S T A T E O F N E W Y O R K ________________________________________________________________________ 5901 2013-2014 Regular Sessions I N S E N A T E June 20, 2013 ___________ Introduced by Sen. FARLEY -- read twice and ordered printed, and when printed to be committed to the Committee on Rules AN ACT to amend the uniform commercial code, in relation to modernizing commercial law in New York state; and to repeal certain provisions of such code relating thereto THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: 1 Section 1. Article 1 of the uniform commercial code is REPEALED and a 2 new article 1 is added to read as follows: 3 ARTICLE 1 4 PART 1 5 GENERAL PROVISIONS 6 SECTION 1--101. SHORT TITLES. 7 (A) THIS ACT MAY BE CITED AS THE UNIFORM COMMERCIAL CODE. 8 (B) THIS ARTICLE MAY BE CITED AS UNIFORM COMMERCIAL CODE -- GENERAL 9 PROVISIONS. 10 SECTION 1--102. SCOPE OF ARTICLE. 11 THIS ARTICLE APPLIES TO A TRANSACTION TO THE EXTENT THAT IT IS 12 GOVERNED BY ANOTHER ARTICLE OF THIS ACT. 13 SECTION 1--103. CONSTRUCTION OF UNIFORM COMMERCIAL CODE TO PROMOTE ITS 14 PURPOSES AND POLICIES; APPLICABILITY OF SUPPLEMENTAL 15 PRINCIPLES OF LAW. 16 (A) THIS ACT MUST BE LIBERALLY CONSTRUED AND APPLIED TO PROMOTE ITS 17 UNDERLYING PURPOSES AND POLICIES, WHICH ARE: 18 (1) TO SIMPLIFY, CLARIFY, AND MODERNIZE THE LAW GOVERNING COMMERCIAL 19 TRANSACTIONS; 20 (2) TO PERMIT THE CONTINUED EXPANSION OF COMMERCIAL PRACTICES THROUGH 21 CUSTOM, USAGE, AND AGREEMENT OF THE PARTIES; AND 22 (3) TO MAKE UNIFORM THE LAW AMONG THE VARIOUS JURISDICTIONS. 23 (B) UNLESS DISPLACED BY THE PARTICULAR PROVISIONS OF THIS ACT, THE 24 PRINCIPLES OF LAW AND EQUITY, INCLUDING THE LAW MERCHANT AND THE LAW EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD11480-01-3 S. 5901 2 1 RELATIVE TO CAPACITY TO CONTRACT, PRINCIPAL AND AGENT, ESTOPPEL, FRAUD, 2 MISREPRESENTATION, DURESS, COERCION, MISTAKE, BANKRUPTCY, AND OTHER 3 VALIDATING OR INVALIDATING CAUSE SUPPLEMENT ITS PROVISIONS. 4 SECTION 1--104. CONSTRUCTION AGAINST IMPLIED REPEAL. 5 THIS ACT BEING A GENERAL ACT INTENDED AS A UNIFIED COVERAGE OF ITS 6 SUBJECT MATTER, NO PART OF IT SHALL BE DEEMED TO BE IMPLIEDLY REPEALED 7 BY SUBSEQUENT LEGISLATION IF SUCH CONSTRUCTION CAN REASONABLY BE 8 AVOIDED. 9 SECTION 1--105. SEVERABILITY. 10 IF ANY PROVISION OR CLAUSE OF THIS ACT OR ITS APPLICATION TO ANY 11 PERSON OR CIRCUMSTANCE IS HELD INVALID, THE INVALIDITY DOES NOT AFFECT 12 OTHER PROVISIONS OR APPLICATIONS OF THIS ACT WHICH CAN BE GIVEN EFFECT 13 WITHOUT THE INVALID PROVISION OR APPLICATION, AND TO THIS END THE 14 PROVISIONS OF THIS ACT ARE SEVERABLE. 15 SECTION 1--106. USE OF SINGULAR AND PLURAL; GENDER. 16 IN THIS ACT, UNLESS THE STATUTORY CONTEXT OTHERWISE REQUIRES: 17 (1) WORDS IN THE SINGULAR NUMBER INCLUDE THE PLURAL, AND THOSE IN THE 18 PLURAL INCLUDE THE SINGULAR; AND 19 (2) WORDS OF ANY GENDER ALSO REFER TO ANY OTHER GENDER. 20 SECTION 1--107. SECTION CAPTIONS. 21 SECTION CAPTIONS ARE PART OF THIS ACT. THE SUBSECTION HEADINGS IN 22 ARTICLE NINE ARE NOT PART OF THIS ACT FOR PURPOSES OF CONSTRUCTION. 23 SECTION 1--108. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL 24 COMMERCE ACT. 25 THIS ARTICLE MODIFIES, LIMITS, AND SUPERSEDES THE FEDERAL ELECTRONIC 26 SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT, 15 U.S.C. SECTION 7001 27 ET SEQ., EXCEPT THAT NOTHING IN THIS ARTICLE MODIFIES, LIMITS, OR SUPER- 28 SEDES SECTION 7001(C) OF THAT ACT OR AUTHORIZES ELECTRONIC DELIVERY OF 29 ANY OF THE NOTICES DESCRIBED IN SECTION 7003(B) OF THAT ACT. 30 PART 2 31 GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION 32 SECTION 1--201. GENERAL DEFINITIONS. 33 (A) UNLESS THE CONTEXT OTHERWISE REQUIRES, WORDS OR PHRASES DEFINED IN 34 THIS SECTION, OR IN THE ADDITIONAL DEFINITIONS CONTAINED IN OTHER ARTI- 35 CLES OF THIS ACT THAT APPLY TO PARTICULAR ARTICLES OR PARTS THEREOF, 36 HAVE THE MEANINGS STATED. 37 (B) SUBJECT TO DEFINITIONS CONTAINED IN OTHER ARTICLES OF THIS ACT 38 THAT APPLY TO PARTICULAR ARTICLES OR PARTS THEREOF: 39 (1) "ACTION", IN THE SENSE OF A JUDICIAL PROCEEDING, INCLUDES RECOUP- 40 MENT, COUNTERCLAIM, SET-OFF, SUIT IN EQUITY, AND ANY OTHER PROCEEDING IN 41 WHICH RIGHTS ARE DETERMINED. 42 (2) "AGGRIEVED PARTY" MEANS A PARTY ENTITLED TO PURSUE A REMEDY. 43 (3) "AGREEMENT", AS DISTINGUISHED FROM "CONTRACT", MEANS THE BARGAIN 44 OF THE PARTIES IN FACT, AS FOUND IN THEIR LANGUAGE OR INFERRED FROM 45 OTHER CIRCUMSTANCES, INCLUDING COURSE OF PERFORMANCE, COURSE OF DEALING, 46 OR USAGE OF TRADE AS PROVIDED IN SECTION 1--303. 47 (4) "BANK" MEANS A PERSON ENGAGED IN THE BUSINESS OF BANKING AND 48 INCLUDES A SAVINGS BANK, SAVINGS AND LOAN ASSOCIATION, CREDIT UNION, AND 49 TRUST COMPANY. 50 (5) "BEARER" MEANS A PERSON IN CONTROL OF A NEGOTIABLE ELECTRONIC 51 DOCUMENT OF TITLE OR A PERSON IN POSSESSION OF A NEGOTIABLE INSTRUMENT, 52 NEGOTIABLE TANGIBLE DOCUMENT OF TITLE, OR CERTIFICATED SECURITY THAT IS 53 PAYABLE TO BEARER OR INDORSED IN BLANK. 54 (6) "BILL OF LADING" MEANS A DOCUMENT OF TITLE EVIDENCING THE RECEIPT 55 OF GOODS FOR SHIPMENT ISSUED BY A PERSON ENGAGED IN THE BUSINESS OF S. 5901 3 1 DIRECTLY OR INDIRECTLY TRANSPORTING OR FORWARDING GOODS. THE TERM DOES 2 NOT INCLUDE A WAREHOUSE RECEIPT. 3 (7) "BRANCH" INCLUDES A SEPARATELY INCORPORATED FOREIGN BRANCH OF A 4 BANK. 5 (8) "BURDEN OF ESTABLISHING" A FACT MEANS THE BURDEN OF PERSUADING THE 6 TRIER OF FACT THAT THE EXISTENCE OF THE FACT IS MORE PROBABLE THAN ITS 7 NONEXISTENCE. 8 (9) "BUYER IN ORDINARY COURSE OF BUSINESS" MEANS A PERSON THAT BUYS 9 GOODS IN GOOD FAITH, WITHOUT KNOWLEDGE THAT THE SALE VIOLATES THE RIGHTS 10 OF ANOTHER PERSON IN THE GOODS, AND IN THE ORDINARY COURSE FROM A 11 PERSON, OTHER THAN A PAWNBROKER, IN THE BUSINESS OF SELLING GOODS OF 12 THAT KIND. A PERSON BUYS GOODS IN THE ORDINARY COURSE IF THE SALE TO THE 13 PERSON COMPORTS WITH THE USUAL OR CUSTOMARY PRACTICES IN THE KIND OF 14 BUSINESS IN WHICH THE SELLER IS ENGAGED OR WITH THE SELLER'S OWN USUAL 15 OR CUSTOMARY PRACTICES. A PERSON THAT SELLS OIL, GAS, OR OTHER MINERALS 16 AT THE WELLHEAD OR MINEHEAD IS A PERSON IN THE BUSINESS OF SELLING GOODS 17 OF THAT KIND. A BUYER IN ORDINARY COURSE OF BUSINESS MAY BUY FOR CASH, 18 BY EXCHANGE OF OTHER PROPERTY, OR ON SECURED OR UNSECURED CREDIT, AND 19 MAY ACQUIRE GOODS OR DOCUMENTS OF TITLE UNDER A PREEXISTING CONTRACT FOR 20 SALE. ONLY A BUYER THAT TAKES POSSESSION OF THE GOODS OR HAS A RIGHT TO 21 RECOVER THE GOODS FROM THE SELLER UNDER ARTICLE 2 MAY BE A BUYER IN 22 ORDINARY COURSE OF BUSINESS. "BUYER IN ORDINARY COURSE OF BUSINESS" DOES 23 NOT INCLUDE A PERSON THAT ACQUIRES GOODS IN A TRANSFER IN BULK OR AS 24 SECURITY FOR OR IN TOTAL OR PARTIAL SATISFACTION OF A MONEY DEBT. 25 (10) "CONSPICUOUS", WITH REFERENCE TO A TERM, MEANS SO WRITTEN, 26 DISPLAYED, OR PRESENTED THAT A REASONABLE PERSON AGAINST WHICH IT IS TO 27 OPERATE OUGHT TO HAVE NOTICED IT. WHETHER A TERM IS "CONSPICUOUS" OR NOT 28 IS A DECISION FOR THE COURT. CONSPICUOUS TERMS INCLUDE THE FOLLOWING: 29 (A) A HEADING IN CAPITALS EQUAL TO OR GREATER IN SIZE THAN THE 30 SURROUNDING TEXT, OR IN CONTRASTING TYPE, FONT, OR COLOR TO THE 31 SURROUNDING TEXT OF THE SAME OR LESSER SIZE; AND 32 (B) LANGUAGE IN THE BODY OF A RECORD OR DISPLAY IN LARGER TYPE THAN 33 THE SURROUNDING TEXT, OR IN CONTRASTING TYPE, FONT, OR COLOR TO THE 34 SURROUNDING TEXT OF THE SAME SIZE, OR SET OFF FROM SURROUNDING TEXT OF 35 THE SAME SIZE BY SYMBOLS OR OTHER MARKS THAT CALL ATTENTION TO THE 36 LANGUAGE. 37 (11) "CONSUMER" MEANS AN INDIVIDUAL WHO ENTERS INTO A TRANSACTION 38 PRIMARILY FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES. 39 (12) "CONTRACT", AS DISTINGUISHED FROM "AGREEMENT", MEANS THE TOTAL 40 LEGAL OBLIGATION THAT RESULTS FROM THE PARTIES' AGREEMENT AS DETERMINED 41 BY THIS ACT AS SUPPLEMENTED BY ANY OTHER APPLICABLE LAWS. 42 (13) "CREDITOR" INCLUDES A GENERAL CREDITOR, A SECURED CREDITOR, A 43 LIEN CREDITOR, AND ANY REPRESENTATIVE OF CREDITORS, INCLUDING AN ASSIG- 44 NEE FOR THE BENEFIT OF CREDITORS, A TRUSTEE IN BANKRUPTCY, A RECEIVER IN 45 EQUITY, AND AN EXECUTOR OR ADMINISTRATOR OF AN INSOLVENT DEBTOR'S OR 46 ASSIGNOR'S ESTATE. 47 (14) "DEFENDANT" INCLUDES A PERSON IN THE POSITION OF DEFENDANT IN A 48 COUNTERCLAIM, CROSS-CLAIM, OR THIRD-PARTY CLAIM. 49 (15) "DELIVERY", WITH RESPECT TO AN ELECTRONIC DOCUMENT OF TITLE MEANS 50 VOLUNTARY TRANSFER OF CONTROL AND WITH RESPECT TO AN INSTRUMENT, A 51 TANGIBLE DOCUMENT OF TITLE, OR CHATTEL PAPER, MEANS VOLUNTARY TRANSFER 52 OF POSSESSION. 53 (16) "DOCUMENT OF TITLE" MEANS A RECORD (A) THAT IN THE REGULAR COURSE 54 OF BUSINESS OR FINANCING IS TREATED AS ADEQUATELY EVIDENCING THAT THE 55 PERSON IN POSSESSION OR CONTROL OF THE RECORD IS ENTITLED TO RECEIVE, 56 CONTROL, HOLD, AND DISPOSE OF THE RECORD AND THE GOODS THE RECORD COVERS S. 5901 4 1 AND (B) THAT PURPORTS TO BE ISSUED BY OR ADDRESSED TO A BAILEE AND TO 2 COVER GOODS IN THE BAILEE'S POSSESSION WHICH ARE EITHER IDENTIFIED OR 3 ARE FUNGIBLE PORTIONS OF AN IDENTIFIED MASS. THE TERM INCLUDES A BILL OF 4 LADING, TRANSPORT DOCUMENT, DOCK WARRANT, DOCK RECEIPT, WAREHOUSE 5 RECEIPT, AND ORDER FOR DELIVERY OF GOODS. AN ELECTRONIC DOCUMENT OF 6 TITLE MEANS A DOCUMENT OF TITLE EVIDENCED BY A RECORD CONSISTING OF 7 INFORMATION STORED IN AN ELECTRONIC MEDIUM. A TANGIBLE DOCUMENT OF TITLE 8 MEANS A DOCUMENT OF TITLE EVIDENCED BY A RECORD CONSISTING OF INFORMA- 9 TION THAT IS INSCRIBED ON A TANGIBLE MEDIUM. 10 (17) "FAULT" MEANS A DEFAULT, BREACH, OR WRONGFUL ACT OR OMISSION. 11 (18) "FUNGIBLE GOODS" MEANS: 12 (A) GOODS OF WHICH ANY UNIT, BY NATURE OR USAGE OF TRADE, IS THE 13 EQUIVALENT OF ANY OTHER LIKE UNIT; OR 14 (B) GOODS THAT BY AGREEMENT ARE TREATED AS EQUIVALENT. 15 (19) "GENUINE" MEANS FREE OF FORGERY OR COUNTERFEITING. 16 (20) "GOOD FAITH" MEANS HONESTY IN FACT. 17 (21) "HOLDER" MEANS: 18 (A) THE PERSON IN POSSESSION OF A NEGOTIABLE INSTRUMENT THAT IS PAYA- 19 BLE EITHER TO BEARER OR TO AN IDENTIFIED PERSON THAT IS THE PERSON IN 20 POSSESSION; OR 21 (B) THE PERSON IN POSSESSION OF A NEGOTIABLE TANGIBLE DOCUMENT OF 22 TITLE IF THE GOODS ARE DELIVERABLE EITHER TO BEARER OR TO THE ORDER OF 23 THE PERSON IN POSSESSION; OR 24 (C) THE PERSON IN CONTROL OF A NEGOTIABLE ELECTRONIC DOCUMENT OF 25 TITLE. 26 (22) "INSOLVENCY PROCEEDING" INCLUDES AN ASSIGNMENT FOR THE BENEFIT OF 27 CREDITORS OR OTHER PROCEEDING INTENDED TO LIQUIDATE OR REHABILITATE THE 28 ESTATE OF THE PERSON INVOLVED. 29 (23) "INSOLVENT" MEANS: 30 (A) HAVING GENERALLY CEASED TO PAY DEBTS IN THE ORDINARY COURSE OF 31 BUSINESS OTHER THAN AS A RESULT OF BONA FIDE DISPUTE; 32 (B) BEING UNABLE TO PAY DEBTS AS THEY BECOME DUE; OR 33 (C) BEING INSOLVENT WITHIN THE MEANING OF FEDERAL BANKRUPTCY LAW. 34 (24) "MONEY" MEANS A MEDIUM OF EXCHANGE CURRENTLY AUTHORIZED OR 35 ADOPTED BY A DOMESTIC OR FOREIGN GOVERNMENT. THE TERM INCLUDES A MONE- 36 TARY UNIT OF ACCOUNT ESTABLISHED BY AN INTERGOVERNMENTAL ORGANIZATION OR 37 BY AGREEMENT BETWEEN TWO OR MORE COUNTRIES. 38 (25) "ORGANIZATION" MEANS A PERSON OTHER THAN AN INDIVIDUAL. 39 (26) "PARTY", AS DISTINGUISHED FROM "THIRD PARTY", MEANS A PERSON THAT 40 HAS ENGAGED IN A TRANSACTION OR MADE AN AGREEMENT SUBJECT TO THIS ACT. 41 (27) "PERSON" MEANS AN INDIVIDUAL, CORPORATION, BUSINESS TRUST, 42 ESTATE, TRUST, PARTNERSHIP, LIMITED LIABILITY COMPANY, ASSOCIATION, 43 JOINT VENTURE, GOVERNMENT, GOVERNMENTAL SUBDIVISION, AGENCY, OR INSTRU- 44 MENTALITY, PUBLIC CORPORATION, OR ANY OTHER LEGAL OR COMMERCIAL ENTITY. 45 (28) "PRESENT VALUE" MEANS THE AMOUNT AS OF A DATE CERTAIN OF ONE OR 46 MORE SUMS PAYABLE IN THE FUTURE, DISCOUNTED TO THE DATE CERTAIN BY USE 47 OF EITHER AN INTEREST RATE SPECIFIED BY THE PARTIES IF THAT RATE IS NOT 48 MANIFESTLY UNREASONABLE AT THE TIME THE TRANSACTION IS ENTERED INTO OR, 49 IF AN INTEREST RATE IS NOT SO SPECIFIED, A COMMERCIALLY REASONABLE RATE 50 THAT TAKES INTO ACCOUNT THE FACTS AND CIRCUMSTANCES AT THE TIME THE 51 TRANSACTION IS ENTERED INTO. 52 (29) "PURCHASE" MEANS TAKING BY SALE, LEASE, DISCOUNT, NEGOTIATION, 53 MORTGAGE, PLEDGE, LIEN, SECURITY INTEREST, ISSUE OR REISSUE, GIFT, OR 54 ANY OTHER VOLUNTARY TRANSACTION CREATING AN INTEREST IN PROPERTY. 55 (30) "PURCHASER" MEANS A PERSON THAT TAKES BY PURCHASE. S. 5901 5 1 (31) "RECORD" MEANS INFORMATION THAT IS INSCRIBED ON A TANGIBLE MEDIUM 2 OR THAT IS STORED IN AN ELECTRONIC OR OTHER MEDIUM AND IS RETRIEVABLE IN 3 PERCEIVABLE FORM. 4 (32) "REMEDY" MEANS ANY REMEDIAL RIGHT TO WHICH AN AGGRIEVED PARTY IS 5 ENTITLED WITH OR WITHOUT RESORT TO A TRIBUNAL. 6 (33) "REPRESENTATIVE" MEANS A PERSON EMPOWERED TO ACT FOR ANOTHER, 7 INCLUDING AN AGENT, AN OFFICER OF A CORPORATION OR ASSOCIATION, AND A 8 TRUSTEE, EXECUTOR, OR ADMINISTRATOR OF AN ESTATE. 9 (34) "RIGHT" INCLUDES REMEDY. 10 (35) "SECURITY INTEREST" MEANS AN INTEREST IN PERSONAL PROPERTY OR 11 FIXTURES WHICH SECURES PAYMENT OR PERFORMANCE OF AN OBLIGATION. "SECURI- 12 TY INTEREST" INCLUDES ANY INTEREST OF A CONSIGNOR AND A BUYER OF 13 ACCOUNTS, CHATTEL PAPER, A PAYMENT INTANGIBLE, OR A PROMISSORY NOTE IN A 14 TRANSACTION THAT IS SUBJECT TO ARTICLE 9. "SECURITY INTEREST" DOES NOT 15 INCLUDE THE SPECIAL PROPERTY INTEREST OF A BUYER OF GOODS ON IDENTIFICA- 16 TION OF THOSE GOODS TO A CONTRACT FOR SALE UNDER SECTION 2--401, BUT A 17 BUYER MAY ALSO ACQUIRE A "SECURITY INTEREST" BY COMPLYING WITH ARTICLE 18 9. EXCEPT AS OTHERWISE PROVIDED IN SECTION 2--505, THE RIGHT OF A SELLER 19 OR LESSOR OF GOODS UNDER ARTICLE 2 OR 2-A TO RETAIN OR ACQUIRE 20 POSSESSION OF THE GOODS IS NOT A "SECURITY INTEREST", BUT A SELLER OR 21 LESSOR MAY ALSO ACQUIRE A "SECURITY INTEREST" BY COMPLYING WITH ARTICLE 22 9. THE RETENTION OR RESERVATION OF TITLE BY A SELLER OF GOODS NOTWITH- 23 STANDING SHIPMENT OR DELIVERY TO THE BUYER UNDER SECTION 2--401 IS 24 LIMITED IN EFFECT TO A RESERVATION OF A "SECURITY INTEREST." WHETHER A 25 TRANSACTION IN THE FORM OF A LEASE CREATES A "SECURITY INTEREST" IS 26 DETERMINED PURSUANT TO SECTION 1--203. 27 (36) "SEND" IN CONNECTION WITH A WRITING, RECORD, OR NOTICE MEANS: 28 (A) TO DEPOSIT IN THE MAIL OR DELIVER FOR TRANSMISSION BY ANY OTHER 29 USUAL MEANS OF COMMUNICATION WITH POSTAGE OR COST OF TRANSMISSION 30 PROVIDED FOR AND PROPERLY ADDRESSED AND, IN THE CASE OF AN INSTRUMENT, 31 TO AN ADDRESS SPECIFIED THEREON OR OTHERWISE AGREED, OR IF THERE BE NONE 32 TO ANY ADDRESS REASONABLE UNDER THE CIRCUMSTANCES; OR 33 (B) IN ANY OTHER WAY TO CAUSE TO BE RECEIVED ANY RECORD OR NOTICE 34 WITHIN THE TIME IT WOULD HAVE ARRIVED IF PROPERLY SENT. 35 (37) "SIGNED" INCLUDES USING ANY SYMBOL EXECUTED OR ADOPTED WITH PRES- 36 ENT INTENTION TO ADOPT OR ACCEPT A WRITING. 37 (38) "STATE" MEANS A STATE OF THE UNITED STATES, THE DISTRICT OF 38 COLUMBIA, PUERTO RICO, THE UNITED STATES VIRGIN ISLANDS, OR ANY TERRITO- 39 RY OR INSULAR POSSESSION SUBJECT TO THE JURISDICTION OF THE UNITED 40 STATES. 41 (39) "SURETY" INCLUDES A GUARANTOR OR OTHER SECONDARY OBLIGOR. 42 (40) "TERM" MEANS A PORTION OF AN AGREEMENT THAT RELATES TO A PARTIC- 43 ULAR MATTER. 44 (41) "UNAUTHORIZED SIGNATURE" MEANS A SIGNATURE MADE WITHOUT ACTUAL, 45 IMPLIED, OR APPARENT AUTHORITY. THE TERM INCLUDES A FORGERY. 46 (42) "WAREHOUSE RECEIPT" MEANS A DOCUMENT OF TITLE ISSUED BY A PERSON 47 ENGAGED IN THE BUSINESS OF STORING GOODS FOR HIRE. 48 (43) "WRITING" INCLUDES PRINTING, TYPEWRITING, OR ANY OTHER INTEN- 49 TIONAL REDUCTION TO TANGIBLE FORM. "WRITTEN" HAS A CORRESPONDING MEAN- 50 ING. 51 SECTION 1--202. NOTICE; KNOWLEDGE. 52 (A) SUBJECT TO SUBSECTION (F), A PERSON HAS "NOTICE" OF A FACT IF THE 53 PERSON: 54 (1) HAS ACTUAL KNOWLEDGE OF IT; 55 (2) HAS RECEIVED A NOTICE OR NOTIFICATION OF IT; OR S. 5901 6 1 (3) FROM ALL THE FACTS AND CIRCUMSTANCES KNOWN TO THE PERSON AT THE 2 TIME IN QUESTION, HAS REASON TO KNOW THAT IT EXISTS. 3 (B) "KNOWLEDGE" MEANS ACTUAL KNOWLEDGE. "KNOWS" HAS A CORRESPONDING 4 MEANING. 5 (C) "DISCOVER", "LEARN", OR WORDS OF SIMILAR IMPORT REFER TO KNOWLEDGE 6 RATHER THAN TO REASON TO KNOW. 7 (D) A PERSON "NOTIFIES" OR "GIVES" A NOTICE OR NOTIFICATION TO ANOTHER 8 PERSON BY TAKING SUCH STEPS AS MAY BE REASONABLY REQUIRED TO INFORM THE 9 OTHER PERSON IN ORDINARY COURSE, WHETHER OR NOT THE OTHER PERSON ACTUAL- 10 LY COMES TO KNOW OF IT. 11 (E) SUBJECT TO SUBSECTION (F), A PERSON "RECEIVES" A NOTICE OR NOTIFI- 12 CATION WHEN: 13 (1) IT COMES TO THAT PERSON'S ATTENTION; OR 14 (2) IT IS DULY DELIVERED IN A FORM REASONABLE UNDER THE CIRCUMSTANCES 15 AT THE PLACE OF BUSINESS THROUGH WHICH THE CONTRACT WAS MADE OR AT 16 ANOTHER LOCATION HELD OUT BY THAT PERSON AS THE PLACE FOR RECEIPT OF 17 SUCH COMMUNICATIONS. 18 (F) NOTICE, KNOWLEDGE, OR A NOTICE OR NOTIFICATION RECEIVED BY AN 19 ORGANIZATION IS EFFECTIVE FOR A PARTICULAR TRANSACTION FROM THE TIME IT 20 IS BROUGHT TO THE ATTENTION OF THE INDIVIDUAL CONDUCTING THAT TRANS- 21 ACTION AND, IN ANY EVENT, FROM THE TIME IT WOULD HAVE BEEN BROUGHT TO 22 THE INDIVIDUAL'S ATTENTION IF THE ORGANIZATION HAD EXERCISED DUE DILI- 23 GENCE. AN ORGANIZATION EXERCISES DUE DILIGENCE IF IT MAINTAINS REASON- 24 ABLE ROUTINES FOR COMMUNICATING SIGNIFICANT INFORMATION TO THE PERSON 25 CONDUCTING THE TRANSACTION AND THERE IS REASONABLE COMPLIANCE WITH THE 26 ROUTINES. DUE DILIGENCE DOES NOT REQUIRE AN INDIVIDUAL ACTING FOR THE 27 ORGANIZATION TO COMMUNICATE INFORMATION UNLESS THE COMMUNICATION IS PART 28 OF THE INDIVIDUAL'S REGULAR DUTIES OR THE INDIVIDUAL HAS REASON TO KNOW 29 OF THE TRANSACTION AND THAT THE TRANSACTION WOULD BE MATERIALLY AFFECTED 30 BY THE INFORMATION. 31 SECTION 1--203. LEASE DISTINGUISHED FROM SECURITY INTEREST. 32 (A) WHETHER A TRANSACTION IN THE FORM OF A LEASE CREATES A LEASE OR 33 SECURITY INTEREST IS DETERMINED BY THE FACTS OF EACH CASE. 34 (B) A TRANSACTION IN THE FORM OF A LEASE CREATES A SECURITY INTEREST 35 IF THE CONSIDERATION THAT THE LESSEE IS TO PAY THE LESSOR FOR THE RIGHT 36 TO POSSESSION AND USE OF THE GOODS IS AN OBLIGATION FOR THE TERM OF THE 37 LEASE AND IS NOT SUBJECT TO TERMINATION BY THE LESSEE, AND: 38 (1) THE ORIGINAL TERM OF THE LEASE IS EQUAL TO OR GREATER THAN THE 39 REMAINING ECONOMIC LIFE OF THE GOODS; 40 (2) THE LESSEE IS BOUND TO RENEW THE LEASE FOR THE REMAINING ECONOMIC 41 LIFE OF THE GOODS OR IS BOUND TO BECOME THE OWNER OF THE GOODS; 42 (3) THE LESSEE HAS AN OPTION TO RENEW THE LEASE FOR THE REMAINING 43 ECONOMIC LIFE OF THE GOODS FOR NO ADDITIONAL CONSIDERATION OR FOR NOMI- 44 NAL ADDITIONAL CONSIDERATION UPON COMPLIANCE WITH THE LEASE AGREEMENT; 45 OR 46 (4) THE LESSEE HAS AN OPTION TO BECOME THE OWNER OF THE GOODS FOR NO 47 ADDITIONAL CONSIDERATION OR FOR NOMINAL ADDITIONAL CONSIDERATION UPON 48 COMPLIANCE WITH THE LEASE AGREEMENT. 49 (C) A TRANSACTION IN THE FORM OF A LEASE DOES NOT CREATE A SECURITY 50 INTEREST MERELY BECAUSE: 51 (1) THE PRESENT VALUE OF THE CONSIDERATION THE LESSEE IS OBLIGATED TO 52 PAY THE LESSOR FOR THE RIGHT TO POSSESSION AND USE OF THE GOODS IS 53 SUBSTANTIALLY EQUAL TO OR IS GREATER THAN THE FAIR MARKET VALUE OF THE 54 GOODS AT THE TIME THE LEASE IS ENTERED INTO; 55 (2) THE LESSEE ASSUMES RISK OF LOSS OF THE GOODS; S. 5901 7 1 (3) THE LESSEE AGREES TO PAY, WITH RESPECT TO THE GOODS, TAXES, INSUR- 2 ANCE, FILING, RECORDING, OR REGISTRATION FEES, OR SERVICE OR MAINTENANCE 3 COSTS; 4 (4) THE LESSEE HAS AN OPTION TO RENEW THE LEASE OR TO BECOME THE OWNER 5 OF THE GOODS; 6 (5) THE LESSEE HAS AN OPTION TO RENEW THE LEASE FOR A FIXED RENT THAT 7 IS EQUAL TO OR GREATER THAN THE REASONABLY PREDICTABLE FAIR MARKET RENT 8 FOR THE USE OF THE GOODS FOR THE TERM OF THE RENEWAL AT THE TIME THE 9 OPTION IS TO BE PERFORMED; OR 10 (6) THE LESSEE HAS AN OPTION TO BECOME THE OWNER OF THE GOODS FOR A 11 FIXED PRICE THAT IS EQUAL TO OR GREATER THAN THE REASONABLY PREDICTABLE 12 FAIR MARKET VALUE OF THE GOODS AT THE TIME THE OPTION IS TO BE 13 PERFORMED. 14 (D) ADDITIONAL CONSIDERATION IS NOMINAL IF IT IS LESS THAN THE 15 LESSEE'S REASONABLY PREDICTABLE COST OF PERFORMING UNDER THE LEASE 16 AGREEMENT IF THE OPTION IS NOT EXERCISED. ADDITIONAL CONSIDERATION IS 17 NOT NOMINAL IF: 18 (1) WHEN THE OPTION TO RENEW THE LEASE IS GRANTED TO THE LESSEE, THE 19 RENT IS STATED TO BE THE FAIR MARKET RENT FOR THE USE OF THE GOODS FOR 20 THE TERM OF THE RENEWAL DETERMINED AT THE TIME THE OPTION IS TO BE 21 PERFORMED; OR 22 (2) WHEN THE OPTION TO BECOME THE OWNER OF THE GOODS IS GRANTED TO THE 23 LESSEE, THE PRICE IS STATED TO BE THE FAIR MARKET VALUE OF THE GOODS 24 DETERMINED AT THE TIME THE OPTION IS TO BE PERFORMED. 25 (E) THE "REMAINING ECONOMIC LIFE OF THE GOODS" AND "REASONABLY 26 PREDICTABLE" FAIR MARKET RENT, FAIR MARKET VALUE, OR COST OF PERFORMING 27 UNDER THE LEASE AGREEMENT MUST BE DETERMINED WITH REFERENCE TO THE FACTS 28 AND CIRCUMSTANCES AT THE TIME THE TRANSACTION IS ENTERED INTO. 29 SECTION 1--204. VALUE. 30 EXCEPT AS OTHERWISE PROVIDED IN ARTICLES 3, 4, AND 5, A PERSON GIVES 31 VALUE FOR RIGHTS IF THE PERSON ACQUIRES THEM: 32 (A) IN RETURN FOR A BINDING COMMITMENT TO EXTEND CREDIT OR FOR THE 33 EXTENSION OF IMMEDIATELY AVAILABLE CREDIT, WHETHER OR NOT DRAWN UPON AND 34 WHETHER OR NOT A CHARGE-BACK IS PROVIDED FOR IN THE EVENT OF DIFFICUL- 35 TIES IN COLLECTION; 36 (B) AS SECURITY FOR, OR IN TOTAL OR PARTIAL SATISFACTION OF, A PREEX- 37 ISTING CLAIM; 38 (C) BY ACCEPTING DELIVERY UNDER A PREEXISTING CONTRACT FOR PURCHASE; 39 OR 40 (D) IN RETURN FOR ANY CONSIDERATION SUFFICIENT TO SUPPORT A SIMPLE 41 CONTRACT. 42 SECTION 1--205. REASONABLE TIME; SEASONABLENESS. 43 (A) WHETHER A TIME FOR TAKING AN ACTION REQUIRED BY THIS ACT IS 44 REASONABLE DEPENDS ON THE NATURE, PURPOSE, AND CIRCUMSTANCES OF THE 45 ACTION. 46 (B) AN ACTION IS TAKEN SEASONABLY IF IT IS TAKEN AT OR WITHIN THE TIME 47 AGREED OR, IF NO TIME IS AGREED, AT OR WITHIN A REASONABLE TIME. 48 SECTION 1--206. PRESUMPTIONS. 49 WHENEVER THIS ACT CREATES A "PRESUMPTION" WITH RESPECT TO A FACT, OR 50 PROVIDES THAT A FACT IS "PRESUMED," THE TRIER OF FACT MUST FIND THE 51 EXISTENCE OF THE FACT UNLESS AND UNTIL EVIDENCE IS INTRODUCED THAT 52 SUPPORTS A FINDING OF ITS NONEXISTENCE. 53 PART 3 54 TERRITORIAL APPLICABILITY AND GENERAL RULES 55 SECTION 1--301. TERRITORIAL APPLICABILITY; PARTIES' POWER TO CHOOSE 56 APPLICABLE LAW. S. 5901 8 1 (A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, WHEN A TRANSACTION 2 BEARS A REASONABLE RELATION TO THIS STATE AND ALSO TO ANOTHER STATE OR 3 NATION, THE PARTIES MAY AGREE THAT THE LAW EITHER OF THIS STATE OR OF 4 SUCH OTHER STATE OR NATION SHALL GOVERN THEIR RIGHTS AND DUTIES. 5 (B) IN THE ABSENCE OF AN AGREEMENT EFFECTIVE UNDER SUBSECTION (A), AND 6 EXCEPT AS PROVIDED IN SUBSECTION (C), THIS ACT APPLIES TO TRANSACTIONS 7 BEARING AN APPROPRIATE RELATION TO THIS STATE. 8 (C) IF ONE OF THE FOLLOWING PROVISIONS OF THIS ACT SPECIFIES THE 9 APPLICABLE LAW, THAT PROVISION GOVERNS AND A CONTRARY AGREEMENT IS 10 EFFECTIVE ONLY TO THE EXTENT PERMITTED BY THE LAW SO SPECIFIED: 11 (1) SECTION 2--402; 12 (2) SECTIONS 2-A--105 AND 2-A--106; 13 (3) SECTION 4--102; 14 (4) SECTION 4-A--507; 15 (5) SECTION 5--116; 16 (6) SECTION 8--110; AND 17 (7) SECTIONS 9--301 THROUGH 9--307. 18 SECTION 1--302. VARIATION BY AGREEMENT. 19 (A) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (B) OR ELSEWHERE IN 20 THIS ACT, THE EFFECT OF PROVISIONS OF THIS ACT MAY BE VARIED BY AGREE- 21 MENT. 22 (B) THE OBLIGATIONS OF GOOD FAITH, DILIGENCE, REASONABLENESS, AND CARE 23 PRESCRIBED BY THIS ACT MAY NOT BE DISCLAIMED BY AGREEMENT. THE PARTIES, 24 BY AGREEMENT, MAY DETERMINE THE STANDARDS BY WHICH THE PERFORMANCE OF 25 THOSE OBLIGATIONS IS TO BE MEASURED IF THOSE STANDARDS ARE NOT MANIFEST- 26 LY UNREASONABLE. WHENEVER THIS ACT REQUIRES AN ACTION TO BE TAKEN WITH- 27 IN A REASONABLE TIME, A TIME THAT IS NOT MANIFESTLY UNREASONABLE MAY BE 28 FIXED BY AGREEMENT. 29 (C) THE PRESENCE IN CERTAIN PROVISIONS OF THIS ACT OF THE PHRASE 30 "UNLESS OTHERWISE AGREED", OR WORDS OF SIMILAR IMPORT, DOES NOT IMPLY 31 THAT THE EFFECT OF OTHER PROVISIONS MAY NOT BE VARIED BY AGREEMENT UNDER 32 THIS SECTION. 33 SECTION 1--303. COURSE OF PERFORMANCE, COURSE OF DEALING, AND USAGE OF 34 TRADE. 35 (A) A "COURSE OF PERFORMANCE" IS A SEQUENCE OF CONDUCT BETWEEN THE 36 PARTIES TO A PARTICULAR TRANSACTION THAT EXISTS IF: 37 (1) THE AGREEMENT OF THE PARTIES WITH RESPECT TO THE TRANSACTION 38 INVOLVES REPEATED OCCASIONS FOR PERFORMANCE BY A PARTY; AND 39 (2) THE OTHER PARTY, WITH KNOWLEDGE OF THE NATURE OF THE PERFORMANCE 40 AND OPPORTUNITY FOR OBJECTION TO IT, ACCEPTS THE PERFORMANCE OR 41 ACQUIESCES TO IT WITHOUT OBJECTION. 42 (B) A "COURSE OF DEALING" IS A SEQUENCE OF CONDUCT CONCERNING PREVIOUS 43 TRANSACTIONS BETWEEN THE PARTIES TO A PARTICULAR TRANSACTION THAT IS 44 FAIRLY TO BE REGARDED AS ESTABLISHING A COMMON BASIS OF UNDERSTANDING 45 FOR INTERPRETING THEIR EXPRESSIONS AND OTHER CONDUCT. 46 (C) A "USAGE OF TRADE" IS ANY PRACTICE OR METHOD OF DEALING HAVING 47 SUCH REGULARITY OF OBSERVANCE IN A PLACE, VOCATION, OR TRADE AS TO 48 JUSTIFY AN EXPECTATION THAT IT WILL BE OBSERVED WITH RESPECT TO THE 49 TRANSACTION IN QUESTION. THE EXISTENCE AND SCOPE OF SUCH A USAGE MUST BE 50 PROVED AS FACTS. IF IT IS ESTABLISHED THAT SUCH A USAGE IS EMBODIED IN A 51 TRADE CODE OR SIMILAR RECORD, THE INTERPRETATION OF THE RECORD IS A 52 QUESTION OF LAW. 53 (D) A COURSE OF PERFORMANCE OR COURSE OF DEALING BETWEEN THE PARTIES 54 OR USAGE OF TRADE IN THE VOCATION OR TRADE IN WHICH THEY ARE ENGAGED OR 55 OF WHICH THEY ARE OR SHOULD BE AWARE IS RELEVANT IN ASCERTAINING THE 56 MEANING OF THE PARTIES' AGREEMENT, MAY GIVE PARTICULAR MEANING TO S. 5901 9 1 SPECIFIC TERMS OF THE AGREEMENT, AND MAY SUPPLEMENT OR QUALIFY THE TERMS 2 OF THE AGREEMENT. A USAGE OF TRADE APPLICABLE IN THE PLACE IN WHICH PART 3 OF THE PERFORMANCE UNDER THE AGREEMENT IS TO OCCUR MAY BE SO UTILIZED AS 4 TO THAT PART OF THE PERFORMANCE. 5 (E) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (F), THE EXPRESS TERMS 6 OF AN AGREEMENT AND ANY APPLICABLE COURSE OF PERFORMANCE, COURSE OF 7 DEALING, OR USAGE OF TRADE MUST BE CONSTRUED WHENEVER REASONABLE AS 8 CONSISTENT WITH EACH OTHER. IF SUCH A CONSTRUCTION IS UNREASONABLE: 9 (1) EXPRESS TERMS PREVAIL OVER COURSE OF PERFORMANCE, COURSE OF DEAL- 10 ING, AND USAGE OF TRADE; 11 (2) COURSE OF PERFORMANCE PREVAILS OVER COURSE OF DEALING AND USAGE OF 12 TRADE; AND 13 (3) COURSE OF DEALING PREVAILS OVER USAGE OF TRADE. 14 (F) SUBJECT TO SECTION 2--209, A COURSE OF PERFORMANCE IS RELEVANT TO 15 SHOW A WAIVER OR MODIFICATION OF ANY TERM INCONSISTENT WITH THE COURSE 16 OF PERFORMANCE. 17 (G) EVIDENCE OF A RELEVANT USAGE OF TRADE OFFERED BY ONE PARTY IS NOT 18 ADMISSIBLE UNLESS THAT PARTY HAS GIVEN THE OTHER PARTY NOTICE THAT THE 19 COURT FINDS SUFFICIENT TO PREVENT UNFAIR SURPRISE TO THE OTHER PARTY. 20 SECTION 1--304. OBLIGATION OF GOOD FAITH. 21 EVERY CONTRACT OR DUTY WITHIN THIS ACT IMPOSES AN OBLIGATION OF GOOD 22 FAITH IN ITS PERFORMANCE AND ENFORCEMENT. 23 SECTION 1--305. REMEDIES TO BE LIBERALLY ADMINISTERED. 24 (A) THE REMEDIES PROVIDED BY THIS ACT MUST BE LIBERALLY ADMINISTERED 25 TO THE END THAT THE AGGRIEVED PARTY MAY BE PUT IN AS GOOD A POSITION AS 26 IF THE OTHER PARTY HAD FULLY PERFORMED BUT NEITHER CONSEQUENTIAL OR 27 SPECIAL DAMAGES NOR PENAL DAMAGES MAY BE HAD EXCEPT AS SPECIFICALLY 28 PROVIDED IN THIS ACT OR BY OTHER RULE OF LAW. 29 (B) ANY RIGHT OR OBLIGATION DECLARED BY THIS ACT IS ENFORCEABLE BY 30 ACTION UNLESS THE PROVISION DECLARING IT SPECIFIES A DIFFERENT AND 31 LIMITED EFFECT. 32 SECTION 1--306. WAIVER OR RENUNCIATION OF CLAIM OR RIGHT AFTER BREACH. 33 A CLAIM OR RIGHT ARISING OUT OF AN ALLEGED BREACH MAY BE DISCHARGED IN 34 WHOLE OR IN PART WITHOUT CONSIDERATION BY AGREEMENT OF THE AGGRIEVED 35 PARTY IN AN AUTHENTICATED RECORD. 36 SECTION 1--307. PRIMA FACIE EVIDENCE BY THIRD-PARTY DOCUMENTS. 37 A DOCUMENT IN DUE FORM PURPORTING TO BE A BILL OF LADING, POLICY OR 38 CERTIFICATE OF INSURANCE, OFFICIAL WEIGHER'S OR INSPECTOR'S CERTIFICATE, 39 CONSULAR INVOICE, OR ANY OTHER DOCUMENT AUTHORIZED OR REQUIRED BY THE 40 CONTRACT TO BE ISSUED BY A THIRD PARTY IS PRIMA FACIE EVIDENCE OF ITS 41 OWN AUTHENTICITY AND GENUINENESS AND OF THE FACTS STATED IN THE DOCUMENT 42 BY THE THIRD PARTY. 43 SECTION 1--308. PERFORMANCE OR ACCEPTANCE UNDER RESERVATION OF RIGHTS. 44 (A) A PARTY THAT WITH EXPLICIT RESERVATION OF RIGHTS PERFORMS OR PROM- 45 ISES PERFORMANCE OR ASSENTS TO PERFORMANCE IN A MANNER DEMANDED OR 46 OFFERED BY THE OTHER PARTY DOES NOT THEREBY PREJUDICE THE RIGHTS 47 RESERVED. SUCH WORDS AS "WITHOUT PREJUDICE," "UNDER PROTEST," OR THE 48 LIKE ARE SUFFICIENT. 49 (B) SUBSECTION (A) DOES NOT APPLY TO AN ACCORD AND SATISFACTION. 50 SECTION 1--309. OPTION TO ACCELERATE AT WILL. 51 A TERM PROVIDING THAT ONE PARTY OR THAT PARTY'S SUCCESSOR IN INTEREST 52 MAY ACCELERATE PAYMENT OR PERFORMANCE OR REQUIRE COLLATERAL OR ADDI- 53 TIONAL COLLATERAL "AT WILL" OR WHEN THE PARTY "DEEMS ITSELF INSECURE," 54 OR WORDS OF SIMILAR IMPORT, MEANS THAT THE PARTY HAS POWER TO DO SO ONLY 55 IF THAT PARTY IN GOOD FAITH BELIEVES THAT THE PROSPECT OF PAYMENT OR S. 5901 10 1 PERFORMANCE IS IMPAIRED. THE BURDEN OF ESTABLISHING LACK OF GOOD FAITH 2 IS ON THE PARTY AGAINST WHICH THE POWER HAS BEEN EXERCISED. 3 SECTION 1--310. SUBORDINATED OBLIGATIONS. 4 AN OBLIGATION MAY BE ISSUED AS SUBORDINATED TO PERFORMANCE OF ANOTHER 5 OBLIGATION OF THE PERSON OBLIGATED, OR A CREDITOR MAY SUBORDINATE ITS 6 RIGHT TO PERFORMANCE OF AN OBLIGATION BY AGREEMENT WITH EITHER THE 7 PERSON OBLIGATED OR ANOTHER CREDITOR OF THE PERSON OBLIGATED. SUBORDI- 8 NATION DOES NOT CREATE A SECURITY INTEREST AS AGAINST EITHER THE COMMON 9 DEBTOR OR A SUBORDINATED CREDITOR. 10 S 2. Subsection 3 of section 2--103 of the uniform commercial code, as 11 amended by chapter 84 of the laws of 2001, is amended to read as 12 follows: 13 (3) The following definitions in other Articles apply to this Article: 14 "Check". Section 3--104. 15 "Consignee". Section 7--102. 16 "Consignor". Section 7--102. 17 "Consumer goods". Section 9--102. 18 "CONTROL". SECTION 7--106. 19 "Dishonor". Section 3--507. 20 "Draft". Section 3--104. 21 S 3. Subsection 2 of section 2--104 of the uniform commercial code is 22 amended to read as follows: 23 (2) "Financing agency" means a bank, finance company or other person 24 who in the ordinary course of business makes advances against goods or 25 documents of title or who by arrangement with either the seller or the 26 buyer intervenes in ordinary course to make or collect payment due or 27 claimed under the contract for sale, as by purchasing or paying the 28 seller's draft or making advances against it or by merely taking it for 29 collection whether or not documents of title accompany OR ARE ASSOCIATED 30 WITH the draft. "Financing agency" includes also a bank or other person 31 who similarly intervenes between persons who are in the position of 32 seller and buyer in respect to the goods (Section 2--707). 33 S 4. Section 2--202 of the uniform commercial code is amended to read 34 as follows: 35 Section 2--202. Final Written Expression: Parol or Extrinsic Evidence. 36 Terms with respect to which the confirmatory memoranda of the parties 37 agree or which are otherwise set forth in a writing intended by the 38 parties as a final expression of their agreement with respect to such 39 terms as are included therein may not be contradicted by evidence of any 40 prior agreement or of a contemporaneous oral agreement but may be 41 explained or supplemented 42 (a) by COURSE OF PERFORMANCE, course of dealing, or usage of trade 43 (Section [1--205] 1--303) [or by course of performance (Section 44 2--208)]; and 45 (b) by evidence of consistent additional terms unless the court finds 46 the writing to have been intended also as a complete and exclusive 47 statement of the terms of the agreement. 48 S 5. Subsection (c) of section 2--310 of the uniform commercial code 49 is amended to read as follows: 50 (c) if delivery is authorized and made by way of documents of title 51 otherwise than by subsection (b) then payment is due REGARDLESS OF WHERE 52 THE GOODS ARE TO BE RECEIVED (I) at the time and place at which the 53 buyer is to receive DELIVERY OF the TANGIBLE documents [regardless of 54 where the goods are to be received] OR (II) AT THE TIME THE BUYER IS TO S. 5901 11 1 RECEIVE DELIVERY OF THE ELECTRONIC DOCUMENTS AND AT THE SELLER'S PLACE 2 OF BUSINESS OR IF NONE, THE SELLER'S RESIDENCE; and 3 S 6. The opening paragraph of subsection 2 of section 2-323 of the 4 uniform commercial code is amended to read as follows: 5 Where in a case within subsection (1) a TANGIBLE bill of lading has 6 been issued in a set of parts, unless otherwise agreed if the documents 7 are not to be sent from abroad the buyer may demand tender of the full 8 set; otherwise only one part of the bill of lading need be tendered. 9 Even if the agreement expressly requires a full set: 10 S 7. Subsection 3 of section 2--401 of the uniform commercial code is 11 amended to read as follows: 12 (3) Unless otherwise explicitly agreed where delivery is to be made 13 without moving the goods, 14 (a) if the seller is to deliver a TANGIBLE document of title, 15 title passes at the time when and the place where he delivers 16 such documents AND IF THE SELLER IS TO DELIVER AN ELECTRONIC 17 DOCUMENT OF TITLE, TITLE PASSES WHEN THE SELLER DELIVERS THE 18 DOCUMENT; or 19 (b) if the goods are at the time of contracting already identi- 20 fied and no documents OF TITLE are to be delivered, title 21 passes at the time and place of contracting. 22 S 8. Paragraph (b) of subsection 4 of section 2--503 of the uniform 23 commercial code is amended to read as follows: 24 (b) tender to the buyer of a non-negotiable document of title or 25 of a [written direction to] RECORD DIRECTING the bailee to 26 deliver is sufficient tender unless the buyer seasonably 27 objects, and EXCEPT AS OTHERWISE PROVIDED IN ARTICLE 9 28 receipt by the bailee of notification of the buyer's rights 29 fixes those rights as against the bailee and all third 30 persons; but risk of loss of the goods and of any failure by 31 the bailee to honor the non-negotiable document of title or 32 to obey the direction remains on the seller until the buyer 33 has had a reasonable time to present the document or direc- 34 tion, and a refusal by the bailee to honor the document or to 35 obey the direction defeats the tender. 36 S 9. Paragraph (b) of subsection 5 of section 2--503 of the uniform 37 commercial code is amended to read as follows: 38 (b) tender through customary banking channels is sufficient and 39 dishonor of a draft accompanying OR ASSOCIATED WITH the docu- 40 ments constitutes non-acceptance or rejection. 41 S 10. Section 2--505 of the uniform commercial code is amended to 42 read as follows: 43 Section 2--505. Seller's Shipment Under Reservation. 44 (1) Where the seller has identified goods to the contract by or before 45 shipment: 46 (a) his procurement of a negotiable bill of lading to his own 47 order or otherwise reserves in him a security interest in the 48 goods. His procurement of the bill to the order of a financ- 49 ing agency or of the buyer indicates in addition only the 50 seller's expectation of transferring that interest to the 51 person named. 52 (b) a non-negotiable bill of lading to himself or his nominee 53 reserves possession of the goods as security but except in a 54 case of conditional delivery (subsection (2) of Section 55 2--507) a non-negotiable bill of lading naming the buyer as S. 5901 12 1 consignee reserves no security interest even though the sell- 2 er retains possession OR CONTROL of the bill of lading. 3 (2) When shipment by the seller with reservation of a security inter- 4 est is in violation of the contract for sale it constitutes an improper 5 contract for transportation within the preceding section but impairs 6 neither the rights given to the buyer by shipment and identification of 7 the goods to the contract nor the seller's powers as a holder of a nego- 8 tiable document OF TITLE. 9 S 11. Subsection 2 of section 2--506 of the uniform commercial code is 10 amended to read as follows: 11 (2) The right to reimbursement of a financing agency which has in good 12 faith honored or purchased the draft under commitment to or authority 13 from the buyer is not impaired by subsequent discovery of defects with 14 reference to any relevant document which was apparently regular [on its 15 face]. 16 S 12. Subsection 2 of section 2--509 of the uniform commercial code is 17 amended to read as follows: 18 (2) Where the goods are held by a bailee to be delivered without being 19 moved, the risk of loss passes to the buyer 20 (a) on his receipt of POSSESSION OR CONTROL OF a negotiable docu- 21 ment of title covering the goods; or 22 (b) on acknowledgment by the bailee of the buyer's right to 23 possession of the goods; or 24 (c) after his receipt of POSSESSION OR CONTROL OF a non-negotia- 25 ble document of title or other [written] direction to deliver 26 IN A RECORD, as provided in subsection (4) (b) of Section 27 2--503. 28 S 13. Subsection 2 of section 2--605 of the uniform commercial code is 29 amended to read as follows: 30 (2) Payment against documents made without reservation of rights 31 precludes recovery of the payment for defects apparent [on the face of] 32 IN the documents. 33 S 14. Subsection 2 of section 2--705 of the uniform commercial code is 34 amended to read as follows: 35 (2) As against such buyer the seller may stop delivery until 36 (a) receipt of the goods by the buyer; or 37 (b) acknowledgment to the buyer by any bailee of the goods except 38 a carrier that the bailee holds the goods for the buyer; or 39 (c) such acknowledgment to the buyer by a carrier by reshipment 40 or as [warehouseman] A WAREHOUSE; or 41 (d) negotiation to the buyer of any negotiable document of title 42 covering the goods. 43 S 15. Paragraph (c) of subsection 3 of section 2--705 of the uniform 44 commercial code is amended to read as follows: 45 (c) If a negotiable document of title has been issued for goods the 46 bailee is not obliged to obey a notification to stop until surrender 47 OF POSSESSION OR CONTROL of the document. 48 S 16. Paragraphs (a) and (o) of subsection 1 of section 2-A--103 of 49 the uniform commercial code, as added by chapter 114 of the laws of 50 1994, are amended to read as follows: 51 (a) "Buyer in ordinary course of business" means a person who in 52 good faith and without knowledge that the sale to him [or 53 her] is in violation of the ownership rights or security 54 interest or leasehold interest of a third party in the goods, 55 buys in ordinary course from a person in the business of 56 selling goods of that kind but does not include a pawnbroker. S. 5901 13 1 "Buying" may be for cash or by exchange of other property or 2 on secured or unsecured credit and includes [receiving] 3 ACQUIRING goods or documents of title under a preexisting 4 contract for sale but does not include a transfer in bulk or 5 as security for or in total or partial satisfaction of a 6 money debt. 7 (o) "Lessee in ordinary course of business" means a person who in 8 good faith and without knowledge that the lease to him [or 9 her] is in violation of the ownership rights or security 10 interest or leasehold interest of a third party in the goods 11 leases in ordinary course from a person in the business of 12 selling or leasing goods of that kind but does not include a 13 pawnbroker. "Leasing" may be for cash or by exchange of 14 other property or on secured or unsecured credit and includes 15 [receiving] ACQUIRING goods or documents of title under a 16 preexisting lease contract but does not include a transfer in 17 bulk or as security for or in total or partial satisfaction 18 of a money debt. 19 S 17. Subsection 3 of section 2-A--103 of the uniform commercial code, 20 as amended by chapter 84 of the laws of 2001, is amended to read as 21 follows: 22 (3) The following definitions in other articles apply to this Article: 23 "Account". Section 9--102(a)(2). 24 "Between merchants". Section 2--104(3). 25 "Buyer". Section 2--103(1)(a). 26 "Chattel paper". Section 9--102(a)(11). 27 "Consumer goods". Section 9--102(a)(23). 28 "Document". Section 9--102(a)(30). 29 "Entrusting". Section 2--403(3). 30 "General intangible". Section 9--102(a)(42). 31 "Good faith". Section 2--103(1)(b). 32 "Instrument". Section 9--102(a)(47). 33 "Merchant". Section 2--104(1). 34 "Mortgage". Section 9--102(a)(55). 35 "Pursuant to commitment". Section [9--102(a)(68)] 36 9--102(A)(69). 37 "Receipt". Section 2--103(1)(c). 38 "Sale". Section 2--106(1). 39 "Sale on approval". Section 2--326. 40 "Sale or return". Section 2--326. 41 "Seller". Section 2--103(1)(d). 42 S 18. Section 2-A--207 of the uniform commercial code is REPEALED. 43 S 19. Subsection 4 of section 2-A--501 of the uniform commercial code, 44 as added by chapter 114 of the laws of 1994, is amended to read as 45 follows: 46 (4) Except as otherwise provided in Section [1-106(1)] 1--305(A) or 47 this Article or the lease agreement, the rights and remedies referred to 48 in subsections (2) and (3) are cumulative. 49 S 20. Subsection 2 of section 2-A--514 of the uniform commercial 50 code, as added by chapter 114 of the laws of 1994, is amended to read as 51 follows: 52 (2) A lessee's failure to reserve rights when paying rent or other 53 consideration against documents precludes recovery of the payment for 54 defects apparent [on the face of] IN the documents. S. 5901 14 1 S 21. Subsection 2 of section 2-A--518 of the uniform commercial code, 2 as added by chapter 114 of the laws of 1994, is amended to read as 3 follows: 4 (2) Except as otherwise provided with respect to damages liquidated in 5 the lease agreement (Section 2-A-504) or otherwise determined pursuant 6 to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-503), if 7 a lessee's cover is by a lease agreement substantially similar to the 8 original lease agreement and the new lease agreement is made in good 9 faith and in a commercially reasonable manner, the lessee may recover 10 from the lessor as damages (a) the present value, as of the date of the 11 commencement of the term of the new lease agreement, of the rent under 12 the new lease agreement applicable to that period of the new lease term 13 which is comparable to the then remaining term of the original lease 14 agreement minus the present value as of the same date of the total rent 15 for the then remaining lease term of the original lease agreement, and 16 (b) any incidental or consequential damages, less expenses saved in 17 consequence of the lessor's default. 18 S 22. Subsection 1 of section 2-A--519 of the uniform commercial code, 19 as added by chapter 114 of the laws of 1994, is amended to read as 20 follows: 21 (1) Except as otherwise provided with respect to damages liquidated in 22 the lease agreement (Section 2-A-504) or otherwise determined pursuant 23 to agreement of the parties (Section [1-102(3)] 1--302 and 2-A-503), if 24 a lessee elects not to cover or a lessee elects to cover and the cover 25 is by lease agreement, whether or not the lease agreement qualifies for 26 treatment under Section 2-A-518(2), or is by purchase or otherwise, the 27 measure of damages for non-delivery or repudiation by the lessor or for 28 rejection or revocation of acceptance by the lessee is the present 29 value, as of the date of the default, of the then market rent minus the 30 present value as of the same date of the original rent, computed for the 31 remaining lease term of the original lease agreement, together with 32 incidental and consequential damages, less expenses saved in consequence 33 of the lessor's default. 34 S 23. Paragraph (c) of subsection 2 of section 2-A--526 of the uniform 35 commercial code, as added by chapter 114 of the laws of 1994, is amended 36 to read as follows: 37 (c) such an acknowledgment to the lessee by a carrier via reship- 38 ment or as [warehouseman] A WAREHOUSE. 39 S 24. Subsection 2 of section 2-A--527 of the uniform commercial code, 40 as added by chapter 114 of the laws of 1994, is amended to read as 41 follows: 42 (2) Except as otherwise provided with respect to damages liquidated in 43 the lease agreement (Section 2-A-504) or otherwise determined pursuant 44 to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-503), if 45 the disposition is by lease agreement substantially similar to the 46 original lease agreement and the new lease agreement is made in good 47 faith and in a commercially reasonable manner, the lessor may recover 48 from the lessee as damages (a) accrued and unpaid rent as of the date of 49 the commencement of the term of the new lease agreement, (b) the present 50 value, as of the same date, of the total rent for the then remaining 51 lease term of the original lease agreement minus the present value, as 52 of the same date, of the rent under the new lease agreement applicable 53 to that period of the new lease term which is comparable to the then 54 remaining lease term of the original lease agreement, and (c) any inci- 55 dental damages allowed under Section 2-A-530, less expenses saved in 56 consequence of the lessee's default. S. 5901 15 1 S 25. Subsection 1 of section 2-A--528 of the uniform commercial code, 2 as added by chapter 114 of the laws of 1994, is amended to read as 3 follows: 4 (1) Except as otherwise provided with respect to damages liquidated in 5 the lease agreement (Section 2-A-504) or otherwise determined pursuant 6 to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-503), if 7 a lessor elects to retain the goods or a lessor elects to dispose of the 8 goods and the disposition is by lease agreement whether or not the lease 9 agreement qualifies for treatment under Section 2-A-527(2), or is by 10 sale or otherwise, the lessor may recover from the lessee as damages for 11 a default of the type described in Section 2-A-523(1) or 2-A-523 (3)(a), 12 or, if agreed, for other default of the lessee, (a) accrued and unpaid 13 rent as of the date of default if the lessee has never taken possession 14 of the goods, or, if the lessee has taken possession of the goods, as of 15 the date the lessor repossesses the goods or an earlier date on which 16 the lessee makes a tender of the goods to the lessor, (b) the present 17 value as of the date determined under clause (a) of the total rent for 18 the then remaining lease term of the original lease agreement minus the 19 present value as of the same date of the market rent at the place where 20 the goods are located computed for the same lease term, and (c) any 21 incidental damages allowed under Section 2-A-530, less expenses saved in 22 consequence of the lessee's default. 23 S 26. Article 3 of the uniform commercial code is REPEALED and a new 24 article 3 is added to read as follows: 25 ARTICLE 3 26 NEGOTIABLE INSTRUMENTS 27 PART 1 28 GENERAL PROVISIONS AND DEFINITIONS 29 SECTION 3--101. SHORT TITLE. 30 THIS ARTICLE MAY BE CITED AS UNIFORM COMMERCIAL CODE--NEGOTIABLE 31 INSTRUMENTS. 32 SECTION 3--102. SUBJECT MATTER. 33 (A) THIS ARTICLE APPLIES TO NEGOTIABLE INSTRUMENTS. IT DOES NOT APPLY 34 TO MONEY, TO PAYMENT ORDERS GOVERNED BY ARTICLE 4A, OR TO SECURITIES 35 GOVERNED BY ARTICLE 8. 36 (B) IF THERE IS CONFLICT BETWEEN THIS ARTICLE AND ARTICLE 4 OR 9, 37 ARTICLES 4 AND 9 GOVERN. 38 (C) REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE 39 SYSTEM AND OPERATING CIRCULARS OF THE FEDERAL RESERVE BANKS SUPERSEDE 40 ANY INCONSISTENT PROVISION OF THIS ARTICLE TO THE EXTENT OF THE INCON- 41 SISTENCY. 42 SECTION 3--103. DEFINITIONS. 43 (A) IN THIS ARTICLE: 44 (1) "ACCEPTOR" MEANS A DRAWEE WHO HAS ACCEPTED A DRAFT. 45 (2) "CONSUMER ACCOUNT" MEANS AN ACCOUNT ESTABLISHED BY AN INDIVIDUAL 46 PRIMARILY FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES. 47 (3) "CONSUMER TRANSACTION" MEANS A TRANSACTION IN WHICH AN INDIVIDUAL 48 INCURS AN OBLIGATION PRIMARILY FOR PERSONAL, FAMILY, OR HOUSEHOLD 49 PURPOSES. 50 (4) "DRAWEE" MEANS A PERSON ORDERED IN A DRAFT TO MAKE PAYMENT. 51 (5) "DRAWER" MEANS A PERSON WHO SIGNS OR IS IDENTIFIED IN A DRAFT AS A 52 PERSON ORDERING PAYMENT. 53 (6) "GOOD FAITH" MEANS HONESTY IN FACT AND THE OBSERVANCE OF REASON- 54 ABLE COMMERCIAL STANDARDS OF FAIR DEALING. 55 (7) "MAKER" MEANS A PERSON WHO SIGNS OR IS IDENTIFIED IN A NOTE AS A 56 PERSON UNDERTAKING TO PAY. S. 5901 16 1 (8) "ORDER" MEANS A WRITTEN INSTRUCTION TO PAY MONEY SIGNED BY THE 2 PERSON GIVING THE INSTRUCTION. THE INSTRUCTION MAY BE ADDRESSED TO ANY 3 PERSON, INCLUDING THE PERSON GIVING THE INSTRUCTION, OR TO ONE OR MORE 4 PERSONS JOINTLY OR IN THE ALTERNATIVE BUT NOT IN SUCCESSION. AN AUTHORI- 5 ZATION TO PAY IS NOT AN ORDER UNLESS THE PERSON AUTHORIZED TO PAY IS 6 ALSO INSTRUCTED TO PAY. 7 (9) "ORDINARY CARE" IN THE CASE OF A PERSON ENGAGED IN BUSINESS MEANS 8 OBSERVANCE OF REASONABLE COMMERCIAL STANDARDS, PREVAILING IN THE AREA IN 9 WHICH THE PERSON IS LOCATED, WITH RESPECT TO THE BUSINESS IN WHICH THE 10 PERSON IS ENGAGED. IN THE CASE OF A BANK THAT TAKES AN INSTRUMENT FOR 11 PROCESSING FOR COLLECTION OR PAYMENT BY AUTOMATED MEANS, REASONABLE 12 COMMERCIAL STANDARDS DO NOT REQUIRE THE BANK TO EXAMINE THE INSTRUMENT 13 IF THE FAILURE TO EXAMINE DOES NOT VIOLATE THE BANK'S PRESCRIBED PROCE- 14 DURES AND THE BANK'S PROCEDURES DO NOT VARY UNREASONABLY FROM GENERAL 15 BANKING USAGE NOT DISAPPROVED BY THIS ARTICLE OR ARTICLE 4. 16 (10) "PARTY" MEANS A PARTY TO AN INSTRUMENT. 17 (11) "PRINCIPAL OBLIGOR," WITH RESPECT TO AN INSTRUMENT, MEANS THE 18 ACCOMMODATED PARTY OR ANY OTHER PARTY TO THE INSTRUMENT AGAINST WHOM A 19 SECONDARY OBLIGOR HAS RECOURSE UNDER THIS ARTICLE. 20 (12) "PROMISE" MEANS A WRITTEN UNDERTAKING TO PAY MONEY SIGNED BY THE 21 PERSON UNDERTAKING TO PAY. AN ACKNOWLEDGMENT OF AN OBLIGATION BY THE 22 OBLIGOR IS NOT A PROMISE UNLESS THE OBLIGOR ALSO UNDERTAKES TO PAY THE 23 OBLIGATION. 24 (13) "PROVE" WITH RESPECT TO A FACT MEANS TO MEET THE BURDEN OF ESTAB- 25 LISHING THE FACT (SECTION 1-201(B)(8)). 26 (14) RESERVED. 27 (15) "REMITTER" MEANS A PERSON WHO PURCHASES AN INSTRUMENT FROM ITS 28 ISSUER IF THE INSTRUMENT IS PAYABLE TO AN IDENTIFIED PERSON OTHER THAN 29 THE PURCHASER. 30 (16) "REMOTELY-CREATED CONSUMER ITEM" MEANS AN ITEM DRAWN ON A CONSUM- 31 ER ACCOUNT, WHICH IS NOT CREATED BY THE PAYOR BANK AND DOES NOT BEAR A 32 HANDWRITTEN SIGNATURE PURPORTING TO BE THE SIGNATURE OF THE DRAWER. 33 (17) "SECONDARY OBLIGOR," WITH RESPECT TO AN INSTRUMENT, MEANS (A) AN 34 INDORSER OR AN ACCOMMODATION PARTY, (B) A DRAWER HAVING THE OBLIGATION 35 DESCRIBED IN SECTION 3-414(D), OR (C) ANY OTHER PARTY TO THE INSTRUMENT 36 THAT HAS RECOURSE AGAINST ANOTHER PARTY TO THE INSTRUMENT PURSUANT TO 37 SECTION 3-116(B). 38 (B) OTHER DEFINITIONS APPLYING TO THIS ARTICLE AND THE SECTIONS IN 39 WHICH THEY APPEAR ARE: 40 "ACCEPTANCE". ........................................... SECTION 3--409 41 "ACCOMMODATED PARTY". ................................... SECTION 3--419 42 "ACCOMMODATION PARTY". .................................. SECTION 3--419 43 "ACCOUNT". .............................................. SECTION 4--104 44 "ALTERATION". ........................................... SECTION 3--407 45 "ANOMALOUS INDORSEMENT". ................................ SECTION 3--205 46 "BLANK INDORSEMENT". .................................... SECTION 3--205 47 "CASHIER'S CHECK". ...................................... SECTION 3--104 48 "CERTIFICATE OF DEPOSIT". ............................... SECTION 3--104 49 "CERTIFIED CHECK". ...................................... SECTION 3--409 50 "CHECK". ................................................ SECTION 3--104 51 "CONSIDERATION". ........................................ SECTION 3--303 52 "DRAFT". ................................................ SECTION 3--104 53 "HOLDER IN DUE COURSE". ................................. SECTION 3--302 54 "INCOMPLETE INSTRUMENT". ................................ SECTION 3--115 55 "INDORSEMENT". .......................................... SECTION 3--204 56 "INDORSER". ............................................. SECTION 3--204 S. 5901 17 1 "INSTRUMENT". ........................................... SECTION 3--104 2 "ISSUE". ................................................ SECTION 3--105 3 "ISSUER". ............................................... SECTION 3--105 4 "NEGOTIABLE INSTRUMENT". ................................ SECTION 3--104 5 "NEGOTIATION". .......................................... SECTION 3--201 6 "NOTE". ................................................. SECTION 3--104 7 "PAYABLE AT A DEFINITE TIME". ........................... SECTION 3--108 8 "PAYABLE ON DEMAND". .................................... SECTION 3--108 9 "PAYABLE TO BEARER". .................................... SECTION 3--109 10 "PAYABLE TO ORDER". ..................................... SECTION 3--109 11 "PAYMENT". .............................................. SECTION 3--602 12 "PERSON ENTITLED TO ENFORCE". ........................... SECTION 3--301 13 "PRESENTMENT". .......................................... SECTION 3--501 14 "REACQUISITION". ........................................ SECTION 3--207 15 "SPECIAL INDORSEMENT". .................................. SECTION 3--205 16 "TELLER'S CHECK". ....................................... SECTION 3--104 17 "TRANSFER OF INSTRUMENT". ............................... SECTION 3--203 18 "TRAVELER'S CHECK". ..................................... SECTION 3--104 19 "VALUE". ................................................ SECTION 3--303 20 (C) THE FOLLOWING DEFINITIONS IN OTHER ARTICLES APPLY TO THIS ARTICLE: 21 "BANKING DAY". .......................................... SECTION 4--104 22 "CLEARING HOUSE". ....................................... SECTION 4--104 23 "COLLECTING BANK". ...................................... SECTION 4--105 24 "DEPOSITARY BANK". ...................................... SECTION 4--105 25 "DOCUMENTARY DRAFT". .................................... SECTION 4--104 26 "INTERMEDIARY BANK". .................................... SECTION 4--105 27 "ITEM". ................................................. SECTION 4--104 28 "PAYOR BANK". ........................................... SECTION 4--105 29 "SUSPENDS PAYMENTS". .................................... SECTION 4--104 30 (D) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES 31 OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE. 32 SECTION 3--104. NEGOTIABLE INSTRUMENT. 33 (A) EXCEPT AS PROVIDED IN SUBSECTIONS (C) AND (D), "NEGOTIABLE INSTRU- 34 MENT" MEANS AN UNCONDITIONAL PROMISE OR ORDER TO PAY A FIXED AMOUNT OF 35 MONEY, WITH OR WITHOUT INTEREST OR OTHER CHARGES DESCRIBED IN THE PROM- 36 ISE OR ORDER, IF IT: 37 (1) IS PAYABLE TO BEARER OR TO ORDER AT THE TIME IT IS ISSUED OR FIRST 38 COMES INTO POSSESSION OF A HOLDER; 39 (2) IS PAYABLE ON DEMAND OR AT A DEFINITE TIME; AND 40 (3) DOES NOT STATE ANY OTHER UNDERTAKING OR INSTRUCTION BY THE PERSON 41 PROMISING OR ORDERING PAYMENT TO DO ANY ACT IN ADDITION TO THE PAYMENT 42 OF MONEY, BUT THE PROMISE OR ORDER MAY CONTAIN (I) AN UNDERTAKING OR 43 POWER TO GIVE, MAINTAIN, OR PROTECT COLLATERAL TO SECURE PAYMENT, (II) 44 AN AUTHORIZATION OR POWER TO THE HOLDER TO CONFESS JUDGMENT OR REALIZE 45 ON OR DISPOSE OF COLLATERAL, OR (III) A WAIVER OF THE BENEFIT OF ANY LAW 46 INTENDED FOR THE ADVANTAGE OR PROTECTION OF AN OBLIGOR. 47 (B) "INSTRUMENT" MEANS A NEGOTIABLE INSTRUMENT. 48 (C) AN ORDER THAT MEETS ALL OF THE REQUIREMENTS OF SUBSECTION (A), 49 EXCEPT PARAGRAPH (1), AND OTHERWISE FALLS WITHIN THE DEFINITION OF 50 "CHECK" IN SUBSECTION (F) IS A NEGOTIABLE INSTRUMENT AND A CHECK. 51 (D) A PROMISE OR ORDER OTHER THAN A CHECK IS NOT AN INSTRUMENT IF, AT 52 THE TIME IT IS ISSUED OR FIRST COMES INTO POSSESSION OF A HOLDER, IT 53 CONTAINS A CONSPICUOUS STATEMENT, HOWEVER EXPRESSED, TO THE EFFECT THAT 54 THE PROMISE OR ORDER IS NOT NEGOTIABLE OR IS NOT AN INSTRUMENT GOVERNED 55 BY THIS ARTICLE. S. 5901 18 1 (E) AN INSTRUMENT IS A "NOTE" IF IT IS A PROMISE AND IS A "DRAFT" IF 2 IT IS AN ORDER. IF AN INSTRUMENT FALLS WITHIN THE DEFINITION OF BOTH 3 "NOTE" AND "DRAFT," A PERSON ENTITLED TO ENFORCE THE INSTRUMENT MAY 4 TREAT IT AS EITHER. 5 (F) "CHECK" MEANS (I) A DRAFT, OTHER THAN A DOCUMENTARY DRAFT, PAYABLE 6 ON DEMAND AND DRAWN ON A BANK OR (II) A CASHIER'S CHECK OR TELLER'S 7 CHECK. AN INSTRUMENT MAY BE A CHECK EVEN THOUGH IT IS DESCRIBED ON ITS 8 FACE BY ANOTHER TERM, SUCH AS "MONEY ORDER." 9 (G) "CASHIER'S CHECK" MEANS A DRAFT WITH RESPECT TO WHICH THE DRAWER 10 AND DRAWEE ARE THE SAME BANK OR BRANCHES OF THE SAME BANK. 11 (H) "TELLER'S CHECK" MEANS A DRAFT DRAWN BY A BANK (I) ON ANOTHER 12 BANK, OR (II) PAYABLE AT OR THROUGH A BANK. 13 (I) "TRAVELER'S CHECK" MEANS AN INSTRUMENT THAT (I) IS PAYABLE ON 14 DEMAND, (II) IS DRAWN ON OR PAYABLE AT OR THROUGH A BANK, (III) IS 15 DESIGNATED BY THE TERM "TRAVELER'S CHECK" OR BY A SUBSTANTIALLY SIMILAR 16 TERM, AND (IV) REQUIRES, AS A CONDITION TO PAYMENT, A COUNTERSIGNATURE 17 BY A PERSON WHOSE SPECIMEN SIGNATURE APPEARS ON THE INSTRUMENT. 18 (J) "CERTIFICATE OF DEPOSIT" MEANS AN INSTRUMENT CONTAINING AN 19 ACKNOWLEDGMENT BY A BANK THAT A SUM OF MONEY HAS BEEN RECEIVED BY THE 20 BANK AND A PROMISE BY THE BANK TO REPAY THE SUM OF MONEY. A CERTIFICATE 21 OF DEPOSIT IS A NOTE OF THE BANK. 22 SECTION 3--105. ISSUE OF INSTRUMENT. 23 (A) "ISSUE" MEANS THE FIRST DELIVERY OF AN INSTRUMENT BY THE MAKER OR 24 DRAWER, WHETHER TO A HOLDER OR NONHOLDER, FOR THE PURPOSE OF GIVING 25 RIGHTS ON THE INSTRUMENT TO ANY PERSON. 26 (B) AN UNISSUED INSTRUMENT, OR AN UNISSUED INCOMPLETE INSTRUMENT THAT 27 IS COMPLETED, IS BINDING ON THE MAKER OR DRAWER, BUT NONISSUANCE IS A 28 DEFENSE. AN INSTRUMENT THAT IS CONDITIONALLY ISSUED OR IS ISSUED FOR A 29 SPECIAL PURPOSE IS BINDING ON THE MAKER OR DRAWER, BUT FAILURE OF THE 30 CONDITION OR SPECIAL PURPOSE TO BE FULFILLED IS A DEFENSE. 31 (C) "ISSUER" APPLIES TO ISSUED AND UNISSUED INSTRUMENTS AND MEANS 32 A MAKER OR DRAWER OF AN INSTRUMENT. 33 SECTION 3--106. UNCONDITIONAL PROMISE OR ORDER. 34 (A) EXCEPT AS PROVIDED IN THIS SECTION, FOR THE PURPOSES OF SECTION 35 3--104(A), A PROMISE OR ORDER IS UNCONDITIONAL UNLESS IT STATES (I) AN 36 EXPRESS CONDITION TO PAYMENT, (II) THAT THE PROMISE OR ORDER IS SUBJECT 37 TO OR GOVERNED BY ANOTHER RECORD, OR (III) THAT RIGHTS OR OBLIGATIONS 38 WITH RESPECT TO THE PROMISE OR ORDER ARE STATED IN ANOTHER RECORD. A 39 REFERENCE TO ANOTHER RECORD DOES NOT OF ITSELF MAKE THE PROMISE OR ORDER 40 CONDITIONAL. 41 (B) A PROMISE OR ORDER IS NOT MADE CONDITIONAL (I) BY A REFERENCE TO 42 ANOTHER RECORD FOR A STATEMENT OF RIGHTS WITH RESPECT TO COLLATERAL, 43 PREPAYMENT, OR ACCELERATION, OR (II) BECAUSE PAYMENT IS LIMITED TO 44 RESORT TO A PARTICULAR FUND OR SOURCE. 45 (C) IF A PROMISE OR ORDER REQUIRES, AS A CONDITION TO PAYMENT, A COUN- 46 TERSIGNATURE BY A PERSON WHOSE SPECIMEN SIGNATURE APPEARS ON THE PROMISE 47 OR ORDER, THE CONDITION DOES NOT MAKE THE PROMISE OR ORDER CONDITIONAL 48 FOR THE PURPOSES OF SECTION 3--104(A). IF THE PERSON WHOSE SPECIMEN 49 SIGNATURE APPEARS ON AN INSTRUMENT FAILS TO COUNTERSIGN THE INSTRUMENT, 50 THE FAILURE TO COUNTERSIGN IS A DEFENSE TO THE OBLIGATION OF THE ISSUER, 51 BUT THE FAILURE DOES NOT PREVENT A TRANSFEREE OF THE INSTRUMENT FROM 52 BECOMING A HOLDER OF THE INSTRUMENT. 53 (D) IF A PROMISE OR ORDER AT THE TIME IT IS ISSUED OR FIRST COMES INTO 54 POSSESSION OF A HOLDER CONTAINS A STATEMENT, REQUIRED BY APPLICABLE 55 STATUTORY OR ADMINISTRATIVE LAW, TO THE EFFECT THAT THE RIGHTS OF A 56 HOLDER OR TRANSFEREE ARE SUBJECT TO CLAIMS OR DEFENSES THAT THE ISSUER S. 5901 19 1 COULD ASSERT AGAINST THE ORIGINAL PAYEE, THE PROMISE OR ORDER IS NOT 2 THEREBY MADE CONDITIONAL FOR THE PURPOSES OF SECTION 3-104(A); BUT IF 3 THE PROMISE OR ORDER IS AN INSTRUMENT, THERE CANNOT BE A HOLDER IN DUE 4 COURSE OF THE INSTRUMENT. 5 SECTION 3--107. INSTRUMENT PAYABLE IN FOREIGN MONEY. 6 UNLESS THE INSTRUMENT OTHERWISE PROVIDES, AN INSTRUMENT THAT STATES 7 THE AMOUNT PAYABLE IN FOREIGN MONEY MAY BE PAID IN THE FOREIGN MONEY OR 8 IN AN EQUIVALENT AMOUNT IN DOLLARS CALCULATED BY USING THE CURRENT 9 BANK-OFFERED SPOT RATE AT THE PLACE OF PAYMENT FOR THE PURCHASE OF 10 DOLLARS ON THE DAY ON WHICH THE INSTRUMENT IS PAID. 11 SECTION 3--108. PAYABLE ON DEMAND OR AT DEFINITE TIME. 12 (A) A PROMISE OR ORDER IS "PAYABLE ON DEMAND" IF IT (I) STATES THAT IT 13 IS PAYABLE ON DEMAND OR AT SIGHT, OR OTHERWISE INDICATES THAT IT IS 14 PAYABLE AT THE WILL OF THE HOLDER, OR (II) DOES NOT STATE ANY TIME OF 15 PAYMENT. 16 (B) A PROMISE OR ORDER IS "PAYABLE AT A DEFINITE TIME" IF IT IS PAYA- 17 BLE ON ELAPSE OF A DEFINITE PERIOD OF TIME AFTER SIGHT OR ACCEPTANCE OR 18 AT A FIXED DATE OR DATES OR AT A TIME OR TIMES READILY ASCERTAINABLE AT 19 THE TIME THE PROMISE OR ORDER IS ISSUED, SUBJECT TO RIGHTS OF (I) 20 PREPAYMENT, (II) ACCELERATION, (III) EXTENSION AT THE OPTION OF THE 21 HOLDER, OR (IV) EXTENSION TO A FURTHER DEFINITE TIME AT THE OPTION OF 22 THE MAKER OR ACCEPTOR OR AUTOMATICALLY UPON OR AFTER A SPECIFIED ACT OR 23 EVENT. 24 (C) IF AN INSTRUMENT, PAYABLE AT A FIXED DATE, IS ALSO PAYABLE UPON 25 DEMAND MADE BEFORE THE FIXED DATE, THE INSTRUMENT IS PAYABLE ON DEMAND 26 UNTIL THE FIXED DATE AND, IF DEMAND FOR PAYMENT IS NOT MADE BEFORE THAT 27 DATE, BECOMES PAYABLE AT A DEFINITE TIME ON THE FIXED DATE. 28 SECTION 3--109. PAYABLE TO BEARER OR TO ORDER. 29 (A) A PROMISE OR ORDER IS PAYABLE TO BEARER IF IT: 30 (1) STATES THAT IT IS PAYABLE TO BEARER OR TO THE ORDER OF BEARER OR 31 OTHERWISE INDICATES THAT THE PERSON IN POSSESSION OF THE PROMISE OR 32 ORDER IS ENTITLED TO PAYMENT; 33 (2) DOES NOT STATE A PAYEE; OR 34 (3) STATES THAT IT IS PAYABLE TO OR TO THE ORDER OF CASH OR OTHERWISE 35 INDICATES THAT IT IS NOT PAYABLE TO AN IDENTIFIED PERSON. 36 (B) A PROMISE OR ORDER THAT IS NOT PAYABLE TO BEARER IS PAYABLE TO 37 ORDER IF IT IS PAYABLE (I) TO THE ORDER OF AN IDENTIFIED PERSON OR (II) 38 TO AN IDENTIFIED PERSON OR ORDER. A PROMISE OR ORDER THAT IS PAYABLE TO 39 ORDER IS PAYABLE TO THE IDENTIFIED PERSON. 40 (C) AN INSTRUMENT PAYABLE TO BEARER MAY BECOME PAYABLE TO AN IDENTI- 41 FIED PERSON IF IT IS SPECIALLY INDORSED PURSUANT TO SECTION 3--205(A). 42 AN INSTRUMENT PAYABLE TO AN IDENTIFIED PERSON MAY BECOME PAYABLE TO 43 BEARER IF IT IS INDORSED IN BLANK PURSUANT TO SECTION 3--205(B). 44 SECTION 3--110. IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS PAYABLE. 45 (A) THE PERSON TO WHOM AN INSTRUMENT IS INITIALLY PAYABLE IS DETER- 46 MINED BY THE INTENT OF THE PERSON, WHETHER OR NOT AUTHORIZED, SIGNING 47 AS, OR IN THE NAME OR BEHALF OF, THE ISSUER OF THE INSTRUMENT. THE 48 INSTRUMENT IS PAYABLE TO THE PERSON INTENDED BY THE SIGNER EVEN IF THAT 49 PERSON IS IDENTIFIED IN THE INSTRUMENT BY A NAME OR OTHER IDENTIFICATION 50 THAT IS NOT THAT OF THE INTENDED PERSON. IF MORE THAN ONE PERSON SIGNS 51 IN THE NAME OR BEHALF OF THE ISSUER OF AN INSTRUMENT AND ALL THE SIGNERS 52 DO NOT INTEND THE SAME PERSON AS PAYEE, THE INSTRUMENT IS PAYABLE TO ANY 53 PERSON INTENDED BY ONE OR MORE OF THE SIGNERS. 54 (B) IF THE SIGNATURE OF THE ISSUER OF AN INSTRUMENT IS MADE BY AUTO- 55 MATED MEANS, SUCH AS A CHECK-WRITING MACHINE, THE PAYEE OF THE INSTRU- S. 5901 20 1 MENT IS DETERMINED BY THE INTENT OF THE PERSON WHO SUPPLIED THE NAME OR 2 IDENTIFICATION OF THE PAYEE, WHETHER OR NOT AUTHORIZED TO DO SO. 3 (C) A PERSON TO WHOM AN INSTRUMENT IS PAYABLE MAY BE IDENTIFIED IN ANY 4 WAY, INCLUDING BY NAME, IDENTIFYING NUMBER, OFFICE, OR ACCOUNT NUMBER. 5 FOR THE PURPOSE OF DETERMINING THE HOLDER OF AN INSTRUMENT, THE FOLLOW- 6 ING RULES APPLY: 7 (1) IF AN INSTRUMENT IS PAYABLE TO AN ACCOUNT AND THE ACCOUNT IS IDEN- 8 TIFIED ONLY BY NUMBER, THE INSTRUMENT IS PAYABLE TO THE PERSON TO WHOM 9 THE ACCOUNT IS PAYABLE. IF AN INSTRUMENT IS PAYABLE TO AN ACCOUNT IDEN- 10 TIFIED BY NUMBER AND BY THE NAME OF A PERSON, THE INSTRUMENT IS PAYABLE 11 TO THE NAMED PERSON, WHETHER OR NOT THAT PERSON IS THE OWNER OF THE 12 ACCOUNT IDENTIFIED BY NUMBER. 13 (2) IF AN INSTRUMENT IS PAYABLE TO: 14 (I) A TRUST, AN ESTATE, OR A PERSON DESCRIBED AS TRUSTEE OR REPRESEN- 15 TATIVE OF A TRUST OR ESTATE, THE INSTRUMENT IS PAYABLE TO THE TRUSTEE, 16 THE REPRESENTATIVE, OR A SUCCESSOR OF EITHER, WHETHER OR NOT THE BENEFI- 17 CIARY OR ESTATE IS ALSO NAMED; 18 (II) A PERSON DESCRIBED AS AGENT OR SIMILAR REPRESENTATIVE OF A NAMED 19 OR IDENTIFIED PERSON, THE INSTRUMENT IS PAYABLE TO THE REPRESENTED 20 PERSON, THE REPRESENTATIVE, OR A SUCCESSOR OF THE REPRESENTATIVE; 21 (III) A FUND OR ORGANIZATION THAT IS NOT A LEGAL ENTITY, THE INSTRU- 22 MENT IS PAYABLE TO A REPRESENTATIVE OF THE MEMBERS OF THE FUND OR ORGAN- 23 IZATION; OR 24 (IV) AN OFFICE OR TO A PERSON DESCRIBED AS HOLDING AN OFFICE, THE 25 INSTRUMENT IS PAYABLE TO THE NAMED PERSON, THE INCUMBENT OF THE OFFICE, 26 OR A SUCCESSOR TO THE INCUMBENT. 27 (D) IF AN INSTRUMENT IS PAYABLE TO TWO OR MORE PERSONS ALTERNATIVELY, 28 IT IS PAYABLE TO ANY OF THEM AND MAY BE NEGOTIATED, DISCHARGED, OR 29 ENFORCED BY ANY OR ALL OF THEM IN POSSESSION OF THE INSTRUMENT. IF AN 30 INSTRUMENT IS PAYABLE TO TWO OR MORE PERSONS NOT ALTERNATIVELY, IT IS 31 PAYABLE TO ALL OF THEM AND MAY BE NEGOTIATED, DISCHARGED, OR ENFORCED 32 ONLY BY ALL OF THEM. IF AN INSTRUMENT PAYABLE TO TWO OR MORE PERSONS IS 33 AMBIGUOUS AS TO WHETHER IT IS PAYABLE TO THE PERSONS ALTERNATIVELY, THE 34 INSTRUMENT IS PAYABLE TO THE PERSONS ALTERNATIVELY. 35 SECTION 3--111. PLACE OF PAYMENT. 36 EXCEPT AS OTHERWISE PROVIDED FOR ITEMS IN ARTICLE 4, AN INSTRUMENT IS 37 PAYABLE AT THE PLACE OF PAYMENT STATED IN THE INSTRUMENT. IF NO PLACE OF 38 PAYMENT IS STATED, AN INSTRUMENT IS PAYABLE AT THE ADDRESS OF THE DRAWEE 39 OR MAKER STATED IN THE INSTRUMENT. IF NO ADDRESS IS STATED, THE PLACE OF 40 PAYMENT IS THE PLACE OF BUSINESS OF THE DRAWEE OR MAKER. IF A DRAWEE OR 41 MAKER HAS MORE THAN ONE PLACE OF BUSINESS, THE PLACE OF PAYMENT IS ANY 42 PLACE OF BUSINESS OF THE DRAWEE OR MAKER CHOSEN BY THE PERSON ENTITLED 43 TO ENFORCE THE INSTRUMENT. IF THE DRAWEE OR MAKER HAS NO PLACE OF BUSI- 44 NESS, THE PLACE OF PAYMENT IS THE RESIDENCE OF THE DRAWEE OR MAKER. 45 SECTION 3--112. INTEREST. 46 (A) UNLESS OTHERWISE PROVIDED IN THE INSTRUMENT, (I) AN INSTRUMENT IS 47 NOT PAYABLE WITH INTEREST, AND (II) INTEREST ON AN INTEREST-BEARING 48 INSTRUMENT IS PAYABLE FROM THE DATE OF THE INSTRUMENT. 49 (B) INTEREST MAY BE STATED IN AN INSTRUMENT AS A FIXED OR VARIABLE 50 AMOUNT OF MONEY OR IT MAY BE EXPRESSED AS A FIXED OR VARIABLE RATE OR 51 RATES. THE AMOUNT OR RATE OF INTEREST MAY BE STATED OR DESCRIBED IN THE 52 INSTRUMENT IN ANY MANNER AND MAY REQUIRE REFERENCE TO INFORMATION NOT 53 CONTAINED IN THE INSTRUMENT. IF AN INSTRUMENT PROVIDES FOR INTEREST, BUT 54 THE AMOUNT OF INTEREST PAYABLE CANNOT BE ASCERTAINED FROM THE 55 DESCRIPTION, INTEREST IS PAYABLE AT THE JUDGMENT RATE IN EFFECT AT THE S. 5901 21 1 PLACE OF PAYMENT OF THE INSTRUMENT AND AT THE TIME INTEREST FIRST 2 ACCRUES. 3 SECTION 3--113. DATE OF INSTRUMENT. 4 (A) AN INSTRUMENT MAY BE ANTEDATED OR POSTDATED. THE DATE STATED 5 DETERMINES THE TIME OF PAYMENT IF THE INSTRUMENT IS PAYABLE AT A FIXED 6 PERIOD AFTER THE DATE. EXCEPT AS PROVIDED IN SECTION 4--401(C), AN 7 INSTRUMENT PAYABLE ON DEMAND IS NOT PAYABLE BEFORE THE DATE OF THE 8 INSTRUMENT. 9 (B) IF AN INSTRUMENT IS UNDATED, ITS DATE IS THE DATE OF ITS ISSUE OR, 10 IN THE CASE OF AN UNISSUED INSTRUMENT, THE DATE IT FIRST COMES INTO 11 POSSESSION OF A HOLDER. 12 SECTION 3--114. CONTRADICTORY TERMS OF INSTRUMENT. 13 IF AN INSTRUMENT CONTAINS CONTRADICTORY TERMS, TYPEWRITTEN TERMS 14 PREVAIL OVER PRINTED TERMS, HANDWRITTEN TERMS PREVAIL OVER BOTH, AND 15 WORDS PREVAIL OVER NUMBERS. 16 SECTION 3--115. INCOMPLETE INSTRUMENT. 17 (A) "INCOMPLETE INSTRUMENT" MEANS A SIGNED WRITING, WHETHER OR NOT 18 ISSUED BY THE SIGNER, THE CONTENTS OF WHICH SHOW AT THE TIME OF SIGNING 19 THAT IT IS INCOMPLETE BUT THAT THE SIGNER INTENDED IT TO BE COMPLETED BY 20 THE ADDITION OF WORDS OR NUMBERS. 21 (B) SUBJECT TO SUBSECTION (C), IF AN INCOMPLETE INSTRUMENT IS AN 22 INSTRUMENT UNDER SECTION 3--104, IT MAY BE ENFORCED ACCORDING TO ITS 23 TERMS IF IT IS NOT COMPLETED, OR ACCORDING TO ITS TERMS AS AUGMENTED BY 24 COMPLETION. IF AN INCOMPLETE INSTRUMENT IS NOT AN INSTRUMENT UNDER 25 SECTION 3--104, BUT, AFTER COMPLETION, THE REQUIREMENTS OF SECTION 26 3--104 ARE MET, THE INSTRUMENT MAY BE ENFORCED ACCORDING TO ITS TERMS AS 27 AUGMENTED BY COMPLETION. 28 (C) IF WORDS OR NUMBERS ARE ADDED TO AN INCOMPLETE INSTRUMENT WITHOUT 29 AUTHORITY OF THE SIGNER, THERE IS AN ALTERATION OF THE INCOMPLETE 30 INSTRUMENT UNDER SECTION 3--407. 31 (D) THE BURDEN OF ESTABLISHING THAT WORDS OR NUMBERS WERE ADDED TO AN 32 INCOMPLETE INSTRUMENT WITHOUT AUTHORITY OF THE SIGNER IS ON THE PERSON 33 ASSERTING THE LACK OF AUTHORITY. 34 SECTION 3--116. JOINT AND SEVERAL LIABILITY; CONTRIBUTION. 35 (A) EXCEPT AS OTHERWISE PROVIDED IN THE INSTRUMENT, TWO OR MORE 36 PERSONS WHO HAVE THE SAME LIABILITY ON AN INSTRUMENT AS MAKERS, DRAWERS, 37 ACCEPTORS, INDORSERS WHO INDORSE AS JOINT PAYEES, OR ANOMALOUS INDORSERS 38 ARE JOINTLY AND SEVERALLY LIABLE IN THE CAPACITY IN WHICH THEY SIGN. 39 (B) EXCEPT AS PROVIDED IN SECTION 3--419(F) OR BY AGREEMENT OF THE 40 AFFECTED PARTIES, A PARTY HAVING JOINT AND SEVERAL LIABILITY WHO PAYS 41 THE INSTRUMENT IS ENTITLED TO RECEIVE FROM ANY PARTY HAVING THE SAME 42 JOINT AND SEVERAL LIABILITY CONTRIBUTION IN ACCORDANCE WITH APPLICABLE 43 LAW. 44 SECTION 3--117. OTHER AGREEMENTS AFFECTING INSTRUMENT. 45 SUBJECT TO APPLICABLE LAW REGARDING EXCLUSION OF PROOF OF CONTEMPORA- 46 NEOUS OR PREVIOUS AGREEMENTS, THE OBLIGATION OF A PARTY TO AN INSTRUMENT 47 TO PAY THE INSTRUMENT MAY BE MODIFIED, SUPPLEMENTED, OR NULLIFIED BY A 48 SEPARATE AGREEMENT OF THE OBLIGOR AND A PERSON ENTITLED TO ENFORCE THE 49 INSTRUMENT, IF THE INSTRUMENT IS ISSUED OR THE OBLIGATION IS INCURRED IN 50 RELIANCE ON THE AGREEMENT OR AS PART OF THE SAME TRANSACTION GIVING RISE 51 TO THE AGREEMENT. TO THE EXTENT AN OBLIGATION IS MODIFIED, SUPPLEMENTED, 52 OR NULLIFIED BY AN AGREEMENT UNDER THIS SECTION, THE AGREEMENT IS A 53 DEFENSE TO THE OBLIGATION. 54 SECTION 3--118. STATUTE OF LIMITATIONS. 55 (A) EXCEPT AS PROVIDED IN SUBSECTION (E), AN ACTION TO ENFORCE THE 56 OBLIGATION OF A PARTY TO PAY A NOTE PAYABLE AT A DEFINITE TIME MUST BE S. 5901 22 1 COMMENCED WITHIN SIX YEARS AFTER THE DUE DATE OR DATES STATED IN THE 2 NOTE OR, IF A DUE DATE IS ACCELERATED, WITHIN SIX YEARS AFTER THE ACCEL- 3 ERATED DUE DATE. 4 (B) EXCEPT AS PROVIDED IN SUBSECTION (D) OR (E), IF DEMAND FOR PAYMENT 5 IS MADE TO THE MAKER OF A NOTE PAYABLE ON DEMAND, AN ACTION TO ENFORCE 6 THE OBLIGATION OF A PARTY TO PAY THE NOTE MUST BE COMMENCED WITHIN SIX 7 YEARS AFTER THE DEMAND. IF NO DEMAND FOR PAYMENT IS MADE TO THE MAKER, 8 AN ACTION TO ENFORCE THE NOTE IS BARRED IF NEITHER PRINCIPAL NOR INTER- 9 EST ON THE NOTE HAS BEEN PAID FOR A CONTINUOUS PERIOD OF TEN YEARS. 10 (C) EXCEPT AS PROVIDED IN SUBSECTION (D), AN ACTION TO ENFORCE THE 11 OBLIGATION OF A PARTY TO AN UNACCEPTED DRAFT TO PAY THE DRAFT MUST BE 12 COMMENCED WITHIN THREE YEARS AFTER DISHONOR OF THE DRAFT OR TEN YEARS 13 AFTER THE DATE OF THE DRAFT, WHICHEVER PERIOD EXPIRES FIRST. 14 (D) AN ACTION TO ENFORCE THE OBLIGATION OF THE ACCEPTOR OF A CERTIFIED 15 CHECK OR THE ISSUER OF A TELLER'S CHECK, CASHIER'S CHECK, OR TRAVELER'S 16 CHECK MUST BE COMMENCED WITHIN THREE YEARS AFTER DEMAND FOR PAYMENT IS 17 MADE TO THE ACCEPTOR OR ISSUER, AS THE CASE MAY BE. 18 (E) AN ACTION TO ENFORCE THE OBLIGATION OF A PARTY TO A CERTIFICATE OF 19 DEPOSIT TO PAY THE INSTRUMENT MUST BE COMMENCED WITHIN SIX YEARS AFTER 20 DEMAND FOR PAYMENT IS MADE TO THE MAKER, BUT IF THE INSTRUMENT STATES A 21 DUE DATE AND THE MAKER IS NOT REQUIRED TO PAY BEFORE THAT DATE, THE 22 SIX-YEAR PERIOD BEGINS WHEN A DEMAND FOR PAYMENT IS IN EFFECT AND THE 23 DUE DATE HAS PASSED. 24 (F) AN ACTION TO ENFORCE THE OBLIGATION OF A PARTY TO PAY AN ACCEPTED 25 DRAFT, OTHER THAN A CERTIFIED CHECK, MUST BE COMMENCED (1) WITHIN SIX 26 YEARS AFTER THE DUE DATE OR DATES STATED IN THE DRAFT OR ACCEPTANCE IF 27 THE OBLIGATION OF THE ACCEPTOR IS PAYABLE AT A DEFINITE TIME, OR (2) 28 WITHIN SIX YEARS AFTER THE DATE OF THE ACCEPTANCE IF THE OBLIGATION OF 29 THE ACCEPTOR IS PAYABLE ON DEMAND. 30 (G) UNLESS GOVERNED BY OTHER LAW REGARDING CLAIMS FOR INDEMNITY OR 31 CONTRIBUTION, AN ACTION (1) FOR CONVERSION OF AN INSTRUMENT, FOR MONEY 32 HAD AND RECEIVED, OR LIKE ACTION BASED ON CONVERSION, (2) FOR BREACH OF 33 WARRANTY, OR (3) TO ENFORCE AN OBLIGATION, DUTY, OR RIGHT ARISING UNDER 34 THIS ARTICLE AND NOT GOVERNED BY THIS SECTION MUST BE COMMENCED WITHIN 35 THREE YEARS AFTER THE CAUSE OF ACTION ACCRUES. 36 SECTION 3--119. NOTICE OF RIGHT TO DEFEND ACTION. 37 IN AN ACTION FOR BREACH OF AN OBLIGATION FOR WHICH A THIRD PERSON IS 38 ANSWERABLE OVER PURSUANT TO THIS ARTICLE OR ARTICLE 4, THE DEFENDANT MAY 39 GIVE THE THIRD PERSON NOTICE OF THE LITIGATION IN A RECORD, AND THE 40 PERSON NOTIFIED MAY THEN GIVE SIMILAR NOTICE TO ANY OTHER PERSON WHO IS 41 ANSWERABLE OVER. IF THE NOTICE STATES (1) THAT THE PERSON NOTIFIED MAY 42 COME IN AND DEFEND AND (2) THAT FAILURE TO DO SO WILL BIND THE PERSON 43 NOTIFIED IN AN ACTION LATER BROUGHT BY THE PERSON GIVING THE NOTICE AS 44 TO ANY DETERMINATION OF FACT COMMON TO THE TWO LITIGATIONS, THE PERSON 45 NOTIFIED IS SO BOUND UNLESS AFTER SEASONABLE RECEIPT OF THE NOTICE THE 46 PERSON NOTIFIED DOES COME IN AND DEFEND. 47 PART 2 48 NEGOTIATION, TRANSFER, AND INDORSEMENT 49 SECTION 3--201. NEGOTIATION. 50 (A) "NEGOTIATION" MEANS A TRANSFER OF POSSESSION, WHETHER VOLUNTARY OR 51 INVOLUNTARY, OF AN INSTRUMENT BY A PERSON OTHER THAN THE ISSUER TO A 52 PERSON WHO THEREBY BECOMES ITS HOLDER. 53 (B) EXCEPT FOR NEGOTIATION BY A REMITTER, IF AN INSTRUMENT IS PAYABLE 54 TO AN IDENTIFIED PERSON, NEGOTIATION REQUIRES TRANSFER OF POSSESSION OF 55 THE INSTRUMENT AND ITS INDORSEMENT BY THE HOLDER. IF AN INSTRUMENT IS 56 PAYABLE TO BEARER, IT MAY BE NEGOTIATED BY TRANSFER OF POSSESSION ALONE. S. 5901 23 1 SECTION 3--202. NEGOTIATION SUBJECT TO RESCISSION. 2 (A) NEGOTIATION IS EFFECTIVE EVEN IF OBTAINED (1) FROM AN INFANT, A 3 CORPORATION EXCEEDING ITS POWERS, OR A PERSON WITHOUT CAPACITY, (2) BY 4 FRAUD, DURESS, OR MISTAKE, OR (3) IN BREACH OF DUTY OR AS PART OF AN 5 ILLEGAL TRANSACTION. 6 (B) TO THE EXTENT PERMITTED BY OTHER LAW, NEGOTIATION MAY BE RESCINDED 7 OR MAY BE SUBJECT TO OTHER REMEDIES, BUT THOSE REMEDIES MAY NOT BE 8 ASSERTED AGAINST A SUBSEQUENT HOLDER IN DUE COURSE OR A PERSON PAYING 9 THE INSTRUMENT IN GOOD FAITH AND WITHOUT KNOWLEDGE OF FACTS THAT ARE A 10 BASIS FOR RESCISSION OR OTHER REMEDY. 11 SECTION 3--203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY TRANSFER. 12 (A) AN INSTRUMENT IS TRANSFERRED WHEN IT IS DELIVERED BY A PERSON 13 OTHER THAN ITS ISSUER FOR THE PURPOSE OF GIVING TO THE PERSON RECEIVING 14 DELIVERY THE RIGHT TO ENFORCE THE INSTRUMENT. 15 (B) TRANSFER OF AN INSTRUMENT, WHETHER OR NOT THE TRANSFER IS A NEGO- 16 TIATION, VESTS IN THE TRANSFEREE ANY RIGHT OF THE TRANSFEROR TO ENFORCE 17 THE INSTRUMENT, INCLUDING ANY RIGHT AS A HOLDER IN DUE COURSE, BUT THE 18 TRANSFEREE CANNOT ACQUIRE RIGHTS OF A HOLDER IN DUE COURSE BY A TRANS- 19 FER, DIRECTLY OR INDIRECTLY, FROM A HOLDER IN DUE COURSE IF THE TRANS- 20 FEREE ENGAGED IN FRAUD OR ILLEGALITY AFFECTING THE INSTRUMENT. 21 (C) UNLESS OTHERWISE AGREED, IF AN INSTRUMENT IS TRANSFERRED FOR VALUE 22 AND THE TRANSFEREE DOES NOT BECOME A HOLDER BECAUSE OF LACK OF INDORSE- 23 MENT BY THE TRANSFEROR, THE TRANSFEREE HAS A SPECIFICALLY ENFORCEABLE 24 RIGHT TO THE UNQUALIFIED INDORSEMENT OF THE TRANSFEROR, BUT NEGOTIATION 25 OF THE INSTRUMENT DOES NOT OCCUR UNTIL THE INDORSEMENT IS MADE. 26 (D) IF A TRANSFEROR PURPORTS TO TRANSFER LESS THAN THE ENTIRE INSTRU- 27 MENT, NEGOTIATION OF THE INSTRUMENT DOES NOT OCCUR. THE TRANSFEREE 28 OBTAINS NO RIGHTS UNDER THIS ARTICLE AND HAS ONLY THE RIGHTS OF A 29 PARTIAL ASSIGNEE. 30 SECTION 3--204. INDORSEMENT. 31 (A) "INDORSEMENT" MEANS A SIGNATURE, OTHER THAN THAT OF A SIGNER AS 32 MAKER, DRAWER, OR ACCEPTOR, THAT ALONE OR ACCOMPANIED BY OTHER WORDS IS 33 MADE ON AN INSTRUMENT FOR THE PURPOSE OF (1) NEGOTIATING THE INSTRUMENT, 34 (2) RESTRICTING PAYMENT OF THE INSTRUMENT, OR (3) INCURRING INDORSER'S 35 LIABILITY ON THE INSTRUMENT, BUT REGARDLESS OF THE INTENT OF THE SIGNER, 36 A SIGNATURE AND ITS ACCOMPANYING WORDS IS AN INDORSEMENT UNLESS THE 37 ACCOMPANYING WORDS, TERMS OF THE INSTRUMENT, PLACE OF THE SIGNATURE, OR 38 OTHER CIRCUMSTANCES UNAMBIGUOUSLY INDICATE THAT THE SIGNATURE WAS MADE 39 FOR A PURPOSE OTHER THAN INDORSEMENT. FOR THE PURPOSE OF DETERMINING 40 WHETHER A SIGNATURE IS MADE ON AN INSTRUMENT, A PAPER AFFIXED TO THE 41 INSTRUMENT IS A PART OF THE INSTRUMENT. 42 (B) "INDORSER" MEANS A PERSON WHO MAKES AN INDORSEMENT. 43 (C) FOR THE PURPOSE OF DETERMINING WHETHER THE TRANSFEREE OF AN 44 INSTRUMENT IS A HOLDER, AN INDORSEMENT THAT TRANSFERS A SECURITY INTER- 45 EST IN THE INSTRUMENT IS EFFECTIVE AS AN UNQUALIFIED INDORSEMENT OF THE 46 INSTRUMENT. 47 (D) IF AN INSTRUMENT IS PAYABLE TO A HOLDER UNDER A NAME THAT IS NOT 48 THE NAME OF THE HOLDER, INDORSEMENT MAY BE MADE BY THE HOLDER IN THE 49 NAME STATED IN THE INSTRUMENT OR IN THE HOLDER'S NAME OR BOTH, BUT 50 SIGNATURE IN BOTH NAMES MAY BE REQUIRED BY A PERSON PAYING OR TAKING THE 51 INSTRUMENT FOR VALUE OR COLLECTION. 52 SECTION 3--205. SPECIAL INDORSEMENT; BLANK INDORSEMENT; ANOMALOUS 53 INDORSEMENT. 54 (A) IF AN INDORSEMENT IS MADE BY THE HOLDER OF AN INSTRUMENT, WHETHER 55 PAYABLE TO AN IDENTIFIED PERSON OR PAYABLE TO BEARER, AND THE INDORSE- 56 MENT IDENTIFIES A PERSON TO WHOM IT MAKES THE INSTRUMENT PAYABLE, IT IS S. 5901 24 1 A "SPECIAL INDORSEMENT." WHEN SPECIALLY INDORSED, AN INSTRUMENT BECOMES 2 PAYABLE TO THE IDENTIFIED PERSON AND MAY BE NEGOTIATED ONLY BY THE 3 INDORSEMENT OF THAT PERSON. THE PRINCIPLES STATED IN SECTION 3--110 4 APPLY TO SPECIAL INDORSEMENTS. 5 (B) IF AN INDORSEMENT IS MADE BY THE HOLDER OF AN INSTRUMENT AND IT IS 6 NOT A SPECIAL INDORSEMENT, IT IS A "BLANK INDORSEMENT." WHEN INDORSED IN 7 BLANK, AN INSTRUMENT BECOMES PAYABLE TO BEARER AND MAY BE NEGOTIATED BY 8 TRANSFER OF POSSESSION ALONE UNTIL SPECIALLY INDORSED. 9 (C) THE HOLDER MAY CONVERT A BLANK INDORSEMENT THAT CONSISTS ONLY OF A 10 SIGNATURE INTO A SPECIAL INDORSEMENT BY WRITING, ABOVE THE SIGNATURE OF 11 THE INDORSER, WORDS IDENTIFYING THE PERSON TO WHOM THE INSTRUMENT IS 12 MADE PAYABLE. 13 (D) "ANOMALOUS INDORSEMENT" MEANS AN INDORSEMENT MADE BY A PERSON WHO 14 IS NOT THE HOLDER OF THE INSTRUMENT. AN ANOMALOUS INDORSEMENT DOES NOT 15 AFFECT THE MANNER IN WHICH THE INSTRUMENT MAY BE NEGOTIATED. 16 SECTION 3--206. RESTRICTIVE INDORSEMENT. 17 (A) AN INDORSEMENT LIMITING PAYMENT TO A PARTICULAR PERSON OR OTHER- 18 WISE PROHIBITING FURTHER TRANSFER OR NEGOTIATION OF THE INSTRUMENT IS 19 NOT EFFECTIVE TO PREVENT FURTHER TRANSFER OR NEGOTIATION OF THE INSTRU- 20 MENT. 21 (B) AN INDORSEMENT STATING A CONDITION TO THE RIGHT OF THE INDORSEE TO 22 RECEIVE PAYMENT DOES NOT AFFECT THE RIGHT OF THE INDORSEE TO ENFORCE THE 23 INSTRUMENT. A PERSON PAYING THE INSTRUMENT OR TAKING IT FOR VALUE OR 24 COLLECTION MAY DISREGARD THE CONDITION, AND THE RIGHTS AND LIABILITIES 25 OF THAT PERSON ARE NOT AFFECTED BY WHETHER THE CONDITION HAS BEEN 26 FULFILLED. 27 (C) IF AN INSTRUMENT BEARS AN INDORSEMENT (I) DESCRIBED IN SECTION 28 4--201(B), OR (II) IN BLANK OR TO A PARTICULAR BANK USING THE WORDS "FOR 29 DEPOSIT," "FOR COLLECTION," OR OTHER WORDS INDICATING A PURPOSE OF 30 HAVING THE INSTRUMENT COLLECTED BY A BANK FOR THE INDORSER OR FOR A 31 PARTICULAR ACCOUNT, THE FOLLOWING RULES APPLY: 32 (1) A PERSON, OTHER THAN A BANK, WHO PURCHASES THE INSTRUMENT WHEN SO 33 INDORSED CONVERTS THE INSTRUMENT UNLESS THE AMOUNT PAID FOR THE INSTRU- 34 MENT IS RECEIVED BY THE INDORSER OR APPLIED CONSISTENTLY WITH THE 35 INDORSEMENT. 36 (2) A DEPOSITARY BANK THAT PURCHASES THE INSTRUMENT OR TAKES IT FOR 37 COLLECTION WHEN SO INDORSED CONVERTS THE INSTRUMENT UNLESS THE AMOUNT 38 PAID BY THE BANK WITH RESPECT TO THE INSTRUMENT IS RECEIVED BY THE 39 INDORSER OR APPLIED CONSISTENTLY WITH THE INDORSEMENT. 40 (3) A PAYOR BANK THAT IS ALSO THE DEPOSITARY BANK OR THAT TAKES THE 41 INSTRUMENT FOR IMMEDIATE PAYMENT OVER THE COUNTER FROM A PERSON OTHER 42 THAN A COLLECTING BANK CONVERTS THE INSTRUMENT UNLESS THE PROCEEDS OF 43 THE INSTRUMENT ARE RECEIVED BY THE INDORSER OR APPLIED CONSISTENTLY WITH 44 THE INDORSEMENT. 45 (4) EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPH (3), A PAYOR BANK OR 46 INTERMEDIARY BANK MAY DISREGARD THE INDORSEMENT AND IS NOT LIABLE IF THE 47 PROCEEDS OF THE INSTRUMENT ARE NOT RECEIVED BY THE INDORSER OR APPLIED 48 CONSISTENTLY WITH THE INDORSEMENT. 49 (D) EXCEPT FOR AN INDORSEMENT COVERED BY SUBSECTION (C), IF AN INSTRU- 50 MENT BEARS AN INDORSEMENT USING WORDS TO THE EFFECT THAT PAYMENT IS TO 51 BE MADE TO THE INDORSEE AS AGENT, TRUSTEE, OR OTHER FIDUCIARY FOR THE 52 BENEFIT OF THE INDORSER OR ANOTHER PERSON, THE FOLLOWING RULES APPLY: 53 (1) UNLESS THERE IS NOTICE OF BREACH OF FIDUCIARY DUTY AS PROVIDED IN 54 SECTION 3--307, A PERSON WHO PURCHASES THE INSTRUMENT FROM THE INDORSEE 55 OR TAKES THE INSTRUMENT FROM THE INDORSEE FOR COLLECTION OR PAYMENT MAY 56 PAY THE PROCEEDS OF PAYMENT OR THE VALUE GIVEN FOR THE INSTRUMENT TO THE S. 5901 25 1 INDORSEE WITHOUT REGARD TO WHETHER THE INDORSEE VIOLATES A FIDUCIARY 2 DUTY TO THE INDORSER. 3 (2) A SUBSEQUENT TRANSFEREE OF THE INSTRUMENT OR PERSON WHO PAYS THE 4 INSTRUMENT IS NEITHER GIVEN NOTICE NOR OTHERWISE AFFECTED BY THE 5 RESTRICTION IN THE INDORSEMENT UNLESS THE TRANSFEREE OR PAYOR KNOWS THAT 6 THE FIDUCIARY DEALT WITH THE INSTRUMENT OR ITS PROCEEDS IN BREACH OF 7 FIDUCIARY DUTY. 8 (E) THE PRESENCE ON AN INSTRUMENT OF AN INDORSEMENT TO WHICH THIS 9 SECTION APPLIES DOES NOT PREVENT A PURCHASER OF THE INSTRUMENT FROM 10 BECOMING A HOLDER IN DUE COURSE OF THE INSTRUMENT UNLESS THE PURCHASER 11 IS A CONVERTER UNDER SUBSECTION (C) OR HAS NOTICE OR KNOWLEDGE OF BREACH 12 OF FIDUCIARY DUTY AS STATED IN SUBSECTION (D). 13 (F) IN AN ACTION TO ENFORCE THE OBLIGATION OF A PARTY TO PAY THE 14 INSTRUMENT, THE OBLIGOR HAS A DEFENSE IF PAYMENT WOULD VIOLATE AN 15 INDORSEMENT TO WHICH THIS SECTION APPLIES AND THE PAYMENT IS NOT PERMIT- 16 TED BY THIS SECTION. 17 SECTION 3--207. REACQUISITION. 18 REACQUISITION OF AN INSTRUMENT OCCURS IF IT IS TRANSFERRED TO A FORMER 19 HOLDER, BY NEGOTIATION OR OTHERWISE. A FORMER HOLDER WHO REACQUIRES THE 20 INSTRUMENT MAY CANCEL INDORSEMENTS MADE AFTER THE REACQUIRER FIRST 21 BECAME A HOLDER OF THE INSTRUMENT. IF THE CANCELLATION CAUSES THE 22 INSTRUMENT TO BE PAYABLE TO THE REACQUIRER OR TO BEARER, THE REACQUIRER 23 MAY NEGOTIATE THE INSTRUMENT. AN INDORSER WHOSE INDORSEMENT IS CANCELED 24 IS DISCHARGED, AND THE DISCHARGE IS EFFECTIVE AGAINST ANY SUBSEQUENT 25 HOLDER. 26 PART 3 27 ENFORCEMENT OF INSTRUMENTS 28 SECTION 3--301. PERSON ENTITLED TO ENFORCE INSTRUMENT. 29 "PERSON ENTITLED TO ENFORCE" AN INSTRUMENT MEANS (1) THE HOLDER OF THE 30 INSTRUMENT, (2) A NONHOLDER IN POSSESSION OF THE INSTRUMENT WHO HAS THE 31 RIGHTS OF A HOLDER, OR (3) A PERSON NOT IN POSSESSION OF THE INSTRUMENT 32 WHO IS ENTITLED TO ENFORCE THE INSTRUMENT PURSUANT TO SECTION 3--309 OR 33 3--418(D). A PERSON MAY BE A PERSON ENTITLED TO ENFORCE THE INSTRUMENT 34 EVEN THOUGH THE PERSON IS NOT THE OWNER OF THE INSTRUMENT OR IS IN 35 WRONGFUL POSSESSION OF THE INSTRUMENT. 36 SECTION 3--302. HOLDER IN DUE COURSE. 37 (A) SUBJECT TO SUBSECTION (C) AND SECTION 3--106(D), "HOLDER IN DUE 38 COURSE" MEANS THE HOLDER OF AN INSTRUMENT IF: 39 (1) THE INSTRUMENT WHEN ISSUED OR NEGOTIATED TO THE HOLDER DOES NOT 40 BEAR SUCH APPARENT EVIDENCE OF FORGERY OR ALTERATION OR IS NOT OTHERWISE 41 SO IRREGULAR OR INCOMPLETE AS TO CALL INTO QUESTION ITS AUTHENTICITY; 42 AND 43 (2) THE HOLDER TOOK THE INSTRUMENT (I) FOR VALUE, (II) IN GOOD FAITH, 44 (III) WITHOUT NOTICE THAT THE INSTRUMENT IS OVERDUE OR HAS BEEN DISHON- 45 ORED OR THAT THERE IS AN UNCURED DEFAULT WITH RESPECT TO PAYMENT OF 46 ANOTHER INSTRUMENT ISSUED AS PART OF THE SAME SERIES, (IV) WITHOUT 47 NOTICE THAT THE INSTRUMENT CONTAINS AN UNAUTHORIZED SIGNATURE OR HAS 48 BEEN ALTERED, (V) WITHOUT NOTICE OF ANY CLAIM TO THE INSTRUMENT 49 DESCRIBED IN SECTION 3--306, AND (VI) WITHOUT NOTICE THAT ANY PARTY HAS 50 A DEFENSE OR CLAIM IN RECOUPMENT DESCRIBED IN SECTION 3--305(A). 51 (B) NOTICE OF DISCHARGE OF A PARTY, OTHER THAN DISCHARGE IN AN INSOL- 52 VENCY PROCEEDING, IS NOT NOTICE OF A DEFENSE UNDER SUBSECTION (A), BUT 53 DISCHARGE IS EFFECTIVE AGAINST A PERSON WHO BECAME A HOLDER IN DUE 54 COURSE WITH NOTICE OF THE DISCHARGE. PUBLIC FILING OR RECORDING OF A S. 5901 26 1 DOCUMENT DOES NOT OF ITSELF CONSTITUTE NOTICE OF A DEFENSE, CLAIM IN 2 RECOUPMENT, OR CLAIM TO THE INSTRUMENT. 3 (C) EXCEPT TO THE EXTENT A TRANSFEROR OR PREDECESSOR IN INTEREST HAS 4 RIGHTS AS A HOLDER IN DUE COURSE, A PERSON DOES NOT ACQUIRE RIGHTS OF A 5 HOLDER IN DUE COURSE OF AN INSTRUMENT TAKEN (1) BY LEGAL PROCESS OR BY 6 PURCHASE IN AN EXECUTION, BANKRUPTCY, OR CREDITOR'S SALE OR SIMILAR 7 PROCEEDING, (2) BY PURCHASE AS PART OF A BULK TRANSACTION NOT IN ORDI- 8 NARY COURSE OF BUSINESS OF THE TRANSFEROR, OR (3) AS THE SUCCESSOR IN 9 INTEREST TO AN ESTATE OR OTHER ORGANIZATION. 10 (D) IF, UNDER SECTION 3--303(A)(1), THE PROMISE OF PERFORMANCE THAT IS 11 THE CONSIDERATION FOR AN INSTRUMENT HAS BEEN PARTIALLY PERFORMED, THE 12 HOLDER MAY ASSERT RIGHTS AS A HOLDER IN DUE COURSE OF THE INSTRUMENT 13 ONLY TO THE FRACTION OF THE AMOUNT PAYABLE UNDER THE INSTRUMENT EQUAL TO 14 THE VALUE OF THE PARTIAL PERFORMANCE DIVIDED BY THE VALUE OF THE PROM- 15 ISED PERFORMANCE. 16 (E) IF (1) THE PERSON ENTITLED TO ENFORCE AN INSTRUMENT HAS ONLY A 17 SECURITY INTEREST IN THE INSTRUMENT AND (2) THE PERSON OBLIGED TO PAY 18 THE INSTRUMENT HAS A DEFENSE, CLAIM IN RECOUPMENT, OR CLAIM TO THE 19 INSTRUMENT THAT MAY BE ASSERTED AGAINST THE PERSON WHO GRANTED THE SECU- 20 RITY INTEREST, THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT MAY ASSERT 21 RIGHTS AS A HOLDER IN DUE COURSE ONLY TO AN AMOUNT PAYABLE UNDER THE 22 INSTRUMENT WHICH, AT THE TIME OF ENFORCEMENT OF THE INSTRUMENT, DOES NOT 23 EXCEED THE AMOUNT OF THE UNPAID OBLIGATION SECURED. 24 (F) TO BE EFFECTIVE, NOTICE MUST BE RECEIVED AT A TIME AND IN A MANNER 25 THAT GIVES A REASONABLE OPPORTUNITY TO ACT ON IT. 26 (G) THIS SECTION IS SUBJECT TO ANY LAW LIMITING STATUS AS A HOLDER IN 27 DUE COURSE IN PARTICULAR CLASSES OF TRANSACTIONS. 28 SECTION 3--303. VALUE AND CONSIDERATION. 29 (A) AN INSTRUMENT IS ISSUED OR TRANSFERRED FOR VALUE IF: 30 (1) THE INSTRUMENT IS ISSUED OR TRANSFERRED FOR A PROMISE OF PERFORM- 31 ANCE, TO THE EXTENT THE PROMISE HAS BEEN PERFORMED; 32 (2) THE TRANSFEREE ACQUIRES A SECURITY INTEREST OR OTHER LIEN IN THE 33 INSTRUMENT OTHER THAN A LIEN OBTAINED BY JUDICIAL PROCEEDING; 34 (3) THE INSTRUMENT IS ISSUED OR TRANSFERRED AS PAYMENT OF, OR AS SECU- 35 RITY FOR, AN ANTECEDENT CLAIM AGAINST ANY PERSON, WHETHER OR NOT THE 36 CLAIM IS DUE; 37 (4) THE INSTRUMENT IS ISSUED OR TRANSFERRED IN EXCHANGE FOR A NEGOTI- 38 ABLE INSTRUMENT; OR 39 (5) THE INSTRUMENT IS ISSUED OR TRANSFERRED IN EXCHANGE FOR THE INCUR- 40 RING OF AN IRREVOCABLE OBLIGATION TO A THIRD PARTY BY THE PERSON TAKING 41 THE INSTRUMENT. 42 (B) "CONSIDERATION" MEANS ANY CONSIDERATION SUFFICIENT TO SUPPORT A 43 SIMPLE CONTRACT. THE DRAWER OR MAKER OF AN INSTRUMENT HAS A DEFENSE IF 44 THE INSTRUMENT IS ISSUED WITHOUT CONSIDERATION. IF AN INSTRUMENT IS 45 ISSUED FOR A PROMISE OF PERFORMANCE, THE ISSUER HAS A DEFENSE TO THE 46 EXTENT PERFORMANCE OF THE PROMISE IS DUE AND THE PROMISE HAS NOT BEEN 47 PERFORMED. IF AN INSTRUMENT IS ISSUED FOR VALUE AS STATED IN SUBSECTION 48 (A), THE INSTRUMENT IS ALSO ISSUED FOR CONSIDERATION. 49 SECTION 3--304. OVERDUE INSTRUMENT. 50 (A) AN INSTRUMENT PAYABLE ON DEMAND BECOMES OVERDUE AT THE EARLIEST OF 51 THE FOLLOWING TIMES: 52 (1) ON THE DAY AFTER THE DAY DEMAND FOR PAYMENT IS DULY MADE; 53 (2) IF THE INSTRUMENT IS A CHECK, NINETY DAYS AFTER ITS DATE; OR 54 (3) IF THE INSTRUMENT IS NOT A CHECK, WHEN THE INSTRUMENT HAS BEEN 55 OUTSTANDING FOR A PERIOD OF TIME AFTER ITS DATE WHICH IS UNREASONABLY S. 5901 27 1 LONG UNDER THE CIRCUMSTANCES OF THE PARTICULAR CASE IN LIGHT OF THE 2 NATURE OF THE INSTRUMENT AND USAGE OF THE TRADE. 3 (B) WITH RESPECT TO AN INSTRUMENT PAYABLE AT A DEFINITE TIME THE 4 FOLLOWING RULES APPLY: 5 (1) IF THE PRINCIPAL IS PAYABLE IN INSTALLMENTS AND A DUE DATE HAS NOT 6 BEEN ACCELERATED, THE INSTRUMENT BECOMES OVERDUE UPON DEFAULT UNDER THE 7 INSTRUMENT FOR NONPAYMENT OF AN INSTALLMENT, AND THE INSTRUMENT REMAINS 8 OVERDUE UNTIL THE DEFAULT IS CURED. 9 (2) IF THE PRINCIPAL IS NOT PAYABLE IN INSTALLMENTS AND THE DUE DATE 10 HAS NOT BEEN ACCELERATED, THE INSTRUMENT BECOMES OVERDUE ON THE DAY 11 AFTER THE DUE DATE. 12 (3) IF A DUE DATE WITH RESPECT TO PRINCIPAL HAS BEEN ACCELERATED, THE 13 INSTRUMENT BECOMES OVERDUE ON THE DAY AFTER THE ACCELERATED DUE DATE. 14 (C) UNLESS THE DUE DATE OF PRINCIPAL HAS BEEN ACCELERATED, AN INSTRU- 15 MENT DOES NOT BECOME OVERDUE IF THERE IS DEFAULT IN PAYMENT OF INTEREST 16 BUT NO DEFAULT IN PAYMENT OF PRINCIPAL. 17 SECTION 3--305. DEFENSES AND CLAIMS IN RECOUPMENT; CLAIMS IN CONSUMER 18 TRANSACTIONS. 19 (A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE RIGHT TO ENFORCE 20 THE OBLIGATION OF A PARTY TO PAY AN INSTRUMENT IS SUBJECT TO THE FOLLOW- 21 ING: 22 (1) A DEFENSE OF THE OBLIGOR BASED ON (I) INFANCY OF THE OBLIGOR TO 23 THE EXTENT IT IS A DEFENSE TO A SIMPLE CONTRACT, (II) DURESS, LACK OF 24 LEGAL CAPACITY, OR ILLEGALITY OF THE TRANSACTION WHICH, UNDER OTHER LAW, 25 NULLIFIES THE OBLIGATION OF THE OBLIGOR, (III) FRAUD THAT INDUCED THE 26 OBLIGOR TO SIGN THE INSTRUMENT WITH NEITHER KNOWLEDGE NOR REASONABLE 27 OPPORTUNITY TO LEARN OF ITS CHARACTER OR ITS ESSENTIAL TERMS, OR (IV) 28 DISCHARGE OF THE OBLIGOR IN INSOLVENCY PROCEEDINGS; 29 (2) A DEFENSE OF THE OBLIGOR STATED IN ANOTHER SECTION OF THIS ARTICLE 30 OR A DEFENSE OF THE OBLIGOR THAT WOULD BE AVAILABLE IF THE PERSON ENTI- 31 TLED TO ENFORCE THE INSTRUMENT WERE ENFORCING A RIGHT TO PAYMENT UNDER A 32 SIMPLE CONTRACT; AND 33 (3) A CLAIM IN RECOUPMENT OF THE OBLIGOR AGAINST THE ORIGINAL PAYEE OF 34 THE INSTRUMENT IF THE CLAIM AROSE FROM THE TRANSACTION THAT GAVE RISE TO 35 THE INSTRUMENT; BUT THE CLAIM OF THE OBLIGOR MAY BE ASSERTED AGAINST A 36 TRANSFEREE OF THE INSTRUMENT ONLY TO REDUCE THE AMOUNT OWING ON THE 37 INSTRUMENT AT THE TIME THE ACTION IS BROUGHT. 38 (B) THE RIGHT OF A HOLDER IN DUE COURSE TO ENFORCE THE OBLIGATION OF A 39 PARTY TO PAY THE INSTRUMENT IS SUBJECT TO DEFENSES OF THE OBLIGOR STATED 40 IN SUBSECTION (A)(1), BUT IS NOT SUBJECT TO DEFENSES OF THE OBLIGOR 41 STATED IN SUBSECTION (A)(2) OR CLAIMS IN RECOUPMENT STATED IN SUBSECTION 42 (A)(3) AGAINST A PERSON OTHER THAN THE HOLDER. 43 (C) EXCEPT AS STATED IN SUBSECTION (D), IN AN ACTION TO ENFORCE THE 44 OBLIGATION OF A PARTY TO PAY THE INSTRUMENT, THE OBLIGOR MAY NOT ASSERT 45 AGAINST THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT A DEFENSE, CLAIM 46 IN RECOUPMENT, OR CLAIM TO THE INSTRUMENT (SECTION 3--306) OF ANOTHER 47 PERSON, BUT THE OTHER PERSON'S CLAIM TO THE INSTRUMENT MAY BE ASSERTED 48 BY THE OBLIGOR IF THE OTHER PERSON IS JOINED IN THE ACTION AND 49 PERSONALLY ASSERTS THE CLAIM AGAINST THE PERSON ENTITLED TO ENFORCE THE 50 INSTRUMENT. AN OBLIGOR IS NOT OBLIGED TO PAY THE INSTRUMENT IF THE 51 PERSON SEEKING ENFORCEMENT OF THE INSTRUMENT DOES NOT HAVE RIGHTS OF A 52 HOLDER IN DUE COURSE AND THE OBLIGOR PROVES THAT THE INSTRUMENT IS A 53 LOST OR STOLEN INSTRUMENT. 54 (D) IN AN ACTION TO ENFORCE THE OBLIGATION OF AN ACCOMMODATION PARTY 55 TO PAY AN INSTRUMENT, THE ACCOMMODATION PARTY MAY ASSERT AGAINST THE 56 PERSON ENTITLED TO ENFORCE THE INSTRUMENT ANY DEFENSE OR CLAIM IN S. 5901 28 1 RECOUPMENT UNDER SUBSECTION (A) THAT THE ACCOMMODATED PARTY COULD ASSERT 2 AGAINST THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, EXCEPT THE 3 DEFENSES OF DISCHARGE IN INSOLVENCY PROCEEDINGS, INFANCY, AND LACK OF 4 LEGAL CAPACITY. 5 (E) IN A CONSUMER TRANSACTION, IF LAW OTHER THAN THIS ARTICLE REQUIRES 6 THAT AN INSTRUMENT INCLUDE A STATEMENT TO THE EFFECT THAT THE RIGHTS OF 7 A HOLDER OR TRANSFEREE ARE SUBJECT TO A CLAIM OR DEFENSE THAT THE ISSUER 8 COULD ASSERT AGAINST THE ORIGINAL PAYEE, AND THE INSTRUMENT DOES NOT 9 INCLUDE SUCH A STATEMENT: 10 (1) THE INSTRUMENT HAS THE SAME EFFECT AS IF THE INSTRUMENT INCLUDED 11 SUCH A STATEMENT; 12 (2) THE ISSUER MAY ASSERT AGAINST THE HOLDER OR TRANSFEREE ALL CLAIMS 13 AND DEFENSES THAT WOULD HAVE BEEN AVAILABLE IF THE INSTRUMENT INCLUDED 14 SUCH A STATEMENT; AND 15 (3) THE EXTENT TO WHICH CLAIMS MAY BE ASSERTED AGAINST THE HOLDER OR 16 TRANSFEREE IS DETERMINED AS IF THE INSTRUMENT INCLUDED SUCH A STATEMENT. 17 (F) THIS SECTION IS SUBJECT TO LAW OTHER THAN THIS ARTICLE THAT ESTAB- 18 LISHES A DIFFERENT RULE FOR CONSUMER TRANSACTIONS. 19 SECTION 3--306. CLAIMS TO AN INSTRUMENT. 20 A PERSON TAKING AN INSTRUMENT, OTHER THAN A PERSON HAVING RIGHTS OF A 21 HOLDER IN DUE COURSE, IS SUBJECT TO A CLAIM OF A PROPERTY OR POSSESSORY 22 RIGHT IN THE INSTRUMENT OR ITS PROCEEDS, INCLUDING A CLAIM TO RESCIND A 23 NEGOTIATION AND TO RECOVER THE INSTRUMENT OR ITS PROCEEDS. A PERSON 24 HAVING RIGHTS OF A HOLDER IN DUE COURSE TAKES FREE OF THE CLAIM TO THE 25 INSTRUMENT. 26 SECTION 3--307. NOTICE OF BREACH OF FIDUCIARY DUTY. 27 (A) IN THIS SECTION: 28 (1) "FIDUCIARY" MEANS AN AGENT, TRUSTEE, PARTNER, CORPORATE OFFICER OR 29 DIRECTOR, OR OTHER REPRESENTATIVE OWING A FIDUCIARY DUTY WITH RESPECT TO 30 AN INSTRUMENT. 31 (2) "REPRESENTED PERSON" MEANS THE PRINCIPAL, BENEFICIARY, PARTNER- 32 SHIP, CORPORATION, OR OTHER PERSON TO WHOM THE DUTY STATED IN PARAGRAPH 33 (1) IS OWED. 34 (B) IF (1) AN INSTRUMENT IS TAKEN FROM A FIDUCIARY FOR PAYMENT OR 35 COLLECTION OR FOR VALUE, (2) THE TAKER HAS KNOWLEDGE OF THE FIDUCIARY 36 STATUS OF THE FIDUCIARY, AND (3) THE REPRESENTED PERSON MAKES A CLAIM TO 37 THE INSTRUMENT OR ITS PROCEEDS ON THE BASIS THAT THE TRANSACTION OF THE 38 FIDUCIARY IS A BREACH OF FIDUCIARY DUTY, THE FOLLOWING RULES APPLY: 39 (I) NOTICE OF BREACH OF FIDUCIARY DUTY BY THE FIDUCIARY IS NOTICE OF 40 THE CLAIM OF THE REPRESENTED PERSON. 41 (II) IN THE CASE OF AN INSTRUMENT PAYABLE TO THE REPRESENTED PERSON OR 42 THE FIDUCIARY AS SUCH, THE TAKER HAS NOTICE OF THE BREACH OF FIDUCIARY 43 DUTY IF THE INSTRUMENT IS (A) TAKEN IN PAYMENT OF OR AS SECURITY FOR A 44 DEBT KNOWN BY THE TAKER TO BE THE PERSONAL DEBT OF THE FIDUCIARY, (B) 45 TAKEN IN A TRANSACTION KNOWN BY THE TAKER TO BE FOR THE PERSONAL BENEFIT 46 OF THE FIDUCIARY, OR (C) DEPOSITED TO AN ACCOUNT OTHER THAN AN ACCOUNT 47 OF THE FIDUCIARY, AS SUCH, OR AN ACCOUNT OF THE REPRESENTED PERSON. 48 (III) IF AN INSTRUMENT IS ISSUED BY THE REPRESENTED PERSON OR THE 49 FIDUCIARY AS SUCH, AND MADE PAYABLE TO THE FIDUCIARY PERSONALLY, THE 50 TAKER DOES NOT HAVE NOTICE OF THE BREACH OF FIDUCIARY DUTY UNLESS THE 51 TAKER KNOWS OF THE BREACH OF FIDUCIARY DUTY. 52 (IV) IF AN INSTRUMENT IS ISSUED BY THE REPRESENTED PERSON OR THE FIDU- 53 CIARY AS SUCH, TO THE TAKER AS PAYEE, THE TAKER HAS NOTICE OF THE BREACH 54 OF FIDUCIARY DUTY IF THE INSTRUMENT IS (A) TAKEN IN PAYMENT OF OR AS 55 SECURITY FOR A DEBT KNOWN BY THE TAKER TO BE THE PERSONAL DEBT OF THE 56 FIDUCIARY, (B) TAKEN IN A TRANSACTION KNOWN BY THE TAKER TO BE FOR THE S. 5901 29 1 PERSONAL BENEFIT OF THE FIDUCIARY, OR (C) DEPOSITED TO AN ACCOUNT OTHER 2 THAN AN ACCOUNT OF THE FIDUCIARY, AS SUCH, OR AN ACCOUNT OF THE REPRES- 3 ENTED PERSON. 4 SECTION 3--308. PROOF OF SIGNATURES AND STATUS AS HOLDER IN DUE COURSE. 5 (A) IN AN ACTION WITH RESPECT TO AN INSTRUMENT, THE AUTHENTICITY OF, 6 AND AUTHORITY TO MAKE, EACH SIGNATURE ON THE INSTRUMENT IS ADMITTED 7 UNLESS SPECIFICALLY DENIED IN THE PLEADINGS. IF THE VALIDITY OF A SIGNA- 8 TURE IS DENIED IN THE PLEADINGS, THE BURDEN OF ESTABLISHING VALIDITY IS 9 ON THE PERSON CLAIMING VALIDITY, BUT THE SIGNATURE IS PRESUMED TO BE 10 AUTHENTIC AND AUTHORIZED UNLESS THE ACTION IS TO ENFORCE THE LIABILITY 11 OF THE PURPORTED SIGNER AND THE SIGNER IS DEAD OR INCOMPETENT AT THE 12 TIME OF TRIAL OF THE ISSUE OF VALIDITY OF THE SIGNATURE. IF AN ACTION TO 13 ENFORCE THE INSTRUMENT IS BROUGHT AGAINST A PERSON AS THE UNDISCLOSED 14 PRINCIPAL OF A PERSON WHO SIGNED THE INSTRUMENT AS A PARTY TO THE 15 INSTRUMENT, THE PLAINTIFF HAS THE BURDEN OF ESTABLISHING THAT THE 16 DEFENDANT IS LIABLE ON THE INSTRUMENT AS A REPRESENTED PERSON UNDER 17 SECTION 3--402(A). 18 (B) IF THE VALIDITY OF SIGNATURES IS ADMITTED OR PROVED AND THERE IS 19 COMPLIANCE WITH SUBSECTION (A), A PLAINTIFF PRODUCING THE INSTRUMENT IS 20 ENTITLED TO PAYMENT IF THE PLAINTIFF PROVES ENTITLEMENT TO ENFORCE THE 21 INSTRUMENT UNDER SECTION 3--301, UNLESS THE DEFENDANT PROVES A DEFENSE 22 OR CLAIM IN RECOUPMENT. IF A DEFENSE OR CLAIM IN RECOUPMENT IS PROVED, 23 THE RIGHT TO PAYMENT OF THE PLAINTIFF IS SUBJECT TO THE DEFENSE OR 24 CLAIM, EXCEPT TO THE EXTENT THE PLAINTIFF PROVES THAT THE PLAINTIFF HAS 25 RIGHTS OF A HOLDER IN DUE COURSE WHICH ARE NOT SUBJECT TO THE DEFENSE OR 26 CLAIM. 27 SECTION 3--309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT. 28 (A) A PERSON NOT IN POSSESSION OF AN INSTRUMENT IS ENTITLED TO ENFORCE 29 THE INSTRUMENT IF: 30 (1) THE PERSON SEEKING TO ENFORCE THE INSTRUMENT: 31 (A) WAS ENTITLED TO ENFORCE THE INSTRUMENT WHEN LOSS OF POSSESSION 32 OCCURRED; OR 33 (B) HAS DIRECTLY OR INDIRECTLY ACQUIRED OWNERSHIP OF THE INSTRUMENT 34 FROM A PERSON WHO WAS ENTITLED TO ENFORCE THE INSTRUMENT WHEN LOSS OF 35 POSSESSION OCCURRED; 36 (2) THE LOSS OF POSSESSION WAS NOT THE RESULT OF A TRANSFER BY THE 37 PERSON OR A LAWFUL SEIZURE; AND 38 (3) THE PERSON CANNOT REASONABLY OBTAIN POSSESSION OF THE INSTRUMENT 39 BECAUSE THE INSTRUMENT WAS DESTROYED, ITS WHEREABOUTS CANNOT BE DETER- 40 MINED, OR IT IS IN THE WRONGFUL POSSESSION OF AN UNKNOWN PERSON OR A 41 PERSON THAT CANNOT BE FOUND OR IS NOT AMENABLE TO SERVICE OF PROCESS. 42 (B) A PERSON SEEKING ENFORCEMENT OF AN INSTRUMENT UNDER SUBSECTION (A) 43 MUST PROVE THE TERMS OF THE INSTRUMENT AND THE PERSON'S RIGHT TO ENFORCE 44 THE INSTRUMENT. IF THAT PROOF IS MADE, SECTION 3--308 APPLIES TO THE 45 CASE AS IF THE PERSON SEEKING ENFORCEMENT HAD PRODUCED THE INSTRUMENT. 46 THE COURT MAY NOT ENTER JUDGMENT IN FAVOR OF THE PERSON SEEKING ENFORCE- 47 MENT UNLESS IT FINDS THAT THE PERSON REQUIRED TO PAY THE INSTRUMENT IS 48 ADEQUATELY PROTECTED AGAINST LOSS THAT MIGHT OCCUR BY REASON OF A CLAIM 49 BY ANOTHER PERSON TO ENFORCE THE INSTRUMENT. ADEQUATE PROTECTION MAY BE 50 PROVIDED BY ANY REASONABLE MEANS. 51 SECTION 3--310. EFFECT OF INSTRUMENT ON OBLIGATION FOR WHICH TAKEN. 52 (A) UNLESS OTHERWISE AGREED, IF A CERTIFIED CHECK, CASHIER'S CHECK, OR 53 TELLER'S CHECK IS TAKEN FOR AN OBLIGATION, THE OBLIGATION IS DISCHARGED 54 TO THE SAME EXTENT DISCHARGE WOULD RESULT IF AN AMOUNT OF MONEY EQUAL TO 55 THE AMOUNT OF THE INSTRUMENT WERE TAKEN IN PAYMENT OF THE OBLIGATION. S. 5901 30 1 DISCHARGE OF THE OBLIGATION DOES NOT AFFECT ANY LIABILITY THAT THE OBLI- 2 GOR MAY HAVE AS AN INDORSER OF THE INSTRUMENT. 3 (B) UNLESS OTHERWISE AGREED AND EXCEPT AS PROVIDED IN SUBSECTION (A), 4 IF A NOTE OR AN UNCERTIFIED CHECK IS TAKEN FOR AN OBLIGATION, THE OBLI- 5 GATION IS SUSPENDED TO THE SAME EXTENT THE OBLIGATION WOULD BE 6 DISCHARGED IF AN AMOUNT OF MONEY EQUAL TO THE AMOUNT OF THE INSTRUMENT 7 WERE TAKEN, AND THE FOLLOWING RULES APPLY: 8 (1) IN THE CASE OF AN UNCERTIFIED CHECK, SUSPENSION OF THE OBLIGATION 9 CONTINUES UNTIL DISHONOR OF THE CHECK OR UNTIL IT IS PAID OR CERTIFIED. 10 PAYMENT OR CERTIFICATION OF THE CHECK RESULTS IN DISCHARGE OF THE OBLI- 11 GATION TO THE EXTENT OF THE AMOUNT OF THE CHECK. 12 (2) IN THE CASE OF A NOTE, SUSPENSION OF THE OBLIGATION CONTINUES 13 UNTIL DISHONOR OF THE NOTE OR UNTIL IT IS PAID. PAYMENT OF THE NOTE 14 RESULTS IN DISCHARGE OF THE OBLIGATION TO THE EXTENT OF THE PAYMENT. 15 (3) EXCEPT AS PROVIDED IN PARAGRAPH (4), IF THE CHECK OR NOTE IS 16 DISHONORED AND THE OBLIGEE OF THE OBLIGATION FOR WHICH THE INSTRUMENT 17 WAS TAKEN IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE OBLIGEE 18 MAY ENFORCE EITHER THE INSTRUMENT OR THE OBLIGATION. IN THE CASE OF AN 19 INSTRUMENT OF A THIRD PERSON WHICH IS NEGOTIATED TO THE OBLIGEE BY THE 20 OBLIGOR, DISCHARGE OF THE OBLIGOR ON THE INSTRUMENT ALSO DISCHARGES THE 21 OBLIGATION. 22 (4) IF THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT TAKEN FOR AN 23 OBLIGATION IS A PERSON OTHER THAN THE OBLIGEE, THE OBLIGEE MAY NOT 24 ENFORCE THE OBLIGATION TO THE EXTENT THE OBLIGATION IS SUSPENDED. IF THE 25 OBLIGEE IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT BUT NO LONGER 26 HAS POSSESSION OF IT BECAUSE IT WAS LOST, STOLEN, OR DESTROYED, THE 27 OBLIGATION MAY NOT BE ENFORCED TO THE EXTENT OF THE AMOUNT PAYABLE ON 28 THE INSTRUMENT, AND TO THAT EXTENT THE OBLIGEE'S RIGHTS AGAINST THE 29 OBLIGOR ARE LIMITED TO ENFORCEMENT OF THE INSTRUMENT. 30 (C) IF AN INSTRUMENT OTHER THAN ONE DESCRIBED IN SUBSECTION (A) OR (B) 31 IS TAKEN FOR AN OBLIGATION, THE EFFECT IS (1) THAT STATED IN SUBSECTION 32 (A) IF THE INSTRUMENT IS ONE ON WHICH A BANK IS LIABLE AS MAKER OR 33 ACCEPTOR, OR (2) THAT STATED IN SUBSECTION (B) IN ANY OTHER CASE. 34 SECTION 3--311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT. 35 (A) IF A PERSON AGAINST WHOM A CLAIM IS ASSERTED PROVES THAT (1) THAT 36 PERSON IN GOOD FAITH TENDERED AN INSTRUMENT TO THE CLAIMANT AS FULL 37 SATISFACTION OF THE CLAIM, (2) THE AMOUNT OF THE CLAIM WAS UNLIQUIDATED 38 OR SUBJECT TO A BONA FIDE DISPUTE, AND (3) THE CLAIMANT OBTAINED PAYMENT 39 OF THE INSTRUMENT, THE FOLLOWING SUBSECTIONS APPLY. 40 (B) UNLESS SUBSECTION (C) APPLIES, THE CLAIM IS DISCHARGED IF THE 41 PERSON AGAINST WHOM THE CLAIM IS ASSERTED PROVES THAT THE INSTRUMENT OR 42 AN ACCOMPANYING WRITTEN COMMUNICATION CONTAINED A CONSPICUOUS STATEMENT 43 TO THE EFFECT THAT THE INSTRUMENT WAS TENDERED AS FULL SATISFACTION OF 44 THE CLAIM. 45 (C) SUBJECT TO SUBSECTION (D), A CLAIM IS NOT DISCHARGED UNDER 46 SUBSECTION (B) IF EITHER OF THE FOLLOWING APPLIES: 47 (1) THE CLAIMANT, IF AN ORGANIZATION, PROVES THAT (I) WITHIN A REASON- 48 ABLE TIME BEFORE THE TENDER, THE CLAIMANT SENT A CONSPICUOUS STATEMENT 49 TO THE PERSON AGAINST WHOM THE CLAIM IS ASSERTED THAT COMMUNICATIONS 50 CONCERNING DISPUTED DEBTS, INCLUDING AN INSTRUMENT TENDERED AS FULL 51 SATISFACTION OF A DEBT, ARE TO BE SENT TO A DESIGNATED PERSON, OFFICE, 52 OR PLACE, AND (II) THE INSTRUMENT OR ACCOMPANYING COMMUNICATION WAS NOT 53 RECEIVED BY THAT DESIGNATED PERSON, OFFICE, OR PLACE. 54 (2) THE CLAIMANT, WHETHER OR NOT AN ORGANIZATION, PROVES THAT WITHIN 55 NINETY DAYS AFTER PAYMENT OF THE INSTRUMENT, THE CLAIMANT TENDERED 56 REPAYMENT OF THE AMOUNT OF THE INSTRUMENT TO THE PERSON AGAINST WHOM THE S. 5901 31 1 CLAIM IS ASSERTED. THIS PARAGRAPH DOES NOT APPLY IF THE CLAIMANT IS AN 2 ORGANIZATION THAT SENT A STATEMENT COMPLYING WITH PARAGRAPH (1)(I). 3 (D) A CLAIM IS DISCHARGED IF THE PERSON AGAINST WHOM THE CLAIM IS 4 ASSERTED PROVES THAT WITHIN A REASONABLE TIME BEFORE COLLECTION OF THE 5 INSTRUMENT WAS INITIATED, THE CLAIMANT, OR AN AGENT OF THE CLAIMANT 6 HAVING DIRECT RESPONSIBILITY WITH RESPECT TO THE DISPUTED OBLIGATION, 7 KNEW THAT THE INSTRUMENT WAS TENDERED IN FULL SATISFACTION OF THE CLAIM. 8 SECTION 3--312. LOST, DESTROYED, OR STOLEN CASHIER'S CHECK, TELLER'S 9 CHECK, OR CERTIFIED CHECK. 10 (A) IN THIS SECTION: 11 (1) "CHECK" MEANS A CASHIER'S CHECK, TELLER'S CHECK, OR CERTIFIED 12 CHECK. 13 (2) "CLAIMANT" MEANS A PERSON WHO CLAIMS THE RIGHT TO RECEIVE THE 14 AMOUNT OF A CASHIER'S CHECK, TELLER'S CHECK, OR CERTIFIED CHECK THAT WAS 15 LOST, DESTROYED, OR STOLEN. 16 (3) "DECLARATION OF LOSS" MEANS A STATEMENT, MADE IN A RECORD UNDER 17 PENALTY OF PERJURY, TO THE EFFECT THAT (I) THE DECLARER LOST POSSESSION 18 OF A CHECK, (II) THE DECLARER IS THE DRAWER OR PAYEE OF THE CHECK, IN 19 THE CASE OF A CERTIFIED CHECK, OR THE REMITTER OR PAYEE OF THE CHECK, IN 20 THE CASE OF A CASHIER'S CHECK OR TELLER'S CHECK, (III) THE LOSS OF 21 POSSESSION WAS NOT THE RESULT OF A TRANSFER BY THE DECLARER OR A LAWFUL 22 SEIZURE, AND (IV) THE DECLARER CANNOT REASONABLY OBTAIN POSSESSION OF 23 THE CHECK BECAUSE THE CHECK WAS DESTROYED, ITS WHEREABOUTS CANNOT BE 24 DETERMINED, OR IT IS IN THE WRONGFUL POSSESSION OF AN UNKNOWN PERSON OR 25 A PERSON THAT CANNOT BE FOUND OR IS NOT AMENABLE TO SERVICE OF PROCESS. 26 (4) "OBLIGATED BANK" MEANS THE ISSUER OF A CASHIER'S CHECK OR TELLER'S 27 CHECK OR THE ACCEPTOR OF A CERTIFIED CHECK. 28 (B) A CLAIMANT MAY ASSERT A CLAIM TO THE AMOUNT OF A CHECK BY A COMMU- 29 NICATION TO THE OBLIGATED BANK DESCRIBING THE CHECK WITH REASONABLE 30 CERTAINTY AND REQUESTING PAYMENT OF THE AMOUNT OF THE CHECK, IF (1) THE 31 CLAIMANT IS THE DRAWER OR PAYEE OF A CERTIFIED CHECK OR THE REMITTER OR 32 PAYEE OF A CASHIER'S CHECK OR TELLER'S CHECK, (2) THE COMMUNICATION 33 CONTAINS OR IS ACCOMPANIED BY A DECLARATION OF LOSS OF THE CLAIMANT WITH 34 RESPECT TO THE CHECK, (3) THE COMMUNICATION IS RECEIVED AT A TIME AND IN 35 A MANNER AFFORDING THE BANK A REASONABLE TIME TO ACT ON IT BEFORE THE 36 CHECK IS PAID, AND (4) THE CLAIMANT PROVIDES REASONABLE IDENTIFICATION 37 IF REQUESTED BY THE OBLIGATED BANK. DELIVERY OF A DECLARATION OF LOSS IS 38 A WARRANTY OF THE TRUTH OF THE STATEMENTS MADE IN THE DECLARATION. IF A 39 CLAIM IS ASSERTED IN COMPLIANCE WITH THIS SUBSECTION, THE FOLLOWING 40 RULES APPLY: 41 (1) THE CLAIM BECOMES ENFORCEABLE AT THE LATER OF (I) THE TIME THE 42 CLAIM IS ASSERTED, OR (II) THE NINETIETH DAY FOLLOWING THE DATE OF THE 43 CHECK, IN THE CASE OF A CASHIER'S CHECK OR TELLER'S CHECK, OR THE NINE- 44 TIETH DAY FOLLOWING THE DATE OF THE ACCEPTANCE, IN THE CASE OF A CERTI- 45 FIED CHECK. 46 (2) UNTIL THE CLAIM BECOMES ENFORCEABLE, IT HAS NO LEGAL EFFECT AND 47 THE OBLIGATED BANK MAY PAY THE CHECK OR, IN THE CASE OF A TELLER'S 48 CHECK, MAY PERMIT THE DRAWEE TO PAY THE CHECK. PAYMENT TO A PERSON ENTI- 49 TLED TO ENFORCE THE CHECK DISCHARGES ALL LIABILITY OF THE OBLIGATED BANK 50 WITH RESPECT TO THE CHECK. 51 (3) IF THE CLAIM BECOMES ENFORCEABLE BEFORE THE CHECK IS PRESENTED FOR 52 PAYMENT, THE OBLIGATED BANK IS NOT OBLIGED TO PAY THE CHECK. 53 (4) WHEN THE CLAIM BECOMES ENFORCEABLE, THE OBLIGATED BANK BECOMES 54 OBLIGED TO PAY THE AMOUNT OF THE CHECK TO THE CLAIMANT IF PAYMENT OF THE 55 CHECK HAS NOT BEEN MADE TO A PERSON ENTITLED TO ENFORCE THE CHECK. S. 5901 32 1 SUBJECT TO SECTION 4-302(A)(1), PAYMENT TO THE CLAIMANT DISCHARGES ALL 2 LIABILITY OF THE OBLIGATED BANK WITH RESPECT TO THE CHECK. 3 (C) IF THE OBLIGATED BANK PAYS THE AMOUNT OF A CHECK TO A CLAIMANT 4 UNDER SUBSECTION (B)(4) AND THE CHECK IS PRESENTED FOR PAYMENT BY A 5 PERSON HAVING RIGHTS OF A HOLDER IN DUE COURSE, THE CLAIMANT IS OBLIGED 6 TO (1) REFUND THE PAYMENT TO THE OBLIGATED BANK IF THE CHECK IS PAID, OR 7 (2) PAY THE AMOUNT OF THE CHECK TO THE PERSON HAVING RIGHTS OF A HOLDER 8 IN DUE COURSE IF THE CHECK IS DISHONORED. 9 (D) IF A CLAIMANT HAS THE RIGHT TO ASSERT A CLAIM UNDER SUBSECTION (B) 10 AND IS ALSO A PERSON ENTITLED TO ENFORCE A CASHIER'S CHECK, TELLER'S 11 CHECK, OR CERTIFIED CHECK WHICH IS LOST, DESTROYED, OR STOLEN, THE 12 CLAIMANT MAY ASSERT RIGHTS WITH RESPECT TO THE CHECK EITHER UNDER THIS 13 SECTION OR SECTION 3--309. 14 PART 4 15 LIABILITY OF PARTIES 16 SECTION 3--401. SIGNATURE. 17 (A) A PERSON IS NOT LIABLE ON AN INSTRUMENT UNLESS (1) THE PERSON 18 SIGNED THE INSTRUMENT, OR (2) THE PERSON IS REPRESENTED BY AN AGENT OR 19 REPRESENTATIVE WHO SIGNED THE INSTRUMENT AND THE SIGNATURE IS BINDING ON 20 THE REPRESENTED PERSON UNDER SECTION 3--402. 21 (B) A SIGNATURE MAY BE MADE (1) MANUALLY OR BY MEANS OF A DEVICE OR 22 MACHINE, AND (2) BY THE USE OF ANY NAME, INCLUDING A TRADE OR ASSUMED 23 NAME, OR BY A WORD, MARK, OR SYMBOL EXECUTED OR ADOPTED BY A PERSON WITH 24 PRESENT INTENTION TO AUTHENTICATE A WRITING. 25 SECTION 3--402. SIGNATURE BY REPRESENTATIVE. 26 (A) IF A PERSON ACTING, OR PURPORTING TO ACT, AS A REPRESENTATIVE 27 SIGNS AN INSTRUMENT BY SIGNING EITHER THE NAME OF THE REPRESENTED PERSON 28 OR THE NAME OF THE SIGNER, THE REPRESENTED PERSON IS BOUND BY THE SIGNA- 29 TURE TO THE SAME EXTENT THE REPRESENTED PERSON WOULD BE BOUND IF THE 30 SIGNATURE WERE ON A SIMPLE CONTRACT. IF THE REPRESENTED PERSON IS BOUND, 31 THE SIGNATURE OF THE REPRESENTATIVE IS THE "AUTHORIZED SIGNATURE OF THE 32 REPRESENTED PERSON" AND THE REPRESENTED PERSON IS LIABLE ON THE INSTRU- 33 MENT, WHETHER OR NOT IDENTIFIED IN THE INSTRUMENT. 34 (B) IF A REPRESENTATIVE SIGNS THE NAME OF THE REPRESENTATIVE TO AN 35 INSTRUMENT AND THE SIGNATURE IS AN AUTHORIZED SIGNATURE OF THE REPRES- 36 ENTED PERSON, THE FOLLOWING RULES APPLY: 37 (1) IF THE FORM OF THE SIGNATURE SHOWS UNAMBIGUOUSLY THAT THE SIGNA- 38 TURE IS MADE ON BEHALF OF THE REPRESENTED PERSON WHO IS IDENTIFIED IN 39 THE INSTRUMENT, THE REPRESENTATIVE IS NOT LIABLE ON THE INSTRUMENT. 40 (2) SUBJECT TO SUBSECTION (C), IF (I) THE FORM OF THE SIGNATURE DOES 41 NOT SHOW UNAMBIGUOUSLY THAT THE SIGNATURE IS MADE IN A REPRESENTATIVE 42 CAPACITY OR (II) THE REPRESENTED PERSON IS NOT IDENTIFIED IN THE INSTRU- 43 MENT, THE REPRESENTATIVE IS LIABLE ON THE INSTRUMENT TO A HOLDER IN DUE 44 COURSE THAT TOOK THE INSTRUMENT WITHOUT NOTICE THAT THE REPRESENTATIVE 45 WAS NOT INTENDED TO BE LIABLE ON THE INSTRUMENT. WITH RESPECT TO ANY 46 OTHER PERSON, THE REPRESENTATIVE IS LIABLE ON THE INSTRUMENT UNLESS THE 47 REPRESENTATIVE PROVES THAT THE ORIGINAL PARTIES DID NOT INTEND THE 48 REPRESENTATIVE TO BE LIABLE ON THE INSTRUMENT. 49 (C) IF A REPRESENTATIVE SIGNS THE NAME OF THE REPRESENTATIVE AS DRAWER 50 OF A CHECK WITHOUT INDICATION OF THE REPRESENTATIVE STATUS AND THE CHECK 51 IS PAYABLE FROM AN ACCOUNT OF THE REPRESENTED PERSON WHO IS IDENTIFIED 52 ON THE CHECK, THE SIGNER IS NOT LIABLE ON THE CHECK IF THE SIGNATURE IS 53 AN AUTHORIZED SIGNATURE OF THE REPRESENTED PERSON. 54 SECTION 3--403. UNAUTHORIZED SIGNATURE. 55 (A) UNLESS OTHERWISE PROVIDED IN THIS ARTICLE OR ARTICLE 4, AN UNAU- 56 THORIZED SIGNATURE IS INEFFECTIVE EXCEPT AS THE SIGNATURE OF THE UNAU- S. 5901 33 1 THORIZED SIGNER IN FAVOR OF A PERSON WHO IN GOOD FAITH PAYS THE INSTRU- 2 MENT OR TAKES IT FOR VALUE. AN UNAUTHORIZED SIGNATURE MAY BE RATIFIED 3 FOR ALL PURPOSES OF THIS ARTICLE. 4 (B) IF THE SIGNATURE OF MORE THAN ONE PERSON IS REQUIRED TO CONSTITUTE 5 THE AUTHORIZED SIGNATURE OF AN ORGANIZATION, THE SIGNATURE OF THE ORGAN- 6 IZATION IS UNAUTHORIZED IF ONE OF THE REQUIRED SIGNATURES IS LACKING. 7 (C) THE CIVIL OR CRIMINAL LIABILITY OF A PERSON WHO MAKES AN UNAUTHOR- 8 IZED SIGNATURE IS NOT AFFECTED BY ANY PROVISION OF THIS ARTICLE WHICH 9 MAKES THE UNAUTHORIZED SIGNATURE EFFECTIVE FOR THE PURPOSES OF THIS 10 ARTICLE. 11 SECTION 3--404. IMPOSTORS; FICTITIOUS PAYEES. 12 (A) IF AN IMPOSTOR, BY USE OF THE MAILS OR OTHERWISE, INDUCES THE 13 ISSUER OF AN INSTRUMENT TO ISSUE THE INSTRUMENT TO THE IMPOSTOR, OR TO A 14 PERSON ACTING IN CONCERT WITH THE IMPOSTOR, BY IMPERSONATING THE PAYEE 15 OF THE INSTRUMENT OR A PERSON AUTHORIZED TO ACT FOR THE PAYEE, AN 16 INDORSEMENT OF THE INSTRUMENT BY ANY PERSON IN THE NAME OF THE PAYEE IS 17 EFFECTIVE AS THE INDORSEMENT OF THE PAYEE IN FAVOR OF A PERSON WHO, IN 18 GOOD FAITH, PAYS THE INSTRUMENT OR TAKES IT FOR VALUE OR FOR COLLECTION. 19 (B) IF (1) A PERSON WHOSE INTENT DETERMINES TO WHOM AN INSTRUMENT IS 20 PAYABLE (SECTION 3--110) DOES NOT INTEND THE PERSON IDENTIFIED AS PAYEE 21 TO HAVE ANY INTEREST IN THE INSTRUMENT, OR (2) THE PERSON IDENTIFIED AS 22 PAYEE OF AN INSTRUMENT IS A FICTITIOUS PERSON, THE FOLLOWING RULES APPLY 23 UNTIL THE INSTRUMENT IS NEGOTIATED BY SPECIAL INDORSEMENT: 24 (I) ANY PERSON IN POSSESSION OF THE INSTRUMENT IS ITS HOLDER. 25 (II) AN INDORSEMENT BY ANY PERSON IN THE NAME OF THE PAYEE STATED IN 26 THE INSTRUMENT IS EFFECTIVE AS THE INDORSEMENT OF THE PAYEE IN FAVOR OF 27 A PERSON WHO, IN GOOD FAITH, PAYS THE INSTRUMENT OR TAKES IT FOR VALUE 28 OR FOR COLLECTION. 29 (C) UNDER SUBSECTION (A) OR (B), AN INDORSEMENT IS MADE IN THE NAME OF 30 A PAYEE IF (1) IT IS MADE IN A NAME SUBSTANTIALLY SIMILAR TO THAT OF THE 31 PAYEE OR (2) THE INSTRUMENT, WHETHER OR NOT INDORSED, IS DEPOSITED IN A 32 DEPOSITARY BANK TO AN ACCOUNT IN A NAME SUBSTANTIALLY SIMILAR TO THAT OF 33 THE PAYEE. 34 (D) WITH RESPECT TO AN INSTRUMENT TO WHICH SUBSECTION (A) OR (B) 35 APPLIES, IF A PERSON PAYING THE INSTRUMENT OR TAKING IT FOR VALUE OR FOR 36 COLLECTION FAILS TO EXERCISE ORDINARY CARE IN PAYING OR TAKING THE 37 INSTRUMENT AND THAT FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS RESULTING 38 FROM PAYMENT OF THE INSTRUMENT, THE PERSON BEARING THE LOSS MAY RECOVER 39 FROM THE PERSON FAILING TO EXERCISE ORDINARY CARE TO THE EXTENT THE 40 FAILURE TO EXERCISE ORDINARY CARE CONTRIBUTED TO THE LOSS. 41 SECTION 3--405. EMPLOYER'S RESPONSIBILITY FOR FRAUDULENT INDORSEMENT BY 42 EMPLOYEE. 43 (A) IN THIS SECTION: 44 (1) "EMPLOYEE" INCLUDES AN INDEPENDENT CONTRACTOR AND EMPLOYEE OF AN 45 INDEPENDENT CONTRACTOR RETAINED BY THE EMPLOYER. 46 (2) "FRAUDULENT INDORSEMENT" MEANS (I) IN THE CASE OF AN INSTRUMENT 47 PAYABLE TO THE EMPLOYER, A FORGED INDORSEMENT PURPORTING TO BE THAT OF 48 THE EMPLOYER, OR (II) IN THE CASE OF AN INSTRUMENT WITH RESPECT TO WHICH 49 THE EMPLOYER IS THE ISSUER, A FORGED INDORSEMENT PURPORTING TO BE THAT 50 OF THE PERSON IDENTIFIED AS PAYEE. 51 (3) "RESPONSIBILITY" WITH RESPECT TO INSTRUMENTS MEANS AUTHORITY (I) 52 TO SIGN OR INDORSE INSTRUMENTS ON BEHALF OF THE EMPLOYER, (II) TO PROC- 53 ESS INSTRUMENTS RECEIVED BY THE EMPLOYER FOR BOOKKEEPING PURPOSES, FOR 54 DEPOSIT TO AN ACCOUNT, OR FOR OTHER DISPOSITION, (III) TO PREPARE OR 55 PROCESS INSTRUMENTS FOR ISSUE IN THE NAME OF THE EMPLOYER, (IV) TO 56 SUPPLY INFORMATION DETERMINING THE NAMES OR ADDRESSES OF PAYEES OF S. 5901 34 1 INSTRUMENTS TO BE ISSUED IN THE NAME OF THE EMPLOYER, (V) TO CONTROL THE 2 DISPOSITION OF INSTRUMENTS TO BE ISSUED IN THE NAME OF THE EMPLOYER, OR 3 (VI) TO ACT OTHERWISE WITH RESPECT TO INSTRUMENTS IN A RESPONSIBLE 4 CAPACITY. "RESPONSIBILITY" DOES NOT INCLUDE AUTHORITY THAT MERELY ALLOWS 5 AN EMPLOYEE TO HAVE ACCESS TO INSTRUMENTS OR BLANK OR INCOMPLETE INSTRU- 6 MENT FORMS THAT ARE BEING STORED OR TRANSPORTED OR ARE PART OF INCOMING 7 OR OUTGOING MAIL, OR SIMILAR ACCESS. 8 (B) FOR THE PURPOSE OF DETERMINING THE RIGHTS AND LIABILITIES OF A 9 PERSON WHO, IN GOOD FAITH, PAYS AN INSTRUMENT OR TAKES IT FOR VALUE OR 10 FOR COLLECTION, IF AN EMPLOYER ENTRUSTED AN EMPLOYEE WITH RESPONSIBILITY 11 WITH RESPECT TO THE INSTRUMENT AND THE EMPLOYEE OR A PERSON ACTING IN 12 CONCERT WITH THE EMPLOYEE MAKES A FRAUDULENT INDORSEMENT OF THE INSTRU- 13 MENT, THE INDORSEMENT IS EFFECTIVE AS THE INDORSEMENT OF THE PERSON TO 14 WHOM THE INSTRUMENT IS PAYABLE IF IT IS MADE IN THE NAME OF THAT PERSON. 15 IF THE PERSON PAYING THE INSTRUMENT OR TAKING IT FOR VALUE OR FOR 16 COLLECTION FAILS TO EXERCISE ORDINARY CARE IN PAYING OR TAKING THE 17 INSTRUMENT AND THAT FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS RESULTING 18 FROM THE FRAUD, THE PERSON BEARING THE LOSS MAY RECOVER FROM THE PERSON 19 FAILING TO EXERCISE ORDINARY CARE TO THE EXTENT THE FAILURE TO EXERCISE 20 ORDINARY CARE CONTRIBUTED TO THE LOSS. 21 (C) UNDER SUBSECTION (B), AN INDORSEMENT IS MADE IN THE NAME OF THE 22 PERSON TO WHOM AN INSTRUMENT IS PAYABLE IF (1) IT IS MADE IN A NAME 23 SUBSTANTIALLY SIMILAR TO THE NAME OF THAT PERSON OR (2) THE INSTRUMENT, 24 WHETHER OR NOT INDORSED, IS DEPOSITED IN A DEPOSITARY BANK TO AN ACCOUNT 25 IN A NAME SUBSTANTIALLY SIMILAR TO THE NAME OF THAT PERSON. 26 SECTION 3--406. NEGLIGENCE CONTRIBUTING TO FORGED SIGNATURE OR ALTER- 27 ATION OF INSTRUMENT. 28 (A) A PERSON WHOSE FAILURE TO EXERCISE ORDINARY CARE SUBSTANTIALLY 29 CONTRIBUTES TO AN ALTERATION OF AN INSTRUMENT OR TO THE MAKING OF A 30 FORGED SIGNATURE ON AN INSTRUMENT IS PRECLUDED FROM ASSERTING THE ALTER- 31 ATION OR THE FORGERY AGAINST A PERSON WHO, IN GOOD FAITH, PAYS THE 32 INSTRUMENT OR TAKES IT FOR VALUE OR FOR COLLECTION. 33 (B) UNDER SUBSECTION (A), IF THE PERSON ASSERTING THE PRECLUSION FAILS 34 TO EXERCISE ORDINARY CARE IN PAYING OR TAKING THE INSTRUMENT AND THAT 35 FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS, THE LOSS IS ALLOCATED BETWEEN 36 THE PERSON PRECLUDED AND THE PERSON ASSERTING THE PRECLUSION ACCORDING 37 TO THE EXTENT TO WHICH THE FAILURE OF EACH TO EXERCISE ORDINARY CARE 38 CONTRIBUTED TO THE LOSS. 39 (C) UNDER SUBSECTION (A), THE BURDEN OF PROVING FAILURE TO EXERCISE 40 ORDINARY CARE IS ON THE PERSON ASSERTING THE PRECLUSION. UNDER 41 SUBSECTION (B), THE BURDEN OF PROVING FAILURE TO EXERCISE ORDINARY CARE 42 IS ON THE PERSON PRECLUDED. 43 SECTION 3--407. ALTERATION. 44 (A) "ALTERATION" MEANS (1) AN UNAUTHORIZED CHANGE IN AN INSTRUMENT 45 THAT PURPORTS TO MODIFY IN ANY RESPECT THE OBLIGATION OF A PARTY, OR (2) 46 AN UNAUTHORIZED ADDITION OF WORDS OR NUMBERS OR OTHER CHANGE TO AN 47 INCOMPLETE INSTRUMENT RELATING TO THE OBLIGATION OF A PARTY. 48 (B) EXCEPT AS PROVIDED IN SUBSECTION (C), AN ALTERATION FRAUDULENTLY 49 MADE DISCHARGES A PARTY WHOSE OBLIGATION IS AFFECTED BY THE ALTERATION 50 UNLESS THAT PARTY ASSENTS OR IS PRECLUDED FROM ASSERTING THE ALTERATION. 51 NO OTHER ALTERATION DISCHARGES A PARTY, AND THE INSTRUMENT MAY BE 52 ENFORCED ACCORDING TO ITS ORIGINAL TERMS. 53 (C) A PAYOR BANK OR DRAWEE PAYING A FRAUDULENTLY ALTERED INSTRUMENT OR 54 A PERSON TAKING IT FOR VALUE, IN GOOD FAITH AND WITHOUT NOTICE OF THE 55 ALTERATION, MAY ENFORCE RIGHTS WITH RESPECT TO THE INSTRUMENT (1) 56 ACCORDING TO ITS ORIGINAL TERMS, OR (2) IN THE CASE OF AN INCOMPLETE S. 5901 35 1 INSTRUMENT ALTERED BY UNAUTHORIZED COMPLETION, ACCORDING TO ITS TERMS AS 2 COMPLETED. 3 SECTION 3--408. DRAWEE NOT LIABLE ON UNACCEPTED DRAFT. 4 A CHECK OR OTHER DRAFT DOES NOT OF ITSELF OPERATE AS AN ASSIGNMENT OF 5 FUNDS IN THE HANDS OF THE DRAWEE AVAILABLE FOR ITS PAYMENT, AND THE 6 DRAWEE IS NOT LIABLE ON THE INSTRUMENT UNTIL THE DRAWEE ACCEPTS IT. 7 SECTION 3--409. ACCEPTANCE OF DRAFT; CERTIFIED CHECK. 8 (A) "ACCEPTANCE" MEANS THE DRAWEE'S SIGNED AGREEMENT TO PAY A DRAFT AS 9 PRESENTED. IT MUST BE WRITTEN ON THE DRAFT AND MAY CONSIST OF THE 10 DRAWEE'S SIGNATURE ALONE. ACCEPTANCE MAY BE MADE AT ANY TIME AND 11 BECOMES EFFECTIVE WHEN NOTIFICATION PURSUANT TO INSTRUCTIONS IS GIVEN OR 12 THE ACCEPTED DRAFT IS DELIVERED FOR THE PURPOSE OF GIVING RIGHTS ON THE 13 ACCEPTANCE TO ANY PERSON. 14 (B) A DRAFT MAY BE ACCEPTED ALTHOUGH IT HAS NOT BEEN SIGNED BY THE 15 DRAWER, IS OTHERWISE INCOMPLETE, IS OVERDUE, OR HAS BEEN DISHONORED. 16 (C) IF A DRAFT IS PAYABLE AT A FIXED PERIOD AFTER SIGHT AND THE ACCEP- 17 TOR FAILS TO DATE THE ACCEPTANCE, THE HOLDER MAY COMPLETE THE ACCEPTANCE 18 BY SUPPLYING A DATE IN GOOD FAITH. 19 (D) "CERTIFIED CHECK" MEANS A CHECK ACCEPTED BY THE BANK ON WHICH IT 20 IS DRAWN. ACCEPTANCE MAY BE MADE AS STATED IN SUBSECTION (A) OR BY A 21 WRITING ON THE CHECK WHICH INDICATES THAT THE CHECK IS CERTIFIED. THE 22 DRAWEE OF A CHECK HAS NO OBLIGATION TO CERTIFY THE CHECK, AND REFUSAL TO 23 CERTIFY IS NOT DISHONOR OF THE CHECK. 24 SECTION 3--410. ACCEPTANCE VARYING DRAFT. 25 (A) IF THE TERMS OF A DRAWEE'S ACCEPTANCE VARY FROM THE TERMS OF THE 26 DRAFT AS PRESENTED, THE HOLDER MAY REFUSE THE ACCEPTANCE AND TREAT THE 27 DRAFT AS DISHONORED. IN THAT CASE, THE DRAWEE MAY CANCEL THE ACCEPTANCE. 28 (B) THE TERMS OF A DRAFT ARE NOT VARIED BY AN ACCEPTANCE TO PAY AT A 29 PARTICULAR BANK OR PLACE IN THE UNITED STATES, UNLESS THE ACCEPTANCE 30 STATES THAT THE DRAFT IS TO BE PAID ONLY AT THAT BANK OR PLACE. 31 (C) IF THE HOLDER ASSENTS TO AN ACCEPTANCE VARYING THE TERMS OF A 32 DRAFT, THE OBLIGATION OF EACH DRAWER AND INDORSER THAT DOES NOT EXPRESS- 33 LY ASSENT TO THE ACCEPTANCE IS DISCHARGED. 34 SECTION 3--411. REFUSAL TO PAY CASHIER'S CHECKS, TELLER'S CHECKS, AND 35 CERTIFIED CHECKS. 36 (A) IN THIS SECTION, "OBLIGATED BANK" MEANS THE ACCEPTOR OF A CERTI- 37 FIED CHECK OR THE ISSUER OF A CASHIER'S CHECK OR TELLER'S CHECK BOUGHT 38 FROM THE ISSUER. 39 (B) IF THE OBLIGATED BANK WRONGFULLY (1) REFUSES TO PAY A CASHIER'S 40 CHECK OR CERTIFIED CHECK, (2) STOPS PAYMENT OF A TELLER'S CHECK, OR (3) 41 REFUSES TO PAY A DISHONORED TELLER'S CHECK, THE PERSON ASSERTING THE 42 RIGHT TO ENFORCE THE CHECK IS ENTITLED TO COMPENSATION FOR EXPENSES AND 43 LOSS OF INTEREST RESULTING FROM THE NONPAYMENT AND MAY RECOVER CONSE- 44 QUENTIAL DAMAGES IF THE OBLIGATED BANK REFUSES TO PAY AFTER RECEIVING 45 NOTICE OF PARTICULAR CIRCUMSTANCES GIVING RISE TO THE DAMAGES. 46 (C) EXPENSES OR CONSEQUENTIAL DAMAGES UNDER SUBSECTION (B) ARE NOT 47 RECOVERABLE IF THE REFUSAL OF THE OBLIGATED BANK TO PAY OCCURS BECAUSE 48 (1) THE BANK SUSPENDS PAYMENTS, (2) THE OBLIGATED BANK ASSERTS A CLAIM 49 OR DEFENSE OF THE BANK THAT IT HAS REASONABLE GROUNDS TO BELIEVE IS 50 AVAILABLE AGAINST THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, (3) THE 51 OBLIGATED BANK HAS A REASONABLE DOUBT WHETHER THE PERSON DEMANDING 52 PAYMENT IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, OR (4) PAYMENT 53 IS PROHIBITED BY LAW. 54 SECTION 3--412. OBLIGATION OF ISSUER OF NOTE OR CASHIER'S CHECK. 55 THE ISSUER OF A NOTE OR CASHIER'S CHECK OR OTHER DRAFT DRAWN ON THE 56 DRAWER IS OBLIGED TO PAY THE INSTRUMENT (1) ACCORDING TO ITS TERMS AT S. 5901 36 1 THE TIME IT WAS ISSUED OR, IF NOT ISSUED, AT THE TIME IT FIRST CAME INTO 2 POSSESSION OF A HOLDER, OR (2) IF THE ISSUER SIGNED AN INCOMPLETE 3 INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED, TO THE EXTENT STATED 4 IN SECTIONS 3--115 AND 3--407. THE OBLIGATION IS OWED TO A PERSON ENTI- 5 TLED TO ENFORCE THE INSTRUMENT OR TO AN INDORSER WHO PAID THE INSTRUMENT 6 UNDER SECTION 3--415. 7 SECTION 3--413. OBLIGATION OF ACCEPTOR. 8 (A) THE ACCEPTOR OF A DRAFT IS OBLIGED TO PAY THE DRAFT (1) ACCORDING 9 TO ITS TERMS AT THE TIME IT WAS ACCEPTED, EVEN THOUGH THE ACCEPTANCE 10 STATES THAT THE DRAFT IS PAYABLE "AS ORIGINALLY DRAWN" OR EQUIVALENT 11 TERMS, (2) IF THE ACCEPTANCE VARIES THE TERMS OF THE DRAFT, ACCORDING TO 12 THE TERMS OF THE DRAFT AS VARIED, OR (3) IF THE ACCEPTANCE IS OF A DRAFT 13 THAT IS AN INCOMPLETE INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED, 14 TO THE EXTENT STATED IN SECTIONS 3--115 AND 3--407. THE OBLIGATION IS 15 OWED TO A PERSON ENTITLED TO ENFORCE THE DRAFT OR TO THE DRAWER OR AN 16 INDORSER WHO PAID THE DRAFT UNDER SECTION 3--414 OR 3--415. 17 (B) IF THE CERTIFICATION OF A CHECK OR OTHER ACCEPTANCE OF A DRAFT 18 STATES THE AMOUNT CERTIFIED OR ACCEPTED, THE OBLIGATION OF THE ACCEPTOR 19 IS THAT AMOUNT. IF (1) THE CERTIFICATION OR ACCEPTANCE DOES NOT STATE AN 20 AMOUNT, (2) THE AMOUNT OF THE INSTRUMENT IS SUBSEQUENTLY RAISED, AND (3) 21 THE INSTRUMENT IS THEN NEGOTIATED TO A HOLDER IN DUE COURSE, THE OBLI- 22 GATION OF THE ACCEPTOR IS THE AMOUNT OF THE INSTRUMENT AT THE TIME IT 23 WAS TAKEN BY THE HOLDER IN DUE COURSE. 24 SECTION 3--414. OBLIGATION OF DRAWER. 25 (A) THIS SECTION DOES NOT APPLY TO CASHIER'S CHECKS OR OTHER DRAFTS 26 DRAWN ON THE DRAWER. 27 (B) IF AN UNACCEPTED DRAFT IS DISHONORED, THE DRAWER IS OBLIGED TO PAY 28 THE DRAFT (1) ACCORDING TO ITS TERMS AT THE TIME IT WAS ISSUED OR, IF 29 NOT ISSUED, AT THE TIME IT FIRST CAME INTO POSSESSION OF A HOLDER, OR 30 (2) IF THE DRAWER SIGNED AN INCOMPLETE INSTRUMENT, ACCORDING TO ITS 31 TERMS WHEN COMPLETED, TO THE EXTENT STATED IN SECTIONS 3--115 AND 32 3--407. THE OBLIGATION IS OWED TO A PERSON ENTITLED TO ENFORCE THE DRAFT 33 OR TO AN INDORSER WHO PAID THE DRAFT UNDER SECTION 3--415. 34 (C) IF A DRAFT IS ACCEPTED BY A BANK, THE DRAWER IS DISCHARGED, 35 REGARDLESS OF WHEN OR BY WHOM ACCEPTANCE WAS OBTAINED. 36 (D) IF A DRAFT IS ACCEPTED AND THE ACCEPTOR IS NOT A BANK, THE OBLI- 37 GATION OF THE DRAWER TO PAY THE DRAFT IF THE DRAFT IS DISHONORED BY THE 38 ACCEPTOR IS THE SAME AS THE OBLIGATION OF AN INDORSER UNDER SECTION 39 3--415(A) AND (C). 40 (E) IF A DRAFT STATES THAT IT IS DRAWN "WITHOUT RECOURSE" OR OTHERWISE 41 DISCLAIMS LIABILITY OF THE DRAWER TO PAY THE DRAFT, THE DRAWER IS NOT 42 LIABLE UNDER SUBSECTION (B) TO PAY THE DRAFT IF THE DRAFT IS NOT A 43 CHECK. A DISCLAIMER OF THE LIABILITY STATED IN SUBSECTION (B) IS NOT 44 EFFECTIVE IF THE DRAFT IS A CHECK. 45 (F) IF (1) A CHECK IS NOT PRESENTED FOR PAYMENT OR GIVEN TO A DEPOSI- 46 TARY BANK FOR COLLECTION WITHIN THIRTY DAYS AFTER ITS DATE, (2) THE 47 DRAWEE SUSPENDS PAYMENTS AFTER EXPIRATION OF THE THIRTY-DAY PERIOD WITH- 48 OUT PAYING THE CHECK, AND (3) BECAUSE OF THE SUSPENSION OF PAYMENTS, THE 49 DRAWER IS DEPRIVED OF FUNDS MAINTAINED WITH THE DRAWEE TO COVER PAYMENT 50 OF THE CHECK, THE DRAWER TO THE EXTENT DEPRIVED OF FUNDS MAY DISCHARGE 51 ITS OBLIGATION TO PAY THE CHECK BY ASSIGNING TO THE PERSON ENTITLED TO 52 ENFORCE THE CHECK THE RIGHTS OF THE DRAWER AGAINST THE DRAWEE WITH 53 RESPECT TO THE FUNDS. 54 SECTION 3--415. OBLIGATION OF INDORSER. 55 (A) SUBJECT TO SUBSECTIONS (B), (C), (D), (E) AND TO SECTION 56 3--419(D), IF AN INSTRUMENT IS DISHONORED, AN INDORSER IS OBLIGED TO PAY S. 5901 37 1 THE AMOUNT DUE ON THE INSTRUMENT (1) ACCORDING TO THE TERMS OF THE 2 INSTRUMENT AT THE TIME IT WAS INDORSED, OR (2) IF THE INDORSER INDORSED 3 AN INCOMPLETE INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED, TO THE 4 EXTENT STATED IN SECTIONS 3--115 AND 3--407. THE OBLIGATION OF THE 5 INDORSER IS OWED TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT OR TO A 6 SUBSEQUENT INDORSER WHO PAID THE INSTRUMENT UNDER THIS SECTION. 7 (B) IF AN INDORSEMENT STATES THAT IT IS MADE "WITHOUT RECOURSE" OR 8 OTHERWISE DISCLAIMS LIABILITY OF THE INDORSER, THE INDORSER IS NOT 9 LIABLE UNDER SUBSECTION (A) TO PAY THE INSTRUMENT. 10 (C) IF NOTICE OF DISHONOR OF AN INSTRUMENT IS REQUIRED BY SECTION 11 3--503 AND NOTICE OF DISHONOR COMPLYING WITH THAT SECTION IS NOT GIVEN 12 TO AN INDORSER, THE LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS 13 DISCHARGED. 14 (D) IF A DRAFT IS ACCEPTED BY A BANK AFTER AN INDORSEMENT IS MADE, THE 15 LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS DISCHARGED. 16 (E) IF AN INDORSER OF A CHECK IS LIABLE UNDER SUBSECTION (A) AND THE 17 CHECK IS NOT PRESENTED FOR PAYMENT, OR GIVEN TO A DEPOSITARY BANK FOR 18 COLLECTION, WITHIN THIRTY DAYS AFTER THE DAY THE INDORSEMENT WAS MADE, 19 THE LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS DISCHARGED. 20 SECTION 3--416. TRANSFER WARRANTIES. 21 (A) A PERSON WHO TRANSFERS AN INSTRUMENT FOR CONSIDERATION WARRANTS TO 22 THE TRANSFEREE AND, IF THE TRANSFER IS BY INDORSEMENT, TO ANY SUBSEQUENT 23 TRANSFEREE THAT: 24 (1) THE WARRANTOR IS A PERSON ENTITLED TO ENFORCE THE INSTRUMENT; 25 (2) ALL SIGNATURES ON THE INSTRUMENT ARE AUTHENTIC AND AUTHORIZED; 26 (3) THE INSTRUMENT HAS NOT BEEN ALTERED; 27 (4) THE INSTRUMENT IS NOT SUBJECT TO A DEFENSE OR CLAIM IN RECOUPMENT 28 OF ANY PARTY WHICH CAN BE ASSERTED AGAINST THE WARRANTOR; 29 (5) THE WARRANTOR HAS NO KNOWLEDGE OF ANY INSOLVENCY PROCEEDING 30 COMMENCED WITH RESPECT TO THE MAKER OR ACCEPTOR OR, IN THE CASE OF AN 31 UNACCEPTED DRAFT, THE DRAWER; AND 32 (6) WITH RESPECT TO A REMOTELY-CREATED CONSUMER ITEM, THAT THE PERSON 33 ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE ITEM 34 IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN. 35 (B) A PERSON TO WHOM THE WARRANTIES UNDER SUBSECTION (A) ARE MADE AND 36 WHO TOOK THE INSTRUMENT IN GOOD FAITH MAY RECOVER FROM THE WARRANTOR AS 37 DAMAGES FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A 38 RESULT OF THE BREACH, BUT NOT MORE THAN THE AMOUNT OF THE INSTRUMENT 39 PLUS EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT OF THE BREACH. 40 (C) THE WARRANTIES STATED IN SUBSECTION (A) CANNOT BE DISCLAIMED WITH 41 RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH OF WARRANTY IS 42 GIVEN TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE CLAIMANT HAS REASON 43 TO KNOW OF THE BREACH AND THE IDENTITY OF THE WARRANTOR, THE LIABILITY 44 OF THE WARRANTOR UNDER SUBSECTION (B) IS DISCHARGED TO THE EXTENT OF ANY 45 LOSS CAUSED BY THE DELAY IN GIVING NOTICE OF THE CLAIM. 46 (D) A CAUSE OF ACTION FOR BREACH OF WARRANTY UNDER THIS SECTION 47 ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH. 48 SECTION 3--417. PRESENTMENT WARRANTIES. 49 (A) IF AN UNACCEPTED DRAFT IS PRESENTED TO THE DRAWEE FOR PAYMENT OR 50 ACCEPTANCE AND THE DRAWEE PAYS OR ACCEPTS THE DRAFT, (1) THE PERSON 51 OBTAINING PAYMENT OR ACCEPTANCE, AT THE TIME OF PRESENTMENT, AND (2) A 52 PREVIOUS TRANSFEROR OF THE DRAFT, AT THE TIME OF TRANSFER, WARRANT TO 53 THE DRAWEE MAKING PAYMENT OR ACCEPTING THE DRAFT IN GOOD FAITH THAT: 54 (I) THE WARRANTOR IS, OR WAS, AT THE TIME THE WARRANTOR TRANSFERRED 55 THE DRAFT, A PERSON ENTITLED TO ENFORCE THE DRAFT OR AUTHORIZED TO S. 5901 38 1 OBTAIN PAYMENT OR ACCEPTANCE OF THE DRAFT ON BEHALF OF A PERSON ENTITLED 2 TO ENFORCE THE DRAFT; 3 (II) THE DRAFT HAS NOT BEEN ALTERED; 4 (III) THE WARRANTOR HAS NO KNOWLEDGE THAT THE SIGNATURE OF THE DRAWER 5 OF THE DRAFT IS UNAUTHORIZED; AND 6 (IV) WITH RESPECT TO ANY REMOTELY-CREATED CONSUMER ITEM, THAT THE 7 PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE 8 ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN. 9 (B) A DRAWEE MAKING PAYMENT MAY RECOVER FROM ANY WARRANTOR DAMAGES FOR 10 BREACH OF WARRANTY EQUAL TO THE AMOUNT PAID BY THE DRAWEE LESS THE 11 AMOUNT THE DRAWEE RECEIVED OR IS ENTITLED TO RECEIVE FROM THE DRAWER 12 BECAUSE OF THE PAYMENT. IN ADDITION, THE DRAWEE IS ENTITLED TO COMPEN- 13 SATION FOR EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH. THE 14 RIGHT OF THE DRAWEE TO RECOVER DAMAGES UNDER THIS SUBSECTION IS NOT 15 AFFECTED BY ANY FAILURE OF THE DRAWEE TO EXERCISE ORDINARY CARE IN 16 MAKING PAYMENT. IF THE DRAWEE ACCEPTS THE DRAFT, BREACH OF WARRANTY IS A 17 DEFENSE TO THE OBLIGATION OF THE ACCEPTOR. IF THE ACCEPTOR MAKES PAYMENT 18 WITH RESPECT TO THE DRAFT, THE ACCEPTOR IS ENTITLED TO RECOVER FROM ANY 19 WARRANTOR FOR BREACH OF WARRANTY THE AMOUNTS STATED IN THIS SUBSECTION. 20 (C) IF A DRAWEE ASSERTS A CLAIM FOR BREACH OF WARRANTY UNDER 21 SUBSECTION (A) BASED ON AN UNAUTHORIZED INDORSEMENT OF THE DRAFT OR AN 22 ALTERATION OF THE DRAFT, THE WARRANTOR MAY DEFEND BY PROVING THAT THE 23 INDORSEMENT IS EFFECTIVE UNDER SECTION 3--404 OR 3--405 OR THE DRAWER IS 24 PRECLUDED UNDER SECTION 3--406 OR 4--406 FROM ASSERTING AGAINST THE 25 DRAWEE THE UNAUTHORIZED INDORSEMENT OR ALTERATION. 26 (D) IF (1) A DISHONORED DRAFT IS PRESENTED FOR PAYMENT TO THE DRAWER 27 OR AN INDORSER OR (2) ANY OTHER INSTRUMENT IS PRESENTED FOR PAYMENT TO A 28 PARTY OBLIGED TO PAY THE INSTRUMENT, AND (3) PAYMENT IS RECEIVED, THE 29 FOLLOWING RULES APPLY: 30 (I) THE PERSON OBTAINING PAYMENT AND A PRIOR TRANSFEROR OF THE INSTRU- 31 MENT WARRANT TO THE PERSON MAKING PAYMENT IN GOOD FAITH THAT THE WARRAN- 32 TOR IS, OR WAS, AT THE TIME THE WARRANTOR TRANSFERRED THE INSTRUMENT, A 33 PERSON ENTITLED TO ENFORCE THE INSTRUMENT OR AUTHORIZED TO OBTAIN 34 PAYMENT ON BEHALF OF A PERSON ENTITLED TO ENFORCE THE INSTRUMENT. 35 (II) THE PERSON MAKING PAYMENT MAY RECOVER FROM ANY WARRANTOR FOR 36 BREACH OF WARRANTY AN AMOUNT EQUAL TO THE AMOUNT PAID PLUS EXPENSES AND 37 LOSS OF INTEREST RESULTING FROM THE BREACH. 38 (E) THE WARRANTIES STATED IN SUBSECTIONS (A) AND (D) CANNOT BE 39 DISCLAIMED WITH RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH 40 OF WARRANTY IS GIVEN TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE 41 CLAIMANT HAS REASON TO KNOW OF THE BREACH AND THE IDENTITY OF THE 42 WARRANTOR, THE LIABILITY OF THE WARRANTOR UNDER SUBSECTION (B) OR (D) IS 43 DISCHARGED TO THE EXTENT OF ANY LOSS CAUSED BY THE DELAY IN GIVING 44 NOTICE OF THE CLAIM. 45 (F) A CAUSE OF ACTION FOR BREACH OF WARRANTY UNDER THIS SECTION 46 ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH. 47 SECTION 3--418. PAYMENT OR ACCEPTANCE BY MISTAKE. 48 (A) EXCEPT AS PROVIDED IN SUBSECTION (C), IF THE DRAWEE OF A DRAFT 49 PAYS OR ACCEPTS THE DRAFT AND THE DRAWEE ACTED ON THE MISTAKEN BELIEF 50 THAT (1) PAYMENT OF THE DRAFT HAD NOT BEEN STOPPED PURSUANT TO SECTION 51 4--403 OR (2) THE SIGNATURE OF THE DRAWER OF THE DRAFT WAS AUTHORIZED, 52 THE DRAWEE MAY RECOVER THE AMOUNT OF THE DRAFT FROM THE PERSON TO WHOM 53 OR FOR WHOSE BENEFIT PAYMENT WAS MADE OR, IN THE CASE OF ACCEPTANCE, MAY 54 REVOKE THE ACCEPTANCE. RIGHTS OF THE DRAWEE UNDER THIS SUBSECTION ARE 55 NOT AFFECTED BY FAILURE OF THE DRAWEE TO EXERCISE ORDINARY CARE IN 56 PAYING OR ACCEPTING THE DRAFT. S. 5901 39 1 (B) EXCEPT AS PROVIDED IN SUBSECTION (C), IF AN INSTRUMENT HAS BEEN 2 PAID OR ACCEPTED BY MISTAKE AND THE CASE IS NOT COVERED BY SUBSECTION 3 (A), THE PERSON PAYING OR ACCEPTING MAY, TO THE EXTENT PERMITTED BY THE 4 LAW GOVERNING MISTAKE AND RESTITUTION, (1) RECOVER THE PAYMENT FROM THE 5 PERSON TO WHOM OR FOR WHOSE BENEFIT PAYMENT WAS MADE OR (2) IN THE CASE 6 OF ACCEPTANCE, MAY REVOKE THE ACCEPTANCE. 7 (C) THE REMEDIES PROVIDED BY SUBSECTION (A) OR (B) MAY NOT BE ASSERTED 8 AGAINST A PERSON WHO TOOK THE INSTRUMENT IN GOOD FAITH AND FOR VALUE OR 9 WHO IN GOOD FAITH CHANGED POSITION IN RELIANCE ON THE PAYMENT OR ACCEPT- 10 ANCE. THIS SUBSECTION DOES NOT LIMIT REMEDIES PROVIDED BY SECTION 3--417 11 OR 4--407. 12 (D) NOTWITHSTANDING SECTION 4--215, IF AN INSTRUMENT IS PAID OR 13 ACCEPTED BY MISTAKE AND THE PAYOR OR ACCEPTOR RECOVERS PAYMENT OR 14 REVOKES ACCEPTANCE UNDER SUBSECTION (A) OR (B), THE INSTRUMENT IS DEEMED 15 NOT TO HAVE BEEN PAID OR ACCEPTED AND IS TREATED AS DISHONORED, AND THE 16 PERSON FROM WHOM PAYMENT IS RECOVERED HAS RIGHTS AS A PERSON ENTITLED TO 17 ENFORCE THE DISHONORED INSTRUMENT. 18 SECTION 3--419. INSTRUMENTS SIGNED FOR ACCOMMODATION. 19 (A) IF AN INSTRUMENT IS ISSUED FOR VALUE GIVEN FOR THE BENEFIT OF A 20 PARTY TO THE INSTRUMENT ("ACCOMMODATED PARTY") AND ANOTHER PARTY TO THE 21 INSTRUMENT ("ACCOMMODATION PARTY") SIGNS THE INSTRUMENT FOR THE PURPOSE 22 OF INCURRING LIABILITY ON THE INSTRUMENT WITHOUT BEING A DIRECT BENEFI- 23 CIARY OF THE VALUE GIVEN FOR THE INSTRUMENT, THE INSTRUMENT IS SIGNED BY 24 THE ACCOMMODATION PARTY "FOR ACCOMMODATION." 25 (B) AN ACCOMMODATION PARTY MAY SIGN THE INSTRUMENT AS MAKER, DRAWER, 26 ACCEPTOR, OR INDORSER AND, SUBJECT TO SUBSECTION (D), IS OBLIGED TO PAY 27 THE INSTRUMENT IN THE CAPACITY IN WHICH THE ACCOMMODATION PARTY SIGNS. 28 THE OBLIGATION OF AN ACCOMMODATION PARTY MAY BE ENFORCED NOTWITHSTANDING 29 ANY STATUTE OF FRAUDS AND WHETHER OR NOT THE ACCOMMODATION PARTY 30 RECEIVES CONSIDERATION FOR THE ACCOMMODATION. 31 (C) A PERSON SIGNING AN INSTRUMENT IS PRESUMED TO BE AN ACCOMMODATION 32 PARTY AND THERE IS NOTICE THAT THE INSTRUMENT IS SIGNED FOR ACCOMMO- 33 DATION IF THE SIGNATURE IS AN ANOMALOUS INDORSEMENT OR IS ACCOMPANIED BY 34 WORDS INDICATING THAT THE SIGNER IS ACTING AS SURETY OR GUARANTOR WITH 35 RESPECT TO THE OBLIGATION OF ANOTHER PARTY TO THE INSTRUMENT. EXCEPT AS 36 PROVIDED IN SECTION 3--605, THE OBLIGATION OF AN ACCOMMODATION PARTY TO 37 PAY THE INSTRUMENT IS NOT AFFECTED BY THE FACT THAT THE PERSON ENFORCING 38 THE OBLIGATION HAD NOTICE WHEN THE INSTRUMENT WAS TAKEN BY THAT PERSON 39 THAT THE ACCOMMODATION PARTY SIGNED THE INSTRUMENT FOR ACCOMMODATION. 40 (D) IF THE SIGNATURE OF A PARTY TO AN INSTRUMENT IS ACCOMPANIED BY 41 WORDS INDICATING UNAMBIGUOUSLY THAT THE PARTY IS GUARANTEEING COLLECTION 42 RATHER THAN PAYMENT OF THE OBLIGATION OF ANOTHER PARTY TO THE INSTRU- 43 MENT, THE SIGNER IS OBLIGED TO PAY THE AMOUNT DUE ON THE INSTRUMENT TO A 44 PERSON ENTITLED TO ENFORCE THE INSTRUMENT ONLY IF (1) EXECUTION OF JUDG- 45 MENT AGAINST THE OTHER PARTY HAS BEEN RETURNED UNSATISFIED, (2) THE 46 OTHER PARTY IS INSOLVENT OR IN AN INSOLVENCY PROCEEDING, (3) THE OTHER 47 PARTY CANNOT BE SERVED WITH PROCESS, OR (4) IT IS OTHERWISE APPARENT 48 THAT PAYMENT CANNOT BE OBTAINED FROM THE OTHER PARTY. 49 (E) IF THE SIGNATURE OF A PARTY TO AN INSTRUMENT IS ACCOMPANIED BY 50 WORDS INDICATING THAT THE PARTY GUARANTEES PAYMENT OR THE SIGNER SIGNS 51 THE INSTRUMENT AS AN ACCOMMODATION PARTY IN SOME OTHER MANNER THAT DOES 52 NOT UNAMBIGUOUSLY INDICATE AN INTENTION TO GUARANTEE COLLECTION RATHER 53 THAN PAYMENT, THE SIGNER IS OBLIGED TO PAY THE AMOUNT DUE ON THE INSTRU- 54 MENT TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT IN THE SAME CIRCUM- 55 STANCES AS THE ACCOMMODATED PARTY WOULD BE OBLIGED, WITHOUT PRIOR RESORT S. 5901 40 1 TO THE ACCOMMODATED PARTY BY THE PERSON ENTITLED TO ENFORCE THE INSTRU- 2 MENT. 3 (F) AN ACCOMMODATION PARTY WHO PAYS THE INSTRUMENT IS ENTITLED TO 4 REIMBURSEMENT FROM THE ACCOMMODATED PARTY AND IS ENTITLED TO ENFORCE THE 5 INSTRUMENT AGAINST THE ACCOMMODATED PARTY. IN PROPER CIRCUMSTANCES, AN 6 ACCOMMODATION PARTY MAY OBTAIN RELIEF THAT REQUIRES THE ACCOMMODATED 7 PARTY TO PERFORM ITS OBLIGATIONS ON THE INSTRUMENT. AN ACCOMMODATED 8 PARTY THAT PAYS THE INSTRUMENT HAS NO RIGHT OF RECOURSE AGAINST, AND IS 9 NOT ENTITLED TO CONTRIBUTION FROM, AN ACCOMMODATION PARTY. 10 SECTION 3--420. CONVERSION OF INSTRUMENT. 11 (A) THE LAW APPLICABLE TO CONVERSION OF PERSONAL PROPERTY APPLIES TO 12 INSTRUMENTS. AN INSTRUMENT IS ALSO CONVERTED IF IT IS TAKEN BY TRANSFER, 13 OTHER THAN A NEGOTIATION, FROM A PERSON NOT ENTITLED TO ENFORCE THE 14 INSTRUMENT OR A BANK MAKES OR OBTAINS PAYMENT WITH RESPECT TO THE 15 INSTRUMENT FOR A PERSON NOT ENTITLED TO ENFORCE THE INSTRUMENT OR 16 RECEIVE PAYMENT. AN ACTION FOR CONVERSION OF AN INSTRUMENT MAY NOT BE 17 BROUGHT BY (1) THE ISSUER OR ACCEPTOR OF THE INSTRUMENT OR (2) A PAYEE 18 OR INDORSEE WHO DID NOT RECEIVE DELIVERY OF THE INSTRUMENT EITHER 19 DIRECTLY OR THROUGH DELIVERY TO AN AGENT OR A CO-PAYEE. 20 (B) IN AN ACTION UNDER SUBSECTION (A), THE MEASURE OF LIABILITY IS 21 PRESUMED TO BE THE AMOUNT PAYABLE ON THE INSTRUMENT, BUT RECOVERY MAY 22 NOT EXCEED THE AMOUNT OF THE PLAINTIFF'S INTEREST IN THE INSTRUMENT. 23 (C) A REPRESENTATIVE, OTHER THAN A DEPOSITARY BANK, WHO HAS IN GOOD 24 FAITH DEALT WITH AN INSTRUMENT OR ITS PROCEEDS ON BEHALF OF ONE WHO WAS 25 NOT THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT IS NOT LIABLE IN 26 CONVERSION TO THAT PERSON BEYOND THE AMOUNT OF ANY PROCEEDS THAT IT HAS 27 NOT PAID OUT. 28 PART 5 29 DISHONOR 30 SECTION 3--501. PRESENTMENT. 31 (A) "PRESENTMENT" MEANS A DEMAND MADE BY OR ON BEHALF OF A PERSON 32 ENTITLED TO ENFORCE AN INSTRUMENT (1) TO PAY THE INSTRUMENT MADE TO THE 33 DRAWEE OR A PARTY OBLIGED TO PAY THE INSTRUMENT OR, IN THE CASE OF A 34 NOTE OR ACCEPTED DRAFT PAYABLE AT A BANK, TO THE BANK, OR (2) TO ACCEPT 35 A DRAFT MADE TO THE DRAWEE. 36 (B) THE FOLLOWING RULES ARE SUBJECT TO ARTICLE 4, AGREEMENT OF THE 37 PARTIES, AND CLEARING HOUSE RULES AND THE LIKE: 38 (1) PRESENTMENT MAY BE MADE AT THE PLACE OF PAYMENT OF THE INSTRUMENT 39 AND MUST BE MADE AT THE PLACE OF PAYMENT IF THE INSTRUMENT IS PAYABLE AT 40 A BANK IN THE UNITED STATES; MAY BE MADE BY ANY COMMERCIALLY REASONABLE 41 MEANS, INCLUDING AN ORAL, WRITTEN, OR ELECTRONIC COMMUNICATION; IS 42 EFFECTIVE WHEN THE DEMAND FOR PAYMENT OR ACCEPTANCE IS RECEIVED BY THE 43 PERSON TO WHOM PRESENTMENT IS MADE; AND IS EFFECTIVE IF MADE TO ANY ONE 44 OF TWO OR MORE MAKERS, ACCEPTORS, DRAWEES, OR OTHER PAYORS. 45 (2) UPON DEMAND OF THE PERSON TO WHOM PRESENTMENT IS MADE, THE PERSON 46 MAKING PRESENTMENT MUST (I) EXHIBIT THE INSTRUMENT, (II) GIVE REASONABLE 47 IDENTIFICATION AND, IF PRESENTMENT IS MADE ON BEHALF OF ANOTHER PERSON, 48 REASONABLE EVIDENCE OF AUTHORITY TO DO SO, AND (III) SIGN A RECEIPT ON 49 THE INSTRUMENT FOR ANY PAYMENT MADE OR SURRENDER THE INSTRUMENT IF FULL 50 PAYMENT IS MADE. 51 (3) WITHOUT DISHONORING THE INSTRUMENT, THE PARTY TO WHOM PRESENTMENT 52 IS MADE MAY (I) RETURN THE INSTRUMENT FOR LACK OF A NECESSARY INDORSE- 53 MENT, OR (II) REFUSE PAYMENT OR ACCEPTANCE FOR FAILURE OF THE PRESENT- 54 MENT TO COMPLY WITH THE TERMS OF THE INSTRUMENT, AN AGREEMENT OF THE 55 PARTIES, OR OTHER APPLICABLE LAW OR RULE. S. 5901 41 1 (4) THE PARTY TO WHOM PRESENTMENT IS MADE MAY TREAT PRESENTMENT AS 2 OCCURRING ON THE NEXT BUSINESS DAY AFTER THE DAY OF PRESENTMENT IF THE 3 PARTY TO WHOM PRESENTMENT IS MADE HAS ESTABLISHED A CUT-OFF HOUR NOT 4 EARLIER THAN 2 P.M. FOR THE RECEIPT AND PROCESSING OF INSTRUMENTS 5 PRESENTED FOR PAYMENT OR ACCEPTANCE AND PRESENTMENT IS MADE AFTER THE 6 CUT-OFF HOUR. 7 SECTION 3--502. DISHONOR. 8 (A) DISHONOR OF A NOTE IS GOVERNED BY THE FOLLOWING RULES: 9 (1) IF THE NOTE IS PAYABLE ON DEMAND, THE NOTE IS DISHONORED IF 10 PRESENTMENT IS DULY MADE TO THE MAKER AND THE NOTE IS NOT PAID ON THE 11 DAY OF PRESENTMENT. 12 (2) IF THE NOTE IS NOT PAYABLE ON DEMAND AND IS PAYABLE AT OR THROUGH 13 A BANK OR THE TERMS OF THE NOTE REQUIRE PRESENTMENT, THE NOTE IS DISHON- 14 ORED IF PRESENTMENT IS DULY MADE AND THE NOTE IS NOT PAID ON THE DAY IT 15 BECOMES PAYABLE OR THE DAY OF PRESENTMENT, WHICHEVER IS LATER. 16 (3) IF THE NOTE IS NOT PAYABLE ON DEMAND AND PARAGRAPH (2) DOES NOT 17 APPLY, THE NOTE IS DISHONORED IF IT IS NOT PAID ON THE DAY IT BECOMES 18 PAYABLE. 19 (B) DISHONOR OF AN UNACCEPTED DRAFT OTHER THAN A DOCUMENTARY DRAFT IS 20 GOVERNED BY THE FOLLOWING RULES: 21 (1) IF A CHECK IS DULY PRESENTED FOR PAYMENT TO THE PAYOR BANK OTHER- 22 WISE THAN FOR IMMEDIATE PAYMENT OVER THE COUNTER, THE CHECK IS DISHON- 23 ORED IF THE PAYOR BANK MAKES TIMELY RETURN OF THE CHECK OR SENDS TIMELY 24 NOTICE OF DISHONOR OR NONPAYMENT UNDER SECTION 4--301 OR 4--302, OR 25 BECOMES ACCOUNTABLE FOR THE AMOUNT OF THE CHECK UNDER SECTION 4--302. 26 (2) IF A DRAFT IS PAYABLE ON DEMAND AND PARAGRAPH (1) DOES NOT APPLY, 27 THE DRAFT IS DISHONORED IF PRESENTMENT FOR PAYMENT IS DULY MADE TO THE 28 DRAWEE AND THE DRAFT IS NOT PAID ON THE DAY OF PRESENTMENT. 29 (3) IF A DRAFT IS PAYABLE ON A DATE STATED IN THE DRAFT, THE DRAFT IS 30 DISHONORED IF (I) PRESENTMENT FOR PAYMENT IS DULY MADE TO THE DRAWEE AND 31 PAYMENT IS NOT MADE ON THE DAY THE DRAFT BECOMES PAYABLE OR THE DAY OF 32 PRESENTMENT, WHICHEVER IS LATER, OR (II) PRESENTMENT FOR ACCEPTANCE IS 33 DULY MADE BEFORE THE DAY THE DRAFT BECOMES PAYABLE AND THE DRAFT IS NOT 34 ACCEPTED ON THE DAY OF PRESENTMENT. 35 (4) IF A DRAFT IS PAYABLE ON ELAPSE OF A PERIOD OF TIME AFTER SIGHT OR 36 ACCEPTANCE, THE DRAFT IS DISHONORED IF PRESENTMENT FOR ACCEPTANCE IS 37 DULY MADE AND THE DRAFT IS NOT ACCEPTED ON THE DAY OF PRESENTMENT. 38 (C) DISHONOR OF AN UNACCEPTED DOCUMENTARY DRAFT OCCURS ACCORDING TO 39 THE RULES STATED IN SUBSECTIONS (B)(2), (3), AND (4), EXCEPT THAT 40 PAYMENT OR ACCEPTANCE MAY BE DELAYED WITHOUT DISHONOR UNTIL NO LATER 41 THAN THE CLOSE OF THE THIRD BUSINESS DAY OF THE DRAWEE FOLLOWING THE DAY 42 ON WHICH PAYMENT OR ACCEPTANCE IS REQUIRED BY THOSE PARAGRAPHS. 43 (D) DISHONOR OF AN ACCEPTED DRAFT IS GOVERNED BY THE FOLLOWING RULES: 44 (1) IF THE DRAFT IS PAYABLE ON DEMAND, THE DRAFT IS DISHONORED IF 45 PRESENTMENT FOR PAYMENT IS DULY MADE TO THE ACCEPTOR AND THE DRAFT IS 46 NOT PAID ON THE DAY OF PRESENTMENT. 47 (2) IF THE DRAFT IS NOT PAYABLE ON DEMAND, THE DRAFT IS DISHONORED IF 48 PRESENTMENT FOR PAYMENT IS DULY MADE TO THE ACCEPTOR AND PAYMENT IS NOT 49 MADE ON THE DAY IT BECOMES PAYABLE OR THE DAY OF PRESENTMENT, WHICHEVER 50 IS LATER. 51 (E) IN ANY CASE IN WHICH PRESENTMENT IS OTHERWISE REQUIRED FOR DISHON- 52 OR UNDER THIS SECTION AND PRESENTMENT IS EXCUSED UNDER SECTION 3--504, 53 DISHONOR OCCURS WITHOUT PRESENTMENT IF THE INSTRUMENT IS NOT DULY 54 ACCEPTED OR PAID. 55 (F) IF A DRAFT IS DISHONORED BECAUSE TIMELY ACCEPTANCE OF THE DRAFT 56 WAS NOT MADE AND THE PERSON ENTITLED TO DEMAND ACCEPTANCE CONSENTS TO A S. 5901 42 1 LATE ACCEPTANCE, FROM THE TIME OF ACCEPTANCE THE DRAFT IS TREATED AS 2 NEVER HAVING BEEN DISHONORED. 3 SECTION 3--503. NOTICE OF DISHONOR. 4 (A) THE OBLIGATION OF AN INDORSER STATED IN SECTION 3--415(A) AND THE 5 OBLIGATION OF A DRAWER STATED IN SECTION 3--414(D) MAY NOT BE ENFORCED 6 UNLESS (1) THE INDORSER OR DRAWER IS GIVEN NOTICE OF DISHONOR OF THE 7 INSTRUMENT COMPLYING WITH THIS SECTION OR (2) NOTICE OF DISHONOR IS 8 EXCUSED UNDER SECTION 3--504(B). 9 (B) NOTICE OF DISHONOR MAY BE GIVEN BY ANY PERSON; MAY BE GIVEN BY ANY 10 COMMERCIALLY REASONABLE MEANS, INCLUDING AN ORAL, WRITTEN, OR ELECTRONIC 11 COMMUNICATION; AND IS SUFFICIENT IF IT REASONABLY IDENTIFIES THE INSTRU- 12 MENT AND INDICATES THAT THE INSTRUMENT HAS BEEN DISHONORED OR HAS NOT 13 BEEN PAID OR ACCEPTED. RETURN OF AN INSTRUMENT GIVEN TO A BANK FOR 14 COLLECTION IS SUFFICIENT NOTICE OF DISHONOR. 15 (C) SUBJECT TO SECTION 3--504(C), WITH RESPECT TO AN INSTRUMENT TAKEN 16 FOR COLLECTION BY A COLLECTING BANK, NOTICE OF DISHONOR MUST BE GIVEN 17 (1) BY THE BANK BEFORE MIDNIGHT OF THE NEXT BANKING DAY FOLLOWING THE 18 BANKING DAY ON WHICH THE BANK RECEIVES NOTICE OF DISHONOR OF THE INSTRU- 19 MENT, OR (2) BY ANY OTHER PERSON WITHIN THIRTY DAYS FOLLOWING THE DAY ON 20 WHICH THE PERSON RECEIVES NOTICE OF DISHONOR. WITH RESPECT TO ANY OTHER 21 INSTRUMENT, NOTICE OF DISHONOR MUST BE GIVEN WITHIN THIRTY DAYS FOLLOW- 22 ING THE DAY ON WHICH DISHONOR OCCURS. 23 SECTION 3--504. EXCUSED PRESENTMENT AND NOTICE OF DISHONOR. 24 (A) PRESENTMENT FOR PAYMENT OR ACCEPTANCE OF AN INSTRUMENT IS EXCUSED 25 IF (1) THE PERSON ENTITLED TO PRESENT THE INSTRUMENT CANNOT WITH REASON- 26 ABLE DILIGENCE MAKE PRESENTMENT, (2) THE MAKER OR ACCEPTOR HAS REPUDI- 27 ATED AN OBLIGATION TO PAY THE INSTRUMENT OR IS DEAD OR IN INSOLVENCY 28 PROCEEDINGS, (3) BY THE TERMS OF THE INSTRUMENT PRESENTMENT IS NOT 29 NECESSARY TO ENFORCE THE OBLIGATION OF INDORSERS OR THE DRAWER, (4) THE 30 DRAWER OR INDORSER WHOSE OBLIGATION IS BEING ENFORCED HAS WAIVED 31 PRESENTMENT OR OTHERWISE HAS NO REASON TO EXPECT OR RIGHT TO REQUIRE 32 THAT THE INSTRUMENT BE PAID OR ACCEPTED, OR (5) THE DRAWER INSTRUCTED 33 THE DRAWEE NOT TO PAY OR ACCEPT THE DRAFT OR THE DRAWEE WAS NOT OBLI- 34 GATED TO THE DRAWER TO PAY THE DRAFT. 35 (B) NOTICE OF DISHONOR IS EXCUSED IF (1) BY THE TERMS OF THE INSTRU- 36 MENT NOTICE OF DISHONOR IS NOT NECESSARY TO ENFORCE THE OBLIGATION OF A 37 PARTY TO PAY THE INSTRUMENT, OR (2) THE PARTY WHOSE OBLIGATION IS BEING 38 ENFORCED WAIVED NOTICE OF DISHONOR. A WAIVER OF PRESENTMENT IS ALSO A 39 WAIVER OF NOTICE OF DISHONOR. 40 (C) DELAY IN GIVING NOTICE OF DISHONOR IS EXCUSED IF THE DELAY WAS 41 CAUSED BY CIRCUMSTANCES BEYOND THE CONTROL OF THE PERSON GIVING THE 42 NOTICE AND THE PERSON GIVING THE NOTICE EXERCISED REASONABLE DILIGENCE 43 AFTER THE CAUSE OF THE DELAY CEASED TO OPERATE. 44 SECTION 3--505. EVIDENCE OF DISHONOR. 45 (A) THE FOLLOWING ARE ADMISSIBLE AS EVIDENCE AND CREATE A PRESUMPTION 46 OF DISHONOR AND OF ANY NOTICE OF DISHONOR STATED: 47 (1) A DOCUMENT REGULAR IN FORM AS PROVIDED IN SUBSECTION (B) WHICH 48 PURPORTS TO BE A PROTEST; 49 (2) A PURPORTED STAMP OR WRITING OF THE DRAWEE, PAYOR BANK, OR 50 PRESENTING BANK ON OR ACCOMPANYING THE INSTRUMENT STATING THAT ACCEPT- 51 ANCE OR PAYMENT HAS BEEN REFUSED UNLESS REASONS FOR THE REFUSAL ARE 52 STATED AND THE REASONS ARE NOT CONSISTENT WITH DISHONOR; 53 (3) A BOOK OR RECORD OF THE DRAWEE, PAYOR BANK, OR COLLECTING BANK, 54 KEPT IN THE USUAL COURSE OF BUSINESS WHICH SHOWS DISHONOR, EVEN IF THERE 55 IS NO EVIDENCE OF WHO MADE THE ENTRY. S. 5901 43 1 (B) A PROTEST IS A CERTIFICATE OF DISHONOR MADE BY A UNITED STATES 2 CONSUL OR VICE CONSUL, OR A NOTARY PUBLIC OR OTHER PERSON AUTHORIZED TO 3 ADMINISTER OATHS BY THE LAW OF THE PLACE WHERE DISHONOR OCCURS. IT MAY 4 BE MADE UPON INFORMATION SATISFACTORY TO THAT PERSON. THE PROTEST MUST 5 IDENTIFY THE INSTRUMENT AND CERTIFY EITHER THAT PRESENTMENT HAS BEEN 6 MADE OR, IF NOT MADE, THE REASON WHY IT WAS NOT MADE, AND THAT THE 7 INSTRUMENT HAS BEEN DISHONORED BY NONACCEPTANCE OR NONPAYMENT. THE 8 PROTEST MAY ALSO CERTIFY THAT NOTICE OF DISHONOR HAS BEEN GIVEN TO SOME 9 OR ALL PARTIES. 10 PART 6 11 DISCHARGE AND PAYMENT 12 SECTION 3--601. DISCHARGE AND EFFECT OF DISCHARGE. 13 (A) THE OBLIGATION OF A PARTY TO PAY THE INSTRUMENT IS DISCHARGED AS 14 STATED IN THIS ARTICLE OR BY AN ACT OR AGREEMENT WITH THE PARTY WHICH 15 WOULD DISCHARGE AN OBLIGATION TO PAY MONEY UNDER A SIMPLE CONTRACT. 16 (B) DISCHARGE OF THE OBLIGATION OF A PARTY IS NOT EFFECTIVE AGAINST A 17 PERSON ACQUIRING RIGHTS OF A HOLDER IN DUE COURSE OF THE INSTRUMENT 18 WITHOUT NOTICE OF THE DISCHARGE. 19 SECTION 3--602. PAYMENT. 20 (A) SUBJECT TO SUBSECTION (E), AN INSTRUMENT IS PAID TO THE EXTENT 21 PAYMENT IS MADE BY OR ON BEHALF OF A PARTY OBLIGED TO PAY THE INSTRU- 22 MENT, AND TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT. 23 (B) SUBJECT TO SUBSECTION (E), A NOTE IS PAID TO THE EXTENT PAYMENT IS 24 MADE BY OR ON BEHALF OF A PARTY OBLIGED TO PAY THE NOTE TO A PERSON THAT 25 FORMERLY WAS ENTITLED TO ENFORCE THE NOTE ONLY IF AT THE TIME OF THE 26 PAYMENT THE PARTY OBLIGED TO PAY HAS NOT RECEIVED ADEQUATE NOTIFICATION 27 THAT THE NOTE HAS BEEN TRANSFERRED AND THAT PAYMENT IS TO BE MADE TO THE 28 TRANSFEREE. A NOTIFICATION IS ADEQUATE ONLY IF IT IS SIGNED BY THE 29 TRANSFEROR OR THE TRANSFEREE; REASONABLY IDENTIFIES THE TRANSFERRED 30 NOTE; AND PROVIDES AN ADDRESS AT WHICH PAYMENTS SUBSEQUENTLY ARE TO BE 31 MADE. UPON REQUEST, A TRANSFEREE SHALL FURNISH REASONABLE PROOF THAT THE 32 NOTE HAS BEEN TRANSFERRED. UNLESS THE TRANSFEREE COMPLIES WITH THE 33 REQUEST, A PAYMENT TO THE PERSON THAT FORMERLY WAS ENTITLED TO ENFORCE 34 THE NOTE IS EFFECTIVE FOR PURPOSES OF SUBSECTION (C) EVEN IF THE PARTY 35 OBLIGED TO PAY THE NOTE HAS RECEIVED A NOTIFICATION UNDER THIS PARA- 36 GRAPH. 37 (C) SUBJECT TO SUBSECTION (E), TO THE EXTENT OF A PAYMENT UNDER 38 SUBSECTIONS (A) AND (B), THE OBLIGATION OF THE PARTY OBLIGED TO PAY THE 39 INSTRUMENT IS DISCHARGED EVEN THOUGH PAYMENT IS MADE WITH KNOWLEDGE OF A 40 CLAIM TO THE INSTRUMENT UNDER SECTION 3--306 BY ANOTHER PERSON. 41 (D) SUBJECT TO SUBSECTION (E), A TRANSFEREE, OR ANY PARTY THAT HAS 42 ACQUIRED RIGHTS IN THE INSTRUMENT DIRECTLY OR INDIRECTLY FROM A TRANS- 43 FEREE, INCLUDING ANY SUCH PARTY THAT HAS RIGHTS AS A HOLDER IN DUE 44 COURSE, IS DEEMED TO HAVE NOTICE OF ANY PAYMENT THAT IS MADE UNDER 45 SUBSECTION (B) AFTER THE DATE THAT THE NOTE IS TRANSFERRED TO THE TRANS- 46 FEREE BUT BEFORE THE PARTY OBLIGED TO PAY THE NOTE RECEIVES ADEQUATE 47 NOTIFICATION OF THE TRANSFER. 48 (E) THE OBLIGATION OF A PARTY TO PAY THE INSTRUMENT IS NOT DISCHARGED 49 UNDER SUBSECTIONS (A) THROUGH (D) IF: 50 (1) A CLAIM TO THE INSTRUMENT UNDER SECTION 3--306 IS ENFORCEABLE 51 AGAINST THE PARTY RECEIVING PAYMENT AND (I) PAYMENT IS MADE WITH KNOW- 52 LEDGE BY THE PAYOR THAT PAYMENT IS PROHIBITED BY INJUNCTION OR SIMILAR 53 PROCESS OF A COURT OF COMPETENT JURISDICTION, OR (II) IN THE CASE OF AN 54 INSTRUMENT OTHER THAN A CASHIER'S CHECK, TELLER'S CHECK, OR CERTIFIED 55 CHECK, THE PARTY MAKING PAYMENT ACCEPTED, FROM THE PERSON HAVING A CLAIM S. 5901 44 1 TO THE INSTRUMENT, INDEMNITY AGAINST LOSS RESULTING FROM REFUSAL TO PAY 2 THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT; OR 3 (2) THE PERSON MAKING PAYMENT KNOWS THAT THE INSTRUMENT IS A STOLEN 4 INSTRUMENT AND PAYS A PERSON IT KNOWS IS IN WRONGFUL POSSESSION OF THE 5 INSTRUMENT. 6 (F) AS USED IN THIS SECTION, "SIGNED," WITH RESPECT TO A RECORD THAT 7 IS NOT A WRITING, INCLUDES THE ATTACHMENT TO OR LOGICAL ASSOCIATION WITH 8 THE RECORD OF AN ELECTRONIC SYMBOL, SOUND, OR PROCESS WITH THE PRESENT 9 INTENT TO ADOPT OR ACCEPT THE RECORD. 10 SECTION 3--603. TENDER OF PAYMENT. 11 (A) IF TENDER OF PAYMENT OF AN OBLIGATION TO PAY AN INSTRUMENT IS MADE 12 TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE EFFECT OF TENDER IS 13 GOVERNED BY PRINCIPLES OF LAW APPLICABLE TO TENDER OF PAYMENT UNDER A 14 SIMPLE CONTRACT. 15 (B) IF TENDER OF PAYMENT OF AN OBLIGATION TO PAY AN INSTRUMENT IS MADE 16 TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT AND THE TENDER IS 17 REFUSED, THERE IS DISCHARGE, TO THE EXTENT OF THE AMOUNT OF THE TENDER, 18 OF THE OBLIGATION OF AN INDORSER OR ACCOMMODATION PARTY HAVING A RIGHT 19 OF RECOURSE WITH RESPECT TO THE OBLIGATION TO WHICH THE TENDER RELATES. 20 (C) IF TENDER OF PAYMENT OF AN AMOUNT DUE ON AN INSTRUMENT IS MADE TO 21 A PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE OBLIGATION OF THE OBLI- 22 GOR TO PAY INTEREST AFTER THE DUE DATE ON THE AMOUNT TENDERED IS 23 DISCHARGED. IF PRESENTMENT IS REQUIRED WITH RESPECT TO AN INSTRUMENT AND 24 THE OBLIGOR IS ABLE AND READY TO PAY ON THE DUE DATE AT EVERY PLACE OF 25 PAYMENT STATED IN THE INSTRUMENT, THE OBLIGOR IS DEEMED TO HAVE MADE 26 TENDER OF PAYMENT ON THE DUE DATE TO THE PERSON ENTITLED TO ENFORCE THE 27 INSTRUMENT. 28 SECTION 3--604. DISCHARGE BY CANCELLATION OR RENUNCIATION. 29 (A) A PERSON ENTITLED TO ENFORCE AN INSTRUMENT, WITH OR WITHOUT 30 CONSIDERATION, MAY DISCHARGE THE OBLIGATION OF A PARTY TO PAY THE 31 INSTRUMENT (1) BY AN INTENTIONAL VOLUNTARY ACT, SUCH AS SURRENDER OF THE 32 INSTRUMENT TO THE PARTY, DESTRUCTION, MUTILATION, OR CANCELLATION OF THE 33 INSTRUMENT, CANCELLATION OR STRIKING OUT OF THE PARTY'S SIGNATURE, OR 34 THE ADDITION OF WORDS TO THE INSTRUMENT INDICATING DISCHARGE, OR (2) BY 35 AGREEING NOT TO SUE OR OTHERWISE RENOUNCING RIGHTS AGAINST THE PARTY BY 36 A SIGNED RECORD. 37 (B) CANCELLATION OR STRIKING OUT OF AN INDORSEMENT PURSUANT TO 38 SUBSECTION (A) DOES NOT AFFECT THE STATUS AND RIGHTS OF A PARTY DERIVED 39 FROM THE INDORSEMENT. 40 (C) IN THIS SECTION, "SIGNED," WITH RESPECT TO A RECORD THAT IS NOT A 41 WRITING, INCLUDES THE ATTACHMENT TO OR LOGICAL ASSOCIATION WITH THE 42 RECORD OF AN ELECTRONIC SYMBOL, SOUND, OR PROCESS WITH THE PRESENT 43 INTENT TO ADOPT OR ACCEPT THE RECORD. 44 SECTION 3--605. DISCHARGE OF SECONDARY OBLIGORS. 45 (A) IF A PERSON ENTITLED TO ENFORCE AN INSTRUMENT RELEASES THE OBLI- 46 GATION OF A PRINCIPAL OBLIGOR IN WHOLE OR IN PART, AND ANOTHER PARTY TO 47 THE INSTRUMENT IS A SECONDARY OBLIGOR WITH RESPECT TO THE OBLIGATION OF 48 THAT PRINCIPAL OBLIGOR, THE FOLLOWING RULES APPLY: 49 (1) ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY OBLIGOR 50 WITH RESPECT TO ANY PREVIOUS PAYMENT BY THE SECONDARY OBLIGOR ARE NOT 51 AFFECTED. UNLESS THE TERMS OF THE RELEASE PRESERVE THE SECONDARY 52 OBLIGOR'S RECOURSE, THE PRINCIPAL OBLIGOR IS DISCHARGED, TO THE EXTENT 53 OF THE RELEASE, FROM ANY OTHER DUTIES TO THE SECONDARY OBLIGOR UNDER 54 THIS ARTICLE. 55 (2) UNLESS THE TERMS OF THE RELEASE PROVIDE THAT THE PERSON ENTITLED 56 TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT TO ENFORCE THE INSTRUMENT S. 5901 45 1 AGAINST THE SECONDARY OBLIGOR, THE SECONDARY OBLIGOR IS DISCHARGED TO 2 THE SAME EXTENT AS THE PRINCIPAL OBLIGOR FROM ANY UNPERFORMED PORTION OF 3 ITS OBLIGATION ON THE INSTRUMENT. IF THE INSTRUMENT IS A CHECK AND THE 4 OBLIGATION OF THE SECONDARY OBLIGOR IS BASED ON AN INDORSEMENT OF THE 5 CHECK, THE SECONDARY OBLIGOR IS DISCHARGED WITHOUT REGARD TO THE 6 LANGUAGE OR CIRCUMSTANCES OF THE DISCHARGE OR OTHER RELEASE. 7 (3) IF THE SECONDARY OBLIGOR IS NOT DISCHARGED UNDER PARAGRAPH (2), 8 THE SECONDARY OBLIGOR IS DISCHARGED TO THE EXTENT OF THE VALUE OF THE 9 CONSIDERATION FOR THE RELEASE, AND TO THE EXTENT THAT THE RELEASE WOULD 10 OTHERWISE CAUSE THE SECONDARY OBLIGOR A LOSS. 11 (B) IF A PERSON ENTITLED TO ENFORCE AN INSTRUMENT GRANTS A PRINCIPAL 12 OBLIGOR AN EXTENSION OF THE TIME AT WHICH ONE OR MORE PAYMENTS ARE DUE 13 ON THE INSTRUMENT AND ANOTHER PARTY TO THE INSTRUMENT IS A SECONDARY 14 OBLIGOR WITH RESPECT TO THE OBLIGATION OF THAT PRINCIPAL OBLIGOR, THE 15 FOLLOWING RULES APPLY: 16 (1) ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY OBLIGOR 17 WITH RESPECT TO ANY PREVIOUS PAYMENT BY THE SECONDARY OBLIGOR ARE NOT 18 AFFECTED. UNLESS THE TERMS OF THE EXTENSION PRESERVE THE SECONDARY 19 OBLIGOR'S RECOURSE, THE EXTENSION CORRESPONDINGLY EXTENDS THE TIME FOR 20 PERFORMANCE OF ANY OTHER DUTIES OWED TO THE SECONDARY OBLIGOR BY THE 21 PRINCIPAL OBLIGOR UNDER THIS ARTICLE. 22 (2) THE SECONDARY OBLIGOR IS DISCHARGED TO THE EXTENT THAT THE EXTEN- 23 SION WOULD OTHERWISE CAUSE THE SECONDARY OBLIGOR A LOSS. 24 (3) TO THE EXTENT THAT THE SECONDARY OBLIGOR IS NOT DISCHARGED UNDER 25 PARAGRAPH (2), THE SECONDARY OBLIGOR MAY PERFORM ITS OBLIGATIONS TO A 26 PERSON ENTITLED TO ENFORCE THE INSTRUMENT AS IF THE TIME FOR PAYMENT HAD 27 NOT BEEN EXTENDED OR, UNLESS THE TERMS OF THE EXTENSION PROVIDE THAT THE 28 PERSON ENTITLED TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT TO ENFORCE 29 THE INSTRUMENT AGAINST THE SECONDARY OBLIGOR AS IF THE TIME FOR PAYMENT 30 HAD NOT BEEN EXTENDED, TREAT THE TIME FOR PERFORMANCE OF ITS OBLIGATIONS 31 AS HAVING BEEN EXTENDED CORRESPONDINGLY. 32 (C) IF A PERSON ENTITLED TO ENFORCE AN INSTRUMENT AGREES, WITH OR 33 WITHOUT CONSIDERATION, TO A MODIFICATION OF THE OBLIGATION OF A PRINCI- 34 PAL OBLIGOR OTHER THAN A COMPLETE OR PARTIAL RELEASE OR AN EXTENSION OF 35 THE DUE DATE AND ANOTHER PARTY TO THE INSTRUMENT IS A SECONDARY OBLIGOR 36 WITH RESPECT TO THE OBLIGATION OF THAT PRINCIPAL OBLIGOR, THE FOLLOWING 37 RULES APPLY: 38 (1) ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY OBLIGOR 39 WITH RESPECT TO ANY PREVIOUS PAYMENT BY THE SECONDARY OBLIGOR ARE NOT 40 AFFECTED. THE MODIFICATION CORRESPONDINGLY MODIFIES ANY OTHER DUTIES 41 OWED TO THE SECONDARY OBLIGOR BY THE PRINCIPAL OBLIGOR UNDER THIS ARTI- 42 CLE. 43 (2) THE SECONDARY OBLIGOR IS DISCHARGED FROM ANY UNPERFORMED PORTION 44 OF ITS OBLIGATION TO THE EXTENT THAT THE MODIFICATION WOULD OTHERWISE 45 CAUSE THE SECONDARY OBLIGOR A LOSS. 46 (3) TO THE EXTENT THAT THE SECONDARY OBLIGOR IS NOT DISCHARGED UNDER 47 PARAGRAPH (2), THE SECONDARY OBLIGOR MAY SATISFY ITS OBLIGATION ON THE 48 INSTRUMENT AS IF THE MODIFICATION HAD NOT OCCURRED, OR TREAT ITS OBLI- 49 GATION ON THE INSTRUMENT AS HAVING BEEN MODIFIED CORRESPONDINGLY. 50 (D) IF THE OBLIGATION OF A PRINCIPAL OBLIGOR IS SECURED BY AN INTEREST 51 IN COLLATERAL, ANOTHER PARTY TO THE INSTRUMENT IS A SECONDARY OBLIGOR 52 WITH RESPECT TO THAT OBLIGATION, AND A PERSON ENTITLED TO ENFORCE THE 53 INSTRUMENT IMPAIRS THE VALUE OF THE INTEREST IN COLLATERAL, THE OBLI- 54 GATION OF THE SECONDARY OBLIGOR IS DISCHARGED TO THE EXTENT OF THE 55 IMPAIRMENT. THE VALUE OF AN INTEREST IN COLLATERAL IS IMPAIRED TO THE 56 EXTENT THE VALUE OF THE INTEREST IS REDUCED TO AN AMOUNT LESS THAN THE S. 5901 46 1 AMOUNT OF THE RECOURSE OF THE SECONDARY OBLIGOR, OR THE REDUCTION IN 2 VALUE OF THE INTEREST CAUSES AN INCREASE IN THE AMOUNT BY WHICH THE 3 AMOUNT OF THE RECOURSE EXCEEDS THE VALUE OF THE INTEREST. FOR PURPOSES 4 OF THIS SUBSECTION, IMPAIRING THE VALUE OF AN INTEREST IN COLLATERAL 5 INCLUDES FAILURE TO OBTAIN OR MAINTAIN PERFECTION OR RECORDATION OF THE 6 INTEREST IN COLLATERAL, RELEASE OF COLLATERAL WITHOUT SUBSTITUTION OF 7 COLLATERAL OF EQUAL VALUE OR EQUIVALENT REDUCTION OF THE UNDERLYING 8 OBLIGATION, FAILURE TO PERFORM A DUTY TO PRESERVE THE VALUE OF COLLAT- 9 ERAL OWED, UNDER ARTICLE 9 OR OTHER LAW, TO A DEBTOR OR OTHER PERSON 10 SECONDARILY LIABLE, AND FAILURE TO COMPLY WITH APPLICABLE LAW IN DISPOS- 11 ING OF OR OTHERWISE ENFORCING THE INTEREST IN COLLATERAL. 12 (E) A SECONDARY OBLIGOR IS NOT DISCHARGED UNDER SUBSECTIONS (A)(3), 13 (B), (C), OR (D) UNLESS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT 14 KNOWS THAT THE PERSON IS A SECONDARY OBLIGOR OR HAS NOTICE UNDER SECTION 15 3--419(C) THAT THE INSTRUMENT WAS SIGNED FOR ACCOMMODATION. 16 (F) A SECONDARY OBLIGOR IS NOT DISCHARGED UNDER THIS SECTION IF THE 17 SECONDARY OBLIGOR CONSENTS TO THE EVENT OR CONDUCT THAT IS THE BASIS OF 18 THE DISCHARGE, OR THE INSTRUMENT OR A SEPARATE AGREEMENT OF THE PARTY 19 PROVIDES FOR WAIVER OF DISCHARGE UNDER THIS SECTION SPECIFICALLY OR BY 20 GENERAL LANGUAGE INDICATING THAT PARTIES WAIVE DEFENSES BASED ON SURETY- 21 SHIP OR IMPAIRMENT OF COLLATERAL. UNLESS THE CIRCUMSTANCES INDICATE 22 OTHERWISE, CONSENT BY THE PRINCIPAL OBLIGOR TO AN ACT THAT WOULD LEAD TO 23 A DISCHARGE UNDER THIS SECTION CONSTITUTES CONSENT TO THAT ACT BY THE 24 SECONDARY OBLIGOR IF THE SECONDARY OBLIGOR CONTROLS THE PRINCIPAL OBLI- 25 GOR OR DEALS WITH THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT ON 26 BEHALF OF THE PRINCIPAL OBLIGOR. 27 (G) A RELEASE OR EXTENSION PRESERVES A SECONDARY OBLIGOR'S RECOURSE IF 28 THE TERMS OF THE RELEASE OR EXTENSION PROVIDE THAT: 29 (1) THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT TO 30 ENFORCE THE INSTRUMENT AGAINST THE SECONDARY OBLIGOR; AND 31 (2) THE RECOURSE OF THE SECONDARY OBLIGOR CONTINUES AS IF THE RELEASE 32 OR EXTENSION HAD NOT BEEN GRANTED. 33 (H) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (I), A SECONDARY OBLI- 34 GOR ASSERTING DISCHARGE UNDER THIS SECTION HAS THE BURDEN OF PERSUASION 35 BOTH WITH RESPECT TO THE OCCURRENCE OF THE ACTS ALLEGED TO HARM THE 36 SECONDARY OBLIGOR AND LOSS OR PREJUDICE CAUSED BY THOSE ACTS. 37 (I) IF THE SECONDARY OBLIGOR DEMONSTRATES PREJUDICE CAUSED BY AN 38 IMPAIRMENT OF ITS RECOURSE, AND THE CIRCUMSTANCES OF THE CASE INDICATE 39 THAT THE AMOUNT OF LOSS IS NOT REASONABLY SUSCEPTIBLE OF CALCULATION OR 40 REQUIRES PROOF OF FACTS THAT ARE NOT ASCERTAINABLE, IT IS PRESUMED THAT 41 THE ACT IMPAIRING RECOURSE CAUSED A LOSS OR IMPAIRMENT EQUAL TO THE 42 LIABILITY OF THE SECONDARY OBLIGOR ON THE INSTRUMENT. IN THAT EVENT, THE 43 BURDEN OF PERSUASION AS TO ANY LESSER AMOUNT OF THE LOSS IS ON THE 44 PERSON ENTITLED TO ENFORCE THE INSTRUMENT. 45 S 27. Article 4 of the uniform commercial code is REPEALED and a new 46 article 4 is added to read as follows: 47 ARTICLE 4 48 BANK DEPOSITS--COLLECTIONS 49 GENERAL PROVISIONS AND DEFINITIONS 50 PART 1 51 SECTION 4--101. SHORT TITLE. 52 THIS ARTICLE MAY BE CITED AS UNIFORM COMMERCIAL CODE--BANK DEPOSITS 53 AND COLLECTIONS. 54 SECTION 4--102. APPLICABILITY. S. 5901 47 1 (A) TO THE EXTENT THAT ITEMS WITHIN THIS ARTICLE ARE ALSO WITHIN ARTI- 2 CLES 3 AND 8, THEY ARE SUBJECT TO THOSE ARTICLES. IF THERE IS CONFLICT, 3 THIS ARTICLE GOVERNS ARTICLE 3, BUT ARTICLE 8 GOVERNS THIS ARTICLE. 4 (B) THE LIABILITY OF A BANK FOR ACTION OR NON-ACTION WITH RESPECT TO 5 AN ITEM HANDLED BY IT FOR PURPOSES OF PRESENTMENT, PAYMENT, OR 6 COLLECTION IS GOVERNED BY THE LAW OF THE PLACE WHERE THE BANK IS 7 LOCATED. IN THE CASE OF ACTION OR NON-ACTION BY OR AT A BRANCH OR SEPA- 8 RATE OFFICE OF A BANK, ITS LIABILITY IS GOVERNED BY THE LAW OF THE PLACE 9 WHERE THE BRANCH OR SEPARATE OFFICE IS LOCATED. 10 SECTION 4--103. VARIATION BY AGREEMENT; MEASURE OF DAMAGES; ACTION 11 CONSTITUTING ORDINARY CARE. 12 (A) THE EFFECT OF THE PROVISIONS OF THIS ARTICLE MAY BE VARIED BY 13 AGREEMENT, BUT THE PARTIES TO THE AGREEMENT CANNOT DISCLAIM A BANK'S 14 RESPONSIBILITY FOR ITS LACK OF GOOD FAITH OR FAILURE TO EXERCISE ORDI- 15 NARY CARE OR LIMIT THE MEASURE OF DAMAGES FOR THE LACK OR FAILURE. 16 HOWEVER, THE PARTIES MAY DETERMINE BY AGREEMENT THE STANDARDS BY WHICH 17 THE BANK'S RESPONSIBILITY IS TO BE MEASURED IF THOSE STANDARDS ARE NOT 18 MANIFESTLY UNREASONABLE. 19 (B) FEDERAL RESERVE REGULATIONS AND OPERATING CIRCULARS, 20 CLEARING-HOUSE RULES, AND THE LIKE HAVE THE EFFECT OF AGREEMENTS UNDER 21 SUBSECTION (A), WHETHER OR NOT SPECIFICALLY ASSENTED TO BY ALL PARTIES 22 INTERESTED IN ITEMS HANDLED. 23 (C) ACTION OR NON-ACTION APPROVED BY THIS ARTICLE OR PURSUANT TO 24 FEDERAL RESERVE REGULATIONS OR OPERATING CIRCULARS IS THE EXERCISE OF 25 ORDINARY CARE AND, IN THE ABSENCE OF SPECIAL INSTRUCTIONS, ACTION OR 26 NON-ACTION CONSISTENT WITH CLEARING-HOUSE RULES AND THE LIKE OR WITH A 27 GENERAL BANKING USAGE NOT DISAPPROVED BY THIS ARTICLE, IS PRIMA FACIE 28 THE EXERCISE OF ORDINARY CARE. 29 (D) THE SPECIFICATION OR APPROVAL OF CERTAIN PROCEDURES BY THIS ARTI- 30 CLE IS NOT DISAPPROVAL OF OTHER PROCEDURES THAT MAY BE REASONABLE UNDER 31 THE CIRCUMSTANCES. 32 (E) THE MEASURE OF DAMAGES FOR FAILURE TO EXERCISE ORDINARY CARE IN 33 HANDLING AN ITEM IS THE AMOUNT OF THE ITEM REDUCED BY AN AMOUNT THAT 34 COULD NOT HAVE BEEN REALIZED BY THE EXERCISE OF ORDINARY CARE. IF THERE 35 IS ALSO BAD FAITH IT INCLUDES ANY OTHER DAMAGES THE PARTY SUFFERED AS A 36 PROXIMATE CONSEQUENCE. 37 SECTION 4--104. DEFINITIONS AND INDEX OF DEFINITIONS. 38 (A) IN THIS ARTICLE, UNLESS THE CONTEXT OTHERWISE REQUIRES: 39 (1) "ACCOUNT" MEANS ANY DEPOSIT OR CREDIT ACCOUNT WITH A BANK, INCLUD- 40 ING A DEMAND, TIME, SAVINGS, PASSBOOK, SHARE DRAFT, OR LIKE ACCOUNT, 41 OTHER THAN AN ACCOUNT EVIDENCED BY A CERTIFICATE OF DEPOSIT; 42 (2) "AFTERNOON" MEANS THE PERIOD OF A DAY BETWEEN NOON AND MIDNIGHT; 43 (3) "BANKING DAY" MEANS THE PART OF A DAY ON WHICH A BANK IS OPEN TO 44 THE PUBLIC FOR CARRYING ON SUBSTANTIALLY ALL OF ITS BANKING FUNCTIONS; 45 (4) "CLEARING HOUSE" MEANS AN ASSOCIATION OF BANKS OR OTHER PAYORS 46 REGULARLY CLEARING ITEMS; 47 (5) "CUSTOMER" MEANS A PERSON HAVING AN ACCOUNT WITH A BANK OR FOR 48 WHOM A BANK HAS AGREED TO COLLECT ITEMS, INCLUDING A BANK THAT MAINTAINS 49 AN ACCOUNT AT ANOTHER BANK; 50 (6) "DOCUMENTARY DRAFT" MEANS A DRAFT TO BE PRESENTED FOR ACCEPTANCE 51 OR PAYMENT IF SPECIFIED DOCUMENTS, CERTIFICATED SECURITIES (SECTION 52 8--102) OR INSTRUCTIONS FOR UNCERTIFICATED SECURITIES (SECTION 8--102), 53 OR OTHER CERTIFICATES, STATEMENTS, OR THE LIKE ARE TO BE RECEIVED BY THE 54 DRAWEE OR OTHER PAYOR BEFORE ACCEPTANCE OR PAYMENT OF THE DRAFT; 55 (7) "DRAFT" MEANS A DRAFT AS DEFINED IN SECTION 3--104 OR AN ITEM, 56 OTHER THAN AN INSTRUMENT, THAT IS AN ORDER; S. 5901 48 1 (8) "DRAWEE" MEANS A PERSON ORDERED IN A DRAFT TO MAKE PAYMENT; 2 (9) "ITEM" MEANS AN INSTRUMENT OR A PROMISE OR ORDER TO PAY MONEY 3 HANDLED BY A BANK FOR COLLECTION OR PAYMENT. THE TERM DOES NOT INCLUDE A 4 PAYMENT ORDER GOVERNED BY ARTICLE 4-A OR A CREDIT OR DEBIT CARD SLIP; 5 (10) "MIDNIGHT DEADLINE" WITH RESPECT TO A BANK IS MIDNIGHT ON ITS 6 NEXT BANKING DAY FOLLOWING THE BANKING DAY ON WHICH IT RECEIVES THE 7 RELEVANT ITEM OR NOTICE OR FROM WHICH THE TIME FOR TAKING ACTION 8 COMMENCES TO RUN, WHICHEVER IS LATER; 9 (11) "SETTLE" MEANS TO PAY IN CASH, BY CLEARING-HOUSE SETTLEMENT, IN A 10 CHARGE OR CREDIT OR BY REMITTANCE, OR OTHERWISE AS AGREED. A SETTLEMENT 11 MAY BE EITHER PROVISIONAL OR FINAL; 12 (12) "SUSPENDS PAYMENTS" WITH RESPECT TO A BANK MEANS THAT IT HAS BEEN 13 CLOSED BY ORDER OF THE SUPERVISORY AUTHORITIES, THAT A PUBLIC OFFICER 14 HAS BEEN APPOINTED TO TAKE IT OVER, OR THAT IT CEASES OR REFUSES TO MAKE 15 PAYMENTS IN THE ORDINARY COURSE OF BUSINESS. 16 (B) OTHER DEFINITIONS APPLYING TO THIS ARTICLE AND THE SECTIONS IN 17 WHICH THEY APPEAR ARE: 18 "AGREEMENT FOR ELECTRONIC PRESENTMENT" ................. SECTION 4--110. 19 "COLLECTING BANK" ...................................... SECTION 4--105. 20 "DEPOSITARY BANK" ...................................... SECTION 4--105. 21 "INTERMEDIARY BANK" .................................... SECTION 4--105. 22 "PAYOR BANK" ........................................... SECTION 4--105. 23 "PRESENTING BANK" ...................................... SECTION 4--105. 24 "PRESENTMENT NOTICE" ................................... SECTION 4--110. 25 (C) THE FOLLOWING DEFINITIONS IN OTHER ARTICLES APPLY TO THIS ARTICLE: 26 "ACCEPTANCE" ........................................... SECTION 3--409. 27 "ALTERATION" ........................................... SECTION 3--407. 28 "CASHIER'S CHECK" ...................................... SECTION 3--104. 29 "CERTIFICATE OF DEPOSIT" ............................... SECTION 3--104. 30 "CERTIFIED CHECK" ...................................... SECTION 3--409. 31 "CHECK" ................................................ SECTION 3--104. 32 "CONTROL" .............................................. SECTION 7--106. 33 "GOOD FAITH" ........................................... SECTION 3--103. 34 "HOLDER IN DUE COURSE" ................................. SECTION 3--302. 35 "INSTRUMENT" ........................................... SECTION 3--104. 36 "NOTICE OF DISHONOR" ................................... SECTION 3--503. 37 "ORDER" ................................................ SECTION 3--103. 38 "ORDINARY CARE" ........................................ SECTION 3--103. 39 "PERSON ENTITLED TO ENFORCE" ........................... SECTION 3--301. 40 "PRESENTMENT" .......................................... SECTION 3--501. 41 "PROMISE" .............................................. SECTION 3--103. 42 "PROVE" ................................................ SECTION 3--103. 43 "RECORD" ..................................................... RESERVED. 44 "REMOTELY-CREATED CONSUMER ITEM" ....................... SECTION 3--103. 45 "TELLER'S CHECK" ....................................... SECTION 3--104. 46 "UNAUTHORIZED SIGNATURE" ............................... SECTION 3--403. 47 (D) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES 48 OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE. 49 SECTION 4--105. DEFINITIONS OF TYPES OF BANKS. 50 IN THIS ARTICLE: 51 (A) [RESERVED] 52 (B) "DEPOSITARY BANK" MEANS THE FIRST BANK TO TAKE AN ITEM EVEN THOUGH 53 IT IS ALSO THE PAYOR BANK, UNLESS THE ITEM IS PRESENTED FOR IMMEDIATE 54 PAYMENT OVER THE COUNTER; 55 (C) "PAYOR BANK" MEANS A BANK THAT IS THE DRAWEE OF A DRAFT; S. 5901 49 1 (D) "INTERMEDIARY BANK" MEANS A BANK TO WHICH AN ITEM IS TRANSFERRED 2 IN COURSE OF COLLECTION EXCEPT THE DEPOSITARY OR PAYOR BANK; 3 (E) "COLLECTING BANK" MEANS A BANK HANDLING AN ITEM FOR COLLECTION 4 EXCEPT THE PAYOR BANK; 5 (F) "PRESENTING BANK" MEANS A BANK PRESENTING AN ITEM EXCEPT A PAYOR 6 BANK. 7 SECTION 4--106. PAYABLE THROUGH OR PAYABLE AT BANK: COLLECTING BANK. 8 (A) IF AN ITEM STATES THAT IT IS "PAYABLE THROUGH" A BANK IDENTIFIED 9 IN THE ITEM, (1) THE ITEM DESIGNATES THE BANK AS A COLLECTING BANK AND 10 DOES NOT BY ITSELF AUTHORIZE THE BANK TO PAY THE ITEM, AND (2) THE ITEM 11 MAY BE PRESENTED FOR PAYMENT ONLY BY OR THROUGH THE BANK. 12 (B) IF AN ITEM STATES THAT IT IS "PAYABLE AT" A BANK IDENTIFIED IN THE 13 ITEM, THE ITEM IS EQUIVALENT TO A DRAFT DRAWN ON THE BANK. 14 (C) IF A DRAFT NAMES A NONBANK DRAWEE AND IT IS UNCLEAR WHETHER A BANK 15 NAMED IN THE DRAFT IS A CO-DRAWEE OR A COLLECTING BANK, THE BANK IS A 16 COLLECTING BANK. 17 SECTION 4--107. SEPARATE OFFICE OF BANK. 18 A BRANCH OR SEPARATE OFFICE OF A BANK IS A SEPARATE BANK FOR THE 19 PURPOSE OF COMPUTING THE TIME WITHIN WHICH AND DETERMINING THE PLACE AT 20 OR TO WHICH ACTION MAY BE TAKEN OR NOTICES OR ORDERS SHALL BE GIVEN 21 UNDER THIS ARTICLE AND UNDER ARTICLE 3. 22 SECTION 4--108. TIME OF RECEIPT OF ITEMS. 23 (A) FOR THE PURPOSE OF ALLOWING TIME TO PROCESS ITEMS, PROVE BALANCES, 24 AND MAKE THE NECESSARY ENTRIES ON ITS BOOKS TO DETERMINE ITS POSITION 25 FOR THE DAY, A BANK MAY FIX AN AFTERNOON HOUR OF 2 P.M. OR LATER AS A 26 CUTOFF HOUR FOR THE HANDLING OF MONEY AND ITEMS AND THE MAKING OF 27 ENTRIES ON ITS BOOKS. 28 (B) AN ITEM OR DEPOSIT OF MONEY RECEIVED ON ANY DAY AFTER A CUTOFF 29 HOUR SO FIXED OR AFTER THE CLOSE OF THE BANKING DAY MAY BE TREATED AS 30 BEING RECEIVED AT THE OPENING OF THE NEXT BANKING DAY. 31 SECTION 4--109. DELAYS. 32 (A) UNLESS OTHERWISE INSTRUCTED, A COLLECTING BANK IN A GOOD FAITH 33 EFFORT TO SECURE PAYMENT OF A SPECIFIC ITEM DRAWN ON A PAYOR OTHER THAN 34 A BANK, AND WITH OR WITHOUT THE APPROVAL OF ANY PERSON INVOLVED, MAY 35 WAIVE, MODIFY, OR EXTEND TIME LIMITS IMPOSED OR PERMITTED BY THIS ACT 36 FOR A PERIOD NOT EXCEEDING TWO ADDITIONAL BANKING DAYS WITHOUT DISCHARGE 37 OF DRAWERS OR INDORSERS OR LIABILITY TO ITS TRANSFEROR OR A PRIOR PARTY. 38 (B) DELAY BY A COLLECTING BANK OR PAYOR BANK BEYOND TIME LIMITS 39 PRESCRIBED OR PERMITTED BY THIS ACT OR BY INSTRUCTIONS IS EXCUSED IF (1) 40 THE DELAY IS CAUSED BY INTERRUPTION OF COMMUNICATION OR COMPUTER FACILI- 41 TIES, SUSPENSION OF PAYMENTS BY ANOTHER BANK, WAR, EMERGENCY CONDITIONS, 42 FAILURE OF EQUIPMENT, OR OTHER CIRCUMSTANCES BEYOND THE CONTROL OF THE 43 BANK, AND (2) THE BANK EXERCISES SUCH DILIGENCE AS THE CIRCUMSTANCES 44 REQUIRE. 45 SECTION 4--110. ELECTRONIC PRESENTMENT. 46 (A) "AGREEMENT FOR ELECTRONIC PRESENTMENT" MEANS AN AGREEMENT, CLEAR- 47 ING-HOUSE RULE, OR FEDERAL RESERVE REGULATION OR OPERATING CIRCULAR, 48 PROVIDING THAT PRESENTMENT OF AN ITEM MAY BE MADE BY TRANSMISSION OF AN 49 IMAGE OF AN ITEM OR INFORMATION DESCRIBING THE ITEM ("PRESENTMENT 50 NOTICE") RATHER THAN DELIVERY OF THE ITEM ITSELF. THE AGREEMENT MAY 51 PROVIDE FOR PROCEDURES GOVERNING RETENTION, PRESENTMENT, PAYMENT, 52 DISHONOR, AND OTHER MATTERS CONCERNING ITEMS SUBJECT TO THE AGREEMENT. 53 (B) PRESENTMENT OF AN ITEM PURSUANT TO AN AGREEMENT FOR PRESENTMENT IS 54 MADE WHEN THE PRESENTMENT NOTICE IS RECEIVED. S. 5901 50 1 (C) IF PRESENTMENT IS MADE BY PRESENTMENT NOTICE, A REFERENCE TO 2 "ITEM" OR "CHECK" IN THIS ARTICLE MEANS THE PRESENTMENT NOTICE UNLESS 3 THE CONTEXT OTHERWISE INDICATES. 4 SECTION 4--111. STATUTE OF LIMITATIONS. 5 AN ACTION TO ENFORCE AN OBLIGATION, DUTY, OR RIGHT ARISING UNDER THIS 6 ARTICLE MUST BE COMMENCED WITHIN THREE YEARS AFTER THE CAUSE OF ACTION 7 ACCRUES. 8 PART 2 9 COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS 10 SECTION 4--201. STATUS OF COLLECTING BANK AS AGENT AND PROVISIONAL 11 STATUS OF CREDITS; APPLICABILITY OF ARTICLE; ITEM 12 INDORSED "PAY ANY BANK". 13 (A) UNLESS A CONTRARY INTENT CLEARLY APPEARS AND BEFORE THE TIME THAT 14 A SETTLEMENT GIVEN BY A COLLECTING BANK FOR AN ITEM IS OR BECOMES FINAL, 15 THE BANK, WITH RESPECT TO AN ITEM, IS AN AGENT OR SUB-AGENT OF THE OWNER 16 OF THE ITEM AND ANY SETTLEMENT GIVEN FOR THE ITEM IS PROVISIONAL. THIS 17 PROVISION APPLIES REGARDLESS OF THE FORM OF INDORSEMENT OR LACK OF 18 INDORSEMENT AND EVEN THOUGH CREDIT GIVEN FOR THE ITEM IS SUBJECT TO 19 IMMEDIATE WITHDRAWAL AS OF RIGHT OR IS IN FACT WITHDRAWN; BUT THE 20 CONTINUANCE OF OWNERSHIP OF AN ITEM BY ITS OWNER AND ANY RIGHTS OF THE 21 OWNER TO PROCEEDS OF THE ITEM ARE SUBJECT TO RIGHTS OF A COLLECTING 22 BANK, SUCH AS THOSE RESULTING FROM OUTSTANDING ADVANCES ON THE ITEM AND 23 RIGHTS OF RECOUPMENT OR SETOFF. IF AN ITEM IS HANDLED BY BANKS FOR 24 PURPOSES OF PRESENTMENT, PAYMENT, COLLECTION, OR RETURN, THE RELEVANT 25 PROVISIONS OF THIS ARTICLE APPLY EVEN THOUGH ACTION OF THE PARTIES 26 CLEARLY ESTABLISHES THAT A PARTICULAR BANK HAS PURCHASED THE ITEM AND IS 27 THE OWNER OF IT. 28 (B) AFTER AN ITEM HAS BEEN INDORSED WITH THE WORDS "PAY ANY BANK" OR 29 THE LIKE, ONLY A BANK MAY ACQUIRE THE RIGHTS OF A HOLDER UNTIL THE ITEM 30 HAS BEEN: 31 (1) RETURNED TO THE CUSTOMER INITIATING COLLECTION; OR 32 (2) SPECIALLY INDORSED BY A BANK TO A PERSON WHO IS NOT A BANK. 33 SECTION 4--202. RESPONSIBILITY FOR COLLECTION OR RETURN; WHEN ACTION 34 TIMELY. 35 (A) A COLLECTING BANK MUST EXERCISE ORDINARY CARE IN: 36 (1) PRESENTING AN ITEM OR SENDING IT FOR PRESENTMENT; 37 (2) SENDING NOTICE OF DISHONOR OR NONPAYMENT OR RETURNING AN ITEM 38 OTHER THAN A DOCUMENTARY DRAFT TO THE BANK'S TRANSFEROR AFTER LEARNING 39 THAT THE ITEM HAS NOT BEEN PAID OR ACCEPTED, AS THE CASE MAY BE; 40 (3) SETTLING FOR AN ITEM WHEN THE BANK RECEIVES FINAL SETTLEMENT; AND 41 (4) NOTIFYING ITS TRANSFEROR OF ANY LOSS OR DELAY IN TRANSIT WITHIN A 42 REASONABLE TIME AFTER DISCOVERY THEREOF. 43 (B) A COLLECTING BANK EXERCISES ORDINARY CARE UNDER SUBSECTION (A) BY 44 TAKING PROPER ACTION BEFORE ITS MIDNIGHT DEADLINE FOLLOWING RECEIPT OF 45 AN ITEM, NOTICE, OR SETTLEMENT. TAKING PROPER ACTION WITHIN A REASON- 46 ABLY LONGER TIME MAY CONSTITUTE THE EXERCISE OF ORDINARY CARE, BUT THE 47 BANK HAS THE BURDEN OF ESTABLISHING TIMELINESS. 48 (C) SUBJECT TO SUBSECTION (A)(1), A BANK IS NOT LIABLE FOR THE INSOL- 49 VENCY, NEGLECT, MISCONDUCT, MISTAKE, OR DEFAULT OF ANOTHER BANK OR 50 PERSON OR FOR LOSS OR DESTRUCTION OF AN ITEM IN THE POSSESSION OF OTHERS 51 OR IN TRANSIT. 52 SECTION 4--203. EFFECT OF INSTRUCTIONS. 53 SUBJECT TO ARTICLE 3 CONCERNING CONVERSION OF INSTRUMENTS (SECTION 54 3-420) AND RESTRICTIVE INDORSEMENTS (SECTION 3-206), ONLY A COLLECTING 55 BANK'S TRANSFEROR CAN GIVE INSTRUCTIONS THAT AFFECT THE BANK OR CONSTI- 56 TUTE NOTICE TO IT, AND A COLLECTING BANK IS NOT LIABLE TO PRIOR PARTIES S. 5901 51 1 FOR ANY ACTION TAKEN PURSUANT TO THE INSTRUCTIONS OR IN ACCORDANCE WITH 2 ANY AGREEMENT WITH ITS TRANSFEROR. 3 SECTION 4--204. METHODS OF SENDING AND PRESENTING; SENDING DIRECTLY TO 4 PAYOR BANK. 5 (A) A COLLECTING BANK SHALL SEND ITEMS BY A REASONABLY PROMPT METHOD, 6 TAKING INTO CONSIDERATION RELEVANT INSTRUCTIONS, THE NATURE OF THE ITEM, 7 THE NUMBER OF THOSE ITEMS ON HAND, THE COST OF COLLECTION INVOLVED, AND 8 THE METHOD GENERALLY USED BY IT OR OTHERS TO PRESENT THOSE ITEMS. 9 (B) A COLLECTING BANK MAY SEND: 10 (1) AN ITEM DIRECTLY TO THE PAYOR BANK; 11 (2) AN ITEM TO A NONBANK PAYOR IF AUTHORIZED BY ITS TRANSFEROR; AND 12 (3) AN ITEM OTHER THAN DOCUMENTARY DRAFTS TO A NONBANK PAYOR, IF 13 AUTHORIZED BY FEDERAL RESERVE REGULATION OR OPERATING CIRCULAR, CLEAR- 14 ING-HOUSE RULE, OR THE LIKE. 15 (C) PRESENTMENT MAY BE MADE BY A PRESENTING BANK AT A PLACE WHERE THE 16 PAYOR BANK OR OTHER PAYOR HAS REQUESTED THAT PRESENTMENT BE MADE. 17 SECTION 4--205. DEPOSITARY BANK HOLDER OF UNINDORSED ITEM. 18 IF A CUSTOMER DELIVERS AN ITEM TO A DEPOSITARY BANK FOR COLLECTION: 19 (A) THE DEPOSITARY BANK BECOMES A HOLDER OF THE ITEM AT THE TIME IT 20 RECEIVES THE ITEM FOR COLLECTION IF THE CUSTOMER AT THE TIME OF DELIVERY 21 WAS A HOLDER OF THE ITEM, WHETHER OR NOT THE CUSTOMER INDORSES THE ITEM, 22 AND, IF THE BANK SATISFIES THE OTHER REQUIREMENTS OF SECTION 3--302, IT 23 IS A HOLDER IN DUE COURSE; AND 24 (B) THE DEPOSITARY BANK WARRANTS TO COLLECTING BANKS, THE PAYOR BANK 25 OR OTHER PAYOR, AND THE DRAWER THAT THE AMOUNT OF THE ITEM WAS PAID TO 26 THE CUSTOMER OR DEPOSITED TO THE CUSTOMER'S ACCOUNT. 27 SECTION 4--206. TRANSFER BETWEEN BANKS. 28 ANY AGREED METHOD THAT IDENTIFIES THE TRANSFEROR BANK IS SUFFICIENT 29 FOR THE ITEM'S FURTHER TRANSFER TO ANOTHER BANK. 30 SECTION 4--207. TRANSFER WARRANTIES. 31 (A) A CUSTOMER OR COLLECTING BANK THAT TRANSFERS AN ITEM AND RECEIVES 32 A SETTLEMENT OR OTHER CONSIDERATION WARRANTS TO THE TRANSFEREE AND TO 33 ANY SUBSEQUENT COLLECTING BANK THAT: 34 (1) THE WARRANTOR IS A PERSON ENTITLED TO ENFORCE THE ITEM; 35 (2) ALL SIGNATURES ON THE ITEM ARE AUTHENTIC AND AUTHORIZED; 36 (3) THE ITEM HAS NOT BEEN ALTERED; 37 (4) THE ITEM IS NOT SUBJECT TO A DEFENSE OR CLAIM IN RECOUPMENT 38 (SECTION 3--305(A)) OF ANY PARTY THAT CAN BE ASSERTED AGAINST THE 39 WARRANTOR; 40 (5) THE WARRANTOR HAS NO KNOWLEDGE OF ANY INSOLVENCY PROCEEDING 41 COMMENCED WITH RESPECT TO THE MAKER OR ACCEPTOR OR, IN THE CASE OF AN 42 UNACCEPTED DRAFT, THE DRAWER; AND 43 (6) WITH RESPECT TO ANY REMOTELY-CREATED CONSUMER ITEM, THAT THE 44 PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE 45 ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN. 46 (B) IF AN ITEM IS DISHONORED, A CUSTOMER OR COLLECTING BANK TRANS- 47 FERRING THE ITEM AND RECEIVING SETTLEMENT OR OTHER CONSIDERATION IS 48 OBLIGED TO PAY THE AMOUNT DUE ON THE ITEM (I) ACCORDING TO THE TERMS OF 49 THE ITEM AT THE TIME IT WAS TRANSFERRED, OR (II) IF THE TRANSFER WAS OF 50 AN INCOMPLETE ITEM, ACCORDING TO ITS TERMS WHEN COMPLETED AS STATED IN 51 SECTIONS 3--115 AND 3--407. THE OBLIGATION OF A TRANSFEROR IS OWED TO 52 THE TRANSFEREE AND TO ANY SUBSEQUENT COLLECTING BANK THAT TAKES THE ITEM 53 IN GOOD FAITH. A TRANSFEROR CANNOT DISCLAIM ITS OBLIGATION UNDER THIS 54 SUBSECTION BY AN INDORSEMENT STATING THAT IT IS MADE "WITHOUT RECOURSE" 55 OR OTHERWISE DISCLAIMING LIABILITY. S. 5901 52 1 (C) A PERSON TO WHOM THE WARRANTIES UNDER SUBSECTION (A) ARE MADE AND 2 WHO TOOK THE ITEM IN GOOD FAITH MAY RECOVER FROM THE WARRANTOR AS 3 DAMAGES FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A 4 RESULT OF THE BREACH, BUT NOT MORE THAN THE AMOUNT OF THE ITEM PLUS 5 EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT OF THE BREACH. 6 (D) THE WARRANTIES STATED IN SUBSECTION (A) CANNOT BE DISCLAIMED WITH 7 RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH OF WARRANTY IS 8 GIVEN TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE CLAIMANT HAS REASON 9 TO KNOW OF THE BREACH AND THE IDENTITY OF THE WARRANTOR, THE WARRANTOR 10 IS DISCHARGED TO THE EXTENT OF ANY LOSS CAUSED BY THE DELAY IN GIVING 11 NOTICE OF THE CLAIM. 12 (E) A CAUSE OF ACTION FOR BREACH OF WARRANTY UNDER THIS SECTION 13 ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH. 14 SECTION 4--208. PRESENTMENT WARRANTIES. 15 (A) IF AN UNACCEPTED DRAFT IS PRESENTED TO THE DRAWEE FOR PAYMENT OR 16 ACCEPTANCE AND THE DRAWEE PAYS OR ACCEPTS THE DRAFT, (I) THE PERSON 17 OBTAINING PAYMENT OR ACCEPTANCE, AT THE TIME OF PRESENTMENT, AND (II) A 18 PREVIOUS TRANSFEROR OF THE DRAFT, AT THE TIME OF TRANSFER, WARRANT TO 19 THE DRAWEE THAT PAYS OR ACCEPTS THE DRAFT IN GOOD FAITH THAT: 20 (1) THE WARRANTOR IS, OR WAS, AT THE TIME THE WARRANTOR TRANSFERRED 21 THE DRAFT, A PERSON ENTITLED TO ENFORCE THE DRAFT OR AUTHORIZED TO 22 OBTAIN PAYMENT OR ACCEPTANCE OF THE DRAFT ON BEHALF OF A PERSON ENTITLED 23 TO ENFORCE THE DRAFT; 24 (2) THE DRAFT HAS NOT BEEN ALTERED; AND 25 (3) THE WARRANTOR HAS NO KNOWLEDGE THAT THE SIGNATURE OF THE PURPORTED 26 DRAWER OF THE DRAFT IS UNAUTHORIZED; AND 27 (4) WITH RESPECT TO ANY REMOTELY-CREATED CONSUMER ITEM, THAT THE 28 PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE 29 ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN. 30 (B) A DRAWEE MAKING PAYMENT MAY RECOVER FROM A WARRANTOR DAMAGES FOR 31 BREACH OF WARRANTY EQUAL TO THE AMOUNT PAID BY THE DRAWEE LESS THE 32 AMOUNT THE DRAWEE RECEIVED OR IS ENTITLED TO RECEIVE FROM THE DRAWER 33 BECAUSE OF THE PAYMENT. IN ADDITION, THE DRAWEE IS ENTITLED TO COMPEN- 34 SATION FOR EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH. THE 35 RIGHT OF THE DRAWEE TO RECOVER DAMAGES UNDER THIS SUBSECTION IS NOT 36 AFFECTED BY ANY FAILURE OF THE DRAWEE TO EXERCISE ORDINARY CARE IN 37 MAKING PAYMENT. IF THE DRAWEE ACCEPTS THE DRAFT (I) BREACH OF WARRANTY 38 IS A DEFENSE TO THE OBLIGATION OF THE ACCEPTOR, AND (II) IF THE ACCEPTOR 39 MAKES PAYMENT WITH RESPECT TO THE DRAFT, THE ACCEPTOR IS ENTITLED TO 40 RECOVER FROM A WARRANTOR FOR BREACH OF WARRANTY THE AMOUNTS STATED IN 41 THIS SUBSECTION. 42 (C) IF A DRAWEE ASSERTS A CLAIM FOR BREACH OF WARRANTY UNDER 43 SUBSECTION (A) BASED ON AN UNAUTHORIZED INDORSEMENT OF THE DRAFT OR AN 44 ALTERATION OF THE DRAFT, THE WARRANTOR MAY DEFEND BY PROVING THAT THE 45 INDORSEMENT IS EFFECTIVE UNDER SECTION 3--404 OR 3--405 OR THE DRAWER IS 46 PRECLUDED UNDER SECTION 3--406 OR 4--406 FROM ASSERTING AGAINST THE 47 DRAWEE THE UNAUTHORIZED INDORSEMENT OR ALTERATION. 48 (D) IF (I) A DISHONORED DRAFT IS PRESENTED FOR PAYMENT TO THE DRAWER 49 OR AN INDORSER OR (II) ANY OTHER ITEM IS PRESENTED FOR PAYMENT TO A 50 PARTY OBLIGED TO PAY THE ITEM, AND THE ITEM IS PAID, THE PERSON OBTAIN- 51 ING PAYMENT AND A PRIOR TRANSFEROR OF THE ITEM WARRANT TO THE PERSON 52 MAKING PAYMENT IN GOOD FAITH THAT THE WARRANTOR IS, OR WAS, AT THE TIME 53 THE WARRANTOR TRANSFERRED THE ITEM, A PERSON ENTITLED TO ENFORCE THE 54 ITEM OR AUTHORIZED TO OBTAIN PAYMENT ON BEHALF OF A PERSON ENTITLED TO 55 ENFORCE THE ITEM. THE PERSON MAKING PAYMENT MAY RECOVER FROM ANY S. 5901 53 1 WARRANTOR FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE AMOUNT PAID PLUS 2 EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH. 3 (E) THE WARRANTIES STATED IN SUBSECTIONS (A) AND (D) CANNOT BE 4 DISCLAIMED WITH RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH 5 OF WARRANTY IS GIVEN TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE 6 CLAIMANT HAS REASON TO KNOW OF THE BREACH AND THE IDENTITY OF THE 7 WARRANTOR, THE WARRANTOR IS DISCHARGED TO THE EXTENT OF ANY LOSS CAUSED 8 BY THE DELAY IN GIVING NOTICE OF THE CLAIM. 9 (F) A CAUSE OF ACTION FOR BREACH OF WARRANTY UNDER THIS SECTION 10 ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH. 11 SECTION 4--209. ENCODING AND RETENTION WARRANTIES. 12 (A) A PERSON WHO ENCODES INFORMATION ON OR WITH RESPECT TO AN ITEM 13 AFTER ISSUE WARRANTS TO ANY SUBSEQUENT COLLECTING BANK AND TO THE PAYOR 14 BANK OR OTHER PAYOR THAT THE INFORMATION IS CORRECTLY ENCODED. IF THE 15 CUSTOMER OF A DEPOSITARY BANK ENCODES, THAT BANK ALSO MAKES THE WARRAN- 16 TY. 17 (B) A PERSON WHO UNDERTAKES TO RETAIN AN ITEM PURSUANT TO AN AGREEMENT 18 FOR ELECTRONIC PRESENTMENT WARRANTS TO ANY SUBSEQUENT COLLECTING BANK 19 AND TO THE PAYOR BANK OR OTHER PAYOR THAT RETENTION AND PRESENTMENT OF 20 THE ITEM COMPLY WITH THE AGREEMENT. IF A CUSTOMER OF A DEPOSITARY BANK 21 UNDERTAKES TO RETAIN AN ITEM, THAT BANK ALSO MAKES THIS WARRANTY. 22 (C) A PERSON TO WHOM WARRANTIES ARE MADE UNDER THIS SECTION, AND WHO 23 TOOK THE ITEM IN GOOD FAITH, MAY RECOVER FROM THE WARRANTOR AS DAMAGES 24 FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A RESULT 25 OF THE BREACH, PLUS EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT 26 OF THE BREACH. 27 SECTION 4--210. SECURITY INTEREST OF COLLECTING BANK IN ITEMS, ACCOMPA- 28 NYING DOCUMENTS AND PROCEEDS. 29 (A) A COLLECTING BANK HAS A SECURITY INTEREST IN AN ITEM AND ANY 30 ACCOMPANYING DOCUMENTS OR THE PROCEEDS OF EITHER: 31 (1) IN THE CASE OF AN ITEM DEPOSITED IN AN ACCOUNT, TO THE EXTENT TO 32 WHICH CREDIT GIVEN FOR THE ITEM HAS BEEN WITHDRAWN OR APPLIED; 33 (2) IN THE CASE OF AN ITEM FOR WHICH IT HAS GIVEN CREDIT AVAILABLE FOR 34 WITHDRAWAL AS OF RIGHT, TO THE EXTENT OF THE CREDIT GIVEN, WHETHER OR 35 NOT THE CREDIT IS DRAWN UPON OR THERE IS A RIGHT OF CHARGE-BACK; OR 36 (3) IF IT MAKES AN ADVANCE ON OR AGAINST THE ITEM. 37 (B) IF CREDIT GIVEN FOR SEVERAL ITEMS RECEIVED AT ONE TIME OR PURSUANT 38 TO A SINGLE AGREEMENT IS WITHDRAWN OR APPLIED IN PART, THE SECURITY 39 INTEREST REMAINS UPON ALL THE ITEMS, ANY ACCOMPANYING DOCUMENTS, OR THE 40 PROCEEDS OF EITHER. FOR THE PURPOSE OF THIS SECTION, CREDITS FIRST GIVEN 41 ARE FIRST WITHDRAWN. 42 (C) RECEIPT BY A COLLECTING BANK OF A FINAL SETTLEMENT FOR AN ITEM IS 43 A REALIZATION ON ITS SECURITY INTEREST IN THE ITEM, ACCOMPANYING DOCU- 44 MENTS, AND PROCEEDS. SO LONG AS THE BANK DOES NOT RECEIVE FINAL SETTLE- 45 MENT FOR THE ITEM, OR GIVE UP POSSESSION OF THE ITEM OR POSSESSION OR 46 CONTROL OF THE ACCOMPANYING DOCUMENTS FOR PURPOSES OTHER THAN 47 COLLECTION, THE SECURITY INTEREST CONTINUES TO THAT EXTENT AND IS 48 SUBJECT TO ARTICLE 9, BUT: 49 (1) NO SECURITY AGREEMENT IS NECESSARY TO MAKE THE SECURITY INTEREST 50 ENFORCEABLE (SECTION 9--203(B)(3)(A)); 51 (2) NO FILING IS REQUIRED TO PERFECT THE SECURITY INTEREST; AND 52 (3) THE SECURITY INTEREST HAS PRIORITY OVER CONFLICTING PERFECTED 53 SECURITY INTERESTS IN THE ITEM, ACCOMPANYING DOCUMENTS, OR PROCEEDS. 54 SECTION 4--211. WHEN BANK GIVES VALUE FOR PURPOSES OF HOLDER IN DUE 55 COURSE. S. 5901 54 1 FOR PURPOSES OF DETERMINING ITS STATUS AS A HOLDER IN DUE COURSE, A 2 BANK HAS GIVEN VALUE TO THE EXTENT IT HAS A SECURITY INTEREST IN AN 3 ITEM, IF THE BANK OTHERWISE COMPLIES WITH THE REQUIREMENTS OF SECTION 4 3--302 ON WHAT CONSTITUTES A HOLDER IN DUE COURSE. 5 SECTION 4--212. PRESENTMENT BY NOTICE OF ITEM NOT PAYABLE BY, THROUGH, 6 OR AT BANK; LIABILITY OF DRAWER OR INDORSER. 7 (A) UNLESS OTHERWISE INSTRUCTED, A COLLECTING BANK MAY PRESENT AN ITEM 8 NOT PAYABLE BY, THROUGH, OR AT A BANK BY SENDING TO THE PARTY TO ACCEPT 9 OR PAY A RECORD PROVIDING NOTICE THAT THE BANK HOLDS THE ITEM FOR 10 ACCEPTANCE OR PAYMENT. THE NOTICE MUST BE SENT IN TIME TO BE RECEIVED ON 11 OR BEFORE THE DAY WHEN PRESENTMENT IS DUE, AND THE BANK MUST MEET ANY 12 REQUIREMENT OF THE PARTY TO ACCEPT OR PAY UNDER SECTION 3--501 BY THE 13 CLOSE OF THE BANK'S NEXT BANKING DAY AFTER IT KNOWS OF THE REQUIREMENT. 14 (B) IF PRESENTMENT IS MADE BY NOTICE AND PAYMENT, ACCEPTANCE, OR 15 REQUEST FOR COMPLIANCE WITH A REQUIREMENT UNDER SECTION 3--501 IS NOT 16 RECEIVED BY THE CLOSE OF BUSINESS ON THE DAY AFTER MATURITY OR, IN THE 17 CASE OF DEMAND ITEMS, BY THE CLOSE OF BUSINESS ON THE THIRD BANKING DAY 18 AFTER NOTICE WAS SENT, THE PRESENTING BANK MAY TREAT THE ITEM AS DISHON- 19 ORED AND CHARGE ANY DRAWER OR INDORSER BY SENDING IT NOTICE OF THE 20 FACTS. 21 SECTION 4--213. MEDIUM AND TIME OF SETTLEMENT BY BANK. 22 (A) WITH RESPECT TO SETTLEMENT BY A BANK, THE MEDIUM AND TIME OF 23 SETTLEMENT MAY BE PRESCRIBED BY FEDERAL RESERVE REGULATIONS OR CIRCU- 24 LARS, CLEARING-HOUSE RULES, AND THE LIKE, OR BY AGREEMENT. IN THE 25 ABSENCE OF SUCH PRESCRIPTION: 26 (1) THE MEDIUM OF SETTLEMENT IS CASH OR CREDIT TO AN ACCOUNT IN A 27 FEDERAL RESERVE BANK OF, OR SPECIFIED BY, THE PERSON TO RECEIVE SETTLE- 28 MENT; AND 29 (2) THE TIME OF SETTLEMENT, IS: 30 (I) WITH RESPECT TO TENDER OF SETTLEMENT BY CASH, A CASHIER'S CHECK, 31 OR TELLER'S CHECK, WHEN THE CASH OR CHECK IS SENT OR DELIVERED; 32 (II) WITH RESPECT TO TENDER OF SETTLEMENT BY CREDIT IN AN ACCOUNT IN A 33 FEDERAL RESERVE BANK, WHEN THE CREDIT IS MADE; 34 (III) WITH RESPECT TO TENDER OF SETTLEMENT BY A CREDIT OR DEBIT TO AN 35 ACCOUNT IN A BANK, WHEN THE CREDIT OR DEBIT IS MADE OR, IN THE CASE OF 36 TENDER OF SETTLEMENT BY AUTHORITY TO CHARGE AN ACCOUNT, WHEN THE AUTHOR- 37 ITY IS SENT OR DELIVERED; OR 38 (IV) WITH RESPECT TO TENDER OF SETTLEMENT BY A FUNDS TRANSFER, WHEN 39 PAYMENT IS MADE PURSUANT TO SECTION 4A--406(A) TO THE PERSON RECEIVING 40 SETTLEMENT. 41 (B) IF THE TENDER OF SETTLEMENT IS NOT BY A MEDIUM AUTHORIZED BY 42 SUBSECTION (A) OR THE TIME OF SETTLEMENT IS NOT FIXED BY SUBSECTION (A), 43 NO SETTLEMENT OCCURS UNTIL THE TENDER OF SETTLEMENT IS ACCEPTED BY THE 44 PERSON RECEIVING SETTLEMENT. 45 (C) IF SETTLEMENT FOR AN ITEM IS MADE BY CASHIER'S CHECK OR TELLER'S 46 CHECK AND THE PERSON RECEIVING SETTLEMENT, BEFORE ITS MIDNIGHT DEADLINE: 47 (1) PRESENTS OR FORWARDS THE CHECK FOR COLLECTION, SETTLEMENT IS FINAL 48 WHEN THE CHECK IS FINALLY PAID; OR 49 (2) FAILS TO PRESENT OR FORWARD THE CHECK FOR COLLECTION, SETTLEMENT 50 IS FINAL AT THE MIDNIGHT DEADLINE OF THE PERSON RECEIVING SETTLEMENT. 51 (D) IF SETTLEMENT FOR AN ITEM IS MADE BY GIVING AUTHORITY TO CHARGE 52 THE ACCOUNT OF THE BANK GIVING SETTLEMENT IN THE BANK RECEIVING SETTLE- 53 MENT, SETTLEMENT IS FINAL WHEN THE CHARGE IS MADE BY THE BANK RECEIVING 54 SETTLEMENT, IF THERE ARE FUNDS AVAILABLE IN THE ACCOUNT FOR THE AMOUNT 55 OF THE ITEM. S. 5901 55 1 SECTION 4--214. RIGHT OF CHARGE-BACK OR REFUND; LIABILITY OF COLLECTING 2 BANK; RETURN OF ITEM. 3 (A) IF A COLLECTING BANK HAS MADE PROVISIONAL SETTLEMENT WITH ITS 4 CUSTOMER FOR AN ITEM AND FAILS BY REASON OF DISHONOR, SUSPENSION OF 5 PAYMENTS BY A BANK, OR OTHERWISE, TO RECEIVE SETTLEMENT FOR THE ITEM 6 WHICH IS OR BECOMES FINAL, THE BANK MAY REVOKE THE SETTLEMENT GIVEN BY 7 IT, CHARGE BACK THE AMOUNT OF ANY CREDIT GIVEN FOR THE ITEM TO ITS 8 CUSTOMER'S ACCOUNT, OR OBTAIN REFUND FROM ITS CUSTOMER, WHETHER OR NOT 9 IT IS ABLE TO RETURN THE ITEM, IF BY ITS MIDNIGHT DEADLINE, OR WITHIN A 10 LONGER REASONABLE TIME AFTER IT LEARNS THE FACTS, IT RETURNS THE ITEM OR 11 SENDS NOTIFICATION OF THE FACTS. IF THE RETURN OR NOTICE IS DELAYED 12 BEYOND THE BANK'S MIDNIGHT DEADLINE, OR A LONGER REASONABLE TIME AFTER 13 IT LEARNS THE FACTS, THE BANK MAY REVOKE THE SETTLEMENT, CHARGE BACK THE 14 CREDIT, OR OBTAIN REFUND FROM ITS CUSTOMER, BUT IT IS LIABLE FOR ANY 15 LOSS RESULTING FROM THE DELAY. THESE RIGHTS TO REVOKE, CHARGE BACK, AND 16 OBTAIN REFUND TERMINATE IF AND WHEN A SETTLEMENT FOR THE ITEM RECEIVED 17 BY THE BANK IS OR BECOMES FINAL. 18 (B) A COLLECTING BANK RETURNS AN ITEM WHEN IT IS SENT OR DELIVERED TO 19 THE BANK'S CUSTOMER OR TRANSFEROR, OR PURSUANT TO ITS INSTRUCTIONS. 20 (C) A DEPOSITARY BANK THAT IS ALSO THE PAYOR MAY CHARGE BACK THE 21 AMOUNT OF AN ITEM TO ITS CUSTOMER'S ACCOUNT OR OBTAIN A REFUND IN 22 ACCORDANCE WITH THE SECTION GOVERNING RETURN OF AN ITEM RECEIVED BY A 23 PAYOR BANK FOR CREDIT ON ITS BOOKS (SECTION 4--301). 24 (D) THE RIGHT TO CHARGE BACK IS NOT AFFECTED BY: 25 (1) PREVIOUS USE OF A CREDIT GIVEN FOR THE ITEM; OR 26 (2) FAILURE BY ANY BANK TO EXERCISE ORDINARY CARE WITH RESPECT TO THE 27 ITEM, BUT A BANK SO FAILING REMAINS LIABLE. 28 (E) A FAILURE TO CHARGE BACK OR CLAIM REFUND DOES NOT AFFECT OTHER 29 RIGHTS OF THE BANK AGAINST THE CUSTOMER OR ANY OTHER PARTY. 30 (F) IF CREDIT IS GIVEN IN DOLLARS AS THE EQUIVALENT OF THE VALUE OF AN 31 ITEM PAYABLE IN FOREIGN MONEY, THE DOLLAR AMOUNT OF ANY CHARGE-BACK OR 32 REFUND MUST BE CALCULATED ON THE BASIS OF THE BANK-OFFERED SPOT RATE FOR 33 THE FOREIGN MONEY PREVAILING ON THE DAY WHEN THE PERSON ENTITLED TO THE 34 CHARGE-BACK OR REFUND LEARNS THAT IT WILL NOT RECEIVE PAYMENT IN THE 35 ORDINARY COURSE. 36 SECTION 4--215. FINAL PAYMENT OF ITEM BY PAYOR BANK; WHEN PROVISIONAL 37 DEBITS AND CREDITS BECOME FINAL; WHEN CERTAIN CREDITS 38 BECOME AVAILABLE FOR WITHDRAWAL. 39 (A) AN ITEM IS FINALLY PAID BY A PAYOR BANK WHEN THE BANK HAS FIRST 40 DONE ANY OF THE FOLLOWING: 41 (1) PAID FOR THE ITEM IN CASH; 42 (2) SETTLED FOR THE ITEM WITHOUT HAVING A RIGHT TO REVOKE THE SETTLE- 43 MENT UNDER STATUTE, CLEARING-HOUSE RULE, OR AGREEMENT; OR 44 (3) MADE A PROVISIONAL SETTLEMENT FOR THE ITEM AND FAILED TO REVOKE 45 THE SETTLEMENT IN THE TIME AND MANNER PERMITTED BY STATUTE, 46 CLEARING-HOUSE RULE, OR AGREEMENT. 47 (B) IF PROVISIONAL SETTLEMENT FOR AN ITEM DOES NOT BECOME FINAL, THE 48 ITEM IS NOT FINALLY PAID. 49 (C) IF PROVISIONAL SETTLEMENT FOR AN ITEM BETWEEN THE PRESENTING AND 50 PAYOR BANKS IS MADE THROUGH A CLEARING HOUSE OR BY DEBITS OR CREDITS IN 51 AN ACCOUNT BETWEEN THEM, THEN TO THE EXTENT THAT PROVISIONAL DEBITS OR 52 CREDITS FOR THE ITEM ARE ENTERED IN ACCOUNTS BETWEEN THE PRESENTING AND 53 PAYOR BANKS, OR BETWEEN THE PRESENTING AND SUCCESSIVE PRIOR COLLECTING 54 BANKS SERIATIM, THEY BECOME FINAL UPON FINAL PAYMENT OF THE ITEM BY THE 55 PAYOR BANK. S. 5901 56 1 (D) IF A COLLECTING BANK RECEIVES A SETTLEMENT FOR AN ITEM WHICH IS OR 2 BECOMES FINAL, THE BANK IS ACCOUNTABLE TO ITS CUSTOMER FOR THE AMOUNT OF 3 THE ITEM AND ANY PROVISIONAL CREDIT GIVEN FOR THE ITEM IN AN ACCOUNT 4 WITH ITS CUSTOMER BECOMES FINAL. 5 (E) SUBJECT TO (I) APPLICABLE LAW STATING A TIME FOR AVAILABILITY OF 6 FUNDS, AND (II) ANY RIGHT OF THE BANK TO APPLY THE CREDIT TO AN OBLI- 7 GATION OF THE CUSTOMER, CREDIT GIVEN BY A BANK FOR AN ITEM IN A CUSTOM- 8 ER'S ACCOUNT BECOMES AVAILABLE FOR WITHDRAWAL AS OF RIGHT: 9 (1) IF THE BANK HAS RECEIVED A PROVISIONAL SETTLEMENT FOR THE ITEM, 10 WHEN THE SETTLEMENT BECOMES FINAL AND THE BANK HAS HAD A REASONABLE TIME 11 TO RECEIVE RETURN OF THE ITEM, AND THE ITEM HAS NOT BEEN RECEIVED WITHIN 12 THAT TIME; 13 (2) IF THE BANK IS BOTH THE DEPOSITARY BANK AND THE PAYOR BANK, AND 14 THE ITEM IS FINALLY PAID, AT THE OPENING OF THE BANK'S SECOND BANKING 15 DAY FOLLOWING RECEIPT OF THE ITEM. 16 (F) SUBJECT TO APPLICABLE LAW STATING A TIME FOR AVAILABILITY OF FUNDS 17 AND ANY RIGHT OF A BANK TO APPLY A DEPOSIT TO AN OBLIGATION OF THE DEPO- 18 SITOR, A DEPOSIT OF MONEY BECOMES AVAILABLE FOR WITHDRAWAL AS OF RIGHT 19 AT THE OPENING OF THE BANK'S NEXT BANKING DAY AFTER RECEIPT OF THE 20 DEPOSIT. 21 SECTION 4--216. INSOLVENCY AND PREFERENCE. 22 (A) IF AN ITEM IS IN, OR COMES INTO THE POSSESSION OF, A PAYOR OR 23 COLLECTING BANK THAT SUSPENDS PAYMENT AND THE ITEM HAS NOT BEEN FINALLY 24 PAID, THE ITEM MUST BE RETURNED BY THE RECEIVER, TRUSTEE, OR AGENT IN 25 CHARGE OF THE CLOSED BANK TO THE PRESENTING BANK OR THE CLOSED BANK'S 26 CUSTOMER. 27 (B) IF A PAYOR BANK FINALLY PAYS AN ITEM AND SUSPENDS PAYMENTS WITHOUT 28 MAKING A SETTLEMENT FOR THE ITEM WITH ITS CUSTOMER OR THE PRESENTING 29 BANK WHICH SETTLEMENT IS OR BECOMES FINAL, THE OWNER OF THE ITEM HAS A 30 PREFERRED CLAIM AGAINST THE PAYOR BANK. 31 (C) IF A PAYOR BANK GIVES, OR A COLLECTING BANK GIVES OR RECEIVES, A 32 PROVISIONAL SETTLEMENT FOR AN ITEM AND THEREAFTER SUSPENDS PAYMENTS, THE 33 SUSPENSION DOES NOT PREVENT OR INTERFERE WITH THE SETTLEMENT'S BECOMING 34 FINAL IF THE FINALITY OCCURS AUTOMATICALLY UPON THE LAPSE OF CERTAIN 35 TIME OR THE HAPPENING OF CERTAIN EVENTS. 36 (D) IF A COLLECTING BANK RECEIVES FROM SUBSEQUENT PARTIES SETTLEMENT 37 FOR AN ITEM, WHICH SETTLEMENT IS OR BECOMES FINAL, AND THE BANK SUSPENDS 38 PAYMENTS WITHOUT MAKING A SETTLEMENT FOR THE ITEM WITH ITS CUSTOMER 39 WHICH SETTLEMENT IS OR BECOMES FINAL, THE OWNER OF THE ITEM HAS A 40 PREFERRED CLAIM AGAINST THE COLLECTING BANK. 41 PART 3 42 COLLECTION OF ITEMS: PAYOR BANKS 43 SECTION 4--301. POSTING; RECOVERY OF PAYMENT BY RETURN OF ITEMS; TIME OF 44 DISHONOR; RETURN OF ITEMS BY PAYOR BANK. 45 (A) IF A PAYOR BANK SETTLES FOR A DEMAND ITEM OTHER THAN A DOCUMENTARY 46 DRAFT PRESENTED OTHERWISE THAN FOR IMMEDIATE PAYMENT OVER THE COUNTER 47 BEFORE MIDNIGHT OF THE BANKING DAY OF RECEIPT, THE PAYOR BANK MAY REVOKE 48 THE SETTLEMENT AND RECOVER THE SETTLEMENT IF, BEFORE IT HAS MADE FINAL 49 PAYMENT AND BEFORE ITS MIDNIGHT DEADLINE, IT 50 (1) RETURNS THE ITEM; 51 (2) RETURNS AN IMAGE OF THE ITEM, IF THE PARTY TO WHICH THE RETURN IS 52 MADE HAS ENTERED INTO AN AGREEMENT TO ACCEPT AN IMAGE AS A RETURN OF THE 53 ITEM AND THE IMAGE IS RETURNED IN ACCORDANCE WITH THAT AGREEMENT; OR 54 (3) SENDS A RECORD PROVIDING NOTICE OF DISHONOR OR NONPAYMENT IF THE 55 ITEM IS UNAVAILABLE FOR RETURN. S. 5901 57 1 (B) IF A DEMAND ITEM IS RECEIVED BY A PAYOR BANK FOR CREDIT ON ITS 2 BOOKS, IT MAY RETURN THE ITEM OR SEND NOTICE OF DISHONOR AND MAY REVOKE 3 ANY CREDIT GIVEN OR RECOVER THE AMOUNT THEREOF WITHDRAWN BY ITS CUSTOM- 4 ER, IF IT ACTS WITHIN THE TIME LIMIT AND IN THE MANNER SPECIFIED IN 5 SUBSECTION (A). 6 (C) UNLESS PREVIOUS NOTICE OF DISHONOR HAS BEEN SENT, AN ITEM IS 7 DISHONORED AT THE TIME WHEN FOR PURPOSES OF DISHONOR IT IS RETURNED OR 8 NOTICE SENT IN ACCORDANCE WITH THIS SECTION. 9 (D) AN ITEM IS RETURNED: 10 (1) AS TO AN ITEM PRESENTED THROUGH A CLEARING HOUSE, WHEN IT IS 11 DELIVERED TO THE PRESENTING OR LAST COLLECTING BANK OR TO THE CLEARING 12 HOUSE OR IS SENT OR DELIVERED IN ACCORDANCE WITH CLEARING HOUSE RULES; 13 OR 14 (2) IN ALL OTHER CASES, WHEN IT IS SENT OR DELIVERED TO THE BANK'S 15 CUSTOMER OR TRANSFEROR OR PURSUANT TO INSTRUCTIONS. 16 SECTION 4--302. PAYER'S BANK RESPONSIBILITY FOR LATE RETURN OF ITEM. 17 (A) IF AN ITEM IS PRESENTED TO AND RECEIVED BY A PAYOR BANK, THE BANK 18 IS ACCOUNTABLE FOR THE AMOUNT OF: 19 (1) A DEMAND ITEM, OTHER THAN A DOCUMENTARY DRAFT, WHETHER PROPERLY 20 PAYABLE OR NOT, IF THE BANK, IN ANY CASE IN WHICH IT IS NOT ALSO THE 21 DEPOSITARY BANK, RETAINS THE ITEM BEYOND MIDNIGHT OF THE BANKING DAY OF 22 RECEIPT WITHOUT SETTLING FOR IT OR, WHETHER OR NOT IT IS ALSO THE DEPO- 23 SITARY BANK, DOES NOT PAY OR RETURN THE ITEM OR SEND NOTICE OF DISHONOR 24 UNTIL AFTER ITS MIDNIGHT DEADLINE; OR 25 (2) ANY OTHER PROPERLY PAYABLE ITEM UNLESS, WITHIN THE TIME ALLOWED 26 FOR ACCEPTANCE OR PAYMENT OF THAT ITEM, THE BANK EITHER ACCEPTS OR PAYS 27 THE ITEM OR RETURNS IT AND ACCOMPANYING DOCUMENTS. 28 (B) THE LIABILITY OF A PAYOR BANK TO PAY AN ITEM PURSUANT TO 29 SUBSECTION (A) IS SUBJECT TO DEFENSES BASED ON BREACH OF A PRESENTMENT 30 WARRANTY (SECTION 4--208) OR PROOF THAT THE PERSON SEEKING ENFORCEMENT 31 OF THE LIABILITY PRESENTED OR TRANSFERRED THE ITEM FOR THE PURPOSE OF 32 DEFRAUDING THE PAYOR BANK. 33 SECTION 4--303. WHEN ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER, LEGAL 34 PROCESS, OR SETOFF; ORDER IN WHICH ITEMS MAY BE 35 CHANGED OR CERTIFIED. 36 (A) ANY KNOWLEDGE, NOTICE, OR STOP-PAYMENT ORDER RECEIVED BY, LEGAL 37 PROCESS SERVED UPON, OR SETOFF EXERCISED BY A PAYOR BANK COMES TOO LATE 38 TO TERMINATE, SUSPEND, OR MODIFY THE BANK'S RIGHT OR DUTY TO PAY AN ITEM 39 OR TO CHARGE ITS CUSTOMER'S ACCOUNT FOR THE ITEM IF THE KNOWLEDGE, 40 NOTICE, STOP-PAYMENT ORDER, OR LEGAL PROCESS IS RECEIVED OR SERVED AND A 41 REASONABLE TIME FOR THE BANK TO ACT THEREON EXPIRES OR THE SETOFF IS 42 EXERCISED AFTER THE EARLIEST OF THE FOLLOWING: 43 (1) THE BANK ACCEPTS OR CERTIFIES THE ITEM; 44 (2) THE BANK PAYS THE ITEM IN CASH; 45 (3) THE BANK SETTLES FOR THE ITEM WITHOUT HAVING A RIGHT TO REVOKE THE 46 SETTLEMENT UNDER STATUTE, CLEARING-HOUSE RULE, OR AGREEMENT; 47 (4) THE BANK BECOMES ACCOUNTABLE FOR THE AMOUNT OF THE ITEM UNDER 48 SECTION 4--302 DEALING WITH THE PAYOR BANK'S RESPONSIBILITY FOR LATE 49 RETURN OF ITEMS; OR 50 (5) WITH RESPECT TO CHECKS, A CUTOFF HOUR NO EARLIER THAN ONE HOUR 51 AFTER THE OPENING OF THE NEXT BANKING DAY AFTER THE BANKING DAY ON WHICH 52 THE BANK RECEIVED THE CHECK AND NO LATER THAN THE CLOSE OF THAT NEXT 53 BANKING DAY OR, IF NO CUTOFF HOUR IS FIXED, THE CLOSE OF THE NEXT BANK- 54 ING DAY AFTER THE BANKING DAY ON WHICH THE BANK RECEIVED THE CHECK. 55 (B) SUBJECT TO SUBSECTION (A), ITEMS MAY BE ACCEPTED, PAID, CERTIFIED, 56 OR CHARGED TO THE INDICATED ACCOUNT OF ITS CUSTOMER IN ANY ORDER. S. 5901 58 1 PART 4 2 RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER 3 SECTION 4--401. WHEN BANK MAY CHARGE CUSTOMER'S ACCOUNT. 4 (A) A BANK MAY CHARGE AGAINST THE ACCOUNT OF A CUSTOMER AN ITEM THAT 5 IS PROPERLY PAYABLE FROM THE ACCOUNT EVEN THOUGH THE CHARGE CREATES AN 6 OVERDRAFT. AN ITEM IS PROPERLY PAYABLE IF IT IS AUTHORIZED BY THE 7 CUSTOMER AND IS IN ACCORDANCE WITH ANY AGREEMENT BETWEEN THE CUSTOMER 8 AND BANK. 9 (B) A CUSTOMER IS NOT LIABLE FOR THE AMOUNT OF AN OVERDRAFT IF THE 10 CUSTOMER NEITHER SIGNED THE ITEM NOR BENEFITED FROM THE PROCEEDS OF THE 11 ITEM. 12 (C) A BANK MAY CHARGE AGAINST THE ACCOUNT OF A CUSTOMER A CHECK THAT 13 IS OTHERWISE PROPERLY PAYABLE FROM THE ACCOUNT, EVEN THOUGH PAYMENT WAS 14 MADE BEFORE THE DATE OF THE CHECK, UNLESS THE CUSTOMER HAS GIVEN NOTICE 15 TO THE BANK OF THE POSTDATING DESCRIBING THE CHECK WITH REASONABLE 16 CERTAINTY. THE NOTICE IS EFFECTIVE FOR THE PERIOD STATED IN SECTION 17 4--403(B) FOR STOP-PAYMENT ORDERS, AND MUST BE RECEIVED AT SUCH TIME AND 18 IN SUCH MANNER AS TO AFFORD THE BANK A REASONABLE OPPORTUNITY TO ACT ON 19 IT BEFORE THE BANK TAKES ANY ACTION WITH RESPECT TO THE CHECK DESCRIBED 20 IN SECTION 4--303. IF A BANK CHARGES AGAINST THE ACCOUNT OF A CUSTOMER A 21 CHECK BEFORE THE DATE STATED IN THE NOTICE OF POSTDATING, THE BANK IS 22 LIABLE FOR DAMAGES FOR THE LOSS RESULTING FROM ITS ACT. THE LOSS MAY 23 INCLUDE DAMAGES FOR DISHONOR OF SUBSEQUENT ITEMS UNDER SECTION 4--402. 24 (D) A BANK THAT IN GOOD FAITH MAKES PAYMENT TO A HOLDER MAY CHARGE THE 25 INDICATED ACCOUNT OF ITS CUSTOMER ACCORDING TO: 26 (1) THE ORIGINAL TERMS OF THE ALTERED ITEM; OR 27 (2) THE TERMS OF THE COMPLETED ITEM, EVEN THOUGH THE BANK KNOWS THE 28 ITEM HAS BEEN COMPLETED UNLESS THE BANK HAS NOTICE THAT THE COMPLETION 29 WAS IMPROPER. 30 SECTION 4--402. BANK'S LIABILITY TO CUSTOMER FOR WRONGFUL DISHONOR, TIME 31 OF DETERMINING INSUFFICIENT BALANCE OF ACCOUNT. 32 (A) EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE, A PAYOR BANK WRONG- 33 FULLY DISHONORS AN ITEM IF IT DISHONORS AN ITEM THAT IS PROPERLY PAYA- 34 BLE, BUT A BANK MAY DISHONOR AN ITEM THAT WOULD CREATE AN OVERDRAFT 35 UNLESS IT HAS AGREED TO PAY THE OVERDRAFT. 36 (B) A PAYOR BANK IS LIABLE TO ITS CUSTOMER FOR DAMAGES PROXIMATELY 37 CAUSED BY THE WRONGFUL DISHONOR OF AN ITEM. LIABILITY IS LIMITED TO 38 ACTUAL DAMAGES PROVED AND MAY INCLUDE DAMAGES FOR AN ARREST OR PROSE- 39 CUTION OF THE CUSTOMER OR OTHER CONSEQUENTIAL DAMAGES. WHETHER ANY 40 CONSEQUENTIAL DAMAGES ARE PROXIMATELY CAUSED BY THE WRONGFUL DISHONOR IS 41 A QUESTION OF FACT TO BE DETERMINED IN EACH CASE. 42 (C) A PAYOR BANK'S DETERMINATION OF THE CUSTOMER'S ACCOUNT BALANCE ON 43 WHICH A DECISION TO DISHONOR FOR INSUFFICIENCY OF AVAILABLE FUNDS IS 44 BASED MAY BE MADE AT ANY TIME BETWEEN THE TIME THE ITEM IS RECEIVED BY 45 THE PAYOR BANK AND THE TIME THAT THE PAYOR BANK RETURNS THE ITEM OR 46 GIVES NOTICE IN LIEU OF RETURN, AND NO MORE THAN ONE DETERMINATION NEED 47 BE MADE. IF, AT THE ELECTION OF THE PAYOR BANK, A SUBSEQUENT BALANCE 48 DETERMINATION IS MADE FOR THE PURPOSE OF REEVALUATING THE BANK'S DECI- 49 SION TO DISHONOR THE ITEM, THE ACCOUNT BALANCE AT THAT TIME IS DETERMI- 50 NATIVE OF WHETHER A DISHONOR FOR INSUFFICIENCY OF AVAILABLE FUNDS IS 51 WRONGFUL. 52 SECTION 4--403. CUSTOMER'S RIGHT TO STOP PAYMENT; BURDEN OF PROOF OF 53 LOSS. 54 (A) A CUSTOMER OR ANY PERSON AUTHORIZED TO DRAW ON THE ACCOUNT IF 55 THERE IS MORE THAN ONE PERSON MAY STOP PAYMENT OF ANY ITEM DRAWN ON THE 56 CUSTOMER'S ACCOUNT OR CLOSE THE ACCOUNT BY AN ORDER TO THE BANK DESCRIB- S. 5901 59 1 ING THE ITEM OR ACCOUNT WITH REASONABLE CERTAINTY RECEIVED AT A TIME AND 2 IN A MANNER THAT AFFORDS THE BANK A REASONABLE OPPORTUNITY TO ACT ON IT 3 BEFORE ANY ACTION BY THE BANK WITH RESPECT TO THE ITEM DESCRIBED IN 4 SECTION 4--303. IF THE SIGNATURE OF MORE THAN ONE PERSON IS REQUIRED TO 5 DRAW ON AN ACCOUNT, ANY OF THESE PERSONS MAY STOP PAYMENT OR CLOSE THE 6 ACCOUNT. 7 (B) A STOP-PAYMENT ORDER IS EFFECTIVE FOR SIX MONTHS, BUT IT LAPSES 8 AFTER FOURTEEN CALENDAR DAYS IF THE ORIGINAL ORDER WAS ORAL AND WAS NOT 9 CONFIRMED IN A RECORD WITHIN THAT PERIOD. A STOP-PAYMENT ORDER MAY BE 10 RENEWED FOR ADDITIONAL SIX-MONTH PERIODS BY A RECORD GIVEN TO THE BANK 11 WITHIN A PERIOD DURING WHICH THE STOP-PAYMENT ORDER IS EFFECTIVE. 12 (C) THE BURDEN OF ESTABLISHING THE FACT AND AMOUNT OF LOSS RESULTING 13 FROM THE PAYMENT OF AN ITEM CONTRARY TO A STOP-PAYMENT ORDER OR ORDER TO 14 CLOSE AN ACCOUNT IS ON THE CUSTOMER. THE LOSS FROM PAYMENT OF AN ITEM 15 CONTRARY TO A STOP-PAYMENT ORDER MAY INCLUDE DAMAGES FOR DISHONOR OF 16 SUBSEQUENT ITEMS UNDER SECTION 4--402. 17 SECTION 4--404. BANK NOT OBLIGED TO PAY CHECK MORE THAN SIX MONTHS OLD. 18 A BANK IS UNDER NO OBLIGATION TO A CUSTOMER HAVING A CHECKING ACCOUNT 19 TO PAY A CHECK, OTHER THAN A CERTIFIED CHECK, WHICH IS PRESENTED MORE 20 THAN SIX MONTHS AFTER ITS DATE, BUT IT MAY CHARGE ITS CUSTOMER'S ACCOUNT 21 FOR A PAYMENT MADE THEREAFTER IN GOOD FAITH. 22 SECTION 4--405. DEATH OR INCOMPETENCE OF CUSTOMER. 23 (A) A PAYOR OR COLLECTING BANK'S AUTHORITY TO ACCEPT, PAY, OR COLLECT 24 AN ITEM OR TO ACCOUNT FOR PROCEEDS OF ITS COLLECTION, IF OTHERWISE 25 EFFECTIVE, IS NOT RENDERED INEFFECTIVE BY INCOMPETENCE OF A CUSTOMER OF 26 EITHER BANK EXISTING AT THE TIME THE ITEM IS ISSUED OR ITS COLLECTION IS 27 UNDERTAKEN IF THE BANK DOES NOT KNOW OF AN ADJUDICATION OF INCOMPETENCE. 28 NEITHER DEATH NOR INCOMPETENCE OF A CUSTOMER REVOKES THE AUTHORITY TO 29 ACCEPT, PAY, COLLECT, OR ACCOUNT UNTIL THE BANK KNOWS OF THE FACT OF 30 DEATH OR OF AN ADJUDICATION OF INCOMPETENCE AND HAS REASONABLE OPPORTU- 31 NITY TO ACT ON IT. 32 (B) EVEN WITH KNOWLEDGE, A BANK MAY FOR TEN DAYS AFTER THE DATE OF 33 DEATH PAY OR CERTIFY CHECKS DRAWN ON OR BEFORE THAT DATE UNLESS ORDERED 34 TO STOP PAYMENT BY A PERSON CLAIMING AN INTEREST IN THE ACCOUNT. 35 SECTION 4--406. CUSTOMER'S DUTY TO DISCOVER AND REPORT UNAUTHORIZED 36 SIGNATURE OR ALTERATION. 37 (A) A BANK THAT SENDS OR MAKES AVAILABLE TO A CUSTOMER A STATEMENT OF 38 ACCOUNT SHOWING PAYMENT OF ITEMS FOR THE ACCOUNT SHALL EITHER RETURN OR 39 MAKE AVAILABLE TO THE CUSTOMER THE ITEMS PAID OR PROVIDE INFORMATION IN 40 THE STATEMENT OF ACCOUNT SUFFICIENT TO ALLOW THE CUSTOMER REASONABLY TO 41 IDENTIFY THE ITEMS PAID. THE STATEMENT OF ACCOUNT PROVIDES SUFFICIENT 42 INFORMATION IF THE ITEM IS DESCRIBED BY ITEM NUMBER, AMOUNT, AND DATE OF 43 PAYMENT. 44 (B) IF THE ITEMS ARE NOT RETURNED TO THE CUSTOMER, THE PERSON RETAIN- 45 ING THE ITEMS SHALL EITHER RETAIN THE ITEMS OR, IF THE ITEMS ARE 46 DESTROYED, MAINTAIN THE CAPACITY TO FURNISH LEGIBLE COPIES OF THE ITEMS 47 UNTIL THE EXPIRATION OF SEVEN YEARS AFTER RECEIPT OF THE ITEMS. A 48 CUSTOMER MAY REQUEST AN ITEM FROM THE BANK THAT PAID THE ITEM, AND THAT 49 BANK MUST PROVIDE IN A REASONABLE TIME EITHER THE ITEM OR, IF THE ITEM 50 HAS BEEN DESTROYED OR IS NOT OTHERWISE OBTAINABLE, A LEGIBLE COPY OF THE 51 ITEM. 52 (C) IF A BANK SENDS OR MAKES AVAILABLE A STATEMENT OF ACCOUNT OR ITEMS 53 PURSUANT TO SUBSECTION (A), THE CUSTOMER MUST EXERCISE REASONABLE 54 PROMPTNESS IN EXAMINING THE STATEMENT OR THE ITEMS TO DETERMINE WHETHER 55 ANY PAYMENT WAS NOT AUTHORIZED BECAUSE OF AN ALTERATION OF AN ITEM OR 56 BECAUSE A PURPORTED SIGNATURE BY OR ON BEHALF OF THE CUSTOMER WAS NOT S. 5901 60 1 AUTHORIZED. IF, BASED ON THE STATEMENT OR ITEMS PROVIDED, THE CUSTOMER 2 SHOULD REASONABLY HAVE DISCOVERED THE UNAUTHORIZED PAYMENT, THE CUSTOMER 3 MUST PROMPTLY NOTIFY THE BANK OF THE RELEVANT FACTS. 4 (D) IF THE BANK PROVES THAT THE CUSTOMER FAILED, WITH RESPECT TO AN 5 ITEM, TO COMPLY WITH THE DUTIES IMPOSED ON THE CUSTOMER BY SUBSECTION 6 (C), THE CUSTOMER IS PRECLUDED FROM ASSERTING AGAINST THE BANK: 7 (1) THE CUSTOMER'S UNAUTHORIZED SIGNATURE OR ANY ALTERATION ON THE 8 ITEM, IF THE BANK ALSO PROVES THAT IT SUFFERED A LOSS BY REASON OF THE 9 FAILURE; AND 10 (2) THE CUSTOMER'S UNAUTHORIZED SIGNATURE OR ALTERATION BY THE SAME 11 WRONGDOER ON ANY OTHER ITEM PAID IN GOOD FAITH BY THE BANK IF THE 12 PAYMENT WAS MADE BEFORE THE BANK RECEIVED NOTICE FROM THE CUSTOMER OF 13 THE UNAUTHORIZED SIGNATURE OR ALTERATION AND AFTER THE CUSTOMER HAD BEEN 14 AFFORDED A REASONABLE PERIOD OF TIME, NOT EXCEEDING THIRTY DAYS, IN 15 WHICH TO EXAMINE THE ITEM OR STATEMENT OF ACCOUNT AND NOTIFY THE BANK. 16 (E) IF SUBSECTION (D) APPLIES AND THE CUSTOMER PROVES THAT THE BANK 17 FAILED TO EXERCISE ORDINARY CARE IN PAYING THE ITEM AND THAT THE FAILURE 18 SUBSTANTIALLY CONTRIBUTED TO LOSS, THE LOSS IS ALLOCATED BETWEEN THE 19 CUSTOMER PRECLUDED AND THE BANK ASSERTING THE PRECLUSION ACCORDING TO 20 THE EXTENT TO WHICH THE FAILURE OF THE CUSTOMER TO COMPLY WITH 21 SUBSECTION (C) AND THE FAILURE OF THE BANK TO EXERCISE ORDINARY CARE 22 CONTRIBUTED TO THE LOSS. IF THE CUSTOMER PROVES THAT THE BANK DID NOT 23 PAY THE ITEM IN GOOD FAITH, THE PRECLUSION UNDER SUBSECTION (D) DOES NOT 24 APPLY. 25 (F) WITHOUT REGARD TO CARE OR LACK OF CARE OF EITHER THE CUSTOMER OR 26 THE BANK, A CUSTOMER WHO DOES NOT WITHIN ONE YEAR AFTER THE STATEMENT OR 27 ITEMS ARE MADE AVAILABLE TO THE CUSTOMER (SUBSECTION (A)) DISCOVER AND 28 REPORT THE CUSTOMER'S UNAUTHORIZED SIGNATURE ON OR ANY ALTERATION ON THE 29 ITEM IS PRECLUDED FROM ASSERTING AGAINST THE BANK THE UNAUTHORIZED 30 SIGNATURE OR ALTERATION. IF THERE IS A PRECLUSION UNDER THIS SUBSECTION, 31 THE PAYOR BANK MAY NOT RECOVER FOR BREACH OF WARRANTY UNDER SECTION 32 4--208 WITH RESPECT TO THE UNAUTHORIZED SIGNATURE OR ALTERATION TO WHICH 33 THE PRECLUSION APPLIES. 34 SECTION 4--407. PAYOR BANK'S RIGHT TO SUBROGATION ON IMPROPER PAYMENT. 35 IF A PAYOR BANK HAS PAID AN ITEM OVER THE ORDER OF THE DRAWER OR MAKER 36 TO STOP PAYMENT, OR AFTER AN ACCOUNT HAS BEEN CLOSED, OR OTHERWISE UNDER 37 CIRCUMSTANCES GIVING A BASIS FOR OBJECTION BY THE DRAWER OR MAKER, TO 38 PREVENT UNJUST ENRICHMENT AND ONLY TO THE EXTENT NECESSARY TO PREVENT 39 LOSS TO THE BANK BY REASON OF ITS PAYMENT OF THE ITEM, THE PAYOR BANK IS 40 SUBROGATED TO THE RIGHTS 41 (1) OF ANY HOLDER IN DUE COURSE ON THE ITEM AGAINST THE DRAWER OR 42 MAKER; 43 (2) OF THE PAYEE OR ANY OTHER HOLDER OF THE ITEM AGAINST THE DRAWER OR 44 MAKER EITHER ON THE ITEM OR UNDER THE TRANSACTION OUT OF WHICH THE ITEM 45 AROSE; AND 46 (3) OF THE DRAWER OR MAKER AGAINST THE PAYEE OR ANY OTHER HOLDER OF 47 THE ITEM WITH RESPECT TO THE TRANSACTION OUT OF WHICH THE ITEM AROSE. 48 PART 5 49 COLLECTION OF DOCUMENTARY DRAFTS 50 SECTION 4--501. HANDLING OF DOCUMENTARY DRAFTS; DUTY TO SEND FOR 51 PRESENTMENT AND TO NOTIFY CUSTOMER OF DISHONOR. 52 A BANK THAT TAKES A DOCUMENTARY DRAFT FOR COLLECTION SHALL PRESENT OR 53 SEND THE DRAFT AND ACCOMPANYING DOCUMENTS FOR PRESENTMENT AND, UPON 54 LEARNING THAT THE DRAFT HAS NOT BEEN PAID OR ACCEPTED IN DUE COURSE, 55 SHALL REASONABLY NOTIFY ITS CUSTOMER OF THE FACT EVEN THOUGH IT MAY HAVE S. 5901 61 1 DISCOUNTED OR BOUGHT THE DRAFT OR EXTENDED CREDIT AVAILABLE FOR WITH- 2 DRAWAL AS OF RIGHT. 3 SECTION 4--502. PRESENTMENT OF "ON ARRIVAL" DRAFTS. 4 IF A DRAFT OR THE RELEVANT INSTRUCTIONS REQUIRE PRESENTMENT "ON 5 ARRIVAL", "WHEN GOODS ARRIVE" OR THE LIKE, THE COLLECTING BANK NEED NOT 6 PRESENT UNTIL IN ITS JUDGMENT A REASONABLE TIME FOR ARRIVAL OF THE GOODS 7 HAS EXPIRED. REFUSAL TO PAY OR ACCEPT BECAUSE THE GOODS HAVE NOT 8 ARRIVED IS NOT DISHONOR; THE BANK MUST NOTIFY ITS TRANSFEROR OF THE 9 REFUSAL BUT NEED NOT PRESENT THE DRAFT AGAIN UNTIL IT IS INSTRUCTED TO 10 DO SO OR LEARNS OF THE ARRIVAL OF THE GOODS. 11 SECTION 4--503. RESPONSIBILITY OF PRESENTING BANK FOR DOCUMENTS AND 12 GOODS; REPORT OF REASONS FOR DISHONOR; REFEREE IN CASE 13 OF NEED. 14 UNLESS OTHERWISE INSTRUCTED AND EXCEPT AS PROVIDED IN ARTICLE 5, A 15 BANK PRESENTING A DOCUMENTARY DRAFT: 16 (1) MUST DELIVER THE DOCUMENTS TO THE DRAWEE ON ACCEPTANCE OF THE 17 DRAFT IF IT IS PAYABLE MORE THAN THREE DAYS AFTER PRESENTMENT; OTHER- 18 WISE, ONLY ON PAYMENT; AND 19 (2) UPON DISHONOR, EITHER IN THE CASE OF PRESENTMENT FOR ACCEPTANCE OR 20 PRESENTMENT FOR PAYMENT, MAY SEEK AND FOLLOW INSTRUCTIONS FROM ANY 21 REFEREE IN CASE OF NEED DESIGNATED IN THE DRAFT OR, IF THE PRESENTING 22 BANK DOES NOT CHOOSE TO UTILIZE THE REFEREE'S SERVICES, IT MUST USE 23 DILIGENCE AND GOOD FAITH TO ASCERTAIN THE REASON FOR DISHONOR, MUST 24 NOTIFY ITS TRANSFEROR OF THE DISHONOR AND OF THE RESULTS OF ITS EFFORT 25 TO ASCERTAIN THE REASONS THEREFOR, AND MUST REQUEST INSTRUCTIONS. 26 HOWEVER THE PRESENTING BANK IS UNDER NO OBLIGATION WITH RESPECT TO 27 GOODS REPRESENTED BY THE DOCUMENTS EXCEPT TO FOLLOW ANY REASONABLE 28 INSTRUCTIONS REASONABLY RECEIVED; IT HAS A RIGHT TO REIMBURSEMENT FOR 29 ANY EXPENSE INCURRED IN FOLLOWING INSTRUCTIONS AND TO PREPAYMENT OF OR 30 INDEMNITY FOR THOSE EXPENSES. 31 SECTION 4--504. PRIVILEGE OF PRESENTING BANK TO DEAL WITH GOODS; SECURI- 32 TY INTEREST FOR EXPENSES. 33 (A) A PRESENTING BANK THAT, FOLLOWING THE DISHONOR OF A DOCUMENTARY 34 DRAFT, HAS REASONABLY REQUESTED INSTRUCTIONS BUT DOES NOT RECEIVE THEM 35 WITHIN A REASONABLE TIME MAY STORE, SELL, OR OTHERWISE DEAL WITH THE 36 GOODS IN ANY REASONABLE MANNER. 37 (B) FOR ITS REASONABLE EXPENSES INCURRED BY ACTION UNDER SUBSECTION 38 (A) THE PRESENTING BANK HAS A LIEN UPON THE GOODS OR THEIR PROCEEDS, 39 WHICH MAY BE FORECLOSED IN THE SAME MANNER AS AN UNPAID SELLER'S LIEN. 40 S 28. Paragraph (g) of subsection 1 of section 4-A-105 of the uniform 41 commercial code, as added by chapter 208 of the laws of 1990, is amended 42 to read as follows: 43 (g) "Prove" with respect to a fact means to meet the burden of 44 establishing the fact (subsection (B)(8) of section 1-201). 45 S 29. Subsection 1 of section 4-A-106 of the uniform commercial code, 46 as added by chapter 208 of the laws of 1990, is amended to read as 47 follows: 48 (1) The time of receipt of a payment order or communication cancelling 49 or amending a payment order is determined by the rules applicable to 50 receipt of a notice stated in [subsection (27) of] Section [1-201] 51 1--202. A receiving bank may fix a cut-off time or times on a funds- 52 transfer business day for the receipt and processing of payment orders 53 and communications cancelling or amending payment orders. Different 54 cut-off times may apply to payment orders, cancellations, or amendments, 55 or to different categories of payment orders, cancellations, or amend- 56 ments. A cut-off time may apply to senders generally or different cut- S. 5901 62 1 off times may apply to different senders or categories of payment 2 orders. If a payment order or communication cancelling or amending a 3 payment order is received after the close of a funds-transfer business 4 day or after the appropriate cut-off time on a funds-transfer business 5 day, the receiving bank may treat the payment order or communication as 6 received at the opening of the next funds-transfer business day. 7 S 30. Subsection 2 of section 4-A-204 of the uniform commercial code, 8 as added by chapter 208 of the laws of 1990, is amended to read as 9 follows: 10 (2) Reasonable time under subsection (1) may be fixed by agreement as 11 stated in subsection (1) of Section [1-204] 1--302(B), but the obli- 12 gation of a receiving bank to refund payment as stated in subsection (1) 13 may not otherwise be varied by agreement. 14 S 31. Subsection (c) of section 5--103 of the uniform commercial code, 15 as added by chpater 471 of the laws of 2000, is amended to read as 16 follows: 17 (c) With the exception of this subsection, subsections (a) and (d) of 18 this section, paragraphs (9) and (10) of subsection (a) of section 19 5--102, subsection (d) of section 5--106, and subsection (d) of section 20 5--114, and except to the extent prohibited in [subsection (3) of] 21 section [1--102] 1--302 and subsection (d) of section 5--117, the effect 22 of this article may be varied by agreement or by a provision stated or 23 incorporated by reference in an undertaking. A term in an agreement or 24 undertaking generally excusing liability or generally limiting remedies 25 for failure to perform obligations is not sufficient to vary obligations 26 prescribed by this article. 27 S 32. Article 7 of the uniform commercial code is REPEALED and a new 28 article 7 is added to read as follows: 29 ARTICLE 7-DOCUMENTS OF TITLE 30 PART 1 31 GENERAL 32 SECTION 7--101. SHORT TITLE. 33 THIS ARTICLE MAY BE CITED AS UNIFORM COMMERCIAL CODE-DOCUMENTS OF 34 TITLE. 35 SECTION 7--102. DEFINITIONS AND INDEX OF DEFINITIONS. 36 (A) IN THIS ARTICLE, UNLESS THE CONTEXT OTHERWISE REQUIRES: 37 (1) "BAILEE" MEANS A PERSON THAT BY A WAREHOUSE RECEIPT, BILL OF 38 LADING, OR OTHER DOCUMENT OF TITLE ACKNOWLEDGES POSSESSION OF GOODS AND 39 CONTRACTS TO DELIVER THEM. 40 (2) "CARRIER" MEANS A PERSON THAT ISSUES A BILL OF LADING. 41 (3) "CONSIGNEE" MEANS A PERSON NAMED IN A BILL OF LADING TO WHICH OR 42 TO WHOSE ORDER THE BILL PROMISES DELIVERY. 43 (4) "CONSIGNOR" MEANS A PERSON NAMED IN A BILL OF LADING AS THE PERSON 44 FROM WHICH THE GOODS HAVE BEEN RECEIVED FOR SHIPMENT. 45 (5) "DELIVERY ORDER" MEANS A RECORD THAT CONTAINS AN ORDER TO DELIVER 46 GOODS DIRECTED TO A WAREHOUSE, CARRIER, OR OTHER PERSON THAT IN THE 47 ORDINARY COURSE OF BUSINESS ISSUES WAREHOUSE RECEIPTS OR BILLS OF 48 LADING. 49 (6) "GOOD FAITH" MEANS HONESTY IN FACT AND THE OBSERVANCE OF REASON- 50 ABLE COMMERCIAL STANDARDS OF FAIR DEALING. 51 (7) "GOODS" MEANS ALL THINGS THAT ARE TREATED AS MOVABLE FOR THE 52 PURPOSES OF A CONTRACT FOR STORAGE OR TRANSPORTATION. 53 (8) "ISSUER" MEANS A BAILEE THAT ISSUES A DOCUMENT OF TITLE OR, IN THE 54 CASE OF AN UNACCEPTED DELIVERY ORDER, THE PERSON THAT ORDERS THE POSSES- 55 SOR OF GOODS TO DELIVER. THE TERM INCLUDES A PERSON FOR WHICH AN AGENT 56 OR EMPLOYEE PURPORTS TO ACT IN ISSUING A DOCUMENT IF THE AGENT OR S. 5901 63 1 EMPLOYEE HAS REAL OR APPARENT AUTHORITY TO ISSUE DOCUMENTS, EVEN IF THE 2 ISSUER DID NOT RECEIVE ANY GOODS, THE GOODS WERE MISDESCRIBED, OR IN ANY 3 OTHER RESPECT THE AGENT OR EMPLOYEE VIOLATED THE ISSUER'S INSTRUCTIONS. 4 (9) "PERSON ENTITLED UNDER THE DOCUMENT" MEANS THE HOLDER, IN THE CASE 5 OF A NEGOTIABLE DOCUMENT OF TITLE, OR THE PERSON TO WHICH DELIVERY OF 6 THE GOODS IS TO BE MADE BY THE TERMS OF, OR PURSUANT TO INSTRUCTIONS IN 7 A RECORD UNDER, A NONNEGOTIABLE DOCUMENT OF TITLE. 8 (10) [RESERVED]. 9 (11) "SIGN" MEANS, WITH PRESENT INTENT TO AUTHENTICATE OR ADOPT A 10 RECORD: 11 (A) TO EXECUTE OR ADOPT A TANGIBLE SYMBOL; OR 12 (B) TO ATTACH TO OR LOGICALLY ASSOCIATE WITH THE RECORD AN ELECTRONIC 13 SOUND, SYMBOL, OR PROCESS. 14 (12) "SHIPPER" MEANS A PERSON THAT ENTERS INTO A CONTRACT OF TRANSPOR- 15 TATION WITH A CARRIER. 16 (13) "WAREHOUSE" MEANS A PERSON ENGAGED IN THE BUSINESS OF STORING 17 GOODS FOR HIRE. 18 (B) DEFINITIONS IN OTHER ARTICLES APPLYING TO THIS ARTICLE AND THE 19 SECTIONS IN WHICH THEY APPEAR ARE: 20 (1) "CONTRACT FOR SALE", SECTION 2--106. 21 (2) "LESSEE IN THE ORDINARY COURSE OF BUSINESS", SECTION 2A--103. 22 (3) "RECEIPT" OF GOODS, SECTION 2--103. 23 (C) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES 24 OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE. 25 SECTION 7--103. RELATION OF ARTICLE TO TREATY OR STATUTE. 26 (A) THIS ARTICLE IS SUBJECT TO ANY TREATY OR STATUTE OF THE UNITED 27 STATES OR REGULATORY STATUTE OF THIS STATE TO THE EXTENT THE TREATY, 28 STATUTE, OR REGULATORY STATUTE IS APPLICABLE. 29 (B) THIS ARTICLE DOES NOT MODIFY OR REPEAL ANY LAW PRESCRIBING THE 30 FORM OR CONTENT OF A DOCUMENT OF TITLE OR THE SERVICES OR FACILITIES TO 31 BE AFFORDED BY A BAILEE, OR OTHERWISE REGULATING A BAILEE'S BUSINESS IN 32 RESPECTS NOT SPECIFICALLY TREATED IN THIS ARTICLE. HOWEVER, VIOLATION OF 33 SUCH A LAW DOES NOT AFFECT THE STATUS OF A DOCUMENT OF TITLE THAT OTHER- 34 WISE IS WITHIN THE DEFINITION OF A DOCUMENT OF TITLE. 35 (C) THIS ARTICLE MODIFIES, LIMITS, AND SUPERSEDES THE FEDERAL ELEC- 36 TRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT (15 U.S.C. SECTION 37 7001, ET. SEQ.) BUT DOES NOT MODIFY, LIMIT, OR SUPERSEDE SECTION 101(C) 38 OF THAT ACT (15 U.S.C. SECTION 7001(C)) OR AUTHORIZE ELECTRONIC DELIVERY 39 OF ANY OF THE NOTICES DESCRIBED IN SECTION 103(B) OF THAT ACT (15 U.S.C. 40 SECTION 7003(B)). 41 (D) TO THE EXTENT THERE IS A CONFLICT BETWEEN THE ELECTRONIC SIGNA- 42 TURES AND RECORDS ACT (STATE TECHNOLOGY LAW 301 ET. SEQ.) AND THIS ARTI- 43 CLE, THIS ARTICLE GOVERNS. 44 SECTION 7--104. NEGOTIABLE AND NONNEGOTIABLE DOCUMENT OF TITLE. 45 (A) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (C), A DOCUMENT OF 46 TITLE IS NEGOTIABLE IF BY ITS TERMS THE GOODS ARE TO BE DELIVERED TO 47 BEARER OR TO THE ORDER OF A NAMED PERSON. 48 (B) A DOCUMENT OF TITLE OTHER THAN ONE DESCRIBED IN SUBSECTION (A) IS 49 NONNEGOTIABLE. A BILL OF LADING THAT STATES THAT THE GOODS ARE CONSIGNED 50 TO A NAMED PERSON IS NOT MADE NEGOTIABLE BY A PROVISION THAT THE GOODS 51 ARE TO BE DELIVERED ONLY AGAINST AN ORDER IN A RECORD SIGNED BY THE SAME 52 OR ANOTHER NAMED PERSON. 53 (C) A DOCUMENT OF TITLE IS NONNEGOTIABLE IF, AT THE TIME IT IS ISSUED, 54 THE DOCUMENT HAS A CONSPICUOUS LEGEND, HOWEVER EXPRESSED, THAT IT IS 55 NONNEGOTIABLE. 56 SECTION 7--105. REISSUANCE IN ALTERNATIVE MEDIUM. S. 5901 64 1 (A) UPON REQUEST OF A PERSON ENTITLED UNDER AN ELECTRONIC DOCUMENT OF 2 TITLE, THE ISSUER OF THE ELECTRONIC DOCUMENT MAY ISSUE A TANGIBLE DOCU- 3 MENT OF TITLE AS A SUBSTITUTE FOR THE ELECTRONIC DOCUMENT IF: 4 (1) THE PERSON ENTITLED UNDER THE ELECTRONIC DOCUMENT SURRENDERS 5 CONTROL OF THE DOCUMENT TO THE ISSUER; AND 6 (2) THE TANGIBLE DOCUMENT WHEN ISSUED CONTAINS A STATEMENT THAT IT IS 7 ISSUED IN SUBSTITUTION FOR THE ELECTRONIC DOCUMENT. 8 (B) UPON ISSUANCE OF A TANGIBLE DOCUMENT OF TITLE IN SUBSTITUTION FOR 9 AN ELECTRONIC DOCUMENT OF TITLE IN ACCORDANCE WITH SUBSECTION (A): 10 (1) THE ELECTRONIC DOCUMENT CEASES TO HAVE ANY EFFECT OR VALIDITY; AND 11 (2) THE PERSON THAT PROCURED ISSUANCE OF THE TANGIBLE DOCUMENT 12 WARRANTS TO ALL SUBSEQUENT PERSONS ENTITLED UNDER THE TANGIBLE DOCUMENT 13 THAT THE WARRANTOR WAS A PERSON ENTITLED UNDER THE ELECTRONIC DOCUMENT 14 WHEN THE WARRANTOR SURRENDERED CONTROL OF THE ELECTRONIC DOCUMENT TO THE 15 ISSUER. 16 (C) UPON REQUEST OF A PERSON ENTITLED UNDER A TANGIBLE DOCUMENT OF 17 TITLE, THE ISSUER OF THE TANGIBLE DOCUMENT MAY ISSUE AN ELECTRONIC DOCU- 18 MENT OF TITLE AS A SUBSTITUTE FOR THE TANGIBLE DOCUMENT IF: 19 (1) THE PERSON ENTITLED UNDER THE TANGIBLE DOCUMENT SURRENDERS 20 POSSESSION OF THE DOCUMENT TO THE ISSUER; AND 21 (2) THE ELECTRONIC DOCUMENT WHEN ISSUED CONTAINS A STATEMENT THAT IT 22 IS ISSUED IN SUBSTITUTION FOR THE TANGIBLE DOCUMENT. 23 (D) UPON ISSUANCE OF AN ELECTRONIC DOCUMENT OF TITLE IN SUBSTITUTION 24 FOR A TANGIBLE DOCUMENT OF TITLE IN ACCORDANCE WITH SUBSECTION (C): 25 (1) THE TANGIBLE DOCUMENT CEASES TO HAVE ANY EFFECT OR VALIDITY; AND 26 (2) THE PERSON THAT PROCURED ISSUANCE OF THE ELECTRONIC DOCUMENT 27 WARRANTS TO ALL SUBSEQUENT PERSONS ENTITLED UNDER THE ELECTRONIC DOCU- 28 MENT THAT THE WARRANTOR WAS A PERSON ENTITLED UNDER THE TANGIBLE DOCU- 29 MENT WHEN THE WARRANTOR SURRENDERED POSSESSION OF THE TANGIBLE DOCUMENT 30 TO THE ISSUER. 31 SECTION 7--106. CONTROL OF ELECTRONIC DOCUMENT OF TITLE. 32 (A) A PERSON HAS CONTROL OF AN ELECTRONIC DOCUMENT OF TITLE IF A 33 SYSTEM EMPLOYED FOR EVIDENCING THE TRANSFER OF INTERESTS IN THE ELEC- 34 TRONIC DOCUMENT RELIABLY ESTABLISHES THAT PERSON AS THE PERSON TO WHICH 35 THE ELECTRONIC DOCUMENT WAS ISSUED OR TRANSFERRED. 36 (B) A SYSTEM SATISFIES SUBSECTION (A), AND A PERSON IS DEEMED TO HAVE 37 CONTROL OF AN ELECTRONIC DOCUMENT OF TITLE, IF THE DOCUMENT IS CREATED, 38 STORED AND ASSIGNED IN SUCH A MANNER THAT: 39 (1) A SINGLE AUTHORITATIVE COPY OF THE DOCUMENT EXISTS WHICH IS 40 UNIQUE, IDENTIFIABLE, AND, EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPHS 41 (4), (5), AND (6), UNALTERABLE; 42 (2) THE AUTHORITATIVE COPY IDENTIFIES THE PERSON ASSERTING CONTROL AS: 43 (A) THE PERSON TO WHICH THE DOCUMENT WAS ISSUED; OR 44 (B) IF THE AUTHORITATIVE COPY INDICATES THAT THE DOCUMENT HAS BEEN 45 TRANSFERRED, THE PERSON TO WHICH THE DOCUMENT WAS MOST RECENTLY TRANS- 46 FERRED; 47 (3) THE AUTHORITATIVE COPY IS COMMUNICATED TO AND MAINTAINED BY THE 48 PERSON ASSERTING CONTROL OR ITS DESIGNATED CUSTODIAN; 49 (4) COPIES OR AMENDMENTS THAT ADD OR CHANGE AN IDENTIFIED ASSIGNEE OF 50 THE AUTHORITATIVE COPY CAN BE MADE ONLY WITH THE CONSENT OF THE PERSON 51 ASSERTING CONTROL; 52 (5) EACH COPY OF THE AUTHORITATIVE COPY AND ANY COPY OF A COPY IS 53 READILY IDENTIFIABLE AS A COPY THAT IS NOT THE AUTHORITATIVE COPY; AND 54 (6) ANY AMENDMENT OF THE AUTHORITATIVE COPY IS READILY IDENTIFIABLE AS 55 AUTHORIZED OR UNAUTHORIZED. S. 5901 65 1 PART 2 2 WAREHOUSE RECEIPTS: SPECIAL PROVISIONS 3 SECTION 7--201. PERSON THAT MAY ISSUE A WAREHOUSE RECEIPT; STORAGE UNDER 4 BOND. 5 (A) A WAREHOUSE RECEIPT MAY BE ISSUED BY ANY WAREHOUSE. 6 (B) IF GOODS, INCLUDING DISTILLED SPIRITS AND AGRICULTURAL COMMOD- 7 ITIES, ARE STORED UNDER A STATUTE REQUIRING A BOND AGAINST WITHDRAWAL OR 8 A LICENSE FOR THE ISSUANCE OF RECEIPTS IN THE NATURE OF WAREHOUSE 9 RECEIPTS, A RECEIPT ISSUED FOR THE GOODS IS DEEMED TO BE A WAREHOUSE 10 RECEIPT EVEN IF ISSUED BY A PERSON THAT IS THE OWNER OF THE GOODS AND IS 11 NOT A WAREHOUSE. 12 SECTION 7--202. FORM OF WAREHOUSE RECEIPT; EFFECT OF OMISSION. 13 (A) A WAREHOUSE RECEIPT NEED NOT BE IN ANY PARTICULAR FORM. 14 (B) UNLESS A WAREHOUSE RECEIPT PROVIDES FOR EACH OF THE FOLLOWING, THE 15 WAREHOUSE IS LIABLE FOR DAMAGES CAUSED TO A PERSON INJURED BY ITS OMIS- 16 SION: 17 (1) A STATEMENT OF THE LOCATION OF THE WAREHOUSE FACILITY WHERE THE 18 GOODS ARE STORED; 19 (2) THE DATE OF ISSUE OF THE RECEIPT; 20 (3) THE UNIQUE IDENTIFICATION CODE OF THE RECEIPT; 21 (4) A STATEMENT WHETHER THE GOODS RECEIVED WILL BE DELIVERED TO THE 22 BEARER, TO A NAMED PERSON, OR TO A NAMED PERSON OR ITS ORDER; 23 (5) THE RATE OF STORAGE AND HANDLING CHARGES, UNLESS GOODS ARE STORED 24 UNDER A FIELD WAREHOUSING ARRANGEMENT, IN WHICH CASE A STATEMENT OF THAT 25 FACT IS SUFFICIENT ON A NONNEGOTIABLE RECEIPT; 26 (6) A DESCRIPTION OF THE GOODS OR THE PACKAGES CONTAINING THEM; 27 (7) THE SIGNATURE OF THE WAREHOUSE OR ITS AGENT; 28 (8) IF THE RECEIPT IS ISSUED FOR GOODS THAT THE WAREHOUSE OWNS, EITHER 29 SOLELY, JOINTLY, OR IN COMMON WITH OTHERS, A STATEMENT OF THE FACT OF 30 THAT OWNERSHIP; AND 31 (9) A STATEMENT OF THE AMOUNT OF ADVANCES MADE AND OF LIABILITIES 32 INCURRED FOR WHICH THE WAREHOUSE CLAIMS A LIEN OR SECURITY INTEREST, 33 UNLESS THE PRECISE AMOUNT OF ADVANCES MADE OR LIABILITIES INCURRED, AT 34 THE TIME OF THE ISSUE OF THE RECEIPT, IS UNKNOWN TO THE WAREHOUSE OR TO 35 ITS AGENT THAT ISSUED THE RECEIPT, IN WHICH CASE A STATEMENT OF THE FACT 36 THAT ADVANCES HAVE BEEN MADE OR LIABILITIES INCURRED AND THE PURPOSE OF 37 THE ADVANCES OR LIABILITIES IS SUFFICIENT. 38 (C) A WAREHOUSE MAY INSERT IN ITS RECEIPT ANY TERMS THAT ARE NOT 39 CONTRARY TO THIS ACT AND DO NOT IMPAIR ITS OBLIGATION OF DELIVERY UNDER 40 SECTION 7--403 OR ITS DUTY OF CARE UNDER SECTION 7--204. ANY CONTRARY 41 PROVISION IS INEFFECTIVE. 42 SECTION 7--203. LIABILITY FOR NONRECEIPT OR MISDESCRIPTION. 43 A PARTY TO, OR PURCHASER FOR, VALUE IN GOOD FAITH OF A DOCUMENT OF 44 TITLE, OTHER THAN A BILL OF LADING, THAT RELIES UPON THE DESCRIPTION OF 45 THE GOODS IN THE DOCUMENT MAY RECOVER FROM THE ISSUER DAMAGES CAUSED BY 46 THE NONRECEIPT OR MISDESCRIPTION OF THE GOODS, EXCEPT TO THE EXTENT 47 THAT: 48 (1) THE DOCUMENT CONSPICUOUSLY INDICATES THAT THE ISSUER DOES NOT KNOW 49 WHETHER ALL OR PART OF THE GOODS IN FACT WERE RECEIVED OR CONFORM TO THE 50 DESCRIPTION, SUCH AS A CASE IN WHICH THE DESCRIPTION IS IN TERMS OF 51 MARKS OR LABELS OR KIND, QUANTITY, OR CONDITION, OR THE RECEIPT OR 52 DESCRIPTION IS QUALIFIED BY "CONTENTS, CONDITION, AND QUALITY UNKNOWN", 53 "SAID TO CONTAIN", OR WORDS OF SIMILAR IMPORT, IF THE INDICATION IS 54 TRUE; OR 55 (2) THE PARTY OR PURCHASER OTHERWISE HAS NOTICE OF THE NONRECEIPT OR 56 MISDESCRIPTION. S. 5901 66 1 SECTION 7--204. DUTY OF CARE; CONTRACTUAL LIMITATION OF WAREHOUSE'S 2 LIABILITY. 3 (A) A WAREHOUSE IS LIABLE FOR DAMAGES FOR LOSS OF OR INJURY TO THE 4 GOODS CAUSED BY ITS FAILURE TO EXERCISE CARE WITH REGARD TO THE GOODS 5 THAT A REASONABLY CAREFUL PERSON WOULD EXERCISE UNDER SIMILAR CIRCUM- 6 STANCES. UNLESS OTHERWISE AGREED, THE WAREHOUSE IS NOT LIABLE FOR 7 DAMAGES THAT COULD NOT HAVE BEEN AVOIDED BY THE EXERCISE OF THAT CARE. 8 (B) DAMAGES MAY BE LIMITED BY A TERM IN THE WAREHOUSE RECEIPT OR STOR- 9 AGE AGREEMENT LIMITING THE AMOUNT OF LIABILITY IN CASE OF LOSS OR DAMAGE 10 BEYOND WHICH THE WAREHOUSE IS NOT LIABLE. SUCH A LIMITATION IS NOT 11 EFFECTIVE WITH RESPECT TO THE WAREHOUSE'S LIABILITY FOR CONVERSION TO 12 ITS OWN USE. ON REQUEST OF THE BAILOR IN A RECORD AT THE TIME OF SIGNING 13 THE STORAGE AGREEMENT OR WITHIN A REASONABLE TIME AFTER RECEIPT OF THE 14 WAREHOUSE RECEIPT, THE WAREHOUSE'S LIABILITY MAY BE INCREASED ON PART OR 15 ALL OF THE GOODS COVERED BY THE STORAGE AGREEMENT OR THE WAREHOUSE 16 RECEIPT. IN THIS EVENT, INCREASED RATES MAY BE CHARGED BASED ON AN 17 INCREASED VALUATION OF THE GOODS. 18 (C) REASONABLE PROVISIONS AS TO THE TIME AND MANNER OF PRESENTING 19 CLAIMS AND COMMENCING ACTIONS BASED ON THE BAILMENT MAY BE INCLUDED IN 20 THE WAREHOUSE RECEIPT OR STORAGE AGREEMENT. 21 SECTION 7--205. TITLE UNDER WAREHOUSE RECEIPT DEFEATED IN CERTAIN CASES. 22 A BUYER IN ORDINARY COURSE OF BUSINESS OF FUNGIBLE GOODS SOLD AND 23 DELIVERED BY A WAREHOUSE THAT IS ALSO IN THE BUSINESS OF BUYING AND 24 SELLING SUCH GOODS TAKES THE GOODS FREE OF ANY CLAIM UNDER A WAREHOUSE 25 RECEIPT EVEN IF THE RECEIPT IS NEGOTIABLE AND HAS BEEN DULY NEGOTIATED. 26 SECTION 7--206. TERMINATION OF STORAGE AT WAREHOUSE'S OPTION. 27 (A) A WAREHOUSE, BY GIVING NOTICE TO THE PERSON ON WHOSE ACCOUNT THE 28 GOODS ARE HELD AND ANY OTHER PERSON KNOWN TO CLAIM AN INTEREST IN THE 29 GOODS, MAY REQUIRE PAYMENT OF ANY CHARGES AND REMOVAL OF THE GOODS FROM 30 THE WAREHOUSE AT THE TERMINATION OF THE PERIOD OF STORAGE FIXED BY THE 31 DOCUMENT OF TITLE OR, IF A PERIOD IS NOT FIXED, WITHIN A STATED PERIOD 32 NOT LESS THAN 30 DAYS AFTER THE WAREHOUSE GIVES NOTICE. IF THE GOODS ARE 33 NOT REMOVED BEFORE THE DATE SPECIFIED IN THE NOTICE, THE WAREHOUSE MAY 34 SELL THEM PURSUANT TO SECTION 7--210. 35 (B) IF A WAREHOUSE IN GOOD FAITH BELIEVES THAT GOODS ARE ABOUT TO 36 DETERIORATE OR DECLINE IN VALUE TO LESS THAN THE AMOUNT OF ITS LIEN 37 WITHIN THE TIME PROVIDED IN SUBSECTION (A) AND SECTION 7--210, THE WARE- 38 HOUSE MAY SPECIFY IN THE NOTICE GIVEN UNDER SUBSECTION (A) ANY REASON- 39 ABLE SHORTER TIME FOR REMOVAL OF THE GOODS AND, IF THE GOODS ARE NOT 40 REMOVED, MAY SELL THEM AT PUBLIC SALE HELD NOT LESS THAN ONE WEEK AFTER 41 A SINGLE ADVERTISEMENT OR POSTING. 42 (C) IF, AS A RESULT OF A QUALITY OR CONDITION OF THE GOODS OF WHICH 43 THE WAREHOUSE DID NOT HAVE NOTICE AT THE TIME OF DEPOSIT, THE GOODS ARE 44 A HAZARD TO OTHER PROPERTY, THE WAREHOUSE FACILITIES, OR OTHER PERSONS, 45 THE WAREHOUSE MAY SELL THE GOODS AT PUBLIC OR PRIVATE SALE WITHOUT 46 ADVERTISEMENT OR POSTING ON REASONABLE NOTIFICATION TO ALL PERSONS KNOWN 47 TO CLAIM AN INTEREST IN THE GOODS. IF THE WAREHOUSE, AFTER A REASONABLE 48 EFFORT, IS UNABLE TO SELL THE GOODS, IT MAY DISPOSE OF THEM IN ANY 49 LAWFUL MANNER AND DOES NOT INCUR LIABILITY BY REASON OF THAT DISPOSI- 50 TION. 51 (D) A WAREHOUSE SHALL DELIVER THE GOODS TO ANY PERSON ENTITLED TO THEM 52 UNDER THIS ARTICLE UPON DUE DEMAND MADE AT ANY TIME BEFORE SALE OR OTHER 53 DISPOSITION UNDER THIS SECTION. 54 (E) A WAREHOUSE MAY SATISFY ITS LIEN FROM THE PROCEEDS OF ANY SALE OR 55 DISPOSITION UNDER THIS SECTION BUT SHALL HOLD THE BALANCE FOR DELIVERY S. 5901 67 1 ON THE DEMAND OF ANY PERSON TO WHICH THE WAREHOUSE WOULD HAVE BEEN BOUND 2 TO DELIVER THE GOODS. 3 SECTION 7--207. GOODS MUST BE KEPT SEPARATE; FUNGIBLE GOODS. 4 (A) UNLESS THE WAREHOUSE RECEIPT PROVIDES OTHERWISE, A WAREHOUSE SHALL 5 KEEP SEPARATE THE GOODS COVERED BY EACH RECEIPT SO AS TO PERMIT AT ALL 6 TIMES IDENTIFICATION AND DELIVERY OF THOSE GOODS. HOWEVER, DIFFERENT 7 LOTS OF FUNGIBLE GOODS MAY BE COMMINGLED. 8 (B) IF DIFFERENT LOTS OF FUNGIBLE GOODS ARE COMMINGLED, THE GOODS ARE 9 OWNED IN COMMON BY THE PERSONS ENTITLED THERETO AND THE WAREHOUSE IS 10 SEVERALLY LIABLE TO EACH OWNER FOR THAT OWNER'S SHARE. IF, BECAUSE OF 11 OVERISSUE, A MASS OF FUNGIBLE GOODS IS INSUFFICIENT TO MEET ALL THE 12 RECEIPTS THE WAREHOUSE HAS ISSUED AGAINST IT, THE PERSONS ENTITLED 13 INCLUDE ALL HOLDERS TO WHICH OVERISSUED RECEIPTS HAVE BEEN DULY NEGOTI- 14 ATED. 15 SECTION 7--208. ALTERED WAREHOUSE RECEIPTS. 16 IF A BLANK IN A NEGOTIABLE TANGIBLE WAREHOUSE RECEIPT HAS BEEN FILLED 17 IN WITHOUT AUTHORITY, A GOOD-FAITH PURCHASER FOR VALUE AND WITHOUT 18 NOTICE OF THE LACK OF AUTHORITY MAY TREAT THE INSERTION AS AUTHORIZED. 19 ANY OTHER UNAUTHORIZED ALTERATION LEAVES ANY TANGIBLE OR ELECTRONIC 20 WAREHOUSE RECEIPT ENFORCEABLE AGAINST THE ISSUER ACCORDING TO ITS 21 ORIGINAL TENOR. 22 SECTION 7--209. LIEN OF WAREHOUSE. 23 (A) A WAREHOUSE HAS A LIEN AGAINST THE BAILOR ON THE GOODS COVERED BY 24 A WAREHOUSE RECEIPT OR STORAGE AGREEMENT OR ON THE PROCEEDS THEREOF IN 25 ITS POSSESSION FOR CHARGES FOR STORAGE OR TRANSPORTATION, INCLUDING 26 DEMURRAGE AND TERMINAL CHARGES, INSURANCE, LABOR, OR OTHER CHARGES, 27 PRESENT OR FUTURE, IN RELATION TO THE GOODS, AND FOR EXPENSES NECESSARY 28 FOR PRESERVATION OF THE GOODS OR REASONABLY INCURRED IN THEIR SALE 29 PURSUANT TO LAW. IF THE PERSON ON WHOSE ACCOUNT THE GOODS ARE HELD IS 30 LIABLE FOR SIMILAR CHARGES OR EXPENSES IN RELATION TO OTHER GOODS WHEN- 31 EVER DEPOSITED AND IT IS STATED IN THE WAREHOUSE RECEIPT OR STORAGE 32 AGREEMENT THAT A LIEN IS CLAIMED FOR CHARGES AND EXPENSES IN RELATION TO 33 OTHER GOODS, THE WAREHOUSE ALSO HAS A LIEN AGAINST THE GOODS COVERED BY 34 THE WAREHOUSE RECEIPT OR STORAGE AGREEMENT OR ON THE PROCEEDS THEREOF IN 35 ITS POSSESSION FOR THOSE CHARGES AND EXPENSES, WHETHER OR NOT THE OTHER 36 GOODS HAVE BEEN DELIVERED BY THE WAREHOUSE. HOWEVER, AS AGAINST A PERSON 37 TO WHICH A NEGOTIABLE WAREHOUSE RECEIPT IS DULY NEGOTIATED, A WARE- 38 HOUSE'S LIEN IS LIMITED TO CHARGES IN AN AMOUNT OR AT A RATE SPECIFIED 39 IN THE WAREHOUSE RECEIPT OR, IF NO CHARGES ARE SO SPECIFIED, TO A 40 REASONABLE CHARGE FOR STORAGE OF THE SPECIFIC GOODS COVERED BY THE 41 RECEIPT SUBSEQUENT TO THE DATE OF THE RECEIPT. 42 (B) A WAREHOUSE MAY ALSO RESERVE A SECURITY INTEREST AGAINST THE 43 BAILOR FOR THE MAXIMUM AMOUNT SPECIFIED ON THE RECEIPT FOR CHARGES OTHER 44 THAN THOSE SPECIFIED IN SUBSECTION (A), SUCH AS FOR MONEY ADVANCED AND 45 INTEREST. THE SECURITY INTEREST IS GOVERNED BY ARTICLE 9. 46 (C) A WAREHOUSE'S LIEN FOR CHARGES AND EXPENSES UNDER SUBSECTION (A) 47 OR A SECURITY INTEREST UNDER SUBSECTION (B) IS ALSO EFFECTIVE AGAINST 48 ANY PERSON THAT SO ENTRUSTED THE BAILOR WITH POSSESSION OF THE GOODS 49 THAT A PLEDGE OF THEM BY THE BAILOR TO A GOOD-FAITH PURCHASER FOR VALUE 50 WOULD HAVE BEEN VALID. HOWEVER, THE LIEN OR SECURITY INTEREST IS NOT 51 EFFECTIVE AGAINST A PERSON THAT BEFORE ISSUANCE OF A DOCUMENT OF TITLE 52 HAD A LEGAL INTEREST OR A PERFECTED SECURITY INTEREST IN THE GOODS AND 53 THAT DID NOT: 54 (1) DELIVER OR ENTRUST THE GOODS OR ANY DOCUMENT OF TITLE COVERING THE 55 GOODS TO THE BAILOR OR THE BAILOR'S NOMINEE WITH: 56 (A) ACTUAL OR APPARENT AUTHORITY TO SHIP, STORE, OR SELL; S. 5901 68 1 (B) POWER TO OBTAIN DELIVERY UNDER SECTION 7--403; OR 2 (C) POWER OF DISPOSITION UNDER SECTIONS 2--403, 2A--304(2), 3 2A--305(2), 9--320, OR 9--321(C) OR OTHER STATUTE OR RULE OF LAW; OR 4 (2) ACQUIESCE IN THE PROCUREMENT BY THE BAILOR OR ITS NOMINEE OF ANY 5 DOCUMENT. 6 (D) A WAREHOUSE'S LIEN ON HOUSEHOLD GOODS FOR CHARGES AND EXPENSES IN 7 RELATION TO THE GOODS UNDER SUBSECTION (A) IS ALSO EFFECTIVE AGAINST ALL 8 PERSONS IF THE DEPOSITOR WAS THE LEGAL POSSESSOR OF THE GOODS AT THE 9 TIME OF DEPOSIT. IN THIS SUBSECTION, "HOUSEHOLD GOODS" MEANS FURNITURE, 10 FURNISHINGS, OR PERSONAL EFFECTS USED BY THE DEPOSITOR IN A DWELLING. 11 (E) A WAREHOUSE LOSES ITS LIEN ON ANY GOODS THAT IT VOLUNTARILY DELIV- 12 ERS OR UNJUSTIFIABLY REFUSES TO DELIVER. 13 SECTION 7--210. ENFORCEMENT OF WAREHOUSE'S LIEN. 14 (A) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (B), A WAREHOUSE'S LIEN 15 MAY BE ENFORCED BY PUBLIC OR PRIVATE SALE OF THE GOODS, IN BULK OR IN 16 PACKAGES, AT ANY TIME OR PLACE AND ON ANY TERMS THAT ARE COMMERCIALLY 17 REASONABLE, AFTER NOTIFYING ALL PERSONS KNOWN TO CLAIM AN INTEREST IN 18 THE GOODS. THE NOTIFICATION MUST INCLUDE A STATEMENT OF THE AMOUNT DUE, 19 THE NATURE OF THE PROPOSED SALE, AND THE TIME AND PLACE OF ANY PUBLIC 20 SALE. THE FACT THAT A BETTER PRICE COULD HAVE BEEN OBTAINED BY A SALE AT 21 A DIFFERENT TIME OR IN A METHOD DIFFERENT FROM THAT SELECTED BY THE 22 WAREHOUSE IS NOT OF ITSELF SUFFICIENT TO ESTABLISH THAT THE SALE WAS NOT 23 MADE IN A COMMERCIALLY REASONABLE MANNER. THE WAREHOUSE SELLS IN A 24 COMMERCIALLY REASONABLE MANNER IF THE WAREHOUSE SELLS THE GOODS IN THE 25 USUAL MANNER IN ANY RECOGNIZED MARKET THEREFORE, SELLS AT THE PRICE 26 CURRENT IN THAT MARKET AT THE TIME OF THE SALE, OR OTHERWISE SELLS IN 27 CONFORMITY WITH COMMERCIALLY REASONABLE PRACTICES AMONG DEALERS IN THE 28 TYPE OF GOODS SOLD. A SALE OF MORE GOODS THAN APPARENTLY NECESSARY TO BE 29 OFFERED TO ENSURE SATISFACTION OF THE OBLIGATION IS NOT COMMERCIALLY 30 REASONABLE, EXCEPT IN CASES COVERED BY THE PRECEDING SENTENCE. 31 (B) A WAREHOUSE MAY ENFORCE ITS LIEN ON GOODS, OTHER THAN GOODS STORED 32 BY A MERCHANT IN THE COURSE OF ITS BUSINESS, ONLY IF THE FOLLOWING 33 REQUIREMENTS ARE SATISFIED: 34 (1) ALL PERSONS KNOWN TO CLAIM AN INTEREST IN THE GOODS MUST BE NOTI- 35 FIED. 36 (2) THE NOTIFICATION MUST INCLUDE AN ITEMIZED STATEMENT OF THE CLAIM, 37 A DESCRIPTION OF THE GOODS SUBJECT TO THE LIEN, A DEMAND FOR PAYMENT 38 WITHIN A SPECIFIED TIME NOT LESS THAN TEN DAYS AFTER RECEIPT OF THE 39 NOTIFICATION, AND A CONSPICUOUS STATEMENT THAT UNLESS THE CLAIM IS PAID 40 WITHIN THAT TIME THE GOODS WILL BE ADVERTISED FOR SALE AND SOLD BY 41 AUCTION AT A SPECIFIED TIME AND PLACE. 42 (3) THE SALE MUST CONFORM TO THE TERMS OF THE NOTIFICATION. 43 (4) THE SALE MUST BE HELD AT THE NEAREST SUITABLE PLACE TO WHERE THE 44 GOODS ARE HELD OR STORED. 45 (5) AFTER THE EXPIRATION OF THE TIME GIVEN IN THE NOTIFICATION, AN 46 ADVERTISEMENT OF THE SALE MUST BE PUBLISHED ONCE A WEEK FOR TWO WEEKS 47 CONSECUTIVELY IN A NEWSPAPER OF GENERAL CIRCULATION WHERE THE SALE IS TO 48 BE HELD. THE ADVERTISEMENT MUST INCLUDE A DESCRIPTION OF THE GOODS, THE 49 NAME OF THE PERSON ON WHOSE ACCOUNT THE GOODS ARE BEING HELD, AND THE 50 TIME AND PLACE OF THE SALE. THE SALE MUST TAKE PLACE AT LEAST FIFTEEN 51 DAYS AFTER THE FIRST PUBLICATION. IF THERE IS NO NEWSPAPER OF GENERAL 52 CIRCULATION WHERE THE SALE IS TO BE HELD, THE ADVERTISEMENT MUST BE 53 POSTED AT LEAST TEN DAYS BEFORE THE SALE IN NOT FEWER THAN SIX CONSPICU- 54 OUS PLACES IN THE NEIGHBORHOOD OF THE PROPOSED SALE. 55 (C) BEFORE ANY SALE PURSUANT TO THIS SECTION, ANY PERSON CLAIMING A 56 RIGHT IN THE GOODS MAY PAY THE AMOUNT NECESSARY TO SATISFY THE LIEN AND S. 5901 69 1 THE REASONABLE EXPENSES INCURRED IN COMPLYING WITH THIS SECTION. IN THAT 2 EVENT, THE GOODS MAY NOT BE SOLD BUT MUST BE RETAINED BY THE WAREHOUSE 3 SUBJECT TO THE TERMS OF THE RECEIPT AND THIS ARTICLE. 4 (D) A WAREHOUSE MAY BUY AT ANY PUBLIC SALE HELD PURSUANT TO THIS 5 SECTION. 6 (E) A PURCHASER IN GOOD FAITH OF GOODS SOLD TO ENFORCE A WAREHOUSE'S 7 LIEN TAKES THE GOODS FREE OF ANY RIGHTS OF PERSONS AGAINST WHICH THE 8 LIEN WAS VALID, DESPITE THE WAREHOUSE'S NONCOMPLIANCE WITH THIS SECTION. 9 (F) A WAREHOUSE MAY SATISFY ITS LIEN FROM THE PROCEEDS OF ANY SALE 10 PURSUANT TO THIS SECTION BUT SHALL HOLD THE BALANCE, IF ANY, FOR DELIV- 11 ERY ON DEMAND TO ANY PERSON TO WHICH THE WAREHOUSE WOULD HAVE BEEN BOUND 12 TO DELIVER THE GOODS. 13 (G) THE RIGHTS PROVIDED BY THIS SECTION ARE IN ADDITION TO ALL OTHER 14 RIGHTS ALLOWED BY LAW TO A CREDITOR AGAINST A DEBTOR. 15 (H) IF A LIEN IS ON GOODS STORED BY A MERCHANT IN THE COURSE OF ITS 16 BUSINESS, THE LIEN MAY BE ENFORCED IN ACCORDANCE WITH SUBSECTION (A) OR 17 (B). 18 (I) A WAREHOUSE IS LIABLE FOR DAMAGES CAUSED BY FAILURE TO COMPLY WITH 19 THE REQUIREMENTS FOR SALE UNDER THIS SECTION AND, IN CASE OF WILLFUL 20 VIOLATION, IS LIABLE FOR CONVERSION. 21 PART 3 22 BILLS OF LADING: SPECIAL PROVISIONS 23 SECTION 7--301. LIABILITY FOR NONRECEIPT OR MISDESCRIPTION; "SAID TO 24 CONTAIN"; "SHIPPER'S WEIGHT, LOAD, AND COUNT"; IMPROP- 25 ER HANDLING. 26 (A) A CONSIGNEE OF A NONNEGOTIABLE BILL OF LADING WHICH HAS GIVEN 27 VALUE IN GOOD FAITH, OR A HOLDER TO WHICH A NEGOTIABLE BILL HAS BEEN 28 DULY NEGOTIATED, RELYING UPON THE DESCRIPTION OF THE GOODS IN THE BILL 29 OR UPON THE DATE SHOWN IN THE BILL, MAY RECOVER FROM THE ISSUER DAMAGES 30 CAUSED BY THE MISDATING OF THE BILL OR THE NONRECEIPT OR MISDESCRIPTION 31 OF THE GOODS, EXCEPT TO THE EXTENT THAT THE BILL INDICATES THAT THE 32 ISSUER DOES NOT KNOW WHETHER ANY PART OR ALL OF THE GOODS IN FACT WERE 33 RECEIVED OR CONFORM TO THE DESCRIPTION, SUCH AS IN A CASE IN WHICH THE 34 DESCRIPTION IS IN TERMS OF MARKS OR LABELS OR KIND, QUANTITY, OR CONDI- 35 TION OR THE RECEIPT OR DESCRIPTION IS QUALIFIED BY "CONTENTS OR CONDI- 36 TION OF CONTENTS OF PACKAGES UNKNOWN", "SAID TO CONTAIN", "SHIPPER'S 37 WEIGHT, LOAD, AND COUNT," OR WORDS OF SIMILAR IMPORT, IF THAT INDICATION 38 IS TRUE. 39 (B) IF GOODS ARE LOADED BY THE ISSUER OF A BILL OF LADING: 40 (1) THE ISSUER SHALL COUNT THE PACKAGES OF GOODS IF SHIPPED IN PACK- 41 AGES AND ASCERTAIN THE KIND AND QUANTITY IF SHIPPED IN BULK; AND 42 (2) WORDS SUCH AS "SHIPPER'S WEIGHT, LOAD, AND COUNT," OR WORDS OF 43 SIMILAR IMPORT INDICATING THAT THE DESCRIPTION WAS MADE BY THE SHIPPER 44 ARE INEFFECTIVE EXCEPT AS TO GOODS CONCEALED IN PACKAGES. 45 (C) IF BULK GOODS ARE LOADED BY A SHIPPER THAT MAKES AVAILABLE TO THE 46 ISSUER OF A BILL OF LADING ADEQUATE FACILITIES FOR WEIGHING THOSE GOODS, 47 THE ISSUER SHALL ASCERTAIN THE KIND AND QUANTITY WITHIN A REASONABLE 48 TIME AFTER RECEIVING THE SHIPPER'S REQUEST IN A RECORD TO DO SO. IN THAT 49 CASE, "SHIPPER'S WEIGHT" OR WORDS OF SIMILAR IMPORT ARE INEFFECTIVE. 50 (D) THE ISSUER OF A BILL OF LADING, BY INCLUDING IN THE BILL THE WORDS 51 "SHIPPER'S WEIGHT, LOAD, AND COUNT," OR WORDS OF SIMILAR IMPORT, MAY 52 INDICATE THAT THE GOODS WERE LOADED BY THE SHIPPER, AND, IF THAT STATE- 53 MENT IS TRUE, THE ISSUER IS NOT LIABLE FOR DAMAGES CAUSED BY THE IMPROP- 54 ER LOADING. HOWEVER, OMISSION OF SUCH WORDS DOES NOT IMPLY LIABILITY FOR 55 DAMAGES CAUSED BY IMPROPER LOADING. S. 5901 70 1 (E) A SHIPPER GUARANTEES TO AN ISSUER THE ACCURACY AT THE TIME OF 2 SHIPMENT OF THE DESCRIPTION, MARKS, LABELS, NUMBER, KIND, QUANTITY, 3 CONDITION, AND WEIGHT, AS FURNISHED BY THE SHIPPER, AND THE SHIPPER 4 SHALL INDEMNIFY THE ISSUER AGAINST DAMAGE CAUSED BY INACCURACIES IN 5 THOSE PARTICULARS. THIS RIGHT OF INDEMNITY DOES NOT LIMIT THE ISSUER'S 6 RESPONSIBILITY OR LIABILITY UNDER THE CONTRACT OF CARRIAGE TO ANY PERSON 7 OTHER THAN THE SHIPPER. 8 SECTION 7--302. THROUGH BILLS OF LADING AND SIMILAR DOCUMENTS OF TITLE. 9 (A) THE ISSUER OF A THROUGH BILL OF LADING, OR OTHER DOCUMENT OF TITLE 10 EMBODYING AN UNDERTAKING TO BE PERFORMED IN PART BY A PERSON ACTING AS 11 ITS AGENT OR BY A PERFORMING CARRIER, IS LIABLE TO ANY PERSON ENTITLED 12 TO RECOVER ON THE BILL OR OTHER DOCUMENT FOR ANY BREACH BY THE OTHER 13 PERSON OR THE PERFORMING CARRIER OF ITS OBLIGATION UNDER THE BILL OR 14 OTHER DOCUMENT. HOWEVER, TO THE EXTENT THAT THE BILL OR OTHER DOCUMENT 15 COVERS AN UNDERTAKING TO BE PERFORMED OVERSEAS OR IN TERRITORY NOT 16 CONTIGUOUS TO THE CONTINENTAL UNITED STATES OR AN UNDERTAKING INCLUDING 17 MATTERS OTHER THAN TRANSPORTATION, THIS LIABILITY FOR BREACH BY THE 18 OTHER PERSON OR THE PERFORMING CARRIER MAY BE VARIED BY AGREEMENT OF THE 19 PARTIES. 20 (B) IF GOODS COVERED BY A THROUGH BILL OF LADING OR OTHER DOCUMENT OF 21 TITLE EMBODYING AN UNDERTAKING TO BE PERFORMED IN PART BY A PERSON OTHER 22 THAN THE ISSUER ARE RECEIVED BY THAT PERSON, THE PERSON IS SUBJECT, WITH 23 RESPECT TO ITS OWN PERFORMANCE WHILE THE GOODS ARE IN ITS POSSESSION, TO 24 THE OBLIGATION OF THE ISSUER. THE PERSON'S OBLIGATION IS DISCHARGED BY 25 DELIVERY OF THE GOODS TO ANOTHER PERSON PURSUANT TO THE BILL OR OTHER 26 DOCUMENT AND DOES NOT INCLUDE LIABILITY FOR BREACH BY ANY OTHER PERSON 27 OR BY THE ISSUER. 28 (C) THE ISSUER OF A THROUGH BILL OF LADING OR OTHER DOCUMENT OF TITLE 29 DESCRIBED IN SUBSECTION (A) IS ENTITLED TO RECOVER FROM THE PERFORMING 30 CARRIER, OR OTHER PERSON IN POSSESSION OF THE GOODS WHEN THE BREACH OF 31 THE OBLIGATION UNDER THE BILL OR OTHER DOCUMENT OCCURRED: 32 (1) THE AMOUNT IT MAY BE REQUIRED TO PAY TO ANY PERSON ENTITLED TO 33 RECOVER ON THE BILL OR OTHER DOCUMENT FOR THE BREACH, AS MAY BE 34 EVIDENCED BY ANY RECEIPT, JUDGMENT, OR TRANSCRIPT OF JUDGMENT; AND 35 (2) THE AMOUNT OF ANY EXPENSE REASONABLY INCURRED BY THE ISSUER IN 36 DEFENDING ANY ACTION COMMENCED BY ANY PERSON ENTITLED TO RECOVER ON THE 37 BILL OR OTHER DOCUMENT FOR THE BREACH. 38 SECTION 7--303. DIVERSION; RECONSIGNMENT; CHANGE OF INSTRUCTIONS. 39 (A) UNLESS THE BILL OF LADING OTHERWISE PROVIDES, A CARRIER MAY DELIV- 40 ER THE GOODS TO A PERSON OR DESTINATION OTHER THAN THAT STATED IN THE 41 BILL OR MAY OTHERWISE DISPOSE OF THE GOODS, WITHOUT LIABILITY FOR MISDE- 42 LIVERY, ON INSTRUCTIONS FROM: 43 (1) THE HOLDER OF A NEGOTIABLE BILL; 44 (2) THE CONSIGNOR ON A NONNEGOTIABLE BILL, EVEN IF THE CONSIGNEE HAS 45 GIVEN CONTRARY INSTRUCTIONS; 46 (3) THE CONSIGNEE ON A NONNEGOTIABLE BILL IN THE ABSENCE OF CONTRARY 47 INSTRUCTIONS FROM THE CONSIGNOR, IF THE GOODS HAVE ARRIVED AT THE BILLED 48 DESTINATION OR IF THE CONSIGNEE IS IN POSSESSION OF THE TANGIBLE BILL OR 49 IN CONTROL OF THE ELECTRONIC BILL; OR 50 (4) THE CONSIGNEE ON A NONNEGOTIABLE BILL, IF THE CONSIGNEE IS ENTI- 51 TLED AS AGAINST THE CONSIGNOR TO DISPOSE OF THE GOODS. 52 (B) UNLESS INSTRUCTIONS DESCRIBED IN SUBSECTION (A) ARE INCLUDED IN A 53 NEGOTIABLE BILL OF LADING, A PERSON TO WHICH THE BILL IS DULY NEGOTIATED 54 MAY HOLD THE BAILEE ACCORDING TO THE ORIGINAL TERMS. 55 SECTION 7--304. TANGIBLE BILLS OF LADING IN A SET. S. 5901 71 1 (A) EXCEPT AS CUSTOMARY IN INTERNATIONAL TRANSPORTATION, A TANGIBLE 2 BILL OF LADING MAY NOT BE ISSUED IN A SET OF PARTS. THE ISSUER IS LIABLE 3 FOR DAMAGES CAUSED BY VIOLATION OF THIS SUBSECTION. 4 (B) IF A TANGIBLE BILL OF LADING IS LAWFULLY ISSUED IN A SET OF PARTS, 5 EACH OF WHICH CONTAINS AN IDENTIFICATION CODE AND IS EXPRESSED TO BE 6 VALID ONLY IF THE GOODS HAVE NOT BEEN DELIVERED AGAINST ANY OTHER PART, 7 THE WHOLE OF THE PARTS CONSTITUTES ONE BILL. 8 (C) IF A TANGIBLE NEGOTIABLE BILL OF LADING IS LAWFULLY ISSUED IN A 9 SET OF PARTS AND DIFFERENT PARTS ARE NEGOTIATED TO DIFFERENT PERSONS, 10 THE TITLE OF THE HOLDER TO WHICH THE FIRST DUE NEGOTIATION IS MADE 11 PREVAILS AS TO BOTH THE DOCUMENT OF TITLE AND THE GOODS EVEN IF ANY 12 LATER HOLDER MAY HAVE RECEIVED THE GOODS FROM THE CARRIER IN GOOD FAITH 13 AND DISCHARGED THE CARRIER'S OBLIGATION BY SURRENDERING ITS PART. 14 (D) A PERSON THAT NEGOTIATES OR TRANSFERS A SINGLE PART OF A TANGIBLE 15 BILL OF LADING ISSUED IN A SET IS LIABLE TO HOLDERS OF THAT PART AS IF 16 IT WERE THE WHOLE SET. 17 (E) THE BAILEE SHALL DELIVER IN ACCORDANCE WITH PART 4 OF THIS ARTICLE 18 AGAINST THE FIRST PRESENTED PART OF A TANGIBLE BILL OF LADING LAWFULLY 19 ISSUED IN A SET. DELIVERY IN THIS MANNER DISCHARGES THE BAILEE'S OBLI- 20 GATION ON THE WHOLE BILL. 21 SECTION 7--305. DESTINATION BILLS. 22 (A) INSTEAD OF ISSUING A BILL OF LADING TO THE CONSIGNOR AT THE PLACE 23 OF SHIPMENT, A CARRIER, AT THE REQUEST OF THE CONSIGNOR, MAY PROCURE THE 24 BILL TO BE ISSUED AT DESTINATION OR AT ANY OTHER PLACE DESIGNATED IN THE 25 REQUEST. 26 (B) UPON REQUEST OF ANY PERSON ENTITLED AS AGAINST A CARRIER TO 27 CONTROL THE GOODS WHILE IN TRANSIT AND ON SURRENDER OF POSSESSION OR 28 CONTROL OF ANY OUTSTANDING BILL OF LADING OR OTHER RECEIPT COVERING THE 29 GOODS, THE ISSUER, SUBJECT TO SECTION 7--105, MAY PROCURE A SUBSTITUTE 30 BILL TO BE ISSUED AT ANY PLACE DESIGNATED IN THE REQUEST. 31 SECTION 7--306. ALTERED BILLS OF LADING. 32 AN UNAUTHORIZED ALTERATION OR FILLING IN OF A BLANK IN A BILL OF 33 LADING LEAVES THE BILL ENFORCEABLE ACCORDING TO ITS ORIGINAL TENOR. 34 SECTION 7--307. LIEN OF CARRIER. 35 (A) A CARRIER HAS A LIEN ON THE GOODS COVERED BY A BILL OF LADING OR 36 ON THE PROCEEDS THEREOF IN ITS POSSESSION FOR CHARGES AFTER THE DATE OF 37 THE CARRIER'S RECEIPT OF THE GOODS FOR STORAGE OR TRANSPORTATION, 38 INCLUDING DEMURRAGE AND TERMINAL CHARGES, AND FOR EXPENSES NECESSARY FOR 39 PRESERVATION OF THE GOODS INCIDENT TO THEIR TRANSPORTATION OR REASONABLY 40 INCURRED IN THEIR SALE PURSUANT TO LAW. HOWEVER, AGAINST A PURCHASER FOR 41 VALUE OF A NEGOTIABLE BILL OF LADING, A CARRIER'S LIEN IS LIMITED TO 42 CHARGES STATED IN THE BILL OR THE APPLICABLE TARIFFS OR, IF NO CHARGES 43 ARE STATED, A REASONABLE CHARGE. 44 (B) A LIEN FOR CHARGES AND EXPENSES UNDER SUBSECTION (A) ON GOODS THAT 45 THE CARRIER WAS REQUIRED BY LAW TO RECEIVE FOR TRANSPORTATION IS EFFEC- 46 TIVE AGAINST THE CONSIGNOR OR ANY PERSON ENTITLED TO THE GOODS UNLESS 47 THE CARRIER HAD NOTICE THAT THE CONSIGNOR LACKED AUTHORITY TO SUBJECT 48 THE GOODS TO THOSE CHARGES AND EXPENSES. ANY OTHER LIEN UNDER 49 SUBSECTION (A) IS EFFECTIVE AGAINST THE CONSIGNOR AND ANY PERSON THAT 50 PERMITTED THE BAILOR TO HAVE CONTROL OR POSSESSION OF THE GOODS UNLESS 51 THE CARRIER HAD NOTICE THAT THE BAILOR LACKED AUTHORITY. 52 (C) A CARRIER LOSES ITS LIEN ON ANY GOODS THAT IT VOLUNTARILY DELIVERS 53 OR UNJUSTIFIABLY REFUSES TO DELIVER. 54 SECTION 7--308. ENFORCEMENT OF CARRIER'S LIEN. 55 (A) A CARRIER'S LIEN ON GOODS MAY BE ENFORCED BY PUBLIC OR PRIVATE 56 SALE OF THE GOODS, IN BULK OR IN PACKAGES, AT ANY TIME OR PLACE AND ON S. 5901 72 1 ANY TERMS THAT ARE COMMERCIALLY REASONABLE, AFTER NOTIFYING ALL PERSONS 2 KNOWN TO CLAIM AN INTEREST IN THE GOODS. THE NOTIFICATION MUST INCLUDE A 3 STATEMENT OF THE AMOUNT DUE, THE NATURE OF THE PROPOSED SALE, AND THE 4 TIME AND PLACE OF ANY PUBLIC SALE. THE FACT THAT A BETTER PRICE COULD 5 HAVE BEEN OBTAINED BY A SALE AT A DIFFERENT TIME OR IN A METHOD DIFFER- 6 ENT FROM THAT SELECTED BY THE CARRIER IS NOT OF ITSELF SUFFICIENT TO 7 ESTABLISH THAT THE SALE WAS NOT MADE IN A COMMERCIALLY REASONABLE 8 MANNER. THE CARRIER SELLS GOODS IN A COMMERCIALLY REASONABLE MANNER IF 9 THE CARRIER SELLS THE GOODS IN THE USUAL MANNER IN ANY RECOGNIZED MARKET 10 THEREFOR, SELLS AT THE PRICE CURRENT IN THAT MARKET AT THE TIME OF THE 11 SALE, OR OTHERWISE SELLS IN CONFORMITY WITH COMMERCIALLY REASONABLE 12 PRACTICES AMONG DEALERS IN THE TYPE OF GOODS SOLD. A SALE OF MORE GOODS 13 THAN APPARENTLY NECESSARY TO BE OFFERED TO ENSURE SATISFACTION OF THE 14 OBLIGATION IS NOT COMMERCIALLY REASONABLE, EXCEPT IN CASES COVERED BY 15 THE PRECEDING SENTENCE. 16 (B) BEFORE ANY SALE PURSUANT TO THIS SECTION, ANY PERSON CLAIMING A 17 RIGHT IN THE GOODS MAY PAY THE AMOUNT NECESSARY TO SATISFY THE LIEN AND 18 THE REASONABLE EXPENSES INCURRED IN COMPLYING WITH THIS SECTION. IN THAT 19 EVENT, THE GOODS MAY NOT BE SOLD BUT MUST BE RETAINED BY THE CARRIER, 20 SUBJECT TO THE TERMS OF THE BILL OF LADING AND THIS ARTICLE. 21 (C) A CARRIER MAY BUY AT ANY PUBLIC SALE PURSUANT TO THIS SECTION. 22 (D) A PURCHASER IN GOOD FAITH OF GOODS SOLD TO ENFORCE A CARRIER'S 23 LIEN TAKES THE GOODS FREE OF ANY RIGHTS OF PERSONS AGAINST WHICH THE 24 LIEN WAS VALID, DESPITE THE CARRIER'S NONCOMPLIANCE WITH THIS SECTION. 25 (E) A CARRIER MAY SATISFY ITS LIEN FROM THE PROCEEDS OF ANY SALE 26 PURSUANT TO THIS SECTION BUT SHALL HOLD THE BALANCE, IF ANY, FOR DELIV- 27 ERY ON DEMAND TO ANY PERSON TO WHICH THE CARRIER WOULD HAVE BEEN BOUND 28 TO DELIVER THE GOODS. 29 (F) THE RIGHTS PROVIDED BY THIS SECTION ARE IN ADDITION TO ALL OTHER 30 RIGHTS ALLOWED BY LAW TO A CREDITOR AGAINST A DEBTOR. 31 (G) A CARRIER'S LIEN MAY BE ENFORCED PURSUANT TO EITHER SUBSECTION (A) 32 OR THE PROCEDURE SET FORTH IN SECTION 7--210(B). 33 (H) A CARRIER IS LIABLE FOR DAMAGES CAUSED BY FAILURE TO COMPLY WITH 34 THE REQUIREMENTS FOR SALE UNDER THIS SECTION AND, IN CASE OF WILLFUL 35 VIOLATION, IS LIABLE FOR CONVERSION. 36 SECTION 7--309. DUTY OF CARE; CONTRACTUAL LIMITATION OF CARRIER'S 37 LIABILITY. 38 (A) A CARRIER THAT ISSUES A BILL OF LADING, WHETHER NEGOTIABLE OR 39 NONNEGOTIABLE, SHALL EXERCISE THE DEGREE OF CARE IN RELATION TO THE 40 GOODS WHICH A REASONABLY CAREFUL PERSON WOULD EXERCISE UNDER SIMILAR 41 CIRCUMSTANCES. THIS SUBSECTION DOES NOT AFFECT ANY STATUTE, REGULATION, 42 OR RULE OF LAW THAT IMPOSES LIABILITY UPON A COMMON CARRIER FOR DAMAGES 43 NOT CAUSED BY ITS NEGLIGENCE. 44 (B) DAMAGES MAY BE LIMITED BY A TERM IN THE BILL OF LADING OR IN A 45 TRANSPORTATION AGREEMENT THAT THE CARRIER'S LIABILITY MAY NOT EXCEED A 46 VALUE STATED IN THE BILL OR TRANSPORTATION AGREEMENT IF THE CARRIER'S 47 RATES ARE DEPENDENT UPON VALUE AND THE CONSIGNOR IS AFFORDED AN OPPORTU- 48 NITY TO DECLARE A HIGHER VALUE AND THE CONSIGNOR IS ADVISED OF THE 49 OPPORTUNITY. HOWEVER, SUCH A LIMITATION IS NOT EFFECTIVE WITH RESPECT TO 50 THE CARRIER'S LIABILITY FOR CONVERSION TO ITS OWN USE. 51 (C) REASONABLE PROVISIONS AS TO THE TIME AND MANNER OF PRESENTING 52 CLAIMS AND COMMENCING ACTIONS BASED ON THE SHIPMENT MAY BE INCLUDED IN A 53 BILL OF LADING OR A TRANSPORTATION AGREEMENT. 54 PART 4 55 WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS S. 5901 73 1 SECTION 7--401. IRREGULARITIES IN ISSUE OF RECEIPT OR BILL OR CONDUCT OF 2 ISSUER. 3 THE OBLIGATIONS IMPOSED BY THIS ARTICLE ON AN ISSUER APPLY TO A DOCU- 4 MENT OF TITLE EVEN IF: 5 (1) THE DOCUMENT DOES NOT COMPLY WITH THE REQUIREMENTS OF THIS ARTICLE 6 OR OF ANY OTHER STATUTE, RULE, OR REGULATION REGARDING ITS ISSUANCE, 7 FORM, OR CONTENT; 8 (2) THE ISSUER VIOLATED LAWS REGULATING THE CONDUCT OF ITS BUSINESS; 9 (3) THE GOODS COVERED BY THE DOCUMENT WERE OWNED BY THE BAILEE WHEN 10 THE DOCUMENT WAS ISSUED; OR 11 (4) THE PERSON ISSUING THE DOCUMENT IS NOT A WAREHOUSE BUT THE DOCU- 12 MENT PURPORTS TO BE A WAREHOUSE RECEIPT. 13 SECTION 7--402. DUPLICATE DOCUMENT OF TITLE; OVERISSUE. 14 A DUPLICATE OR ANY OTHER DOCUMENT OF TITLE PURPORTING TO COVER GOODS 15 ALREADY REPRESENTED BY AN OUTSTANDING DOCUMENT OF THE SAME ISSUER DOES 16 NOT CONFER ANY RIGHT IN THE GOODS, EXCEPT AS PROVIDED IN THE CASE OF 17 TANGIBLE BILLS OF LADING IN A SET OF PARTS, OVERISSUE OF DOCUMENTS FOR 18 FUNGIBLE GOODS, SUBSTITUTES FOR LOST, STOLEN, OR DESTROYED DOCUMENTS, OR 19 SUBSTITUTE DOCUMENTS ISSUED PURSUANT TO SECTION 7--105. THE ISSUER IS 20 LIABLE FOR DAMAGES CAUSED BY ITS OVERISSUE OR FAILURE TO IDENTIFY A 21 DUPLICATE DOCUMENT BY A CONSPICUOUS NOTATION. 22 SECTION 7--403. OBLIGATION OF BAILEE TO DELIVER; EXCUSE. 23 (A) A BAILEE SHALL DELIVER THE GOODS TO A PERSON ENTITLED UNDER A 24 DOCUMENT OF TITLE IF THE PERSON COMPLIES WITH SUBSECTIONS (B) AND (C), 25 UNLESS AND TO THE EXTENT THAT THE BAILEE ESTABLISHES ANY OF THE FOLLOW- 26 ING: 27 (1) DELIVERY OF THE GOODS TO A PERSON WHOSE RECEIPT WAS RIGHTFUL AS 28 AGAINST THE CLAIMANT; 29 (2) DAMAGE TO OR DELAY, LOSS, OR DESTRUCTION OF THE GOODS FOR WHICH 30 THE BAILEE IS NOT LIABLE; 31 (3) PREVIOUS SALE OR OTHER DISPOSITION OF THE GOODS IN LAWFUL ENFORCE- 32 MENT OF A LIEN OR ON A WAREHOUSE'S LAWFUL TERMINATION OF STORAGE; 33 (4) THE EXERCISE BY A SELLER OF ITS RIGHT TO STOP DELIVERY PURSUANT TO 34 SECTION 2--705 OR BY A LESSOR OF ITS RIGHT TO STOP DELIVERY PURSUANT TO 35 SECTION 2-A--526; 36 (5) A DIVERSION, RECONSIGNMENT, OR OTHER DISPOSITION PURSUANT TO 37 SECTION 7--303; 38 (6) RELEASE, SATISFACTION, OR ANY OTHER PERSONAL DEFENSE AGAINST THE 39 CLAIMANT; OR 40 (7) ANY OTHER LAWFUL EXCUSE. 41 (B) A PERSON CLAIMING GOODS COVERED BY A DOCUMENT OF TITLE SHALL 42 SATISFY THE BAILEE'S LIEN IF THE BAILEE SO REQUESTS OR IF THE BAILEE IS 43 PROHIBITED BY LAW FROM DELIVERING THE GOODS UNTIL THE CHARGES ARE PAID. 44 (C) UNLESS A PERSON CLAIMING THE GOODS IS A PERSON AGAINST WHICH THE 45 DOCUMENT OF TITLE DOES NOT CONFER A RIGHT UNDER SECTION 7--503(A): 46 (1) THE PERSON CLAIMING UNDER A DOCUMENT SHALL SURRENDER POSSESSION OR 47 CONTROL OF ANY OUTSTANDING NEGOTIABLE DOCUMENT COVERING THE GOODS FOR 48 CANCELLATION OR INDICATION OF PARTIAL DELIVERIES; AND 49 (2) THE BAILEE SHALL CANCEL THE DOCUMENT OR CONSPICUOUSLY INDICATE IN 50 THE DOCUMENT THE PARTIAL DELIVERY OR THE BAILEE IS LIABLE TO ANY PERSON 51 TO WHICH THE DOCUMENT IS DULY NEGOTIATED. 52 SECTION 7--404. NO LIABILITY FOR GOOD-FAITH DELIVERY PURSUANT TO DOCU- 53 MENT OF TITLE. 54 A BAILEE THAT IN GOOD FAITH HAS RECEIVED GOODS AND DELIVERED OR OTHER- 55 WISE DISPOSED OF THE GOODS ACCORDING TO THE TERMS OF A DOCUMENT OF TITLE 56 OR PURSUANT TO THIS ARTICLE IS NOT LIABLE FOR THE GOODS EVEN IF: S. 5901 74 1 (1) THE PERSON FROM WHICH THE BAILEE RECEIVED THE GOODS DID NOT HAVE 2 AUTHORITY TO PROCURE THE DOCUMENT OR TO DISPOSE OF THE GOODS; OR 3 (2) THE PERSON TO WHICH THE BAILEE DELIVERED THE GOODS DID NOT HAVE 4 AUTHORITY TO RECEIVE THE GOODS. 5 PART 5 6 WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER 7 SECTION 7--501. FORM OF NEGOTIATION AND REQUIREMENTS OF DUE NEGOTIATION. 8 (A) THE FOLLOWING RULES APPLY TO A NEGOTIABLE TANGIBLE DOCUMENT OF 9 TITLE: 10 (1) IF THE DOCUMENT'S ORIGINAL TERMS RUN TO THE ORDER OF A NAMED 11 PERSON, THE DOCUMENT IS NEGOTIATED BY THE NAMED PERSON'S INDORSEMENT AND 12 DELIVERY. AFTER THE NAMED PERSON'S INDORSEMENT IN BLANK OR TO BEARER, 13 ANY PERSON MAY NEGOTIATE THE DOCUMENT BY DELIVERY ALONE. 14 (2) IF THE DOCUMENT'S ORIGINAL TERMS RUN TO BEARER, IT IS NEGOTIATED 15 BY DELIVERY ALONE. 16 (3) IF THE DOCUMENT'S ORIGINAL TERMS RUN TO THE ORDER OF A NAMED 17 PERSON AND IT IS DELIVERED TO THE NAMED PERSON, THE EFFECT IS THE SAME 18 AS IF THE DOCUMENT HAD BEEN NEGOTIATED. 19 (4) NEGOTIATION OF THE DOCUMENT AFTER IT HAS BEEN INDORSED TO A NAMED 20 PERSON REQUIRES INDORSEMENT BY THE NAMED PERSON AND DELIVERY. 21 (5) A DOCUMENT IS DULY NEGOTIATED IF IT IS NEGOTIATED IN THE MANNER 22 STATED IN THIS SUBSECTION TO A HOLDER THAT PURCHASES IT IN GOOD FAITH, 23 WITHOUT NOTICE OF ANY DEFENSE AGAINST OR CLAIM TO IT ON THE PART OF ANY 24 PERSON, AND FOR VALUE, UNLESS IT IS ESTABLISHED THAT THE NEGOTIATION IS 25 NOT IN THE REGULAR COURSE OF BUSINESS OR FINANCING OR INVOLVES RECEIVING 26 THE DOCUMENT IN SETTLEMENT OR PAYMENT OF A MONETARY OBLIGATION. 27 (B) THE FOLLOWING RULES APPLY TO A NEGOTIABLE ELECTRONIC DOCUMENT OF 28 TITLE: 29 (1) IF THE DOCUMENT'S ORIGINAL TERMS RUN TO THE ORDER OF A NAMED 30 PERSON OR TO BEARER, THE DOCUMENT IS NEGOTIATED BY DELIVERY OF THE DOCU- 31 MENT TO ANOTHER PERSON. INDORSEMENT BY THE NAMED PERSON IS NOT REQUIRED 32 TO NEGOTIATE THE DOCUMENT. 33 (2) IF THE DOCUMENT'S ORIGINAL TERMS RUN TO THE ORDER OF A NAMED 34 PERSON AND THE NAMED PERSON HAS CONTROL OF THE DOCUMENT, THE EFFECT IS 35 THE SAME AS IF THE DOCUMENT HAD BEEN NEGOTIATED. 36 (3) A DOCUMENT IS DULY NEGOTIATED IF IT IS NEGOTIATED IN THE MANNER 37 STATED IN THIS SUBSECTION TO A HOLDER THAT PURCHASES IT IN GOOD FAITH, 38 WITHOUT NOTICE OF ANY DEFENSE AGAINST OR CLAIM TO IT ON THE PART OF ANY 39 PERSON, AND FOR VALUE, UNLESS IT IS ESTABLISHED THAT THE NEGOTIATION IS 40 NOT IN THE REGULAR COURSE OF BUSINESS OR FINANCING OR INVOLVES TAKING 41 DELIVERY OF THE DOCUMENT IN SETTLEMENT OR PAYMENT OF A MONETARY OBLI- 42 GATION. 43 (C) INDORSEMENT OF A NONNEGOTIABLE DOCUMENT OF TITLE NEITHER MAKES IT 44 NEGOTIABLE NOR ADDS TO THE TRANSFEREE'S RIGHTS. 45 (D) THE NAMING IN A NEGOTIABLE BILL OF LADING OF A PERSON TO BE NOTI- 46 FIED OF THE ARRIVAL OF THE GOODS DOES NOT LIMIT THE NEGOTIABILITY OF THE 47 BILL OR CONSTITUTE NOTICE TO A PURCHASER OF THE BILL OF ANY INTEREST OF 48 THAT PERSON IN THE GOODS. 49 SECTION 7--502. RIGHTS ACQUIRED BY DUE NEGOTIATION. 50 (A) SUBJECT TO SECTIONS 7--205 AND 7--503, A HOLDER TO WHICH A NEGOTI- 51 ABLE DOCUMENT OF TITLE HAS BEEN DULY NEGOTIATED ACQUIRES THEREBY: 52 (1) TITLE TO THE DOCUMENT; 53 (2) TITLE TO THE GOODS; 54 (3) ALL RIGHTS ACCRUING UNDER THE LAW OF AGENCY OR ESTOPPEL, INCLUDING 55 RIGHTS TO GOODS DELIVERED TO THE BAILEE AFTER THE DOCUMENT WAS ISSUED; 56 AND S. 5901 75 1 (4) THE DIRECT OBLIGATION OF THE ISSUER TO HOLD OR DELIVER THE GOODS 2 ACCORDING TO THE TERMS OF THE DOCUMENT FREE OF ANY DEFENSE OR CLAIM BY 3 THE ISSUER EXCEPT THOSE ARISING UNDER THE TERMS OF THE DOCUMENT OR UNDER 4 THIS ARTICLE, BUT IN THE CASE OF A DELIVERY ORDER, THE BAILEE'S OBLI- 5 GATION ACCRUES ONLY UPON THE BAILEE'S ACCEPTANCE OF THE DELIVERY ORDER 6 AND THE OBLIGATION ACQUIRED BY THE HOLDER IS THAT THE ISSUER AND ANY 7 INDORSER WILL PROCURE THE ACCEPTANCE OF THE BAILEE. 8 (B) SUBJECT TO SECTION 7--503, TITLE AND RIGHTS ACQUIRED BY DUE NEGO- 9 TIATION ARE NOT DEFEATED BY ANY STOPPAGE OF THE GOODS REPRESENTED BY THE 10 DOCUMENT OF TITLE OR BY SURRENDER OF THE GOODS BY THE BAILEE AND ARE NOT 11 IMPAIRED EVEN IF: 12 (1) THE DUE NEGOTIATION OR ANY PRIOR DUE NEGOTIATION CONSTITUTED A 13 BREACH OF DUTY; 14 (2) ANY PERSON HAS BEEN DEPRIVED OF POSSESSION OF A NEGOTIABLE TANGI- 15 BLE DOCUMENT OR CONTROL OF A NEGOTIABLE ELECTRONIC DOCUMENT BY MISREPRE- 16 SENTATION, FRAUD, ACCIDENT, MISTAKE, DURESS, LOSS, THEFT, OR CONVERSION; 17 OR 18 (3) A PREVIOUS SALE OR OTHER TRANSFER OF THE GOODS OR DOCUMENT HAS 19 BEEN MADE TO A THIRD PERSON. 20 SECTION 7--503. DOCUMENT OF TITLE TO GOODS DEFEATED IN CERTAIN CASES. 21 (A) A DOCUMENT OF TITLE CONFERS NO RIGHT IN GOODS AGAINST A PERSON 22 THAT BEFORE ISSUANCE OF THE DOCUMENT HAD A LEGAL INTEREST OR A PERFECTED 23 SECURITY INTEREST IN THE GOODS AND THAT DID NOT: 24 (1) DELIVER OR ENTRUST THE GOODS OR ANY DOCUMENT OF TITLE COVERING THE 25 GOODS TO THE BAILOR OR THE BAILOR'S NOMINEE WITH: 26 (A) ACTUAL OR APPARENT AUTHORITY TO SHIP, STORE, OR SELL; 27 (B) POWER TO OBTAIN DELIVERY UNDER SECTION 7--403; OR 28 (C) POWER OF DISPOSITION UNDER SECTION 2--403, 2-A--304(2), 29 2-A--305(2), 9--320, OR 9--321(C) OR OTHER STATUTE OR RULE OF LAW; OR 30 (2) ACQUIESCE IN THE PROCUREMENT BY THE BAILOR OR ITS NOMINEE OF ANY 31 DOCUMENT. 32 (B) TITLE TO GOODS BASED UPON AN UNACCEPTED DELIVERY ORDER IS SUBJECT 33 TO THE RIGHTS OF ANY PERSON TO WHICH A NEGOTIABLE WAREHOUSE RECEIPT OR 34 BILL OF LADING COVERING THE GOODS HAS BEEN DULY NEGOTIATED. THAT TITLE 35 MAY BE DEFEATED UNDER SECTION 7--504 TO THE SAME EXTENT AS THE RIGHTS OF 36 THE ISSUER OR A TRANSFEREE FROM THE ISSUER. 37 (C) TITLE TO GOODS BASED UPON A BILL OF LADING ISSUED TO A FREIGHT 38 FORWARDER IS SUBJECT TO THE RIGHTS OF ANY PERSON TO WHICH A BILL ISSUED 39 BY THE FREIGHT FORWARDER IS DULY NEGOTIATED. HOWEVER, DELIVERY BY THE 40 CARRIER IN ACCORDANCE WITH PART 4 OF THIS ARTICLE PURSUANT TO ITS OWN 41 BILL OF LADING DISCHARGES THE CARRIER'S OBLIGATION TO DELIVER. 42 SECTION 7--504. RIGHTS ACQUIRED IN ABSENCE OF DUE NEGOTIATION; EFFECT OF 43 DIVERSION; STOPPAGE OF DELIVERY. 44 (A) A TRANSFEREE OF A DOCUMENT OF TITLE, WHETHER NEGOTIABLE OR NONNE- 45 GOTIABLE, TO WHICH THE DOCUMENT HAS BEEN DELIVERED BUT NOT DULY NEGOTI- 46 ATED, ACQUIRES THE TITLE AND RIGHTS THAT ITS TRANSFEROR HAD OR HAD ACTU- 47 AL AUTHORITY TO CONVEY. 48 (B) IN THE CASE OF A TRANSFER OF A NONNEGOTIABLE DOCUMENT OF TITLE, 49 UNTIL BUT NOT AFTER THE BAILEE RECEIVES NOTICE OF THE TRANSFER, THE 50 RIGHTS OF THE TRANSFEREE MAY BE DEFEATED: 51 (1) BY THOSE CREDITORS OF THE TRANSFEROR WHICH COULD TREAT THE TRANS- 52 FER AS VOID UNDER SECTION 2--402 OR 2-A--308; 53 (2) BY A BUYER FROM THE TRANSFEROR IN ORDINARY COURSE OF BUSINESS IF 54 THE BAILEE HAS DELIVERED THE GOODS TO THE BUYER OR RECEIVED NOTIFICATION 55 OF THE BUYER'S RIGHTS; S. 5901 76 1 (3) BY A LESSEE FROM THE TRANSFEROR IN ORDINARY COURSE OF BUSINESS IF 2 THE BAILEE HAS DELIVERED THE GOODS TO THE LESSEE OR RECEIVED NOTIFICA- 3 TION OF THE LESSEE'S RIGHTS; OR 4 (4) AS AGAINST THE BAILEE, BY GOOD-FAITH DEALINGS OF THE BAILEE WITH 5 THE TRANSFEROR. 6 (C) A DIVERSION OR OTHER CHANGE OF SHIPPING INSTRUCTIONS BY THE 7 CONSIGNOR IN A NONNEGOTIABLE BILL OF LADING WHICH CAUSES THE BAILEE NOT 8 TO DELIVER THE GOODS TO THE CONSIGNEE DEFEATS THE CONSIGNEE'S TITLE TO 9 THE GOODS IF THE GOODS HAVE BEEN DELIVERED TO A BUYER IN ORDINARY COURSE 10 OF BUSINESS OR A LESSEE IN ORDINARY COURSE OF BUSINESS AND, IN ANY 11 EVENT, DEFEATS THE CONSIGNEE'S RIGHTS AGAINST THE BAILEE. 12 (D) DELIVERY OF THE GOODS PURSUANT TO A NONNEGOTIABLE DOCUMENT OF 13 TITLE MAY BE STOPPED BY A SELLER UNDER SECTION 2--705 OR A LESSOR UNDER 14 SECTION 2-A--526, SUBJECT TO THE REQUIREMENTS OF DUE NOTIFICATION IN 15 THOSE SECTIONS. A BAILEE THAT HONORS THE SELLER'S OR LESSOR'S 16 INSTRUCTIONS IS ENTITLED TO BE INDEMNIFIED BY THE SELLER OR LESSOR 17 AGAINST ANY RESULTING LOSS OR EXPENSE. 18 SECTION 7--505. INDORSER NOT GUARANTOR FOR OTHER PARTIES. 19 THE INDORSEMENT OF A TANGIBLE DOCUMENT OF TITLE ISSUED BY A BAILEE 20 DOES NOT MAKE THE INDORSER LIABLE FOR ANY DEFAULT BY THE BAILEE OR 21 PREVIOUS INDORSERS. 22 SECTION 7--506. DELIVERY WITHOUT INDORSEMENT: RIGHT TO COMPEL INDORSE- 23 MENT. 24 THE TRANSFEREE OF A NEGOTIABLE TANGIBLE DOCUMENT OF TITLE HAS A 25 SPECIFICALLY ENFORCEABLE RIGHT TO HAVE ITS TRANSFEROR SUPPLY ANY NECES- 26 SARY INDORSEMENT, BUT THE TRANSFER BECOMES A NEGOTIATION ONLY AS OF THE 27 TIME THE INDORSEMENT IS SUPPLIED. 28 SECTION 7--507. WARRANTIES ON NEGOTIATION OR DELIVERY OF DOCUMENT OF 29 TITLE. 30 IF A PERSON NEGOTIATES OR DELIVERS A DOCUMENT OF TITLE FOR VALUE, 31 OTHERWISE THAN AS A MERE INTERMEDIARY UNDER SECTION 7--508, UNLESS 32 OTHERWISE AGREED, THE TRANSFEROR, IN ADDITION TO ANY WARRANTY MADE IN 33 SELLING OR LEASING THE GOODS, WARRANTS TO ITS IMMEDIATE PURCHASER ONLY 34 THAT: 35 (1) THE DOCUMENT IS GENUINE; 36 (2) THE TRANSFEROR DOES NOT HAVE KNOWLEDGE OF ANY FACT THAT WOULD 37 IMPAIR THE DOCUMENT'S VALIDITY OR WORTH; AND 38 (3) THE NEGOTIATION OR DELIVERY IS RIGHTFUL AND FULLY EFFECTIVE WITH 39 RESPECT TO THE TITLE TO THE DOCUMENT AND THE GOODS IT REPRESENTS. 40 SECTION 7--508. WARRANTIES OF COLLECTING BANK AS TO DOCUMENTS OF TITLE. 41 A COLLECTING BANK OR OTHER INTERMEDIARY KNOWN TO BE ENTRUSTED WITH 42 DOCUMENTS OF TITLE ON BEHALF OF ANOTHER OR WITH COLLECTION OF A DRAFT OR 43 OTHER CLAIM AGAINST DELIVERY OF DOCUMENTS WARRANTS BY THE DELIVERY OF 44 THE DOCUMENTS ONLY ITS OWN GOOD FAITH AND AUTHORITY EVEN IF THE COLLECT- 45 ING BANK OR OTHER INTERMEDIARY HAS PURCHASED OR MADE ADVANCES AGAINST 46 THE CLAIM OR DRAFT TO BE COLLECTED. 47 SECTION 7--509. ADEQUATE COMPLIANCE WITH COMMERCIAL CONTRACT. 48 WHETHER A DOCUMENT OF TITLE IS ADEQUATE TO FULFILL THE OBLIGATIONS OF 49 A CONTRACT FOR SALE, A CONTRACT FOR LEASE, OR THE CONDITIONS OF A LETTER 50 OF CREDIT IS DETERMINED BY ARTICLE 2, 2-A, OR 5. 51 PART 6 52 WAREHOUSE RECEIPTS AND BILLS OF LADING: 53 MISCELLANEOUS PROVISIONS 54 SECTION 7--601. LOST, STOLEN, OR DESTROYED DOCUMENTS OF TITLE. 55 (A) IF A DOCUMENT OF TITLE IS LOST, STOLEN, OR DESTROYED, A COURT MAY 56 ORDER DELIVERY OF THE GOODS OR ISSUANCE OF A SUBSTITUTE DOCUMENT AND THE S. 5901 77 1 BAILEE MAY WITHOUT LIABILITY TO ANY PERSON COMPLY WITH THE ORDER. IF 2 THE DOCUMENT WAS NEGOTIABLE, A COURT MAY NOT ORDER DELIVERY OF THE GOODS 3 OR ISSUANCE OF A SUBSTITUTE DOCUMENT WITHOUT THE CLAIMANT'S POSTING 4 SECURITY UNLESS IT FINDS THAT ANY PERSON THAT MAY SUFFER LOSS AS A 5 RESULT OF NONSURRENDER OF POSSESSION OR CONTROL OF THE DOCUMENT IS 6 ADEQUATELY PROTECTED AGAINST THE LOSS. IF THE DOCUMENT WAS NONNEGOTI- 7 ABLE, THE COURT MAY REQUIRE SECURITY. THE COURT MAY ALSO ORDER PAYMENT 8 OF THE BAILEE'S REASONABLE COSTS AND ATTORNEY'S FEES IN ANY ACTION UNDER 9 THIS SUBSECTION. 10 (B) A BAILEE THAT, WITHOUT A COURT ORDER, DELIVERS GOODS TO A PERSON 11 CLAIMING UNDER A MISSING NEGOTIABLE DOCUMENT OF TITLE IS LIABLE TO ANY 12 PERSON INJURED THEREBY. IF THE DELIVERY IS NOT IN GOOD FAITH, THE BAILEE 13 IS LIABLE FOR CONVERSION. DELIVERY IN GOOD FAITH IS NOT CONVERSION IF 14 THE CLAIMANT POSTS SECURITY WITH THE BAILEE IN AN AMOUNT AT LEAST DOUBLE 15 THE VALUE OF THE GOODS AT THE TIME OF POSTING TO INDEMNIFY ANY PERSON 16 INJURED BY THE DELIVERY WHICH FILES A NOTICE OF CLAIM WITHIN ONE YEAR 17 AFTER THE DELIVERY. 18 SECTION 7--602. JUDICIAL PROCESS AGAINST GOODS COVERED BY NEGOTIABLE 19 DOCUMENT OF TITLE. 20 UNLESS A DOCUMENT OF TITLE WAS ORIGINALLY ISSUED UPON DELIVERY OF THE 21 GOODS BY A PERSON THAT DID NOT HAVE POWER TO DISPOSE OF THEM, A LIEN 22 DOES NOT ATTACH BY VIRTUE OF ANY JUDICIAL PROCESS TO GOODS IN THE 23 POSSESSION OF A BAILEE FOR WHICH A NEGOTIABLE DOCUMENT OF TITLE IS 24 OUTSTANDING UNLESS POSSESSION OR CONTROL OF THE DOCUMENT IS FIRST 25 SURRENDERED TO THE BAILEE OR THE DOCUMENT'S NEGOTIATION IS ENJOINED. THE 26 BAILEE MAY NOT BE COMPELLED TO DELIVER THE GOODS PURSUANT TO PROCESS 27 UNTIL POSSESSION OR CONTROL OF THE DOCUMENT IS SURRENDERED TO THE BAILEE 28 OR TO THE COURT. A PURCHASER OF THE DOCUMENT FOR VALUE WITHOUT NOTICE OF 29 THE PROCESS OR INJUNCTION TAKES FREE OF THE LIEN IMPOSED BY JUDICIAL 30 PROCESS. 31 SECTION 7--603. CONFLICTING CLAIMS; INTERPLEADER. 32 IF MORE THAN ONE PERSON CLAIMS TITLE TO OR POSSESSION OF THE GOODS, 33 THE BAILEE IS EXCUSED FROM DELIVERY UNTIL THE BAILEE HAS A REASONABLE 34 TIME TO ASCERTAIN THE VALIDITY OF THE ADVERSE CLAIMS OR TO COMMENCE AN 35 ACTION FOR INTERPLEADER. THE BAILEE MAY ASSERT AN INTERPLEADER EITHER IN 36 DEFENDING AN ACTION FOR NONDELIVERY OF THE GOODS OR BY ORIGINAL ACTION. 37 S 33. Section 8--103 of the uniform commercial code is amended by 38 adding two new subsections (g) and (h) to read as follows: 39 (G) A DOCUMENT OF TITLE IS NOT A FINANCIAL ASSET UNLESS SECTION 40 8--102(A)(9)(III) APPLIES. 41 (H) AN OBLIGATION, SHARE, PARTICIPATION, OR INTEREST DOES NOT SATISFY 42 SECTION 8--102(A)(13)(II) OR 8--102(A)(15)(I) MERELY BECAUSE THE ISSUER 43 OR A PERSON ACTING ON ITS BEHALF: 44 (1) MAINTAINS RECORDS OF THE OWNER THEREOF FOR A PURPOSE OTHER THAN 45 REGISTRATION OF TRANSFER; OR 46 (2) COULD, BUT DOES NOT, MAINTAIN BOOKS FOR THE PURPOSE OF REGISTRA- 47 TION OF TRANSFER. 48 S 34. Section 8--106 of the uniform commercial code is amended by 49 adding two new subsections (h) and (i) to read as follows: 50 (H) UNDER SUBSECTION (C)(2) OR (D)(2), AUTHENTICATION OF A RECORD DOES 51 NOT IMPOSE UPON THE ISSUER OR SECURITIES INTERMEDIARY ANY DUTY NOT 52 EXPRESSLY AGREED TO BY THE ISSUER OR SECURITIES INTERMEDIARY IN THE 53 RECORD. 54 (I) A PURCHASER HAS "CONTROL" UNDER SUBSECTION (C)(2) OR (D)(2) EVEN 55 IF ANY DUTY OF THE ISSUER OR THE SECURITIES INTERMEDIARY TO COMPLY WITH 56 INSTRUCTIONS OR ENTITLEMENT ORDERS ORIGINATED BY THE PURCHASER IS S. 5901 78 1 SUBJECT TO ANY CONDITION OR CONDITIONS (OTHER THAN FURTHER CONSENT BY 2 THE REGISTERED OWNER OR THE ENTITLEMENT HOLDER). 3 S 35. Section 9--102 of the uniform commercial code, as added by chap- 4 ter 84 of the laws of 2001, is amended to read as follows: 5 Section 9--102. Definitions And Index of Definitions. 6 (a) Article 9 definitions. In this article: 7 (1) "Accession" means goods that are physically united with other 8 goods in such a manner that the identity of the original 9 goods is not lost. 10 (2) "Account", except as used in "account for", means a right to 11 payment of a monetary obligation, whether or not earned by 12 performance, (i) for property that has been or is to be sold, 13 leased, licensed, assigned, or otherwise disposed of, (ii) 14 for services rendered or to be rendered, (iii) for a policy 15 of insurance issued or to be issued, (iv) for a secondary 16 obligation incurred or to be incurred, (v) for energy 17 provided or to be provided, (vi) for the use or hire of a 18 vessel under a charter or other contract, (vii) arising out 19 of the use of a credit or charge card or information 20 contained on or for use with the card, or (viii) as winnings 21 in a lottery or other game of chance operated or sponsored by 22 a state, governmental unit of a State, or person licensed or 23 authorized to operate the game by a State or governmental 24 unit of a State. The term includes health-care-insurance 25 receivables. The term does not include (i) rights to payment 26 evidenced by chattel paper or an instrument, (ii) commercial 27 tort claims, (iii) deposit accounts, (iv) investment proper- 28 ty, (v) letter-of-credit rights or letters of credit, or (vi) 29 rights to payment for money or funds advanced or sold, other 30 than rights arising out of the use of a credit or charge card 31 or information contained on or for use with the card. 32 (3) "Account debtor" means a person obligated on an account, 33 chattel paper, or general intangible. The term does not 34 include persons obligated to pay a negotiable instrument, 35 even if the instrument constitutes part of chattel paper. 36 (4) "Accounting", except as used in "accounting for", means a 37 record: 38 (A) authenticated by a secured party; 39 (B) indicating the aggregate unpaid secured obligations as of 40 a date not more than 35 days earlier or 35 days later 41 than the date of the record; and 42 (C) identifying the components of the obligations in reason- 43 able detail. 44 (5) "Agricultural lien" means an interest[, other than a security 45 interest,] in farm products: 46 (A) which secures payment or performance of an obligation 47 for: 48 (i) goods or services furnished in connection with a 49 debtor's farming operation; or 50 (ii) rent on real property leased by a debtor in 51 connection with its farming operation; and 52 (B) which is created by statute in favor of a person that: 53 (i) in the ordinary course of its business furnished 54 goods or services to a debtor in connection with a 55 debtor's farming operation; or S. 5901 79 1 (ii) leased real property to a debtor in connection with 2 the debtor's farming operation; and 3 (C) whose effectiveness does not depend on the person's 4 possession of the personal property. 5 (6) "As-extracted collateral" means: 6 (A) oil, gas, or other minerals that are subject to a securi- 7 ty interest that: 8 (i) is created by a debtor having an interest in the 9 minerals before extraction; and 10 (ii) attaches to the minerals as extracted; or 11 (B) accounts arising out of the sale at the wellhead or mine- 12 head of oil, gas, or other minerals in which the debtor 13 had an interest before extraction. 14 (7) "Authenticate" means: 15 (A) to sign; or 16 (B) [to execute or otherwise adopt a symbol, or encrypt or 17 similarly process a record in whole or in part, with the 18 present intent of the authenticating person to identify 19 the person and adopt or accept a record] WITH PRESENT 20 INTENT TO ADOPT OR ACCEPT A RECORD, TO ATTACH TO OR 21 LOGICALLY ASSOCIATE WITH THE RECORD AN ELECTRONIC SOUND, 22 SYMBOL, OR PROCESS. 23 (8) "Bank" means an organization that is engaged in the business 24 of banking. The term includes savings banks, savings and loan 25 associations, credit unions, and trust companies. 26 (9) "Cash proceeds" means proceeds that are money, checks, depos- 27 it accounts, or the like. 28 (10) "Certificate of title" means a certificate of title with 29 respect to which a statute provides for the security inter- 30 est in question to be indicated on the certificate as a 31 condition or result of the security interest's obtaining 32 priority over the rights of a lien creditor with respect to 33 the collateral. SUCH TERM INCLUDES ANOTHER RECORD MAIN- 34 TAINED AS AN ALTERNATIVE TO A CERTIFICATE OF TITLE BY THE 35 GOVERNMENTAL UNIT THAT ISSUES CERTIFICATES OF TITLE IF A 36 STATUTE PERMITS THE SECURITY INTEREST IN QUESTION TO BE 37 INDICATED ON THE RECORD AS A CONDITION OR RESULT OF THE 38 SECURITY INTEREST'S OBTAINING PRIORITY OVER THE RIGHTS OF A 39 LIEN CREDITOR WITH RESPECT TO THE COLLATERAL. 40 (11) "Chattel paper" means a record or records that evidence both 41 a monetary obligation and a security interest in specific 42 goods, a security interest in specific goods and software 43 used in the goods, a security interest in specific goods and 44 license of software used in the goods, a lease of specific 45 goods, or a lease of specific goods and license of software 46 used in the goods. In this paragraph, "monetary obligation" 47 means a monetary obligation secured by the goods or owed 48 under a lease of the goods and includes a monetary obli- 49 gation with respect to software used in the goods. The term 50 does not include (i) charters or other contracts involving 51 the use or hire of a vessel or (ii) records that evidence a 52 right to payment arising out of the use of a credit or 53 charge card or information contained on or for use with the 54 card. If a transaction is evidenced by records that include 55 an instrument or series of instruments, the group of records 56 taken together constitutes chattel paper. S. 5901 80 1 (11-a) "Check" means (i) a draft, other than a documentary draft, 2 payable on demand and drawn on a bank or (ii) a cashier's 3 check or a teller's check. An instrument may be a check 4 even though it is described on its face by another term, 5 such as "money order". An instrument that (i) meets all of 6 the requirements stated in Article 3 of this chapter to be 7 a negotiable instrument other than stating that it is 8 payable to order or bearer and (ii) otherwise qualifies as 9 a check is a negotiable instrument and a check. 10 (12) "Collateral" means the property subject to a security inter- 11 est or agricultural lien. The term includes: 12 (A) proceeds to which a security interest attaches; 13 (B) accounts, chattel paper, payment intangibles, and promis- 14 sory notes that have been sold; and 15 (C) goods that are the subject of a consignment. 16 (13) "Commercial tort claim" means a claim arising in tort with 17 respect to which: 18 (A) the claimant is an organization; or 19 (B) the claimant is an individual and the claim: 20 (i) arose in the course of the claimant's business or 21 profession; and 22 (ii) does not include damages arising out of personal 23 injury to or the death of an individual. 24 (14) "Commodity account" means an account maintained by a commod- 25 ity intermediary in which a commodity contract is carried 26 for a commodity customer. 27 (15) "Commodity contract" means a commodity futures contract, an 28 option on a commodity futures contract, a commodity option, 29 or another contract if the contract or option is: 30 (A) traded on or subject to the rules of a board of trade 31 that has been designated as a contract market for such a 32 contract pursuant to federal commodities laws; or 33 (B) traded on a foreign commodity board of trade, exchange, 34 or market, and is carried on the books of a commodity 35 intermediary for a commodity customer. 36 (16) "Commodity customer" means a person for which a commodity 37 intermediary carries a commodity contract on its books. 38 (17) "Commodity intermediary" means a person that: 39 (A) is registered as a futures commission merchant under 40 federal commodities law; or 41 (B) in the ordinary course of its business provides clearance 42 or settlement services for a board of trade that has been 43 designated as a contract market pursuant to federal 44 commodities law. 45 (18) "Communicate" means: 46 (A) to send a written or other tangible record; 47 (B) to transmit a record by any means agreed upon by the 48 persons sending and receiving the record; or 49 (C) in the case of transmission of a record to or by a filing 50 office, to transmit a record by any means prescribed by 51 filing-office rule. 52 (19) "Consignee" means a merchant to which goods are delivered in 53 a consignment. 54 (20) "Consignment" means a transaction, regardless of its form, 55 in which a person delivers goods to a merchant for the 56 purpose of sale and: S. 5901 81 1 (A) the merchant: 2 (i) deals in goods of that kind under a name other than 3 the name of the person making delivery; 4 (ii) is not an auctioneer; and 5 (iii) is not generally known by its creditors to be 6 substantially engaged in selling the goods of 7 others; 8 (B) with respect to each delivery, the aggregate value of the 9 goods is $1,000 or more at the time of delivery; 10 (C) the goods are not consumer goods immediately before 11 delivery; and 12 (D) the transaction does not create a security interest that 13 secures an obligation. 14 (21) "Consignor" means a person that delivers goods to a 15 consignee in a consignment. 16 (22) "Consumer debtor" means a debtor in a consumer transaction. 17 (23) "Consumer goods" means goods that are used or bought for use 18 primarily for personal, family, or household purposes. 19 (24) "Consumer-goods transaction" means a consumer transaction in 20 which: 21 (A) an individual incurs an obligation primarily for 22 personal, family, or household purposes; and 23 (B) a security interest in consumer goods secures the obli- 24 gation. 25 (25) "Consumer obligor" means an obligor who is an individual and 26 who incurred the obligation as part of a transaction entered 27 into primarily for personal, family, or household purposes. 28 (26) "Consumer transaction" means a transaction in which (i) an 29 individual incurs an obligation primarily for personal, 30 family, or household purposes, (ii) a security interest 31 secures the obligation, and (iii) the collateral is held or 32 acquired primarily for personal, family, or household 33 purposes. The term includes consumer-goods transactions. 34 (27) "Continuation statement" means an amendment of a financing 35 statement which: 36 (A) identifies, by its file number, the initial financing 37 statement to which it relates; and 38 (B) indicates that it is a continuation statement for, or 39 that it is filed to continue the effectiveness of, the 40 identified financing statement. 41 (27-a) "Cooperative addendum" means a record that satisfies 42 Section 9--502(e). 43 (27-b) "Cooperative interest" means an ownership interest in a 44 cooperative organization, which interest, when created, is 45 coupled with possessory rights of a proprietary nature in 46 identified physical space belonging to the cooperative 47 organization. A subsequent termination of the possessory 48 rights shall not cause an ownership interest to cease 49 being a cooperative interest. 50 (27-c) "Cooperative organization" means an organization which has 51 as its principal asset an interest in real property in 52 this state and in which organization all ownership inter- 53 ests are cooperative interests. 54 (27-d) "Cooperative organization security interest" means a secu- 55 rity interest which is in a cooperative interest, is in 56 favor of the cooperative organization, is created by the S. 5901 82 1 cooperative record, and secures only obligations incident 2 to ownership of that cooperative interest. 3 (27-e) "Cooperative record" means those records which, as a 4 whole, evidence cooperative interests and define the mutu- 5 al rights and obligations of the owners of the cooperative 6 interests and the cooperative organization. 7 (27-f) "Cooperative unit" means the physical space associated 8 with a cooperative interest. 9 (28) "Debtor" means: 10 (A) a person having an interest, other than a security inter- 11 est or other lien, in the collateral, whether or not the 12 person is an obligor; 13 (B) a seller of accounts, chattel paper, payment intangibles, 14 or promissory notes; or 15 (C) a consignee. 16 (29) "Deposit account" means a demand, time, savings, passbook, 17 or similar account maintained with a bank. The term does not 18 include investment property or accounts evidenced by an 19 instrument. 20 (30) "Document" means a document of title or a receipt of the 21 type described in Section 7--201[(2)] (B). 22 (31) "Electronic chattel paper" means chattel paper evidenced by 23 a record or records consisting of information stored in an 24 electronic medium. 25 (32) "Encumbrance" means a right, other than an ownership inter- 26 est, in real property. The term includes mortgages and other 27 liens on real property. 28 (33) "Equipment" means goods other than inventory, farm products, 29 or consumer goods. 30 (34) "Farm products" means goods, other than standing timber, 31 with respect to which the debtor is engaged in a farming 32 operation and which are: 33 (A) crops grown, growing, or to be grown, including: 34 (i) crops produced on trees, vines, and bushes; and 35 (ii) aquatic goods produced in aquacultural operations; 36 (B) livestock, born or unborn, including aquatic goods 37 produced in aquacultural operations; 38 (C) supplies used or produced in a farming operation; or 39 (D) products of crops or livestock in their unmanufactured 40 states. 41 (35) "Farming operation" means raising, cultivating, propagating, 42 fattening, grazing, or any other farming, livestock, or 43 aquacultural operation. 44 (36) "File number" means the number assigned to an initial 45 financing statement pursuant to Section 9--519(a). 46 (37) "Filing office" means an office designated in Section 9--501 47 as the place to file a financing statement. 48 (38) "Filing-office rule" means a rule adopted pursuant to 49 Section 9--526. 50 (39) "Financing statement" means a record or records composed of 51 an initial financing statement and any filed record relating 52 to the initial financing statement. 53 (40) "Fixture filing" means the filing of a financing statement 54 covering goods that are or are to become fixtures and satis- 55 fying Section 9--502(a) and (b). The term includes the S. 5901 83 1 filing of a financing statement covering goods of a trans- 2 mitting utility which are or are to become fixtures. 3 (41) "Fixtures" means goods that have become so related to 4 particular real property that an interest in them arises 5 under real property law. 6 (42) "General intangible" means any personal property, including 7 things in action, other than accounts, chattel paper, 8 commercial tort claims, deposit accounts, documents, goods, 9 instruments, investment property, letter-of-credit rights, 10 letters of credit, money, and oil, gas, or other minerals 11 before extraction. The term includes payment intangibles and 12 software. 13 (43) "Good faith" means honesty in fact and the observance of 14 reasonable commercial standards of fair dealing. 15 (44) "Goods" means all things that are movable when a security 16 interest attaches. The term includes (i) fixtures, (ii) 17 standing timber that is to be cut and removed under a 18 conveyance or contract for sale, (iii) the unborn young of 19 animals, (iv) crops grown, growing, or to be grown, even if 20 the crops are produced on trees, vines, or bushes, and (v) 21 manufactured homes. The term also includes a computer 22 program embedded in goods and any supporting information 23 provided in connection with a transaction relating to the 24 program if (i) the program is associated with the goods in 25 such a manner that it customarily is considered part of the 26 goods, or (ii) by becoming the owner of the goods, a person 27 acquires a right to use the program in connection with the 28 goods. The term does not include a computer program embedded 29 in goods that consists solely of the medium in which the 30 program is embedded. The term also does not include 31 accounts, chattel paper, commercial tort claims, deposit 32 accounts, documents, general intangibles, instruments, 33 investment property, letter-of-credit rights, letters of 34 credit, money, or oil, gas, or other minerals before 35 extraction. 36 (45) "Governmental unit" means a subdivision, agency, department, 37 county, parish, municipality, or other unit of the govern- 38 ment of the United States, a state, or a foreign country. 39 The term includes an organization having a separate corpo- 40 rate existence if the organization is eligible to issue debt 41 on which interest is exempt from income taxation under the 42 laws of the United States. 43 (46) "Health-care-insurance receivable" means an interest in or 44 claim under a policy of insurance which is a right to 45 payment of a monetary obligation for health-care goods or 46 services provided OR TO BE PROVIDED. 47 (47) "Instrument" means a negotiable instrument or any other 48 writing that evidences a right to the payment of a monetary 49 obligation, is not itself a security agreement or lease, and 50 is of a type that in ordinary course of business is trans- 51 ferred by delivery with any necessary indorsement or assign- 52 ment. The term does not include (i) investment property, 53 (ii) letters of credit, or (iii) writings that evidence a 54 right to payment arising out of the use of a credit or 55 charge card or information contained on or for use with the 56 card. S. 5901 84 1 (48) "Inventory" means goods, other than farm products, which: 2 (A) are leased by a person as lessor; 3 (B) are held by a person for sale or lease or to be furnished 4 under a contract of service; 5 (C) are furnished by a person under a contract of service; or 6 (D) consist of raw materials, work in process, or materials 7 used or consumed in a business. 8 (49) "Investment property" means a security, whether certificated 9 or uncertificated, security entitlement, securities account, 10 commodity contract, or commodity account. 11 (50) "Jurisdiction of organization", with respect to a registered 12 organization, means the jurisdiction under whose law the 13 organization is FORMED OR organized. 14 (51) "Letter-of-credit right" means a right to payment or 15 performance under a letter of credit, whether or not the 16 beneficiary has demanded or is at the time entitled to 17 demand payment or performance. The term does not include the 18 right of a beneficiary to demand payment or performance 19 under a letter of credit. 20 (52) "Lien creditor" means: 21 (A) a creditor that has acquired a lien on the property 22 involved by attachment, levy, or the like; 23 (B) an assignee for benefit of creditors from the time of 24 assignment; 25 (C) a trustee in bankruptcy from the date of the filing of 26 the petition; or 27 (D) a receiver in equity from the time of appointment. 28 (53) "Manufactured home" means a structure, transportable in one 29 or more sections, which, in the traveling mode, is eight 30 body feet or more in width or 40 body feet or more in 31 length, or, when erected on site, is 320 or more square 32 feet, and which is built on a permanent chassis and designed 33 to be used as a dwelling with or without a permanent founda- 34 tion when connected to the required utilities, and includes 35 the plumbing, heating, air-conditioning, and electrical 36 systems contained therein. The term includes any structure 37 that meets all of the requirements of this paragraph except 38 the size requirements and with respect to which the manufac- 39 turer voluntarily files a certification required by the 40 United States Secretary of Housing and Urban Development and 41 complies with the standards established under Title 42 of 42 the United States Code. 43 (54) "Manufactured-home transaction" means a secured transaction: 44 (A) that creates a purchase-money security interest in a 45 manufactured home, other than a manufactured home held as 46 inventory; or 47 (B) in which a manufactured home, other than a manufactured 48 home held as inventory, is the primary collateral. 49 (55) "Mortgage" means a consensual interest in real property, 50 including fixtures, which secures payment or performance of 51 an obligation. 52 (56) "New debtor" means a person that becomes bound as debtor 53 under Section 9--203(d) by a security agreement previously 54 entered into by another person. 55 (57) "New value" means (i) money, (ii) money's worth in property, 56 services, or new credit, or (iii) release by a transferee of S. 5901 85 1 an interest in property previously transferred to the trans- 2 feree. The term does not include an obligation substituted 3 for another obligation. 4 (58) "Noncash proceeds" means proceeds other than cash proceeds. 5 (59) "Obligor" means a person that, with respect to an obligation 6 secured by a security interest in or an agricultural lien on 7 the collateral, (i) owes payment or other performance of the 8 obligation, (ii) has provided property other than the colla- 9 teral to secure payment or other performance of the obli- 10 gation, or (iii) is otherwise accountable in whole or in 11 part for payment or other performance of the obligation. The 12 term does not include issuers or nominated persons under a 13 letter of credit. 14 (60) "Original debtor", except as used in Section 9--310(c), 15 means a person that, as debtor, entered into a security 16 agreement to which a new debtor has become bound under 17 Section 9--203(d). 18 (61) "Payment intangible" means a general intangible under which 19 the account debtor's principal obligation is a monetary 20 obligation. 21 (62) "Person related to", with respect to an individual, means: 22 (A) the spouse of the individual; 23 (B) a brother, brother-in-law, sister, or sister-in-law of 24 the individual; 25 (C) an ancestor or lineal descendant of the individual or the 26 individual's spouse; or 27 (D) any other relative, by blood or marriage, of the individ- 28 ual or the individual's spouse who shares the same home 29 with the individual. 30 (63) "Person related to", with respect to an organization, means: 31 (A) a person directly or indirectly controlling, controlled 32 by, or under common control with the organization; 33 (B) an officer or director of, or a person performing similar 34 functions with respect to, the organization; 35 (C) an officer or director of, or a person performing similar 36 functions with respect to, a person described in subpara- 37 graph (A); 38 (D) the spouse of an individual described in subparagraph 39 (A), (B), or (C); or 40 (E) an individual who is related by blood or marriage to an 41 individual described in subparagraph (A), (B), (C), or 42 (D) and shares the same home with the individual. 43 (64) "Proceeds", except as used in Section 9--609(b), means the 44 following property: 45 (A) Whatever is acquired upon the sale, lease, license, 46 exchange, or other disposition of collateral; 47 (B) whatever is collected on, or distributed on account of, 48 collateral; 49 (C) rights arising out of collateral; 50 (D) to the extent of the value of collateral, claims arising 51 out of the loss, nonconformity, or interference with the 52 use of, defects or infringement of rights in, or damage 53 to, the collateral; or 54 (E) to the extent of the value of collateral and to the 55 extent payable to the debtor or the secured party, insur- 56 ance payable by reason of the loss or nonconformity of, S. 5901 86 1 defects or infringement of rights in, or damage to, the 2 collateral. 3 (65) "Promissory note" means an instrument that evidences a prom- 4 ise to pay a monetary obligation, does not evidence an order 5 to pay, and does not contain an acknowledgment by a bank 6 that the bank has received for deposit a sum of money or 7 funds. 8 (66) "Proposal" means a record authenticated by a secured party 9 which includes the terms on which the secured party is will- 10 ing to accept collateral in full or partial satisfaction of 11 the obligation it secures pursuant to Sections 9--620, 12 9--621, and 9--622. 13 (66-a) "Prove" with respect to a fact means to meet the burden of 14 establishing the fact (Section 1-201(8)). 15 (67) "Public-finance transaction" means a secured transaction in 16 connection with which: 17 (A) debt securities are issued; 18 (B) all or a portion of the securities issued have an initial 19 stated maturity of at least 20 years; and 20 (C) the debtor, obligor, secured party, account debtor or 21 other person obligated on collateral, assignor or assig- 22 nee of a secured obligation, or assignor or assignee of a 23 security interest is a state or a governmental unit of a 24 state. 25 (68) "PUBLIC ORGANIC RECORD" MEANS A RECORD THAT IS AVAILABLE TO 26 THE PUBLIC FOR INSPECTION AND IS: 27 (A) A RECORD CONSISTING OF THE RECORD INITIALLY FILED WITH OR 28 ISSUED BY A STATE OR THE UNITED STATES TO FORM OR ORGAN- 29 IZE AN ORGANIZATION AND ANY RECORD FILED WITH OR ISSUED 30 BY THE STATE OR THE UNITED STATES WHICH AMENDS OR 31 RESTATES THE INITIAL RECORD; 32 (B) AN ORGANIC RECORD OF A BUSINESS TRUST CONSISTING OF THE 33 RECORD INITIALLY FILED WITH A STATE AND ANY RECORD FILED 34 WITH THE STATE WHICH AMENDS OR RESTATES THE INITIAL 35 RECORD, IF A STATUTE OF THE STATE GOVERNING BUSINESS 36 TRUSTS REQUIRES THAT THE RECORD BE FILED WITH THE STATE; 37 OR 38 (C) A RECORD CONSISTING OF LEGISLATION ENACTED BY THE LEGIS- 39 LATURE OF A STATE OR THE CONGRESS OF THE UNITED STATES 40 WHICH FORMS OR ORGANIZES AN ORGANIZATION, ANY RECORD 41 AMENDING THE LEGISLATION, AND ANY RECORD FILED WITH OR 42 ISSUED BY THE STATE OR THE UNITED STATES WHICH AMENDS OR 43 RESTATES THE NAME OF THE ORGANIZATION. 44 (69) "Pursuant to commitment", with respect to an advance made or 45 other value given by a secured party, means pursuant to the 46 secured party's obligation, whether or not a subsequent 47 event of default or other event not within the secured 48 party's control has relieved or may relieve the secured 49 party from its obligation. 50 [(69)] (70) "Record", except as used in "for record", "of 51 record", "record or legal title", and "record owner", means 52 information that is inscribed on a tangible medium or which 53 is stored in an electronic or other medium and is retrieva- 54 ble in perceivable form. 55 [(70)] (71) "Registered organization" means an organization 56 FORMED OR organized solely under the law of a single state S. 5901 87 1 or the United States [and as to which the state or the 2 United States must maintain a public record showing the 3 organization to have been organized] BY THE FILING OF A 4 PUBLIC ORGANIC RECORD WITH, THE ISSUANCE OF A PUBLIC ORGANIC 5 RECORD BY, OR THE ENACTMENT OF LEGISLATION BY THE STATE OR 6 THE UNITED STATES. THE TERM INCLUDES A BUSINESS TRUST THAT 7 IS FORMED OR ORGANIZED UNDER THE LAW OF A SINGLE STATE IF A 8 STATUTE OF THE STATE GOVERNING BUSINESS TRUSTS REQUIRES THAT 9 THE BUSINESS TRUST'S ORGANIC RECORD BE FILED WITH THE STATE. 10 [(71)] (72) "Secondary obligor" means an obligor to the extent 11 that: 12 (A) the obligor's obligation is secondary; or 13 (B) the obligor has a right of recourse with respect to an 14 obligation secured by collateral against the debtor, 15 another obligor, or property of either. 16 [(72)] (73) "Secured party" means: 17 (A) a person in whose favor a security interest is created or 18 provided for under a security agreement, whether or not 19 any obligation to be secured is outstanding; 20 (B) a person that holds an agricultural lien; 21 (C) a consignor; 22 (D) a person to which accounts, chattel paper, payment intan- 23 gibles, or promissory notes have been sold; 24 (E) a trustee, indenture trustee, agent, collateral agent, or 25 other representative in whose favor a security interest 26 or agricultural lien is created or provided for; or 27 (F) a person that holds a security interest arising under 28 Section 2--401, 2--505, 2--711(3), 2-A-508(5), 4--210, or 29 5--118. 30 [(73)] (74) "Security agreement" means an agreement that creates 31 or provides for a security interest. A cooperative record 32 that provides that the owner of a cooperative interest has 33 an obligation to pay amounts to the cooperative organization 34 incident to ownership of that cooperative interest and which 35 states that the cooperative organization has a direct remedy 36 against that cooperative interest if such amounts are not 37 paid is a security agreement creating a cooperative organ- 38 ization security interest. 39 [(74)] (75) "Send", in connection with a record or notification, 40 means: 41 (A) to deposit in the mail, deliver for transmission, or 42 transmit by any other usual means of communication, with 43 postage or cost of transmission provided for, addressed 44 to any address reasonable under the circumstances; or 45 (B) to cause the record or notification to be received within 46 the time that it would have been received if properly 47 sent under subparagraph (A). 48 [(75)] (76) "Software" means a computer program and any support- 49 ing information provided in connection with a transaction 50 relating to the program. The term does not include a comput- 51 er program that is included in the definition of goods. 52 [(76)] (77) "State" means a state of the United States, the 53 District of Columbia, Puerto Rico, the United States Virgin 54 Islands, or any territory or insular possession subject to 55 the jurisdiction of the United States. S. 5901 88 1 [(77)] (78) "Supporting obligation" means a letter-of-credit 2 right or secondary obligation that supports the payment or 3 performance of an account, chattel paper, a document, a 4 general intangible, an instrument, or investment property. 5 [(78)] (79) "Tangible chattel paper" means chattel paper 6 evidenced by a record or records consisting of information 7 that is inscribed on a tangible medium. 8 [(79)] (80) "Termination statement" means an amendment of a 9 financing statement which: 10 (A) identifies, by its file number, the initial financing 11 statement to which it relates; and 12 (B) indicates either that it is a termination statement or 13 that the identified financing statement is no longer 14 effective. 15 [(80)] (81) "Transmitting utility" means a person primarily 16 engaged in the business of: 17 (A) operating a railroad, subway, street railway, or trolley 18 bus; 19 (B) transmitting communications electrically, electromagneti- 20 cally, or by light; 21 (C) transmitting goods by pipeline or sewer; or 22 (D) transmitting or producing and transmitting electricity, 23 steam, gas, or water. 24 (b) Definitions in other articles. The following definitions in other 25 articles apply to this article: 26 "Applicant" Section 5--102. 27 "Beneficiary" Section 5--102. 28 "Broker" Section 8--102. 29 "Certificated security" Section 8--102. 30 "Clearing corporation" Section 8--102. 31 "Contract for sale" Section 2--106. 32 "CONTROL" (WITH RESPECT TO A DOCUMENT SECTION 7--106. 33 OF TITLE) 34 "Customer" Section 4--104. 35 "Entitlement holder" Section 8--102. 36 "Financial asset" Section 8--102. 37 "Holder in due course" Section 3--302. 38 "Issuer" (with respect to a letter of 39 credit or letter-of-credit right) Section 5--102. 40 "Issuer" (with respect to a security) Section 8--201. 41 "ISSUER" (WITH RESPECT TO DOCUMENT OF TITLE) SECTION 7--102. 42 "Lease" Section 2-A-103. 43 "Lease agreement" Section 2-A-103. 44 "Lease contract" Section 2-A-103. 45 "Leasehold interest" Section 2-A-103. 46 "Lessee" Section 2-A-103. 47 "Lessee in ordinary course of business" Section 2-A-103. 48 "Lessor" Section 2-A-103. 49 "Lessor's residual interest" Section 2-A-103. 50 "Letter of credit" Section 5--102. 51 "Merchant" Section 2--104. 52 "Negotiable instrument" Section 3--104. 53 "Nominated person" Section 5--102. 54 "Note" Section 3--104. 55 "Proceeds of a letter of credit" Section 5--114. S. 5901 89 1 "PROVE" SECTION 3--103. 2 "Sale" Section 2--106. 3 "Securities account" Section 8--501. 4 "Securities intermediary" Section 8--102. 5 "Security" Section 8--102. 6 "Security certificate" Section 8--102. 7 "Security entitlement" Section 8--102. 8 "Uncertificated security" Section 8--102. 9 (c) Article 1 definitions and principles. Article 1 contains general 10 definitions and principles of construction and interpretation applicable 11 throughout this article. 12 S 36. Section 9--104 of the uniform commercial code, as added by chap- 13 ter 84 of the laws of 2001, is amended to read as follows: 14 Section 9--104. Control of Deposit Account. 15 (a) Requirements for control. A secured party has control of a deposit 16 account if: 17 (1) the secured party is the bank with which the deposit account 18 is maintained; 19 (2) the debtor, secured party, and bank have agreed in an authen- 20 ticated record that the bank will comply with instructions 21 originated by the secured party directing disposition of the 22 funds in the deposit account without further consent by the 23 debtor; [or] 24 (3) the secured party becomes the bank's customer with respect to 25 the deposit account; 26 (4) THE NAME ON THE DEPOSIT ACCOUNT IS THE NAME OF THE SECURED 27 PARTY OR INDICATES THAT THE SECURED PARTY HAS A SECURITY 28 INTEREST IN THE DEPOSIT ACCOUNT; OR 29 (5) ANOTHER PERSON HAS CONTROL OF THE DEPOSIT ACCOUNT ON BEHALF 30 OF THE SECURED PARTY OR, HAVING PREVIOUSLY ACQUIRED CONTROL 31 OF THE DEPOSIT ACCOUNT, ACKNOWLEDGES THAT IT HAS CONTROL ON 32 BEHALF OF THE SECURED PARTY. 33 (b) Debtor's right to direct disposition. A secured party that has 34 satisfied subsection (a) has control, even if the debtor retains the 35 right to direct the disposition of funds from the deposit account. 36 (C) NO IMPLIED DUTIES OF BANK. THE AUTHENTICATION OF A RECORD BY THE 37 BANK UNDER SUBSECTION (A)(2) DOES NOT IMPOSE UPON THE BANK ANY DUTY NOT 38 EXPRESSLY AGREED TO BY THE BANK IN THE RECORD. THE NAMING OF THE DEPOSIT 39 ACCOUNT IN THE NAME OF THE SECURED PARTY OR WITH AN INDICATION THAT THE 40 SECURED PARTY HAS A SECURITY INTEREST IN THE DEPOSIT ACCOUNT UNDER 41 SUBSECTION (A)(4) DOES NOT IMPOSE UPON THE BANK ANY DUTY NOT EXPRESSLY 42 AGREED TO BY THE BANK. 43 (D) CONDITIONS NOT RELEVANT. A SECURED PARTY HAS CONTROL UNDER 44 SUBSECTION (A)(2) EVEN IF ANY DUTY OF THE BANK TO COMPLY WITH 45 INSTRUCTIONS ORIGINATED BY THE SECURED PARTY DIRECTING DISPOSITION OF 46 THE FUNDS IN THE DEPOSIT ACCOUNT IS SUBJECT TO ANY CONDITION OR CONDI- 47 TIONS (OTHER THAN FURTHER CONSENT BY THE DEBTOR). 48 (E) NO INFERENCES. THE PROCEDURES AND REQUIREMENTS OF SUBSECTION 49 (A)(4) AVAILABLE TO OBTAIN CONTROL SHALL NOT BE USED IN INTERPRETING THE 50 SUFFICIENCY OF A SECURED PARTY'S COMPLIANCE WITH THE PROCEDURES AND 51 REQUIREMENTS OF SUBSECTION (A)(1), (A)(2) OR (A)(3) TO OBTAIN CONTROL. 52 THE PROVISIONS OF SUBSECTION (A)(4) SHALL CREATE NO INFERENCE REGARDING 53 THE REQUIREMENTS FOR COMPLIANCE WITH SUBSECTION (A)(1), (A)(2) OR 54 (A)(3). 55 S 37. Section 9--105 of the uniform commercial code, as added by chap- 56 ter 84 of the laws of 2001, is amended to read as follows: S. 5901 90 1 Section 9--105. Control of Electronic Chattel Paper. 2 (A) GENERAL RULE: CONTROL OF ELECTRONIC CHATTEL PAPER. A secured party 3 has control of electronic chattel paper if A SYSTEM EMPLOYED FOR 4 EVIDENCING THE TRANSFER OF INTERESTS IN THE CHATTEL PAPER RELIABLY 5 ESTABLISHES THE SECURED PARTY AS THE PERSON TO WHICH THE CHATTEL PAPER 6 WAS ASSIGNED. 7 (B) SPECIFIC FACTS GIVING CONTROL. A SYSTEM SATISFIES SUBSECTION (A) 8 IF the record or records comprising the chattel paper are created, 9 stored, and assigned in such a manner that: 10 (1) a single authoritative copy of the record or records exists 11 which is unique, identifiable and, except as otherwise 12 provided in paragraphs (4), (5), and (6), unalterable; 13 (2) the authoritative copy identifies the secured party as the 14 assignee of the record or records; 15 (3) the authoritative copy is communicated to and maintained by 16 the secured party or its designated custodian; 17 (4) copies or [revisions] AMENDMENTS that add or change an iden- 18 tified assignee of the authoritative copy can be made only 19 with the [participation] CONSENT of the secured party; 20 (5) each copy of the authoritative copy and any copy of a copy is 21 readily identifiable as a copy that is not the authoritative 22 copy; and 23 (6) any [revision] AMENDMENT of the authoritative copy is readily 24 identifiable as [an] authorized or unauthorized [revision]. 25 S 38. Subparagraph (D) of paragraph 3 of subsection (b) of section 26 9--203 of the uniform commercial code, as added by chapter 84 of the 27 laws of 2001, is amended to read as follows: 28 (D) the collateral is deposit accounts, electronic chattel 29 paper, investment property, [or] letter-of-credit rights, 30 OR ELECTRONIC DOCUMENTS, and the secured party has 31 control under Section 7--106, 9--104, 9--105, 9--106, or 32 9--107 pursuant to the debtor's security agreement. 33 S 39. Subsection (c) of section 9--207 of the uniform commercial code, 34 as added by chapter 84 of the laws of 2001, is amended to read as 35 follows: 36 (c) Duties and rights when secured party in possession or control. 37 Except as otherwise provided in subsection (d), a secured party having 38 possession of collateral or control of collateral under Section 7--106, 39 9--104, 9--105, 9--106, or 9--107: 40 (1) may hold as additional security any proceeds, except money or 41 funds, received from the collateral; 42 (2) shall apply money or funds received from the collateral to 43 reduce the secured obligation, unless remitted to the debtor; 44 and 45 (3) may create a security interest in the collateral. 46 S 40. Paragraphs 4 and 5 of subsection (b) of section 9--208 of the 47 uniform commercial code, as added by chapter 84 of the laws of 2001, are 48 amended, and a new paragraph 6 is added to read as follows: 49 (4) a secured party having control of investment property under 50 Section 8--106(d)(2) or 9--106(b) shall send to the securi- 51 ties intermediary or commodity intermediary with which the 52 security entitlement or commodity contract is maintained an 53 authenticated record that releases the securities interme- 54 diary or commodity intermediary from any further obligation 55 to comply with entitlement orders or directions originated by 56 the secured party; [and] S. 5901 91 1 (5) a secured party having control of a letter-of-credit right 2 under Section 9--107 shall send to each person having an 3 unfulfilled obligation to pay or deliver proceeds of the 4 letter-of-credit to the secured party an authenticated 5 release from any further obligation to pay or deliver 6 proceeds of the letter-of-credit to the secured party; AND 7 (6) A SECURED PARTY HAVING CONTROL OF AN ELECTRONIC DOCUMENT 8 SHALL: 9 (A) GIVE CONTROL OF THE ELECTRONIC DOCUMENT TO THE DEBTOR OR 10 ITS DESIGNATED CUSTODIAN; 11 (B) IF THE DEBTOR DESIGNATES A CUSTODIAN THAT IS THE DESIG- 12 NATED CUSTODIAN WITH WHICH THE AUTHORITATIVE COPY OF THE 13 ELECTRONIC DOCUMENT IS MAINTAINED FOR THE SECURED PARTY, 14 COMMUNICATE TO THE CUSTODIAN AN AUTHENTICATED RECORD 15 RELEASING THE DESIGNATED CUSTODIAN FROM ANY FURTHER OBLI- 16 GATION TO COMPLY WITH INSTRUCTIONS ORIGINATED BY THE 17 SECURED PARTY AND INSTRUCTING THE CUSTODIAN TO COMPLY 18 WITH INSTRUCTIONS ORIGINATED BY THE DEBTOR; AND 19 (C) TAKE APPROPRIATE ACTION TO ENABLE THE DEBTOR OR ITS 20 DESIGNATED CUSTODIAN TO MAKE COPIES OF OR REVISIONS TO 21 THE AUTHORITATIVE COPY WHICH ADD OR CHANGE AN IDENTIFIED 22 ASSIGNEE OF THE AUTHORITATIVE COPY WITHOUT THE CONSENT OF 23 THE SECURED PARTY. 24 S 41. Subsection (c) of section 9--301 of of the uniform commercial 25 code, as added by chapter 84 of the laws of 2001, is amended to read as 26 follows: 27 (c) Except as otherwise provided in [paragraph] SUBSECTION (d), while 28 TANGIBLE negotiable documents, goods, instruments, money, or tangible 29 chattel paper is located in a jurisdiction, the local law of that juris- 30 diction governs: 31 (1) perfection of a security interest in the goods by filing a 32 fixture filing; 33 (2) perfection of a security interest in timber to be cut; and 34 (3) the effect of perfection or nonperfection and the priority of 35 a nonpossessory security interest in the collateral. 36 S 42. Paragraph 1 of subsection (b) of Section 9--304 of the uniform 37 commercial code, as added by chapter 84 of the laws of 2001, is amended 38 to read as follows: 39 (1) If an agreement between the bank and [the debtor] ITS CUSTOM- 40 ER governing the deposit account expressly provides that a 41 particular jurisdiction is the bank's jurisdiction for 42 purposes of this part, this article, or this chapter, that 43 jurisdiction is the bank's jurisdiction. 44 S 43. Paragraph 2 of subsection (f) of section 9--307 of the uniform 45 commercial code, as added by chapter 84 of the laws of 2001, is amended 46 to read as follows: 47 (2) in the state that the registered organization, branch, or 48 agency designates, if the law of the United States authorizes 49 the registered organization, branch, or agency to designate 50 its state of location, INCLUDING BY DESIGNATING ITS MAIN 51 OFFICE, HOME OFFICE, OR OTHER COMPARABLE OFFICE; or 52 S 44. Subsections 12 and 13 of section 9--309 of the uniform commer- 53 cial code, as added by chapter 84 of the laws of 2001, are amended, and 54 a new subsection 14 is added to read as follows: 55 (12) an assignment for the benefit of all creditors of the transferor 56 and subsequent transfers by the assignee thereunder; [and] S. 5901 92 1 (13) a security interest created by an assignment of a beneficial 2 interest in a decedent's estate; AND 3 (14) A SALE BY AN INDIVIDUAL OF AN ACCOUNT THAT IS A RIGHT TO PAYMENT 4 OF WINNINGS IN A LOTTERY OR OTHER GAME OF CHANCE. 5 S 45. Section (b) of section 9--310 of the uniform commercial code, as 6 added by chapter 84 of the laws of 2001, is amended to read as follows: 7 (b) Exceptions: filing not necessary. Except as provided in subsection 8 (d), the filing of a financing statement is not necessary to perfect a 9 security interest: 10 (1) that is perfected under Section 9--308(d), (e), (f), or (g); 11 (2) that is perfected under Section 9--309 when it attaches; 12 (3) in property subject to a statute, regulation, or treaty 13 described in Section 9--311(a); 14 (4) in goods in possession of a bailee which is perfected under 15 Section 9--312(d)(1) or (2); 16 (5) in certificated securities, documents, goods, or instruments 17 which is perfected without filing, CONTROL, or possession 18 under Section 9--312(e), (f), or (g); 19 (6) in collateral in the secured party's possession under Section 20 9--313; 21 (7) in a certificated security which is perfected by delivery of 22 the security certificate to the secured party under Section 23 9--313; 24 (8) in deposit accounts, electronic chattel paper, ELECTRONIC 25 DOCUMENTS, investment property, or letter-of-credit rights 26 which is perfected by control under Section 9--314; 27 (9) in proceeds which is perfected under Section 9--315; 28 (10) that is perfected under Section 9--316; or 29 (11) that is a cooperative organization security interest. 30 S 46. Paragraph 3 of subsection (a) of section 9--311 of the uniform 31 commercial code, as added by chapter 84 of the laws of 2001, is amended 32 to read as follows: 33 (3) a [certificate-of-title] statute of another jurisdiction 34 which provides for a security interest to be indicated on 35 [the] A certificate OF TITLE as a condition or result of 36 the security interest's obtaining priority over the 37 rights of a lien creditor with respect to the property. 38 S 47. Subsection (e) of section 9--312 of the uniform commercial code, 39 as added by chapter 84 of the laws of 2001, is amended to read as 40 follows: 41 (e) Temporary perfection: new value. A security interest in certif- 42 icated securities, negotiable documents, or instruments is perfected 43 without filing or the taking of possession OR CONTROL for a period of 20 44 days from the time it attaches to the extent that it arises for new 45 value given under an authenticated security agreement. 46 S 48. Subsection (a) of section 9--313 of the uniform commercial code, 47 as added by chapter 84 of the laws of 2001, is amended to read as 48 follows: 49 (a) Perfection by possession or delivery. Except as otherwise provided 50 in subsection (b), a secured party may perfect a security interest in 51 TANGIBLE negotiable documents, goods, instruments, money, or tangible 52 chattel paper by taking possession of the collateral. A secured party 53 may perfect a security interest in certificated securities by taking 54 delivery of the certificated securities under Section 8--301. S. 5901 93 1 S 49. Subsections (a) and (b) of section 9--314 of the uniform commer- 2 cial code, as added by chapter 84 of the laws of 2001, are amended to 3 read as follows: 4 (a) Perfection by control. A security interest in investment property, 5 deposit accounts, letter-of-credit rights, [or] electronic chattel 6 paper, OR ELECTRONIC DOCUMENTS may be perfected by control of the colla- 7 teral under Section 7--106, 9--104, 9--105, 9--106, or 9--107. 8 (b) Specified collateral: time of perfection by control; continuation 9 of perfection. A security interest in deposit accounts, electronic chat- 10 tel paper, [or] letter-of-credit rights, OR ELECTRONIC DOCUMENTS is 11 perfected by control under Section 7--106, 9--104, 9--105, or 9--107 12 when the secured party obtains control and remains perfected by control 13 only while the secured party retains control. 14 S 50. The section heading of section 9--316 of the uniform commercial 15 code, as added by chapter 84 of the laws of 2001, is amended and two new 16 subsections (h) and (i) are added to read as follows: 17 Section 9--316. [Continued Perfection of Security Interest Following] 18 EFFECT OF Change in Governing Law. 19 (H) EFFECT ON FILED FINANCING STATEMENT OF CHANGE IN GOVERNING LAW. 20 THE FOLLOWING RULES APPLY TO COLLATERAL TO WHICH A SECURITY INTEREST 21 ATTACHES WITHIN FOUR MONTHS AFTER THE DEBTOR CHANGES ITS LOCATION TO 22 ANOTHER JURISDICTION: 23 (1) A FINANCING STATEMENT FILED BEFORE THE CHANGE PURSUANT TO THE 24 LAW OF THE JURISDICTION DESIGNATED IN SECTION 9--301(A) OR 25 9--305(C) IS EFFECTIVE TO PERFECT A SECURITY INTEREST IN THE 26 COLLATERAL IF THE FINANCING STATEMENT WOULD HAVE BEEN EFFEC- 27 TIVE TO PERFECT A SECURITY INTEREST IN THE COLLATERAL HAD THE 28 DEBTOR NOT CHANGED ITS LOCATION. 29 (2) IF A SECURITY INTEREST PERFECTED BY A FINANCING STATEMENT 30 THAT IS EFFECTIVE UNDER PARAGRAPH (1) BECOMES PERFECTED UNDER 31 THE LAW OF THE OTHER JURISDICTION BEFORE THE EARLIER OF THE 32 TIME THE FINANCING STATEMENT WOULD HAVE BECOME INEFFECTIVE 33 UNDER THE LAW OF THE JURISDICTION DESIGNATED IN SECTION 34 9--301(A) OR 9--305(C) OR THE EXPIRATION OF THE FOUR-MONTH 35 PERIOD, IT REMAINS PERFECTED THEREAFTER. IF THE SECURITY 36 INTEREST DOES NOT BECOME PERFECTED UNDER THE LAW OF THE OTHER 37 JURISDICTION BEFORE THE EARLIER TIME OR EVENT, IT BECOMES 38 UNPERFECTED AND IS DEEMED NEVER TO HAVE BEEN PERFECTED AS 39 AGAINST A PURCHASER OF THE COLLATERAL FOR VALUE. 40 (I) EFFECT OF CHANGE IN GOVERNING LAW ON FINANCING STATE- 41 MENT FILED AGAINST ORIGINAL DEBTOR. IF A FINANCING STATEMENT 42 NAMING AN ORIGINAL DEBTOR IS FILED PURSUANT TO THE LAW OF THE 43 JURISDICTION DESIGNATED IN SECTION 9--301(A) OR 9--305(C) AND 44 THE NEW DEBTOR IS LOCATED IN ANOTHER JURISDICTION, THE 45 FOLLOWING RULES APPLY: 46 (1) THE FINANCING STATEMENT IS EFFECTIVE TO PERFECT A SECURITY 47 INTEREST IN COLLATERAL IN WHICH THE NEW DEBTOR HAS OR 48 ACQUIRES RIGHTS BEFORE OR WITHIN FOUR MONTHS AFTER THE NEW 49 DEBTOR BECOMES BOUND UNDER SECTION 9--203(D), IF THE FINANC- 50 ING STATEMENT WOULD HAVE BEEN EFFECTIVE TO PERFECT A SECURITY 51 INTEREST IN THE COLLATERAL HAD THE COLLATERAL BEEN ACQUIRED 52 BY THE ORIGINAL DEBTOR. 53 (2) A SECURITY INTEREST THAT IS PERFECTED BY THE FINANCING STATE- 54 MENT AND WHICH BECOMES PERFECTED UNDER THE LAW OF THE OTHER 55 JURISDICTION BEFORE THE EARLIER OF THE EXPIRATION OF THE FOUR 56 MONTH PERIOD OR THE TIME THE FINANCING STATEMENT WOULD HAVE S. 5901 94 1 BECOME INEFFECTIVE UNDER THE LAW OF THE JURISDICTION DESIG- 2 NATED IN SECTION 9--301(A) OR 9--305(C) REMAINS PERFECTED 3 THEREAFTER. A SECURITY INTEREST THAT IS PERFECTED BY THE 4 FINANCING STATEMENT BUT WHICH DOES NOT BECOME PERFECTED UNDER 5 THE LAW OF THE OTHER JURISDICTION BEFORE THE EARLIER TIME OR 6 EVENT BECOMES UNPERFECTED AND IS DEEMED NEVER TO HAVE BEEN 7 PERFECTED AS AGAINST A PURCHASER OF THE COLLATERAL FOR VALUE. 8 S 51. Subsections (b) and (d) of section 9--317 of the uniform commer- 9 cial code, as added by chapter 84 of the laws of 2001, are amended to 10 read as follows: 11 (b) Buyers that receive delivery. Except as otherwise provided in 12 subsection (e), a buyer, other than a secured party, of tangible chattel 13 paper, TANGIBLE documents, goods, instruments, or a [security certif- 14 icate] CERTIFICATED SECURITY takes free of a security interest or agri- 15 cultural lien if the buyer gives value and receives delivery of the 16 collateral without knowledge of the security interest or agricultural 17 lien and before it is perfected. 18 (d) Licensees and buyers of certain collateral. A licensee of a gener- 19 al intangible or a buyer, other than a secured party, of accounts, elec- 20 tronic chattel paper, ELECTRONIC DOCUMENTS, general intangibles, or 21 investment property other than a certificated security takes free of a 22 security interest if the licensee or buyer gives value without knowledge 23 of the security interest and before it is perfected. 24 S 52. Section 9--326 of the uniform commercial code, as added by chap- 25 ter 84 of the laws of 2001, is amended to read as follows: 26 Section 9--326. Priority of Security Interests Created by New Debtor. 27 (a) Subordination of security interest created by new debtor. Subject 28 to subsection (b), a security interest THAT IS created by a new debtor 29 [which is] IN COLLATERAL IN WHICH THE NEW DEBTOR HAS OR ACQUIRES RIGHTS 30 AND IS perfected SOLELY by a filed financing statement that [is effec- 31 tive solely under Section 9--508 in collateral in which a new debtor has 32 or acquires rights] WOULD BE INEFFECTIVE TO PERFECT THE SECURITY INTER- 33 EST BUT FOR THE APPLICATION OF SECTION 9--316(I)(1) OR 9--508 is subor- 34 dinate to a security interest in the same collateral which is perfected 35 other than by SUCH a filed financing statement [that is effective solely 36 under Section 9--508]. 37 (b) Priority under other provisions; multiple original debtors. The 38 other provisions of this part determine the priority among conflicting 39 security interests in the same collateral perfected by filed financing 40 statements [that are effective solely under Section 9--508] DESCRIBED IN 41 SUBSECTION (A). However, if the security agreements to which a new 42 debtor became bound as debtor were not entered into by the same original 43 debtor, the conflicting security interests rank according to priority in 44 time of the new debtor's having become bound. 45 S 53. Section 9--338 of the uniform commercial code, as added by chap- 46 ter 84 of the laws of 2001, is amended to read as follows: 47 Section 9--338. Priority of Security Interest or Agricultural Lien 48 Perfected by Filed Financing Statement Providing 49 Certain Incorrect Information. 50 If a security interest or agricultural lien is perfected by a filed 51 financing statement providing information described in Section 52 9--516(b)(5) which is incorrect at the time the financing statement is 53 filed: 54 [(a)](1) the security interest or agricultural lien is subordinate to 55 a conflicting perfected security interest in the collateral to the S. 5901 95 1 extent that the holder of the conflicting security interest gives value 2 in reasonable reliance upon the incorrect information; and 3 [(b)](2) a purchaser, other than a secured party, of the collateral 4 takes free of the security interest or agricultural lien to the extent 5 that, in reasonable reliance upon the incorrect information, the 6 purchaser gives value and, in the case of TANGIBLE chattel paper, TANGI- 7 BLE documents, goods, instruments, or a security certificate, receives 8 delivery of the collateral. 9 S 54. Subsection (e) of section 9--406 of the uniform commercial code, 10 as added by chapter 84 of the laws of 2001, is amended to read as 11 follows: 12 (e) Inapplicability of subsection (d) to certain sales. Subsection (d) 13 does not apply to the sale of a payment intangible or promissory note, 14 OTHER THAN A SALE PURSUANT TO A DISPOSITION UNDER SECTION 9--610 OR AN 15 ACCEPTANCE OF COLLATERAL UNDER SECTION 9--620. 16 S 55. Subsection (b) of section 9--408 of the uniform commercial code, 17 as added by chapter 84 of the laws of 2001, is amended to read as 18 follows: 19 (b) Applicability of subsection (a) to sales of certain rights to 20 payment. Subsection (a) applies to a security interest in a payment 21 intangible or promissory note only if the security interest arises out 22 of a sale of the payment intangible or promissory note, OTHER THAN A 23 SALE PURSUANT TO A DISPOSITION UNDER SECTION 9--610 OR AN ACCEPTANCE OF 24 COLLATERAL UNDER SECTION 9--620. 25 S 56. Subsection (c) of section 9--502 of the uniform commercial code, 26 as added by chapter 84 of the laws of 2001, is amended to read as 27 follows: 28 (c) Record of mortgage as financing statement. A record of a mortgage 29 is effective, from the date of recording, as a financing statement filed 30 as a fixture filing or as a financing statement covering as-extracted 31 collateral or timber to be cut only if: 32 (1) the record indicates the goods or accounts that it covers; 33 (2) the goods are or are to become fixtures related to the real 34 property described in the record or the collateral is related 35 to the real property described in the record and is as-ex- 36 tracted collateral or timber to be cut; 37 (3) the record satisfies the requirements for a financing state- 38 ment in this section [other than an indication], BUT: 39 (A) THE RECORD NEED NOT INDICATE that it is to be filed in 40 the real property records; and 41 (B) THE RECORD SUFFICIENTLY PROVIDES THE NAME OF A DEBTOR WHO 42 IS AN INDIVIDUAL IF IT PROVIDES THE INDIVIDUAL NAME OF 43 THE DEBTOR OR THE SURNAME AND FIRST PERSONAL NAME OF THE 44 DEBTOR, EVEN IF THE DEBTOR IS AN INDIVIDUAL TO WHOM 45 SECTION 9--503(A)(4) APPLIES; AND 46 (4) the record is duly recorded. 47 S 57. Section 9--503 of the uniform commercial code, as added by chap- 48 ter 84 of the laws of 2001, is amended to read as follows: 49 Section 9--503. Name of Debtor and Secured Party. 50 (a) Sufficiency of debtor's name. A financing statement sufficiently 51 provides the name of the debtor: 52 (1) EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPH (3), if the debtor 53 is a registered organization OR THE COLLATERAL IS HELD IN A 54 TRUST THAT IS A REGISTERED ORGANIZATION, only if the financ- 55 ing statement provides the name [of the debtor indicated] 56 THAT IS STATED TO BE THE REGISTERED ORGANIZATION'S NAME on S. 5901 96 1 the public ORGANIC record [of] MOST RECENTLY FILED WITH OR 2 ISSUED OR ENACTED BY the [debtor's] REGISTERED ORGANIZATION'S 3 jurisdiction of organization which [shows the debtor to have 4 been organized] PURPORTS TO STATE, AMEND, OR RESTATE THE 5 REGISTERED ORGANIZATION'S NAME; 6 (2) SUBJECT TO SUBSECTION (F), if the [debtor is a decedent's 7 estate] COLLATERAL IS BEING ADMINISTERED BY THE PERSONAL 8 REPRESENTATIVE OF A DECEDENT, only if the financing statement 9 provides, AS THE NAME OF THE DEBTOR, the name of the decedent 10 and, IN A SEPARATE PART OF THE FINANCING STATEMENT, indicates 11 that the [debtor is an estate] COLLATERAL IS BEING ADMINIS- 12 TERED BY A PERSONAL REPRESENTATIVE; 13 (3) if the [debtor is a trust or a trustee acting with respect to 14 property held in trust, only if the financing statement] 15 COLLATERAL IS HELD IN A TRUST THAT IS NOT A REGISTERED ORGAN- 16 IZATION, ONLY IF THE FINANCING STATEMENT: 17 (A) [provides the name specified for the trust in its organic 18 documents or, if no name is specified, provides the name 19 of the settlor and additional information sufficient to 20 distinguish the debtor from other trusts having one or 21 more of the same settlors; and] PROVIDES, AS THE NAME OF 22 THE DEBTOR: 23 (I) IF THE ORGANIC RECORD OF THE TRUST SPECIFIES A NAME 24 FOR THE TRUST, THE NAME SPECIFIED; OR 25 (II) IF THE ORGANIC RECORD OF THE TRUST DOES NOT SPECIFY 26 A NAME FOR THE TRUST, THE NAME OF THE SETTLOR OR 27 TESTATOR; AND 28 (B) [indicates, in the debtor's name or otherwise, that the 29 debtor is a trust or is a trustee acting with respect to 30 property held in trust;] IN A SEPARATE PART OF THE 31 FINANCING STATEMENT: 32 (I) IF THE NAME IS PROVIDED IN ACCORDANCE WITH SUBPARA- 33 GRAPH (A)(I), INDICATES THAT THE COLLATERAL IS HELD 34 IN A TRUST; OR 35 (II) IF THE NAME IS PROVIDED IN ACCORDANCE WITH SUBPARA- 36 GRAPH (A)(II), PROVIDES ADDITIONAL INFORMATION 37 SUFFICIENT TO DISTINGUISH THE TRUST FROM OTHER 38 TRUSTS HAVING ONE OR MORE OF THE SAME SETTLORS OR 39 THE SAME TESTATOR AND INDICATES THAT THE COLLATERAL 40 IS HELD IN A TRUST, UNLESS THE ADDITIONAL INFORMA- 41 TION SO INDICATES; 42 (4) SUBJECT TO SUBSECTION (G), IF THE DEBTOR IS AN INDIVIDUAL TO 43 WHOM THIS STATE HAS ISSUED A DRIVER'S LICENSE OR NON-DRIVER 44 PHOTO IDENTIFICATION CARD THAT HAS NOT EXPIRED, ONLY IF THE 45 FINANCING STATEMENT PROVIDES THE NAME OF THE INDIVIDUAL WHICH 46 IS INDICATED ON THE DRIVER'S LICENSE OR NON-DRIVER PHOTO 47 IDENTIFICATION CARD; 48 (5) IF THE DEBTOR IS AN INDIVIDUAL TO WHOM PARAGRAPH (4) DOES NOT 49 APPLY, ONLY IF THE FINANCING STATEMENT PROVIDES THE INDIVID- 50 UAL NAME OF THE DEBTOR OR THE SURNAME AND FIRST PERSONAL NAME 51 OF THE DEBTOR; AND 52 (6) in other cases: 53 (A) if the debtor has a name, only if [it] THE FINANCING 54 STATEMENT provides the [individual or] organizational 55 name of the debtor; and S. 5901 97 1 (B) if the debtor does not have a name, only if it provides 2 the names of the partners, members, associates, or other 3 persons comprising the debtor, IN A MANNER THAT EACH NAME 4 PROVIDED WOULD BE SUFFICIENT IF THE PERSON NAMED WERE THE 5 DEBTOR. 6 (b) Additional debtor-related information. A financing statement that 7 provides the name of the debtor in accordance with subsection (a) is not 8 rendered ineffective by the absence of: 9 (1) a trade name or other name of the debtor; or 10 (2) unless required under subsection [(a)(4)(B)] (A)(6)(B), names 11 of partners, members, associates, or other persons comprising 12 the debtor. 13 (c) Debtor's trade name insufficient. A financing statement that 14 provides only the debtor's trade name does not sufficiently provide the 15 name of the debtor. 16 (d) Representative capacity. Failure to indicate the representative 17 capacity of a secured party or representative of a secured party does 18 not affect the sufficiency of a financing statement. 19 (e) Multiple debtors and secured parties. A financing statement may 20 provide the name of more than one debtor and the name of more than one 21 secured party. 22 (F) NAME OF DECEDENT. THE NAME OF THE DECEDENT INDICATED ON THE ORDER 23 APPOINTING THE PERSONAL REPRESENTATIVE OF THE DECEDENT ISSUED BY THE 24 COURT HAVING JURISDICTION OVER THE COLLATERAL IS SUFFICIENT AS THE "NAME 25 OF THE DECEDENT" UNDER SUBSECTION (A)(2). 26 (G) MULTIPLE DRIVER'S LICENSES. IF THIS STATE HAS ISSUED TO AN INDI- 27 VIDUAL MORE THAN ONE DRIVER'S LICENSE OR NON-DRIVER PHOTO IDENTIFICATION 28 CARD OF A KIND DESCRIBED IN SUBSECTION (A)(4), THE ONE THAT WAS ISSUED 29 MOST RECENTLY IS THE ONE TO WHICH SUBSECTION (A)(4) REFERS. 30 (H) DEFINITION. IN THIS SECTION, THE "NAME OF THE SETTLOR OR TESTATOR" 31 MEANS: 32 (1) IF THE SETTLOR IS A REGISTERED ORGANIZATION, THE NAME THAT IS 33 STATED TO BE THE SETTLOR'S NAME ON THE PUBLIC ORGANIC RECORD 34 MOST RECENTLY FILED WITH OR ISSUED OR ENACTED BY THE 35 SETTLOR'S JURISDICTION OF ORGANIZATION WHICH PURPORTS TO 36 STATE, AMEND, OR RESTATE THE SETTLOR'S NAME; OR 37 (2) IN OTHER CASES, THE NAME OF THE SETTLOR OR TESTATOR INDICATED 38 IN THE TRUST'S ORGANIC RECORD. 39 S 58. Subsection (c) of section 9--507 of the uniform commercial code, 40 as added by chapter 84 of the laws of 2001, is amended to read as 41 follows: 42 (c) Change in debtor's name. If [a debtor so changes its] THE name 43 that a filed financing statement PROVIDES FOR A DEBTOR becomes INSUFFI- 44 CIENT AS THE NAME OF THE DEBTOR UNDER SECTION 9--503(A) SO THAT THE 45 FINANCING STATEMENT BECOMES seriously misleading under Section 9--506: 46 (1) the financing statement is effective to perfect a security 47 interest in collateral acquired by the debtor before, or 48 within four months after, the [change] FILED FINANCING STATE- 49 MENT BECOMES SERIOUSLY MISLEADING; and 50 (2) the financing statement is not effective to perfect a securi- 51 ty interest in collateral acquired by the debtor more than 52 four months after the [change] FILED FINANCING STATEMENT 53 BECOMES SERIOUSLY MISLEADING, unless an amendment to the 54 financing statement which renders the financing statement not 55 seriously misleading is filed within four months after [the 56 change] THE FINANCING STATEMENT BECAME SERIOUSLY MISLEADING. S. 5901 98 1 S 59. Subsection (f) of section 9--515 of the uniform commercial code, 2 as added by chapter 84 of the laws of 2001, is amended to read as 3 follows: 4 (f) Transmitting utility financing statement. If a debtor is a trans- 5 mitting utility and a filed INITIAL financing statement so indicates, 6 the financing statement is effective until a termination statement is 7 filed. 8 S 60. Section 9--516 of the uniform commercial code, as added by chap- 9 ter 84 of the laws of 2001, is amended to read as follows: 10 Section 9--516. What Constitutes Filing; Effectiveness of Filing. 11 (a) What constitutes filing. Except as otherwise provided in 12 subsection (b), communication of a record to a filing office and tender 13 of the filing fee or acceptance of the record by the filing office 14 constitutes filing. 15 (b) Refusal to accept record; filing does not occur. Filing does not 16 occur with respect to a record that a filing office refuses to accept 17 because: 18 (1) the record is not communicated by a method or medium of 19 communication authorized by the filing office; 20 (2) an amount equal to or greater than the applicable filing fee 21 is not tendered; 22 (3) the filing office is unable to index the record because: 23 (A) in the case of an initial financing statement, the record 24 does not provide a name for the debtor; 25 (B) in the case of an amendment or [correction] INFORMATION 26 statement, the record: 27 (i) does not identify the initial financing statement as 28 required by Section 9--512 or 9--518, as applicable; 29 or 30 (ii) identifies an initial financing statement whose 31 effectiveness has lapsed under Section 9--515; 32 (C) in the case of an initial financing statement that 33 provides the name of a debtor identified as an individual 34 or an amendment that provides a name of a debtor identi- 35 fied as an individual which was not previously provided 36 in the financing statement to which the record relates, 37 the record does not identify the debtor's [last name] 38 SURNAME; or 39 (D) in the case of a record filed in the filing office 40 described in Section 9--501 (a) (1), the record does not 41 provide a sufficient description of the real property to 42 which it relates; 43 (4) in the case of an initial financing statement or an amendment 44 that adds a secured party of record, the record does not 45 provide a name and mailing address for the secured party of 46 record; 47 (5) in the case of an initial financing statement or an amendment 48 that provides a name of a debtor which was not previously 49 provided in the financing statement to which the amendment 50 relates, the record does not: 51 (A) provide a mailing address for the debtor; or 52 (B) indicate whether the NAME PROVIDED AS THE NAME OF THE 53 debtor is THE NAME OF an individual or an organization; 54 [(C) if the financing statement indicates that the debtor is 55 an organization, provide: 56 (i) a type of organization for the debtor, or S. 5901 99 1 (ii) a jurisdiction of organization for the debtor; or] 2 (6) in the case of an assignment reflected in an initial financ- 3 ing statement under Section 9--514(a) or an amendment filed 4 under Section 9--514(b), the record does not provide a name 5 and mailing address for the assignee; or 6 (7) in the case of a continuation statement, the record is not 7 filed within the six-month period prescribed by Section 8 9--515(d). 9 (c) Rules applicable to subsection (b). For purposes of subsection 10 (b): 11 (1) a record does not provide information if the filing office is 12 unable to read or decipher the information; and 13 (2) a record that does not indicate that it is an amendment or 14 identify an initial financing statement to which it relates, 15 as required by Section 9--512, 9--514, or 9--518, is an 16 initial financing statement. 17 (d) Refusal to accept record; record effective as filed record. A 18 record that is communicated to the filing office with tender of the 19 filing fee, but which the filing office refuses to accept for a reason 20 other than one set forth in subsection (b), is effective as a filed 21 record except as against a purchaser of the collateral which gives value 22 in reasonable reliance upon the absence of the record from the files. 23 (e) Special rule for cooperative interests; record effective as 24 notice. A filing that includes a cooperative addendum covering a coop- 25 erative interest constitutes notice of the existence of the security 26 interest in the cooperative interest as of the date of the filing of the 27 cooperative addendum, except as against a purchaser of the collateral 28 which gives value in reasonable reliance upon the absence of the record 29 from the files. 30 S 61. Section 9--518 of the uniform commercial code, as added by chap- 31 ter 84 of the laws of 2001, is amended to read as follows: 32 Section 9--518. Claim Concerning Inaccurate or Wrongfully Filed Record. 33 (a) [Correction statement] STATEMENT WITH RESPECT TO RECORD INDEXED 34 UNDER PERSON'S NAME. A person may file in the filing office [a 35 correction] AN INFORMATION statement with respect to a record indexed 36 there under the person's name if the person believes that the record is 37 inaccurate or was wrongfully filed. 38 (b) [Sufficiency] CONTENTS of [correction] statement UNDER SUBSECTION 39 (A). [A correction] AN INFORMATION statement UNDER SUBSECTION (A) must: 40 (1) identify the record to which it relates by: 41 (A) the file number assigned to the initial financing state- 42 ment to which the record relates; and 43 (B) if the [correction] INFORMATION statement relates to a 44 record filed in a filing office described in Section 45 9--501(a)(1), the date and time that the initial financ- 46 ing statement was filed and the information specified in 47 Section 9--502(b); 48 (2) indicate that it is [a correction] AN INFORMATION statement; 49 and 50 (3) provide the basis for the person's belief that the record is 51 inaccurate and indicate the manner in which the person 52 believes the record should be amended to cure any inaccuracy 53 or provide the basis for the person's belief that the record 54 was wrongfully filed. 55 (c) STATEMENT BY SECURED PARTY OF RECORD. A PERSON MAY FILE IN THE 56 FILING OFFICE AN INFORMATION STATEMENT WITH RESPECT TO A RECORD FILED S. 5901 100 1 THERE IF THE PERSON IS A SECURED PARTY OF RECORD WITH RESPECT TO THE 2 FINANCING STATEMENT TO WHICH THE RECORD RELATES AND BELIEVES THAT THE 3 PERSON THAT FILED THE RECORD WAS NOT ENTITLED TO DO SO UNDER SECTION 4 9--509(D). 5 (D) CONTENTS OF STATEMENT UNDER SUBSECTION (C). AN INFORMATION STATE- 6 MENT UNDER SUBSECTION (C) MUST: 7 (1) IDENTIFY THE RECORD TO WHICH IT RELATES BY: 8 (A) THE FILE NUMBER ASSIGNED TO THE INITIAL FINANCING STATE- 9 MENT TO WHICH THE RECORD RELATES; AND 10 (B) IF THE INFORMATION STATEMENT RELATES TO A RECORD FILED IN 11 A FILING OFFICE DESCRIBED IN SECTION 9--501(A)(1), THE 12 DATE THAT THE INITIAL FINANCING STATEMENT WAS FILED AND 13 THE INFORMATION SPECIFIED IN SECTION 9--502(B); 14 (2) INDICATE THAT IT IS AN INFORMATION STATEMENT; AND 15 (3) PROVIDE THE BASIS FOR THE PERSON'S BELIEF THAT THE PERSON 16 THAT FILED THE RECORD WAS NOT ENTITLED TO DO SO UNDER SECTION 17 9--509(D). 18 (E) Record not affected by [correction] INFORMATION statement. The 19 filing of a [correction] AN INFORMATION statement does not affect the 20 effectiveness of an initial financing statement or other filed record. 21 S 62. Section 9--521 of the uniform commercial code, as added by chap- 22 ter 84 of the laws of 2001, is amended to read as follows: 23 Section 9--521. Uniform Form of Written Financing Statement; Amendment; 24 and Cooperative Addendum. 25 (a) [Initial financing statement form. A filing office that accepts 26 written records may not refuse to accept a written initial financing 27 statement in the form promulgated by the department of state except for 28 a reason as set forth in Section 9--516(b). 29 (b) Amendment form. A filing office that accepts written records may 30 not refuse to accept a written financing statement amendment in the form 31 promulgated by the department of state] A FILING OFFICE THAT ACCEPTS 32 WRITTEN RECORDS MAY NOT REFUSE TO ACCEPT A WRITTEN RECORD IN THE FORM 33 AND FORMAT SET FORTH AS FORM UCC3 AND FORM UCC3AD IN THE FINAL OFFICIAL 34 TEXT OF THE 2010 AMENDMENTS TO ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE 35 PROMULGATED BY THE AMERICAN LAW INSTITUTE AND THE NATIONAL CONFERENCE OF 36 COMMISSIONERS ON UNIFORM STATE LAWS, except for a reason as set forth in 37 Section 9--516 (b). 38 [(c)] (B) Cooperative addendum form. A filing office that accepts 39 written records may not refuse to accept a written cooperative addendum 40 in the form promulgated by the department of state except for a reason 41 as set forth in Section 9--516 (b). 42 S 63. Subsection (b) of section 9--601 of the uniform commercial code, 43 as added by chapter 84 of the laws of 2001, is amended to read as 44 follows: 45 (b) Rights and duties of secured party in possession or control. A 46 secured party in possession of collateral or control of collateral under 47 Section 7--106, 9--104, 9--105, 9--106, or 9--107 has the rights and 48 duties provided in Section 9--207. 49 S 64. Subparagraph (A) of paragraph 2 of subsection (b) of section 50 9--607 of the uniform commercial code, as added by chapter 84 of the 51 laws of 2001, is amended to read as follows: 52 (A) a default has occurred WITH RESPECT TO THE OBLIGATION 53 SECURED BY THE MORTGAGE; and 54 S 65. Subsection (c) of section 9--625 of the uniform commercial code, 55 as added by chapter 84 of the laws of 2001, is amended to read as 56 follows: S. 5901 101 1 (c) Persons entitled to recover damages; statutory damages [in consum- 2 er-goods transaction] IF COLLATERAL IS CONSUMER GOODS. Except as other- 3 wise provided in Section 9--628: 4 (1) a person that, at the time of the failure, was a debtor, was 5 an obligor, or held a security interest in or other lien on 6 the collateral may recover damages under subsection (b) for 7 its loss; and 8 (2) if the collateral is consumer goods, a person that was a 9 debtor or a secondary obligor at the time a secured party 10 failed to comply with this part may recover for that failure 11 in any event an amount not less than the credit service 12 charge plus 10 percent of the principal amount of the obli- 13 gation or the time-price differential plus 10 percent of the 14 cash price. 15 S 66. Article 9 of the uniform commercial code is amended by adding a 16 new Part 8 to read as follows: 17 PART 8 18 TRANSITION PROVISIONS FOR 2012 AMENDMENTS 19 SECTION 9--801. SAVINGS CLAUSE. 20 (A) AS USED IN THIS PART, THE TERM "OMNIBUS ACT" MEANS THAT CHAPTER OF 21 THE LAWS OF 2013 WHICH REPEALED FORMER ARTICLES 1, 3, 4 AND 7 OF THIS 22 CODE, ADDED THIS PART TO THIS ARTICLE, AND MADE CONFORMING AMENDMENTS TO 23 PROVISIONS OF OTHER ARTICLES OF THIS CODE. 24 (B) PRE-EFFECTIVE-DATE TRANSACTIONS OR LIENS. EXCEPT AS OTHERWISE 25 PROVIDED IN THIS PART, THIS OMNIBUS ACT APPLIES TO A TRANSACTION OR LIEN 26 WITHIN ITS SCOPE, EVEN IF THE TRANSACTION OR LIEN WAS ENTERED INTO OR 27 CREATED BEFORE THIS OMNIBUS ACT TAKES EFFECT. 28 (C) PRE-EFFECTIVE-DATE PROCEEDINGS. THIS OMNIBUS ACT DOES NOT AFFECT 29 AN ACTION, CASE, OR PROCEEDING COMMENCED BEFORE THIS OMNIBUS ACT TAKES 30 EFFECT. 31 SECTION 9--802. SECURITY INTEREST PERFECTED BEFORE EFFECTIVE DATE. 32 (A) CONTINUING PERFECTION: PERFECTION REQUIREMENTS SATISFIED. A SECU- 33 RITY INTEREST THAT IS A PERFECTED SECURITY INTEREST IMMEDIATELY BEFORE 34 THIS OMNIBUS ACT TAKES EFFECT IS A PERFECTED SECURITY INTEREST UNDER 35 ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT IF, WHEN THIS OMNI- 36 BUS ACT TAKES EFFECT, THE APPLICABLE REQUIREMENTS FOR ATTACHMENT AND 37 PERFECTION UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT 38 ARE SATISFIED WITHOUT FURTHER ACTION. 39 (B) CONTINUING PERFECTION: PERFECTION REQUIREMENTS NOT SATISFIED. 40 EXCEPT AS OTHERWISE PROVIDED IN SECTION 9--804, IF, IMMEDIATELY BEFORE 41 THIS OMNIBUS ACT TAKES EFFECT, A SECURITY INTEREST IS A PERFECTED SECU- 42 RITY INTEREST, BUT THE APPLICABLE REQUIREMENTS FOR PERFECTION UNDER 43 ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT ARE NOT SATISFIED 44 WHEN THIS OMNIBUS ACT TAKES EFFECT, THE SECURITY INTEREST REMAINS 45 PERFECTED THEREAFTER ONLY IF THE APPLICABLE REQUIREMENTS FOR PERFECTION 46 UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT ARE SATISFIED 47 WITHIN ONE YEAR AFTER THIS OMNIBUS ACT TAKES EFFECT. 48 SECTION 9--803. SECURITY INTEREST UNPERFECTED BEFORE EFFECTIVE DATE. 49 A SECURITY INTEREST THAT IS AN UNPERFECTED SECURITY INTEREST IMME- 50 DIATELY BEFORE THIS OMNIBUS ACT TAKES EFFECT BECOMES A PERFECTED SECURI- 51 TY INTEREST: 52 (A) WITHOUT FURTHER ACTION, WHEN THIS OMNIBUS ACT TAKES EFFECT IF THE 53 APPLICABLE REQUIREMENTS FOR PERFECTION UNDER ARTICLE 9 OF THIS ACT AS 54 AMENDED BY THIS OMNIBUS ACT ARE SATISFIED BEFORE OR AT THAT TIME; OR 55 (B) WHEN THE APPLICABLE REQUIREMENTS FOR PERFECTION ARE SATISFIED IF 56 THE REQUIREMENTS ARE SATISFIED AFTER THAT TIME. S. 5901 102 1 SECTION 9--804. EFFECTIVENESS OF ACTION TAKEN BEFORE EFFECTIVE DATE. 2 (A) PRE-EFFECTIVE-DATE FILING EFFECTIVE. THE FILING OF A FINANCING 3 STATEMENT BEFORE THIS OMNIBUS ACT TAKES EFFECT IS EFFECTIVE TO PERFECT A 4 SECURITY INTEREST TO THE EXTENT THE FILING WOULD SATISFY THE APPLICABLE 5 REQUIREMENTS FOR PERFECTION UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY 6 THIS OMNIBUS ACT. 7 (B) WHEN PRE-EFFECTIVE-DATE FILING BECOMES INEFFECTIVE. THIS OMNIBUS 8 ACT DOES NOT RENDER INEFFECTIVE AN EFFECTIVE FINANCING STATEMENT THAT, 9 BEFORE THIS OMNIBUS ACT TAKES EFFECT, IS FILED AND SATISFIES THE APPLI- 10 CABLE REQUIREMENTS FOR PERFECTION UNDER THE LAW OF THE JURISDICTION 11 GOVERNING PERFECTION AS PROVIDED IN ARTICLE 9 OF THIS ACT AS IT EXISTED 12 BEFORE THIS OMNIBUS ACT TOOK EFFECT. HOWEVER, EXCEPT AS OTHERWISE 13 PROVIDED IN SUBSECTIONS (C) AND (D) OF THIS SECTION, THE FINANCING 14 STATEMENT CEASES TO BE EFFECTIVE: 15 (1) IF THE FINANCING STATEMENT IS FILED IN THIS STATE, AT THE 16 TIME THE FINANCING STATEMENT WOULD HAVE CEASED TO BE EFFEC- 17 TIVE HAD THIS OMNIBUS ACT NOT TAKEN EFFECT; OR 18 (2) IF THE FINANCING STATEMENT IS FILED IN ANOTHER JURISDICTION, 19 AT THE EARLIER OF: 20 (A) THE TIME THE FINANCING STATEMENT WOULD HAVE CEASED TO BE 21 EFFECTIVE UNDER THE LAW OF THAT JURISDICTION; OR 22 (B) JUNE 30, 2018. 23 (C) CONTINUATION STATEMENT. THE FILING OF A CONTINUATION STATEMENT 24 AFTER THIS OMNIBUS ACT TAKES EFFECT DOES NOT CONTINUE THE EFFECTIVENESS 25 OF A FINANCING STATEMENT FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT. 26 HOWEVER, UPON THE TIMELY FILING OF A CONTINUATION STATEMENT AFTER THIS 27 OMNIBUS ACT TAKES EFFECT AND IN ACCORDANCE WITH THE LAW OF THE JURISDIC- 28 TION GOVERNING PERFECTION AS PROVIDED IN ARTICLE 9 OF THIS ACT AS 29 AMENDED BY THIS OMNIBUS ACT, THE EFFECTIVENESS OF A FINANCING STATEMENT 30 FILED IN THE SAME OFFICE IN THAT JURISDICTION BEFORE THIS OMNIBUS ACT 31 TAKES EFFECT CONTINUES FOR THE PERIOD PROVIDED BY THE LAW OF THAT JURIS- 32 DICTION. 33 (D) APPLICATION OF SUBPARAGRAPH (B) OF PARAGRAPH 2 OF SUBSECTION (B) 34 OF THIS SECTION TO TRANSMITTING UTILITY FINANCING STATEMENT. SUBPARA- 35 GRAPH (B) OF PARAGRAPH 2 OF SUBSECTION (B) OF THIS SECTION APPLIES TO A 36 FINANCING STATEMENT THAT, BEFORE THIS OMNIBUS ACT TAKES EFFECT, IS FILED 37 AGAINST A TRANSMITTING UTILITY AND SATISFIES THE APPLICABLE REQUIREMENTS 38 FOR PERFECTION UNDER THE LAW OF THE JURISDICTION GOVERNING PERFECTION AS 39 PROVIDED IN ARTICLE 9 OF THIS ACT AS IT EXISTED BEFORE THIS OMNIBUS ACT 40 TOOK EFFECT, ONLY TO THE EXTENT THAT ARTICLE 9 OF THIS ACT AS AMENDED BY 41 THIS OMNIBUS ACT PROVIDES THAT THE LAW OF A JURISDICTION OTHER THAN THE 42 JURISDICTION IN WHICH THE FINANCING STATEMENT IS FILED GOVERNS 43 PERFECTION OF A SECURITY INTEREST IN COLLATERAL COVERED BY THE FINANCING 44 STATEMENT. 45 (E) APPLICATION OF PART 5. A FINANCING STATEMENT THAT INCLUDES A 46 FINANCING STATEMENT FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT AND A 47 CONTINUATION STATEMENT FILED AFTER THIS OMNIBUS ACT TAKES EFFECT IS 48 EFFECTIVE ONLY TO THE EXTENT THAT IT SATISFIES THE REQUIREMENTS OF PART 49 5 OF ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT FOR AN INITIAL 50 FINANCING STATEMENT. A FINANCING STATEMENT THAT INDICATES THAT THE 51 DEBTOR IS A DECEDENT'S ESTATE INDICATES THAT THE COLLATERAL IS BEING 52 ADMINISTERED BY A PERSONAL REPRESENTATIVE WITHIN THE MEANING OF PARA- 53 GRAPH 2 OF SUBSECTION (A) OF SECTION 9--503 AS AMENDED BY THIS OMNIBUS 54 ACT. A FINANCING STATEMENT THAT INDICATES THAT THE DEBTOR IS A TRUST OR 55 IS A TRUSTEE ACTING WITH RESPECT TO PROPERTY HELD IN TRUST INDICATES S. 5901 103 1 THAT THE COLLATERAL IS HELD IN A TRUST WITHIN THE MEANING OF PARAGRAPH 3 2 OF SUBSECTION (A) OF SECTION 9--503 AS AMENDED BY THIS OMNIBUS ACT. 3 SECTION 9--805. WHEN INITIAL FINANCING STATEMENT SUFFICES TO CONTINUE 4 EFFECTIVENESS OF FINANCING STATEMENT. 5 (A) INITIAL FINANCING STATEMENT IN LIEU OF CONTINUATION STATEMENT. 6 THE FILING OF AN INITIAL FINANCING STATEMENT IN THE OFFICE SPECIFIED IN 7 SECTION 9--501 CONTINUES THE EFFECTIVENESS OF A FINANCING STATEMENT 8 FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT IF: 9 (1) THE FILING OF AN INITIAL FINANCING STATEMENT IN THAT OFFICE 10 WOULD BE EFFECTIVE TO PERFECT A SECURITY INTEREST UNDER ARTI- 11 CLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT; 12 (2) THE PRE-EFFECTIVE-DATE FINANCING STATEMENT WAS FILED IN AN 13 OFFICE IN ANOTHER STATE; AND 14 (3) THE INITIAL FINANCING STATEMENT SATISFIES SUBSECTION (C) OF 15 THIS SECTION. 16 (B) PERIOD OF CONTINUED EFFECTIVENESS. THE FILING OF AN INITIAL 17 FINANCING STATEMENT UNDER SUBSECTION (A) OF THIS SECTION CONTINUES THE 18 EFFECTIVENESS OF THE PRE-EFFECTIVE-DATE FINANCING STATEMENT: 19 (1) IF THE INITIAL FINANCING STATEMENT IS FILED BEFORE THIS OMNI- 20 BUS ACT TAKES EFFECT, FOR THE PERIOD PROVIDED IN SECTION 21 9--515 OF ARTICLE 9 OF THIS ACT BEFORE THIS OMNIBUS ACT TOOK 22 EFFECT WITH RESPECT TO AN INITIAL FINANCING STATEMENT; AND 23 (2) IF THE INITIAL FINANCING STATEMENT IS FILED AFTER THIS OMNI- 24 BUS ACT TAKES EFFECT, FOR THE PERIOD PROVIDED IN SECTION 25 9--515 OF ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS 26 ACT WITH RESPECT TO AN INITIAL FINANCING STATEMENT. 27 (C) REQUIREMENTS FOR INITIAL FINANCING STATEMENT UNDER 28 SUBSECTION (A) OF THIS SECTION. TO BE EFFECTIVE FOR PURPOSES 29 OF SUCH SUBSECTION (A), AN INITIAL FINANCING STATEMENT MUST: 30 (1) SATISFY THE REQUIREMENTS OF PART 5 OF ARTICLE 9 OF THIS ACT 31 AS AMENDED BY THIS OMNIBUS ACT FOR AN INITIAL FINANCING 32 STATEMENT; 33 (2) IDENTIFY THE PRE-EFFECTIVE-DATE FINANCING STATEMENT BY INDI- 34 CATING THE OFFICE IN WHICH THE FINANCING STATEMENT WAS FILED 35 AND PROVIDING THE DATES OF FILING AND FILE NUMBERS, IF ANY, 36 OF THE FINANCING STATEMENT AND OF THE MOST RECENT CONTINUA- 37 TION STATEMENT FILED WITH RESPECT TO THE FINANCING STATEMENT; 38 AND 39 (3) INDICATE THAT THE PRE-EFFECTIVE-DATE FINANCING STATE- 40 MENT REMAINS EFFECTIVE. 41 SECTION 9--806. AMENDMENT OF PRE-EFFECTIVE-DATE FINANCING STATEMENT. 42 (A) "PRE-EFFECTIVE-DATE FINANCING STATEMENT". IN THIS SECTION, 43 "PRE-EFFECTIVE-DATE FINANCING STATEMENT" MEANS A FINANCING STATEMENT 44 FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT. 45 (B) APPLICABLE LAW. AFTER THIS OMNIBUS ACT TAKES EFFECT, A PERSON MAY 46 ADD OR DELETE COLLATERAL COVERED BY, CONTINUE OR TERMINATE THE EFFEC- 47 TIVENESS OF, OR OTHERWISE AMEND THE INFORMATION PROVIDED IN, A PRE-EF- 48 FECTIVE-DATE FINANCING STATEMENT ONLY IN ACCORDANCE WITH THE LAW OF THE 49 JURISDICTION GOVERNING PERFECTION AS PROVIDED IN ARTICLE 9 OF THIS ACT 50 AS AMENDED BY THIS OMNIBUS ACT. HOWEVER, THE EFFECTIVENESS OF A PRE-EF- 51 FECTIVE-DATE FINANCING STATEMENT ALSO MAY BE TERMINATED IN ACCORDANCE 52 WITH THE LAW OF THE JURISDICTION IN WHICH THE FINANCING STATEMENT IS 53 FILED. 54 (C) METHOD OF AMENDING: GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN 55 SUBSECTION (D) OF THIS SECTION, IF THE LAW OF THIS STATE GOVERNS 56 PERFECTION OF A SECURITY INTEREST, THE INFORMATION IN A S. 5901 104 1 PRE-EFFECTIVE-DATE FINANCING STATEMENT MAY BE AMENDED AFTER THIS OMNIBUS 2 ACT TAKES EFFECT ONLY IF: 3 (1) THE PRE-EFFECTIVE-DATE FINANCING STATEMENT AND AN AMENDMENT ARE 4 FILED IN THE OFFICE SPECIFIED IN SECTION 9--501; 5 (2) AN AMENDMENT IS FILED IN THE OFFICE SPECIFIED IN SECTION 9--501 6 CONCURRENTLY WITH, OR AFTER THE FILING IN THAT OFFICE OF, AN INITIAL 7 FINANCING STATEMENT THAT SATISFIES SUBSECTION (C) OF SECTION 9--806; OR 8 (3) AN INITIAL FINANCING STATEMENT THAT PROVIDES THE INFORMATION AS 9 AMENDED AND SATISFIES SUBSECTION (C) OF SECTION 9--805 IS FILED IN THE 10 OFFICE SPECIFIED IN SECTION 9--501. 11 (D) METHOD OF AMENDING: CONTINUATION. IF THE LAW OF THIS STATE GOVERNS 12 PERFECTION OF A SECURITY INTEREST, THE EFFECTIVENESS OF A PRE-EFFEC- 13 TIVE-DATE FINANCING STATEMENT MAY BE CONTINUED ONLY UNDER SUBSECTIONS 14 (C) AND (E) OF SECTION 9--804 OR SECTION 9--805. 15 (E) METHOD OF AMENDING: ADDITIONAL TERMINATION RULE. WHETHER OR NOT 16 THE LAW OF THIS STATE GOVERNS PERFECTION OF A SECURITY INTEREST, THE 17 EFFECTIVENESS OF A PRE-EFFECTIVE-DATE FINANCING STATEMENT FILED IN THIS 18 STATE MAY BE TERMINATED AFTER THIS OMNIBUS ACT TAKES EFFECT BY FILING A 19 TERMINATION STATEMENT IN THE OFFICE IN WHICH THE PRE-EFFECTIVE-DATE 20 FINANCING STATEMENT IS FILED, UNLESS AN INITIAL FINANCING STATEMENT THAT 21 SATISFIES SUBSECTION (C) OF SECTION 9--805 HAS BEEN FILED IN THE OFFICE 22 SPECIFIED BY THE LAW OF THE JURISDICTION GOVERNING PERFECTION AS 23 PROVIDED IN ARTICLE 9 AS AMENDED BY THIS OMNIBUS ACT AS THE OFFICE IN 24 WHICH TO FILE A FINANCING STATEMENT. 25 SECTION 9--807. PERSON ENTITLED TO FILE INITIAL FINANCING STATEMENT OR 26 CONTINUATION STATEMENT. 27 A PERSON MAY FILE AN INITIAL FINANCING STATEMENT OR A CONTINUATION 28 STATEMENT UNDER THIS PART IF: 29 (A) THE SECURED PARTY OF RECORD AUTHORIZES THE FILING; AND 30 (B) THE FILING IS NECESSARY UNDER THIS PART: 31 (1) TO CONTINUE THE EFFECTIVENESS OF A FINANCING STATEMENT FILED 32 BEFORE THIS OMNIBUS ACT TAKES EFFECT; OR 33 (2) TO PERFECT OR CONTINUE THE PERFECTION OF A SECURITY INTEREST. 34 SECTION 9--808. PRIORITY. 35 THIS OMNIBUS ACT DETERMINES THE PRIORITY OF CONFLICTING CLAIMS TO 36 COLLATERAL. HOWEVER, IF THE RELATIVE PRIORITIES OF THE CLAIMS WERE 37 ESTABLISHED BEFORE THIS OMNIBUS ACT TAKES EFFECT, ARTICLE 9 OF THIS ACT 38 AS IT EXISTED BEFORE THIS OMNIBUS ACT TOOK EFFECT DETERMINES PRIORITY. 39 S 67. This act shall take effect July 1, 2013; provided, however, 40 (a) The applicability of Article 9 of the Uniform Commercial Code, as 41 amended by sections thirty-five through sixty-six of this act, is deter- 42 mined by Sections 9--801 through 9--808 of such Article 9. 43 (b) The applicability of Articles 3, 4, and 7 of the Uniform Commer- 44 cial Code, as added by sections twenty-six, twenty-seven, and thirty-two 45 of this act, is determined by the following rules: 46 (1) Such Articles 3, 4, and 7 of the Uniform Commercial Code apply to 47 a negotiable instrument, item, or document of title that is issued, or a 48 bailment that arises, on or after the effective date of this act. Such 49 Articles 3, 4, and 7 of the Uniform Commercial Code, as added by this 50 act, do not apply to a negotiable instrument, item, or document of title 51 that is issued or a bailment that arises before the effective date of 52 this act even if the negotiable instrument, item, or document of title 53 or bailment would be subject to such articles if the negotiable instru- 54 ment, item, or document of title had been issued or bailment had arisen 55 on or after the effective date of this act. S. 5901 105 1 (2) Such Articles 3, 4, and 7 of the Uniform Commercial Code do not 2 apply to a right of action that has accrued before the effective date of 3 this Act. 4 (3) Except to the extent that Article 9 of the Uniform Commercial 5 Code, as amended by sections thirty-five through sixty-six of this act, 6 is applicable as provided in Sections 9--801 through 9--808 of such 7 Article 9, a negotiable instrument, item or document of title issued or 8 a bailment that arises before the effective date of this act and the 9 rights, obligations, and interests flowing from that negotiable instru- 10 ment or document or bailment are governed by any statute or other rule 11 amended or repealed by this act as if amendment or repeal had not 12 occurred and may be terminated, completed, consummated, or enforced 13 under that statute or other rule.