UNIFORM COMMERCIAL CODE2010-2011 EditionIssued in December 2010

The American Law Institute National Conference of Commissioners on Uniform State Laws

OFFICIAL TEXT AND COMMENTSINCLUDING Article 1 (General Provisions) Article 2 (Sales) Article 2A (Leases) Article 3 (Negotiable Instruments) Article 4 (Bank Deposits and Collections) Article 4A (Funds Transfers) Article 5 (Letters of Credit) Article 6 (Bulk Sales) Article 7 (Documents of Title) Article 8 (Investment Securities) Article 9 (Secured Transactions) Article 10 (Eective Date and Repealer) Article 11 (Eective Date and Transition Provisions) APPENDICES INDEXThe Executive Oce The American Law Institute 4025 Chestnut Street Philadelphia, Pennsylvania 19104 National Conference of Commissioners on Uniform State Laws 111 N. Wabash Ave., Suite 1010 Chicago, Illinois 60602

For Customer Assistance Call 1-800-328-4880Mat #40838620

TEXT AND NOTES COPYRIGHT 1948-1950, 1952, 1958, 1959, 1963, 1972, 1978, 1987-1991, 1994-1996, 1999-2005, 2007-2010 THE AMERICAN LAW INSTITUTE and NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS

COPYRIGHT 2010 By THE AMERICAN LAW INSTITUTE and NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS

INDEX COPYRIGHT 2010 By Thomson ReutersTEXT OF UNIFORM COMMERCIAL CODE AND OFFICIAL COMMENTS REPRINTED WITH PERMISSION OF THE AMERICAN LAW INSTITUTE AND THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS.

This publication was created to provide you with accurate and authoritative information concerning the subject matter covered; however, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.

PREFACEThis Pamphlet contains the text of the Uniform Commercial Code prepared under the joint sponsorship of The American Law Institute and the National Conference of Commissioners on Uniform State Laws, current through December, 2010. The Code is a comprehensive modernization of various statutes relating to commercial transactions including sales, leases, negotiable instruments, bank deposits and collections, funds transfers, letters of credit, bulk sales, documents of title, investment securities and secured transactions. It replaces the former Uniform Laws relating to sales, conditional sales, negotiable instruments, warehouse receipts, bills of lading, stock transfers and trust receipts. The Code was originally approved by its sponsors and the American Bar Association in 1952, and it has been amended a number of times in succeeding years. An eort to modernize and update the Code was begun in 1987 when new Article 2A was approved. New Article 4A (Funds Transfers) was approved in 1989, and Article 6 (formerly Bulk Transfers, now Bulk Sales) was revised that same year. In 1990, substantial amendments were made to Article 2A (Leases). Article 3 (formerly Commercial Paper, now Negotiable Instruments) was also revised in 1990. Article 8 (Investment Securities) was revised in 1994, and Article 5 (Letters of Credit) was revised in 1995. Revised Article 9 (Secured Transactions) was promulgated in 1998 with subsequent amendments and modications in 1999, 2000, and 2001. Article 1 (General Provisions) was revised in 2001. Article 7 (renamed Documents of Title) was revised in 2003. Article 2 (Sales) and Article 2A (Leases) were amended in 2003 and 2005. This 2009 edition of the Pamphlet contains Permanent Editorial Board Commentary No. 16 (2009) regarding sections 4A-502(d) and 4A-503. The Commentary indicates that neither the originator nor the beneciary of a funds transfer has any property claim to the value held by an intermediary bank in a funds transfer. OFFICIAL COMMENTS One of the indispensable features herein consists of the Ocial Comments, prepared by the National Conference of Commissioners on Uniform State Laws and The American Law Institute, which appear under each section. These Comments explain the purpose and intent of the sections and the changes in the prior law that were eected by the Code. APPENDIX CONTAINING PERMANENT EDITORIAL BOARD (PEB) COMMENTARY The Permanent Editorial Board for the Uniform Commercial Code will issue supplementary commentary on the Code from time to time. The nal draft of Commentaries 1 to 15 may be found in Appendix A. (PEB Comiii

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mentaries 8 and 11 have been amended to comport with Revised Article 9.) These commentaries normally identify an issue, discuss the issue and come to a conclusion as to how the issue should be resolved. Often, the conclusion will result in a change in the Ocial Comment of one or more sections of the Code. The Ocial Comment, when so changed, will generally refer to the PEB Commentary which brought about the change. All changes in the Ocial Comments as a result of Commentaries 1 to 15 have been incorporated into this Pamphlet. APPENDICES RELATING TO 1972, 1977, AND 1987 CHANGES Appendices are included containing material relating to the 1972 revision of Article 9, the 1977 revision of Article 8 and the 1987 adoption of Article 2A. Appendix B shows the changes in Article 9, and related sections. Included under each section are statements as to the reasons for change. Appendix C shows the changes in Article 8, and related sections. Included under each section are statements as to the reason for change. Appendix D contains amendments to Article 1 and Article 9 conforming to new Article 2A. APPENDICES CONTAINING TEXT AND OFFICIAL COMMENTS OF PRE-REVISION ARTICLES 1, 3, 5, 6, 7, 8, AND 9 Article 6 was revised in 1989, Article 3 was revised in 1990, Article 8 was further revised in 1994, Article 5 was revised in 1995, Article 9 was revised in 1998, Article 1 was revised in 2001, and Article 7 was revised in 2003. The pre-revision versions of the Text and Ocial Comments of these articles may be found variously in Appendix E (Pre-Revision Article 6), Appendix G (Pre-Revision Article 3), Appendix L (Pre-Revision Article 8), Appendix N (Pre-Revision Article 5), Appendix O (Pre-Revision Article 9), Appendix P (Pre-Revision Article 1), and Appendix R (Pre-Revision Article 7). APPENDIX CONTAINING 1990 ARTICLE 1 AMENDMENTS CONFORMING TO REVISED ARTICLE 3 In conjunction with the revision of Article 3 in 1990, conforming amendments to Article 1 were approved. These amendments may be found in Appendix H. APPENDICES CONTAINING 1990 AMENDMENTS TO ARTICLE 2A In 1990, 24 text amendments were made to Article 2A. In addition, the Ocial Comments of three sections, which were not amended textually, were changed to conform to the various text amendments. All of these may be found in Appendix F. TO ARTICLE 4 In 1990, a substantial number of amendments were made to Article 4. Many of these were made to conform to Revised Article 3. Others were miscellaneous amendments. These amendments, together with the reasons for the 1990 changes, may all be found in Appendix I.iv

Preface

APPENDIX CONTAINING VARIOUS 1994 AMENDMENTS Various amendments were made in 1994 not relating to the revision of Article 8. These amendments may be found in Appendix J. APPENDIX CONTAINING 1994 AND 1995 AMENDMENTS TO ARTICLES 1, 3, 4, 5, 9, AND 10 CONFORMING TO 1994 REVISION OF ARTICLE 8 In 1994 and 1995, amendments to Articles 1, 3, 4, 5, 9, and 10 were made to conform to the 1994 revision of Article 8. These amendments may be found in Appendix K. APPENDIX CONTAINING 1995 AMENDMENTS TO ARTICLES 1, 2, AND 9 CONFORMING TO REVISED ARTICLE 5 In 1995, amendments to Articles 1, 2, and 9 were made to conform to the revision of Article 5. These amendments may be found in Appendix M. APPENDIX CONTAINING 2002 AMENDMENTS TO ARTICLES 3 AND 4 Articles 3 and 4 were amended in 2002. The amendments may be found in Appendix Q. APPENDICES CONTAINING 2003 AMENDMENTS TO ARTICLES 2 AND 2A Articles 2 and 2A were amended in 2003. The amendments may be found in Appendices T and U, respectively. APPENDIX CONTAINING 2005 AMENDMENTS A number of amendments and Ocial Comment corrections were approved in 2005 aecting Articles 1, 2, 2A, 3, and 9. These changes may be found in Appendix V. APPENDIX CONTAINING 2006 OFFICIAL COMMENT CORRECTIONS Ocial Comment corrections aecting Articles 2A and 9 were approved in 2006. The corrections may be found in Appendix W. APPENDIX CONTAINING 2008 AMENDMENT Amendment of Article 1-301 was approved in May, 2008. The amendment may be found in Appendix X. APPENDIX CONTAINING PRE-REVISION ARTICLE 2 Article 2 was amended in 2003 and has not yet been adopted. Prerevision Article 2 can be found in Appendix Y. SPECIAL FEATURES The various materials in the preliminary part of this Pamphlet all contribute to a better understanding of the Code and aid in its interpretation.v

Uniform Commercial Code Reporting Series

The Foreword, written by the Chair of the Permanent Editorial Board, provides an up-to-date overview of the recent modernization of the Code. The Article, Part and Section analysis, beginning on page 1, provides an easy means of nding particular provisions of the Code. INDEX This edition includes an up-to-date index prepared by the publishers Editorial Sta. The Publisher December 2010

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PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODECHAIR John A. Sebert, Chicago, Illinois Executive Director, NCCUSLMEMBERS ALI Designees E. Carolan Berkley, Philadelphia, PA Amelia H. Boss, Philadelphia, PA Stephanie Heller, Brooklyn, NY Lance Liebman, New York, NY Linda J. Rusch, Spokane, WA Steven O. Weise, Los Angeles, CA EMERITUS MEMBERS Marion W. Benfield, Jr., New Braunfels, TX William H. Henning, Tuscaloosa, AL Fred H. Miller, Norman, OK EX OFFICIO Roberta Cooper Ramo, Albuquerque, NM President, ALI Robert A. Stein, Minneapolis, MN President, NCCUSL NCCUSL Designees Boris Auerbach, Indianapolis, IN Patricia Brumfield Fry, Edgewood, NM Carlyle C. Ring, Jr., Washington, DC Edwin E. Smith, Boston, MA James J. White, Ann Arbor, MI DIRECTOR OF RESEARCH Neil B. Cohen, Brooklyn, NY LIAISONS Carter H. Klein, Chicago, IL ABA Business Law Section Teresa W. Harmon, Chicago, IL ABA Advisor ALI STAFF Deanne Dissinger, Philadelphia, PA Stephanie Middleton, Philadelphia, PA NCCUSL STAFF Michael R. Kerr, Chicago, IL Katie Robinson, Chicago, IL

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FOREWORD TO OFFICIAL TEXT AND COMMENTSThe Permanent Editorial Board and its constituent organizations, the American Law Institute and the National Conference of Commissioners on Uniform State Laws, have worked for more than two decades to update the Uniform Commercial Code. The eort has been greatly assisted by the American Bar Association, which has provided advisers at each step along the way. This eort began with two new articles: Article 2A, rst promulgated in 1987 and revised in 1990, provides a legal structure for leases of goods, and Article 4A (1989) governs commercial funds transfers. The PEB then directed its attention to the original articles of the Code. The primary goal was not to create new law but rather to bring the articles up to date in terms of modern business practices and technology. Articles 3 and 4, covering negotiable instruments and bank deposits and collections, were thoroughly revised in 1990 (and amendments to a limited number of particular provisions in those articles were recommended in 2002). The PEB then recommended repeal of Article 6 (dealing with bulk sales) as no longer necessary in light of modern commercial realities; as an alternative for jurisdictions that chose not to repeal the article, the PEB drafted a revised version of Article 6. Article 8, dealing with investment securities, was revised in 1994, primarily to provide a full set of rules for the indirect holding system that had developed in the securities markets in order to facilitate trades. Article 5, which governs letters of credit, was revised in 1995 to coordinate better with developments in domestic and international letter of credit practice. The modernization of the law of secured credit codied in Article 9, a large undertaking with great commercial signicance, was a major achievement. The state legislatures quickly enacted these revised articles. In the case of Article 9, nationwide enactment was accomplished in just three years, a remarkable achievement. The next step in the modernization process was the promulgation in 2001 of a revised text of Article 1 which, in addition to denitions, contains a limited number of basic substantive rules generally applicable throughout the UCC. Most recently, a set of amendments to sections in Articles 2 and 2A and a revised version of Article 7 were promulgated in 2003. Much of this work, along with the 2002 amendments to Articles 3 and 4, remains on the agenda for enactment in the states. Throughout the modernization project, the PEB and the sponsoring organizations have been cognizant of the need to amend and revise the articles in a manner that comports with modern commercial practices, including the now-prevalent use of electronic methods of doing business. At the same time, the amendments and revisions have exhibited sensitivity to the unique issues that sometimes comeix

Uniform Commercial Code

into play when transactions involve consumers. The Conference and the Institute are proud of the modernization of the UCC and grateful to the Reporters and the members of Drafting Committees who devoted long hours to this work, as well as to the many others who participated in the process, especially those who oered constructive criticism and who patiently worked to improve laws so crucial to the economy of the United States. John A. Sebert Chair Permanent Editorial Board for the Uniform Commercial Code December 2010

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REPORT NO. 1OF THE PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE October 31, 1962 To the American Law Institute and the National Conference of Commissioners on Uniform State Laws: As this is the rst report made by this Board, it may be worthwhile briey to outline the history which led to the Boards establishment. The Uniform Commercial Code was promulgated by the Conference and the Institute, with the endorsement of the American Bar Association, in the fall of 1951. It had been drafted under the supervision of an Editorial Board composed of representatives of the Conference and the Institute. In 1953, Pennsylvania enacted the Code with no variations from the text which the Codes Editorial Board had approved. No further enactments of the original Code ensued. The reason was that the New York Legislature, instead of enacting the Code, referred it to the New York Law Revision Commission and gave that expert body a large appropriation to enable it to make a critical line-by-line examination of the Code. When this occurred, the Codes Editorial Board was re-activated as were the subcommittees of the Board which had worked on the several articles. In February, 1956, the New York Law Revision Commission made its report in which it approved the idea of a code of commercial law but expressed the opinion that the Code as originally drafted was unsuitable for enactment by New York. While the Code was being studied by the New York Law Revision Commissions task forces, they were in communication with the Editorial Boards subcommittees, so that when the 1956 report was issued, its contents were no surprise to the sponsors of the Code. The Editorial Board immediately resumed intensive work. It adopted a large number of the suggestions made by the New York Commission and, late in 1956, issued a revised Code. This revised Code was enacted by Massachusetts in September, 1957, eective on October 1, 1958, and by Kentucky in 1958, eective July 1, 1960. It was published as the 1957 Ocial Text. In 1958 the Codes Editorial Board promulgated certain amendments to Articles 8 and 9 of the Code, and the Code was republished as the 1958 Ocial Text. Successively, Connecticut, New Hampshire, Rhode Island, Wyoming, Arkansas, New Mexico, Ohio, Oregon, Oklahoma, Illinois, New Jersey, Georgia, Alaska, New York and Michigan enacted the 1958 version of the Code. And, in 1959, Pennsylvania re-enacted the Code, substituting for thexi

Uniform Commercial Code

original version the 1958 Ocial Text. It became apparent in 1961 that almost every state enacting the Code was making its own amendments, thus very largely imperiling the primary object of the code which is UNIFORMITY in the laws of the various states regulating commercial transactions. In an eort to curb this tendency, the Institute applied to the Maurice and Laura Falk Foundation, (which had contributed upwards of $275,000 to the cost of preparing the original Code) for an additional grant in the amount of $125,000 to endow the work of a Permanent Editorial Board. The Falk Foundation very generously made the grant and the Board was constituted pursuant to a written agreement between the Conference and the Institute dated August 5, 1961. This agreement provides that the Director of the Institute shall be ex ocio chairman of the Board, that the Chairman of the Commercial code Committee of the Conference shall be an ex ocio member, and that the Conference shall select four additional representatives and the Institute ve. Not more than one elected member may come from any state and the agreement makes it clear that it is desirable, generally speaking, to have as members of the Board, lawyers who come from states which have enacted the Code. Immediately upon the selection of the members of the Board by the Conference and the Institute, the late Judge Goodrich, who as Director of the Institute was ex ocio chairman of the Board, appointed three subcommittees as follows: Subcommittee No. 1, to consider Articles 1, 2, 6 & 7: Professor Robert Braucher, Harvard University Law School, Chairman, Bernard D. Broeker, Bethlehem, Pennsylvania, and Professor William D. Hawkland, University of Illinois Law School. Subcommittee No. 2, to consider Articles 3, 4, 5 & 8: Walter D. Malcolm, Boston, Chairman; Robert M. Blair-Smith, Philadelphia; John J. Clarke, New York; Carl W. Funk, Philadelphia; Murdoch K. Goodwin, Philadelphia; Carlos L. Israels, New York; Arthur Littleton, Philadelphia; Soia Mentschiko, University of Chicago Law School; and William C. Pierce, New York. Subcommittee No. 3, to consider Article 9: J. Francis Ireton, Baltimore; Peter F. Coogan, Boston; Anthony G. Felix, Jr., Philadelphia; Grant Gilmore, Yale University Law School; Roy C. Haberkern, Jr., New York; Homer L. Kripke, New Jersey; and Durmont W. McGraw, Chicago. Judge Goodrich also appointed Soia Mentschiko consultant to the Board and Paul A. Wolkin of Philadelphia, as the Boards secretary. The Board held its rst meeting in Washington, D.C. in May, 1962, when there was a preliminary discussion of the manner in which the subcommittees and the Board would function. At this time a meeting was xed for October 12, 13 and 14th in Philadelphia. The subcommittees examined every amendment which had been made to the Code in the 18 Codes enacted thus far. They also examined a large number of amendments proposed in California and a somewhat smaller number proposed in Wisconsin. In both states a Code bill will probably be introduced into the legislature in 1963. At its meeting in Philadelphia on October 12, 13 and 14th, the Board reviewed the work of the subcommittees, and made the recommendationsxii

Report No. 1

which follow. We deem it appropriate in connection with this rst report of the Board to print as an Appendix the agreement between The American Law Institute and the National Conference of Commissioners on Uniform State Laws dated August 5, 1961, as amended by a supplemental agreement which has just been executed by the ocers of both organizations. Under Article SEVENTH of the agreement, as amended, the jurisdiction of this Board is rather limited. We certainly do not have any authority to undertake a rewriting of the Code or to make amendments merely because someone feels that a particular provision might have been drafted with greater clarity. The only justication for clarifying amendments must be found in clause (d) of Article SEVENTH which was added by the supplementary agreement. Our recommendations are made in three parts.1 Part I consists of recommendations for the amendment of the 1958 Ocial Text of the Code plus amendments of the Ocial Comments which the changes in text render necessary. Part II consists of the amendments to the Ocial Text made in the various states which the Board rejects, together with the reasons for rejection. Part III consists of a few amendments to the 1958 Ocial Comments which are deemed desirable in the light of experience under the Code. We are not publishing our comments on the proposed California and Wisconsin amendments, but we have furnished them to the Commissioners on Uniform State Laws in those states respectively. We understand that West Publishing Company will shortly put out a 1962 Ocial Text with Comments. This will contain the Text as modied by the amendments in Part I, plus the changes in Comments contained in Parts I and III. We shall be very glad to supply copies of this Report on request. Prior to the issuance of this Report, the amendments recommended in Part I were approved by majorities of the Executive Committees of both of the organizations to which the Report is addressed. RESPECTFULLY SUBMITTED, Wm. A. Schnader Pennsylvania, Acting Chairman. John C. Barrett, Arkansas. Francis M. Bird, Georgia. Willoughby A. Colby, New Hampshire. Albert E. Jenner, Jr. Illinois

October 31, 1962

Paul A. Wolking Secretary The American Law Institute 133 South 36th Street Philadelphia 4, Pennsylvania1

Reference is to Parts I-III of the Boards 1962 Report which, because of space limitations, could not be accomodated in this edition. xiii

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John W. MacDonald New York. Walter D. Malcolm, Massachusetts. Ross L. Malone, New Mexico. Maurice H. Merrill, Oklahoma. George R. Richter, Jr., California.

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REPORT NO. 2OF THE PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE October 31, 1964 To the American Law Institute and the National Conference of Commissioners on Uniform State Laws:The rst report of this Board was made on October 31, 1962. At that time 18 states had enacted the Uniform Commercial Code. Of the 18 states, some endeavored to adhere to the Ocial Text of the Code as promulgated by your two organizations which had sponsored it. For example, the Pennsylvania Code in 1962 had only one substantive departure from the Ocial Text and that departure was a carry-over from the 1952 Ocial Text. The 1959 Pennsylvania Act brought its Code in line with the amendments which had been ocially recommended by the Editorial Board with the approval of the Executive Committees of both of your organizations. Illinois was another state which enacted the Code almost precisely as promulgated. However, other states made a large number of amendments and thus weakened their Codes pro tanto as uniform legislation governing in the same way the same commercial transaction wherever it occurred. In our Report No. 1 dated October 31, 1962, we examined every unocial amendment which had been made by any one of the 18 states and either recommended it for uniform adoption by all American jurisdictions or rejected it and gave the reasons for our action. The rejected amendments appeared at pages 65 to 135, inclusive, of our Report No. 1.1 Subsequent to October 31, 1962, 12 jurisdictions have enacted the Code. With the exception of Nebraska, each of these states used the 1962 Ocial Text of the Code as the basis for its Code bill. And the 1962 Ocial Text was the 1958 Ocial Text, plus the 1962 amendments promulgated by this Board in its Report No. 1 with the approval of the Executive Committees of both of your organizations. We had hoped that our Report No. 1 would serve to minimize amendments to the Code by jurisdictions which would enact it subsequent to our report. While our report may have had some eect in this direction, we are sorry to say that again far too many unocial amendments were enacted. In this report we have repeated our objections to the amendments made to Codes enacted prior to October 31, 1962, and, in addition, have examined all new, unocial amendments made in the 30 jurisdictions which have enacted the Code to date. None of the unocial variations is such an improvement over the 1962 Ocial Text of the Code as to lead the Board to recommend it at this time. Therefore, for the 1965 session of legislatures1

These amendments have been omitted because of space limitations. xv

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the 1962 Text of the Code will continue to be the Ocial Text. In the following pages we are dealing with every nonocial amendment to the Code.2 We are quoting the text, showing in what state or states the unocial modication has been made and stating our objection. We do hope that this report will serve to promote uniformity of statutory law governing commercial transactions by preventing states which have not yet enacted the Code from marring the eciency and purpose of their Codes by making unocial amendments, and by encouraging the jurisdictions whose Codes are not really uniform to clean them up by repealing the non-uniform amendments. Lest the position of the Board be misunderstood, it may be worthwhile to say that the Board does not take the position that the 1962 Ocial Text is the last word and that the Code may not be improved as experience under its provisions develops. In due time, the Board intends to make a comprehensive examination of the Code from beginning to end. But experience has taught those interested in the uniformity of our statutory law that it has been much easier to get uniform laws on the books in the rst instance than it has been to interest legislatures in bringing them up to date by amendment. Uniformity of commercial law was the impelling goal of those who worked hard and long for the preparation of the Code and any future revision must, before its promulgation, be appraised from the standpoint of the likelihood of its prompt acceptance by all of the jurisdictions then operating under the Code. Amendments should be the result of experience rather than of theory. It is an interesting fact that in Pennsylvania, which stands high in commercial importance among the states, the Code has been in eect for more than ten years, with never more than one unocial substantive amendment at any one time, and that the Permanent Editorial Board never heard of any request from any segment of business, nance or industry in Pennsylvania to amend any section of the Code. October 31, 1964 Paul A. Wolkin, Secretary 101 North 33rd Street Philadelphia, Pa. 19104. Respectfully submitted, Wm. A. Schnader, Pennsylvania, Chairman Joe C. Barrett, Arkansas Francis M. Bird, Georgia Willoughby A. Colby, New Hampshire Albert E. Jenner, Jr., Illinois John W. MacDonald, New York Walter D. Malcolm, Massachusetts Ross L. Maloney New Mexico

2

This materials has been omitted because of space limitations.

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Report No. 2

Maurice H. Merrill, Oklahoma George R. Richter, Jr., California Herbert Wechsler, Pennsylvania

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REPORT NO. 3OF THE PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE December 15, 1966 To the American Law Institute and the National Conference of Commissioners on Uniform State Laws: The last report of this Board [Report No. 2] was made on October 31,1964, at which time 29 states and one jurisdiction (the District of Columbia) had enacted the Uniform Commercial Code. Since that time up to the date of this report, additional states and jurisdictions have enacted the Code to bring the total enactments up to 49. Only three statesArizona, Idaho and Louisianahave not as yet enacted the Code, and two other American jurisdictionsGuam and Puerto Ricohave its enactment under consideration. Since 1964 our Board has had two meetings, both in Philadelphia. The rst was on January 14 and 15, 1966 and the second on November 11 and 12, 1966. At both 1966 meetings the Board received reports from Subcommittees Nos. 1, 2 and 3 to which had been assigned the task of studying and making recommendations on the many, many non-uniform amendments which had been made to the Code as it was enacted jurisdiction by jurisdiction. Three amendments were approvedamendments to Sections 2702, 3501 and 7209. The rst of these amendments has been adopted by California, Connecticut, Illinois, Maine, New Jersey, New Mexico and New York, the second by Iowa and the third by California. They are published herein with the amendment of the 1962 Ocial Comments which changes in the text require. We also considered an amendment added as a new Section 1209 to the New York Uniform Commercial Code. It was the feeling of the Board that this amendment is not necessary, but that it was completely harmless and that if any states other than New York desired to add it to their Codes, they should have the blessing of the Permanent Editorial Board in doing so. Therefore, it is promulgated as a new optional section with appropriate Ocial Comment. The Board also felt that Section 2318, which has been nonuniformly amended in a number of states and entirely omitted in California and Utah, is a section not requiring uniformity throughout all American jurisdictions. Therefore, the Board is designating the present Section 2318 as an Alternative A and is promulgating two alternativesAlternative B and Alternative Cwhich states desiring warranties to have a broader impact may adopt if they choose. Also, the Board is promulgating optional amendments to Sections 9105 and 9106 which will enable states having nautical contacts to amend their Codes to make it clear that a ship charter is not chattel paperxix

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but that all rights earned or unearned under a charter or other contract involving the use or hire of a vessel are contract rights and neither accounts nor general intangibles. All of these amendments and optional amendments follow in the ensuing text. A number of suggested amendments to Article 9 were discussed at the January meeting without denite decisions. This was due to some extent to the fact that the various people who wanted to see changes in certain sections of the Article were by no means agreed as to how the sections should be changed. By the time the November meeting was held, 337 nonuniform, non ocial amendments had been made to the various sections of Article 9. Some sections had been amended by as many as 30 jurisdictions, each jurisdiction writing its own amendment without regard to the amendments made by other jurisdictions and, of course, without regard to the Ocial Text. 47 of the 54 Sections of Article 9 had been non-uniformly amended. In view of this distressing situation and in view also of the fact that various practicing lawyers and law teachers have written articles or textbooks pointing out certain respects in which Article 9 might be improved, the Board decided that the time had arrived for a restudy in depth of Article 9 on Secured Transactions. It must be remembered that the Code has been in operation since July 1, 1954, so that a really impressive body of experience has been built up under which to make this restudy in depth. A special Article 9 Review Committee was appointed. It consists of Professor Herbert Wechsler, Director of The American Law Institute as Chairman, Joe C. Barrett, a practicing lawyer, of Jonesboro, Arkansas, Carl W. Funk, a practicing lawyer, of Philadelphia, the Honorable John S. Hastings, Chief Judge of the United States Court of Appeals for the Seventh Circuit, Robert Haydock, Jr., a practicing lawyer, of Boston, Ray D. Henson, a practicing lawyer, of Chicago, Professor Harold Marsh, Jr. of the University of California Law School at Los Angeles, William Curtis Pierce, a practicing lawyer, of New York, Professor Millard H. Ruud of the University of Texas Law School and the Honorable Sterry R. Waterman, Judge of the United States Court of Appeals for the Second Circuit. The Research and Reportorial Sta for the Committee will be Professor Robert Braucher of the Harvard University Law School, Reporter; Professor Homer Kripke of the New York University Law School, Associate Reporter; and Professor Soia Mentschiko of the University of Chicago Law School, Associate Reporter ex ocio. To raise the additional funds which will be required for this work, Mr. Howard C. Petersen of Philadelphia has been appointed Chairman of a Ways and Means Committee. In,view of the appointment of the Article 9 Review Committee, two of the Subcommittees of the Board were relieved of their duties for the presentSubcommittee No. 3 and the Reportorial Committee. For their past services the Board expresses to them its gratitude and appreciation.xx

Report No. 3

A large part of this volume [Report No. 3] is devoted to the publication of new, nonuniform amendments1 adopted subsequent to our Report No. 2. In cases where another state has simply copied a non-uniform amendment which the Board has previously rejected, we merely refer to the page of Report No. 2 where the Boards reasons for rejection will be found. However, in cases where new, non-uniform amendments have been inserted in the Code, we are quoting the non-uniform amendment and giving our reasons for rejection. Finally, the Board received from certain individuals and organizations suggestions for amendment of certain sections of the Code. Its Subcommittees considered these suggestions and did not nd any basis for uniform amendment in any of the proposals relating to the rst eight Articles of the Code. The Board approved the Subcommittees recommendations. As to suggestions coming to the Board for the amendment of provisions of Article 9 of the Code, all of these recommendations were referred to the special Article 9 Review Committee for study and report. December 15, 1966 Paul A. Wolkin, Respectfully submitted, Secretary Wm. A. Schnader, 101 North 33rd Street Pennsylvania, Philadelphia, Pa. 19104 Chairman Consultant Joe C. Barrett, Soia Mentschiko Arkansas Illinois F. M. Bird, Georgia James C. Dezendorf, Oregon Albert E. Jenner, Jr., Illinois John W. MacDonald, New York Walter D. Malcolm, Massachusetts Maurice H. Merrill, Oklahoma Alfred M. Pence, Wyoming George R. Richter, Jr., California Herbert Wechsler, New York Alternates J. Francis Ireton, Maryland William J. Pierce, Michigan1

This portion of Report No. 3 has been omitted because of space limitations. xxi

ACKNOWLEDGMENT UNIFORM COMMERCIAL CODE OFFICIAL TEXT AND COMMENTSAcknowledgment is gratefully made to The American Law Institute and to the National Conference of Commissioners on Uniform State Laws for permission to reproduce the Ocial Text and Comments for the Uniform Commercial Code. The Publisher December 2010

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Summary of ContentsARTICLE 1 GENERAL PROVISIONS ................................ ARTICLE 2 SALES ......................................................... ARTICLE 2A LEASES .................................................... ARTICLE 3 NEGOTIABLE INSTRUMENTS ....................... ARTICLE 4 BANK DEPOSITS AND COLLECTIONS ........... ARTICLE 4A FUNDS TRANSFERS ................................... ARTICLE 5 LETTERS OF CREDIT ...................................9 50 200 312 432 484 552

REPEALER OF ARTICLE 6 BULK TRANSFERS AND [REVISED] ARTICLE 6 BULK SALES(STATES TO SELECT ONE ALTERNATIVE).............................................................. 590 ARTICLE 7 DOCUMENTS OF TITLE ................................ ARTICLE 8 INVESTMENT SECURITIES ........................... ARTICLE 9 SECURED TRANSACTIONS ........................... ARTICLE 10 EFFECTIVE DATE AND REPEALER ............. ARTICLE 11 EFFECTIVE DATE AND TRANSITION PROVISIONS ................................................................. APPENDIX A PEB COMMENTARIES ON THE UNIFORM COMMERCIAL CODE .....................................................621 707 819 1139

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APPENDIX B 1972 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 9, SECURED TRANSACTIONS, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1249 APPENDIX C 1977 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 8, INVESTMENT SECURITIES, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1338 APPENDIX D ARTICLE 1 AND ARTICLE 9: 1987 CONFORMING AMENDMENTS [CONFORMING TO ARTICLE 2A] ............. 1398xxv

APPENDIX E PRE-REVISION ARTICLE 6 ........................ APPENDIX F 1990 AMENDMENTS TO ARTICLE 2A .......... APPENDIX G PRE-REVISION ARTICLE 3 ........................

1403 1414 1475

APPENDIX H 1990 ARTICLE 1 AMENDMENTS CONFORMING TO REVISED ARTICLE 3 ...................................................... 1571 APPENDIX I 1990 CONFORMING [TO REVISED ARTICLE 3] AND MISCELLANEOUS AMENDMENTS TO ARTICLE 4 ............ 1574 APPENDIX J 1994 AMENDMENTS TO UNIFORM COMMERCIAL 1604 CODE ............................................................................ APPENDIX K 1994 AND 1995 AMENDMENTS TO ARTICLES 1, 3, 4, 5, 9, AND 10 CONFORMING TO 1994 REVISION OF ARTICLE 8 ................................................................................... 1616 APPENDIX L PRE-REVISION ARTICLE 8.........................1641

APPENDIX M 1995 AMENDMENTS TO ARTICLES 1, 2, AND 9 CONFORMING TO REVISED ARTICLE 5 .......................... 1714 APPENDIX N PRE-REVISION ARTICLE 5 ........................ APPENDIX O PRE-REVISION ARTICLE 9 ........................ APPENDIX P PRE-REVISION ARTICLE 1 ........................ APPENDIX Q 2002 AMENDMENTS TO ARTICLES 3 AND 4 ................................................................................... APPENDIX R PRE-REVISION ARTICLE 7 ........................ APPENDIX S [RESERVED] ............................................. APPENDIX T 2003 AMENDMENTS TO ARTICLE 2 ............ APPENDIX U 2003 AMENDMENTS TO ARTICLE 2A ..........1718 1739 1864

1889 1924 1966 1967 2049

APPENDIX V 2005 AMENDMENTS TO UNIFORM COMMERCIAL CODE AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .......................................... 2102 APPENDIX W 2006 OFFICIAL COMMENT CORRECTIONS TO UNIFORM COMMERCIAL CODE AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE ....... 2110

xxvi

Summary of Contents

APPENDIX X 2008 AMENDMENT TO UNIFORM COMMERCIAL CODE REVISED ARTICLE 1 AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .................. 2112 APPENDIX Y ARTICLE 2 SALES [1995] ............................ Index2119

xxvii

Table of ContentsUNIFORM COMMERCIAL CODE GENERAL COMMENT OF NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .......................................... ARTICLE 1 GENERAL PROVISIONS ................................

2 9

DRAFTING COMMITTEE TO REVISE UNIFORM COMMERCIAL 10 CODE ARTICLE 1GENERAL PROVISIONS ..................... PART 1. GENERAL PROVISIONS .................................... 1-101 1-102 1-103 1-104 1-105 1-106 1-107 1-108 Short Titles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction of [Uniform Commercial Code] to Promote Its Purposes and Policies; Applicability of Supplemental Principles of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction Against Implied Repeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Singular and Plural; Gender.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section Captions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relation to Electronic Signatures in Global and National Commerce Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 11 11 13 13 13 14 14

PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION ......................................................... 1-201 1-202 1-203 1-204 1-205 1-206 General Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice; Knowledge.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Distinguished From Security Interest. . . . . . . . . . . . . . . . . . . . . . . Value.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reasonable Time; Seasonableness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 14 22 23 26 27 27

PART 3. TERRITORIAL APPLICABILITY AND GENERAL RULES .......................................................................... 1-301 1-302 1-303 1-304 1-305 1-306 1-307 1-308 Territorial Applicability; Parties' Power to Choose Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variation by Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Course of Performance, Course of Dealing, and Usage of Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies to Be Liberally Administered. . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver or Renunciation of Claim or Right After Breach. . . . . . . . . Prima Facie Evidence by Third-Party Documents.. . . . . . . . . . . . . . . . Performance or Acceptance Under Reservation of Rights. . . . . . . .

28 28 29 30 32 33 33 34 34xxix

1-309 1-310

Option to Accelerate at Will.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subordinated Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35 35 36 50 53 53 53 54 58 59 61 62 63

APPENDIX I. CONFORMING AMENDMENTS TO OTHER ARTICLES ..................................................................... ARTICLE 2 SALES ......................................................... PART 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER ........................................................ 2-101 2-102 2-103 2-104 2-105 2-106 2-107 2-108 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope; Certain Security and Other Transactions Excluded from this Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Merchant; Between Merchants; Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Transferability; Future Goods; Lot; Commercial Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Contract; Agreement; Contract for Sale; Sale; Present Sale; Conforming to Contract; Termination; Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goods to Be Severed from Realty: Recording. . . . . . . . . . . . . . . . . . . . . . Transactions Subject to Other Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 2. FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING...................... 65 2-201 2-202 2-203 2-204 2-205 2-206 2-207 2-208 2-209 2-210 2-211 Formal Requirements; Statute of Frauds.. . . . . . . . . . . . . . . . . . . . . . . . . . Final Expression in a Record: Parol or Extrinsic Evidence.. . . . . . Seals Inoperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formation in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Firm Oers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oer and Acceptance in Formation of Contract. . . . . . . . . . . . . . . . . . . Terms of Contract; Eect of Conrmation.. . . . . . . . . . . . . . . . . . . . . . . . . Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Modication; Rescission and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delegation of Performance; Assignment of Rights.. . . . . . . . . . . . . . . . Legal Recognition of Electronic Contracts, Records, and Signatures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronic Communication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 68 69 70 71 73 74 75 75 77 79 80 81

2-212 2-213

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT.................................................................... 2-301 2-302 2-303 2-304 2-305 2-306 General Obligations of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconscionable Contract or Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocation or Division of Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price Payable in Money, Goods, Realty, or Otherwise. . . . . . . . . . . . . Open Price Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Output, Requirements and Exclusive Dealings.. . . . . . . . . . . . . . . . . . . .

82 82 82 83 83 84 86

xxx

Table of Contents Delivery in Single Lot or Several Lots. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specied Place for Delivery.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specic Time Provisions; Notice of Termination. . . . . . Open Time for Payment or Running of Credit; Authority to Ship under Reservation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-311 Options and Cooperation Respecting Performance.. . . . . . . . . . . . . . . . 2-312 Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-313 Express Warranties by Armation, Promise, Description, Sample; Remedial Promise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-313A Obligation to Remote Purchaser Created by Record Packaged with or Accompanying Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-313B Obligation to Remote Purchaser Created by Communication to the Public. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-314 Implied Warranty: Merchantability; Usage of Trade. . . . . . . . . . . . . . 2-315 Implied Warranty: Fitness for Particular Purpose. . . . . . . . . . . . . . . . . 2-316 Exclusion or Modication of Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-317 Cumulation and Conict of Warranties Express or Implied. . . . . . 2-318 Third-Party Beneciaries of Warranties and Obligations. . . . . . . . . 2-319 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-320 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-321 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-322 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-323 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-324 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-325 Failure to Pay by Agreed Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 2-326 Sale on Approval and Sale or Return.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-327 Special Incidents of Sale on Approval and Sale or Return. . . . . . . . 2-328 Sale by Auction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-307 2-308 2-309 2-310 87 88 89 91 92 94 96 99 102 104 107 108 111 112 113 114 114 114 114 114 114 114 116 117

PART 4. TITLE, CREDITORS, AND GOOD-FAITH PURCHASERS................................................................ 2-401 2-402 2-403 Passing of Title; Reservation for Security; Limited Application of this Section.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Seller's Creditors Against Sold Goods. . . . . . . . . . . . . . . . . . . Power to Transfer; Good Faith Purchase of Goods; Entrusting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

118 118 120 121 123 123 125 126 128 130 131 133 134 136

PART 5. PERFORMANCE ............................................... 2-501 2-502 2-503 2-504 2-505 2-506 2-507 2-508 2-509 Insurable Interest in Goods; Manner of Identication of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Goods on Seller's Insolvency, Repudiation, or Failure to Deliver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manner of Seller's Tender of Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipment by Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Shipment under Reservation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Seller's Tender; Delivery on Condition. . . . . . . . . . . . . . . . . . . Cure by Seller of Improper Tender or Delivery; Replacement. . . Risk of Loss in the Absence of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xxxi

2-510 2-511 2-512 2-513 2-514

2-515

Eect of Breach on Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tender of Payment by Buyer; Payment by Check. . . . . . . . . . . . . . . . . Payment by Buyer Before Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Inspection of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Documents Deliverable on Acceptance; When on Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preserving Evidence of Goods in Dispute.. . . . . . . . . . . . . . . . . . . . . . . . . .

137 138 139 140 143 143 144 144 145 146 148 148 150 151 154 156 159 160 161 163 164 165 168 169 169 169 170 172 172 174 177 178 180 181 182 183 185 186 187 188 190 190 192

PART 6. BREACH, REPUDIATION, AND EXCUSE ............. 2-601 2-602 2-603 2-604 2-605 2-606 2-607 2-608 2-609 2-610 2-611 2-612 2-613 2-614 2-615 2-616 Buyer's Rights on Improper Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manner and Eect of Rejection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchant Buyer's Duties as to Rejected Goods. . . . . . . . . . . . . . . . . . . . Buyer's Options as to Salvage of Rejected Goods. . . . . . . . . . . . . . . . . . Waiver of Buyer's Objections by Failure to Particularize.. . . . . . . . What Constitutes Acceptance of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Acceptance; Notice of Breach; Burden of Establishing Breach after Acceptance; Notice of Claim or Litigation to Person Answerable Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revocation of Acceptance in Whole or in Part. . . . . . . . . . . . . . . . . . . . . Right to Adequate Assurance of Performance.. . . . . . . . . . . . . . . . . . . . . Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retraction of Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Installment Contract; Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Casualty to Identied Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substituted Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excuse by Failure of Presupposed Conditions. . . . . . . . . . . . . . . . . . . . . Procedure on Notice Claiming Excuse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 7. REMEDIES ....................................................... 2-701 2-702 2-703 2-704 2-705 2-706 2-707 2-708 2-709 2-710 2-711 2-712 2-713 2-714 2-715 2-716 2-717 2-718 2-719 2-720 Remedies for Breach of Collateral Contracts Not Impaired. . . . . . Seller's Remedies on Discovery of Buyer's Insolvency.. . . . . . . . . . . . Seller's Remedies in General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unnished Goods. . . . . . . . Seller's Stoppage of Delivery in Transit or Otherwise. . . . . . . . . . . . Seller's Resale Including Contract for Resale. . . . . . . . . . . . . . . . . . . . . . Person in the Position of a Seller.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Damages for Nonacceptance or Repudiation. . . . . . . . . . . . . . Action for the Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . . Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover; Buyer's Procurement of Substitute Goods.. . . . . . . . . . . . . . . Buyer's Damages for Nondelivery or Repudiation. . . . . . . . . . . . . . . . . Buyer's Damages For Breach in Regard to Accepted Goods.. . . . . Buyer's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . . Specic Performance; Buyer's Right to Replevin. . . . . . . . . . . . . . . . . . Deduction of Damages from the Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidation or Limitation of Damages; Deposits. . . . . . . . . . . . . . . . . . Contractual Modication or Limitation of Remedy. . . . . . . . . . . . . . . . Eect of Cancellation or Rescission on Claims for

xxxii

Table of Contents Antecedent Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies for Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Who May Sue Third Parties for Injury to Goods. . . . . . . . . . . . . . . . . . Proof of Market: Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Admissibility of Market Quotations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations in Contracts for Sale. . . . . . . . . . . . . . . . . . . . . . . 193 193 194 194 195 196 199 199 199 199 199 200 202 202 206 207 215 217 218 219 219 220

2-721 2-722 2-723 2-724 2-725

PART 8. TRANSITIONAL PROVISIONS ........................... 2-801 2-802 2-803 2-804 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment of Existing Article 2.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Application to Existing Relations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 2A LEASES .................................................... PART 1. GENERAL PROVISIONS .................................... 2A-101 2A-102 2A-103 2A-104 2A-105 Short Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leases Subject to Other Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Territorial Application of Article to Goods Covered by Certicate of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitation on Power of Parties to Consumer Lease to Choose Applicable Law and Judicial Forum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver or Renunciation of Claim or Right after Default. . . . . . . . . . Unconscionability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option to Accelerate at Will. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2A-106 2A-107 2A-108 2A-109

PART 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT; ELECTRONIC CONTRACTING...................... 2A-201 2A-202 2A-203 2A-204 2A-205 2A-206 2A-207 2A-208 2A-209 2A-210 2A-211 2A-212 2A-213 2A-214 2A-215 2A-216 2A-217 2A-218 Statute of Frauds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final Expression in a Record: Parol or Extrinsic Evidence. . . . . . . Seals Inoperative.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formation in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Firm Oers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oer and Acceptance in Formation of Lease Contract. . . . . . . . . . . . [Reserved.] [Course of Performance or Practical Construction] . . Modication, Rescission and Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessee under Finance Lease as Beneciary of Supply Contract. . Express Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties Against Interference and Against Infringement; Lessee's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . . . Implied Warranty of Merchantability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implied Warranty of Fitness for Particular Purpose.. . . . . . . . . . . . . . Exclusion or Modication of Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulation and Conict of Warranties Express or Implied. . . . . . Third-party Beneciaries of Express and Implied Warranties.. . . Identication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance and Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

221 221 223 223 224 225 225 225 226 227 229 229 231 233 234 236 236 238 238

xxxiii

Risk of Loss.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Default on Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Casualty to Identied Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Recognition of Electronic Contracts, Records and Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-223 Attribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-224 Electronic Communication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2A-219 2A-220 2A-221 2A-222

239 240 241 241 242 244 244 244 247 247 251 253 254 255 256 257 260 262

PART 3. EFFECT OF LEASE CONTRACT ......................... 2A-301 Enforceability Of Lease Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-302 Title to and Possession of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-303 Alienability of Party's Interest under Lease Contract or of Lessor's Residual Interest in Goods; Delegation of Performance; Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-304 Subsequent Lease of Goods by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-305 Sale or Sublease of Goods by Lessee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-306 Priority of Certain Liens Arising by Operation of Law. . . . . . . . . . . . 2A-307 Priority of Liens Arising by Attachment or Levy On, Security Interests In, and Other Claims to Goods. . . . . . . . . . . . . . . . . . . . . . . . . 2A-308 Special Rights of Creditors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-309 Lessor's and Lessee's Rights When Goods Become Fixtures. . . . . . 2A-310 Lessor's and Lessee's Rights When Goods Become Accessions. . . 2A-311 Priority Subject to Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 4. PERFORMANCE OF LEASE CONTRACT: REPUDIATED, SUBSTITUTED AND EXCUSED........................................ 263 2A-401 2A-402 2A-403 2A-404 2A-405 2A-406 2A-407 Insecurity: Adequate Assurance of Performance. . . . . . . . . . . . . . . . . . . Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retraction of Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substituted Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure on Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrevocable Promises: Finance Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 263 264 265 265 266 267 269 269 269 270 271 272 274 274 275 276

PART 5. DEFAULT......................................................... A IN GENERAL .............................................................. Default: Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice after Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Modication or Impairment of Rights and Remedies. . . . . . . . . . . . Liquidation of Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation and Termination and Eect of Cancellation, Termination, Rescission, or Fraud on Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-506 Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-507 Proof of Market Rent: Time and Place.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-507A Right to Specic Performance or Replevin or the Like. . . . . . . . . . 2A-501 2A-502 2A-503 2A-504 2A-505

B DEFAULT BY LESSOR .................................................

xxxiv

Table of Contents 277 277 280 281 282 283 283 284 285 286 288 290 292 293 294 294 295 295 299 300 301 302 305 306 309 310 310 311 311 311 311 311

2A-508 Lessee's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-509 Lessee's Rights on Improper Delivery; Manner and Eect of Rejection.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-510 Installment Lease Contracts: Rejection and Default.. . . . . . . . . . . . . . 2A-511 Merchant Lessee's Duties as to Rejected Goods. . . . . . . . . . . . . . . . . . . . 2A-512 Lessee's Duties as to Rejected Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-513 Cure by Lessor of Improper Tender or Delivery; Replacement. . . 2A-514 Waiver of Lessee's Objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-515 Acceptance of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-516 Eect of Acceptance of Goods; Notice of Default; Burden of Establishing Default after Acceptance; Notice of Claim or Litigation to Person Answerable Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-517 Revocation of Acceptance of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-518 Cover; Substitute Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-519 Lessee's Damages for Non-delivery, Repudiation, Default, and Breach of Warranty in Regard to Accepted Goods.. . . . . . . . . . . . . . 2A-520 Lessee's Incidental and Consequential Damages.. . . . . . . . . . . . . . . . . . 2A-521 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-522 Lessee's Right to Goods on Lessor's Insolvency. . . . . . . . . . . . . . . . . . . .

C DEFAULT BY LESSEE ................................................. 2A-523 2A-524 2A-525 2A-526 2A-527 2A-528 2A-529 2A-530 2A-531 2A-532 Lessor's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Right to Identify Goods to Lease Contract. . . . . . . . . . . . . . . . Lessor's Right to Possession of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Stoppage of Delivery in Transit or Otherwise. . . . . . . . . . . . Lessor's Rights to Dispose of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Damages for Non-acceptance, Failure to Pay, Repudiation, or Other Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Action for the Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . . Standing to Sue Third Parties for Injury to Goods.. . . . . . . . . . . . . . . . Lessor's Rights to Residual Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 6. TRANSITIONAL PROVISIONS ........................... 2A-601 2A-602 2A-603 2A-604 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment of Existing Article 2A.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX I. CONFORMING AMENDMENT TO ARTICLE 1 ................................................................................... ARTICLE 3 NEGOTIABLE INSTRUMENTS .......................

311 312

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ................................................................. 314 TABLE OF DISPOSITION OF SECTIONS IN FORMER ARTICLE 3 ................................................................................... 319 PART 1. GENERAL PROVISIONS AND DEFINITIONS .......

xxxv

325 3-101 3-102 3-103 3-104 3-105 3-106 3-107 3-108 3-109 3-110 3-111 3-112 3-113 3-114 3-115 3-116 3-117 3-118 3-119 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subject Matter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiable Instrument.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issue of Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconditional Promise or Order.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instrument Payable in Foreign Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable on Demand or at Denite Time.. . . . . . . . . . . . . . . . . . . . . . . . . . . Payable to Bearer or to Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identication of Person to Whom Instrument Is Payable.. . . . . . . . Place of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of Instrument.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contradictory Terms of Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incomplete Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint and Several Liability; Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . Other Agreements Aecting Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice of Right to Defend Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 325 327 331 334 334 336 337 337 338 341 341 341 342 342 343 343 344 346

PART 2. NEGOTIATION, TRANSFER, AND INDORSEMENT ............................................................. 3-201 3-202 3-203 3-204 3-205 Negotiation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiation Subject to Rescission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of Instrument; Rights Acquired by Transfer. . . . . . . . . . . . Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Indorsement; Blank Indorsement; Anomalous Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictive Indorsement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reacquisition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

347 347 347 348 350 352 353 355 356 356 356 360 362 363 368 368 370 372 373 375 379 383 383

3-206 3-207

PART 3. ENFORCEMENT OF INSTRUMENTS .................. 3-301 3-302 3-303 3-304 3-305 3-306 3-307 3-308 3-309 3-310 3-311 3-312 Person Entitled to Enforce Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holder in Due Course.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value and Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overdue Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defenses and Claims in Recoupment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims to an Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice of Breach of Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proof of Signatures and Status as Holder in Due Course. . . . . . . . Enforcement of Lost, Destroyed, or Stolen Instrument. . . . . . . . . . . Eect of Instrument on Obligation for Which Taken.. . . . . . . . . . . . . Accord and Satisfaction by Use of Instrument. . . . . . . . . . . . . . . . . . . . . Lost, Destroyed, or Stolen Cashier's Check, Teller's Check, or Certied Check. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 4. LIABILITY OF PARTIES .................................... 3-401 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xxxvi

Table of Contents 3-402 3-403 3-404 3-405 Signature by Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unauthorized Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impostors; Fictitious Payees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer's Responsibility for Fraudulent Indorsement by Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negligence Contributing to Forged Signature or Alteration of Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alteration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Drawee Not Liable on Unaccepted Draft. . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptance of Draft; Certied Check.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptance Varying Draft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Refusal to Pay Cashier's Checks, Teller's Checks, and Certied Checks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Issuer of Note or Cashier's Check. . . . . . . . . . . . . . . . . . . Obligation of Acceptor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Drawer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Indorser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presentment Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment or Acceptance by Mistake. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruments Signed for Accommodation. . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 385 386 390 393 395 396 396 397 397 398 399 400 401 402 404 407 409 411 414 414 415 418 418 419 420 420 420 422 422 423 432 433 433 434 435 438 441 442 443 444

3-406 3-407 3-408 3-409 3-410 3-411 3-412 3-413 3-414 3-415 3-416 3-417 3-418 3-419 3-420

PART 5. DISHONOR ...................................................... 3-501 3-502 3-503 3-504 3-505 Presentment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dishonor.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice of Dishonor.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excused Presentment and Notice of Dishonor. . . . . . . . . . . . . . . . . . . . . Evidence of Dishonor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 6. DISCHARGE AND PAYMENT ............................. 3-601 3-602 3-603 3-604 3-605 Discharge and Eect of Discharge.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tender of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discharge by Cancellation or Renunciation. . . . . . . . . . . . . . . . . . . . . . . . Discharge of Secondary Obligors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 4 BANK DEPOSITS AND COLLECTIONS ........... PART 1. GENERAL PROVISIONS AND DEFINITIONS ....... 4-101 4-102 4-103 4-104 4-105 4-106 4-107 4-108 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variation by Agreement; Measure of Damages; Action Constituting Ordinary Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions of Types of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable Through or Payable at Bank: Collecting Bank.. . . . . . . . . . Separate Oce of Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time of Receipt of Items.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xxxvii

4-109 4-110 4-111

Delays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronic Presentment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

445 445 446

PART 2. COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS ..................................................... 4-201 4-202 4-203 4-204 4-205 4-206 4-207 4-208 4-209 4-210 Status of Collecting Bank as Agent and Provisional Status of Credits; Applicability of Article; Item Indorsed Pay Any Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Responsibility for Collection or Return; When Action Timely. . . . Eect of Instructions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Methods of Sending and Presenting; Sending Directly to Payor Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depositary Bank Holder of Unindorsed Item. . . . . . . . . . . . . . . . . . . . . . Transfer Between Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presentment Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Encoding and Retention Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interest of Collecting Bank in Items, Accompanying Documents and Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Bank Gives Value for Purposes of Holder in Due Course. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presentment by Notice of Item Not Payable by, Through, or at Bank; Liability of Drawer or Indorser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medium and Time of Settlement by Bank.. . . . . . . . . . . . . . . . . . . . . . . . . Right of Charge-Back or Refund; Liability of Collecting Bank: Return of Item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final Payment of Item by Payor Bank; When Provisional Debits and Credits Become Final; When Certain Credits Become Available for Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insolvency and Preference.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

447

447 449 450 451 452 452 453 454 455 456 457 457 458 459 461 465 466 466 468 469

4-211 4-212 4-213 4-214 4-215 4-216

PART 3. COLLECTION OF ITEMS: PAYOR BANKS ........... 4-301 4-302 4-303 Deferred Posting; Recovery of Payment by Return of Items; Time of Dishonor; Return of Items by Payor Bank. . . . . . . . . . . . . . . . Payor Bank's Responsibility for Late Return of Item. . . . . . . . . . . . . When Items Subject to Notice, Stop-Payment Order, Legal Process, or Seto; Order in Which Items May Be Charged or Certied. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 4. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER ................................................................... 4-401 4-402 4-403 4-404 4-405 4-406 When Bank May Charge Customer's Account. . . . . . . . . . . . . . . . . . . . . Bank's Liability to Customer for Wrongful Dishonor; Time of Determining Insuciency of Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer's Right to Stop Payment; Burden of Proof of Loss.. . . . Bank Not Obliged to Pay Check More Than Six Months Old. . . . Death or Incompetence of Customer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer's Duty to Discover and Report Unauthorized

471 471 472 473 475 475

xxxviii

Table of Contents Signature or Alteration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payor Bank's Right to Subrogation on Improper Payment. . . . . . . 476 480 481 481 481 482 482 484

4-407

PART 5. COLLECTION OF DOCUMENTARY DRAFTS ....... 4-501 4-502 4-503 4-504 Handling of Documentary Drafts; Duty to Send for Presentment and to Notify Customer of Dishonor.. . . . . . . . . . . . . . . . Presentment of On Arrival Drafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Responsibility of Presenting Bank for Documents and Goods; Report of Reasons for Dishonor; Referee in Case of Need. . . . . . . . Privilege of Presenting Bank to Deal With Goods; Security Interest for Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 4A FUNDS TRANSFERS ...................................

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ................................................................ 486 PART 1. SUBJECT MATTER AND DEFINITIONS .............. 4A-101 4A-102 4A-103 4A-104 4A-105 4A-106 4A-107 4A-108 Short Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subject Matter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment OrderDenitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds TransferDenitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time Payment Order Is Received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Regulations and Operating Circulars. . . . . . . . . . . . Exclusion of Consumer Transactions Governed by Federal Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 492 492 493 493 497 499 500 501

PART 2. ISSUE AND ACCEPTANCE OF PAYMENT ORDER .......................................................................... 4A-201 4A-202 4A-203 4A-204 Security Procedure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authorized and Veried Payment Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . Unenforceability of Certain Veried Payment Orders. . . . . . . . . . . . . Refund of Payment and Duty of Customer to Report With Respect to Unauthorized Payment Order.. . . . . . . . . . . . . . . . . . . . . . . . Erroneous Payment Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transmission of Payment Order Through Funds-Transfer or Other Communication System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Misdescription of Beneciary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Misdescription of Intermediary Bank or Beneciary's Bank. . . . . . Acceptance of Payment Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rejection of Payment Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation and Amendment of Payment Order. . . . . . . . . . . . . . . . . . Liability and Duty of Receiving Bank Regarding Unaccepted Payment Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

502 502 502 503 507 508 510 511 514 516 520 522 526

4A-205 4A-206 4A-207 4A-208 4A-209 4A-210 4A-211 4A-212

PART 3. EXECUTION OF SENDER'S PAYMENT ORDER BY RECEIVING BANK .........................................................

526

xxxix

Execution and Execution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligations of Receiving Bank in Execution of Payment Order. . Erroneous Execution of Payment Order.. . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Sender to Report Erroneously Executed Payment Order.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-305 Liability for Late or Improper Execution or Failure to Execute Payment Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4A-301 4A-302 4A-303 4A-304

526 527 530 531 531 534 534 534 536 537 539 541 543 543 544 546 546 547 547 548 552 552 557 559 560 564 566 566 566 568 569 574 577 577 580 581 582 583

PART 4. PAYMENT ................