service or if he has so fur-
nished them, or if they are raw materials, work in process or materials
used or consumed in a business. Inventory of a person is not to be classified
as his equipment.
§ 9-110. Sufficiency of Description. For the purposes of this Article
any description of personal property or real estate is sufficient whether
or not it is specific if it reasonably identifies what is described.

§ 9-111. Applicability of Bulk Transfer Laws. The creation of a se-
curity interest is not a bulk transfer under Article 6 (see § 6-103).

§ 9-112. Where Collateral Is Not Owned by Debtor. Unless otherwise
agreed, when a secured party knows that collateral is owned by a person
who is not the debtor, the owner of the collateral is entitled to receive from
the secured party any surplus under § 9-502(2) or under § 9-504(1), and is
not liable for the debt or for any deficiency after resale, and he has the same
right as the debtor

(a) to receive statements under § 9-208;

(b) to receive notice of and to object to a secured party’s proposal
to retain the collateral in satisfaction of the indebtedness under § 9-505;

(c) to redeem the collateral under § 9-506;

(d) to obtain injunctive or other relief under § 9-507(1) ; and

(e) to recover losses caused to him under § 9-208(2).

§ 9-113. Security Interests Arising Under Article on Sales. A security
interest arising solely under the Article on Sales (Article 2) is subject to the
provisions of this Article except that to the extent that and so long as the
debtor does not have or does not lawfully obtain possession of the goods

(a) no security agreement is necessary to make the security interest
enforceable; and

(b) no filing is required to perfect the security interest; and

(c) the rights of the secured party on default by the debtor are
governed by the Article on Sales (Article 2).

PART 2

VALIDITY OF SECURITY AGREEMENT AND RIGHTS
OF PARTIES THERETO

§ 9-201. General Validity of Security Agreement. Except as other-
wise provided by this Act a security agreement is effective according to its
terms between the parties, against purchasers of the collateral and against
creditors. Nothing in this Article validates any charge or practice illegal
under any statute or regulation thereunder governing usury, small loans,
retail installment sales, or the like, or extends the application of any such
statute or regulation to any transaction not otherwise subject thereto.

§ 9-202. Title to Collateral Immaterial. Each provision of this Article
with regards to rights, obligations and remedies applies whether title to
collateral is in the secured party or in the debtor.

§ 9-203. Enforceability of Security Interest; Proceeds, Formal Requi-
sites. (1) Subject to the provisions of § 4-208 on the security interest of
a collecting bank and § 9-113 on a security interest arising under Article
on Sales, a security interest is not enforceable against the debtor or third
parties unless

(a) the collateral is in the possession of the secured party; or

(b) the debtor has signed a security agreement which contains a
description of the collateral and in addition, when the security interest
covers crops or oil, gas or minerals to be extracted or timber to be cut, a
description of the land concerned. In describing collateral, the word “‘pro-
ceeds” is sufficient without further description to cover proceeds of any
character.

(2) A transaction, although subject to this Article, is also subject to
§§ 6-274 through 6-338, § 11-4, and § 46.1-545 of the Code of Virginia, and
in the case of conflict between the provisions of this Article and any such
statute, the provisions of such statute control. Failure to comply with any
applicable statute has only the effect which is specified therein.
§ 9-204. When Security Interest Attaches; After-Acquired Property;
Future Advances. (1) A security interest cannot attach until there is
agreement (subsection (3) of § 1-201) that it attach and value is given
and the debtor has rights in the collateral. It attaches as soon as all of the
events in the preceding sentence have taken place unless explicit agree-
ment postpones the time of attaching.

(2) For the purposes of this section the debtor has no rights

(a) in crops until they are planted or otherwise become growing crops,
in the young of livestock until they are conceived;

(b) in fish until caught, in oil, gas or minerals until they are ex-
tracted, in timber until it is cut;

(c) in a contract right until the contract has been made;

(d) in an account until it comes into existence.

(3) Except as provided in subsection (4) a security agreement may
provide that collateral, whenever acquired, shall secure all obligations
covered by the security agreement.

(4) No security interest attaches under an after-acquired property
clause

(a) to crops which become such more than one year after the security
agreement is executed except that a security interest in crops which is
given in conjunction with a lease or a land purchase or improvement trans-
action evidenced by a contract, mortgage or deed of trust may if so agreed
attach to crops to be grown on the land concerned during the period of such
real estate transaction;

(b) to consumer goods other than accessions (§ 9-314) when given as
additional security unless the debtor acquires rights in them within ten
days after the secured party gives value.

(5) Obligations covered by a security agreement may include future
advances or other value whether or not the advances or value are given
pursuant to commitment.

§ 9-205. Use or Disposition of Collateral Without Accounting Permis-
sible. A security interest is not invalid or fraudulent against creditors by
reason of liberty in the debtor to use, commingle or dispose of all or part
of the collateral (including returned or repossessed goods) or to collect or
compromise accounts, contract rights or chattel paper, or to accept the
return of goods or make repossessions, or to use, commingle or dispose
of proceeds, or by reason of the failure of the secured party to require the
debtor to account for proceeds or replace collateral. This section does not
relax the requirements of possession where perfection of a security interest
depends upon possession of the collateral by the secured party or by a bailee.

§ 9-206. Agreement Not to Assert Defenses Against Assignee; Modi-
fication of Sales Warranties Where Security Agreement Exists. (1) Sub-
ject to any statute or decision which establishes a different rule for buyers
or lessees of consumer goods, an agreement by a buyer or lessee that he
will not assert against an assignee any claim or defense which he may
have against the seller or lessor is enforceable by an assignee who takes
his assignment for value, in good faith and without notice of a claim or
defense, except as to defenses of a type which may be asserted against a
holder in due course of a negotiable instrument under the Article on Com-
mercial Paper (Article 3). A buyer who as part of one transaction signs
both a negotiable instrument and a security agreement makes such an
agreement.

(2) When a seller retains a purchase money security interest in goods
the Article on Sales (Article 2) governs the sale and any disclaimer, limita-
tion or modification of the seller’s warranties.

§ 9-207. Rights and Duties When Collateral Is in Secured Party’s Pos-
session. (1) A secured party must use reasonable care in the custody and
preservation of collateral in his possession. In the case of an instrument
or chattel paper reasonable care includes taking necessary steps to pre-
serve rights against prior parties unless otherwise agreed.

(2) Unless otherwise agreed, when collateral is in the secured party’s
possession

(a) reasonable expenses (including the cost of any insurance and pay-
ment of taxes or other charges) incurred in the custody, preservation, use
or operation of the collateral are chargeable to the debtor and are secured
by the collateral;

(b) the risk of accidental loss or damage is on the debtor to the ex-
tent of any deficiency in any effective insurance coverage;

(c) the secured party may hold as additional security any increase or
profits (except money) received from the collateral, but money so received,
unless remitted to the debtor, shall be applied in reduction of the secured
obligation ;

(d) the secured party must keep the collateral identifiable but fungible
collateral may be commingled;

(e) the secured party may repledge the collateral upon terms which
do not impair the debtor’s right to redeem it.

(3) A secured party is liable for any loss caused by his failure to meet
any obligation imposed by the preceding subsections but does not lose his
security interest.

(4) A secured party may use or operate the collateral for the purpose
of preserving the collateral or its value or pursuant to the order of a court
of appropriate jurisdiction or, except in the case of consumer goods, in the
manner and to the extent provided in the security agreement.

§ 9-208. Request for Statement of Account or List of Collateral.
(1) A debtor may sign a statement indicating what he believes to be the
aggregate amount of unpaid indebtedness as of a specified date and may
send it to the secured party with a request that the statement be approved
or corrected and returned to the debtor. When the security agreement or
any other record kept by the secured party identifies the collateral a debtor
may similarly request the secured party to approve or correct a list of the
collateral.

(2) The secured party must comply with such a request within two
weeks after receipt by sending a written correction or approval. If the
secured party claims a security interest in all of a particular type of col-
lateral owned by the debtor he may indicate that fact in his reply and
need not approve or correct an itemized list of such collateral. If the se-
cured party without reasonable excuse fails to comply he is liable for any
loss caused to the debtor thereby; and if the debtor has properly included
in his request a good faith statement of the obligation or a list of the col-
lateral or both the secured party may claim a security interest only as
shown in the statement against persons misled by his failure to comply. If
he no longer has an interest in the obligation or collateral at the time the
request is received he must disclose the name and address of any successor
in interest known to him and he is liable for any loss caused to the debtor
as a result of failure to disclose. A successor in interest is not subject to
this section until a request is received by him.

(3) A debtor is entitled to such a statement once every six months
without charge. The secured party may require payment of a charge
not exceeding $10 for each additional statement furnished.
NN _ ee See nll ee

§ 9-301. Persons Who Take Priority Over Unperfected Security In-
terests; “Lien Creditor’. (1) Except as otherwise provided in subsection
(2), an unperfected security interest is subordinate to the rights of

(a) persons entitled to priority under § 9-312;

(b) a person who becomes a lien creditor without knowledge of the
security interest and before it is perfected;

(c) in the case of goods, instruments, documents, and chattel paper,
a person who is not a secured party and who is a transferee in bulk or
other buyer not in ordinary course of business to the extent that he gives
value and receives delivery of the collateral without knowledge of the
security interest and before it is perfected;

(d) in the case of accounts, contract rights, and general intangibles,
a person who is not a secured party and who is a transferee to the extent
that he gives value without knowledge of the security interest and before
it is perfected.

(2) If the secured party files with respect to a purchase money security
interest before or within ten days after the collateral comes into posses-
sion of the debtor, he takes priority over the rights of a transferee in bulk
or of a lien creditor which arise between the time the security interest at-
taches and the time of filing.

(3) A “lien creditor” means a creditor who has acquired a lien on the
property involved by attachment, levy or the like and includes an assignee
for benefit of creditors from the time of assignment, and a trustee in bank-
ruptcy from the date of the filing of the petition or a receiver in equity
from the time of appointment. Unless all the creditors represented had
xnowledge of the security interest such a representative of creditors is a
lien creditor without knowledge even though he personally has knowledge
of the security interest.

§ 9-302. When Filing Is Required to Perfect Security Interest; Se-
curity Interests to Which Filing Provisions of This Article Do Not Apply.
(1) A financing statement must be filed to perfect all security interests
except the following:

(a) a security interest in collateral in possession of the secured party
under § 9-305;

(b) a security interest temporarily perfected in instruments or docu-
ments without delivery under § 9-304 or in proceeds for a 10 day period
under § 9-306;

(c) a purchase money security interest in farm equipment having a
purchase price not in excess of $500; but filing is required for a fixture
under § 9-313;

(d) a purchase money security interest in consumer goods; but filing
is required for a fixture under § 9-313;

(e) an assignment of accounts or contract rights which does not alone
or in conjunction with other assignments to the same assignee transfer
a significant part of the outstanding accounts or contract rights of the
assignor;

(f) a security interest of a collecting bank (§ 4-208) or arising under
the Article on Sales (see § 9-113) or covered in subsection (8) of this sec-
ion.

(2) If a secured party assigns a perfected security interest, no filing
under this Article is required in order to continue the perfected status of
ne security interest against creditors of and transferees from the original

ebtor.
(3) The filing provisions of this Article do not apply to a security in-
terest in property subject to a statute

(a) of the United States which provides for a national registration or
filing of all security interests in such property; or

(b) of this state which provides for central filing of, or which requires
indication on a certificate of title of, such security interests in such prop-
erty.

(4) A security interest in property covered by a statute described in
subsection (3) can be perfected only by registration or filing under that
statute or by indication of the security interest on a certificate of title or
a duplicate thereof by a public official.

(5) The filing provisions of this Article do not apply to a security
interest in property of any description or any interest therein created by
a deed of trust or mortgage made by a public service corporation as defined
in § 56-1, but the deed of trust or mortgage shall be recorded and filed in
the county or corporation in which such deed of trust or mortgage is re-
quired by § 55-96, as amended, to be recorded.

§ 9-303. When Security Interest Is Perfected; Continuity of Perfec-
tion. (1) A security interest is perfected when it has attached and when
all of the applicable steps required for perfection have been taken. Such
steps are specified in §§ 9-302, 9-304, 9-305 and 9-306. If such steps are
taken before the security interest attaches, it is perfected at the time when
it attaches.

(2) If a security interest is originally perfected in any way permitted
under this Article and is subsequently perfected in some other way under
this Article, without an intermediate period when it was unperfected, the
security interest shall be deemed to be perfected continuously for the
purposes of this Article.

9-304. Perfection of Security Interest in Instruments, Documents,
and s Covered by Documents; Perfection by Permissive Filing; Tem-
porary Perfection Without Filing or Transfer of Possession. (1) A securi-
ty interest in chattel paper or negotiable documents may be perfected by
filing. A security interest in instruments (other than instruments which
constitute part of chattel paper) can be perfected only by the secured
party’s taking possession, except as provided in subsections (4) and (5).

(2) During the period that goods are in the possession of the issuer
of a negotiable document therefor, a security interest in the goods is per-
fected by perfecting a security interest in the document, and any security
interest in the goods otherwise perfected during such period is subject
thereto.

(3) A security interest in goods in the possession of a bailee other
than one who has issued a negotiable document therefor is perfected by
issuance of a document in the name of the secured party or by the bailee’s
receipt of notification of the secured party’s interest or by filing as to the
goods.

(4) A security interest in instruments or negotiable documents is per-
fected without filing or the taking of possession for a period of 21 days
from the time it attaches to the extent that it arises for new value given
under a written security agreement.

(5) A security interest remains perfected for a period of 21 days
without filing where a secured party having a perfected security interest
in an instrument, a negotiable document or goods in possession of a bailee
other than one who has issued a negotiable document therefor

(a) makes available to the debtor the goods or documents represent-
ing the goods for the purpose of ultimate sale or exchange or for the pur-
pose of loading, unloading, storing, shipping, transshipping, manufactur-
ing, processing or otherwise dealing with them in a manner preliminary
to their sale or exchange; or

(b) delivers the instrument to the debtor for the purpose of ultimate
sale or exchange or of presentation, collection, renewal or registration of
transfer.

(6) After the 21 day period in subsections (4) and (5) perfection de-
pends upon compliance with applicable provisions of this Article.

§ 9-305. When Possession by Secured Party Perfects Security Interest
Without Filing. A security interest in letters of credit and advices of
credit (subsection (2) (a) of § 5-116), goods, instruments, negotiable docu-
ments or chattel paper may be perfected by the secured party’s taking
possession of the collateral. If such collateral other than goods covered
by a negotiable document is held by a bailee, the secured party is deemed
to have possession from the time the bailee receives notification of the
secured party’s interest. A security interest is perfected by possession
from the time possession is taken without relation back and continues only
so long as possession is retained, unless otherwise specified in this Article.
The security interest may be otherwise perfected as provided in this Arti-
cle before or after the period of possession by the secured party.

§ 9-306. “Proceeds”; Secured Party’s Rights on Disposition of Col-
lateral. (1) ‘Proceeds’ includes whatever is received when collateral or
proceeds is sold, exchanged, collected or otherwise disposed of. The term
also includes the account arising when the right to payment is earned un-
der a contract right. Money, checks and the like are “cash proceeds”. All
other proceeds are “‘non-cash proceeds”.

(2) Except where this Article otherwise provides, a security interest
continues in collateral notwithstanding sale, exchange or other disposition
thereof by the debtor unless his action was authorized by the secured
party in the security agreement or otherwise, and also continues in any
identifiable proceeds including collections received by the debtor.

(3) The security interest in proceeds is a continuously perfected se-
curity interest if the interest in the original collateral was perfected but
it ceases to be a perfected security interest and becomes unperfected ten
days after receipt of the proceeds by the debtor unless

(a) a filed financing statement covering the original collateral also
covers proceeds; or .

(b) the security interest in the proceeds is perfected before the ex-
piration of the ten day period.

(4) In the event of insolvency proceedings instituted by or against
a debtor, a secured party with a perfected security interest in proceeds
has a perfected security interest

(a) in identifiable non-cash proceeds;

(b) in identifiable cash proceeds in the form of money which is not
commingled with other money or deposited in a bank account prior to the
insolvency proceedings;

(c) in identifiable cash proceeds in the form of checks and the like
which are not deposited in a bank account prior to the insolvency proceed-
ings; an
(d) in all cash and bank accounts of the debtor, if other cash pro-
ceeds have been commingled or deposited in a bank account, but the per-
fected security interest under this paragraph (d) is

(i) subject to any right of set-off; and

(ii) limited to an amount not greater than the amount of any cash
proceeds received by the debtor within ten days before the institution of
the insolvency proceedings and commingled or deposited in a bank account
prior to the insolvency proceedings less the amount of cash proceeds re-
ceived by the debtor and paid over to the secured party during the ten
day period.
(5) If a sale of goods results in an account or chattel paper which is
transferred by the seller to a secured party, and if the goods are returned
to or are repossessed by the seller or the secured party, the following rules
determine priorities:

(a) If the goods were collateral at the time of sale for an indebted-
ness of the seller which is still unpaid, the original security interest at-
taches again to the goods and continues as a perfected security interest if
it was perfected at the time when the goods were sold. If the security
interest was originally perfected by a filing which is still effective, nothing
further is required to continue the perfected status; in any other case, the
secured party must take possession of the returned or repossessed goods
or must file.

(b) An unpaid transferee of the chattel paper has a security interest
in the goods against the transferor. Such security interest is prior to a
security interest asserted under paragraph (a) to the extent that the
transferee of the chattel paper was entitled to priority under § 9-308.

(c) An unpaid transferee of the account has a security interest in the
goods against the transferor. Such security interest is subordinate to a
security interest asserted under paragraph (a).

(d) A security interest of an unpaid transferee asserted under para-
graph (b) or (c) must be perfected for protection against creditors of the
transferor and purchasers of the returned or repossessed goods.

§ 9-307. Protection of Buyers of Goods. (1) A buyer in ordinary
course of business (subsection (9) of § 1-201) other than a person buying
farm products from a person engaged in farming operations takes free
of a security interest created by his seller even though the security interest
is perfected and even though the buyer knows of its existence.

(2) In the case of consumer goods and in the case of farm equipment
having an original purchase price not in excess of $500 (other than fix-
tures, see § 9-313), a buyer takes free of a security interest even though
perfected if he buys without knowledge of the security interest, for value
and for his own personal, family or household purposes or his own farming
operations unless prior to the purchase the secured party has filed a financ-
ing statement covering such goods.

§ 9-308. Purchase of Chattel Paper and Non-Negotiable Instruments.
A purchaser of chattel paper or a non-negotiable instrument who gives
new value and takes possession of it in the ordinary course of his business
and without knowledge that the specific paper or instrument is subject
to a security interest has priority over a security interest which is per-
fected under § 9-304 (permissive filing and temporary perfection). A pur-
chaser of chattel paper who gives new value and takes possession of it in
the ordinary course of his business has priority over a security interest
in chattel paper which is claimed merely as proceeds of inventory subject
to a security interest (§ 9-306), even though he knows that the specific
paper is subject to the security interest.

§ 9-309. Protection of Purchasers of Instruments and Documents.
Nothing in this Article limits the rights of a holder in due course of a nego-
tiable instrument (§ 3-302) or a holder to whom a negotiable document of
title has been duly negotiated (§ 7-501) or a bona fide purchaser of a se-
curity (§ 8-301) and such holders or purchasers take priority over an earlier
security interest even though perfected. Filing under this Article does
not constitute notice of the security interest to such holders or purchasers.

§ 9-310. Priority of Certain Liens Arising by Operation of Law. When
a person in the ordinary course of his business furnishes services or ma-
terials with respect to goods subject to a security interest, a lien upon
goods in the possession of such person given by statute or rule of law for
such materials or services takes priority over a perfected security interest
unless the lien is statutory and the statute expressly provides otherwise.

§ 9-311. Alienability of Debtor’s Rights: Judicial Process. The debtor’s
rights in collateral may be voluntarily or involuntarily transferred (by way
of sale, creation of a security interest, attachment, levy, garnishment or
other judicial process) notwithstanding a provision in the security agree-
ment prohibiting any transfer or making the transfer constitute a default.

§ 9-312. Priorities Among Conflicting Security Interests in the Same
Collateral. (1) The rules of priority stated in the following sections shall
govern where applicable: § 4-208 with respect to the security interest of
collecting banks in items being collected, accompanying documents and pro-
ceeds; § 9-301 on certain priorities; § 9-304 on goods covered by documents;
§ 9-306 on proceeds and repossessions; § 9-307 on buyers of goods; § 9-308
on possessory against non-possessory interests in chattel paper or non-
negotiable instruments; § 9-309 on security interests in negotiable instru-
ments, documents or securities; § 9-310 on priorities between perfected
security interests and liens by operation of law; § 9-313 on security inter-
ests in fixtures as against interests in real estate; § 9-314 on security inter-
ests in accessions as against interest in goods; § 9-310 on conflicting
security interests where goods lose their identity or become part of a
product; and § 9-316 on contractual subordination.

(2) A perfected security interest in crops for new value given to en-
able the debtor to produce the crops during the production season and
given not more than three months before the crops become growing crops
by planting or otherwise takes priority over an earlier perfected security
interest to the extent that such earlier interest secures obligations due
more than six months before the crops become growing crops by planting or
otherwise, even though the person giving new value had knowledge of the
earlier security interest.

(3) A purchase money security interest in inventory collateral has
priority over a conflicting security interest in the same collateral if

(a) the purchase money security interest is perfected at the time the
debtor receives possession of the collateral; and

(b) any secured party whose security interest is known to the holder
of the purchase money security interest or who, prior to the date of the
filing made by the holder of the purchase money security interest, had filed
a financing statement covering the same items or type of inventory, has
received notification of the purchase money security interest before the
debtor receives possession of the collateral covered by the purchase money
security interest; and

(c) such notification states that the person giving the notice has or
expects to acquire a purchase money security interest in inventory of the
debtor, describing such inventory by item or type.

(4) A purchase money security interest in collateral other than inven-
tory has priority over a conflicting security interest in the same collateral
if the purchase money security interest is perfected at the time the debtor
receives possession of the collateral or within ten days thereafter.

(5) In all cases not governed by other rules stated in this section (in-
cluding cases of purchase money security interests which do not qualify
for the special priorities set forth in subsections (3) and (4) of this sec-
tion), priority between conflicting security interests in the same collateral
shall be determined as follows:

(a) in the order of filing if both are perfected by filing, regardless of
which security interest attached first under § 9-204(1) and whether it at-
tached before or after filing;

(b) in the order of perfection unless both are perfected by filing, re-
gardless of which security interest attached first under § 9-204(1) and, in
pit case s a filed security interest, whether it attached before or after
g;, an
(c) m the order of attachment under § 9-204(1) so long as neither is

ected.

(6) For the purpose of the priority rules of the immediately preced-
ing subsection, a continuously perfected security interest shall be treated
at all times as if perfected by filing if it was originally so perfected and it
shall be treated at all times as if perfected otherwise than by filing if it was
originally perfected otherwise than by filing.

§ 9-313. Priority of Security Interests in Fixtures. (1) The rules of
this section do not apply to goods incorporated into a structure in the man-
ner of lumber, bricks, tile, cement, glass, metal work and the like and no
security interest in them exists under this Article unless the structure
remains personal property under applicable law. The law of this State
other than this Act determines whether and when other goods become fix-
tures. This Act does not prevent creation of an encumbrance upon fixtures
or real estate pursuant to the law applicable to real estate.

(2) A security interest which attaches to goods before they become
fixtures takes priority as to the goods over the claims of all persons who
have an interest in the real estate except as stated in subsection (4).

(3) A security interest which attaches to goods after they become
fixtures is valid against all persons subsequently acquiring interests in the
real estate except as stated in subsection (4) but is invalid against any
person with an interest in the real estate at the time the security interest
attaches to the goods who has not in writing consented to the security in-
terest or disclaimed an interest in the goods as fixtures.

(4) The security interests described in subsections (2) and (3) do not
take priority over :

(a) a subsequent purchaser for value of any interest in the real
estate; or

(b) a creditor with a lien on the real estate subsequently obtained by
judicial proceedings; or

(c) a creditor with a prior encumbrance of record on the real estate
to the extent that he makes subsequent advances
if the subsequent purchase is made, the lien by judicial proceedings is ob-
tained, or the subsequent advance under the prior encumbrance is made or
contracted for without knowledge of the security interest and before it is
perfected. A purchaser of the real estate at a foreclosure sale other than
an encumbrancer purchasing at his own foreclosure sale is a subsequent
purchaser within this section.

_ (5) When under subsections (2) or (3) and (4) a secured party has
priority over the claims of all persons who have interests in the real estate,
he may, on default, subject to the provisions of Part 5, remove his collateral
from the real estate but he must reimburse any encumbrancer or owner
of the real estate who is not the debtor and who has not otherwise agreed
for the cost of repair of any physical injury, but not for any diminution in
value of the real estate caused by the absence of the goods removed or by
any necessity for replacing them. A person entitled to reimbursement may
refuse permission to remove until the secured party gives adequate se-
curity for the performance of this obligation.

§ 9-314. Accessions. (1) A security interest in goods which attaches
before they are installed in or affixed to other goods takes priority as to
the goods installed or affixed (called in this section “accessions”) over the
claims of all persons to the whole except as stated in subsection (3) and
subject to § 9-315(1). ,

(2) A security interest which attaches to goods after they become
part of a whole is valid against all persons subsequently acquiring interests
in the whole except as stated in subsection (3) but is invalid against any
person with an interest in the whole at the time the security interest at-
taches to the goods who has not in writing consented to the security in-
terest or disclaimed an interest in the goods as part of the whole.

(3) The security interests described in subsections (1) and (2) do not
take priority over

(a) a subsequent purchaser for value of any interest in the whole; or

(b) a creditor with a lien on the whole subsequently obtained by judi-
cial proceedings; or

(c) a creditor with a prior perfected security interest in the whole
to the extent that he makes subsequent advances
if the subsequent purchase is made, the lien by judicial proceedings ob-
tained or the subsequent advance under the prior perfected security in-
terest is made or contracted for without knowledge of the security interest
and before it is perfected. A purchaser of the whole at a foreclosure sale
other than the holder of a perfected security interest purchasing at his
own foreclosure sale is a subsequent purchaser within this section.

(4) When under subsections (1) or (2) and (8) a secured party has
an interest in accessions which has priority over the claims of all persons
who have interests in the whole, he may on default subject to the provi-
sions of Part 5 removed his collateral from the whole but he must reimburse
any encumbrancer or owner of the whole who is not the debtor and who
has not otherwise agreed for the cost of repair of any physical injury but
not for any diminution in value of the whole caused by the absence of the
goods removed or by any necessity for replacing them. A person entitled
to reimbursement may refuse permission to remove until the secured party
gives adequate security for the performance of this obligation.

§ 9-315. Priority When Goods Are Commingled or Processed. (1) If
a security interest in goods was perfected and subsequently the goods or
a part thereof have become part of a product cr mass, the security interest
continues in the product or mass if

(a) the goods are so manufactured, processed, assembled or commin-
gled that their identity is lost in the product or mass; or

(b) a financing statement covering the original goods also covers the
product into which the goods have been manufactured, processed or assem-
In a case to which paragraph (b) applies, no separate security interest in
that part of the original goods which has been manufactured, processed or
assembled into the product may be claimed under § 9-314.

(2) When under subsection (1) more than one security interest at-
taches to the product or mass, they rank equally according to the ratio
that the cost of the goods to which each interest originally attached bears
to the cost of the total product or mass.

§ 9-316. Priority Subject to Subordination. Nothing in this Article
prevents subordination by agreement by any person entitled to priority.

§ 9-317. Secured Party Not Obligated on Contract of Debtor. The
mere existence of a security interest or authority given to the debtor to
dispose of or use collateral does not impose contract or tort liability upon
the secured party for the debtor’s acts or omissions.

§ 9-318. Defenses Against Assignee; Modification of Contract After
Notification of Assignment; Term Prohibiting Assignment Ineffective;
Identification and Proof of Assignment. (1) Unless an account debtor has
made an enforceable agreement not to assert defenses or claims arising
out of a sale as provided in § 9-206 the rights of an assignee are subject to

_ (a) all the terms of the contract between the account debtor and as-
signor and any defense or claim arising therefrom; and

(b) any other defense or claim of the account debtor against the as-
signor which accrues before the account debtor receives notification of the
assignment.

(2) So far as the right to payment under an assigned contract right
has not already become an account, and notwithstanding notification of the
assignment, any modification of or substitution for the contract made in
good faith and in accordance with reasonable commercial standards is
effective against an assignee unless the account debtor has otherwise agreed
but the assignee acquires corresponding rights under the modified or sub-
stituted contract. The assignment may provide that such modification or
substitution is a breach by the assignor.

(3) The account debtor is authorized to pay the assignor until the ac-
count debtor receives notification that the account has been assigned and
that payment is to be made to the assignee. A notification which does not
reasonably identify the rights assigned is ineffective. If requested by the
account debtor, the assignee must seasonably furnish reasonable proof
that the assignment has been made and unless he does so the account
debtor may pay the assignor.

(4) A term in any contract between an account debtor and an assignor
which prohibits assignment of an account or contract right to which they
are parties is ineffective.

PART 4
FILING

9-401. Place of Filing; Erroneous Filing; Removal of Collateral.
{ 1) he proper place to file in order to perfect a security interest is as
ollows:

(a) when the collateral is equipment used in farming operations, or
farm products, or accounts, contract rights or general intangibles arising
from or relating to the sale of farm products by a farmer, or consumer
goods, then in the office of the clerk of the court in which deeds are ad-
mitted to record in the county or city of the debtor’s residence or if the
debtor is not a resident of this State then in the office of such clerk in the
county or city where goods are kept, and in addition when the collateral
is crops in the office of such clerk in the county or city where the land on
which the crops are growing or to be grown is located;

(b) when the collateral is goods which at the time the security in-
terest attaches are or are to become fixtures, then in the office where a
mortgage on the real estate concerned would be filed or recorded;

(c) in all other cases, in the office of the State Corporation Commis-
sion and in addition, if the debtor has a place of business in only one county
or city of this State, also in the office of the clerk of the court in which deeds
are admitted to record of such county or city, or, if the debtor has no place
of business in this State, but resides in the State, also in the office of such
clerk of the county or city in which he resides.

A filing which is made in good faith in an improper place or not
in all of the places required by this section is nevertheless effective with
regard to any collateral as to which the filing complied with the require-
ments of this Article and is also effective with regard to collateral covered
by the financing statement against any person who has knowledge of the
contents of such financing statement.

(3) A filing which is made in the proper place in this State continues

effective even though the debtor’s residence or place of business or the
location of the collateral or its use, whichever controlled the original filing,
is thereafter changed.

(4) If collateral is brought into this State from another jurisdiction,
oe qules stated in § 9-108 determine whether filing is necessary in this
§ 9-402. Formal Requisites of Financing Statement; Amendments.
(1) A financing statement is sufficient if it is signed by the debtor and
the secured party, gives an address of the secured party from which in-
formation concerning the security interest may be obtained, gives a mail-
ing address of the debtor and contains a statement indicating the types,
or describing the items, of collateral. A financing statement may be filed
before a security agreement is made or a security interest otherwise at-
taches. When the financing statement covers crops growing or to be grown
or goods which are or are to become fixtures, the statement must also con-
tain a description of the real estate concerned and the name of the record
owner thereof. A copy of the security agreement is sufficient as a financing
statement if it contains the above information and is signed by both parties.

(2) A financing statement which otherwise complies with subsection
(1) is sufficient although it is signed only by the secured party when it
is filed to perfect a security interest in

(a) collateral already subject to a security interest in another juris-
diction when it is brought into this State. Such a financing statement must
state that the collateral was brought into this State under such circum-
stances.

(b) proceeds under § 9-306 if the security interest in the original
collateral was perfected. Such a financing statement must describe the
original collateral. |

(3) A form substantially as follows is sufficient to comply with sub-
section (1):

Name Of Gebtor (OF ASSIQMOT) .........ccccccescoveccsescccccsccccccerccecceceeccoeccssscsesceses

ALES ........ccssescscsscscsscsccscccnsscsscccscsssscncessssscescssecssesseseccscsssessssscssconssesesssescssess

Name of secured party (OF ASSIGNEE) ............cccccccsssssescssccssscsssessssasscssecesees

ACAYLESS. .........00.secscsescescessccceccccscccesssssssccscessccesccesceescenscenccscsccssccscesoescescsssasensseess

1. This financing statement covers the following types (or items) of
property :

2. (If collateral is crops) The above described crops are growing or
are to be grown on:
(Describe Real Estate and Show Name of Record Owner) ...........0..+

SHHSHSSHSHSSHHOHHSSHHSHHSECHHEHSHOSHHOSOHHEHHE SESH SHH OHSHHHEHHSHHOHESHSEHSHOHSAHSHHOOHHSHOHOSHHSSHOHHESHHSHHSSHOHHOSHHSHHOSSHEHHOHHHHOHHEHHSSHAHOSEOE

3. (If collateral is goods which are or are to become fixtures) The
above described goods are affixed or to be affixed to:

(Describe Real Estate and Show Name of Record Owner) .............

4. (If proceeds or products of collateral are claimed) Proceeds—
Products of the collateral are also covered.

Signature of Debtor (or ASSIQTION) .............ccscsssssccsscssscsssccescecssesssssssscescees

Signature of Secured Party (or ASSIGNEE) ................cccscescesscssessccscscccceees

(4) The term “financing statement” as used in this Article means the
original financing statement and any amendments but if any amendment
adds collateral, it is effective as to the added collateral only from the filing
date of the amendment.

(5) A financing statement substantially complying with the require-
ments of this section is effective even though it contains minor errors
which are not seriously misleading.

§ 9-403. What Constitutes Filing; Duration of Filing; Effect of Lapsed
Filing; Duties of Filing Officer. (1) Presentation for filing of a financing
statement and tender of the filing fee or acceptance of the statement by
the filing officer constitutes filing under this Article.

(2) A filed financing statement which states a maturity date of the
obligation secured of five years or less is effective until such maturity
date and thereafter for a period of sixty days. Any other filed financing
statement is effective for a period of five years from the date of filing.
The effectiveness of a filed financing statement lapses on the expiration of
such sixty day period after a stated maturity date or on the expiration of
such five year period, as the case may be, unless a continuation statement
is filed prior to the lapse. Upon such lapse the security interest becomes
unperfected. A filed financing statement which states that the obligation
eaunee is payable on demand is effective for five years from the date of
ng.

(3) A continuation statement may be filed by the secured party (i)
within six months before and sixty days after a stated maturity date of
five years or less, and (ii) otherwise within six months prior to the expira-
tion of the five year period specified in subsection (2). Any such continua-
tion statement must be signed by the secured party, identify the original
statement by file number and state that the original statement is still ef-
fective. Upon timely filing of the continuation statement, the effectiveness
of the original statement is continued for five years after the last date to
which the filing was effective whereupon it lapses in the same manner as
provided in subsection (2) unless another continuation statement is filed
prior to such lapse. Succeeding continuation statements may be filed in
the same manner to continue the effectiveness of the original statement.
Unless a statute on disposition of public records provides otherwise, the
filing officer may remove a lapsed statement from the files and destroy it.

(4) A filing officer shall mark each statement with a consecutive file
number and with the date and hour of filing and shall hold the statement
for public inspection. In addition the filing officer shall index the state-
ments according to the name of the debtor and shall note in the index the
file number and the address of the debtor given in the statement. In addi-
tion, if a financing statement covers collateral which is crops or goods
which are or are to become fixtures, the filing office shall also index the
statement according to the name of the record owner of the real estate.

(5) The uniform fee for filing, indexing and furnishing filing data
for an original or a continuation statement shall be one dollar.

§ 9-404. Termination Statement. (1) Whenever there is no outstand-
ing secured obligation and no commitment to make advances, incur obliga-
tions or otherwise give value, the secured party must on written demand
by the debtor send the debtor a statement that he no longer claims a se-
curity interest under the financing statement, which shall be identified by
file number. A termination statement signed by a person other than the
secured party of record must include or be accompanied by the assignment
or a statement by the secured party of record that he has assigned the
security interest to the signer of the termination statement. The uniform
fee for filing and indexing such an assignment or statement thereof shall
be one dollar. If the affected secured party fails to send such a termina-
tion statement within ten days after proper demand therefor he shall be
liable to the debtor for one hundred dollars, and in addition for any loss
caused to the debtor by such failure.

(2) On presentation to the filing officer of such termination state-
ment he must note it in the index. The filing officer shall remove from the
files, mark “terminated” and send or deliver to the secured party the financ-
ing statement and any continuation statement, statement of assignment
or statement of release pertaining thereto.

(3) The uniform fee for filing and indexing a termination statement
including sending or delivering the financing statement shall be one dollar.

§ 9-405. Assignment of Security Interest; Duties of Filing Officer;
Fees. (1) A financing statement may disclose an assignment of a security
interest in the collateral described in the statement by indication in the
statement of the name and address of the assignee or by an assignment
itself or a copy thereof on the face or back of the statement. Either the
original secured party or the assignee may sign this statement as the se-
cured party. On presentation to the filing officer of such a financing state-
ment the filing officer shall mark the same as provided in § 9-408(4). The
uniform fee for filing, indexing and furnishing filing data for a financing
statement so indicating an assignment shall be one dollar.

(2) A secured party may assign of record all or a part of his rights
under a financing statement by the filing of a separate written statement
of assignment signed by the secured party of record and setting forth the
name of the secured party of record and the debtor, the file number and
the date of filing of the financing statement and the name and address of
the assignee and containing a description of the collateral assigned. A
copy of the assignment is sufficient as a separate statement if it complies
with the preceding sentence. On presentation to the filing officer of such a
separate statement, the filing officer shall mark such separate statement
with the date and hour of the filing. He shall note the assignment on the
index of the financing statement. The uniform fee for filing, indexing and
furnishing filing data about such a separate statement of assignment shall
be one dollar.

(3) After the disclosure or filing of an assignment under this section,
the assignee is the secured party of record.

9-406. Release of Collateral; Duties of Filing Officer; Fees. A se-
cured party of record may by his signed statement release all or a part
of any collateral described in a filed financing statement. The statement
of release is sufficient if it contains a description of the collateral being
released, the name and address of the debtor, the name and address of
the secured party, and the file number of the financing statement. Upon
presentation of such a statement to the filing officer he shall mark the
statement with the hour and date of filing and shall note the same upon
the margin of the index of the filing of the financing statement. The uni-
em fee for filing and noting such a statement of release shall be one

ollar.

§ 9-407. Omitted

PART 5
DEFAULT

§ 9-501. Default; Procedure When Security Agreement Covers Both
Real and Personal Property. (1) When a debtor is in default under a se-
curity agreement, a secured party has the rights and remedies provided
in this Part, and except as limited by subsection (3) those provided in the
security agreement. He may reduce his claim to judgment, foreclose or
otherwise enforce the security interest by any available judicial procedure.
If the collateral is documents the secured party may proceed either as to
the documents or as to the goods covered thereby. A secured party in pos-
session has the rights, remedies and duties provided in § 9-207. The rights
and remedies referred to in this subsection are cumulative.

_ (2) After default, the debtor has the rights and remedies provided in
soon” those provided in the security agreement and those provided in
_ (3) To the extent that they give rights to the debtor and impose
duties on the secured party, the rules stated in the subsections referred
to below may not be waived or varied except as provided with respect to
compulsory disposition of collateral (subsection (1) of § 9-505) and with
respect to redemption of collateral (§ 9-506) but the parties may by agree-
ment determine the standards by which the fulfillment of these rights and
duties is to be measured if such standards are not manifestly unreasonable:

(a) subsection (2) of § 9-502 and subsection (2) of § 9-504 insofar as
they require accounting for surplus proceeds of collateral;

(b) subsection (3) of a 9-504 and subsection (1) of § 9-505 which deal
with disposition of collateral

(c) subsection (2) of § 3-505 which deals with acceptance of collateral
as discharge of obligation;

(d) § 9-506 which deals with redemption of collateral; and

(e) subsection (1) of § 9-507 which deals with the secured party’s
liability for failure to comply with this Part.

(4) If the security agreement covers both real and personal property,
the secured party may proceed under this Part as to the personal property
or he may proceed as to both the real and the personal property in accord-
ance with his rights and remedies in respect of the real property in which
case the provisions of this Part do not apply.

(5) When a secured party has reduced his claim to judgment the lien
of any levy which may be made upon his collateral by virtue of any exe-
cution based upon the judgment shall relate back to the date of the per-
fection of the security interest in such collateral. A judicial sale, pursuant
to such execution, is a foreclosure of the security interest by judicial pro-
cedure within the meaning of this section, and the secured party may pur-
chase at the sale and thereafter hold the collateral free of any other re-
quirements of this Article.

§ 9-502. Collection Rights of Secured Party. (1) When so agreed and
in any event on default the secured party is entitled to notify an account
debtor or the obligor on an instrument to make payment to him whether
or not the assignor was theretofore making collections on the collateral,
ang Lg to take control of any proceeds to which he is entitled under
g 9.

(2) A secured party who by agreement is entitled to charge back un-
collected collateral or otherwise to full or limited recourse against the
debtor and who undertakes to collect from the account debtors or obligors
must proceed in a commercially reasonable manner and may deduct his
reasonable expenses of realization from the collections. If the security
agreement secures an indebtedness, the secured party must account to the
debtor for any surplus, and unless otherwise agreed, the debtor is tiable
for any deficiency. But, if the underlying transaction was a sale of ac-
counts, contract rights, or chattel paper, the debtor is entitled to any sur-
plus or is liable for any deficiency only if the security agreement so pro-
vides.

§ 9-503. Secured Party’s Right to Take Possession After Default. Un-
less otherwise agreed a secured party has on default the right to take pos-
session of the collateral. In taking possession a secured party may proceed
without judicial process if this can be done without breach of the peace or
may proceed by action. If the security agreement so provides the secured
party may require the debtor to assemble the collateral and make it avail-
able to the secured party at a place to be designated by the secured party
which is reasonably convenient to both parties. Without removal a secured
party may render equipment unusable, and may dispose of collateral on the
debtor’s premises under § 9-504

§ 9-504. Secured Party’s Right to Dispose of Collateral After De-
fault; Effect of Disposition. (1) A secured party after default may sell,
lease or otherwise dispose of any or all of the collateral in its then condi-
tion or following any commercially reasonable preparation or processing.
Any sale of goods is subject to the Article on Sales (Article 2). The pro-
ceeds of disposition shall be applied in the order following to

(a) the reasonable expenses of retaking, holding, preparing for sal
selling and the like and, to the extent provided for in the agreement an
not prohibited by law, the reasonable attorneys’ fees and legal expenses in-
curred by the secured party;

(b) the satisfaction of indebtedness secured by the security interest
under which the disposition is made;

(c) the satisfaction of indebtedness secured by any subordinate se-
curity interest in the collateral if written notification of demand therefor
is received before distribution of the proceeds is completed. If requested
by the secured party, the holder of a subordinate security interest must
seasonably furnish reasonable proof of his interest, and unless he does so,
the secured party neea not comply with his demand.

(2) If the security interest secures an indebtedness, the secured party
must account to the debtor for any surplus, and, unless otherwise agreed,
the debtor is liable for any deficiency. But if the underlying transaction
was a Sale of accounts, contract rights, or chattel paper, the debtor is en-
titled to any surplus or is liable for any deficiency only if the security
agreement so provides.

(3) Disposition of the collateral may be by public or private proceed-
ings and may be made by way of one or more contracts. Sale or other dis-
position may be as a unit or in parcels and at any time and place and on
any terms but every aspect of the disposition including the method, man-
ner, time, place and terms must be commercially reasonable. Unless col-
lateral is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, reasonable notification of the
time and place of any public sale or reasonable notification of the time after
which any private sale or other intended disposition is to be made shall be
sent by the secured party to the debtor, and except in the case of consumer
goods to any other person who has a security interest in the collateral and
who has duly filed a financing statement indexed in the name of the debtor
in this State or who is known by the secured party to have a security in-
terest in the collateral. The secured party may buy at any public sale and
if the collateral is of a type customarily sold in a recognized market or is
of a type which is the subject of widely distributed standard price quota-
tions he may buy at private sale.

(4) When collateral is disposed of by a secured party after default,
the disposition transfers to a purchaser for value all of the debtor’s rights
therein, discharges the security interest under which it is made and any
security interest or lien subordinate thereto. The purchaser takes free of
all such rights and interests even though the secured party fails to comply
with the requirements of this Part or of any judicial proceedings

(a) in the case of a public sale, if the purchaser has no knowledge of
any defects in the sale and if he does not buy in collusion with the secured
party, other bidders or the person conducting the sale; or

(b) in any other case, if the purchaser acts in good faith.

(5) A person who is liable to a secured party under a guaranty, in-
dorsement, repurchase agreement or the like and who receives a transfer
of collateral from the secured party or is subrogated to his rights has
thereafter the rights and duties of the secured party. Such a transfer of
collateral is not a sale or disposition of the collateral under this Article.

§ 9-505. Compulsory Disposition of Collateral; Acceptance of the Col-
lateral as Discharge of Obligation. (1) If the debtor has paid sixty per
cent of the cash price in the case of a purchase money security interest in
consumer goods or sixty percent of the loan in the case of another security
interest in consumer goods, and has not signed after default a statement
renouncing or modifying his rights under this Part a secured party who
has taken possession of collateral must dispose of it under § 9-504 and if
he fails to do so within ninety days after he takes possession the debtor
at his penn pay recover in conversion or under § 9-507(1) on secured
(2) In any other case involving consumer goods or any other col-
lateral a secured party in possession may, after default, propose to retain
the collateral in satisfaction of the obligation. Written notice of such pro-
posal shall be sent to the debtor and except in the case of consumer goods
to any other secured party who has a security interest in the collateral
and who has duly filed a financing statement indexed in the name of the
debtor in this State or is known by the secured party in possession to have
a security interest in it. If the debtor or other person entitled to receive
notification objects in writing within thirty days from the receipt of the
notification or if any other secured party objects in writing within thirty
days after the secured party obtains possession the secured party must
dispose of the collateral under § 9-504. In the absence of such written ob-
jection the secured party may retain the collateral in satisfaction of the
debtor’s obligation.

§ 9-506. Debtor’s Right to Redeem Collateral. At any time before the
secured party has disposed of collateral or entered into a contract for its
disposition under § 9-504 or before the obligation has been discharged
under § 9-505(2) the debtor or any other secured party may unless other-
wise agreed in writing after default redeem the collateral by tendering
fulfillment of all obligations secured by the collateral as well as the ex-
penses reasonably incurred by the secured party in retaking, holding and
preparing the collateral for disposition, in arranging for the sale, and to
the extent provided in the agreement and not prohibited by law, his rea-
sonable attorneys’ fees and legal expenses.

§ 9-507. Secured Party’s Liability for Failure to Comply With This
Part. (1) If it is established that the secured party is not proceeding in
accordance with the provisions of this Part disposition may be ordered or
restrained on appropriate terms and conditions. If the disposition has oc-
curred the debtor or any person entitled to notification or whose security
interest has been made known to the secured party prior to the disposition
has a right to recover from the secured party any loss caused by a failure
to comply with the provisions of this Part. If the collateral is consumer
goods, the debtor has a right to recover in any event an amount not less
than the credit service charge plus ten per cent of the principal amount of
the debt or the time price differential plus ten per cent of the cash price.

(2) The fact that a better price could have been obtained by a sale at
a different time or in a different method from that selected by the secured
party is not of itself sufficient to establish that the sale was not made in a
commercially reasonable manner. If the secured party either sells the col-
lateral in the usual manner in any recognized market therefor or if he sells
at the price current in such market at the time of his sale or if he has
otherwise sold in conformity with reasonable commercial practices among
dealers in the type of property sold he has sold in a commercially reason-
able manner. The principles stated in the two preceding sentences with
respect to sales also apply as may be appropriate to other types of disposi-
tion. A disposition which has been approved in any judicial proceeding or
by any bona fide creditors’ committee or representative of creditors shall
conclusively be deemed to be commercially reasonable, but this sentence
does not indicate that any such approval must be obtained in any case nor
does it pudieate that any disposition not so approved is not commercially
reasonable.

ARTICLE 10
EFFECTIVE DATE—TRANSITIONAL PROVISIONS

§ 10-101. Effective Date. This Act shall become effective on January
one, nineteen hundred sixty-six. It applies to transactions entered into
and events occurring after that date.
§ 10-102. Provision for Transition. Transactions validly entered into
before the effective date specified in § 10-101 and the rights, duties and
interests flowing from them remain valid thereafter and may be terminated,
completed, consummated or enforced as required or permitted by any
statute or other law amended or repealed by this Act as though such repeal
or amendment had not occurred.

§ 10-103. General Repealer. Except as provided in the following sec-
tion, 3 all acts and parts of acts inconsistent with this Act are hereby re-

§ 10-104. Laws Not Repealed. (1) The Article on Documents of Title
(Article 7) does not repeal or modify any laws prescribing the form or
contents of documents of title or the services or facilities to be afforded by
bailees, or otherwise regulating bailees’ businesses in respects not speci-
fically dealt with herein; but the fact that such laws are violated does not
affect the status of a document of title which otherwise complies with the
definition of a document of title (§ 1-201).

(2) This Act does not repeal §§ 13.1-424 through 18.1-443 of the Code
of Virginia, cited as the Uniform Act for the Simplification of Fiduciary
Security Transfers, and if in any respect there is any inconsistency between
that Act and the Article of this Act on investment securities (Article 8) the
provisions of §§ 13.1-424 through 13.1-443 shall control.

Be it further enacted by the General Assembly of Virginia:

2. That §§ 6-341, 8-13, 8-94, 8-114 as amended, 8-223, 8-517 as amended,
8-598, and 55-96 of the Code of Virginia, be amended and reenacted as
ollows:

§ 6-341. In any suit for a sum of money expressed in any foreign cur-
rency or otherwise than in the money of account of this State, the jury, if
there be one impaneled for any other purpose, and if not, the court, shall
ascertain the value in the money of account of the sum so expressed, making
such allowance for the difference of exchange as shall be just; and the
judgment or decree may either be for what may be so ascertained, or for the
sum of money expressed as aforesaid to be discharged by the sum s0
ascertained ; provided, that as to any such suit involving an instrument to
which § 8-107 of the Uniform Commercial Code is applicable, the provisions
of that section shall apply.

§ 8-13. Every action to recover money which is founded upon an
award, or on any contract, other than a judgment or recognizance, shall be
brought within the following number of years next after the right to bring
the same shall have first accrued, that is to say:

If the case be upon any contract by writing under seal, whether made
by a public officer, a fiduciary or private person within ten years;

If it be upon an award or upon a contract in writing signed by the
party to be charged thereby, or by his agent, but not under seal, within
five years; and

If it be upon any other contract express or implied within three years,
unless it be an action by one partner against his co-partner for a settle-
ment of the partnership account, or upon accounts concerning the trade of
merchandise between merchant and merchant, their factors, or servants,
in either of which cases the action may be brought until the expiration of
five years from the cessation of the dealings in which they are interested
together, but not after;

Provided that the right of action against the estate of any person here-
after dying, or upon any such award or contract, which shall have accrued
at the time of his death, or the right to prove any such claim against his
estate in any suit or proceeding, shall not in any case continue longer than
five years from the qualification of his personal representative, or if the
right of action shall not have accrued at the time of the decedent’s death,
it shall not continue longer than five years after the same shall have so
accrued; and

Provided further that the limitation to an action or other proceeding
for money on deposit with a bank or any person or corporation doing a
banking business shall not begin to run until a request in writing be made
therefor, by check, order, or otherwise.

And provided further, that as to any action to which § 2-275 of the
Uniform Commercial Code is applicable, the provisions of that section shall
be controlling.

§ 8-94. The assignee or beneficial owner of any bond, note, writing
or other chose in action, not negotiable and not covered by the PTOVisions
of § 8-805 of the Uniform Commercial Code, may maintain thereon in his
own name any action which the original obligee, payee, or contracting party
might have brought, but shall allow all just discounts, not only against
himself, but against such obligee, payee, or contracting party, before the
defendant had notice of the assignment or transfer by such obligee, payee,
or contracting party, and shall also allow all such discounts against any
intermediate assignor or transferrer, the right to which was acquired on
the faith of the assignment or transfer to him and before the defendant had
none of the assignment or transfer by such assignor or transferrer to
another.

§ 8-114. Except as otherwise provided by § 3-807 of the Uniform Com-
mercial Code, when any pleading alleges that any person made, indorsed,
assigned, or accepted any writing, no proof of the handwriting shall be
required, unless it be denied by an affidavit accompanying the plea putting
it in issue.

§ 8-223. Except as otherwise provided in § 3-122 of the Untform Com-
mercial Code, in any action whether on contract or for tort, the jury may
allow interest on the sum found by the verdict, or any part thereof, and fix
the period at which the interest shall commence. If a verdict be rendered
which does not allow interest, the sum thereby found shall bear interest
from its date, and judgment shall be entered accordingly. In any suit in
equity, or in an action or motion founded on contract, when no jury is im-
paneled, decree or judgment may be rendered for interest on the principal
sum recovered, until such decree or judgment be paid; and when there is
a jury, which ‘allows interest, the judgment shall, in like manner, be for
such interest until payment.

§ 8-517. A civil action may be maintained on any past due lost bond,
note, or other written evidence of debt, and if judgment be rendered for
the plaintiff, there shall be entered as a part of the judgment that the
plaintiff is not to have the benefit thereof, nor be allowed to enforce it by
execution or otherwise, unless and until he shall have first entered into bond
before the court or the clerk therein in such penalty as is prescribed in the
order awarding the judgment, and with condition to indemnify and save
harmless the defendant or defendants from all loss or damage he or they
may sustain or incur by reason of having to pay in whole or in part such
past due lost bond, note, or other written evidence of debt to some other
person than the plaintiff. The indemnifying bond hereinbefore required
shall be payable to the defendant or defendants, and shall be filed in the
clerk’s office of the court in which the judgment is rendered.

In the event of any inconsistency between this section and any applt-
cable provisions of § 3-804 of the Uniform Commercial Code, the provisions
of that section shall control.

§ 8-593. When final judgment is rendered on the trial of such action
or warrant, the court or * judge shall dispose of the property or proceeds
according to the rights of those entitled; and when in any such action or
warrant the plaintiff shall prevail under a contract which, regardless of
its form or express terms, was in fact made to secure the payment of money
to the plaintiff or his assignor, judgment shall be for the recovery of the
amount due the plaintiff thereunder, or else the specific property, and costs,
and the defendant shall have the election of paying the amount of such
judgment or surrendering the specific property. And the court or * judge
may grant the defendant a reasonable time not exceeding thirty days,
within which to discharge such judgment upon such security being given
as the court or * judge may deem sufficient.

In the event of any inconsistency between this section and any appli-
cable provisions of Article 9 of the Uniform Commercial Code, the pro-
visions of that Article shall control.

§ 55-96. Every such contract in writing, and every deed conveying
any such estate or term, and every deed of gift, or deed of trust, or
mortgage conveying real estate or goods and chattels and every such bill
of sale, or contract for the sale of goods and chattels, when the possession
is allowed to remain with the grantor, shall, unless subject to the filing
requirements of Article 9 of the Uniform Commercial Code and duly filed
pursuant thereto, be void as to all purchasers for valuable consideration
without notice not parties thereto and lien creditors, until and except from
the time it is duly admitted to record in the county or corporation wherein
the property embraced in such contract, deed or bill of sale may be, but
the mere possession of rea] estate shall not of itself be notice to purchasers
thereof for value of any interest or estate therein of the person in posses-
sion. A recordation under this section shall not affect the rights of a credi-
tor acquired under § 55-152.

The clerk of each court in which any such instrument is by law re-
quired to be recorded shall keep a daily index of all such instruments
admitted to record in his office, and, immediately upon admission of any
such instrument to record, the clerk shall index the same either in the
daily index or the appropriate general index of his office. All instruments
indexed in the daily index shall be indexed by the clerk in the appropriate
general index within ninety days after admission to record. During the
period permitted for transfer from the daily index to the general index,
indexing in the daily index shall be a sufficient compliance with the re-
quirements of this section as to indexing.

Be it further enacted by the General Assembly of Virginia:

8. That §§ 6-63; 6-71 through 6-75; 6-353 through 6-421; 6-423 through
6-426; 6-426.1; 6-427 through 6-543: 6-543.1 through 6-548.8; 6-544
through 6-549; "6-550 through 6-558; 8-654. 8; 11-5 through 11-7; 13. 1-401
through 13. 1-423: 43-27 ; 43-28; 43-44 through 43-61; 55-83 through 55-86;

65-88 through 55-94; 55-98; 55-99: 55-143 through 65-151: 56-120; 56-121;

56-126 ; 56-127; 61-1 through 61-82, of the Code of Virginia and all amend-
ments thereof, are hereby repealed.

Be it further enacted by the General Assembly of Virginia:

4. That it is hereby declared to be the intent of the General Assembly
that the provisions of this act, including amendments and repeal of sections
of the Code of Virginia, shall, except as otherwise provided in this act, be
controlling over any legislation inconsistent with this act adopted by the
nineteen hundred sixty-four session of the General Assembly.