قانون متحدالشکل تجاری امریکا(قسمت سوم)

"Beneficiary"    Section 4A-103

"Beneficiary's bank"    Section 4A-103

"Executed"    Section 4A-301

"Execution date"    Section 4A-301

"Funds transfer"    Section 4A-104

"Funds-transfer system rule"    Section 4A-501

"Intermediary bank"    Section 4A-104

"Originator"    Section 4A-104

"Originator's bank"    Section 4A-104

"Payment by beneficiary's bank to beneficiary"    Section 4A-405

"Payment by originator tobeneficiary"    Section 4A-406

"Payment by sender to receiving bank"    Section 4A-403

"Payment date"    Section 4A-401

"Payment order"    Section 4A-103

"Receiving bank"    Section 4A-103

"Security procedure"    Section 4A-201

"Sender"    Section 4A-103

(c) The following definitions in Article 4 apply to this Article:

"Clearing house"    Section 4-104

"Item"    Section 4-104

"Suspends payments"    Section 4-104

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

§ 4A-106.  TIME PAYMENT ORDER IS RECEIVED.
 
(a)    The  time  of  receipt  of  a  payment order  or  communication  cancelling  or amending a payment  order is determined by the rules applicable to receipt of a notice stated in Section  1-202.  A  receiving bank may fix a cut-off time or times on a funds-transfer business day for the receipt and processing of payment orders and communications cancelling or amending payment orders.    Different cut-off times may  apply  to  payment  orders,  cancellations,  or  amendments,  or  to  different categories of payment  orders,  cancellations, or amendments.    A cut-off time may apply to senders generally or different cut-off times may apply to different senders or categories of payment orders.  If a payment order or communication cancelling or amending a payment order is received after the close of a funds-transfer business day or after the appropriate cut-off time on a funds-transfer business day,  the receiving bank may treat the payment order or communication as received at the opening of the next funds-transfer business day.

(b)  If this Article refers to an  execution date or  payment date or states a day on which a  receiving bank is required to take action, and the date or day does not fall on a  funds-transfer business day, the next day that is a funds-transfer business day is treated as the date or day stated, unless the contrary is stated in this Article.

§    4A-107.    FEDERAL    RESERVE    REGULATIONS    AND    OPERATING CIRCULARS.

Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency.

§ 4A-108.    EXCLUSION OF CONSUMER TRANSACTIONS GOVERNED BY FEDERAL LAW.

This Article does not apply to a  funds transfer any part of which is governed by the
Electronic Fund Transfer Act of 1978 (Title XX, Public Law 95-630, 92 Stat. 3728, 15
U.S.C. § 1693 et seq.) as amended from time to time.

PART 2. ISSUE AND ACCEPTANCE OF PAYMENT ORDER  [Table of Contents]

§ 4A-201.  SECURITY PROCEDURE.

"Security procedure" means a procedure established by agreement of a  customer and a receiving bank  for the purpose of (i) verifying that a payment order or communication amending or cancelling a payment order is that of the customer, or (ii) detecting error in the transmission or the content of the  payment order or communication.    A security procedure may require the use of algorithms or other codes,  identifying words or numbers, encryption, callback procedures, or similar security devices.  Comparison of a signature on a payment order or communication with an authorized specimen signature of the customer is not by itself a security procedure.

§ 4A-202.  AUTHORIZED AND VERIFIED PAYMENT ORDERS.

(a)  A  payment order received by the  receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency.

(b)  If a  bank and its  customer have agreed that the authenticity of  payment orders issued to the bank in the name of the customer as  sender will be verified pursuant to a  security procedure, a payment order received by the  receiving bank is effective as the order of the customer, whether or not authorized, if (i) the security procedure is a  commercially  reasonable  method  of  providing  security  against  unauthorized payment orders, and (ii) the bank  proves that it accepted the payment order in  good faith  and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer.  The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted.

(c)  Commercial reasonableness of a  security procedure is a question of law to be determined by considering the wishes of the  customer expressed to the  bank, the circumstances of the customer known  to the bank, including the size, type, and frequency  of  payment orders  normally  issued  by  the  customer  to  the  bank, alternative security procedures offered to the customer, and security procedures in general  use  by  customers  and  receiving banks  similarly  situated.    A  security procedure is deemed to be commercially reasonable if (i) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for that customer, and (ii) the customer expressly agreed in writing to be bound by any payment order,  whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer.

(d)    The term "sender" in this Article includes the customer in whose name a payment order is issued if the order is the authorized order of the customer under subsection (a), or it is effective as the order of the customer under subsection (b).

(e)  This section applies to amendments and cancellations of  payment orders to the same extent it applies to payment orders.
 


(f)    Except as provided in this section and in Section 4A-203(a)(1), rights and obligations arising  under this section or Section 4A-203  may not be varied  by agreement.

§    4A-203.    UNENFORCEABILITY    OF    CERTAIN    VERIFIED    PAYMENT ORDERS.

(a)    If an accepted payment order is not, under Section  4A-202(a), an authorized order of a  customer identified as  sender, but is effective as an order of the customer pursuant to Section  4A-202(b), the following rules apply:

(1)    By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the  payment order.

(2) The receiving bank is not entitled to enforce or retain payment of the  payment order if the  customer proves that the order was not caused, directly or indirectly, by a person (i) entrusted at any time with  duties to act for the customer with respect to payment orders or the  security procedure, or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by  the  customer  and    without  authority  of  the  receiving    bank,    information facilitating  breach of the security procedure, regardless of how the information was obtained or whether the  customer was at fault.    Information includes any access device, computer software, or the like.

(b)    This section applies to amendments of  payment orders to the same extent it applies to payment orders.

§ 4A-204.  REFUND OF PAYMENT AND DUTY OF CUSTOMER TO REPORT WITH RESPECT TO UNAUTHORIZED PAYMENT ORDER.

(a)  If a  receiving bank accepts a  payment order issued in the name of its  customer as  sender which is (i) not authorized and not effective as the order of the customer under Section 4A-202, or (ii) not  enforceable, in whole or in part, against the customer under Section  4A-203, the  bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund.  However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary care to determine that the order  was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the date the customer received notification from the bank that the order was accepted or that the customer's account was debited with respect to the order.  The bank is not entitled to any recovery from the customer on account of a failure by the customer to give notification as stated in this section.
 
(b)  Reasonable time under subsection (a) may be fixed by agreement as stated in Section  1-204(1), but the obligation of a  receiving bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement.

§ 4A-205.  ERRONEOUS PAYMENT ORDERS.

(a)  If an accepted  payment order was transmitted pursuant to a  security procedure for the detection of error and the payment order (i) erroneously instructed payment to a  beneficiary not intended by the  sender, (ii) erroneously instructed payment in an  amount  greater  than  the  amount  intended  by  the  sender,  or  (iii)  was  an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply:

(1)    If the sender proves that the sender or a person acting on behalf of the sender pursuant to Section  4A-206 complied with the  security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent stated in paragraphs (2) and (3).

(2)  If the  funds transfer is completed on the basis of an erroneous  payment order described in clause (i) or (iii) of subsection (a),  the  sender is not obliged to pay the order and the  receiving bank is entitled to recover from the  beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.

(3)  If the  funds transfer is completed on the basis of a  payment order described in clause (ii) of subsection (a), the  sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender.    In that case, the receiving bank is entitled  to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution.

(b)  If (i) the  sender of an erroneous  payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was  accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding 90 days, after the bank's notification was received by the sender.  If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank  proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender's order.

(c)    This section applies to amendments to payment orders to the same extent it applies to payment orders.

§ 4A-206.    TRANSMISSION  OF  PAYMENT  ORDER  THROUGH  FUNDS- TRANSFER OR OTHER COMMUNICATION SYSTEM.

(a)    If a payment order addressed to a receiving bank is transmitted to a funds- transfer system or other  third-party communication system for transmittal to the bank, the system is deemed to be an agent of  the sender for the purpose of transmitting the payment order to the bank.  If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system.  This section does not apply to a funds- transfer system of the Federal Reserve Banks.

(b)  This section applies to cancellations and amendments of  payment orders to the same extent it applies to payment orders.

§ 4A-207.  MISDESCRIPTION OF BENEFICIARY.

(a)  Subject to subsection (b), if, in a  payment order received by the  beneficiary's bank, the name, bank  account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.

(b)  If a  payment order received by the  beneficiary's bank identifies the  beneficiary both by name and by  an  identifying or bank account number and the name and number identify different persons, the following rules apply:

(1)  Except as otherwise provided in subsection (c), if the  beneficiary's bank does not know that the name and number refer to different persons, it may rely on the number  as    the  proper    identification  of    the  beneficiary    of  the    order.    The beneficiary's bank need not determine whether the name and number refer to the same person.

(2)  If the  beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as  beneficiary except the person paid by the  beneficiary's  bank if that person was entitled to receive payment from the  originator of the  funds transfer.  If no person has rights as beneficiary, acceptance of the order cannot occur.

(c) If  (i)  a  payment order  described  in  subsection  (b)  is  accepted,  (ii)  the originator's payment  order described the beneficiary inconsistently by name and
 
number, and (iii) the beneficiary's bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply:

(1) If the originator is a  bank, the originator is obliged to pay its order.

(2) If the  originator is not a  bank and  proves that the person identified by number was not entitled to  receive payment from the originator, the originator is not obliged to pay its order unless the  originator's bank proves that the originator, before acceptance of the originator's order, had notice that payment of a  payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the  named beneficiary.    Proof of notice may be made by any admissible evidence.    The  originator's  bank satisfies the burden of proof if it proves that the originator, before the payment  order was accepted, signed a writing stating the information to which the notice relates.

(d)  In a case governed by subsection (b)(1), if the  beneficiary's bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be  recovered from that person to the extent allowed by the law governing mistake and restitution as follows:

(1)  If the  originator is obliged to pay its  payment order as stated in subsection
(c), the originator has the right to recover.

(2)  If the  originator is not a  bank and is not obliged to pay its  payment order, the originator's bank has the right to recover.

§    4A-208.    MISDESCRIPTION    OF    INTERMEDIARY    BANK    OR BENEFICIARY'S BANK.

(a)  This subsection applies to a  payment order identifying an  intermediary bank or the  beneficiary's bank only by an identifying number.

(1)  The  receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank and need not determine whether the number identifies a  bank.

(2)    The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.

(b)  This subsection applies to a  payment order identifying an  intermediary bank or the  beneficiary's bank  both by name and an identifying number if the name and number identify different persons.
 
(1)  If the  sender is a  bank, the  receiving bank may rely on the number as the proper identification of the intermediary or  beneficiary's bank if the receiving bank, when it executes the sender's order, does not know that the name and number identify different persons.    The receiving bank need not determine  whether the name and number refer to the same person or whether the number refers to a bank.  The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.

(2)  If the  sender is not a  bank and the  receiving bank proves that the sender, before the  payment order was accepted, had notice that the receiving bank might rely on the number as the proper identification of the intermediary or  beneficiary's bank even if it identifies a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are  governed  by subsection (b)(1), as though the sender were a bank.    Proof of notice may be made  by any admissible evidence.    The receiving bank satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information to which the notice relates.

(3)  Regardless of whether the  sender is a  bank, the  receiving bank may rely on the name as the proper identification of the intermediary or  beneficiary's bank if the receiving bank, at the time it executes the sender's order, does not know that the name and number identify different persons.    The  receiving bank need not determine whether the name and number refer to the same person.

(4)    If the receiving bank knows that the name and number identify different persons, reliance on  either the name or the number in executing the sender's payment order is a breach of the obligation stated in Section 4A-302(a)(1).

§ 4A-209.  ACCEPTANCE OF PAYMENT ORDER.

(a)    Subject to subsection (d), a receiving bank other than the beneficiary's bank accepts a  payment order when it executes the order.

(b)  Subject to subsections (c) and (d), a  beneficiary's bank accepts a  payment order at the earliest of the following times:

(1) when the  bank (i) pays the  beneficiary as stated in Section  4A-405(a) or  4A-
405(b), or (ii) notifies the beneficiary of receipt of the order or that the account of the beneficiary has  been credited with respect to the order unless the notice indicates that the bank is rejecting the  order  or that funds with respect to the order may not be withdrawn or used until receipt of payment from the  sender of the order;
 (2) when the  bank receives payment of the entire amount of the  sender's order pursuant to Section 4A-403(a)(1) or 4A-403(a)(2); or

(3) the opening of the next  funds-transfer business day of the  bank following the payment date of the order if, at that time, the amount of the  sender's order is fully covered by a withdrawable credit balance in an  authorized account of the sender or the bank has otherwise received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one hour after that time, or (ii) one hour after the opening of the next business day of the sender following the payment date if that time is later.  If notice of rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the sender receives notice or learns that the order was not accepted, counting that day as an elapsed day.  If the withdrawable credit balance during that period falls below  the  amount  of  the  order,  the  amount  of  interest  payable  is  reduced accordingly.

(c)  Acceptance of a  payment order cannot occur before the order is received by the receiving bank.  Acceptance does not occur under subsection (b)(2) or (b)(3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been closed, or the receiving bank is not permitted by law to receive credits for the beneficiary's account.

(d)  A  payment order issued to the  originator's bank cannot be accepted until the payment date if the bank is the  beneficiary's bank, or the  execution date if the bank is not the beneficiary's bank.    If the  originator's bank executes the originator's payment order before the execution date or pays the beneficiary of the originator's payment order before the payment date and the payment order is  subsequently canceled pursuant to Section  4A-211(b), the bank may recover from the beneficiary any  payment received to the extent allowed by the law governing mistake and restitution.

§ 4A-210.  REJECTION OF PAYMENT ORDER.

(a)    A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in writing.    A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the order or will not execute or pay the order.  Rejection is effective when the notice is given if transmission is by a  means that is reasonable in the circumstances.    If notice of rejection is  given by a means that is not reasonable, rejection is effective when the notice is received.  If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order, (i) any means  complying  with  the  agreement  is  reasonable  and  (ii)  any  means  not  complying is not reasonable unless no significant delay in receipt of the notice resulted from the use of the noncomplying means.

(b)  This subsection applies if a  receiving bank other than the  beneficiary's bank fails to execute a payment order despite the existence on the execution date of a withdrawable credit balance in an authorized account of the sender sufficient to cover the order.  If the sender does not receive notice of rejection of the order on the execution date and the authorized account of the sender does not bear interest, the  bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the execution date to the earlier of the day the order is canceled pursuant to Section  4A-211(d) or the day the sender receives notice or learns that the order was not executed, counting the final day of the period as an elapsed day.  If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest is reduced accordingly.

(c)  If a  receiving bank suspends payments, all unaccepted  payment orders issued to it are deemed rejected at the time the  bank suspends payments.

(d)    Acceptance  of  a  payment order  precludes  a  later  rejection  of  the  order. Rejection of a payment order precludes a later acceptance of the order.

§ 4A-211.  CANCELLATION AND AMENDMENT OF PAYMENT ORDER.

(a)  A communication of the  sender of a  payment order cancelling or amending the order may be transmitted to the  receiving bank orally, electronically, or in writing.  If a  security procedure is in effect between the sender and the receiving bank,    the communication    is    not    effective    to    cancel    or    amend    the    order    unless    the communication is verified pursuant to the security procedure or the  bank agrees to the cancellation or amendment.

(b)    Subject  to  subsection  (a),  a  communication  by  the  sender  cancelling  or amending a  payment order is effective to cancel or amend the order if notice of the communication is received at a time and in a manner affording the  receiving bank a reasonable opportunity to act on the communication before the bank  accepts the payment order.

(c)    After a payment order has been accepted, cancellation or amendment of the order is not effective  unless the receiving bank agrees or a funds-transfer system rule allows cancellation or amendment without agreement of the bank.

(1)  With respect to a  payment order accepted by a  receiving bank other than the beneficiary's bank, cancellation or amendment is not effective unless a conforming cancellation or amendment of the payment order issued by the  receiving bank is also made.
 
(2)    With  respect  to  a  payment order  accepted  by  the  beneficiary's bank, cancellation  or  amendment  is  not  effective  unless  the  order  was  issued  in execution of an unauthorized payment order, or because of a mistake by a  sender in the  funds transfer which resulted in the issuance of a payment order (i) that is a duplicate of a payment order previously issued by the sender, (ii) that  orders payment to a  beneficiary not entitled to receive payment from the  originator, or (iii) that orders  payment in an amount greater than the amount the beneficiary was entitled to receive from the originator.  If the payment order is canceled or amended, the beneficiary's bank is entitled to recover  from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.

(d) An unaccepted  payment order is canceled by operation of law at the close of the fifth  funds-transfer business day of the  receiving bank after the  execution date or payment date of the order.

(e)  A canceled  payment order cannot be accepted.  If an accepted payment order is canceled, the acceptance is nullified and no person has any right or obligation based on the acceptance.  Amendment of a payment order is deemed to be cancellation of the original order at the time of amendment and issue of a new payment order in the amended form at the same time.

(f)  Unless otherwise provided in an agreement of the parties or in a  funds-transfer system rule, if the  receiving bank, after accepting a payment order, agrees to cancellation or amendment of the order by  the sender or is bound by a funds- transfer    system    rule    allowing    cancellation    or    amendment    without    the    bank's agreement, the sender, whether or  not cancellation or amendment is effective, is liable to the bank for any loss and expenses, including reasonable attorney's fees, incurred by the bank as a result of the cancellation or amendment or  attempted cancellation or amendment.

(g)  A  payment order is not revoked by the death or legal incapacity of the  sender unless the  receiving bank knows of the death or of an adjudication of incapacity by a court  of  competent  jurisdiction  and  has  reasonable  opportunity  to  act  before acceptance of the order.

(h)    A funds-transfer system rule is not effective to the extent it conflicts with subsection (c)(2).

§ 4A-212.    LIABILITY  AND  DUTY  OF  RECEIVING  BANK  REGARDING UNACCEPTED PAYMENT ORDER.

If a receiving bank fails to accept a payment order that it is obliged by express agreement to accept, the bank is liable for breach of the agreement to the extent  provided in the agreement or in this Article, but does not otherwise have any duty to accept a payment order or, before acceptance, to take any action, or refrain from taking action, with respect to the order  except as provided in this Article or by express agreement.    Liability based on acceptance arises only  when acceptance occurs as stated in Section 4A-209, and liability is limited to that provided in this Article.    A receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or of any other party to the  funds transfer, and the bank owes no duty to any party to the funds transfer except as provided in this Article or by express agreement.

PART  3.  EXECUTION  OF  SENDER'S  PAYMENT  ORDER  BY  RECEIVING  BANK  [Table of
Contents]

§ 4A-301.  EXECUTION AND EXECUTION DATE.

(a)  A  payment order is "executed" by the  receiving bank when it issues a payment order intended to carry out the payment order received by the bank.    A payment order received by the  beneficiary's bank can be accepted but cannot be executed.

(b)  "Execution date" of a  payment order means the day on which the  receiving bank may properly issue a payment order in execution of the  sender's order.  The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received and, unless otherwise determined, is the day the order is received.  If the sender's instruction states a  payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.

§    4A-302.    OBLIGATIONS    OF    RECEIVING    BANK    IN    EXECUTION    OF PAYMENT ORDER.

(a)  Except as provided in subsections (b) through (d), if the  receiving bank accepts a   payment order  pursuant  to  Section  4A-209(a),  the  bank  has  the  following obligations in executing the order:

(1) The receiving bank is obliged to issue, on the  execution date, a  payment order complying    with    the    sender's     order    and    to    follow    the    sender's    instructions concerning (i) any  intermediary bank or funds-transfer system to be used in carrying out the  funds transfer, or (ii) the means by which payment orders are to be transmitted in the funds transfer.     If the originator's bank  issues a payment order to an intermediary bank, the originator's bank is obliged to instruct the intermediary bank according to the instruction of the  originator.  An intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.
 
(2)  If the  sender's instruction states that the  funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates that the funds transfer is to be carried out by the most expeditious means, the  receiving bank is obliged to transmit its payment order by the most expeditious available  means, and to instruct any intermediary bank accordingly.    If a sender's instruction states a payment date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the  beneficiary on the  payment date or as soon thereafter as is feasible.

(b)  Unless otherwise instructed, a  receiving bank executing a  payment order may (i) use    any    funds-transfer system     if    use    of    that    system        is    reasonable    in    the circumstances, and (ii) issue a payment order to the beneficiary's bank or to an intermediary bank through which a payment order conforming to the  sender's order can expeditiously be issued to the beneficiary's bank if the  receiving bank exercises ordinary care in the selection of the intermediary bank.    A  receiving bank is not required to follow an instruction of the  sender designating a funds-transfer system to be  used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not  feasible to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.

(c)  Unless subsection (a)(2) applies or the  receiving bank is otherwise instructed, the  bank may execute a payment order by transmitting its payment order by first class mail or by any means reasonable in the circumstances.  If the receiving bank is instructed to execute the sender's order by transmitting its  payment  order by a particular means, the receiving bank may issue its payment order by the means stated or by any means as expeditious as the means stated.

(d)  Unless instructed by the  sender, (i) the  receiving bank may not obtain payment of its charges for  services and expenses in connection with the execution of the sender's order by issuing a  payment order in an amount equal to the amount of the sender's  order  less  the  amount  of  the  charges,  and  (ii)  may  not  instruct  a subsequent receiving bank to obtain payment of its charges in the same manner.

§ 4A-303.  ERRONEOUS EXECUTION OF PAYMENT ORDER.

(a)  A  receiving bank that (i) executes the  payment order of the  sender by issuing a payment order in an amount greater than the amount of the sender's order, or (ii) issues  a  payment  order  in  execution  of  the  sender's order  and  then issues  a duplicate order, is entitled to payment  of the amount of the sender's order under Section  4A-402(c) if that subsection is otherwise satisfied.    The  bank is entitled to recover from the  beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.
 
(b)  A  receiving bank that executes the  payment order of the  sender by issuing a payment order in an amount less than the amount of the sender's order is entitled to payment of the amount of the sender's  order under Section 4A-402(c) if (i) that subsection is otherwise satisfied and (ii) the  bank corrects its mistake by issuing an additional payment order for the benefit of the  beneficiary of the sender's order.  If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order it accepted only to the extent of the amount of the erroneous order.  This subsection does not apply if the receiving bank executes the sender's payment order by issuing a payment order in an amount less than the amount of the sender's order for the purpose of obtaining payment of its charges for services and expenses pursuant to instruction of the sender.

(c)    If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary of the sender's order and the funds transfer is completed on the  basis of that error, the sender of the payment order that was erroneously executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued.  The issuer of the erroneous order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake and restitution.

§ 4A-304.    DUTY  OF  SENDER  TO  REPORT  ERRONEOUSLY  EXECUTED PAYMENT ORDER.

If the  sender of a  payment order that is erroneously executed as stated in Section
4A-303 receives notification from the  receiving bank that the order was executed or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the  bank of the
relevant facts within a reasonable time not exceeding 90 days after the notification
from the bank was received by the sender.  If the sender fails to perform that duty, the bank is not obliged  to pay interest on any amount refundable to the sender under Section 4A-402(d) for the period before  the bank learns of the execution error.    The bank is not entitled to any recovery from the sender on  account  of a failure by the sender to perform the duty stated in this section.

§ 4A-305.  LIABILITY FOR LATE OR IMPROPER EXECUTION OR FAILURE TO EXECUTE PAYMENT ORDER.

(a)    If a funds transfer is completed but execution of a payment order by the receiving bank in  breach  of Section 4A-302 results in delay in payment to the beneficiary, the bank is obliged to pay  interest to either the originator or the beneficiary of the funds transfer for the period of delay caused  by  the improper execution.    Except  as  provided  in  subsection  (c),  additional  damages  are  not recoverable.
 
(b)  If execution of a  payment order by a  receiving bank in breach of Section  4A-302 results in (i) noncompletion of the  funds transfer, (ii) failure to use an  intermediary bank designated by the  originator, or (iii) issuance of a payment order that does not comply with the terms of the payment order of the originator, the  bank is liable to the originator for its expenses in the funds transfer and for incidental expenses and interest losses, to the extent not covered by subsection (a), resulting from the improper execution.    Except as provided in subsection (c), additional damages are not recoverable.

(c)    In addition to the amounts payable under subsections (a) and (b), damages, including consequential  damages, are recoverable to the extent provided in an express written agreement of the  receiving bank.

(d)  If a  receiving bank fails to execute a  payment order it was obliged by express agreement to execute, the receiving bank is liable to the  sender for its expenses in the transaction and for incidental expenses  and  interest losses resulting from the failure  to  execute.    Additional  damages,  including  consequential  damages,  are recoverable to the extent provided in an express written agreement of the receiving bank, but are not otherwise recoverable.

(e)  Reasonable attorney's fees are recoverable if demand for compensation under subsection (a) or (b) is made and refused before an action is brought on the claim. If a claim is made for breach of an  agreement under subsection (d) and the agreement does not provide for damages, reasonable attorney's fees are recoverable if demand for compensation under subsection (d) is made and refused before an action is brought on the claim.

(f)    Except  as  stated  in  this  section,  the  liability  of  a  receiving bank  under subsections (a) and (b) may not be varied by agreement.

PART 4. PAYMENT [Table of Contents]

§ 4A-401.  PAYMENT DATE.

"Payment date" of a  payment order means the day on which the amount of the order is payable to the beneficiary by the  beneficiary's bank.  The payment date may be determined by instruction of the  sender but cannot be earlier than the day the order is received by the beneficiary's bank and, unless otherwise determined, is the day the order is received by the beneficiary's bank.

§ 4A-402.  OBLIGATION OF SENDER TO PAY RECEIVING BANK.

(a) This section is subject to Sections 4A-205 and  4A-207.
 
(b)  With respect to a  payment order issued to the  beneficiary's bank, acceptance of the order by the  bank obliges the  sender to pay the bank the amount of the order, but payment is not due until the  payment date of the order.

(c)  This subsection is subject to subsection (e) and to Section  4A-303.  With respect to a payment order  issued to a receiving bank other than the beneficiary's bank, acceptance of the order by the receiving bank obliges the  sender to pay the  bank the amount of the sender's order.    Payment by the sender is not due  until the execution date of the sender's order.    The obligation of that sender to pay its payment order is excused if the  funds transfer is not completed by acceptance by the beneficiary's bank of a payment order instructing payment to the  beneficiary of that sender's payment order.

(d)  If the  sender of a  payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment is obliged to refund payment to the extent the sender was not obliged to pay.  Except as provided in Sections  4A-
204 and 4A-304, interest is payable on the refundable amount from the date of payment.

(e)    If  a  funds transfer  is  not  completed  as  stated  in  subsection  (c)  and  an intermediary bank is obliged to refund payment as stated in subsection (d) but is unable to do so because not permitted by  applicable law or because the bank suspends payments, a  sender in the  funds transfer that executed a payment order in compliance with an instruction, as stated in Section  4A-302(a)(1), to route the funds transfer through that intermediary bank is entitled to receive or retain payment from the sender of the  payment order that it accepted.    The first sender in the funds transfer that issued an instruction requiring routing through that intermediary bank is subrogated to the right of the bank that paid the intermediary bank to refund as stated in subsection (d).

(f)  The right of the  sender of a  payment order to be excused from the obligation to pay the order as stated in subsection (c) or to receive refund under subsection (d) may not be varied by agreement.

§ 4A-403.  PAYMENT BY SENDER TO RECEIVING BANK.

(a)  Payment of the  sender's obligation under Section  4A-402 to pay the  receiving bank occurs as follows:

(1) If the sender is a  bank, payment occurs when the  receiving bank receives final settlement of the obligation through a Federal Reserve Bank or through a  funds- transfer system.
(2)  If the  sender is a  bank and the sender (i) credited an account of the  receiving bank with the sender, or (ii) caused an account of the receiving bank in another bank to be credited, payment occurs when  the credit is withdrawn or, if not withdrawn, at midnight of the day on which the credit is  withdrawable  and the receiving bank learns of that fact.

(3)  If the  receiving bank debits an account of the  sender with the receiving bank, payment occurs when the debit is made to the extent the debit is covered by a withdrawable credit balance in the account.

(b)  If the  sender and  receiving bank are members of a  funds-transfer system that nets obligations multilaterally among participants, the receiving bank receives final settlement when settlement is complete in accordance with the rules of the system. The obligation of the sender to pay the amount of a payment order transmitted through the funds-transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against the sender's obligation the right of the sender to receive payment from the receiving bank of the amount of any other payment order transmitted to the sender by the receiving bank through the funds-transfer system.  The aggregate balance of obligations owed by each sender to each receiving bank in the funds-transfer system may be satisfied, to the extent permitted  by the rules of the system, by setting off and applying against that balance the aggregate balance of obligations owed to the sender by other members of the system.  The aggregate balance is determined after the right of setoff stated in the second sentence of this subsection has been exercised.

(c)  If two  banks transmit  payment orders to each other under an agreement that settlement of the obligations of each bank to the other under Section  4A-402 will be made at the end of the day or other period, the total amount owed with respect to all orders transmitted by one bank shall be set off against the total amount owed with respect to all orders transmitted by the other bank.  To the extent of the setoff, each bank has made payment to the other.

(d)  In a case not covered by subsection (a), the time when payment of the  sender's obligation under Section  4A-402(b) or 4A-402(c) occurs is governed by applicable principles of law that determine when an obligation is satisfied.

§ 4A-404.    OBLIGATION OF BENEFICIARY'S BANK TO PAY AND GIVE NOTICE TO BENEFICIARY.

(a)  Subject to Sections  4A-211(e),  4A-405(d), and  4A-405(e), if a  beneficiary's bank accepts a  payment order, the  bank is obliged to pay the amount of the order to the beneficiary of the order.  Payment is due on the payment date of the order, but if acceptance  occurs  on  the  payment  date  after  the  close  of  the  funds-transfer business day of the bank, payment is due on the next funds-transfer business day. If the bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice of the damages, unless the bank proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary  to payment.

(b)  If a  payment order accepted by the  beneficiary's bank instructs payment to an account of the beneficiary, the  bank is obliged to notify the beneficiary of receipt of the order before midnight of the  next  funds-transfer business day following the payment date.  If the payment order does not instruct payment to an account of the beneficiary, the bank is required to notify the beneficiary only if notice is required by the order.  Notice may be given by first class mail or any other means reasonable in the circumstances.  If the bank fails to give the required notice, the bank is obliged to pay interest to the beneficiary on the amount of the payment order from the day notice should have been given until the day the beneficiary learned of receipt of the payment  order  by  the  bank.    No  other  damages  are  recoverable.    Reasonable attorney's fees are also recoverable if demand for  interest is made and refused before an action is brought on the claim.

(c)    The  right  of  a  beneficiary  to  receive  payment  and  damages  as  stated  in subsection (a) may not be varied by agreement or a  funds-transfer system rule.  The right of a beneficiary to be notified as stated in subsection (b) may be varied by agreement of the beneficiary or by a funds-transfer system rule if the beneficiary is notified of the rule before initiation of the  funds transfer.

§ 4A-405.  PAYMENT BY BENEFICIARY'S BANK TO BENEFICIARY.

(a)    If the beneficiary's bank credits an account of the beneficiary of a payment order, payment of the bank's obligation under Section  4A-404(a) occurs when and to the extent (i) the beneficiary is notified of the right to withdraw the credit, (ii) the bank lawfully applies the credit to a debt of the beneficiary, or (iii)  funds with respect to the order are otherwise made available to the beneficiary by the bank.

(b)    If the beneficiary's bank does not credit an account of the beneficiary of a payment order, the time when payment of the  bank's obligation under Section  4A-
404(a) occurs is governed by principles of law that determine when an obligation is satisfied.

(c)  Except as stated in subsections (d) and (e), if the  beneficiary's bank pays the beneficiary of a payment order under a condition to payment or agreement of the beneficiary giving the  bank the right to recover payment from the beneficiary if the bank does not receive payment of the order, the condition to payment or agreement is not enforceable.

(d)  A  funds-transfer system rule may provide that payments made to beneficiaries of  funds transfers made through the system are provisional until receipt of payment by the  beneficiary's bank of the  payment order it accepted.  A beneficiary's bank that makes a payment that is provisional under the rule is entitled to refund  from the beneficiary if (i) the rule requires that both the beneficiary and the originator be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary's bank and the  originator's bank agreed to be bound by the rule, and (iii) the beneficiary's bank did not receive payment of the payment order that it accepted.  If the beneficiary is obliged to refund payment to the beneficiary's bank, acceptance of the payment order by the beneficiary's bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under Section 4A-406.

(e)    This subsection applies to a funds transfer that includes a payment order transmitted  over  a  funds-transfer system  that  (i)  nets  obligations  multilaterally among    participants,    and    (ii)    has    in    effect    a    loss-sharing    agreement    among participants for the purpose of providing funds necessary to complete settlement of the  obligations  of one  or more  participants  that do  not meet  their  settlement obligations.  If the  beneficiary's bank in the funds transfer accepts a payment order and the system fails to complete settlement pursuant to its rules with respect to any payment order in the funds transfer, (i) the acceptance by the beneficiary's bank is nullified and no person has any right or obligation based on the acceptance, (ii) the beneficiary's  bank  is  entitled  to  recover  payment  from  the  beneficiary,  (iii)  no payment by the  originator to the beneficiary occurs under Section  4A-406, and (iv) subject to Section  4A-402(e), each  sender in the funds transfer is excused from its obligation to pay its  payment order under Section 4A-402(c) because the funds transfer has not been completed.

§ 4A-406.  PAYMENT BY ORIGINATOR TO BENEFICIARY; DISCHARGE OF UNDERLYING OBLIGATION.

(a)    Subject to Sections 4A-211(e),  4A-405(d), and 4A-405(e), the originator of a funds transfer pays the beneficiary of the  originator's payment order (i) at the time a payment order for the benefit of the  beneficiary is accepted by the beneficiary's bank in the funds transfer and (ii) in an amount equal to the amount of  the order accepted by the beneficiary's bank, but not more than the amount of the originator's order.

(b)  If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the  same extent discharge would result from payment to the beneficiary of the same amount in money, unless (i) the payment under subsection (a) was made by a means prohibited by the contract of the beneficiary with respect to the obligation, (ii) the beneficiary, within a reasonable time after receiving notice of receipt of the order by the beneficiary's bank, notified the originator of the beneficiary's refusal of the payment, (iii) funds with respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary, and (iv) the beneficiary would suffer a loss that could reasonably have been avoided if payment had  been made by a means complying with the contract.    If  payment by  the originator    does    not    result    in    discharge    under    this    section,    the    originator    is subrogated to the rights of the beneficiary to receive payment from the beneficiary's bank under Section 4A-404(a).

(c)  For the purpose of determining whether discharge of an obligation occurs under subsection (b), if the beneficiary's bank accepts a  payment order in an amount equal to the amount of the originator's payment  order less charges of one or more receiving banks in the  funds transfer, payment to the  beneficiary is deemed to be in the amount of the originator's order unless upon demand by the beneficiary the originator does not pay the beneficiary the amount of the deducted charges.

(d)    Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator and the beneficiary.

PART 5. MISCELLANEOUS PROVISIONS  [Table of Contents]

§    4A-501.    VARIATION    BY    AGREEMENT    AND    EFFECT    OF    FUNDS- TRANSFER SYSTEM RULE.

(a)  Except as otherwise provided in this Article, the rights and obligations of a party to a  funds transfer may be varied by agreement of the affected party.

(b)    "Funds-transfer system rule" means a rule of an association of banks (i) governing transmission of  payment orders by means of a  funds-transfer system of the association or rights and obligations with respect to those orders, or (ii) to the extent the rule governs rights and obligations between banks that are parties to a funds transfer in which a Federal Reserve Bank, acting as an intermediary bank, sends a payment order to the  beneficiary's bank.  Except as otherwise provided in this Article, a funds-transfer system rule governing rights and obligations between participating banks using the system may be effective even if the rule conflicts with this Article and indirectly affects another party to the funds transfer who does not consent to the rule.    A funds-transfer system rule may also govern rights and obligations of parties other than participating banks using the system to the extent stated in Sections 4A-404(c), 4A-405(d), and  4A-507(c).

§ 4A-502.  CREDITOR PROCESS SERVED ON RECEIVING BANK; SETOFF BY BENEFICIARY'S BANK.
 
(a)    As    used    in    this    section,    "creditor    process"    means    levy,    attachment, garnishment, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant with respect to an account.

(b) This subsection applies to  creditor process with respect to an  authorized account of the  sender of a payment order if the  creditor process is served on the  receiving bank.  For the purpose of determining rights with respect to the creditor process, if the receiving bank accepts the payment order the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the  bank a reasonable opportunity to act on it before the bank accepts the payment order.

(c)    If a beneficiary's bank has received a  payment order  for payment to  the beneficiary's account in the bank, the following rules apply:

(1)  The  bank may credit the  beneficiary's account.  The amount credited may be set off against an  obligation owed by the beneficiary to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.

(2)    The bank may credit the beneficiary's account and allow withdrawal of the amount credited unless creditor process with respect to the account is served at a time and in a manner affording the bank a  reasonable opportunity to act to prevent withdrawal.

(3)  If  creditor process with respect to the  beneficiary's account has been served and the bank has had  a reasonable opportunity to act on it, the bank may not reject the  payment order except for a reason unrelated to the service of process.

(d)  Creditor process with respect to a payment by the  originator to the  beneficiary pursuant to a funds transfer may be served only on the beneficiary's bank with respect to the debt owed by that  bank to the beneficiary.  Any other bank served with the creditor process is not obliged to act with respect to the process.

§ 4A-503.    INJUNCTION OR RESTRAINING ORDER WITH RESPECT TO FUNDS TRANSFER.

For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a  funds transfer, (ii) an  originator's bank from executing the payment order of the  originator, or (iii) the beneficiary's bank from releasing funds to the  beneficiary or the beneficiary from withdrawing the funds.  A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer.
 
§ 4A-504.    ORDER IN WHICH ITEMS AND PAYMENT ORDERS MAY BE CHARGED TO ACCOUNT; ORDER OF WITHDRAWALS FROM ACCOUNT.

(a)  If a  receiving bank has received more than one  payment order of the  sender or one or more payment  orders and other items that are payable from the sender's account, the bank may charge the sender's  account with respect to the various orders and items in any sequence.

(b)    In determining whether a credit to an account has been withdrawn by the holder of the account or applied to a debt of the holder of the account, credits first made to the account are first withdrawn or applied.

§ 4A-505.    PRECLUSION  OF  OBJECTION  TO  DEBIT  OF  CUSTOMER'S ACCOUNT.

If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as  sender and accepted by the bank, and the customer received notification  reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled  to  retain the payment unless the customer notifies the bank of the customer's objection to the payment within one year after the notification was received by the customer.

§ 4A-506.  RATE OF INTEREST.

(a)  If, under this Article, a  receiving bank is obliged to pay interest with respect to a payment order issued to the  bank, the amount payable may be determined (i) by agreement of the  sender and receiving bank, or (ii) by a  funds-transfer system rule if the payment order is transmitted through a  funds-transfer system.

(b)  If the amount of interest is not determined by an agreement or rule as stated in subsection (a), the amount is calculated by multiplying the applicable Federal Funds rate by the amount on which interest is payable, and then multiplying the product by the number of days for which interest is payable.  The applicable Federal Funds rate is the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest is payable divided by 360.    The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the next preceding day for which there is a published rate. If a  receiving bank that accepted a  payment order is required to refund payment to the  sender of the order because the funds transfer was not completed,  but the failure to complete was not due to any fault by the bank, the interest payable is reduced by a  percentage equal to the reserve requirement on deposits of the receiving bank.

§ 4A-507.  CHOICE OF LAW.
 
(a)    The  following  rules  apply  unless  the  affected  parties  otherwise  agree  or subsection (c) applies:

(1)  The rights and obligations between the  sender of a  payment order and the receiving bank are governed by the law of the jurisdiction in which the receiving bank is located.

(2)  The rights and obligations between the  beneficiary's bank and the  beneficiary are governed by the  law of the jurisdiction in which the beneficiary's bank is located.

(3)    The issue of when payment is made pursuant to a funds transfer by the originator to the beneficiary is governed by the law of the jurisdiction in which the beneficiary's bank is located.

(b)    If the parties described in each paragraph of subsection (a) have made an agreement  selecting  the  law  of  a  particular  jurisdiction  to  govern  rights  and obligations between each other, the law of that jurisdiction governs those rights and obligations,  whether  or  not  the  payment order  or  the  funds  transfer  bears  a reasonable relation to that jurisdiction.

(c)    A funds-transfer system rule may select the law of a particular jurisdiction to govern  (i)  rights  and  obligations  between  participating  banks  with  respect  to payment orders transmitted or processed through the system, or (ii) the rights and obligations of some or all parties to a  funds transfer any part of which is carried out by means of the system.  A choice of law made pursuant to clause (i) is binding on participating banks.  A choice of law made pursuant to clause (ii) is binding on the originator, other sender,  or a  receiving bank having notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system when the originator, other sender, or receiving bank issued or accepted a payment order.  The  beneficiary of a funds transfer is bound by the choice of law if, when the funds transfer is initiated, the beneficiary has notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system.  The law of a jurisdiction selected pursuant to this  subsection may govern, whether or not that law bears a reasonable relation to the matter in issue.

(d)  In the event of inconsistency between an agreement under subsection (b) and a choice-of-law  rule  under  subsection  (c),  the  agreement  under  subsection  (b) prevails.

(e)  If a  funds transfer is made by use of more than one  funds-transfer system and there is inconsistency  between choice-of-law rules of the systems, the matter in issue is governed by the law of the selected jurisdiction that has the most significant relationship to the matter in issue.
 

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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U.C.C. - ARTICLE 5 - LETTERS OF CREDIT

§ 5-101. Short Title.

This Article shall be known and may be cited as Uniform Commercial Code-Letters of
Credit.

§ 5-102. Definitions.

(a) In this article:

(1)  "Adviser" means a person who, at the request of the  issuer, a  confirmer, or another adviser, notifies or requests another adviser to notify the  beneficiary that a  letter of credit has been issued, confirmed, or amended.

(2)  "Applicant" means a person at whose request or for whose account a letter of credit is issued.  The term includes a person who requests an  issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer.

(3)  "Beneficiary" means a person who under the terms of a letter of credit is entitled to have its complying  presentation honored.  The term includes a person to whom drawing rights have been  transferred under a transferable letter of credit.

(4)  "Confirmer" means a  nominated person who undertakes, at the request or with the consent of the  issuer, to honor a presentation under a letter of credit issued by another.

(5)  "Dishonor" of a  letter of credit means failure timely to  honor or to take an interim action, such as acceptance of a draft, that may be required by the letter of credit.

(6)  "Document" means a draft or other demand, document of title, investment security, certificate, invoice, or other  record, statement, or representation of fact, law, right, or opinion (i) which is presented in a written or other medium permitted by the  letter of credit or, unless prohibited by the letter of credit, by the standard practice  referred  to  in  Section  5-108(e)  and  (ii)  which  is  capable  of  being examined for compliance with the terms and conditions of the letter of credit.  A document may not be oral.
(7) "Good faith" means honesty in fact in the conduct or transaction concerned.

(8)  "Honor" of a  letter of credit means performance of the  issuer's undertaking in the letter of credit to pay or deliver an item of  value.  Unless the letter of credit otherwise provides, "honor" occurs (i) upon payment,(ii) if the letter of credit provides for  acceptance, upon acceptance of a draft and, at maturity, its payment, or(iii) if the letter of  credit provides for incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.

(9)  "Issuer" means a bank or other person that issues a  letter of credit, but does not include an  individual  who makes an engagement for personal, family, or household purposes.

(10)    "Letter    of    credit"    means    a    definite    undertaking    that    satisfies    the requirements of Section  5-104 by an  issuer to a  beneficiary at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to  honor a documentary presentation by payment or delivery of an item of value.

(11)    "Nominated person" means a person whom the issuer (i) designates or authorizes to pay,  accept, negotiate, or otherwise give value under a letter of credit and (ii) undertakes by agreement or custom and practice to reimburse.

(12)    "Presentation" means delivery of a document to an issuer or nominated person for honor or giving of value under a  letter of credit.

(13)    "Presenter" means a person making a presentation as or on behalf of a beneficiary or nominated person.

(14)  "Record" means information that is inscribed on a tangible medium, or that is stored in an electronic or other medium and is retrievable in perceivable form.

(15)    "Successor    of    a    beneficiary"    means    a    person    who    succeeds    to substantially all of the rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal representative, trustee in bankruptcy, debtor in possession, liquidator, and receiver.

(b) Definitions in other Articles applying to this article and the sections in which they appear are:

"Accept" or "Acceptance"    Section 3-409

"Value"    Sections 3-303,  4-211

(c)    Article  1  contains  certain  additional  general  definitions  and  principles  of construction and interpretation applicable throughout this article.

§ 5-103. Scope.
 
(a)    This article applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.

(b)  The statement of a rule in this article does not by itself require, imply, or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this article.

(c)    With the exception of this subsection, subsections (a) and (d), Sections 5-
102(a)(9) and (10),  5-106(d), and  5-114(d), and except to the extent prohibited in Sections  1-302 and 5-117(d), the effect of this article may be varied by agreement or by a provision stated or incorporated by reference in an undertaking.  A term in an  agreement  or  undertaking  generally  excusing  liability  or  generally  limiting remedies  for  failure  to  perform  obligations  is  not  sufficient  to  vary  obligations prescribed by this article.

(d)  Rights and obligations of an  issuer to a  beneficiary or a  nominated person under a  letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which  the letter of credit arises or which underlies  it,  including  contracts  or  arrangements  between  the  issuer  and  the applicant and between the applicant and the beneficiary.

§ 5-104. Formal Requirements.

A  letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a  record and is authenticated (i) by a signature or (ii) in accordance with the agreement of the parties or the standard practice referred to in Section 5-108(e).

§ 5-105. Consideration.

Consideration is not required to issue, amend, transfer, or cancel a  letter of credit, advice, or confirmation.

§ 5-106. Issuance, Amendment, Cancellation, and Duration.

(a)    A letter of credit is issued and becomes enforceable according to its terms against the issuer when  the issuer sends or otherwise transmits it to the person requested to advise or to the  beneficiary.  A letter of credit is revocable only if it so provides.

(b) After a  letter of credit is issued, rights and obligations of a beneficiary,  applicant, confirmer, and issuer are  not affected by an amendment or cancellation to which that person has not consented except to the extent the letter of credit provides that  it is revocable or that the issuer may amend or cancel the letter of credit without that consent.

(c)    If there is no stated expiration date or other provision that determines its duration, a  letter of credit expires one year after its stated date of issuance or, if none is stated, after the date on which it is issued.

(d)  A  letter of credit that states that it is perpetual expires five years after its stated date of issuance, or if none is stated, after the date on which it is issued.

§ 5-107. Confirmer, Nominated Person, and Adviser.

(a)    A confirmer is directly obligated on a letter of credit and has the rights and obligations of an issuer  to  the extent of its confirmation.    The confirmer also has rights against and obligations to the issuer as if the issuer were an  applicant and the confirmer had issued the letter of credit at the request and for the account of the issuer.

(b)    A nominated person who is not a confirmer is not obligated to honor or otherwise give  value for a  presentation.

(c)  A person requested to advise may decline to act as an  adviser.  An adviser that is not a confirmer is  not  obligated to honor or give value for a presentation.    An adviser undertakes to the issuer and to the beneficiary accurately to advise the terms of the  letter of credit, confirmation, amendment, or advice received by that person and undertakes to the beneficiary to check the apparent authenticity of the request to advise.  Even if the advice is inaccurate, the letter of credit, confirmation, or amendment is enforceable as issued.

(d)  A person who notifies a transferee  beneficiary of the terms of a  letter of credit, confirmation,  amendment,  or advice has the rights and obligations of an adviser under subsection (c).    The terms in the  notice to the transferee beneficiary may differ from the terms in any notice to the transferor  beneficiary  to the extent permitted by the letter of credit, confirmation, amendment, or advice received by the person who so notifies.

§ 5-108. Issuer's Rights and Obligations

(a)    Except  as  otherwise  provided  in  Section  5-109,  an  issuer  shall  honor  a presentation that, as determined by the standard practice referred to in subsection (e), appears on its face strictly to comply with the terms and conditions of the  letter of credit.    Except as otherwise provided in Section 5-113 and  unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear so to comply.
 
(b)  An  issuer has a reasonable time after  presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of documents:

(1) to  honor,

(2) if the letter of credit provides for honor to be completed more than seven business days after presentation, to  accept a draft or incur a deferred obligation, or

(3) to give notice to the presenter of discrepancies in the  presentation.

(c)    Except as otherwise provided in subsection (d), an issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in the notice if timely notice is given.

(d)    Failure to give the notice specified in subsection (b) or to mention fraud, forgery, or expiration in the notice does not preclude the  issuer from asserting as a basis for  dishonor fraud or forgery as described in Section  5-109(a) or expiration of the  letter of credit before  presentation.

(e)  An  issuer shall observe standard practice of financial institutions that regularly issue letters of credit.    Determination of the issuer's observance of the standard practice is a matter of interpretation for the court.  The court shall offer the parties a reasonable opportunity to present evidence of the standard practice.

(f) An issuer is not responsible for:

(1) the performance or nonperformance of the underlying contract, arrangement, or transaction,

(2) an act or omission of others, or

(3) observance or knowledge of the usage of a particular trade other than the standard practice referred to in subsection (e).

(g)    If an undertaking constituting a letter of credit under Section 5-102(a)(10) contains nondocumentary conditions, an  issuer shall disregard the nondocumentary conditions and treat them as if they were not stated.

(h)  An  issuer that has  dishonored a  presentation shall return the  documents or hold them at the disposal of, and send advice to that effect to, the  presenter.

(i)    An issuer that has honored a presentation as permitted or required by this article:
 
(1) is entitled to be reimbursed by the  applicant in immediately available funds not later than the date of its payment of funds;

(2) takes the  documents free of claims of the  beneficiary or presenter;

(3) is precluded from asserting a right of recourse on a draft under Sections  3-414 and  3-415;

(4) except as otherwise provided in Sections  5-110 and  5-117, is precluded from restitution of money  paid or other value given by mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the  presentation; and

(5) is discharged to the extent of its performance under the  letter of credit unless the  issuer honored a presentation in which a required signature of a  beneficiary was forged.

§ 5-109. Fraud and Forgery.

(a)    If a  presentation is made that appears on its face strictly to comply with the terms and conditions of the  letter of credit, but a required  document is forged or materially fraudulent, or  honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant:

(1)  the  issuer  shall  honor  the  presentation,  if  honor  is  demanded  by  (i)  a nominated person who has given  value in  good faith  and without notice of forgery or material fraud, (ii) a  confirmer who has honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under the  letter of credit which was taken after  acceptance by the issuer or nominated person, or (iv) an assignee of the issuer's or nominated person's deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person; and

(2) the  issuer, acting in  good faith, may  honor or  dishonor the  presentation in any other case.

(b)    If  an  applicant  claims  that  a  required  document  is  forged  or  materially fraudulent or that honor of the  presentation would facilitate a material fraud by the beneficiary  on  the  issuer  or  applicant,  a  court  of  competent  jurisdiction  may temporarily or permanently enjoin the issuer from honoring a presentation or grant similar relief against the issuer or other persons only if the court finds that:

(1) the relief is not prohibited under the law applicable to an accepted draft or deferred obligation incurred by the issuer;
 
(2) a  beneficiary,  issuer, or  nominated person who may be adversely affected is adequately protected against loss that it may suffer because the relief is granted;

(3) all of the conditions to entitle a person to the relief under the law of this State have been met; and

(4) on the basis of the information submitted to the court, the  applicant is more likely than not to  succeed under its claim of forgery or material fraud and the person demanding  honor does not qualify for protection under subsection (a)(1).

§ 5-110. Warranties.

(a) If its  presentation is honored, the  beneficiary warrants:

(1) to the issuer, any other person to whom presentation is made, and the applicant that there is  no fraud or forgery of the kind described in Section 5-
109(a); and

(2) to the  applicant that the drawing does not violate any agreement between the applicant  and  beneficiary  or  any  other  agreement  intended  by  them  to  be augmented by the letter of credit.

(b)    The warranties in subsection (a) are in addition to warranties arising under Article 3, 4, 7, and 8 because of the  presentation or transfer of  documents covered by any of those articles.

§ 5-111. Remedies.

(a) If an issuer wrongfully  dishonors or repudiates its obligation to pay money under a   letter of credit  before  presentation,  the  beneficiary,   successor,  or  nominated person presenting on its own behalf may recover from the issuer the amount that is the subject of the dishonor or repudiation.  If the issuer's obligation under the letter of  credit  is  not  for  the  payment  of  money,  the  claimant  may  obtain  specific performance or, at the claimant's election, recover an amount equal to the  value of performance  from  the  issuer.    In  either  case,  the  claimant  may  also  recover incidental but  not consequential damages.    The claimant is not obligated to take action to avoid damages that might be due from the issuer under this subsection.  If, although  not  obligated  to  do  so,  the  claimant  avoids  damages,  the  claimant's recovery from the issuer must be reduced by the amount of damages avoided.  The issuer has the burden of proving the amount of damages avoided.  In the case of repudiation the claimant need not present any  document.

(b)  If an  issuer wrongfully  dishonors a draft or demand presented under a  letter of credit or  honors a draft or demand in breach of its obligation to the  applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach.

(c)  If an  adviser or  nominated person other than a  confirmer breaches an obligation under this article or an issuer breaches an obligation not covered in subsection (a) or (b), a person to whom the obligation is owed may recover damages resulting from the breach, including incidental but not consequential damages, less  any amount saved as a result of the breach.  To the extent of the confirmation, a confirmer has the liability of an issuer specified in this subsection and subsections (a) and (b).

(d)  An  issuer,  nominated person, or  adviser who is found liable under subsection (a), (b), or (c) shall pay interest on the amount owed thereunder from the date of wrongful  dishonor or other appropriate date.

(e)  Reasonable attorney's fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under this article.

(f)  Damages that would otherwise be payable by a party for breach of an obligation under this article may  be liquidated by agreement or undertaking, but only in an amount or by a formula that is reasonable in light of the harm anticipated.

§ 5-112. Transfer of Letter of Credit.

(a)  Except as otherwise provided in Section  5-113, unless a  letter of credit provides that it is transferable,  the right of a beneficiary to draw or otherwise demand performance under a letter of credit may not be transferred.

(b)  Even if a  letter of credit provides that it is transferable, the  issuer may refuse to recognize or carry out a transfer if:

(1) the transfer would violate applicable law; or

(2) the transferor or transferee has failed to comply with any requirement stated in the  letter of credit or any other requirement relating to transfer imposed by the issuer which is within the standard practice referred to in Section  5-108(e) or is otherwise reasonable under the circumstances.

§ 5-113. Transfer by Operation of Law.

(a)    A successor of a beneficiary may consent to amendments, sign and present documents,  and  receive  payment  or other  items  of  value  in  the  name  of  the beneficiary without disclosing its status as a successor.

(b)    A successor of a beneficiary may consent to amendments, sign and present documents, and receive  payment or other items of value in its own name as the  disclosed successor of the beneficiary.  Except as otherwise provided in subsection (e), an  issuer shall recognize a disclosed successor of a beneficiary as beneficiary in full  substitution for  its predecessor upon  compliance  with the requirements for recognition by the issuer of a transfer of drawing rights by operation of law under the standard practice referred to in Section  5-108(e) or, in the absence of such a practice,  compliance  with  other  reasonable  procedures  sufficient  to  protect  the issuer.

(c)    An issuer is not obliged to determine whether a purported successor is a successor of a beneficiary or whether the signature of a purported successor is genuine or authorized.

(d)    Honor of a purported  successor's apparently complying presentation  under subsection (a) or (b) has the consequences specified in Section  5-108(i) even if the purported successor is not the  successor of a beneficiary.  Documents signed in the name of the beneficiary or of a disclosed successor by a person who is neither the beneficiary  nor  the  successor of  the  beneficiary  are  forged  documents  for  the purposes of Section 5-109.

(e)  An  issuer whose rights of reimbursement are not covered by subsection (d) or substantially similar  law  and any confirmer or nominated person may decline to recognize a  presentation under subsection (b).

(f)  A  beneficiary whose name is changed after the issuance of a  letter of credit has the same rights and obligations as a successor of a beneficiary under this section.

§ 5-114. Assignment of Proceeds.

(a)  In this section, "proceeds of a letter of credit" means the cash, check, accepted draft, or other item of value paid or delivered upon  honor or giving of value by the issuer or any  nominated person under the letter of credit.  The term does not include a  beneficiary's drawing rights or documents presented by the beneficiary.

(b)  A  beneficiary may assign its right to part or all of the proceeds of a letter of credit.  The beneficiary may do so before  presentation as a present assignment of its right  to  receive  proceeds  contingent  upon  its  compliance  with  the  terms  and conditions of the letter of credit.

(c)  An  issuer or  nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment.

(d)  An  issuer or  nominated person has no obligation to give or withhold its consent to  an  assignment  of  proceeds  of  a  letter  of  credit,  but  consent  may  not  be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a condition to honor.

(e)  Rights of a transferee  beneficiary or  nominated person are independent of the beneficiary's assignment of the proceeds of a letter of credit and are superior to the assignee's right to the proceeds.

(f)  Neither the rights recognized by this section between an assignee and an  issuer, transferee  beneficiary, or nominated person nor the issuer's or nominated person's payment of proceeds to an assignee or a third person affect the rights between the assignee and any person other than the issuer, transferee beneficiary, or nominated person.  The mode of creating and perfecting a security interest in or granting an assignment of a beneficiary's rights to proceeds is governed by Article 9 or other law.    Against persons  other  than the issuer, transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment of a beneficiary's right to proceeds and its perfection are governed by Article 9 or other law.

§ 5-115. Statute of Limitations.

An  action  to  enforce  a  right  or  obligation  arising  under  this  article  must  be commenced within one year after the expiration date of the relevant  letter of credit or one year after the [claim for relief] [cause of action] accrues, whichever occurs later.    A  [claim  for  relief]  [cause  of  action]  accrues  when  the  breach  occurs, regardless of the aggrieved party's lack of knowledge of the breach.

§ 5-116. Choice of Law and Forum.

(a)  The liability of an  issuer,  nominated person, or  adviser for action or omission is governed by the law of the jurisdiction chosen by an agreement in the form of a record signed or otherwise authenticated by  the affected parties in the manner provided  in  Section  5-104  or  by  a  provision  in  the  person's  letter  of credit, confirmation, or other undertaking.  The jurisdiction whose law is chosen need not bear any relation to the transaction.

(b)    Unless subsection (a) applies, the liability of an issuer,  nominated person, or adviser for action or omission is governed by the law of the jurisdiction in which the person is located.  The person is considered to be located at the address indicated in the person's undertaking.    If more than one address is indicated,  the person is considered to be located at the address from which the person's undertaking was issued.  For the purpose of jurisdiction, choice of law, and recognition of interbranch letters of credit, but not  enforcement of a judgment, all branches of a bank are considered separate juridical entities and a bank is considered to be located at the place where its relevant branch is considered to be located under this subsection.
 
(c)    Except  as otherwise  provided  in  this subsection,  the liability  of an  issuer, nominated person, or adviser is governed by any rules of custom or practice, such as the Uniform Customs and Practice for Documentary Credits, to which the  letter of credit, confirmation, or other undertaking is expressly made  subject.    If (i) this article would govern the liability of an issuer,  nominated person, or adviser under subsection (a) or (b), (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this article and those rules as applied to that undertaking, those rules govern except to the extent of any  conflict with the nonvariable provisions specified in Section 5-103(c).

(d)    If there is conflict between this article and Article 3, 4, 4A, or 9, this article governs.

(e)  The forum for settling disputes arising out of an undertaking within this article may be chosen in the manner and with the binding effect that governing law may be chosen in accordance with subsection (a).

§ 5-117. Subrogation of Issuer, Applicant, and Nominated Person.

(a)  An  issuer that  honors a  beneficiary's presentation is subrogated to the rights of the beneficiary to the same extent as if the issuer were a secondary obligor of the underlying obligation owed to the  beneficiary and of the applicant to the same extent as if the issuer were the secondary obligor of the underlying obligation owed to the applicant.

(b)  An  applicant that reimburses an  issuer is subrogated to the rights of the issuer against any  beneficiary, presenter, or  nominated person to the same extent as if the applicant were the secondary obligor of the obligations owed to the issuer and has the rights of subrogation of the issuer to the rights of the  beneficiary stated in subsection (a).

(c)    A  nominated person  who  pays  or  gives  value  against  a  draft  or  demand presented under a  letter of credit is subrogated to the rights of:

(1) the  issuer against the  applicant to the same extent as if the  nominated person were a secondary obligor of the obligation owed to the issuer by the applicant;

(2)  the  beneficiary  to  the  same  extent  as  if  the  nominated person  were  a secondary obligor of the underlying obligation owed to the beneficiary; and

(3) the applicant to same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the applicant.
 
(d)    Notwithstanding    any    agreement    or    term    to    the    contrary,    the    rights    of subrogation stated in subsections (a) and (b) do not arise until the  issuer honors the letter of credit or otherwise pays and the rights in subsection (c) do not arise until the   nominated person  pays  or  otherwise  gives  value.     Until  then,  the  issuer, nominated person, and the applicant do not derive  under this section present or prospective rights forming the basis of a claim, defense, or excuse.

§ 5-118. Security Interest of Issuer or Nominated Person.

(a) An  issuer or  nominated person has a security interest in a document presented under a  letter of credit and any identifiable proceeds of the collateral to the extent that the issuer or nominated person honors or gives value for the presentation.

(b) Subject to subsection (c), as long as and to the extent that an issuer or nominated person has  not been reimbursed or has not otherwise recovered the value given with respect to a security interest in a document under subsection (a), the security interest continues and is subject to Article 9, but:

(1)    a    security    agreement    is    not    necessary    to    make    the    security    interest enforceable under Section 9-203(b)(3);

(2) if the document is presented in a medium other than a written or other tangible medium, the security interest is perfected; and

(3) if the document is presented in a written or other tangible medium and is not a certificated security, chattel paper, a document of title, an instrument, or a letter of credit, so long as the debtor does not have possession of the document, the security interest is perfected and has priority over a conflicting security interest in the document.

TRANSITION PROVISIONS

SECTION [    ].  EFFECTIVE DATE.

This [Act] shall become effective on      , 199     .

SECTION [    ].  REPEAL.

This [Act] [repeals] [amends] [insert citation to existing Article 5].

SECTION [    ].  APPLICABILITY.

This [Act] applies to a  letter of credit that is issued on or after the effective date of this [Act].    This [Act]  does  not apply to a transaction, event, obligation, or duty
 
arising out of or associated with a letter of credit that was issued before the effective date of this [Act].

SECTION [    ].  SAVINGS CLAUSE.

A transaction arising out of or associated with a letter of credit that was issued before the effective date  of this [Act] and the rights, obligations, and interests flowing from that transaction are governed by any statute or other law amended or repealed by this [Act] as if repeal or amendment had not occurred and  may be terminated, completed, consummated, or enforced under that statute or other law.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.
 


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REPEALER    OF    U.C.C.    -    ARTICLE    6    -    BULK    TRANSFERS

and

[REVISED] U.C.C. - ARTICLE 6 - BULK SALES (States to Select One Alternative -- A or B)

ALTERNATIVE A

§ 1.  Repeal.

Article 6 and Section  9-111 of the Uniform Commercial Code are hereby repealed, effective      .

§ 2.  Amendment.

Section 1-105(2) of the Uniform Commercial Code is hereby amended to read as follows:

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

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

Applicability of the Article on Leases.  Sections 2A-105 and  2A-106. Applicability of the Article on Bank Deposits and Collections.  Section 4-102.
 Applicability of the Article on Investment Securities. Section 8-106. Perfection provisions of the Article on Secured Transactions.  Section  9-103.
§ 3.  Amendment.

Section 2-403(4) of the Uniform Commercial Code is hereby amended to read as follows:

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

§ 4.  Savings Clause.

Rights and obligations that arose under Article 6 and Section  9-111 of the Uniform Commercial Code before their repeal remain valid and may be enforced as though those statutes had not been repealed.]

Legislative Note: To take account of differences between former Article 9 and revised Article 9, a  State  that repeals Article 6 after revised Article 9 takes effect must make the following changes to Alternative A. First, inasmuch as revised Article
9 contains no counterpart of former Section 9-111, the reference to that section in Section 1 of the repealer should be deleted, and Section 4 of the repeal bill should allude to former Section 9-111. Second, the last entry in Section 1-105(2) should be amended as shown above in this Appendix.

[END OF ALTERNATIVE A]

ALTERNATIVE B

PART 1.  SUBJECT MATTER AND DEFINITIONS

§ 6-101.  Short Title.

This Article shall be known and may be cited as Uniform Commercial Code - Bulk
Sales.

§ 6-102.  Definitions and Index of Definitions.

(1) In this Article, unless the context otherwise requires:

(a)    "Assets" means the inventory that is the subject of a bulk sale and any tangible and intangible  personal property used or held for use primarily in, or arising from, the seller's business and sold in connection with that inventory, but the term does not include:
 


(i) fixtures (Section 9-102(a)(41)) other than readily removable factory and office machines;

(ii) the lessee's interest in a lease of real property; or

(iii) property to the extent it is generally exempt from creditor process under nonbankruptcy law.

(b)  "Auctioneer" means a person whom the seller engages to direct, conduct, control, or be responsible for a sale by auction.

(c) "Bulk sale" means:

(i) in the case of a sale by auction or a sale or series of sales conducted by a liquidator on the  seller's behalf, a sale or series of sales not in the ordinary course of the seller's business of more than  half of the seller's inventory, as measured by  value on the  date of the bulk-sale agreement, if on that date the auctioneer or liquidator has notice, or after reasonable inquiry would have had notice, that the seller will not continue to operate the same or a similar kind of business after the sale or series of sales; and

(ii) in all other cases, a sale not  in the ordinary course of the seller's business of more than half the seller's inventory, as measured by  value on the  date of the bulk-sale agreement, if on that date the buyer has notice, or after reasonable inquiry would have had notice, that the seller will not continue to operate the same or a similar kind of business after the sale.

(d)  "Claim" means a right to payment from the seller, whether or not the right is reduced  to  judgment,  liquidated,  fixed,  matured,  disputed,  secured, legal,  or equitable.    The term includes costs of collection  and attorney's fees only to the extent that the laws of this state permit the holder of the claim to recover them in an action against the obligor.

(e)  "Claimant" means a person holding a  claim incurred in the seller's business other than:

(i)  an  unsecured  and  unmatured  claim  for  employment  compensation  and benefits, including commissions and vacation, severance, and sick-leave pay;

(ii) a claim for injury to an individual or to property, or for breach of warranty, unless:

(A) a right of action for the claim has accrued;

(B) the claim has been asserted against the seller; and
 


(C) the seller knows the identity of the person asserting the claim and the basis upon which the person has asserted it; and

(States To Select One Alternative)

ALTERNATIVE A

[(iii) a claim for taxes owing to a governmental unit.]

ALTERNATIVE B

[(iii) a claim for taxes owing to a governmental unit, if:

(A) a statute governing the enforcement of the claim permits or requires notice of the  bulk sale to be given to the governmental unit in a manner other than by compliance with the requirements of this Article; and

(B) notice is given in accordance with the statute.]

(f) "Creditor" means a  claimant or other person holding a claim. (g) (i) "Date of the bulk sale" means:
(A) if the sale is by auction or is conducted by a liquidator on the seller's behalf, the date on which more than ten percent of the  net proceeds is paid to or for the benefit of the seller; and

(B) in all other cases, the later of the date on which:

(I) more than ten percent of the  net contract price is paid to or for the benefit of the seller; or

(II)  more  than  ten  percent  of  the  assets,  as  measured  by  value,  are transferred to the buyer.

(ii) For purposes of this subsection:

(A)  Delivery of a negotiable instrument (Section 3-104(1) [sic]) to or for the benefit of the seller in exchange for  assets constitutes payment of the contract price pro tanto;

(B)    To the extent that the contract price is deposited in an escrow, the contract price is paid to or for the benefit of the seller when the seller acquires the unconditional right to receive the deposit or when the deposit is delivered to the seller or for the benefit of the seller, whichever is earlier; and
 


(C)  An asset is transferred when a person holding an unsecured  claim can no longer obtain through judicial proceedings rights to the asset that are superior to those of the buyer arising as a result of the  bulk sale.  A person holding an unsecured claim can obtain those superior rights to a tangible asset at least until the buyer has an unconditional right, under the bulk-sale agreement, to possess the asset, and a person holding an unsecured claim can obtain those superior  rights  to  an  intangible  asset  at  least  until  the  buyer  has  an unconditional right, under the bulk-sale agreement, to use the asset.

(h) "Date of the bulk-sale agreement" means:

(i) in the case of a sale by auction or conducted by a liquidator (subsection
(c)(i)), the date on which the seller engages the auctioneer or liquidator; and

(ii)  in  all  other  cases,  the  date  on  which  a  bulk-sale  agreement  becomes enforceable between the buyer and the seller.

(i) "Debt" means liability on a claim.

(j)    "Liquidator" means a person who is regularly engaged in the business of disposing of assets for businesses contemplating liquidation or dissolution.

(k)  "Net contract price" means the new consideration the buyer is obligated to pay for the assets less:

(i) the amount of any proceeds of the sale of an asset, to the extent the proceeds are applied  in  partial or total satisfaction of a debt secured by the asset; and

(ii) the amount of any  debt to the extent it is secured by a security interest or lien that is enforceable against the asset before and after it has been sold to a buyer.    If a debt is secured by an asset and other property of the seller, the amount of the debt secured by a security interest or lien  that is enforceable against the asset is determined by multiplying the debt by a fraction, the numerator of which is the  value of the new consideration for the asset on the date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale.

(l)    "Net proceeds" means the new consideration received for  assets sold at a sale by auction or a sale conducted by a liquidator on the seller's behalf less:

(i) commissions and reasonable expenses of the sale;
 
(ii) the amount of any proceeds of the sale of an asset, to the extent the proceeds are applied in  partial or total satisfaction of a debt secured by the asset; and

(iii) the amount of any  debt to the extent it is secured by a security interest or lien that is enforceable against the asset before and after it has been sold to a buyer.    If a debt is secured by an asset and other property of the seller, the amount of the debt secured by a security interest or lien  that is enforceable against the asset is determined by multiplying the debt by a fraction, the numerator of which is the  value of the new consideration for the asset on the date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale.

(m)    A sale is "in the ordinary course of the seller's business" if the sale comports with usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices.

(n)    "United    States"    includes    its    territories    and    possessions    and    the
Commonwealth of Puerto Rico.

(o) "Value" means fair market value.

(p) "Verified" means signed and sworn to or affirmed.

(2) The following definitions in other Articles apply to this Article: (a)  "Buyer."    Section 2-103(1)(a).
(b) "Equipment."      Section 9-102(a)(33). (c)  "Inventory."    Section 9-102(a)(48). (d)  "Sale."    Section 2-106(1).
(e) "Seller."    Section 2-103(1)(d).

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

§ 6-103.  APPLICABILITY OF ARTICLE.

(1)  Except as otherwise provided in subsection (3), this Article applies to a  bulk sale if:

(a) the seller's principal business is the sale of inventory from stock; and
 
(b) on the  date of the bulk-sale agreement the seller is located in this state or, if the seller is located in a jurisdiction that is not a part of the  United States, the seller's major executive office in the United States is in this state.

(2)  A seller is deemed to be located at his [or her] place of business.  If a seller has more than one place of business, the seller is deemed located at his [or her] chief executive office.

(3) This Article does not apply to:

(a) a transfer made to secure payment or performance of an obligation; (b) a transfer of collateral to a secured party pursuant to Section  9-609; (c) a sale of collateral pursuant to Section 9-610;
(d) retention of collateral pursuant to Section 9-620;

(e) a sale of an asset encumbered by a security interest or lien if (i) all the proceeds of the sale are applied in partial or total satisfaction of the  debt secured by the security interest or lien or (ii) the  security  interest or lien is enforceable against the asset after it has been sold to the buyer and the  net contract price is zero;

(f) a general assignment for the benefit of  creditors or to a subsequent transfer by the assignee;

(g) a sale by an executor, administrator, receiver, trustee in bankruptcy, or any public officer under judicial process;

(h) a sale made in the course of judicial or administrative proceedings for the dissolution or reorganization of an organization;

(i) a sale to a buyer whose principal place of business is in the  United States and who:

(i) not earlier than 21 days before the  date of the bulk sale, (A) obtains from the seller a  verified and dated list of  claimants of whom the seller has notice three days before the seller sends or delivers the list to the buyer or (B) conducts a reasonable inquiry to discover the claimants;

(ii)  assumes  in  full  the  debts  owed  to  claimants  of  whom  the  buyer  has knowledge on the date the buyer receives the list of claimants from the seller or on the date the buyer completes the reasonable inquiry, as the case may be;
 
(iii) is not insolvent after the assumption; and

(iv) gives written notice of the assumption not later than 30 days after the  date of the bulk sale by sending or delivering a notice to the  claimants identified in subparagraph (ii) or by filing a notice in the office of the [Secretary of State];

(j) a sale to a buyer whose principal place of business is in the  United States and who:

(i) assumes in full the  debts that were incurred in the seller's business before the  date of the bulk sale;

(ii) is not insolvent after the assumption; and

(iii) gives written notice of the assumption not later than 30 days after the  date of the bulk sale by sending or delivering a notice to each  creditor whose  debt is assumed or by filing a notice in the office of the [Secretary of State];

(k) a sale to a new organization that is organized to take over and continue the business of the seller  and that has its principal place of business in the United States if:

(i) the buyer assumes in full the  debts that were incurred in the seller's business before the  date of the bulk sale;

(ii) the seller receives nothing from the sale except an interest in the new organization that is  subordinate to the claims against the organization arising from the assumption; and

(iii) the buyer gives written notice of the assumption not later than 30 days after the  date of the bulk sale by sending or delivering a notice to each creditor whose  debt is assumed or by filing a notice in the office of the [Secretary of State];

(l) a sale of assets having:

(i) a  value, net of liens and security interests, of less than $10,000.  If a  debt is secured by  assets and other property of the seller, the net value of the assets is determined by subtracting from their value an amount equal to the product of the debt multiplied by a fraction, the numerator of which is the  value of the assets on the  date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale; or

(ii)  a  value of more than $25,000,000 on the  date of the bulk-sale agreement;
or
(m) a sale required by, and made pursuant to, statute.

(4)    The notice under subsection (3)(i)(iv) must state: (i) that a sale that may constitute a  bulk sale has been or will be made; (ii) the date or prospective  date of the bulk sale; (iii) the individual, partnership, or corporate names and the addresses of the seller and buyer; (iv) the address to which inquiries about the sale may be made, if different from the seller's address; and (v) that the buyer has assumed or will assume in full the  debts owed to  claimants of whom the buyer has knowledge on the date the buyer receives  the list of claimants from the seller or completes a reasonable inquiry to discover the claimants.

(5)  The notice under subsections (3)(j)(iii) and (3)(k)(iii) must state: (i) that a sale that may constitute a bulk sale has been or will be made; (ii) the date or prospective date of the bulk sale; (iii) the individual, partnership, or corporate names and the addresses of the seller and buyer; (iv) the address to which inquiries about the sale may be made, if different from the seller's address; and (v) that the buyer has assumed or will assume the  debts that were incurred in the seller's business before the date of the bulk sale.

(6)  For purposes of subsection (3)(l), the  value of  assets is presumed to be equal to the price the buyer agrees to pay for the assets.  However, in a sale by auction or a sale conducted by a  liquidator on the seller's behalf, the value of assets is presumed to be the amount the  auctioneer or liquidator reasonably estimates the assets will bring at auction or upon liquidation.

§ 6-104.  Obligations of Buyer.

(1) In a bulk sale as defined in Section  6-102(1)(c)(ii) the buyer shall:

(a) obtain from the seller a list of all business names and addresses used by the seller within three years before the date the list is sent or delivered to the buyer;

(b) unless excused under subsection (2), obtain from the seller a verified and dated list of  claimants of whom the seller has notice three days before the seller sends or delivers the list to the buyer and including, to the extent known by the seller, the address of and the amount  claimed by each claimant;

(c) obtain from the seller or prepare a schedule of distribution (Section  6-106(1)); (d) give notice of the bulk sale in accordance with Section 6-105;
(e) unless excused under Section 6-106(4), distribute the net contract price in accordance with the undertakings of the buyer in the schedule of distribution; and
 (f) unless excused under subsection (2), make available the list of claimants
(subsection (1)(b)) by:

(i) promptly sending or delivering a copy of the list without charge to any claimant whose  written  request is received by the buyer no later than six months after the  date of the bulk sale;

(ii) permitting any  claimant to inspect and copy the list at any reasonable hour upon request received by the buyer no later than six months after the  date of the bulk sale; or

(iii) filing a copy of the list in the office of the [Secretary of State] no later than the time for giving a notice of the  bulk sale (Section  6-105(5)).    A list filed in accordance with this subparagraph must state the individual, partnership, or corporate name and a mailing address of the seller.

(2)  A buyer who gives notice in accordance with Section  6-105(2) is excused from complying with the requirements of subsections (1)(b) and (1)(f).

§ 6-105.  NOTICE TO CLAIMANTS.

(1)    Except as otherwise provided in subsection (2), to comply with Section 6-
104(1)(d) the buyer shall send or deliver a written notice of the  bulk sale to each claimant on the list of claimants (Section  6-104(1)(b)) and to any other claimant of whom the buyer has knowledge at the time the notice of the bulk sale is sent or delivered.

(2)  A buyer may comply with Section  6-104(1)(d) by filing a written notice of the bulk sale in the office of the [Secretary of State] if:

(a) on the  date of the bulk-sale agreement the seller has 200 or more  claimants, exclusive    of    claimants    holding    secured    or    matured    claims    for    employment compensation and benefits, including commissions and vacation, severance, and sick-leave pay; or

(b) the buyer has received a  verified statement from the seller stating that, as of the   date of the  bulk-sale agreement,  the  number  of  claimants,  exclusive  of claimants holding secured or matured  claims for employment compensation and benefits, including commissions and vacation, severance, and  sick-leave pay, is
200 or more.

(3)    The written notice of the bulk sale must be accompanied by a copy of the schedule of distribution (Section  6-106(1)) and state at least:
 
(a) that the seller and buyer have entered into an agreement for a sale that may constitute a  bulk sale under the laws of the State of      ;

(b) the date of the agreement;

(c) the date on or after which more than ten percent of the  assets were or will be transferred;

(d) the date on or after which more than ten percent of the  net contract price was or will be paid, if the date is not stated in the schedule of distribution;

(e) the name and a mailing address of the seller;

(f) any other business name and address listed by the seller pursuant to Section  6-
104(1)(a);

(g) the name of the buyer and an address of the buyer from which information concerning the sale can be obtained;
(h) a statement indicating the type of  assets or describing the assets item by item; (i) the manner in which the buyer will make available the list of  claimants (Section
6-104(1)(f)), if applicable; and

(j) if the sale is in total or partial satisfaction of an antecedent  debt owed by the seller, the amount of the debt to be satisfied and the name of the person to whom it is owed.

(4)    For purposes of subsections (3)(e) and (3)(g), the name of a person is the person's individual, partnership, or corporate name.

(5)  The buyer shall give notice of the  bulk sale not less than 45 days before the date of the bulk sale and, if the buyer gives notice in accordance with subsection (1), not more than 30 days after obtaining the list of  claimants.

(6)  A written notice substantially complying with the requirements of subsection (3)
is effective even though it contains minor errors that are not seriously misleading. (7)  A form substantially as follows is sufficient to comply with subsection (3):
Notice of Sale

 (1)
 
     ,    whose    address    is
 
     , is described in this notice as the "seller."
 
(2)
 
     ,    whose    address    is
 
     , is described in this notice as the "buyer."

(3)  The seller has disclosed to the buyer that within the past three years the seller has used other business names, operated at other addresses, or both, as follows:
     .

(4)    The    seller    and    the    buyer    have    entered    into    an    agreement    dated
     , for a sale that may constitute a  bulk sale under the laws of the state of         .

(5)  The date on or after which more than ten percent of the  assets that are the subject of the sale  were or will be transferred is      , and [if not stated in the schedule of distribution] the date on or after which more than ten percent of the  net contract price was or will be paid is          .

(6)    The    following    assets    are    the    subject    of    the    sale:
     .

(7)  [If applicable] The buyer will make available to  claimants of the seller a list of the seller's claimants in the following manner:      .
 
(8)  [If applicable] The sale is to satisfy $      
the seller to .
of an antecedent  debt owed by
 
(9)  A copy of the schedule of distribution of the  net contract price accompanies this notice.

[End of Notice]

§ 6-106.  Schedule of Distribution.

(1)    The seller and buyer shall agree on how the net contract price  is to  be distributed and set forth their agreement in a written schedule of distribution.

(2)  The schedule of distribution may provide for distribution to any person at any time, including distribution of the entire net contract price to the seller.

(3)  The buyer's undertakings in the schedule of distribution run only to the seller. However, a buyer who fails to distribute the  net contract price in accordance with the buyer's undertakings in the schedule of distribution is liable to a  creditor only as provided in Section 6-107(1).

(4)  If the buyer undertakes in the schedule of distribution to distribute any part of the  net contract price  to  a person other than the seller, and, after the buyer has  given notice in accordance with Section 6-105, some or all of the anticipated net contract price is or  becomes unavailable for distribution as a consequence of the buyer's or seller's having complied with an order of court, legal process, statute, or rule of law, the buyer is excused from any obligation arising  under  this Article or under any contract with the seller to distribute the net contract price in accordance with the buyer's undertakings in the schedule if the buyer:

(a) distributes the  net contract price remaining available in accordance with any priorities for payment stated in the schedule of distribution and, to the extent that the price is insufficient to pay all the  debts having a given priority, distributes the price pro rata among those debts shown in the schedule as  having the same priority;

(b) distributes the net contract price remaining available in accordance with an order of court;

(c) commences a proceeding for interpleader in a court of competent jurisdiction and is discharged from the proceeding; or

(d) reaches a new agreement with the seller for the distribution of the  net contract price remaining available, sets forth the new agreement in an amended schedule of distribution, gives notice of the  amended schedule, and distributes the net contract price remaining available in accordance with the buyer's undertakings in the amended schedule.

(5)  The notice under subsection (4)(d) must identify the buyer and the seller, state the filing number, if any, of the original notice, set forth the amended schedule, and be given in accordance with subsection (1)  or (2) of Section 6-105, whichever is applicable, at least 14 days before the buyer distributes any part of the net contract price remaining available.

(6)  If the seller undertakes in the schedule of distribution to distribute any part of the  net contract price,  and, after the buyer has given notice in accordance with Section  6-105, some or all of the anticipated  net contract price is or becomes unavailable  for  distribution  as  a  consequence  of  the  buyer's  or  seller's  having complied with an order of court, legal process, statute, or rule of law, the seller and any person in control of the seller are excused from any obligation arising under this Article or under any agreement with the buyer to distribute the net contract price in accordance with the seller's undertakings in the schedule if the seller:

(a) distributes the  net contract price remaining available in accordance with any priorities for payment stated in the schedule of distribution and, to the extent that the price is insufficient to pay all the  debts having a given priority, distributes the  price pro rata among those debts shown in the schedule as having the same priority;

(b) distributes the net contract price remaining available in accordance with an order of court;

(c) commences a proceeding for interpleader in a court of competent jurisdiction and is discharged from the proceeding; or

(d) prepares a written amended schedule of distribution of the  net contract price remaining available for  distribution, gives notice of the amended schedule, and distributes  the  net  contract  price  remaining  available  in  accordance  with  the amended schedule.

(7)  The notice under subsection (6)(d) must identify the buyer and the seller, state the filing number, if any, of the original notice, set forth the amended schedule, and be given in accordance with subsection (1)  or (2) of Section 6-105, whichever is applicable, at least 14 days before the seller distributes any part of the net contract price remaining available.

§ 6-107.  Liability for Noncompliance.

(1)  Except as provided in subsection (3), and subject to the limitation in subsection
(4):

(a) a buyer who fails to comply with the requirements of Section  6-104(1)(e) with respect to a creditor is  liable to the creditor for damages in the amount of the claim, reduced by any amount that the creditor  would not have realized if the buyer had complied; and

(b) a buyer who fails to comply with the requirements of any other subsection of Section  6-104 with respect to a  claimant is liable to the claimant for damages in the amount of the  claim, reduced by any amount that the claimant would not have realized if the buyer had complied.

(2)  In an action under subsection (1), the  creditor has the burden of establishing the validity and amount of the  claim, and the buyer has the burden of establishing the amount that the creditor would not have realized if the buyer had complied.

(3) A buyer who:

(a) made a good faith and commercially reasonable effort to comply with the requirements of Section  6-104(1) or to exclude the sale from the application of this Article under Section 6-103(3); or
 (b) on or after the  date of the bulk-sale agreement, but before the  date of the bulk sale, held a good  faith  and commercially reasonable belief that this Article does not apply to the particular sale is not liable to  creditors for failure to comply with the requirements of Section  6-104.  The buyer has the burden of establishing the good faith and commercial reasonableness of the effort or belief.

(4)  In a single  bulk sale the cumulative liability of the buyer for failure to comply with the requirements of Section  6-104(1) may not exceed an amount equal to:

(a) if the  assets consist only of inventory and equipment, twice the  net contract price, less the amount of any part of the net contract price paid to or applied for the benefit of the seller or a  creditor; or

(b) if the  assets include property other than inventory and equipment, twice the net  value of the inventory and equipment less the amount of the portion of any part of the  net contract price paid to or applied for the benefit of the seller or a creditor which is allocable to the inventory and equipment.

(5)  For the purposes of subsection (4)(b), the "net value" of an asset is the  value of the asset less (i) the amount of any proceeds of the sale of an asset, to the extent the proceeds are applied in partial or total satisfaction of a  debt secured by the asset and (ii) the amount of any debt to the extent it is secured by a security interest or lien that is enforceable against the asset before and after it has been sold to a buyer.  If a debt is secured by an asset and other property of the seller, the amount of the debt secured by a security interest or lien that is enforceable against the asset is determined by multiplying the debt by a fraction, the numerator of which is the value of the asset on the  date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale.  The portion of a part of the  net contract price paid to or applied for the benefit of the seller or a creditor that is "allocable to the inventory and equipment" is the portion that bears the same ratio to that part of the net contract price as the net value of the inventory and equipment bears to the net value of all of the assets.

(6)  A payment made by the buyer to a person to whom the buyer is, or believes he [or she] is, liable  under  subsection (1) reduces pro tanto the buyer's cumulative liability under subsection (4).

(7)  No action may be brought under subsection (1)(b) by or on behalf of a  claimant whose  claim is unliquidated or contingent.

(8)  A buyer's failure to comply with the requirements of Section  6-104(1) does not (i) impair the buyer's rights in or title to the  assets, (ii) render the sale ineffective, void, or voidable, (iii) entitle a  creditor to more than a single satisfaction of his [or her] claim, or (iv) create liability other than as provided in this Article.
 (9)  Payment of the buyer's liability under subsection (1) discharges pro tanto the seller's debt to the creditor.

(10)    Unless otherwise agreed, a buyer has an immediate right of reimbursement from the seller for any amount paid to a  creditor in partial or total satisfaction of the buyer's liability under subsection (1).

(11)  If the seller is an organization, a person who is in direct or indirect control of the seller, and who knowingly, intentionally, and without legal justification fails, or causes the seller to fail, to distribute the net contract price in accordance with the schedule of distribution is liable to any creditor to whom the  seller  undertook to make payment under the schedule for damages caused by the failure.

§ 6-108.  Bulk Sales by Auction; Bulk Sales Conducted by Liquidator.

(1)  Sections  6-104,  6-105,  6-106, and  6-107 apply to a  bulk sale by auction and a bulk  sale  conducted  by  a  liquidator  on  the  seller's  behalf  with  the  following modifications:

(a) "buyer" refers to  auctioneer or liquidator, as the case may be;

(b) "net contract price" refers to  net proceeds of the auction or net proceeds of the sale, as the case may be;

(c) the written notice required under Section  6-105(3) must be accompanied by a copy of the schedule of distribution (Section  6-106(1)) and state at least:

(i)  that  the  seller  and  the  auctioneer  or  liquidator  have  entered  into  an agreement for auction or liquidation services that may constitute an agreement to make a  bulk sale under the laws of the State of      ;

(ii) the date of the agreement;

(iii) the date on or after which the auction began or will begin or the date on or after which the liquidator began or will begin to sell assets on the seller's behalf;

(iv) the date on or after which more than ten percent of the  net proceeds of the sale were or will be paid, if the date is not stated in the schedule of distribution;

(v) the name and a mailing address of the seller;

(vi) any other business name and address listed by the seller pursuant to
Section 6-104(1)(a);
 
(vii) the name of the  auctioneer or  liquidator and an address of the auctioneer or liquidator from which information concerning the sale can be obtained;

(viii) a statement indicating the type of  assets or describing the assets item by item;

(ix) the manner in which the  auctioneer or  liquidator will make available the list of claimants (Section 6-104(1)(f)), if applicable; and

(x) if the sale is in total or partial satisfaction of an antecedent  debt owed by the seller, the amount of the debt to be satisfied and the name of the person to whom it is owed; and

(d) in a single  bulk sale the cumulative liability of the  auctioneer or  liquidator for failure to comply with the requirements of this section may not exceed the amount of the  net proceeds of the sale allocable to inventory and equipment sold less the amount of the portion of any part of the net proceeds paid to or applied for the benefit of a  creditor which is allocable to the inventory and equipment.

(2)    A payment made by the auctioneer or liquidator to a person to whom the auctioneer or liquidator is, or believes he [or she] is, liable under this section reduces pro tanto the auctioneer's or liquidator's cumulative liability under subsection (1)(d).

(3) A form substantially as follows is sufficient to comply with subsection (1)(c):

Notice of Sale
 
(1)
 
     ,    whose    address    is
 
     , is described in this notice as the "seller."

(2)
 
     ,    whose    address    is
 
     , is described in this notice as the "auctioneer" or
"liquidator."

(3)  The seller has disclosed to the  auctioneer or  liquidator that within the past three years the seller has  used other business names, operated at other addresses, or both, as follows:      .

(4)    The seller and the auctioneer or liquidator have entered into an agreement
 
dated      
 
for auction or liquidation services that may constitute an
 
agreement    to    make    a    bulk   sale     under    the    laws    of    the    State    of

(5)  The date on or after which the auction began or will begin or the date on or after which the liquidator began or will begin to sell  assets on the seller's behalf is , and [if not stated in the schedule of distribution] the date on or after which more than ten percent of the  net proceeds of the sale were or will be paid is         .

(6)    The    following    assets    are    the    subject    of    the    sale:

(7)  [If applicable] The  auctioneer or  liquidator will make available to  claimants of the    seller    a    list    of    the    seller's    claimants    in    the    following    manner:
 
(8)  [If applicable] The sale is to satisfy $      
the seller to      .
 
of an antecedent  debt owed by
 

(9)    A copy of the schedule of distribution of the net proceeds accompanies this notice.

[End of Notice]

(4)  A person who buys at a  bulk sale by auction or conducted by a  liquidator need not comply with the requirements of Section  6-104(1) and is not liable for the failure of an auctioneer or liquidator to comply with the requirements of this section.

§ 6-109.  What Constitutes Filing; Duties of Filing Officer; Information
From Filing Officer.

(1)  Presentation of a notice or list of  claimants for filing and tender of the filing fee or acceptance of the notice or list by the filing officer constitutes filing under this Article.

(2) The filing officer shall:

(a) mark each notice or list with a file number and with the date and hour of filing; (b) hold the notice or list or a copy for public inspection;
(c) index the notice or list according to each name given for the seller and for the buyer; and

(d) note in the index the file number and the addresses of the seller and buyer given in the notice or list.

(3)  If the person filing a notice or list furnishes the filing officer with a copy, the filing officer upon request shall note upon the copy the file number and date and hour of the filing of the original and send or deliver the copy to the person.
 
(4)  The fee for filing and indexing and for stamping a copy furnished by the person
 
filing to show  the date  and place of filing is  $      
 
for the first page and $
 
for each additional page.  The fee for indexing each name more than two is $         .

(5)  Upon request of any person, the filing officer shall issue a certificate showing whether any notice or list with respect to a particular seller or buyer is on file on the date and hour stated in the certificate.    If a notice or list is on file, the certificate must give the date and hour of filing of each notice or list and the name and address of each seller, buyer, auctioneer, or liquidator.    The fee for the certificate is $
     if the request for the certificate is in the standard form prescribed by the [Secretary of State] and otherwise is $     .  Upon request of any person, the filing officer shall furnish a copy of any filed notice or list for a fee of $      .

(6) The filing officer shall keep each notice or list for two years after it is filed.

§ 6-110.  Limitation of Actions.

(1)    Except as provided in subsection (2), an action under this Article against a buyer,  auctioneer, or liquidator must be commenced within one year after the  date of the bulk sale.

(2)    If the buyer, auctioneer, or liquidator conceals the fact that the sale has occurred, the limitation is tolled and an action under this Article may be commenced within the earlier of (i) one year after the person bringing the action discovers that the sale has occurred or (ii) one year after the person bringing the action should have discovered that the sale has occurred, but no later than two years after the date of the bulk sale.  Complete noncompliance with the requirements of this Article does not of itself constitute concealment.

(3)  An action under Section  6-107(11) must be commenced within one year after the alleged violation occurs.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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U.C.C. - ARTICLE 7 - DOCUMENTS OF TITLE

PART 1. GENERAL [Table of Contents]

§ 7-101. Short Title.

This article may be cited as Uniform Commercial Code-Documents of Title.

§ 7-102. Definitions and Index of Definitions.

(a) In this Article, unless the context otherwise requires:

(1) "Bailee" means a person that by a warehouse receipt, bill of lading, or other document of title  acknowledges possession of goods and contracts to deliver them.

(2) "Carrier" means a person that issues a bill of lading.

(3) "Consignee" means a person named in a bill of lading to which or to whose order the bill promises delivery.

(4) "Consignor" means a person named in a bill of lading as the person from which the goods have been received for shipment.

(5) "Delivery order" means a record that contains an order to deliver goods directed to a  warehouse, carrier, or other person that in the ordinary course of business issues warehouse receipts or bills of lading.

(6)  "Good  faith"  means  honesty  in  fact  and  the  observance  of  reasonable commercial standards of fair dealing.

(7) "Goods" means all things that are treated as movable for the purposes of a contract for storage or transportation.

(8) "Issuer" means a  bailee that issues a document of title or, in the case of an unaccepted  delivery order, the person that orders the possessor of goods to deliver. The term includes a person for which an agent or employee purports to act in issuing a document if the agent or employee has real or apparent authority to issue documents, even if the issuer did not receive any goods, the goods were misdescribed, or in any other respect the agent or employee violated the issuer's instructions.

(9) "Person entitled under the document" means the holder, in the case of a negotiable document of title, or the person to which delivery of the  goods is to be made  by  the  terms  of,    or  pursuant  to    instructions  in  a    record    under,    a nonnegotiable document of title.

(10) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

(11) "Sign" means, with present intent to authenticate or adopt a record: (A) to execute or adopt a tangible symbol; or
(B) to attach to or logically associate with the record an electronic sound, symbol, or process.

(12) "Shipper" means a person that enters into a contract of transportation with a carrier.

(13) "Warehouse" means a person engaged in the business of storing  goods for hire.

(b) Definitions in other articles applying to this article and the sections in which they appear are:

(1) "Contract for sale",  Section 2-106.

(2) "Lessee in ordinary course of business", Section 2A-103. (3) "Receipt" of goods,  Section 2-103.
(c) In addition,  Article 1 contains general definitions and principles of construction and interpretation applicable throughout this article.

§ 7-103. Relation of Article to Treaty or Statute.

(a) This article is subject to any treaty or statute of the United States or a regulatory statute of  this State to the extent the treaty, statute, or regulatory statute is applicable.

(b) This article does not repeal or modify any law prescribing the form or contents of a document of title or the services or facilities to be afforded by a bailee, or otherwise regulating a bailee's businesses in  respects not specifically treated in this article. However, violation of these laws does not affect the  status of a document of title that otherwise complies with the definition of a document of title.

(c) This [Act] modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Section 7001, et. seq.) but does not modify, limit, or supersede Section 101(c) of that act (15 U.S.C. Section 7001(c)) or authorize electronic delivery of any of the notices described in Section 103(b) of that act (15 U.S.C. Section 7003(b)).

(d) To the extent there is a conflict between the Uniform Electronic Transactions
Act and this article, this article governs.

§ 7-104. Negotiable and Nonnegotiable Document of Title.

(a) A document of title is negotiable if by its terms the goods are to be delivered to bearer or to the order of a named person.

(b)    A    document    of    title    other    than    one    described    in    subsection    (a)    is nonnegotiable. A bill of lading that states that the goods are consigned to a named person is not made negotiable by a provision that the goods are to be delivered only against an order in a record signed by the same or another named person.

(c) A document of title is nonnegotiable if, at the time it is issued, the document has a conspicuous legend, however expressed, that it is nonnegotiable.

§ 7-105. Reissuance in Alternative Medium.

(a) Upon request of a person entitled under an electronic document of title, the issuer of the  electronic  document may issue a tangible document of title as a substitute for the electronic document if:

(1) the person entitled under the electronic document surrenders control of the document to the issuer; and

(2) the tangible document when issued contains a statement that it is issued in substitution for the electronic document.

(b) Upon issuance of a tangible document of title in substitution for an electronic document of title in accordance with subsection (a):

(1) the electronic document ceases to have any effect or validity; and

(2) the person that procured issuance of the tangible document warrants to all subsequent persons  entitled under the tangible document that the warrantor was  a  person  entitled  under  the  electronic  document  when  the  warrantor surrendered control of the electronic document to the issuer.

(c) Upon request of a person entitled under a tangible document of title, the issuer of the tangible document may issue an electronic document of title as a substitute for the tangible document if:

(1) the person entitled under the tangible document surrenders possession of the document to the issuer; and

(2) the electronic document when issued contains a statement that it is issued in substitution for the tangible document.

(d) Upon issuance of the electronic document of title in substitution for a tangible document of title in accordance with subsection (c):

(1) the tangible document ceases to have any effect or validity; and

(2) the person that procured issuance of the electronic document warrants to all subsequent persons entitled under the electronic document that the warrantor was  a  person  entitled  under  the  tangible  document  when  the  warrantor surrendered possession of the tangible document to the issuer.

§ 7-106. Control of Electronic Document of Title.

(a) A person has control of an electronic document of title if a system employed for  evidencing  the  transfer  of  interests  in  the  electronic  document  reliably establishes that person as the person to which the electronic document was issued or transferred.

(b) A system satisfies subsection (a), and a person is deemed to have control of an electronic document of title, if the document is created, stored, and assigned in such a manner that:

(1)  a  single  authoritative  copy  of  the  document  exists  which  is  unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable;

(2) the authoritative copy identifies the person asserting control as: (A) the person to which the document was issued; or
(B) if the authoritative copy indicates that the document has been transferred, the person to which the document was most recently transferred;

(3) the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;

(4) copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;

(5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and

(6) any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.

PART 2. WAREHOUSE RECEIPTS:  SPECIAL PROVISIONS  [Table of Contents]

§ 7-201. Person That May Issue a Warehouse Receipt;  Storage Under
Bond.

(a) A warehouse receipt may be issued by any warehouse.

(b) If goods, including distilled spirits and agricultural commodities, are stored under a statute requiring a bond against withdrawal or a license for the issuance of receipts in the nature of warehouse receipts, a receipt issued for the goods is deemed to be a warehouse receipt even if issued by a person that is the owner of the goods and is not a warehouse.

§ 7-202. Form of Warehouse Receipt.

(a) A warehouse receipt need not be in any particular form.

(b) Unless a warehouse receipt provides for each of the following, the warehouse is liable for damages caused to a person injured by its omission:

(1) the location of the warehouse facility where the goods are stored; (2) the date of issue of the receipt;
(3) the unique identification code of the receipt;

(4) a statement whether the  goods received will be delivered to the bearer, to a named person, or to a named person or its order;

(5) the rate of storage and handling charges, but if goods are stored under a field  warehousing  arrangement,  a  statement of  that fact is  sufficient on  a nonnegotiable receipt;

(6) a description of the goods or the packages containing them; (7) the signature of the warehouse or its agent;
(8) if the receipt is issued for goods that the warehouse owns, either solely, jointly, or in common with others, the fact of that ownership; and

(9) a statement of the amount of advances made and of liabilities incurred for which the warehouse claims a lien or security interest, but if the precise amount of advances made or of liabilities incurred  is, at the time of the issue of the receipt, unknown to the warehouse or to its agent that issued the  receipt, a statement of the fact that advances have been made or liabilities incurred and the purpose of the advances or liabilities is sufficient.

(c) A warehouse may insert in its receipt any terms that are not contrary to [the
Uniform Commercial Code] and do not impair its obligation of delivery under

Section  7-403 or its duty of care under Section  7-204. Any contrary provisions are ineffective.

§ 7-203. Liability for Nonreceipt or Misdescription.

A party to or purchaser for value in good faith of a document of title, other than a bill of lading, that  relies  upon the description of the goods in the document may recover from the issuer damages caused by the nonreceipt or misdescription of the goods, except to the extent that:

(1) the document conspicuously indicates that the  issuer does not know whether all or part of the goods in fact were received or conform to the description, such as a case in which the description is in terms of marks or labels or kind, quantity, or condition, or the receipt or description is qualified by "contents, condition, and quality unknown", "said to contain", or words of similar import, if the indication is true; or

(2)    the    party    or    purchaser    otherwise    has    notice    of    the    nonreceipt    or misdescription.

§ 7-204. Duty of Care; Contractual Limitation of Warehouse's Liability.

(a) A  warehouse is liable for damages for loss of or injury to the  goods caused by its failure to exercise  care with regard to the goods that a reasonably careful person would exercise under similar  circumstances. However, unless otherwise agreed, the warehouse is not liable for damages that could not have been avoided by the exercise of that care.

(b) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable. Such a limitation is not effective with respect to the warehouse's liability for conversion to its own use. The warehouse's  liability, on request of the bailor in a record at the time of signing such storage agreement or within a reasonable time after receipt of the warehouse receipt, may be increased on part or all of the  goods covered by the storage agreement or the warehouse receipt. In this event, increased rates may be  charged based on an increased valuation of the goods.

(c) Reasonable provisions as to the time and manner of presenting claims and commencing actions  based on the bailment may be included in the warehouse receipt or storage agreement.

(d) This section does not impair or repeal [Insert reference to any statute that imposes a higher  responsibility upon the warehouse or invalidates contractual limitations that would be permissible under this Article.]

§ 7-205. Title Under Warehouse Receipt Defeated in Certain Cases.

A buyer in ordinary course of business of fungible goods  goods and delivered by a warehouse that is also in the business of buying and selling such goods takes the goods free of any claim under a warehouse receipt even if the receipt is negotiable and has been duly negotiated.

§ 7-206. Termination of Storage at Warehouse's Option.

(a) A  warehouse, by giving notice to the person on whose account the  goods are held and any other person known to claim an interest in the goods, may require payment of any charges and removal of  the goods from the warehouse at the termination of the period of storage fixed by the document of title or, if a period is not fixed, within a stated period not less than 30 days after the warehouse gives notice. If the goods are not removed before the date specified in the notice, the warehouse may sell them pursuant to Section 7-210.

(b) If a  warehouse in good faith believes that goods are about to deteriorate or decline in value to  less  than the amount of its lien within the time provided in subsection (a) and Section  7-210, the warehouse may specify in the notice given under subsection (a) any reasonable shorter time for removal of the  goods and, if the goods are not removed, may sell them at public sale held not less than one week after a single advertisement or posting.

(c) If, as a result of a quality or condition of the goods of which the  warehouse did not have notice at the time of deposit, the  goods are a hazard to other property, the warehouse facilities, or other persons, the warehouse may sell the goods at public or private sale without advertisement or posting on reasonable notification to all persons known to claim an interest in the goods. If the warehouse, after a reasonable effort, is unable to sell the goods, it may dispose of them in any lawful manner and does not incur liability by reason of that disposition.

(d) A  warehouse shall deliver the goods to any person entitled to them under this article upon due demand made at any time before sale or other disposition under this section.

(e) A  warehouse may satisfy its lien from the proceeds of any sale or disposition under this section but shall hold the balance for delivery on the demand of any person to which the warehouse would have been bound to deliver the goods.

§ 7-207. Goods Must Be Kept Separate;  Fungible Goods.

(a) Unless the warehouse receipt provides otherwise, a warehouse shall keep separate  the  goods  covered  by  each  receipt  so  as  to  permit  at  all  times identification and delivery of those goods.  However, different lots of fungible goods may be commingled.

(b) If different lots of fungible goods are commingled, the good are owned in common by the persons entitled thereto and the  warehouse is severally liable to each owner for that owner's share. If, because of overissue, a mass of fungible goods is insufficient to meet all the receipts the warehouse has issued against it, the persons entitled include all holders to which overissued receipts have been duly negotiated.

§ 7-208. Altered Warehouse Receipts.

If a blank in a negotiable tangible warehouse receipt has been filled in without authority, a good faith purchaser for value and without notice of the lack of authority may treat the insertion as authorized. Any other unauthorized alteration leaves any tangible or electronic warehouse receipt enforceable against the issuer according to its original tenor.

§ 7-209. Lien of Warehouse.

(a)  A  warehouse  has  a  lien  against  the  bailor  on  the  goods  covered  by  a warehouse  receipt  or  storage  agreement  or  on  the  proceeds  thereof  in  its possession for charges for storage or  transportation, including demurrage and terminal charges, insurance, labor, or other charges, present or future, in relation to  the  goods,  and  for  expenses  necessary  for  preservation  of  the  goods  or reasonably incurred in their sale pursuant to law. If the person on whose account the goods are held is  liable for similar charges or expenses in relation to other goods whenever deposited and it is stated in  the warehouse receipt or storage agreement that a lien is claimed for charges and expenses in relation  to other goods, the warehouse also has a lien against the goods covered by the warehouse receipt or storage agreement or on the proceeds thereof in its possession for those charges and expenses, whether or not the other goods have been delivered by the warehouse. However, as against a person to which a negotiable warehouse receipt is duly negotiated, a warehouse's lien is limited to charges in an amount or at a rate specified in the warehouse receipt or, if no charges are so specified, to a reasonable  charge  for  storage  of  the  specific  goods  covered  by  the  receipt subsequent to the date of the receipt.

(b) The  warehouse may also reserve a security interest under  Article 9 against the bailor for the maximum  amount specified on the receipt for charges other than those specified in subsection (a), such as for money advanced and interest. A security interest is governed by Article 9.

(c) A  warehouse's lien for charges and expenses under subsection (a) or a security interest under subsection (b) is also effective against any person that so entrusted the bailor with possession of the goods that a pledge of them by the bailor to a good faith purchaser for value would have been  valid.  However, the lien or security  interest  is  not  effective  against  a  person  that  before  issuance  of  a document of title had a legal interest or a perfected security interest in the goods and that did not:

(1) deliver or entrust the goods or any document covering the goods to the bailor or the bailor's nominee with actual or apparent authority to ship, store, or sell; or with power to obtain delivery  under  Section 7-403; or with power of disposition  under  Sections  2-403,   2A-304(2),   2A-305(2)  or  9-320  or  other statute or rule of law; or
(2) acquiesce in the procurement by the bailor or its nominee of any document. (d) A  warehouse's lien on household goods for charges and expenses in relation to
the goods under subsection (a) is also effective against all persons if the depositor was the legal possessor of the  goods at the time of deposit. In this subsection, "household goods" means furniture, furnishings, or personal effects used by the depositor in a dwelling.

(e)  A  warehouse  loses  its  lien  on  any  goods  that  it  voluntarily  delivers  or unjustifiably refuses to deliver.

§ 7-210. Enforcement of Warehouse's Lien.

(a) Except as otherwise provided in subsection (b), a warehouse's lien may be enforced by public or private sale of the  goods, in bulk or in packages, at any time or place and on any terms that are  commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price could have been obtained by a sale  at a  different  time  or in  a  different method  from  that selected  by  the warehouse is not of itself sufficient to establish that the sale was not made in a commercially  reasonable  manner.  The  warehouse  has  sold  in  a  commercially reasonable manner if the warehouse sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time of the  sale,  or  has  otherwise  sold  in  conformity  with  commercially  reasonable practices among dealers in the type of  goods sold. A sale of more goods than  apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in cases covered by the preceding sentence.

(b) A  warehouse's lien on goods, other than  goods stored by a merchant in the course of its  business,  may be enforced only if the following requirements are satisfied:

(1) All persons known to claim an interest in the goods must be notified.

(2)  The  notification  must  include  an  itemized  statement  of  the  claim,  a description of the  goods subject to the lien, a demand for payment within a specified time not less than 10 days  after  receipt of the notification, and a conspicuous statement that unless the claim is paid within that time the goods will be advertised for sale and sold by auction at a specified time and place.

(3) The sale must conform to the terms of the notification.

(4) The sale must be held at the nearest suitable place to where the goods are held or stored.

(5) After the expiration of the time given in the notification, an advertisement of the sale must be  published once a week for two weeks consecutively in a newspaper of general circulation where the sale is to be held. The advertisement must include a description of the goods, the name of the  person  on whose account the goods are being held, and the time and place of the sale. The sale must  take place at least 15 days after the first publication. If there is no newspaper of general circulation where the sale is to be held, the advertisement must be posted at least 10 days before the sale in not less than six conspicuous places in the neighborhood of the proposed sale.

(c) Before any sale pursuant to this section, any person claiming a right in the goods may pay the  amount necessary to satisfy the lien and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by the  warehouse subject to the terms of the receipt and this article.

(d) A  warehouse may buy at any public sale held pursuant to this section.

(e) A purchaser in good faith of  goods sold to enforce a  warehouse's lien takes the goods free of any rights of persons against which the lien was valid, despite the warehouse's noncompliance with this section.

(f) A  warehouse may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery on demand to any person to which the warehouse would have been bound to deliver the  goods.

(g) The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.

(h) If a lien is on  goods stored by a merchant in the course of its business, the lien may be enforced in accordance with subsection (a) or (b).

(i) A warehouse  is liable  for damages caused by  failure to comply with the requirements for sale under this section and, in case of willful violation, is liable for conversion.

PART 3. BILLS OF LADING:  SPECIAL PROVISIONS  [Table of Contents]

§ 7-301. Liability for Non-receipt or Misdescription;  "Said to Contain"; "Shipper's Load and Count"; Improper Handling.

(a) A  consignee of a nonnegotiable bill of lading which has given value in good faith, or a holder to which a negotiable bill has been duly negotiated, relying upon the description of the  goods in the bill or upon the date shown in the bill, may recover from the issuer damages caused by the misdating of  the bill or the nonreceipt or misdescription of the goods, except to the extent that the document of title indicates that the issuer does not know whether any part or all of the goods in fact were received or conform to the description, such as in a case in which the description is in terms of marks or labels or  kind, quantity, or condition or the receipt or description is qualified by "contents or condition of contents of packages unknown", "said to contain", "shipper's weight, load and count," or words of similar import, if that indication is true.

(b) If  goods are loaded by the  issuer of the bill of lading, the issuer shall count the packages of goods if shipped in packages and ascertain the kind and quantity if shipped in bulk and words such as "shipper's weight, load and count," or words of similar  import  indicating  that  the  description  was  made  by  the  shipper  are ineffective except as to goods concealed by packages.

(c) If bulk goods are loaded by a shipper that makes available to the  issuer of the bill of lading adequate facilities for weighing those goods, the issuer shall ascertain the  kind  and  quantity  within  a  reasonable  time  after  receiving  the  shipper's request in a record to do so. In that case, "shipper's weight" or words of similar import are ineffective.

(d) The  issuer, by including in the bill of lading the words "shipper's weight, load and count," or words of similar import, may indicate that the  goods were loaded by the shipper, and, if that statement is true, the issuer is not liable for damages caused by the improper loading. However, omission of such words does not imply liability for damages caused by improper loading.

(e) A shipper guarantees to the  issuer the accuracy at the time of shipment of the description,  marks,  labels,  number,  kind,  quantity,  condition,  and  weight,  as furnished  by  the  shipper, and  the shipper  shall indemnify  the issuer  against damage caused by inaccuracies in those particulars. This right of the issuer to that indemnity does not limit its responsibility or liability under the contract of carriage to any person other than the shipper.

§ 7-302. Through Bills of Lading and Similar Documents of Title.

(a) The  issuer of a through bill of lading or other document of title embodying an undertaking to be  performed in part by a person acting as its agent or by a performing carrier is liable to any person entitled to recover on the document for any breach by the other person or the performing carrier of its obligation under the document. However, to the extent that the bill covers an undertaking to be performed overseas or in territory not contiguous to the continental United States or an undertaking  including matters other than transportation, this liability for breach by the other person or the performing carrier may be varied by agreement of the parties.

(b) If goods covered  by a  through bill of lading or other document of title embodying an  undertaking to be performed in part by a person other than the issuer are received by that person, the person is subject, with respect to its own performance while the goods are in its possession, to the obligation of the issuer. The person's obligation is discharged by delivery of the goods to another person pursuant to the document and does not include liability for breach by any other person or by the issuer.

(c) The  issuer of a through bill of lading or other document of title described in subsection (a) is entitled to recover from the performing carrier, or other person in possession of the  goods when the breach of the obligation under the document occurred:

(1) the amount it may be required to pay to any person entitled to recover on the document for the breach, as may be evidenced by any receipt, judgment, or transcript of judgment, and;

(2) the amount of any expense reasonably incurred by the issuer in defending any action commenced by any person entitled to recover on the document for the breach.

§ 7-303. Diversion; Reconsignment;  Change of Instructions.

(a) Unless the bill of lading otherwise provides, a carrier may deliver the  goods to a person or destination other than that stated in the bill or may otherwise dispose of the goods, without liability for misdelivery, on instructions from:

(1) the holder of a negotiable bill;

(2) the consignor on a nonnegotiable bill even if the consignee has given contrary instructions;

(3) the  consignee on a nonnegotiable bill in the absence of contrary instructions from the  consignor, if the  goods have arrived at the billed destination or if the consignee is in possession of the tangible bill or in control of the electronic bill; or

(4) the  consignee on a nonnegotiable bill, if the consignee is entitled as against the consignor to dispose of the goods.

(b) Unless instructions described in subsection (a) are included in a negotiable bill of lading, a person to  which the bill is duly negotiated may hold the bailee according to the original terms.

§ 7-304. Tangible Bills of Lading in a Set.

(a) Except as customary in international transportation, a tangible bill of lading may not be issued in a set of parts. The  issuer is liable for damages caused by violation of this subsection.

(b) If a tangible bill of lading is lawfully issued in a set of parts, each of which contains an identification code and is expressed to be valid only if the  goods have not been delivered against any other part, the whole of the parts constitutes one bill.

(c) If a tangible negotiable bill of lading is lawfully issued in a set of parts and different parts are negotiated to different persons, the title of the holder to which the first due negotiation is made prevails as to both the document of title and the goods even if any later holder may have received the  goods from the carrier in good faith and discharged the carrier's obligation by surrendering its part.

(d) A person that negotiates or transfers a single part of a tangible bill of lading issued in a set is liable to holders of that part as if it were the whole set.

(e) The bailee is obliged to deliver in accordance with Part 4 against the first presented part of a tangible bill of lading lawfully issued in a set. Delivery in this manner discharges the bailee's obligation on the whole bill.

§ 7-305. Destination Bills.

(a) Instead of issuing a bill of lading to the  consignor at the place of shipment, a carrier, at the request  of the consignor, may procure the bill to be issued at destination or at any other place designated in the request.

(b) Upon request of any person entitled as against a carrier to control the  goods while in transit and on surrender of possession or control of any outstanding bill of lading or other receipt covering the goods, the  issuer, subject to Section  7-105, may procure a substitute bill to be issued at any place designated in the request.

§ 7-306. Altered Bills of Lading.

An unauthorized alteration or filling in of a blank in a bill of lading leaves the bill enforceable according to its original tenor.

§ 7-307. Lien of Carrier.

(a) A carrier has a lien on the  goods covered by a bill of lading or on the proceeds thereof in its possession for charges after the date of the carrier's receipt of the goods for storage or transportation,  including demurrage and terminal charges, and  for  expenses  necessary  for  preservation  of  the  goods  incident  to  their transportation or reasonably incurred in their sale pursuant to law.  However, against a purchaser for value of a negotiable bill of lading, a carrier's lien is limited to charges stated in the bill or the applicable tariffs or, if no charges are stated, a reasonable charge.

(b) A lien for charges and expenses under subsection (a) on  goods that the carrier was required by law to receive for transportation is effective against the  consignor or  any  person  entitled  to  the  goods  unless  the  carrier  had  notice  that  the consignor lacked authority to subject the goods to those charges and expenses. Any other lien under subsection (a) is effective against the consignor and any person that permitted the bailor to have control or possession of the goods unless the carrier had notice that the bailor lacked authority.

(c) A carrier loses its lien on any  goods that it voluntarily delivers or unjustifiably refuses to deliver.

§ 7-308. Enforcement of Carrier's Lien.

(a) A carrier's lien on goods may be enforced by public or private sale of the goods, in bulk or in  packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must include a statement of the  amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price could have been obtained by a sale at a different time or in a different method from that  selected by the carrier is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. The carrier has sold goods in a commercially reasonable manner if the carrier sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time of the sale, or has otherwise sold in conformity with commercially reasonable practices among dealers in the type of goods sold. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in cases covered by the preceding sentence.

(b) Before any sale pursuant to this section, any person claiming a right in the goods may pay the  amount necessary to satisfy the lien and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by the carrier, subject to the  terms of the bill of lading and this article.

(c) A carrier may buy at any public sale pursuant to this section.

(d) A purchaser in good faith of  goods sold to enforce a carrier's lien takes the goods free of any rights of persons against which the lien was valid, despite the carrier's noncompliance with this section.

(e) A carrier may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery on demand to any person to which the carrier would have been bound to deliver the  goods.

(f) The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.

(g) A carrier's lien may be enforced pursuant to either subsection (a) or the procedure set forth in Section  7-210(b).

(h)  A  carrier  is  liable  for  damages  caused  by  failure  to  comply  with  the requirements for sale under this section and, in case of willful violation, is liable for conversion.

§ 7-309. Duty of Care; Contractual Limitation of Carrier's Liability.

(a) A carrier that issues a bill of lading, whether negotiable or nonnegotiable, shall exercise the degree of care in relation to the goods which a reasonably careful person would exercise under similar circumstances. This subsection does not affect any statute, regulation, or rule of law that imposes liability upon a common carrier for damages not caused by its negligence.

(b) Damages may be limited by a term in the bill of lading or in a transportation agreement that the carrier's liability may not exceed a value stated in the bill or transportation agreement if the carrier's rates are dependent upon value and the consignor is afforded an opportunity to declare a higher value and the  consignor is advised of the opportunity. However, such a limitation is not effective with respect to the carrier's liability for conversion to its own use.

(c) Reasonable provisions as to the time and manner of presenting claims and commencing actions based on the shipment may be included in a bill of lading or a transportation agreement.

PART 4. WAREHOUSE RECEIPTS AND BILLS OF LADING:  GENERAL OBLIGATIONS  [Table of
Contents]

§ 7-401. Irregularities in Issue of Receipt or Bill or Conduct of Issuer.

The obligations imposed by this article on an  issuer apply to a document of title even if:

(1) the document does not comply with the requirements of this article or of any other statute, rule, or regulation regarding its issue, form, or content;

(2) the issuer violated laws regulating the conduct of its business;

(3) the goods covered by the document were owned by the bailee when the document was issued; or

(4) the  person  issuing  the document  is  not  a warehouse  but  the  document purports to be a warehouse receipt.

§ 7-402. Duplicate Document of Title; Overissue.

A duplicate  or  any  other  document  of  title  purporting  to  cover  goods  already represented by an  outstanding document of the same issuer does not confer any right in the goods, except as provided in the case of tangible bills of lading in a set of parts, overissue of documents for fungible goods, substitutes for lost, stolen, or destroyed documents, or substitute documents issued pursuant to Section 7-105.
The issuer is liable for damages caused by its overissue or failure to identify a duplicate document by a conspicuous notation.

§ 7-403. Obligation of Warehouse or Carrier to Deliver; Excuse.

(a) A  bailee shall deliver the goods to a  person entitled under a document of title if the person complies with subsections (b) and (c), unless and to the extent that the bailee establishes any of the following:

(1) delivery of the  goods to a person whose receipt was rightful as against the claimant;

(2) damage to or delay, loss, or destruction of the  goods for which the  bailee is not liable;

(3) previous sale or other disposition of the goods in lawful enforcement of a lien or on a warehouse's lawful termination of storage;

(4) the exercise by a seller of its right to stop delivery pursuant to Section  2-705 or by a lessor of its right to stop delivery pursuant to Section 2A-526;
(5) a diversion, reconsignment, or other disposition pursuant to Section 7-303; (6) release, satisfaction, or any other fact affording a personal defense against
the claimant; or

(7) any other lawful excuse.

(b) A person claiming goods covered by a document of title shall satisfy the bailee's lien if the  bailee so requests or the bailee is prohibited by law from delivering the goods until the charges are paid.

(c) Unless a person claiming the  goods is one against which the document of title does not confer a right under Section  7-503(a):

(1) the person claiming under a document shall surrender possession or control of any outstanding negotiable document covering the  goods for cancellation or indication of partial deliveries; and

(2)  the  bailee  shall  cancel  the  document  or  conspicuously  indicate  in  the document the partial delivery or be liable to any person to which the document is duly negotiated.

§ 7-404. No Liability for Good Faith Delivery Pursuant to Document of
Title.

A  bailee that in good faith has received goods and delivered or otherwise disposed of the  goods according to the terms of a document of title or pursuant to this article is not liable for the goods even if:

(1) the person from which the bailee received the goods did not have authority to procure the document or to dispose of the goods; or

(2) the person to which the bailee delivered the goods did not have authority to receive the  goods.

PART 5. WAREHOUSE RECEIPTS AND BILLS OF LADING:    NEGOTIATION AND TRANSFER [Table of Contents]

§ 7-501. Form of Negotiation and Requirements of Due Negotiation.

(a) The following rules apply to a negotiable tangible document of title:

(1) If the document's original terms run to the order of a named person, the document is negotiated by the named person's indorsement and delivery. After the  named  person's  indorsement  in  blank  or  to  bearer,  any  person  may negotiate the document by delivery alone.

(2) If the document's original terms run to bearer, it is negotiated by delivery alone.

(3) If the document's original terms run to the order of a named person and it is delivered to the named person, the effect is the same as if the document had been negotiated.

(4) Negotiation of the document after it has been indorsed to a named person requires indorsement by the named person as well as delivery.

(5) A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder  that purchases it in good faith, without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the negotiation is not in the regular course of  business or financing or involves receiving the document in settlement or payment of a monetary obligation.

(b) The following rules apply to a negotiable electronic document of title:

(1) If the document's original terms run to the order of a named person or to bearer, the document  is negotiated by delivery of the document to another person. Indorsement by the named person  is  not required to negotiate the document.

(2) If the document's original terms run to the order of a named person and the named person has  control of the document, the effect is the same as if the document had been negotiated.

(3) A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder  that purchases it in good faith, without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the negotiation is not in the regular course of  business or financing or involves taking delivery of the document in settlement or payment of a monetary obligation.

(c) Indorsement of a nonnegotiable document of title neither makes it negotiable nor adds to the transferee's rights.

(d) The naming in a negotiable bill of lading of a person to be notified of the arrival of the  goods does not limit the negotiability of the bill or constitute notice to a purchaser of the bill of any interest of that person in the goods.

§ 7-502. Rights Acquired by Due Negotiation.

(a) Subject to Sections  7-205 and  7-503, a holder to which a negotiable document of title has been duly negotiated acquires thereby:

(1) title to the document; (2) title to the goods;
(3) all rights accruing under the law of agency or estoppel, including rights to goods delivered to the bailee after the document was issued; and

(4) the direct obligation of the  issuer to hold or deliver the  goods according to the terms of the document free of any defense or claim by the issuer except those arising under the terms of the document or under this article. In the case of  a  delivery order,  the  bailee's  obligation  accrues  only  upon  the  bailee's acceptance of the delivery order and the obligation acquired by the holder is that the issuer and any indorser will procure the acceptance of the bailee.

(b) Subject to Section  7-503, title and rights acquired by due negotiation are not defeated by any stoppage of the goods represented by the document of title or by surrender of the  goods by the bailee and are not impaired even if:

(1) the due negotiation or any prior due negotiation constituted a breach of duty;

(2)  any  person  has  been  deprived  of  possession  of  a  negotiable  tangible document or control of a negotiable electronic document by misrepresentation, fraud, accident, mistake, duress, loss, theft, or conversion; or

(3) a previous sale or other transfer of the goods or document has been made to a third person.

§ 7-503. Document of Title to Goods Defeated in Certain Cases.

(a) A document of title confers no right in goods against a person that before issuance of the document had a legal interest or a perfected security interest in the goods and that did not:

(1) deliver or entrust the goods or any document covering the goods to the bailor or the bailor's nominee with actual or apparent authority to ship, store, or sell; with power to obtain delivery under  Section 7-403; or with power of disposition under Section 2-403, 2A-304(2), 2A-305(2), or 9-320 or other statute or rule of law; or
(2) acquiesce in the procurement by the bailor or its nominee of any document. (b) Title to  goods based upon an unaccepted  delivery order is subject to the rights
of any person to which a negotiable warehouse receipt or bill of lading covering
the goods has been duly negotiated. That title may be defeated under Section 7-
504 to the same extent as the rights of the issuer or a transferee from the issuer.

(c) Title to goods based upon a bill of lading issued to a freight forwarder is subject to the rights of any person to which a bill issued by the freight forwarder is duly  negotiated.  However,  delivery  by  the  carrier  in  accordance  with  Part  4 pursuant to its own bill of lading discharges the carrier's obligation to deliver.

§ 7-504. Rights Acquired in the Absence of Due Negotiation;  Effect of
Diversion; Stoppage of Delivery.

(a) A transferee of a document of title, whether negotiable or nonnegotiable, to which the document has been delivered but not duly negotiated, acquires the title and rights that its transferor had or had actual authority to convey.

(b) In the case of a nonnegotiable document of title, until but not after the  bailee receives notice of the transfer, the rights of the transferee may be defeated:

(1) by those creditors of the transferor that could treat the transfer as void under Section 2-402 or 2A-308;

(2) by a buyer from the transferor in ordinary course of business if the  bailee has delivered the  goods to the buyer or received notification of the buyer's rights;

(3) by a lessee from the transferor in ordinary course of business if the  bailee has delivered the  goods to the lessee or received notification of the lessee's rights; or
(4) as against the  bailee, by good faith dealings of the bailee with the transferor. (c) A diversion or  other  change of shipping instructions by the consignor in a
nonnegotiable bill of lading which causes the  bailee not to deliver the goods to the
consignee defeats the consignee's title to the goods if the goods have been delivered to a buyer in ordinary course of business or a lessee in ordinary course of business and in any event defeats the consignee's rights against the bailee.

(d) Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under Section  2-705 or a lessor under Section 2A-526, subject to the requirements of due notification in  those sections. A bailee honoring the seller's or lessor's instructions is entitled to be indemnified by the seller or lessor against any resulting loss or expense.

§ 7-505. Indorser Not a Guarantor for Other Parties.

The indorsement of a tangible document of title issued by a  bailee does not make the indorser liable for any default by the bailee or previous indorsers.

§ 7-506. Delivery Without Indorsement:  Right to Compel Indorsement.

The transferee  of  a    negotiable  tangible  document  of  title  has  a    specifically enforceable right to have its transferor supply any necessary indorsement, but the transfer becomes a negotiation only as of the time the indorsement is supplied.

§ 7-507. Warranties on Negotiation or Transfer of Document of Title.

If a person negotiates or delivers a document of title for value, otherwise than as a mere intermediary  under Section 7-508, unless otherwise agreed, the transferor warrants to its immediate purchaser only in addition to any warranty made in selling or leasing the goods that:

(1) the document is genuine;

(2) the transferor does not have knowledge of any fact that would impair the document's validity or worth; and

(3) the negotiation or delivery is rightful and fully effective with respect to the title to the document and the goods it represents.

§ 7-508. Warranties of Collecting Bank as to Documents of Title.

A collecting bank or other intermediary known to be entrusted with documents of title on behalf of another or with collection of a draft or other claim against delivery of documents warrants by the delivery of the documents only its own good faith and authority even if the collecting bank or other intermediary has purchased or made advances against the claim or draft to be collected.

§ 7-509. Adequate Compliance With Commercial Contract.

Whether a document of title is adequate to fulfill the obligations of a contract for sale, a contract for  lease, or the conditions of a letter of credit is determined by Article 2,  2A, or 5.

PART 6. WAREHOUSE RECEIPTS AND BILLS OF LADING:    MISCELLANEOUS PROVISIONS [Table of Contents]

§ 7-601. Lost, Stolen, or Destroyed Documents of Title.

(a) If a document of title is lost, stolen, or destroyed, a court may order delivery of the  goods or issuance of a substitute document and the  bailee may without liability to any person comply with the order. If the document was negotiable, a court may not order delivery of the goods or issuance of a substitute document without the claimant's posting security unless it finds that any person that may suffer loss as a result of nonsurrender of possession or control of the document is adequately protected against the  loss. If the document was nonnegotiable, the court may require security. The court may also order  payment of the bailee's reasonable costs and attorney's fees in any action under this subsection.

(b) A  bailee that without court order delivers  goods to a person claiming under a missing negotiable document of title is liable to any person injured thereby. If the delivery is not in good faith, the bailee is liable for conversion. Delivery in good faith is not conversion if the claimant posts security with the bailee in an amount at least double the value of the goods at the time of posting to indemnify any person injured by the delivery which files a notice of claim within one year after the delivery.

§ 7-602. Attachment of Goods Covered by a Negotiable Document.

Unless a document of title was originally issued upon delivery of the goods by a person that did not have power to dispose of them, a lien does not attach by virtue of any judicial process to goods in the possession of a  bailee for which a negotiable document of title is outstanding unless possession or control of the document is first surrendered to the bailee or the document's negotiation is enjoined. The bailee may not be compelled to deliver the goods pursuant to process until possession or control of the document is surrendered to the bailee or to the court. A purchaser of the document for value without notice of the process or injunction takes free of the lien imposed by judicial process.

§ 7-603. Conflicting Claims; Interpleader.

If more than one person claims title to or possession of the goods, the bailee is excused from delivery until the bailee has a reasonable time to ascertain the validity of the adverse claims or to commence an action for interpleader. The bailee may assert an interpleader either in defending an action for nondelivery of the goods or by original action.

PART 7. MISCELLANEOUS PROVISIONS  [Table of Contents]

§ 7-701. Effective Date.

This [Act] takes effect on      , 20     .

§ 7-702. Repeals.

[Existing  Article  7]  and  [Section  10-104  of  the Uniform  Commercial  Code]  are repealed.

§ 7-703. Applicability.

This [Act] applies to a document of title that is issued or a bailment that arises on or after the effective date of this [Act]. This [Act] does not apply to a document of title that is issued or a bailment that arises before the effective date of this [Act] even if the document of title or bailment would be subject to this [Act] if the document of title had been issued or bailment had arisen after the effective date of this [Act]. This [Act] does not apply to a right of action that has accrued before the effective date of this [Act].

§ 7-704. Savings Clause.

A document of title issued or a bailment that arises before the effective date of this [Act]  and  the  rights,  obligations,  and  interests  flowing  from  that  document  or bailment are governed by any statute or other  rule amended or repealed by this [Act]  as  if  amendment  or  repeal  had  not  occurred  and  may  be  terminated, completed, consummated, or enforced under that statute or other rule.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

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© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on  Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.


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U.C.C. - ARTICLE 8 - INVESTMENT SECURITIES

PART 1. SHORT TITLE AND GENERAL MATTERS  [Table of Contents]

§ 8-101. SHORT TITLE.

This Article may be cited as Uniform Commercial Code--Investment Securities.

§ 8-102. DEFINITIONS.

(a) In this Article:

(1)  "Adverse claim" means a claim that a claimant has a property interest in a financial asset and that it is a violation of the rights of the claimant for another person to hold, transfer, or deal with the financial asset.

(2)  "Bearer form," as applied to a  certificated security, means a form in which the security is payable  to the bearer of the security certificate according to its terms but not by reason of an  indorsement.

(3)    "Broker" means a person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity.

(4) "Certificated security" means a security that is represented by a certificate. (5)  "Clearing corporation" means:
(i) a person that is registered as a "clearing agency" under the federal securities laws;

(ii) a federal reserve bank; or

(iii) any other person that provides clearance or settlement services with respect to  financial assets that would require it to register as a clearing agency under the    federal    securities    laws    but    for    an     exclusion    or    exemption    from        the registration requirement, if its activities as a  clearing corporation,  including promulgation        of    rules,        are        subject    to    regulation        by     a    federal     or    state governmental authority.

(6) "Communicate" means to: (i) send a signed writing; or

(ii)  transmit  information  by  any  mechanism  agreed  upon  by  the  persons transmitting and receiving the information.

(7) "Entitlement holder" means a person identified in the records of a  securities intermediary as the  person having a security entitlement against the securities intermediary.  If a person acquires a security entitlement by virtue of Section  8-
501(b)(2) or (3), that person is the entitlement holder.

(8)    "Entitlement  order" means a notification communicated  to a securities intermediary directing  transfer or redemption of a financial asset to which the entitlement holder has a  security entitlement.

(9) "Financial asset," except as otherwise provided in Section 8-103, means: (i) a security;
(ii) an obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a person, which is, or is of a type, dealt
in or traded on financial markets, or which is recognized in any area in which it
is issued or dealt in as a medium for investment; or

(iii) any property that is held by a  securities intermediary for another person in a securities account if the  securities intermediary has expressly agreed with the other person that the property is to be treated as a  financial asset under this Article.

As context requires, the term means either the interest itself or the means by which    a    person's    claim    to    it    is    evidenced,    including    a    certificated    or uncertificated security, a  security certificate, or a  security entitlement.

(10) [reserved]

(11)    "Indorsement" means a signature that alone or accompanied by other words is made on a  security certificate  in registered form  or on a  separate document for the purpose of assigning, transferring, or redeeming the security or granting a power to assign, transfer, or redeem it.

(12)    "Instruction"  means  a  notification  communicated  to  the  issuer  of  an uncertificated security which directs that the transfer of the security be registered or that the security be redeemed.

(13)  "Registered form," as applied to a certificated security, means a form in which:

(i) the security certificate specifies a person entitled to the security; and

(ii) a transfer of the security may be registered upon books maintained for that purpose by or on behalf of the issuer, or the security certificate so states.

(14) "Securities intermediary" means: (i) a clearing corporation; or
(ii) a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity.

(15)    "Security,"  except  as  otherwise  provided  in  Section  8-103,  means  an obligation of an  issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer:

(i) which is represented by a  security certificate in  bearer or  registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer;

(ii) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and

(iii) which:

(A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or

(B) is a medium for investment and by its terms expressly provides that it is a security governed by this Article.

(16) "Security certificate" means a certificate representing a security.

(17)    "Security  entitlement"  means  the  rights  and  property  interest  of  an entitlement holder with respect to a  financial asset specified in Part 5.

(18)    "Uncertificated security" means a security that is not represented by a certificate.

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

Appropriate person    Section 8-107

Control    Section 8-106

Delivery    Section 8-301
 
Investment company security    Section 8-103

Issuer    Section 8-201

Overissue    Section 8-210

Protected purchaser    Section 8-303

Securities account    Section 8-501

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

(d)  The characterization of a person, business, or transaction for purposes of this Article    does    not    determine    the    characterization    of    the    person,    business,    or transaction for purposes of any other law, regulation, or rule.

§ 8-103. RULES FOR DETERMINING WHETHER CERTAIN OBLIGATIONS AND INTERESTS ARE SECURITIES OR FINANCIAL ASSETS.

(a)  A share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity is a security.

(b)    An "investment company security" is a security.    "Investment company security"  means  a  share  or  similar  equity  interest  issued  by  an  entity  that  is registered as an investment company under the federal investment company laws, an  interest  in  a  unit  investment  trust  that  is  so  registered,  or  a  face-amount certificate  issued  by  a  face-amount  certificate  company  that  is  so  registered. Investment company security does not include an insurance policy or endowment policy or annuity contract issued by an insurance company.

(c)  An interest in a partnership or limited liability company is not a  security unless it is dealt in or traded  on  securities exchanges or in securities markets, its terms expressly provide that it is a security governed by this Article, or it is an  investment company security.  However, an interest in a partnership or limited liability company is a  financial asset if it is held in a securities account.

(d)    A writing that is a security certificate is governed by this Article and not by Article 3, even though it also meets the requirements of that Article.    However, a negotiable instrument governed by Article 3 is a financial asset if it is held in a securities account.

(e)  An option or similar obligation issued by a  clearing corporation to its participants is not a security, but is a financial asset.

(f)  A commodity contract, as defined in Section  9-102(a)(15), is not a security or a financial asset.

(g) A document of title is not a financial asset unless Section  8-102(a)(9)(iii) applies.

§    8-104.    ACQUISITION    OF    SECURITY    OR    FINANCIAL    ASSET    OR INTEREST THEREIN.

(a) A person acquires a security or an interest therein, under this Article, if:

(1) the person is a purchaser to whom a security is delivered pursuant to Section
8-301; or

(2) the person acquires a  security entitlement to the security pursuant to Section
8-501.

(b)  A person acquires a  financial asset, other than a  security, or an interest therein, under this Article, if the person acquires a security entitlement to the financial asset.

(c)    A person who acquires a security entitlement to a security or other financial asset has the rights specified in Part 5, but is a purchaser of any security, security entitlement, or other financial asset held by the  securities intermediary only to the extent provided in Section 8-503.

(d)  Unless the context shows that a different meaning is intended, a person who is required by other law, regulation, rule, or agreement to transfer, deliver, present, surrender, exchange, or otherwise put in the possession of another person a  security or  financial asset satisfies that requirement by causing the other person to acquire an interest in the security or financial asset pursuant to subsection (a) or (b).

§ 8-105. NOTICE OF ADVERSE CLAIM.

(a) A person has notice of an adverse claim if: (1) the person knows of the adverse claim;
(2) the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim; or

(3)  the  person  has  a  duty,  imposed  by  statute  or  regulation,  to  investigate whether an adverse claim exists, and the investigation so required would establish the existence of the adverse claim.

(b)    Having knowledge that a financial asset or interest therein is or has been transferred by a representative imposes no duty of inquiry into the rightfulness of a transaction and is not notice of an adverse claim.    However, a person who knows that  a  representative  has  transferred  a  financial  asset  or  interest  therein in  a transaction that is, or whose proceeds are being used, for the individual benefit of the representative or otherwise in breach of duty has notice of an adverse claim.

(c)  An act or event that creates a right to immediate performance of the principal obligation represented by a  security certificate or sets a date on or after which the certificate is to be presented or surrendered for redemption or exchange does not itself constitute notice of an adverse claim except in the case of a  transfer more than:

(1) one year after a date set for presentment or surrender for redemption or exchange; or

(2) six months after a date set for payment of money against presentation or surrender of the certificate, if money was available for payment on that date.

(d)    A purchaser of a certificated security has notice of an adverse claim if the security certificate:

(1) whether in  bearer or  registered form, has been indorsed "for collection" or "for surrender" or for some other purpose not involving transfer; or

(2) is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor, but the mere writing of a name on the certificate is not such a statement.

(e)  Filing of a financing statement under Article 9 is not notice of an  adverse claim to a  financial asset.

§ 8-106. CONTROL.

(a)    A purchaser has "control" of a certificated security in bearer form if the certificated security is delivered to the purchaser.

(b)    A purchaser has "control" of a certificated security in registered form if the certificated security is delivered to the purchaser, and:

(1)  the  certificate  is  indorsed  to  the  purchaser  or  in  blank  by  an  effective indorsement; or

(2) the certificate is registered in the name of the purchaser, upon original issue or registration of transfer by the  issuer.

(c) A purchaser has "control" of an uncertificated security if:

(1) the uncertificated security is delivered to the purchaser; or

(2) the issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered owner.

(d) A purchaser has "control" of a security entitlement if: (1) the purchaser becomes the  entitlement holder; or
(2) the securities intermediary has agreed that it will comply with entitlement orders originated by  the  purchaser without further consent by the entitlement holder, or

(3)  another  person  has  control  of  the  security  entitlement  on  behalf  of  the purchaser  or,  having  previously  acquired  control  of  the  security  entitlement, acknowledges that it has control on behalf of the purchaser.

(e)  If an interest in a  security entitlement is granted by the  entitlement holder to the entitlement holder's own  securities intermediary, the securities intermediary has control.

(f)    A purchaser who has satisfied the requirements of subsection (c) or (d) has control even if the registered owner in the case of subsection (c) or the  entitlement holder in the case of subsection (d) retains the right to make substitutions for the uncertificated security or  security entitlement, to originate instructions or  entitlement orders  to  the  issuer  or  securities intermediary,  or  otherwise  to  deal  with  the uncertificated security or security entitlement.

(g)  An  issuer or a  securities intermediary may not enter into an agreement of the kind described in subsection (c)(2) or (d)(2) without the consent of the registered owner  or  entitlement holder,  but  an  issuer  or  a  securities intermediary  is  not required to enter into such an agreement even though the  registered owner or entitlement holder so directs.  An issuer or securities intermediary that has entered into such an agreement is not required to confirm the existence of the agreement to another party unless  requested to do so by the registered owner or entitlement holder.

§ 8-107.  WHETHER  INDORSEMENT,  INSTRUCTION,  OR  ENTITLEMENT ORDER IS EFFECTIVE.

(a) "Appropriate person" means:

(1) with respect to an  indorsement, the person specified by a  security certificate or by an effective  special indorsement to be entitled to the security;

(2)  with  respect  to  an  instruction,  the  registered  owner  of  an  uncertificated security;

(3) with respect to an entitlement order, the entitlement holder;

(4)  if  the  person  designated  in  paragraph  (1),  (2),  or  (3)  is  deceased,  the designated person's successor taking under other law or the designated person's personal representative acting for the estate of the decedent; or

(5) if the person designated in paragraph (1), (2), or (3) lacks capacity, the designated person's guardian, conservator, or other similar representative who has power under other law to transfer the security or  financial asset.

(b) An indorsement,  instruction, or entitlement order is effective if: (1) it is made by the appropriate person;
(2) it is made by a person who has power under the law of agency to transfer the security or financial asset on behalf of the appropriate person, including, in the case of an instruction or entitlement order,  a person who has control under Section 8-106(c)(2) or (d)(2); or

(3) the appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness.

(c)    An  indorsement,  instruction, or  entitlement order made by a representative is effective even if:

(1) the representative has failed to comply with a controlling instrument or with the law of the State having jurisdiction of the representative relationship, including any law requiring the representative to obtain court approval of the transaction; or

(2)    the    representative's    action    in    making    the    indorsement,    instruction,    or entitlement order or using the proceeds of the transaction is otherwise a breach of duty.

(d)    If a security is registered in the name of or specially indorsed to a person described as a representative, or if a  securities account is maintained in the name of a person described as a representative, an  indorsement,  instruction, or  entitlement order made by the person is effective even though the person is no longer serving in the described capacity.

(e)  Effectiveness of an  indorsement,  instruction, or  entitlement order is determined as of the date the  indorsement, instruction, or entitlement order is made, and an indorsement, instruction, or entitlement order does not become ineffective by reason of any later change of circumstances.

§ 8-108. WARRANTIES IN DIRECT HOLDING.

(a)  A person who transfers a certificated security to a purchaser for value warrants to the purchaser, and an indorser, if the transfer is by  indorsement, warrants to any subsequent purchaser, that:

(1) the certificate is genuine and has not been materially altered;

(2) the transferor or indorser does not know of any fact that might impair the validity of the security;

(3) there is no  adverse claim to the security;

(4) the transfer does not violate any restriction on transfer;

(5) if the transfer is by  indorsement, the indorsement is made by an  appropriate person, or if the indorsement is by an agent, the agent has actual authority to act on behalf of the appropriate person; and

(6) the transfer is otherwise  effective and rightful.

(b)    A  person  who  originates  an  instruction  for  registration  of  transfer  of  an uncertificated security to a purchaser for value warrants to the purchaser that:

(1) the instruction is made by an  appropriate person, or if the instruction is by an agent, the agent has actual authority to act on behalf of the appropriate person;

(2) the security is valid;

(3) there is no  adverse claim to the security; and

(4) at the time the instruction is presented to the issuer:

(i) the purchaser will be entitled to the registration of transfer;

(ii) the transfer will be registered by the issuer free from all liens, security interests, restrictions, and claims other than those specified in the instruction;

(iii) the transfer will not violate any restriction on transfer; and
 


(iv) the requested transfer will otherwise be effective and rightful.

(c)  A person who transfers an  uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants that:

(1) the uncertificated security is valid;

(2) there is no  adverse claim to the security;

(3) the transfer does not violate any restriction on transfer; and

(4) the transfer is otherwise  effective and rightful.

(d) A person who indorses a security certificate warrants to the  issuer that: (1) there is no  adverse claim to the security; and
(2) the indorsement is effective.

(e)    A  person  who  originates  an  instruction  for  registration  of  transfer  of  an uncertificated security warrants to the  issuer that:

(1) the instruction is effective; and

(2) at the time the instruction is presented to the issuer the purchaser will be entitled to the registration of transfer.

(f)  A person who presents a certificated security for registration of transfer or for payment or exchange  warrants to the issuer that the person is entitled to the registration, payment, or exchange, but a purchaser for value and without  notice of adverse claims to whom transfer is registered warrants only that the person has no knowledge of any unauthorized signature in a necessary  indorsement.

(g)    If a person acts as agent of another in delivering a certificated security to a purchaser, the identity  of the principal was known to the person to whom the certificate was delivered, and the certificate delivered by the agent was received by the agent from the principal or received by the agent from another person at the direction of the principal, the person delivering the  security certificate warrants only that the delivering person has authority to act for the principal and does not know of any  adverse claim to the certificated security.

(h)  A secured party who redelivers a  security certificate received, or after payment and on order of the debtor delivers the security certificate to another person, makes only the warranties of an agent under subsection (g).

(i)  Except as otherwise provided in subsection (g), a  broker acting for a customer makes to the issuer  and a purchaser the warranties provided in subsections (a) through (f).  A broker that delivers a  security certificate to its customer, or causes its customer to be registered as the owner of an  uncertificated security, makes to the customer the warranties provided in subsection (a) or (b), and has the rights and privileges of a purchaser under this section.  The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of the customer.

§ 8-109. WARRANTIES IN INDIRECT HOLDING.

(a)    A  person who originates an entitlement order  to  a  securities intermediary warrants to the securities intermediary that:

(1) the  entitlement order is made by an  appropriate person, or if the entitlement order is by an agent,  the agent has actual authority to act on behalf of the appropriate person; and

(2) there is no  adverse claim to the security entitlement.

(b)  A person who delivers a  security certificate to a  securities intermediary for credit to a  securities account or originates an  instruction with respect to an  uncertificated security directing that the uncertificated security be credited to a securities account makes to the securities intermediary the warranties specified in Section 8-108(a) or (b).

(c)  If a  securities intermediary delivers a  security certificate to its  entitlement holder or causes its entitlement holder to be registered as the owner of an  uncertificated security, the securities intermediary makes to the entitlement holder the warranties specified in Section 8-108(a) or (b).

§ 8-110. APPLICABILITY; CHOICE OF LAW.

(a) The local law of the issuer's jurisdiction, as specified in subsection (d), governs: (1) the validity of a security;
(2) the rights and duties of the issuer with respect to registration of transfer; (3) the effectiveness of registration of transfer by the issuer;
(4) whether the issuer owes any duties to an adverse claimant to a security; and

(5) whether an  adverse claim can be asserted against a person to whom transfer of a certificated or  uncertificated security is registered or a person who obtains control of an uncertificated security.

(b)    The  local  law  of  the  securities  intermediary's  jurisdiction,  as  specified  in subsection (e), governs:

(1) acquisition of a security entitlement from the  securities intermediary;

(2) the rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement;

(3) whether the securities intermediary owes any duties to an adverse claimant to a security entitlement; and


 

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