PAGENO="0001" UNIFORM ~~F~ERC~AL COD~1 ~Y FING SUBCOMMITTEE 5 OF TUS COMMITTEE ON THE DISTRICT OF COLTJMBIA HOUSE OF REPRESENTATIVES EIGHTY-EIGHTI]I CONGRESS FIRST SESSION ON H0R0 5338 TO ENACT TIlE UNIFORM COMIERCIAL COI)E FOR TIlE DISTRICT OF COLUMBIA, AND FOR OThER PURPOSES APRIL 11, 1963 Printed for the use of the Committee on the District of Columbia R Ti~ ER~ L~~'V SCHOG L Fi [t~[~f J, O81CJ~ C ~ ~ ~ ~ (f~1 7.;~ ~ U.S. GOVERNMENT PRR~TING OFFICE 30-151 WASHINGTON: 1964 PAGENO="0002" HOUSE COMMITTEE OX THE DISTRICT OF COLUMBIA JOHN L. McMILLAN, THOMAS G. ABERNETHY, Mississippi HOWARD W. SMITH. Virginia WILLIAM L. DAWSON, Illinois JOHN BELL WILLIAMS, Mississippi ABRAHAM J. MELTER, New York JOHN DOWDY, Texas GEORGE HUDDLESTON, JR., Alabama BASIL L. WHITENER, North Carolina JEFFERY COHELAN, California FERNAND J. ST GERMAIN, Rhode Island JAMES W. TRIMBLE, Arkansas B. F. SISK. California CHARLES C. DIGGS, JR., Michigan G. ELLIOTT HAGAN, Georgia South Carolina, Chairman JOEL BROYHILL, Virginia JAMES C. AUCHINCLOSS. New Jersey WILLIAM L. SPRINGER, Illinois ANCHER NELSEN, Minnesota ALVIN E. OKOYSKI. Wisconsin WILLIAM H. HARSHA, Ohio CHARLES McC. MATHIAS, Jn., Maryland FRED SCHWENGEL. Iowa FRANK J. HORTON, New York RICHARD L. ROUDEBL~SH, Indiana JAMES T. CLARK, Clerk CLAYTON GASQuE, Staff Director HAYDEN S. GARBER, Counsel SUBCOMMITTEE Xo. 5 GEORGE HUDDLESTON, JR., Alabama, Chairman ABRAHAM J. MELTER, New York ANCHER NELSEN, Minnesota JOHN DOWDY, Texas CHARLES McC. MATI-IIAS, JR., Maryland JEFFERY COHELAN. California FRED SCHWENGEL. Iowa CHARLES C. DIGGS, JR., Michigan RICHARD L. ROUDEBUSH, Indiana G. ELLIOTT HAGAN, Georgia II PAGENO="0003" CONTENTS ILR. 5338, a bill to enact the Uniform Commercial Code for the District Page of Columbia and for other purposes 1 House committee staff memorandum 115 STATEMENTS Bar Assbciătionof the District of Columbia: Howard Anderson, Esq~ 137 George Monk, Esq 137 District of Columbia government: Kneipp, Robert F., Assistant Corporation Counsel 149 Ridley, Peter S., Recorder of Deeds~_. 150 Gunther, Frank A., chairman, Law and Legislative Committee, District of Columbia Bankers Association 147 Morgan, Hon. Jo. V., Judge, District of Columbia Tax Court; Commis- sioner of Uniform State Laws of the District of Columbia; chairman, Committee on Uniformity of Judicial Decisions of the National Confer- ence of Commissioners of Uniform State Laws - 141 MATERIAL SUBMITTED FOR THE RECORD Bar Association of the District of Columbia: Thomas S. JacksorL president, letter dated March 19, 1963, to Chair- man MeMillan 117 Uniform Commercial Code Committee: Report to association in November 1962 issue, volume XXIX, No. 11, of the Journal of the Bar Association of the District of Columbia 119 Supplemental report dated December 18, 1962, to board of directors 128 District of Columbia government: Walter N. Tobriner, President, letter dated April 22, 1963, to Chairman 1\'lcMilIIan 149 Metropolitan Washington Board of Trade, Charles E. Phillips, president, letter dated April 10 1963, to Chairman Huddleston 138 Schnader, William A., ~sq.: Article, "Uniform Commercial Code, What Is Accomplished-What Remains," reprint from "State Government," winter, 1963 -- - - - - - 142 Lett~r~datedApril 9, .1963, to Hon. Jo. V. Morgan, and list of States 146 APPENDIX Extract from report of House Committee on the District of Columbia, entitled "Uniform Commercial Code for the District of Columbia," filed April 12, 1963 (H. Rept. 219, 88th Cong., 1st sess.) 153 UI PAGENO="0004" `C -t PAGENO="0005" UNIFORM COMMERCIAL CODE THURSDAY, APRIL 11, 1963 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE No. 5 OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA, Washington, D.C. The subcommittee met, pursuant to notice, at 9:30 a.m., in the committee room, Cannon Building, Hon. George Huddleston, Jr. (chairman of the subcommittee) presiding. Present: Representatives Huddleston, Cohelan, Nelsen, and Schwengel. Also present: James T. Clark, clerk; Hayden S. Garber, counsel; Donald Tubridy, minority counsel; and Leonard 0. Hilder, investi- gator. * * * * * * * Mr. HUDDLESTON. The next bill for consideration by the sub- committee is H.R. 5338, introduced by Congressman McMilan, chairman of the District Committee, to enact the Uniform Commercial Code for the District of Columbia. This code was drafted under joint sponsorship of the National Conference of Commissioners on Uniform State Laws and the Ameri- can Law Institute. The work was begun in 1942 and completed in 1952 when it was approved by the American Bar Association. It has thus far been adopted by 23 States. The' čode is an embodiment of many provisions including the following: It completely supersedes the Uniform Sales Act in the District of Columbia. It replaces the Uniform Negotiable Instruments Act. It deals with bank deposits and collections and letters of credit. It relates to bulk sales, warehouse receipts, bills of lading, et cetera. It replaces the Uniform Stock Transfer Act, et cetera. At this point I would like to incorporate in the record the bill, H.R. 5338, together with a memorandum prepared by the committee staff on HR. 5338. (The bill and memorandum referred to follow:) [H.R. 5338, SSth Cong. 1st sess.1 A BILL To enact the Uniform Commercial Code for the District of Columbia, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of A?nerica in Congress assembled, That the Uniform Commercial Code is enacted as Subtitle I of Title 28 of the District of Columbia Code, in which it shall be designated "Subtitle I-Uniform Commercial Code", and may he cited as "D.C. Code, §-", as follows: 1 PAGENO="0006" SUBTITLE I-UNIFORM COMMERCIAL CODE Article Section 1. GENERAL PROVISIONS 28: 1-101 2.SALES 28:2-101 3. COMMERCIAL PAPER 28: 3-101 4. BANK DEPOSITS AND COLLECTIONS 28: 4-101 5. LETTEPS OP CREDIT 28: 5-101 6. BOLE TRANSFERS 28: 6-101 7. WAREhOUSE RECEIPTS, BILLS OP LADING, AND OTHER DOCUMENTS OF TITLE~_ 28: 7-101 8. INVEST\IENT SECURITIES 28: 8-101 9. SECURED TRANSACTIONS; SALES OF ACCOUNTS, CONTRACT RIUHTS, AND CHATTEL PAPER 28: 9-101 10. CONSTRUCTION WITh OTHER LAWS 28:10-101 ARTICLE I-GENERAL PROVISIONS PART 1-SHORT TITLE, CONSTRUCTION, APPLICATION AND SUPIECT MATTER Sec. 28:1-101. Short tide. 28:1-102. Purposes; rules of construction; variation by agreement. 28:1-103. Supplementary general principles of law opplicable. 28:1-104. Constructioll against implicit repeal. 28:1-105. Territorial application of this subtitle; parties' power to choose applicable law. 28:1-106. Remedies to be liberally administered. 28:1-107. Waiver or renunciation of claim or right after breach. 28:1-108. Severability. 28:1-109. Section captions. PART 2-GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION 28:1-201. General definitions. 28:1-202. Prima facie evidence by third party documents. 28:1-203. Obligation of good faith. 28:1-204. Time; reasonable time; "seasonably". 28:1-205. Course of dealing and usage of trade. 28:1-206. Statute of frauds for kinds of personal property not otherwise covered. 28:1-207. Performance or acceptance under reservation of rights. 28:1-208. Option to accelerate at will. PART 1-SHORT TITLE, CONSTRUCTION, APPLICATION AND SUBJECT MATTER § 28:1-101. Short title This subtitle shall be known and may be cited as Uniform Commercial Code. § 28:1-102. Purposes; rules of construction; variation by agreement (1) This subtitle shall be liberally construed and applied to promote its under- lying purposes and policies. (2) Underlying purposes and policies of this subtitle are (a) to simplify, clarify and modernize the law governing commercial trans- actions; (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; (c) to make uniform the law among the various jurisdictions. (3) The effect of provisions of this subtitle may he varied by agreement, except as otherwise provided in this subtitle and except that the obligations of good faith, diligence, reasonableness and care prescribed by this subtitle may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measurdd if such standards are not manifestly unreasonable. (4) The presence in certain provisions of this subtitle of the words "unless otherwise agreed" or words of similar import does not imply that the effect of other provisions may not be varied by agreement under subsection (3). (5) In this subtitle unless the context otherwise requires (a) words in the singular number include the plural, and in the plural include the singular; (b) words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender. § 28:1-103. Supplementary general principles of law applicable Unless displaced by the particular provisions of this subtitle, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions. PAGENO="0007" § 28:1-104. Construction against implicit repeal This subtitle being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided. § 28:1-105. Territorial application of this subtitle; parties' power to choose applicable law (1) Except as provided hereafter in this section, when a transaction bears a reasonable relation to the District and also to a state or nation the parties may agree that the law either of the District or of such state or nation shall govern their rights and duties. Failing such agreement this subtitle applies to trans- actions bearing an appropriate relation to the District. (2) Where one of the following provisions of this subtitle 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 28:2-402. Applicability of the article on bank deposits and collections. Section 28:4-102. Bulk transfers subject to the article on bulk transfers. Section 28:6-102. Applicability of the article on investment securities. Section 28:8-106. Policy and scope of the article on secured transactions. Sections 28:9-102 and 28:9-103. §28:1-106. Remedies to be liberally administered (1) The remedies provided by this subtitle shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this subtitle or by other rule of law. (2) Any right or obligation declared by this subtitle is enforceable by action unless the provision declaring it specifies a different and limited effect. § 28:1-107. Waiver or renunciation of claim or right after breach Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. § 28:1-108. Severability If any provision or clause of this subtitle or application thereof to any person or circumstances is held invalid, such invalidity shall not affect other provisions or applications of this subtitle which can be given effect without the invalid provision or application, and to this end the provisions of this subtitle are declared to be severable. §28:1-109. Section captions Section captions are parts of this subtitle. PART 2-GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION § 28:1-201. General definitions Subject to additional definitions contained in the subsequent articles of this subtitle which are applicable to specific articles or parts thereof, and unless the context otherwise requires, in this subtitle: (1) "Action" in the sense of a judicial proceeding includes recoupment, counter.. claim, set-off, suit in equity and any other proceedings in which rights are deter~ mined. (2) "Aggrieved party" means a party entitled to resort to a remedy. (3) "Agreement" means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this subtitle (sections 28: 1-205 and 2-208). Whether an agreement has legal consequences is deter- mined by the provisions of this subtitle, if applicable; otherwise by the law of contracts (section 28:1-103). (Compare "Contract".) (4) "Bank" means any person engaged in the business of banking. (5) "Bearer" means the person in possession of an instrument, document of title, or security payable to bearer or indorsed in blank. PAGENO="0008" 4 UNIFORM COMMERCIAL CODE (6) "Bill of lading" means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods, and includes an airbill. "Airbill" means a document serving for air transportation as a bill of lading does for marine or rail transportation, and in- cludes an air consignment note or air waybill. (7) "Branch" includes a separately incorporated foreign branch of a bank. (8) "Burden of establishing" a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its non-existence. (9) "Buyer in ordinary course of business" means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawn- broker. "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a preexisting contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt. (10) "Conspicuous": A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is con- spicuous. Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color. But in a telegram any stated term is "con- spicuous". WThether a term or clause is "conspicuous" or not is for decision. by the court. (11) "Contract" means the total legal obligation which results from the parties' agreement as affected by this subtitle and any other applicable rules of law. (Compare "Agreement".) (12) "Creditor" includes a general creditor, a secured creditor, a lien creditor and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy. a receiver in equity and an executor or ad- ministrator of an insolvent debtor's or assignor's estate. (13) "Defendant" includes a person in the position of defendant in a cross- action or counterclaim. (14) "Delivery" with respect to instruments, documents of title, chattel paper -or securities means voluntary transfer of possession. (15) "District" means the District of Columbia; and "state" includes the District. (16) "Document of title" includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. To he a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass. (17) "Fault" means wrongful act, omission or breach. (18) "Fungible" with respect to goods or securities means goods or securities of which any unit is, by nature or usage of t.rade, the equivalent of any other like unit. Goods which are not fungible shall be deemed fungible for the purposes of this subtitle to the extent that under a particular agreement or document unlike units are treated as equivalents. (19) "Genuine" means free of forgery or counterfeiting. (20) "Good faith" means honesty in fact in the conduct or transaction con- cerned. (21) "Holder" means a person who is in possession of a document of title or an instrument or an investment security drawn, issued or indorsed to him or to his order or to bearer or in blank. (22) To "honor" is to pay or to accept and pay, or where a credit so engages to purchase or discount a draft complying with the terms of the credit. (23) "Insolvency proceedings" includes any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate the estate of the person involved. (24) A person is "insolvent" who either has ceased to pay his debts in the or- dinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law. (25) "Money" means a medium of exchange authorized or adopted by a do- mestic or foreign government as a part of its currency. PAGENO="0009" UNIFORM COMMERCIAL CODE 5 (26) A person has "notice" of a fact when (a) he has actual knowledge of it; or (b) he has received a notice or notification of it; or (c) from all the facts and circumstances known to him at the time in ques-; tion he has reason to know that it exists. A person "knows" or has "knowledge" of a fact when he has actual knowledge of it. "Discover" or "learn" or a word or phrase of similar import refers to knowledge rather than to reason to know. The time and circumstances under which a notice or notification may cease to be effective are not determined by this subtitle. (27) A person "notifies" or "gives" a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it. A person "receives" a notice or notification when (a) it comes to his attention; or (b) it is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications. (28) Notice, knowledge or a notice of notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time when it would have been brought to his attention if the organization had exercised due diligence. An organization exercises due diligence if it main- tains reasonable `routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless such information is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information. (29) "Organization" includes a corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, two or more persons having a joint or common interest, or any other legal or com- mercial entity. (30) "Party", as distinct from "third party", means a person who has engaged in a transaction or made an agreement within this subtitle. (31) "Person" includes an individual or an organization (see section 28:1-102). (32) "Presumption" or "presumed" means that the trier of fact must find the existence of the fact presumed unless and until evidence is introduced which would support a finding of its nonexistence. (33) "Purchase" includes taking by sale, discount, negotiation, mortgage, pledge, lien, issue or re-issue, gift or any other voluntary transaction creating an interest in property. (34) "Purchaser" means a person who takes by purchase. (35) "Remedy" means any remedial right to which an aggrieved party is entitled with or without resort to tribunal. (36) "Representative" includes an agent, an officer of a corporation or associa- tion, and a trustee, executor or administrator of an estate, or any other person empowered to act for another. (37) "Rights" includes remedies. (38) "Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (section 28:2-401) is limited in effect to a reservation of a "security interest". The term also includes any interest of a buyer of accounts, chattel paper, or con- tract rights which is subject to article 9. The special property interest of a buyer of goods on identification of such goods to a contract for sale under section 28:2-401 is not a "security interest", but a buyer may also acquire a "security interest" by complying with article 9. Unless a lease or consignment is intended. as security, reservation of title thereunder is not a "security interest" but a consignment is in any event subject to the provisions on consignment sales (section 28:2-326). Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase. does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security. (39) "Send" in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with PAGENO="0010" 6 UNIFORM COMMERCIAL CODE postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending. (40) "Signed" includes any symbol executed or adopted by a party with present intention to authenticate a writing. (41) "Surety" includes guarantor. (42) "Telegram" includes a message transmitted by radio, teletype, cable, any mechanical method of transmission, or the like. (43) "Term" means that portion of an agreement which relates to a particular matter. (44) "Unauthorized" signature or indorsement means one made without actual, implied or apparent authority and includes a forgery. (45) "Value". Except as otherwise provided with respect to negotiable instru- ments and bank collections (sections 28:3-303, 28:4-208 and 28:4-209) a person gives "value" for rights if he acquires them (a) in return for a binding commitment to extend credit or for the exten- sion of immediately available credit whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection; or (b) as security for or in total or partial satisfaction of a pre-existing claim; or (c) by accepting delivery pursuant to a pre-existing contract for purchase; or (d) generally, in return for any consideration sufficient to support a simple contract. (46) "Warehouse receipt" means a receipt issued by a person engaged in the business of storing goods for hire. (47) "Written" or "writing" includes printing, typewriting or any other intentional reduction to tangible form. § 28:1-202. Prima facie evidence by third party documents A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher's or inspector's certificate, consular invoice, or any other document authorized or required by the contract to be issued by a third party shall be prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party. § 28:1-203. Obligation of good faith Every contract or duty within this subtitle imposes an obligation of good faith in its performance or enforcement. § 28 :1-2~4. Time; reasonable time; "seasonably" (1) Whenever this subtitle requires any action to be taken within a reasonable time, any time which is not manifestly unreasonable may be fixed by agreement. (2) What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action. (3) An action is taken "seasonably" when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time. § 28:1-205. Course of dealing and usage of trade (1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreemert. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. PAGENO="0011" UNIFORM COMMERCIAL CODE 7 (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds suffi- cient to prevent unfair surprise to the latter. § 28:1-206. Statute of frauds for kinds of personal property not otherwiset covered (1) Except in the cases ddscribed in subsection (2) of this section a contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or. stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought or by his authorized agent. (2) Subsection (1) of this section does not apply to contracts for the sale of goods (section 28:2-201) nor of securities (section 28:8-319) nor to security agreements (section 28:9-203). § 28:1-207. Performance or acceptance under reservation of rights A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as "without prej- udice", "under protest" or the like are sufficient. § 28:1-208. Option to accelerate at will A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he deems himself insecure" or in words of similar import shall be construed to mean that he shall have power to do so only if he in good faith believes that the prospect.of .pa.ym~ant or performance isimpaired. The burden of establishing lack of good faith is on the paity against whom the power has been exercised. ARTICLE 2-SALES PART l-SrI0RT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER Sec. 28:2-101. Short title. 28:2-102. Scope; certain security and other transactions excluded from this article. 28:2-103. Definitions and Index of definitions. 28:2-104. Definitions: "Merchant"; "between merchants"; "financing agency". 28:2-105. Definitions: transferability; "goods"; "future" goods; "lot"; "commercial unit". 28:2-106. Definitions: "contract"; "agreement"; "contract for sale"; "sale"; "present sale"; "conformmg" to contract; `termination"; "cancellation". 28:2-107. Goods to be severed from realty: recording. PART 2-FORM, FORMATION AND READJUSTMENT OF CONTRACT 28:2-201. Formal requirements; statute of frauds. 28:2-202. Final written expression: parol or extrinsic evidence. 28:2-203. Seals inoperative. 28:2-204. Formation in general. 28:2-205. Firm offers. 28:2-206. Offer and acceptance in formation of contract. 28:2-207. Additional terms in acceptance or confirmation. 28:2-208. Course of performance or practical construction. 28:2-200. Modification, rescission and waiver. 28:2-210. Delegation of performance; assignment of rights. PART 3-GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT 28:2-30l.General,obiigations, of parties. 2h2~-302. Unconscionable contract Or clause. 28:2-303. Allocation or division of risks. 28:2-304. Price payable in money, goOds, realty, or otherwise. 28:2-305. Open price term. 28:2-306. Output, requirements and exclusive dealings. 28:2-307. Delivery in single lot or several lots. 28:2-308. Absence of specified place for delivery. 28:2-309. Absence of specific time provisions; notice of termination. 28:2-310. Open time for payment or running of credit; authority to ship under reservation. 28:2-311. Options and cooperation respecting performance. 28:2-312. Warranty of title and against infringement; buyer's obligation against infringement. 28:2-313. Express warranties by affirmation, promise, description, sample. 28:2-314. Implied warranty: merchantability; usage of trade. 28:2-315. Implied warranty: fitness for particular purpose. 28:2-316. Exclusion or modification of warranties. PAGENO="0012" 8 UNIFOi~vI COMMERCIAL CODE 28:2-317. Cumulation and conflict of warranties express or implied. 28:2-318. Third party beneficiaries of warranties express or implied. 28:2-319. FOB. and F.A.S. terms. 28:2-320. C.I.F. and C. & F. terms. 28:2-321. C.I.F. or C. & F:: "net landed weights;" "payment on arrival"; warranty of condition on arr1va1~ 28:2-322. Dehvery ex-ship". 28:2-323. Form of bill of lading required in overseas shipment: "overseas". 28:2-324. "No arrival, no sale" term. 28:2-325. "Letter of credit" term; "confirmed credit". 28:2-326. Sale on approval and sale or return: consignment sales and rights of creditors. 28:2-327. Special incidents of sale on approval and sale or return. 28:2-328. Sale by auction. PART 4-TITLE, CREDITORS AND Goon FAITH PURCHASES 28:2-401. Passing of title; reservation for security; limited application of this section. 28:2-402. Rights of seller's creditors against sold goods. 28:2-403. Power to transfer; good faith purchase of goods; "entrusting". PART 5-PERFORMANCE 28:2-501. Insurable interest in goods; manner of identification of goods. 28:2-502. Buyer's right to goods on seller's insolvency. 28:2-503. Manner of seller's tender of delivery. 28:2-504. Shipment by seller. 28:2-505. Seller's shipment under reservation. 28:2-506. Rights of financing agency. 28:2-507. Effect of seller's tender; delivery on condition. 28:2-508. Cure by seller of improper tender or delivery; replacement. 28:2-509. Risk of loss in the absence of breach. 28:2-510. Effect of breach on risk of loss. 28:2-511. Tender of payment by buyer; payment by check. 28:2-512. Payment by buyer before inspection. 28:2-513. Buyer's right to inspection of goods. 28:2-514. When documents deliverable on acceptance; when on payment. 28:2-515. Preserving evidence of goods in dispute. PART 6-BREACH, REPUDIATION AND EXCUSE 28:2-601. Buyer's rights on improper delivery. 28:2-602. Manner and effect of rightful rejection. 28:2-603. Merchant buyer's duties as to rightfully rejected goods. 28:2-604. Buyer's options as to salvage of rightfully rejected goods. 28:2-605. Waiver of buyer's objections by failure to particularize. 28:2-606. What constitutes acceptance of goods. 28:2-607. Effect of acceptance; notice of breach; burden of establishing breach after acceptance; notice of claim or litigation to person answerable over. 28:2-608. Revocation of acceptance in whole or in part. 28:2-609. Right to adequate assurance of performance. 28:2-610. Anticipatory repudiation. 28:2-611. Retraction of anticipatory repudiation. 28:2-612. "Installment contract"; breach. 28:2-613. Casualty to identified goods. 28:2-614. Substituted performance. 28:2-615. Excuse by failure of presupposed conditions. 28:2-616. Procedure on notice claiming excuse. PART 7-REMEDIES 28:2-701. Remedies for breach of collateral contracts not impaired. 28:2-702. Seller's remedies on discovery of buyer's insolvency. 28:2-703. Seller's remedies in general. 2&2-704. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods. 28:2-705. Seller's stoppage of delivery in transit or otherwise. 28:2-706. Seller's resale including contract for resale. 28:2-707. "Person in the position of a seller". 28:2-708. Seller's damages for non-acceptance or repudiation. 28:2-709. Action for the price. 28:2-710. Seller's incidental damages. 28:2-711. Buyer's remedies in general; buyer's security interest in rejected goods. 28:2-712. "Cover"; buyer's procurement of substitute goods. 28:2-713. Buyer's damages for non-delivery or repudiation. 28:2-714. Buyer's damages for breach in regard to accepted goods. 28:2-715. Buyer's incidental and consequential damages. 28:2-716. Buyer's right to specific performance or replevin. 28:2-717. Deduction of damages from the price. 28:2-718. Liquidation or limitation of damages; deposits. 28:2-719. Contractual modification or limitation of remedy. 28:2-720. Effect of "cancellation" or "rescission" on claims for antecedent breach. 28:2-721. Remedies for fraud. 28:2-722. Who can sue third parties for injury to goods. 28:2-723. Proof of market price: time and place. 28:2-724. Admissibility of market quotations; 28:2-725. Statute of limitations in contracts for sale. PAGENO="0013" UNIFORM COMMERCIAL CODE 9 PART 1-SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER § 28:2-101. Short title This article shall be known and may be cited as Uniform Commercial Code- Sales. § 28:2-102. Scope; certain security and other transactions excluded from this article Unless the context otherwise requires, this article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers. §28:2-103. Definitions and index of definitions (1) In this article unless the context otherwise requires (a) "Buyer" means a person who buys or contracts to buy goods. (b) "Good faith" in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. (c) "Receipt" of goods means taking physical possession of them. (d) "Seller" means a person who sells or contracts to sells goods. (2) Other definitions applying to this article or to specified parts thereof, and the sections in which they appear are: "Acceptance". Section 28:2-606. "Banker's credit". Section 28:2-325. "Between merchants". Section 28:2-104. "Cancellation". ~Section 28:2-106(4). "Commercial unit". Section 28 :2-105. "Confirmed credit". Section 28:2-325. "Conforming to contract". Section 28:2-106. "Contract for sale". Section 28 :2-106. "Cover". Section 28:2-712. "Entrusting". Section 28:2-403. "Financing agency". Section 28:2-104. "Future goods". Section 28:2-105. "Goods". Section 28:2-105. "Identification". Section 28:2-501. "Installment contract". Section 28:2-612. "Letter of Credit". Section 28: 2-325. "Lot". Section 28: 2-105. "Merchant". Section 28: 2-104. "Overseas". Section 28: 2-323. "Person in position of seller". Section 28: 2-7 07. "Present sale". Section 28: 2-106. "Sale". Section 28: 2-106. "Sale on approval". Section 28: 2-326. "Sale or return". Section 28: 2-326. "Termination". Section 28: 2-106. (3) The following definitions in other articles apply to this article: "Check". Section 28: 3-104. "Consignee". Section 28: 7-102. "Consignor". Section 28: 7-102. "Consumer goods". Section 28: 9-109. "Dishonor" Section 28: 3-507. "Draft". Section 28: 3-104. (4) In addition article 1 contains general definitions and principles of construc- tion and interpretation applicable throughout this article. § 28:2-104. Definitions: "merchant"; "between merchants"; "financing agency" (1) "Merchant" means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the prac- tices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. (2) "Financing agency" means a bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in PAGENO="0014" ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany the draft. Financing agency" includes also a hank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (section 28:2-707). (3) "Between merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants. § 28 :2-I 05. Definitions: transferability; "goods"; "future" goods; "lot"; "com- mercial unit" (1) "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be l)aid, investment securities (article 8) and things in action. `Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (section 28:2-107). (2) Goods must be both existing and identified before any inter~t in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell. (3) There may be a sale of a part interest in existing identified goods. (4) An undivided share in an identified hulk of fungible goods is sufficiently identified to he sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common. (5) "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract. (6) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may he a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a ciuantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole. § 28:2-106. Definitions: "contract"; "agreement"; "contract for sale"; "sale"; "present sale"; "conforming" to contract; "termination"; "can- cellation" (1) In this article unless the context otherwise requires "contract" and "agree ment" are limited to those relating to the present or future sale of goods. "Con tract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (section 28:2-401). A "present sale" means a sale which is accomplished by the making of the contract. (2) Goods or conduct including any part of a performance are "conforming's or conform to the contract when they are in accordance with the obligations under the contract. (3) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives. (4) "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance. § 28:2-107. Goods to be severed from realty: recording (1) A contract for the sale of timber, minerals or the like or a structure or its materials to be removed from realty is a contract for the sale of goods within this article if they are to he severed by the seller hut until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell. (2) A contract for the sale apart from the land of growing crops or other things attached to realty anti capable of severance without material harm thereto hut not described in subsection (1) is a contract for the sale of goods within this article whether the subject matter is to be severed by the buyer or by the seller PAGENO="0015" even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance. (3) The provisions of this section are subject to any thu party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then consti- tute notice to third parties of the buyer's rights under the contract for sale. PART 2-FORM, FORMATION AND READJUSTMENT OF CONTRACT § 28:2-201. Formal requirements; statute of frauds (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable. (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circum- stances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the con- tract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (section 28:2-606). §28:2-202. Final written expression: parol or extrinsic evidence Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contempora- neous oral agreement but may be explained or supplemented. (a) by course of dealing or usage of trade (section 28:1-205) or by course of performance (section 28:2-208); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. §28:2-203. Seals inoperative The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer. §28:2-204. Formation in general (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. § 28:2-205. Firm offers An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of con- sideration, during the time stated or if no time is stated for a reasonable time, PAGENO="0016" 12 UNIFORM CO~ERCIAL CODE but in no event may such period of irrevocability exceed three months; but any such terms of assurance on a form supplied by the offeree must be separately signed by the offeror. §28:2-206. Offer and acceptance in formation of contract (1) Unless otherwise unamibguously indicated by the language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. § 28:2-207. Additional terms in acceptance or confirmation (1). A definite and seasonable expression of acceptance or a written confirma- tion which is sent within a reasonable time operates as an acceptance even though itstates terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different *terms.~ (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; * (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consists of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this subtitle. §28:2-208. Course of performance or practical construction (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; hut when such construction is unreason- able, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (section 28:1-205). (3) Subject to the provisiOns of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. § 28:2-209. Modification, rescission and waiver (1) An agreement modifying a contract within this article needs no considera- tion to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this article (section 28:2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the con- tract may retract the waiver by reasonable notification received by the other party that strict performance will be required by any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. PAGENO="0017" UNIFORM COMMERCIAL CODE 13 § 28:2-210. Delegation of performance; assignment of rights (1) A party.may perform his duty through a delegate unless otherwise~agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of perform- ance relieves the party delegating of any duty to perform or any liability for breach. (2) Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise. (3) Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance. (4) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract. (5) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (section 28:2- 609). PART 3-GENERAL OBLIGATION AND CONSTRUCTEON OF CONTRACT § 2~ :2-301. General obligations of parties The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract. §28:2-302. Unconscionable contract or clause (1) If the court as a matter of law finds the contract or any clause of the con- tract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable oppor- tunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. § 28:2-303. Allocation or division of risks Where this article allocates a risk or a burden as between the parties "unless otherwise agreed", the agreement may not only shift the allocation but may also divide the risk or burden. ~ 28:2-304. Price payable in money, goods, realty, or otherwise (1) The price can be made payable in money or otherwise. If it is payable in whole or in part in goods each party is a seller of the goods which he is to transfer. (2) Even though all or part of the price is payable in an interest in realty the transfer of the goods and the seller's obligations with reference to them are subject to this article, but not the transfer of the interest in realty or the transferor's obligations in connection therewith. § 28:2-305. Open price term (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. 30-151-64------2 PAGENO="0018" `~J~~J (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to he bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a ease the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. § 28:2-306. Output, requirements and exclusive dealings (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. § 28:2-307. Delivery in single lot or several lots Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can he apportioned may be demanded for each lot. §28:2-308. Absence of specified place for delivery Unless otherwise agreed (a) the place for delivery of goods is the seller's place of business or if he has none his residence; hut (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and (c) documents of title may he delivered through customary banking channels. § 28:2-309. Absence of specific time provisions; notice of termination (1) The time for shipment or delivery or any other action under a contract if not provided in this article or agreed upon shall be a reasonable time. (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification he received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. § 28:2-310. Open time for payment or running of credit; authority to ship under reservation Unless otherwise agreed (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and (h) if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may in- spect the goods after their arrival before payment is due unless such inspec- tion is inconsistent with the terms of the contract (section 28:2-513); and (c) if delivery is authorized and made by way of documents of title other- wise than by subsection (h) then payment is due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be received; and (d) where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment hut post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period. §28:2-311. Options and cooperation respecting performance (1) An agreement for sale which is otherwise sufficiently definite (subsection (3) of section 28:2-204) to he a contract is not made invalid by the fact that it leaves particulars of performance to he specified by one of the parties. Any such PAGENO="0019" specification must be made in good faith and within limits set by commercial reasonableness. (2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in subsections (1) (c) and (3) of section 28:2-319 specifications or arrangements relating to ship- ment are at the seller's option. (3) Where such specification would materially affect the other party's per- formance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies (a) is excused for any resulting delay in his own performance; and (b) may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods. § 28:2-312. Warranty of title and against infringement; buyer's obligation against infringement (1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge. (2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have. (3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications. §28:2-313. Express warranties by affirmation, promise, description, sample (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific inten- tion to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty § 28:2-314. Implied warranty: merchantability; usage of trade (1) Unless excluded or modified (section 28:2-3 16), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a mer- chant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled, as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any. (3) Unless excluded or modified (section 28:2-316), other implied warranties may arise from course of dealing or usage of trade. PAGENO="0020" 16 UNIFORM COMMERCIAL CODE § 28:2-315. Implied warranty: fitness for particular purpose Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. §28:2-316. Exclusion or modification of warranties (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this article on parol or extrinsic evidence (section 28:2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face thereof." (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examin- ation ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this article on liquidation or limitation of damages and on contractual modification of remedy (sections 28:2-718 and 28:-719). ~ 28:2-317. Cumulation and conflict of warranties express or implied Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the in- tention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply: (a) Exact or technical specifications displace an inconsistent sample or model or general language of description. (b) A sample from an existing bulk displaces inconsistent general language of description. (c) Express warranties displace inconsistent implied warrants other than an implied warranty of fitness for a particular purpose. §28 :2-~318. Third party beneficiaries of warranties expressed or implied A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section. §28:2-319. F.O.B. and F.A.S. terms (1) Unless otherwise agreed the term F.O.B. (which means "free on board") at a named place, even though used only in connection with the stated price, is a delivery term under which (a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this article (section 28:2- 504) and bear the expense and risk of putting them into the possession of the carrier; or (b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this article (section 28: 2-503); (c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and PAGENO="0021" UNIFORM CO~4MERCIAL CODE 17 in an appropriate case the seller must comply with the provisions of this article on the form of bill of lading (section 28:8-323). (2) Unless otherwise agreed the term F.A.S. vessel (which means "free alongside") at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must (a) at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and (b) obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. (3) Unless otherwise agveed in any case falling within subsection (1) (a) or (c) or subsection (2) the buyer must ~~asonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date The seller may treat the failure of needed instructions as a failure of cooperation under this article (section 28:2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment. (4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents. § 28:2-320. C.I.F. and C. & F. terms (1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the l)rice so includes cost and freight to the named destination. (2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to (a) put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and (b) load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the fright has been paid or provided for; and (c) obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insur- ance; and (d) prepare an invoice of the goods and procure any other documents re- quired to effect shipment or to comply with the contract; and (e) forward and tender with commercial promptness all the documents in due form and with any indorseme~it necessary to perfect the buyer's rights. (3) Unless otherwise agreed the terni C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance. (4) Under the terma C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the docu- ments. § 28:2-321. C.I.F. or C. & F.: "net landed weights"; "payment on arrival"; warranty of condition on arrival Under a contract containing a term C.I.F. or C. & F. (1) Where the price is based on or is to be adjusted according to "net landed weights", delivered weights", "out turn" quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so esti- mated, but after final adjustment of the price a settlement must be made with commercial promptness. (2) An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the PAGENO="0022" 18 tll~oi~r COMMERCIAL CODE place or time of identification to the contract for sale or delivery or on the passing of the risk of loss. (3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived. § 28 :2-322. Delivery "ex-ship" (1) Unless otherwise agreed a term for delivery of goods "ex-ship" (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged. (2) Under such a term unless otherwise agreed (a) the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and (b) the risk of loss does not pass to the buyer until the goods leave the ship's tackle or are otherwise properly unloaded. §28 :2-323. Form of bill of lading required in overseas shipment; "overseas" (1) Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment. (2) Where in a case within subsection (1) a bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set (a) due tender of a single part is acceptable within the provisions of this article on cure of improper delivery (subsection (1) of section 28:2-508); and (b) even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate. (3) A shipment by water or by air or a contract cDnternplating such shipment is "overseas" insofar as by usage of trade or agreement it is subject to the corn-. mercial, financing or shipping practices characteristic of international deep water commerce. §28:2-324. "No arrival, no sale" term Under a term "no arrival, no sale" or terms of like meaning, unless otherwise agreed, (a) the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the non-arrival; and (b) where without fault of. the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the con-j tract time, the buyer may proceed as if there had been casualty to identified goods (section 28:2-613). §28:2-325. "Letter of credit" term; "confirmed credit" (1) Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale. (2) The delivery to seller of a proper letter of credit suspends the buyer's obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him. (3) Unless otherwise agreed- the -term "letter of credit" or "banker's credit" in a contract for sale means an irrevocable credit issued by a financing agency of good repute and, where the shipment is overseas, of good international repute. The term "confirmed credit" means that the credit must also carry the direct obligation of such an agency which does business in the seller's financial market. ~ 28 :2-326. Sale on approval and sale or return; consignment sales and rights of creditors (1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transqetion is (a) a "sale on approval" if the goods are delivered primarily for use, and (b) a "sale or return" if the goods are delivered primarily for resale. PAGENO="0023" UNIFORM COMMERCIAL CODE 19 (2) Except as provided in subsection (3), goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession. (3) Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this subsection are applicable even though and agreement purports to reserve title to the person making delivery until payment or resale or uses such words as "on consignment" or "on memorandum". How- ever, this subsection is not applicable if the person making delivery (a) complies with an applicable law providing for a consignor's interest or the like to be evidenced by a sign, or (b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or (c) complies with the filing provisions of the article on secured transac-~ tions (article 9). (4) Any "or return" term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this article (section 28:2- 201) and as contradicting the sale aspect of the contract within the provisions of this article on parol or extrinsic evidence (section 28:2-202). §28:2-327. Special incidents of sale on approval and sale or return (1) Under a sale on approval unless otherwise agreed (a) although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and (b) use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and (c) after due notification of election to return, the return is at the seller's risk and expense but a merchant buyer must follow any reasonable instruc- tions. (2) Under a sale or return unless otherwise agreed (a) the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exer- cised seasonably; and (b) the return is at the buyer's risk and expense. §28:2-328. Sale by auction (1) In a sale by auction if goods are put up in lots each lot is the subject of a separate sale. (2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his dis- cretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling. (3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction with- out reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid. (4) If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale. PART 4-TITLE, CREDITORS AND GOOD FAITH PURCHASERS § 28 :2-401. Passing of title; reservation for security; limited application of this section Each provision of this article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situa- PAGENO="0024" 20 UNIFORM COMMERCIAL CODE tions are not covered by the other provisions of this article and matters con- cerning title become material the following rules apply: (1) Title to goods cannot pass under a contract for sale prior to their identifica- tion to the contract (section 28 :2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this subtitle. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the article on secured trans- actions (article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. (2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservationof a security interest by the bill of lading (a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but (b) if the contract requires delivery at destination, title passes on tender there. (3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or (b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting. (4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a "sale". § 28:2-402. Rights of seller's creditors against sold goods (1) Except as provided in subsections (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer's rights to recover the goods under this article (sections 28:2-502 and 28:2-716). (2) A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him a retention of possession by the seller is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent. (3) Nothing in this article shall be deemed to impair the rights of creditors of the seller (a) under the provisions of the article on secured transactions (article 9); or (b) where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this article constitute the transaction a fraudulent transfer or voidable preference. §28:2-403. Power to transfer; good faith purchase of goods; "entrusting" (1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored, or (c) it was agreed that the transaction was to be a "cash sale", or (d) the delivery was procured through fraud punishable as larcenous under the criminal law. * (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. (3) "Entrusting" includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the PAGENO="0025" UNIFORM COMMERCIAL CODE 21 delivery or acquiescence and regardless of whether the procurement of the en- trusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law. (4) The rights of other purchasers of goods and of lien creditors are governed by the articles on secured transactions (article 9), bulk transfers (article 6) and documents of title (article 7). PART 5-PERFORMANCE §28:2-501. Insurable interest in goods; manner of identification of goods (1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identifica- tion occurs (a) when the contract is made if it is for the sale of goods already existing and identified; (b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; (c) when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer. (2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. (3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law. §28:2-502. Buyer's right to goods on seller's insolvency (1) Subject to subsection (2) and even though the goods have not been shipped a buyer who has paid a part or all of the price of goods in which he has a special -property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if the seller becomes insolvent within ten days after receipt of the first installment on their price. (2) If the identification creating his special property has been made by thc buyer he acquires the right to recover the goods only if they conform to the con- tract for sale. § 28:2-503. Manner of seller's tender of delivery - (1) Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this article, and in particular (a) tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods. (2) Where the case is within the next section respecting shipment tender requires that the seller comply `with its provisions. (3) l~\There the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section. (4) \\There goods are in the possession of a bailee and are to be delivered without being moved (a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but (b) tender to the buyer of a non-negotiable document of title or of a written direction to the hailee to deliver is sufficient tender unless the buyer seasonably objects, aud receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk PAGENO="0026" U~N1~U1~VL UUM~UL1~UJ~1~ UUU~ of loss of the goods and of any failure by the bailee to honor the non-nego. tiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. (5) Where the contract requires the seller to deliver documents (a) he must tender all such documents in correct form except as provided in this article with respect to bills of lading in a set (subsection (2) of section 28:2-323); and (b) tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes non-acceptance or rejection. §28:2-504. Shipment by seller Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must (a) put the goods in the possession of such a carrier and make such a con- tract for their transportation as may he reasonable having regard to the nature of the goods and other circumstances of the case; and (b) obtain and promptly deliver or tender in due form any document neces- sary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and (c) promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues. §28 :2-505. Seller's shipment under reservation (1) Where the seller has identified goods to the contract by or before shipment: (a) his procurement of a negotiable bill of lading to his own order or other- wise reserves in him a security interest in the goods. His procurement of the the bill to the order of a financing agency or of the buyer indicates in addition only the seller's expectation of transferring that interest to the person named. (b) a non-negotiable bill of lading to himself or his nominee reserves pos- session of the goods as security but except in a case of conditional delivery (subsection (2) of section 28 :2-507) a non-negotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession of the bill of lading. (2) When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transpor- tation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document. ~ 28:2-506. Rights of financing agency (1) A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper's right to have the draft honored by the buyer. (2) The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular on its face. § 28:2-507. Effect of seller's tender; delivery on condition (1) Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. (2) Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due. § 28:2-508. Cure by seller of improper tender or delivery; replacement (1) Where any tender or delivery by the seller is rejected because non-con- forming and the time for performance has not yet expired, the seller may season- ably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. PAGENO="0027" U .1-N L1 ULU.Vi ~JJ.V.UVL1~It~'.LL1.U #~JL~J.1~ (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonal)ly notifies the l)uyer have a further reason- able time to substitute a conforming tender. § 28:2-509. Risk of loss in the absence of breach (1) Where the contract requires or authorizes the seller to ship the goods by carrier (a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly (lehivered to the carrier even though the shipment is under reservation (section 28:2-505); but (b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of lo~s misses to the buyer when the goods are there duly so tendered as to enal)le the buyer to take delivery. (2) Where the goods are held by a bailee to he delivered without being moved, the risk of loss passes to the buyer. (a) on his receipt of a negotiable document of title covering the goods; or (b) on acknowledgment by the baiiee of the buyer's right to possession of the goods; or (e) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in subsection (4) (b) of section 28:2-503. (3) In any ease not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the nrovisions of this article on sale on approval (sectioii 28:2--327) and on effect of breach on risk of loss (section 28:2-510). § 28 :2-510. Effect of breach on risk of loss (1) Where a render or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptan Ce. (2) WThere the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning. (3) `Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance cover- age treat the risk of loss as resting on the buyer for a commercially reasonable time. § 28:2-511. Tender of payment by buyer; payment by check (1) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery. (2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it. (3) Subject to the l)rovisions of this subtitle on the effect of an instrument on an obligation (section 28:3--802), payment by check is conditional and is (lefeated as between the parties by dishonor of the check on due presentment. § 28:2-512. Payment by buyer before inspection (1) Where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making payment unless (a) the non-conformity appears without inspection; or (hi despite tender of the required documents the circumstances would justify injunction against honor under the II)rovisions of this subtitle (section 28:5-114). (2) Payment pursuant to subsection (1) does not constitute an acceptance of goods or impair the buyer's right to inspect or any of his remedies. § 28:2-513. Buyer's right to inspection of goods (1) Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a ri~l.1t before payment or acceptance to inspect them at any reasonable l)lace and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspectr n may he after their arrival. PAGENO="0028" 24 UNIFORM CO~ERCIAL CODE (2) Expenses of inspection must be borne by the buyer hut may be recovered from the seller if the goods do not conform and are rejected. (3) Unless otherwise agreed and subject to the provisions of this article on C.I.F. contracts (subsection (3) of section 28:2-321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides (a) for delivery "C.O.D." or on other like ternis; or (b) for payment against documents of title, except where such payment is due only after the goods are to become available for inspection. (4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance be- comes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract. § 28:2-514. When documents deliverable on acceptance; when on payment Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment. § 28:2-515. Preserving evidence of goods in dispute In furtherance of the adjustment of any claim or dispute (a) either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and (b) the parties may agree to a third party inspection or survey to deter- mine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment. PART 6-BREACH, REPUDIATION AND EXCUSE § 28:2-601. Buyer's rights on improper delivery Subject to the provisions of this article on breach in installment contracts (section 28:2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (sections 28:2-718 and 28:2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. §28:2-602. Manner and effect of rightful rejection (1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (2) Subject to the provisions of the two following sections on rejected goods (sections 28:2-603 and 28:2-604), (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and (b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this article (subsection (3) of section 28:2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but (c) the buyer has no further obligations with regard to goods rightfully rejected. (3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this article on Seller's remedies in general (section 28:2-703). § 28:2-603. Merchant buyer's duties as to rightfully rejected goods (1) Subject to any security interest in the buyer (subsection (3) of section 28:2-711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable effcrts to sell them for the seller's account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming. (2) When the buyer sells goods under subsection (1), he is entitled to reimburse- ment from the seller or out of the proceeds for reasonable expenses of caring for PAGENO="0029" UNIFORM COMMERCIAL CODE 25 and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not cx- ceeding ten per cent on the gross proceeds. (3) In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages. § 28 :2-604. Buyer's options as to salvage of rightfully rejected goods Subject to the provisions of the immediately preceding section on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell them for the seller's account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion. § 28:2-605. Waiver of buyer's objections by failure to particularize (1) The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach (a) where the seller could have cured it if stated seasonably; or (b) between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer propOses to rely. (2) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents. § 28 :2-606. What constitutes acceptance of goods (1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that lie will take or retain them in spite of their nonconformity; or (b) fails to make an effective rejection (subsection (1) of section 28:2-602, but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does aiiy act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit. §28:2-607. Effect of acceptance; notice of breach; burden of establishing breach after acceptance; notice of claim or litigation to person answerable over (1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this article for non-conformity. (3) Where a tender has benn accepted (a) The buyer must within a reasonable time after he discovers or -should have discovered any breach notify the seller of breach or be barred from any remedy; and (b) if the claim is one for infringement or the like (subsection (3) of section 28:2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable -time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation. (4) The burden is on the buyer to establish any breach with respect to the goods accepted. - (5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over* - - - (a) he may give his seller -written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any deter- mination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. (b) if the claim-is one for infringement or the like (subsection (3) of section 28:2-312) the -original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. PAGENO="0030" 26 UNIFORM COMMERCIAL CODE (6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of section 28:2-312). §28:2-608. Revocation of acceptance in whole or in part (1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it (a) on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reason- ably induced either by the difficulty of discovery before acceptance or by the- seller's assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any sub-- stantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them. § 28:2-609. Right to adequate assurance of performance' (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the- other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any per- formance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the- aggrieved party's right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. § 28.2-610. Anticipatory repudiation When either party repudiates the contract with respect-to a perfOrmance- not. yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudi-~ ating party; or (b) resort to any remedy for breach (section 28:2-703 or section 28:2- 711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (section 28:2- 704).' § 28:2-611. Retraction of anticipatory repudiation (1) Until the --repudiating party'~ neat. performance- is due he can. retract his repudiation, unless the aggrieved, party has since the -repudiation cancelled or materially changed his position or otherwise indicated that he considers the re-' pudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assur- ance justifiably demanded under the provisions of this article (section 28:2-609). (3) Retraction reinstates the repudiating party's rights under the contract. with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. § 28:2-612. "Installment contract'; breach (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent. (2) The buyer may reject any installment which is nonconforming if the non-~ conformity substantially impairs the \ alue of that installment and cannot be cured or if the nonconformity is a defenct in the required .documents; but if the~ PAGENO="0031" UNIFORM COMMERCIAL CODE 27 non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) Whenever non-conformity or default with respect to one or more install-. ments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non- conforming installment without seasonably notifying of cancellation or if he bring an action with respect only to past installments or demands performance as to future installments. § 28:2-613. Casualty to identified goods Where the contract requires for its performance goods identified when the con- tract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (section 28:2-324) then (a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with: due allowance from the contract price for the deterioration' or `the deficiency in quantity but without further right against the seller. § 28 :2-614. Substituted performance (1) Where without fault of either party the agreed berthing, loading, or un- loading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed. means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a sub- stantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory. § 28:2-615. Excuse by failure of presupposed conditions Except so far as a seller may have assumed a greater obligation and subject to the preceding section on subatituted performance:' (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of' the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the thiyčr: seasonably that there will be delay or non-delivery and, when allocation is required- `under paragraph (b), of the estimated quot'a',thus made available, for the buyer. §28:2-616. Procedure on notice claiming excuse (1) Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this article relating to breach of installment contracts (section 28:2-612), then also as to the whole, (a) terminate and thereby discharge any unexecuted portion of the con- tract; or (b) modify the contract by agreeing to take his available quota in sub- stitution. (2) If after raeeipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time ,not exceeding thirty days the con- tract lapses with respect to any deliveries affected. ` , .. ` (3) The provisions of this section may not be negated by agreement except insofar as the seller has assumed a greater obligation under the preceding"section. PAGENO="0032" 28 UNIFORM COMMERCIAL CODE PART 7-REMEDIES §28 :2-701. Remedies for breach of collateral contracts not impaired Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this article. §28:2-702. Seller's remedies on discovery of buyer's insolvency (1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this article (section 28:2-705). (2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay. (3) The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser or lien creditor under this article (section 28:2-403). Successful reclamation of goods excludes all other remedies with respect to them. § 28:2-703. Seller's remedies in general Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (section 28:2-612), then also with respect to the whole undelivered balance, the aggrieved seller may (a) withhold delivery of such goods; (b) sto1: delivery by any bailee as hereafter provided (section 28: 2-705); (c) proceed under the next section respecting goods still unidentified to the contract; (d) resell and recover damages as hereafter provided (section 28:2-706); (e) recover damages for non-acceptance (section 28:2-708) or in a proper case the price (section 28:2-709); (f) cancel. § 28:2-704. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (1) An aggrieved seller under the preceding section may (a) identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control; (b) treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished. (2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. § 28:2-705. Seller's stoppage of delivery in transit or otherwise (1) The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (section 28:2-702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods. (2) As against such buyer the seller may stop delivery until (a) receipt of the goods by the buyer; or (b) acknowledgment to the buyer by any bailee of the goods except a* carrier that the bailee holds the goods for the buyer; or (c) such acknowledgment to the buyer by a carrier by reshipment or as warehouseman; or (d) negotiation to the buyer of any negotiable document of title covering the goods. (3) (a) To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods. (b) After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages. PAGENO="0033" UNIFORM COMMERCIAL CODE 29 (c) If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of the document. (d) A carrier who has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person other than `the consignor. §28:2-706. Seller's resale including contract for resale (1) Under the conditions stated in section 28:2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this article (sectiOn 28 :2-710), but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may ne at public or private sale including sale by way of one or more con- tracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parce1~ and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be corn~ merciallv reasonable The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be iii existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell (4) Where the resale is at public sale ` ` (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) it must be made at a usual place `or market for public sale if one ~ reasonably available and except in the case of goods which are perishable or threaten to decline in valuespeedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) if the goods are not to he within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and (d) the seller may buy. (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A `person in the position of a seller (section 28:2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of section 28:2-711). § 28 :2-7i~7. `Person in the position of a seller" (1) `A "person in the position of a seller" includes as against a principal an agent who has paid or become responsible for the price of goods on behalf of his principal or anyone who otherwise holds a security interest or other right in goods simiIa~ to that of a seller. ` ` (2) A person in the position of a seller may as provided in this article withhOld or stop delivery (section 28:2-705) and resell (section 28:2-706) and recover incidental damages (section 28:2-710). ` § 28:2-708. Seller's damages for non-acceptance or repudiation (1) Subject to subsection (2) and to the provisions of this article with respect to proof of market price (section 28:2-723), the measure of damages for non- acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this article (section 28:2-7 10), but less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this article (section 28:2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. 30-151-64--3 PAGENO="0034" 30 UNIFORM COMMERCIAL CODE §28:2-709. Action for the price (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes pOssible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (section 28:2-610), a seller who is held not enitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. § 28:2-710. Seller's incidental damages Incidential damages to an aggrieved seller include any commercially reason- able charges, expenses or commissions incurred in stopping delivery, in the trans- portation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach. § 28:2-711. Buyer's remedies in general; buyer's security interest in rejected goods (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (section 28:2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (a) "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or (b) recover damages for non-delivery as provided in this article (section 28:2-713). (2) Where the seller fails to deliver or repudiates the buyer may also (a) if the goods have been identified recover them as provided in this article (section 28: 2-502); or (b) in a proper case obtain specific performance or replevy the goods as provided in this article (section 28: 2-716). (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (section 28:2-706). § 28:2-712. "Cover"; buyer's procurement of substitute goods (1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2)~ The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or conse- quential damages as hereinafter defined (section 28:2-715), but less expenses saved in sonsequence of the seller's breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. §28:2-713. Buyer's damages for non-delivery or repudiation (1) Subject to the provisions of this article with respect to proof of market price (section 28:2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this article (section 28:2-715), but less ex- penses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. PAGENO="0035" UNIFORM COMMERCIAL CODE 31 § 28 :2-714. Buyer's damages for breach in regard to acepted goods (1) Where the buyer has accepted goods and given notification (subsection (3) of section 28:2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time rtnd place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. § 28:2-715. Buyer's incidental and consequential damages (1) Incidental damages resulting from the seller's breach include expenses rea- sonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or com- missions in connection with effecting cover and any other reasonable expense inci- dent to the delay or other breach. (2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. § 28:2-716. Buyer's right to specific performance or replevin (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. § 28:2-717. Deduction of damages from the price The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract. §28:2-718. Liquidation or limitation of damages; deposits (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing un- reasonably large liquidated damages is void as a penalty. (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for. the purposes of sub- section (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this article on resale by an aggrieved seller (section 28: 2-706). PAGENO="0036" 32 UNIFORM COM~IERCIAL CODE § 28:2-719. Contractual modification or limitation of remedy (1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitu- tion for those provided in this article and may limit or alter the measure of damages recoverable under this article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replace- ment of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is ex- pressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this subtitle. (3) Consequental damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima fade unconscionable but iimitation of damages where the loss is comercial is not. ~ 28:2-720. Effect of "cancellation" or "recission" on claims for antecedent breach Unless the contrary intention clearly appears, expressions of "cancellation" or "rescission" of the contract or the like shall not be construed as a renunciation or discharge of any claim in damages for an antecedent breach. § 28:2-721. Remedies for fraud Remedies for material misrepresentation or fraud include all remedies available under this article for nonfraudulent breach. Neither rescission or a claim for nonfraudulent breach. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy. §28:2-722. Who can sue third parties for injury to goods Where a third party so deals with goods which have been identified to a con- tract for sale as to cause actionable injury to a party to that contract (a) a right of action against the third party is in either party to the con- tract for sale who has title to or a security interest or a special property or an insurable interest in the goods; and if the goods have been destroyed or con- verted a right of action is also in the party who either bore the risk of loss under the contract for sale or has since the injury assumed that risk as against the other; (h) if at the time of the injury the party plaintiff did not hear the risk of loss as against the other party to the contract for sale and there is no arrange- ment between them for disposition of the recovery, his suit or settlement is, subject to his own interest, as a fiduciary for the other party to the contract; (c) either party may with the consent of the other sue for the benefit of whom it may concern. § 28:2-723. Proof of market price: time and place (1) If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (section 28:2-708 or section 28:2-713) shaH be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation. (2) If evidence of a price prevailing at the times or places described in this article is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for ~the one described may be used, making any proper allowance for the cost of trans- porting the goods to or from such other place. (3) Evidence of a relevant price prevailing at a time or place other than the one described in this article offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise. § 28:2-724. Admissibility of market quotations Whenever the prevailing price~. or value of any goods regularly bought and sold in any established ~ommodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in evidence. The circum- PAGENO="0037" UNIFORM COMMERCIAL CODE 33 stances of the preparation of such a report may be shown to affect its weight but not its admissibility. § 28:2-725. Statute of limitations in contracts for sale (1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it. (2) A cause of action accrues when the breach occurs, regardless of the ag. grieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly ex- tends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action ficcrues when the breach is or should have been discovered. (3) \~,There an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termina- tion resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute. (4) This section does not alter the law on tolling of the statute of limitatioiZs nor does it apply to causes of action which have accrued before this subtitle becomes effective. ARTICLE 3-COMMERCIAL PAPER PART 1-SHORT TITLE, FORM AND INTERPRETATION Sec. 28:3-101. Short title. 28:3-102. Definitions and index of definitions. 28:3-103. Limitations on scope of article. 28:3-104. Form of negotiable instruments: "draft"; "check"; "certificate of deposit"; "note". 28:3-105. When promise or order unconditional. 28:3-1C6. Sum certain. 28:3-107. Money. 28:3-108. Payable on demand. 28:3-109. Definite time. 28:3-110. Payable to order. 28:3-111. Payable to bearer. 28:3-112. Terms and omissions not affecting negotiability. 28:3-113. Seal. 28:3-114. Date, antedating, postdating. 28:3-115. Incomplete instruments. 28:3-116. Instruments payable to two or more persons. 28:3-117. Instruments payable with words of description. 28:3-118. Ambiguous terms and rules of construction. 28:3-119. Other writings affecting instrument. 28:3-120. Instruments "payable through" bank. 28:3-121. Instruments payable at bank. 28:3-122. Accrual of cause of action. PART 2-TRANSFER AND NEGOTIATION 28:3-201. Transfer: right to indorsement. 28:3-202. Negotiation. 28:3-203. Wrong or misspelled name. 28:3-204. Special indorsement; blank indorsement. 28:3-205. Restrictive indorsements. 28:3-206. Effect of restrictive indorsement. 28:3-207. Negotiation effective although it may be rescinded. 28:3-208. Reacquisition. PART 3-RIGHTS OF A HOLDER 28:3-301. Rights of a holder. 28:3-302. Holder in due course. 28:3-303. Taking for value. 28:3-304. Notice to a purchaser. 28:3-305. Rights of a holder in due course. 28:3-306. Rights of one not holder in due course. 28:3-307. Burden of establishing signatures, defenses and due course. PART 4-LIASILITY OF PARTIES 28:3-401. Signature. 28:3-402. Signature in ambiguous capacity. 28:3-403. Signature by authorized representative. 28:3-404. Unauthorized signatures. 28:3-405. Imposters; signature in name of payee. 28:3-406. Negligence contributing to alteration or unauthorized signature. 28:3-407. Alteration. 28:3-408. Consideration. PAGENO="0038" ~34 UNIFORM COMMERCIAL CODE 28:3-409. Draft not an assignment. 28:3-410. Definition and operation of acceptance. 28:3-411. Certification of a cheek. 28:3-412. Acceptance varying draft. 28:3-413. Contract of maker, drawer and acceptor. 28:3-414. Contract of indorser; order of liability. 28:3-415. Contract of accommodation party. 28:3-416. Contract of guarantor. 28:3-417. Warranties on presentment and transfer. 28:3-418. Finality of payment or acceptance. 28:3-419. Conversion of instrument; innocent representative. PART 5-PRESENTMENT, NOTICE OF DIsE0N0B AND PROTEST 28:3-501. When presentment, notice of dishonor, and protest necessary or permissible. 28:3-502. Unexcused delay; discharge. 28:3-503. Time of presentment. 28:3-504. How presentment made. 28:3-505. Rights of party to whom presentment is made. 28:3-506. Time allowed for acceptance or payment. 28:3-507. Dishonor; holder's right of recourse; term allowing re-presentment. 28:3-508. Notice of dishonor. 28:3-509. Protest; noting for protest. 28:3-510. Evidence of dishonor and notice of dishonor. 28:3-511. Waived or excused presentment, protest or notice of dishonor or delay therein. PART 6-DISCRARGE 28:3-601. Discharge of parties. 28:3-602. Effect of discharge against holder in due course. 28:3-603. Payment or satisfaction. 28:3-604. Tender of payment. 28:3-605. Cancellation and renunciation. 28:3-606. Impairment of recourse or of collateral. PART 7-ADVICE OF INTERNATIONAL ScanT DRAFT 28:3-701. Letter of advice of international sight draft. PART 8-MISCELLANEOUS 28:3-801. Drafts in a set. 28:3-802. Effect of instrument on obligation for which it is given. 28:3-803. Notice to third party. 28:3-804. Lost, destroyed or stolen instruments. 28:3-805. Instruments not payable to order or to bearer. PART 1-SHORT TITLE, FORM AND INTERPRETATION § 28:3-I0I. Short title This article shall be known and may be cited as Uniform Commerical Code- Commerical Paper. § 28:3-102. Definitions and index of definitions (1) In this article unless the context otherwise requires (a) "Issue" means the first delivery of an instrument to a holder or a remitter. (b) An "order" is a direction to pay and must be more than an authoriza- tion or request. It must identify the person to pay with reasonable certainty. It may be addressed to one or more such persons jointly or in the alternative but not in succession. (c) A "promise" is an undertaking to pay and must be more than an acknowledgement of an obligation. (d) "Secondary party" means a drawer or endorser. (e) "Instrument" means a negotiable instrument. (2) Other definitions applying to this article and the sections in which they appear are: "Acceptance". Section 28:3-410. "Accommodation party". Section 28:3-415. "Alteration". Section 28 :3-407. "Certificate of deposit". Section 28 :3-104. "Certification". Section 28:3-411. "Check". Section 28 :3-104. "Definite time". Section 28:3-109. "Dishonor". Section 28:3-507. "Draft". Section 28:3-104. "Holder in due course". Section 28:3-302. "Negotiation". Section 28:3-202. "Note". Section 28 :3-104. "Notice of dishonor". Section 28 :3-508. "On demand". Section 28:3-lOS. PAGENO="0039" UNIFORM COMMERCIAL CODE 35 "Presentment". Section 28:3-504. "Protest". Section 28 :3-509. "Restrictive Indorsement". Section 28:3-205. "Signature". Section 28:3-401. (3) The following definitions in other articles apply to this article: "Account". Section 28 :4-104. "I3anking day". Section 28 :4-104. "Clearing house". Section 28:4-104. "Collecting bank". Section 28:4-105. "Customer". Section 28:4-104. "Depositary bank". Section 28:4-105. "Documentary draft". Section 28:4-104. "Intermediary bank". Section 28:4-105. "Item". Section 28 :4-104. "Midnight deadline". Section 28:4-104. "Payor bank". Section 28 :4-105. (4) In addition article 1 contains general definitions and principles of con- struction and interpretation applicable throughout this article. § 28 :3-103. Limitations on scope of article (1) This article does not apply to money, documents of title or investment securities. (2) The provisions of this article are subject to the provisions of the article on bank deposits and collections (article 4) and secured transactions (article 9). § 28:3-104. Form of negotiable instruments; "draft"; "check"; "certificate of deposit"; "note" (1) Any writing to be a negotiable instrument within this article must (a) be signed by the maker or drawer; and (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this article; and (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer. (2) A writing which complies with the requirements of this section is (a) a "draft" ("bill of exchange") if it is an order; (b) a "check" if it is a draft drawn on a bank and payable on demand; (c) a "certificate of deposit" if it is an acknowledgment by a bank of receipt of money with an engagement to repay it; (d) a "note" if it is a promise other than a certificate of deposit. (3) As used in other articles of this subtitle, and as the context may require, the terms "draft", "check", "certificate of deposit" and "note" may refer to instruments which are not negotiable within this article as well as to instruments which are so negotiable. § 28:3-105. When promise or order unconditional (1) A promise or order otherwise unconditional is not made conditional by the fact that the instrument (a) is subject to implied or constructive conditions; or (b) states its consideration, whether performed or promised, or the trans- action which gave rise to the instrument, or that the promise or order is made or the instrument matures in accordance with or "as per" such trans- action; or (c) refers to or states that it arises out of a separate agreement or refers to a separate agreement for rights as to prepayment or acceleration; or (d) states that it is drawn under a letter of credit; or (e) states that it is secured, whether by mortgage, reservation of title or otherwise; or (f) indicates a particular account to be debited or any other fund or source from which reimbursement is expected; or (g) is limited to payment out of a particular fund or the proceeds of a particular source, if the instrument is issued by a government or governmental agency or unit; or (h) is limited to payment out of the entire assets of a partnership, unin- corporated association, trust or estate by or on behalf of which the instrument is issued. PAGENO="0040" 36 UNIFORM COMMERCIAL CODE (2) A promise or order is not unconditional if the instrument (a) states that it is subject to or governed by any other agreement; or (b) states that it is to he paid only out of a particular fund or source except as provided in this section. § 28:3-106. Sum certain (1) The sum payable is a sum certain even though it is to be paid (a) with stated interest or by stated installments; or (b) with stated different rates of interest before and after default or a specified c~te; or (c) with a stated discount or addition if paid before or after the date fixed for payment; or (d) with exchange or lessexchange, whether at a fixed rate or at the current rate; or (e) with costs of collection or an attorney's fee or both upon default. (2) Nothing in this section shall validate any term which is otherwise illegal. ~ 28:3-107. Money (1) An instrument is payable in money if the medium of exchange in which it is payable is money at the time the instrument is made. An instrument payable in "currency" or "current funds" is payable in money. (2) A promise or order to pay a sum stated in a foreign currency is for a sum certain in money and, unless a different medium of payment is specified in the instrument, may be satisfied by payment of that number of dollars which the stated foreign currency wifi purchase at the buying sight rate for that currency on the day on which the instrument is payable or, if payable on demand, on the day of demand. If such an instrument specifies a foreign currency as the medium of payment the instrument is payable in that currency. § 28:3-108. Payable on demand * Instruments payable on demand include those payable at sight or on presenta- tion and those in which no time for payment is stated. § 28:3-109. Definite time (1) An instrument is payable at a definite time if by its terms it is payable (a) on or before a stated date or at a fixed period after a stated date; or (b) at a fixed period after sight; or (c) at a definite time subject to any acceleration; or (d) at a definite time subject to extension at the option of the holder, or to extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event. (2) An instrument which by its terms is otherwise payable only upon an act or event uncertain as to time of occurrence is not payable at a definite time even though the act or event has occurred. § 28:3-110. Payable to order (1) An instrument is payable to order when by its terms it is payable to the order or assigns of any person therein specified with reasonable certainty, or to him or his order, or when it is conspicuously designated on its face as "exchange" or the like and names a payee. It may be payable to the order of (a) the maker or drawer; or (b) the drawee; or (c) a payee who is not maker, drawer or drawee; or (d) two or more payees together or in the alternative; or (e) an estate, trust or fund, in which case it is payable to the order of the representative of such estate, trust or fund or his successors; or * * (f) an office, or an officer by his title as such in which case it is payable to the principal but the incumbent of the office or his successors may act as if he or they were the holder; or (g) a partnership or unincorporated association, in which case it is payable to the partnership or association and may be indorsed or transferred by any person thereto authorized. (2~ An instrument not payable to order is not made so payable by such words as "payable upon return of this instrument properly indorsed." (3) An instrument made payable both to order and to bearer is payable to order unless the bearer words are handwritten or typewritten. PAGENO="0041" UNIFORM COMMERCIAL CODE 37 §28 :3-111. Payable to bearer An instrument is payable to bearer when by its terms it is payable to (a) bearer or the order of bearer; or (b) a specified person or bearer; or (c) "cash" or the order of "cash", or any other indication which does not purport to designate a specific payee. § 28:3-112. Terms and omissions not affecting negotiability (1) The negotiability of an instrument is not affected by (a) the omission of a statement of any consideration or of the place where the instrument is drawn or payable; or (b) a statement that collateral has been given to secure obligations either on the instrument or otherwise of an obligor on the instrument or that in the case of default on those obligations the holder may realize on or dispose of the collateral; or (c) a promise or power to maintain or protect collateral or to give addi- tional collateral; or (d) a term~~ * authorizing a confession of judgment on the instrument if it is not paid when due; or (e) a term purporting to waive the benefit of any law intended for the ad- vantage or protection of any obligor; or (f) a term in a draft providing that the payee by indorsing or cashing it acknowledges full satisfaction of an* obligation of the drawer; or (g) a statement in a draft drawn in a set of parts (section 28:3-801) to the effect that the order is effective only if no other part has been honored. (2) Nothing in this section shall validate any term which is otherwise illegal. § 28:3-113. Seal An instrument otherwise negotiable is within this article even though it is und~ a seal. § 28:3-114. Date, antedating, postdating (1) The negotiability of an instrument is not affected by the fact that it is undated, antedated or postdated. (2) Where an instrument is antedated or postdated the time when it is payable is determined by the stated date if the instrument is payable on demand or at a fixed period after date. (3) Where the instrument or any signature thereon is dated, the date is pre- sumed to be correct. § 28:3-115. Incomplete instruments (1) ~\Then a paper whose contents at the time of signing show that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with authority given it is effective as completed. (2) If the completion is unauthorized the rules as to material alteration apply (section 28:3-407)., even though the paper was not delivered by the maker or drawer; but the burden of establishing that any completion is unauthorized is on the party so asserting. ~ 28:3-116. Instruments payable to two or more persons An instrument payable to the order of two or more persons (a) if in the alternative is payable to any one of them and may be nego- tiated, discharged or enforced by any of them who has possession of it; (b) if not .in the alternative is payable to all of them and may be nego- tiated, discharged or enforced only by all of them. § 28:3-117. Instruments payable with words of description An instrument made payable to a named person with the addition of words describing him *- (a) as agent or officer of a specified person is payable to his principal but the agent or officer may act as if-he were the holder; (b) as any other fiduciary for a specified person or purpose is payable to * the payee and m~y be negotiated, discharged or enforced by him; (c) in any other manner is payable to the payee unconditionally and the additional words are without effect on subsequent parties. PAGENO="0042" 38 UNIFORM COMMERCIAL CODE §28:3-118. Ambiguous terms and rules of construction The following rules apply to every instrument: (a) Where there is doubt whether the instrument is a draft or a note the holder may treat it as either. A draft drawn on the drawer is effective as a note. (b) Handwritten terms control typewritten and printed terms, and type- written control printed. (c) Words control figures except that if the words are ambiguous figures control. (d) Unless otherwise specified a provision for interest means interest at the judgment rate at the place of payment from the date of the instrument, or if it is undated from the date of issue. (e) Unless the instrument otherwise specifies two or more persons who sign as maker, acceptor or drawer or indorser and as a part of the same transaction are jointly and severally liable even though the instrument con- tains such words as "I promise to pay." (f) Unless otherwise specified consent to extension authorizes a single extension for not longer than the original period. A consent to extension, expressed in the instrument, is binding on secondary parties and accommoda- tion makers. A holder may not exercise his option to extend an instrument over the objection of a maker or acceptor or other party who in accordance with section 28:3-604 tenders full payment when the instrument is due. § 28:3-119. Other writings affecting instrument (1) As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agree- ment executed as a part of the same transaction, except that a holder in due course is not affected by any limitation of his rights arising out of the separate written agreement if he had no notice of the limitation when he took the instrument. (2) A separate agreement does not affect the negotiability of an instrument. § 28:3-120. Instruments "payable through" bank An instrument which states that it is "payable through" a bank or the like designates that bank as a collecting bank to make presentment but does not of itself authorize the bank to pay the instrument. § 28:3-121. Instruments payable at bank A note or acceptance which states that it is payable at a bank is the equivalent of a draft drawn on the bank payable when it falls due out of any funds of the maker or acceptor in current account or otherwise available for such payment. § 28:3-122. Accrual of cause of action (1) A cause of action against a maker or an acceptor accrues (a) in the case of a time instrument on the day after maturity; (b) in the case of a demand instrument upon its date or, if no date is stated, on the date of issue. (2) A cause of action against the obligor of a demand or time certificate of deposit accrues upon demand, but demand on a time certificate may not be made until on or after the date of maturity. (3) A cause of action against a drawer of a draft or an indorser of any instrument accrues upon demand following dishonor of the instrument. Notice of dishonor is a demand. (4) Unless an instrument provides otherwise, interest runs at the rate provided by law for a judgment (a) in the case of a maker, acceptor or other primary obligor of a demand instrument, from the date of demand; (b) in all other cases from the date of accrual of the cause of action. PART 2-TRANSFER AND NEGOTIATION §28:3-201. Transfer: right to indorsement (1) Transfer of an instrument vests in the transferee such rights as the transferor has therein, except that a transferee who has himself been a party to any fraud or illegality affecting the instrument or who as a prior holder had notice of a defense or claim against it cannot improve his position by taking from a later holder in due course. (2) A transfer of a security interest in an instrument vests the foregoing rights in the transferee to the extent of the interest transferred. PAGENO="0043" UNIFORM COMMERCIAL CODE 39 (3) Unless otherwise agreed any transfer for value of an instrument not then payable to bearer gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor. Negotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner. § 28:3-202. Negotiation (1) Negotiation is the transfer of an instrument in such form that the transferee becomes a holder. If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery. (2) An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to beocme a part thereof. (3) An indorsement is effective for negotiation only when it conveys the entire instrument or any unpaid residue. If it purports to be of less it operates only as a partial assignment. (4) Words or assignment, condition, waiver, guaranty, limitation or disclaimer of liability and the like accompanying an indorsement do not affect its character as an indorsement. § 28:3-203. Wrong or misspelled name When an instrument is made payable to a person under a misspelled name or one other than his own he may indorse in that name or his own or both; but signa- ture in both names may be required by a person paying or giving value for the instrument. § 28:3-204. Special indorsement; blank inclorsement (1) A special indorsement specifies the person to whom or to whose order it makes the instrument payable. Any instrument specially indorsed becomes payable to the order of the special indorsee and may be further negotiated only by his indorsement. (2) An indorsement in blank specifies no particular indorsee and may consist of a mere signature. An instrument payable to order and indorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially indorsed. (3) The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. § 28:3-205. Restrictive indorsements An indorsement is restrictive which either (a) is conditional; or (b) purports to prohibit further transfer of the instrument; or (c) includes the words "for collection", "for deposit", "pay any bank", or like terms signifying a purpose of deposit or collection; or (d) otherwise states that it is for the benefit or use of the indorser or of another person. § 28:3-206. Effect of restrictive indorsement (1) No restrictive indorsement prevents further transfer or negotiation of the instrument. (2) An intermediary bank, or a payor bank which is not the depositary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the bank's immediate transferor or the person presenting for payment. (3) Except for an intermediary bank, any transferee under an indorsement which is conditional or includes the words "for collection", "for deposit", "pay any bank", or like terms (subparagraphs (a) aad (c) of section 28:3-205) must pay or apply any value given by him for or on the security of the instrument con- sistently with the indorsement and to the extent that he does so he becomes a holder for value. In addition such transferee is a holder in due course if he otherwise complies with the requirements of section 28:3-302 on what consti- tutes a holder in due course. (4) The first taker under an indorsement for the benefit of the indorser or another person (subparagraph (d) of section 28:3-205) must pay or apply any value given by him for or on the security of the instrument consistently with the indorsement and to the extent that he does so he becomes a holder for value. In addition such taker is a holder in due course if he otherwise complies with the requirements of section 28:3-302 on what constitutes a holder in due course. A later holder for value is neither giveA notice nor otherwise affected by such PAGENO="0044" 40 UNIFORM COMMERCIAL CODE restrictive indorsement unless he has knowledge that a fiduciary or other person has negotiated the instrument in any transaction for his own benefit or otherwise in breach of duty (subsection (2) of section 28:3-304). § 28:3-207. Negotiation effective although it may be rescinded (1) Negotiation is effective to transfer the instrument although the negotiation is (a) made by an infant, a corporation exceeding its powers, or any other person without capacity; or (b) obtained by fraud, duress or mistake of any kind; or (c) part of an illegal transaction; or (d) made in breach of duty. (2) Except as against a subsequent holder in due course such negotiation is in an appropriate case subject to rescission, the declaration of a constructive trust or any other remedy permitted by law. § 28:3-208. Reacquisition Where an instrument is returned to or reacquired by a prior party he may cancel any indorsement which is not necessary to his title and reissue or further negotiate the instrument, but any intervening party is discharged as against the reacquiring party and subsequent holders not in due course and if his indorsement has been cancelled is discharged as against subsequent holders in due course as well. PART 3-RIGHTS OF A HOLDER §28:3-301. Rights of a holder The holder of an instrument whether or not he is the owner may transfer or negotiate it and, except as otherwise provided in section 28:3-603 on payment or satisfaction, discharge it or enforce payment in his own name. § 28:3-302. Holder in due course (1) A holder in due course is a holder who takes the instrument (a) for value; and (h) in good faith; and (c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person. (2) A payee may be a holder in due course. (3) A holder does not become a holder in due course of an instrument: (a) by purchase of it at judicial sale or by taking it under legal process; or (b) by acquiring it in taking over an estate; or (c) by purchasing it as part of a bulk transaction not in regular course of business of the transferor. (4) A purchaser of .a limited interest can he a holder in due course only to the extent of the interest purchased. § 28:3-303. Taking for value A holder takes the instrument for value (a) to the extent that the agreed consideration has been performed or that he acquires a security interest in or a lien on the instrument otherwise than by legal process; or (b) when he takes the instrument in payment of or as security for an antecedent claim against any person whether or not the claim is due; or (c) when he gives a negotiable instrument for it or makes an irrevocable commitment to a third person. § 28:3-304. Notice to purchaser (1) The purchaser has notice of a claim or defense if (a) the instrument is so incomplete, bears such visible evidence of forgery or alteration, or is otherwise so irregular as to call into question its validity, terms or ownership or to create an ambiguity as to the party to pay; or (b) the purchaser has notice that the obligation of any party is voidable in whole or in part, or that all parties have been discharged. (2) The purchaser has notiče of a claim against the instrument when he has knowledge that a fiduciary has negotiated the instrument in payment of or as security for his own debt or in any transaction for his own benefit or otherwise in breach of duty. PAGENO="0045" UNIFORM COMMERCIAL CODE 41 (3) The purchaser has notice that an instrument is overdue if he has reason to know. (a) that any part of the principal amount is overdue or that there is an uncured default in payment of another instrument of the same series; or (b) that acceleration of the instrument has been made; or (c) that he is taking a demand instrument after demand has been made or more than a reasonable length of time after its issue. A reasonable time for a check drawn and payable within the states and territories of the United States and the District is presumed to be thirty days. (4) Knowledge of the following facts does not of itself give the purchaser notice of a defense or claim. (a) that the instrument is antedated or postdated; (b) that it was issued or negotiated in return for an executory promise or accompanied by a separate agreement, unless the purchaser has notice that a defense or claim has arisen from the terms thereof; (c) that any party has signed for accommodation; (d) that an incomplete instrument has been completed, unless the pur- chaser has notice of any improper completion; (e) that any person negotiating the instrument is or was a fiduciary; (f) that there has been default in payment of interest on the instrument or in payment of any other instrument, except one of the same series. (5) The filing or recording of a document does not of itself constitute notice within the provisions of this article to a person who would otherwise be a holder in due course. (6) To be effective notice must be received at such time and in such manner as to give a reasonable opportunity to act on it. § 28 :3-305. Rights of a holder in due course To the extent that a holder is a holder in due course he takes the instrument free from (1) all claims to it on the part of any person; and (2) all defenses of any part to the instrument with whom the holders has not dealt except (a) infancy, to the extent that it is a defense to a simple contract; and. (b) such other incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity; and (c) such misrepresentation as has induced the party to sign the instrument with neither knowledge nOr reasonable opportunity to obtain knowledge of its character or its essential terms; and (d) discharge in insolvency proceedings; and (e) any other discharge of which the holder has notice when he takes the instrument. .528:3-306. Rights of one not holder in due course Unless he has the rights of a holder in due course any person takes the instru- ment subject to (a) all valid claims to it on the part of any person; and (b) all defenses of any party which would be available in an action on a simple contract; and (c) the defenses of want or failure of consideration, nonperformance of any condition precedent, nondelivery, or delivery for a special purpose (section 28:3-408); and (d) the defense that he or a person through whom he holds the instrument acquired it by theft, or that payment or satisfaction to such holder would be inconsistent with the terms of a restrictive indorsement. The claim of any third person to the instrument is not otherwise available as a defense to any party liable thereon unless the third person himself defends the action for such party. § 28:3-307. Burden of establishing signatures, defenses and due course (1) IJnless specifically denied in the pleadings each signature on an instrument is admitted. When the effectiveness of a signature is put in issue (a) the burden of establishing it is on the party claiming under the signa- ture; hut (b) the signature is presumed to be genuine or authorized except where the action is to enforce the obligation of a purported signer who has died or become incompetent before proof is required. PAGENO="0046" 42 UNIFORM CO~4MERCIAL CODE (2) When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense. (3) After it is shown that a defense exists a person claiming the rights of a holder in due course has the burden of establishing that he or some person under whom he claims is in all respects a holder in due course. PART 4-LIABILITY OF PARTIES § 28 :3-401. Signature (1) No person is liable on an instrument unless his signature appears thereon. (2) A signature is made by use of any name, including any trade or assumed name, upon an instrument, or by any word or mark used in lieu of a written signa- ture. ~ 28 :3-402. Signature in ambiguous capacity Unless the instrument clearly indicates that a signature is made in some other capacity it is an indorsement. *~ 28:3-403. Signature by authorized representative (1) A signature may be made by an agent or other representative, and his authority to make it may be established as in other cases of representation. No ~particular form of appointment is necessary to establish such authority. (2) An authorized representative who signs his own name to an instrument (a) is personally obligated if the instrument neither names the person represented nor shows that the representative signed in a representative capacity; (b) except as otherwise established between the immediate parties, is personally obligated if the instrument names the person represented but does not show that the representative signed in a representative capacity, or if the instrument does not name the person represented but does show that the representative signed in a representative capacity. (3) Except as otherwise established the name of an organization preceded or followed by the name and office of an authorized individual is a signature made in a representative capacity. § 28:3-404. Unauthorized signatures (1) Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it; but it operates as the signature of the unauthorized signer in favor of any person who in good faith pays the instrument or takes it for value. (2) Any unauthorized signature may be ratified for all purposes of this article. Such ratification does not of itself affect any rights of the person ratifying against the actual signer. § 28:3-405. Impostors; signature in name of payee (1) An indorsement by any person in the name of a named payee is effective if (a) an imposter by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee~ or (b) a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument; or (c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest. (2) Nothing in this section shall affect the criminal or civil liability of the person so indorsing. §28:3-406. Negligence contributing to alteration or unauthorized signature Any person who by his negligence substantially contributes to a material altera- tion of the instrument or to the making of an unauthori~ed signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee's or payor's business. PAGENO="0047" UNIFORM COMMERCIAL CODE 43 § 28:3-407. Alteration (1) Any alteration of an instrument is material which changes the contract of any party thereto in any respect, including any such change in (a) the number or relations of the parties; or (b) an incomplete instrument, by completing it otherwise than as author- ized; or (c) the writing as signed, by adding to it or by removing any part of it. (2) As against any person other than a subsequent holder in due course (a) alteration by the holder which is both fraudulent and material dis- charges any party whose contract is thereby changed unless that party assents or is precluded from asserting the defense; (b) no other alteration discharges any party and the instrument may be enforced according to its original tenor, or as to incomplete instruments according to the authority given. (3) A subsequent holder in due course may in all cases enforce the instrument according to its original tenor, and when an incomplete instrument has been completed, he may enforce it as completed. § 28:3-408. Consideration Want or failure of consideration is a defense as against any person not having the rights of a holder in due course (section 28:3-305), except that no considera- tion is necessary for an instrument or obligation thereon given in payment of or as security for an antecedent obligation of any kind. Nothing in this section shall be taken to displace any statute outside this subtitle under which a promise is enforceable notsrithstanding lack or failure of consideration. Partial failure of consideration is a defense pro tanto whether or not the failure is in an as- certained or liquidated amount. § 28:3-409. Draft not an assignment (1) A check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until he accepts it. (2) Nothing in this section shall affect any liability in contract, tort or otherwise arising from any letter of credit or other obligation or representation which is not an acceptance. §28:3-410. Definition and operation of acceptance (1) Acceptance is the drawee's signed engagement to honor the draft as pre- sented. It must be written on the draft, and may consist of his signature alone It becomes operative when completed by delivery or notification. (2) A draft may be accepted although it has not been signed by the drawer or is otherwise incomplete or is overdue or has been dishonored. (3) Where the draft is payable at a fixed period after sight and the acceptor fails to date his acceptance the holder may complete it by supplying a date in good faith. § 28:3-411. Certification of a check (1) Certification of a check is acceptance. Where a holder procures certification the drawer and all prior indorsers are discharged. (2) Unless otherwise agreed a bank has no obligation to certify a check. (3) A bank may certify a check before returning it for lack of proper indorse- ment. If it does so the drawer is discharged. § 28:3-412. Acceptance varying draft (1) Where the drawee's proffered acceptance in any manner varies the draft as presented the holder may refuse the acceptance and treat the draft as dis- honored in which case the drawee is entitled to have his acceptance cancelled. (2) The terms of the draft are not varied by an acceptance to pay at any par- ticular bank or place in the United States, unless the acceptance states that the draft is to be paid only at such bank or place. (3) Where the holder assents to an acceptance varying the terms of the draft each drawer and inclorser who does not affirmatively assent is discharged. § 28:3-413. Contract of maker, drawer and acceptor (1) The maker or acceptor engages that he will pay the instrument according to its tenor at the time of his enagement or as completed pursuant to section 28:3-~115 on incomplete instruments. PAGENO="0048" 44 UNIFORM -CO~vIERCIAL CODE (2) The drawer engages that upon dishonor of the draft and any necessary notice of dishonor or protest he will pay the amount of the draft to the holder or to any indorser who takes it up. The drawer may disclaim this liability by drawing without recourse. (3) By making, drawing or accepting the party admits as against all subsequent parties including the drawee the existence of the payee and his then capacity to indorse. § 28:3-414. Contract of indorser; order of liability * -(1) Unless the indorsement otherwise specifies (as by such words as "without recourse") every indorser engages that upon dishonor and any necessary notice of dishonor and protest he will pay the instrument according to its tenor at the time of his indorsement to the holder or to any subsequent indorser who takes it up, even though the indorser who takes it up was not obligated to do so. (2) Unless they otherwise agree indorsers are liable to dne another in the order in w hich they indorse w hich is presumed to be the order in w hech their signatures appear on the instrument. § 28:3-415. Contract of accommodation party (:1)~ An accommodation party is one who signs the instrument in any capacity for the purpose of lending his name to another party to it. * (2). When the instrument has been taken for value before it is due the accommo- dation party is liable in the capacity in which he has signed even though the taker knows of the accommodation. (3) As against a holder in due course and without notice of the accommodation oral proof of* the accommodation is not admissible to give the accommodation party the benefit of discharges dependent on his character as such. In other cases the accommodation character may be shown by oral proof. (4) An indorsement which shows that it is not in the chain of title is notice of its accommodation character. (5) An accommodation party is not liable to the party accommodated, and if he pays the instrument has a right of recourse on the instrument against such party. - § 28:3-416. Contract of guarantor (1) "Payment guaranteed" or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor without resort by the holder to any other party. (2) "Collection guaranteed" or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor, but only after the holder has reduced his claim against the maker or acceptor to judgment and execution has been returned unsatisfied, or after the maker or acceptor has become insolvent or it is otherwise apparent that it is useless to proceed against him. -: (3) Words of guaranty \vhich do not otherwise specify guarantee payment. (4) No words of guaranty added to the signature of a sole maker or acceptor affect his liability on the instrument. Such words added to the signature of one of two çr more makers or acceptors create a presumption that-the signature is for-the -accommodation of the others. (5) When words of guaranty are used presentment, notice of dishonor and protest-are-not necessary to charge the user. (6) Any guaranty written on the instrument is enforcible notwithstanding any statute of frauds. § 28:3-417. Warranties on presentment and transfer - (1) Any person who obtains payment or acceptance and any prior transferor w+arrants to a person ~vho in good faith pays or accepts that - (a) he has a good title to the instrument or is authorized to obtain pay- - ment or acceptance on behalf of one who has a good title; and (b) he has no knowledge that the signature of the maker or drawer is un- authorized, except that this warranty is not given by-a holder in due course acting in good faith - - * (i) to a maker with respect to the maker's own signature; or - (ii) to a drawer with respect to the drawer's own signature, whether - or not the drawer is a-iso the drawee; or - * - (iii) to an acceptor of a draft if the hOlder in due course took the - - draft after the acceptance or obtained the a-cceptance without knowledge that the drawer's signature was unauthorized; and - PAGENO="0049" UNIFORM COMMERCIAL CODE 45 (c) the instrument has not been materially altered, except that this war- ranty is not given by a holder in due course acting in good faith (i) to the maker of a note; or (ii) to the drawer of a draft whether or not the drawer is also the drawee; or (iii) to the acceptor of a draft with respect to an alteration made prior to the acceptance if the holder in due course took the draft after the acceptance, even though the acceptance provided "payable as originally drawn" or equivalent terms; or (iv) to the acceptor of a draft with respect to an alteration made after the acceptance. (2) Any person who transfers an instrument and receives consideration warrants to his transferee and if the transfer is by indorsement to any subsequent holder who takes the instrument in good faith that (a) he has a good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who has a good title and the transfer is other- wise rightful; and (b) all signatures are genuine or authorized; and (c) the instrument has not been materially altered; and (d) no defense of any party is good against him; and (e) he has no knowledge of any insolvency proceeding instituted with respect to the maker or acceptor or the drawer of an unaccepted instrument. (3) By transferring "without recourse" the transferor limits the obligation stated in subsection (2)(d) to a warranty that he has no knowledge of such a defense. (4) A selling agent or broker who does not disclose the fact that he is acting only as such gives the warranties provided in this section, but if he makes such disclosure warrants only his good faith and authority. § 28:3-418. Finality of payment or acceptance Except for recovery of bank payments as provided in the article on bank de- posits and collections (article 4) and except for liability for breach of warranty on presentment under the preceding section, payment or acceptance of any instru- ment is final in favor of a holder in due course, or a person who has in good faith changed his position in reliance on the payment. § 28:3-419. Conversion of instrument; innocent representative (1) An instrument is converted when (a) a drawee to whom it is delivered for acceptance refuses to return it on demand; or (b) any person to whom it is delivered for payment refuses on demand either to pay or to return it; or (c) it is paid on a forged indorsement. (2) In an action against a drawee under subsection (1) the measure of the drawee's liability is the face amount of the instrument. In any other action under subsection (1) the measure of liability is presumed to be the face amount of the instrument. (3) Subject to the provisions of this subtitle concerning restrictive indorsements a representative, including a depositary or collecting bank, who has a good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands. (4) An intermediary bank or payor bank which is not a depositary bank is not liable in conversion solely by reason of the fact that proceeds of an item indorsed restrictively (sections 28:3-205 and 28:3-206) are not paid or applied con- sistently with the restrictive indorsement of an indorser other than its immediate transferor. PART 5-PRESENTMENT, NOTICE OF DISHONOR AND PROTEST § 28:3-501. When presentment, notice of dishonor, and protest necessary or permissible (1) Unless excused (section 28:3-511) presentment is necessary to charge secondary parties as follows: (a) presentment for acceptance is necessary to charge the drawer and in- dorsers of a draft where the draft so provides, or is payable elsewhere than 80-151-64----4 PAGENO="0050" 46 UNIFORM COMMERCIAL CODE at the residence or place of business of the drawee, or its date of payment depends upon such presentment. The holder may at his option present for acceptance any other draft payable at a stated date; (b) presentment for payment is necessary to charge any indorser; (c) in the case of any drawer, the acceptor of a draft payable at a bank or the maker of a note payable at a bank, presentment for payment is necessary, but failure to make presentment discharges such drawer, acceptor or maker only as stated in section 28 :3-502(1) (b). (2) Unless excused (section 28:3-511) (a) notice of any dishonor is necessary to charge any indorser; (b) in the case of any drawer, the acceptor of a draft payable at a bank or the maker of a note payable at a bank, notice of any dishonor is necessary, but failure to give such notice discharges such drawer, acceptor or maker only as stated in section 28:3-502(1)(b). (3) Unless excused (section 28:3-511) protest of any dishonor is necessary to charge the drawer and indorsers of any draft which on its face appears to be drawn or payable outside of the states and territories of the United States and the District. The holder may at his option make protest of any dishonor of any other instrument and in the case of a foreign draft may on insolvency of the ac- ceptor before maturity make protest for better security. (4) Notwithstanding any provision of this section, neither presentment nor notice of dishonor nor protest is necessary to charge an indorser who has indorsed an instrument after maturity. § 28:3-502. Unexcused delay; discharge (1) Where without excuse any necessary presentment or notice of dishonor is delayed beyond the time when it is due (a) any indorser is discharged; and (b) any drawer or the acceptor of a draft payable at a bank or the maker of a note payable at a bank who because the drawee or payor bank becomes insolvent during the delay is deprived of funds maintained with the drawee or payor bank to cover the instrument may discharge his liability by written assignment to the holder of his rights against the drawee or payor bank in respect of such funds, but such drawer, acceptor or maker is not otherwise discharged. (2) Where without excuse a necessary protest is delayed beyond the time when it is due any drawer or indorser is discharged. § 28:3-503. Time of presentment (1) Unless a different time is expressed in the instrument the time for any presentment is determined as follows: (a) where an instrument is payable at or a fixed period after a stated date any presentment for acceptance must be made on or before the date it is payable; (b) where an instrument is payable after sight it must either be presented for acceptance or negotiated within a reasonable time after date or issue whichever is later; (c) where an instrument shows the date on which it is payable present- ment for payment is due on that date; (d) where an instrument is accelerated presentment for payment is due within a reasonable time after the acceleration; (e) with respect to the liability of any secondary party presentment for acceptance or payment of any other instrument is due within a reasonable time after such party becomes liable thereon. (2) A reasonable time for presentment is determined by the nature of the instrument, any usage of banking or trade and the facts of the particular case. In the case of an uncertified check whjch is drawn and payable within the United States and which is not a draft drawn by a bank the following are presumed to be reasonable periods within which to present for payment or to initiate bank collection: (a) with respect to the liability of the drawer, thirty days after date or issue whichever is later; and (b) wfth respect to the liability of an indorser, seven days after his indorse- ment. (3) Where any presentment is due on a day which is not a full business day for either the person making presentment or the party to pay or accept, presentment is due on the next following day which is a full business day for both parties. (4) Presentment to be sufficient must be made at a reasonable hour, and if at a bank during its banking day. PAGENO="0051" UNIFORM COMMERCIAL CODE 47 § 28:3-504. How presentment made (1) Presentment is a demand for acceptance or payment made upon the maker, acceptor, drawee or other payor by or on behalf of the holder. (2) Presentment may be made (a) by mail, in which event the time of presentment is determined by the time of receipt of the mail; or (b) through a clearing house; or (c) at the place of acceptance or payment specified in the instrument or if there be none at the place of business or residence of the party to accept or pay. If neither the party to accept or pay nor anyone authorized to act for him is present or accessible at such place presentment is excused. (3) It may be made (a) to any one of two or more makers, acceptors, drawees or other payors; or (b) to any person who has authority to make or refuse the acceptance or payment. (4) a draft accepted or a note made payable at a bank in the United States must be presented at such bank. (5) In the cases described in section 28 :4-210 presentment may be made in the manner and with the result stated in that section. § 28:3-505. Rights of party to whom presentment is made (1) The party to whom presentment is made may without dishonor require (a) exhibition of the instrument; and (b) reasonable identification of the person making presentment and evi- dence of his authority to make it if made for another; and (c) that the instrument be produced for acceptance or payment at a place specified in it, or if there be none at any place reasonable in the circumstances; and (d) a signed receipt on the instrument for any partial or full payment and its surrender upon full payment. (2) Failure to comply with any such requirement invalidates the presentment but the person presenting has a reasonable time in which to comply and the time for acceptance or payment runs from the time of compliance. § 28:3-506. Time allowed for acceptance or payment (1) Acceptance may be deferred without dishonor until the, close of the next business day following presentment. The holder may also in a good faith effort to obtain acceptance and without either dishonor of the instrument or discharge of secondary parties allow postponement of acceptance for an additional business day. (2) Except as a longer time is allowed in the case of documentary drafts drawn under a letter of credit, and unless an earlier time is agreed to by the party to pay, payment of an instrument may be deferred without dishonor pending reasonable examination to determine whether it is properly payable, but payment must be made in any event before the close of business on the day of presentment. § 28:3-507. Dishonor; holder's right of recourse; term allowing re-presentment (1) An instrument is dishonored when (a) a necessary or optional presentment is duly made and due acceptance or payment is refused or cannot be obtained within the prescribed time or in case of bank collections the instrument is seasonably returned by the mid- night deadline (section 28:4-301); or (b) presentment is excused and the instrument is not duly accepted or paid. (2) Subject to any necessary notice of dishonor and protest, the holder has upon dishonor an immediate right of recourse against the drawers and indorsers. (3) Return of an instrument for lack of proper indorsement is not dishonor. (4) A term in a draft or an indorsement thereof allowing a stated time for re-presentment in the event of any dishonor of the draft by nonacceptance if a time draft or by nonpayment if a sight draft gives the holder as against any secondary party bound by the term an option to waive the dishonor without affecting the liability of the secondary party and he may present again up to the end of the stated time. § 28:3-508. Notice of dishonor (1) Notice of dishonor may be given to any person who may be liable on the instrument by or on behalf of the holder or any party who has himself received notice, or any other party who can he compelled to pay the instrument. In PAGENO="0052" 48 UNIFORM COMMERCIAL CODE addition an agent or bank in whose hands the instrument is dishonored may give notice to his principal or customer or to another agent or bank from which the instrument was received. (2) Any necessary notice must be given by a bank before its midnight deadline and by any other person before midnight of the third business day after dishonor or receipt of notice of dishonor. (3) Notice may be given in any reasonable manner. It may be oral or written and in any terms which identify the instrument and state that it has been dis- honored. A misdescription which does not mislead the party notified does not vitiate the notice. Sending the instrument bearing a stamp, ticket or writing. stating that acceptance or payment has been refused or sending a notice of debit with respect to the instrument is sufficient. (4) Written notice is given when sent although it is not received. (5) Notice to one partner is notice to each although the firm has been dissolved. (6) When any party is in insolvency proceedings instituted after the issue of the instrument notice may be given either to the party or to the representative of his estate. (7) When any party is dead or incompetent notice may be sent to his last known address or given to his personal representative. (8) Notice operates for the benefit of all parties who have rights on the instru- ment against the party notified. § 28:3-509. Protest; noting for protest (1) A protest is a certificate of dishonor made under the hand and seal of a. United States consul or vice consul or a notary public or other person authorized to certify dishonor by the law of the place where dishonor occurs. It may be made upon information satisfactory to such person. 2) The protest must identify the instrument and certify either that due presentment has been made or the reason why it is excused and that the instru- ment has been dishonored by nonacceptance or nonpayment. (3) The protest may also certify that notice of dishonor has been given to all parties or to specified parties. (4) Subject to subsection (5) any necessary protest is due by the time that notice of dishonor is due. (5) If, before protest is due, an instrument has been noted for protest by the officer to make protest, the protest may be made at any time thereafter as of the date of the noting. § 28:3-510. Evidence of dishonor and notice of dishonor The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor therein shown: (a) a document regular in form as provided in the preceding section which purports to be a protest; (b) the purported stamp or `writing of the drawee, payor bank or presenting* bank on the instrument or accompanying it stating that acceptance or pay- ment has been refused for reasons consistent with dishonor; (c) any book or record of the drawee, payor bank, or any collecting bank kept in the usual course of business which shows dishonor, even though there j5 no evidence of who made the entry. § 28:3-511. Waived or excused presentment, protest or notice of dishonor or delay therein (1) Delay in presentment, protest or notice of dishonor is excused when the party is without notice that it is due or when the delay is caused by circumstances beyond his control and he exercises reasonable diligence after the cause of the delay ceases to operate. (2) Presentment or notice or protest as the case may be is entirely excused when (a) the party to be charged has waived it expressly or by implication either before or after it is due; or (b) such party has himself dishonored the instrument or has countermanded payment or otherwise has no reason to expect or right to require that the instrument be accepted or paid; or (c) by reasonable diligence the presentment or protest cannot be made or - the notice given. PAGENO="0053" UNIFORM COMMERCIAL CODE 49 (3) Presentment is also entirely excused when (a) the maker, acceptor or drawee of any instrument except a documentary draft is dead or in insolvency proceedings instituted after the issue of the in- strument; or (b) acceptance or payment is refused but not for want of proper presentment. (4) Where a draft has been dishonored by nonacceptance a later presentment for `payment and any notice of dishonor and protest for nonpayment are excused unless in the meantime the instrument, has been accepted. (5) A waiver of protest is also a waiver of presentment and of notice of dishonor even though protest is not required. (6) Where a waiver of presentment or notice or protest is embodied in the in- :strument itself it is binding upon all parties; but where it is writen above the signa- ture of an indorser it binds him only. PART 6-DISCHARGE § 28:3-601. Discharge of parties (1) The extent of the discharge of any party from liability on an instrument is governed by the sections on (a) payment or satisfaction (section 28:3-603); or (h) tender of payment (section 28:3-604); or (c) can cellation or renunciation (section 28:3-605); or (d) impairment of right of recourse or of collateral (section 28:3-606); or (e) reacquisition of the instrument by a prior party (section 28:3-208); or (f) fraudulent and material alteration (section 28:3-407); or (g) certification of a check (section 28:3-411); or (h) acceptance varying a draft (section 28:3-412); or (i) unexcused delay in pre~entment or notice of dishonor or protest (section 28:3-'---502). (2) Any party is also discharged from his liability on an instrument to another party by any other act or agreement with such party which would discharge his simple contract for the payment of money. (3) The liability of all parties is discharged when any party who has hi~nself no right of action or recourse on the instrument (a) reacquires the instrument in his own right; or (b) is discharged under any provision of this article except as otherwise provided with respect to discharge for impairment of recourse or of collateral (section 28:3-606). § 28:3-602. Effect of discharge against holder in due course No discharge of any party provided by this article is effective against a subse- quent holder in due course unless he has notice thereof when he takes the instru~ ment. § 28:3-603. Payment or satisfaction (1) The liability of any party is discharged to the extent of his payment or satisfaction to the holder even though it is made with knowledge of a claim of another person to the instrument unless prior to such payment or satisfaction the person making the claim either supplies indemnity deemed adequate by the party seeking the discharge or enjoins payment or satisfaction by order of a court of competent jurisdiction in an action in which the adverse claimant and the holder are parties. This subsection does not, however, result in the discharge of the liability (a) of a party who in bad faith pays or satisfies a holder who acquired the instrument by theft or who (unless having the rights of a holder in due course) holds through one who so acquired it; or (b) of a party (other than an intermediary bank or a payor bank which is not a depositary bank) who pays or satisfies the holder of an instrument which has been restrictively indorsed in a manner not consistent with the terms of such restrictive indorsement. (2) Payment or satisfaction may be made with the consent of the holder by any person including a stranger to the instrument. Surrender of the instrument to such a person gives him the rights of a transferee (section 28:3-201). PAGENO="0054" 50 UNIFORM COMMERCIAL CODE § 28:3-604. Tender of payment (1) Any party making tender of full payment to a holder when or after it is due is discharged to the extent of all sulirequent liability for interest, costs, and attorney's fees. (2) The holder's refusal of such tender wholly discharges any party who has a right of recourse against the party making the tender. (3) Where the maker or acceptor of an instrument payable otherwise than on demand is able and ready to pay at every place of payment specified in the instrument when it is due, it is equivalent to tender. § 28:3-605. Cancellation and renunciation (1) The holder of an instrument may even without consideration discharge any party (a) in any manner apparent on the face of the instrument or the indorse- ment, as by intentionally cancelling the instrument or the party's signature by destruction or mutilation, or by striking out the party's signature; or (b) by renouncing his rights by a writing signed and delivered or by surrender of the instrument to the party to be discharged. (2) Neither cancellation nor renunciation without surrender of the instrument affects the title thereto. § 28:3-606. Impairment of recourse or of collateral (1) The holder discharges any party to the instrument to the extent that without such party's consent the holder (a) without express reservation of rights releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the in- strument or collateral or otherwise discharges such person, except that failure or delay in effecting any required presentment, protest or notice of dishonor with respect to any such person does not discharge any party as to whom presentment, protest or notice of dishonor is effective or unnecessary; or (b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse. (2) By express reservation of rights against a party with a right of recourse the holder preserves (a) all his rights against such party as of the time when the instrument was originally due; and (b) the right of the party to pay the instrument as of that time; and (c) all rights of such party to recourse against others. PART 7-ADVICE OF INTERNATIONAL SIGHT DRAFT § 28:3-701. Letter of advice of international sight draft (1) A "letter of advice" is a drawer's communication to the drawee that a described draft has been drawn. (2) Unless otherwise agreed when a bank receives from another bank a letter of advice of an international sight draft the drawee bank may immediately debit the drawer's account and stop the running of interest pro tanto. Such a debit and any resulting credit to any account covering outstanding drafts leaves in the drawer full power to stop payment or otherwise dispose of the amount and creates no trust or interest in favor of the holder. (3) Unless otherwise agreed and except where a draft is drawn under a credit issued by the drawee, the drawee of an international sight draft owes the drawer no duty to pay an unadvised draft but if it does so and the draft is genuine, may appropriately debit the drawer's account. PART 8-MISCELLANEOUS § 28:3-801. Drafts in a set (1) Where a draft is drawn in a set of parts, each of which is numbered and expressed to be an order only if no other part has been honored, the whole of the parts constitutes one draft but a taker of any part may become a holder in due course of the draft. PAGENO="0055" UNIFORM COMMERCIAL CODE 51 (2) Any person who negotiates, indorses or accepts a single part of a draft drawn in a set thereby becomes liable to any holder in due course of that part as if it were the whole set, but as between different holders in due course to whom different parts have been negotiated the holder whose title first accrues has all rights to the draft and its proceeds. (3) As against the drawee the first presented part of a draft drawn in a set is the part entitled to payment, or if a time draft to acceptance and payment. Accept- ance of any subsequently presented part renders the drawee liable thereon under subsection (2). With respect both to a holder and tot he drawer payment of a sub- sequently presented part of a draft payable at sight has the same effect as payment of a check notwithstanding an effective stop order (section 28: 4-407). (4) Except as otherwise provided in this section, where any part of a draft in a set is discharged by payment or otherwise the whole draft is discharged. § 28:3-802. Effect of instrument on obligation for which it is given (1) Unless otherwise agreed where an instrument is taken for an underlying obligation (a) the obligation is pro tanto discharged if a bank is drawer, maker or acceptor of the instrument and there is no recourse on the instrument against the underlying obligor; and (b) in any other case the obligation is suspended pro tanto until the instrument is due or if it is payable on demand until its presentment. If the instrument is dishonored action may be maintained on either the instru- ment or the obligation; discharge of the underlying obligor on the instrument also discharges him on the obligation. (2) The taking in good faith of a check which is not postdated does not of itself so extend the time on the original obligation as to discharge a surety. § 28:3-803. Notice to third party Where a defendant is sued for breach of an obligation for which a third person is answerable over under this article he may give the third person written notice of the litigation, and the person notified may then give similar notice to any other person who is answerable over to him under this article. If the notice states that the person notified may come in and defend and that if the person notified does not do so he will in any action against him by the person giving the notice be bound by any determination of fact common to the two litigations, then unless after seasonable receipt of the notice the person notified does come in and defend he is so bound. § 28:3-804. Lost, destroyed or stolen instruments The owner of an instrument which is lost, whether by destruction, theft, or otherwise, may maintain an action in his own name and recover from any party liable thereon upon due proof of his ownership, the facts which prevent his pro- duction of the instrument and its terms. The court may require security in- demnifying the defendant against loss by reason of further claims on the instru- ment. § 28:3-805. Instruments not payable to order or to bearer This article applies to any instrument whose terms do not preclude transfer and which is otherwise negotiable within this article but which is not payable to order or to bearer, except that there can be no holder in due course of such an instrument. PAGENO="0056" 52 UNIFORM COMMERCIAL CODE ARTICLE 4-BANK DEPOSITS AND COLLECTIONS PART 1-GENER~tx PRovIsIoNs AND DEFINITIONs Sec. 28:4-10l. Short title. 28:4-102. Applicability. 28:4-103. Variation by agreement; measure of damages; certain action constituting ordinary care. 28:4-104. Definitions and index of definitions. 28:4-105. "Depesitary bank"; "intermediary bank"; "collecting bank"; "payor bank"; "presenting bank"; "remitting bank". 28:4-106. Separate office of a bank. 28:4-107. Time of receipt of items. 28:4-108. Delays. 28:4-109. Process of posting. PART 2-COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS 28:4-201. Presumption and duration of agency status of collecting banks and provisional status of credits; applicability of article; item indorsed "pay any bank". 28:4-202. Responshility for collection; when action seasonable. 28:4-203. Effect of instructions. 28:4-204. Methods of sending and presenting; sending direct to payor hank. 28:4-205. Supplying missing indorsement; no notice from prior indorsement. 28:4-206. Transfer between banks. 28:4-207. Warranties of customer and collecting bank on transfer or presentment of items; time for claims. 28:4-208. Security interest of collecting bank in items, accompanying documents and proceeds. 28:4-209. When bank gives value for purposes of holder in due course. 28:4-210. Presentment by notice of item not payable by, through or at a bank; liability of secondary parties. 28:4-211. Media of remittance; provisional and final settlement in remittance cases. 28:4-212. Right of charge-back or refund. 28:4-213. Final payment of item by payor bank; when provisional debits and credits become final; when certain credits become available for withdrawal. 28:4-214. Insolvency and preference. PART 3-COLLECTION OF ITEMS: PAYOR BANKS 23:4-301. Deferred posting; recovery of nayment by return of items; time of dishonor. 28:4-302. Payor hank's responsibility for late return of item. 28:4-303. When items subject to notice, stop-order, legal process or setoff; order in which items may be charged or certified. PART 4-RELATIONSmP BETWEEN PAYOR BANK AND ITS CUSTOMER 28:4-401. When bank may charge customer's account. 28:4-402. Bank's liability to customer for wrongful dishonor. 28:4-403: Customer's rirht to stop payment; burden of proof of loss. 28:4-404. Bank not oblicated to pay check more than six months old. 28:4-405. Death or incompetence of customer. 28:4-406. Customer's duty to discover and report unauthorized signature or alteration. 28:4-407. Payor bank's right to subrogation on improper payment. PART 5-COLLECTION OF DOCUMENTARY DRAFTS 28:4-501. Handlirlgofdocumentarydrafts; dutyto send for presentment and to notify customerof dishonor. 28:4-502. Presentment of "on arrival" drafts. 28:4-503. Responsibility of presenting bank for documents and goods: report of reasons for dishonor; referee in case of need. 28:4-504. Privilege of presenting hank to deal with goods; security interest for expenses. PART 1-GENERAL PROVISIONS AND DEFINITIONS § 28:4-101. Short title This article shall he known and may be cited a~s Uniform Commercial Code- Bank Deposits and Collections. § 28:4-102. Applicability (1) To the extent that items w-ithin this article are also within the scope of articles 3 and 8, they are subject to the provisions of those articles. In the event of conflict the provisions of this article govern those of article 3 hut the provisions of article 8 govern those of this article. (2) The liability of a bank for action or non-action with respect to any item handled by it for purposes of presentment, payment or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located. § 28:4-103. Variation by agreement; measure of damages; certain action con- stituting ordinary care (1) The effect of the provisions of this article may he varied by agreement except thfft no agreement can disclaim a* hank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure; but the parties may by agreement determine the standards PAGENO="0057" UNIFORM COMMERCIAL CODE 53 by which such responsibility is to be measured if such standards are not manifestly unreasonable. (2) Federal Reserve regulations and operating letters, clearing house rules, and the like, have the effect of agreements under subsection (1), whether or not specifically assented to by all parties interested in items handled. (3) Action or non-action approved by this article or pursuant to Federal Reserve regulations or operating letters constitutes the exercise of ordinary care and, in the absence of special instructions, action or non-action consistent with clearing house rules and the like or with a general banking usage not disapproved by this article, prima facie constitutes the exercise of ordinary care. (4) The specification or approval of certain procedures by this article does not constitute disapproval of other procedures which may be reasonable under the circumstances. (5) The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount which could not have been realized by the use of ordinary care, and where there is bad faith it includes other damages, if any, suffered by the party as a proximate consequence. § 28:4-104. Definitions and index of definitions * (1) In this article unless the context otherwise requires (a) "Account" means any account with a bank and includes a checking, time, interest or savings account; (b) "Afternoon" means the period of a day between noon and midnight; (c) "Banking day" means that part of any day on which a bank is open to the public for carrying on substantially all of it banking functions; (d) "Clearing house" means any association of banks or other payors regularly clearing items; (e) "Customer" means any person having an account with a bank or for whom a bank has agreed to collect items and includes a bank carrying an account with another bank; (f) "Documentary draft" means any negotiable or nonnegotiable draft with accompanying documents, securities or other papers to be delivered against honor of the draft; (g) "Item" means any instrument for the payment of money even though it is not negotiable but does not include money; (h) "Midnight deadline" with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later; (i) "Properly payable" includes the availability of funds for payment at the time of decision to pay or dishonor; (j) "Settle" means to pay in cash, by clearing house settlement, in a charge or credit or by remittance, or otherwise as instructed. A settlement may be either provisional or final; (k) "Suspends payments" with respect to a bank means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over or that it ceases or refuses to make payments in the ordinary course of business. (2) Other definitions applying to this article and the sections in which they appear are: "Collecting bank". Section 28:4-105. "Depositary bank". Section 28:4-105. "Intermediary bank". Section 28:4-105. "Payor bank". Section 28:4-105. "Presenting bank". Section 28:4-105. "Remitting bank". Section 28:4-105. (3) The following definitions in other articles apply to this article: "Acceptance". Section 28:3-410. "Certificate of deposit". Section 28 :3-104. "Certification". Section 28:3-411. "Check". Section 28:3-104. "Draft". Section 28:3-104. "Holder in due course". Section 28 :3-302. "Notice of dishonor". Section 28:3-508. * "Presentment". Section 28:3-504. "Protest". Section 28:3-509. "Secondary party". Section 28:3-102. (4) In addition article 1 contains general definitions and principles of construc- tion and interpretation applicable throughout this article. PAGENO="0058" 54 UNIFORM COMMERCIAL CODE § 28:4-105. "Depositary bank"; "intermediary bank"; "collecting bank"; "payor bank"; "presenting bank"; "remitting bank" In this article unless the context otherwise requires: (a) "Depositary bank" means the first bank to which an item is transferred for collection even though it is also the payor bank; (b) "Payor bank" means a bank by which an item is payable as drawn or accepted; (c) "Intermediary bank" means any bank to which an item is transferred in course of collection except the depositary or payor bank; (d) "Collecting bank" means any bank handling the item for collection except the payor bank; (e) "Presenting bank" means any bank presenting an item except a payor bank; (f) "Remitting bank" means any payor or intermediary bank remitting for an item. § 28:4-106. Separate office of a bank A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notices or orders shall be given under this article and under article 3. The receipt of any notice or order by or the knowledge of one branch or separate office of a bank is not actual or constructive notice to or knowledge of any other branch or office of the same bank and does not impair the right of another branch or office to be a holder in due course of an item. § 28:4-107. Time of receipt of items (1) For the purpose of allowing time to process items, prove balances and make the necessary entries on its books to determine its position for the day, a bank may fix an afternoon hour of two P.M. or later as a cut-off hour for the handling of money and items and the making of entries on its books. (2) Any item or deposit of money received on any day after a cut-off hour so fixed or after the close of the banking day may be treated as being received at the opening of the next banking day. § 28:4-108. Delays (1) Unless otherwise instructed, a collecting bank in a good faith effort to secure payment may, in the case of specific items and with or without the ap- proval of any person involved, waive, modify or extend time limits imposed or permitted by this subtitle for a period not in excess of an additional banking day without discharge of secondary parties and without liability to its transferor or any prior party. (2) Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this subtitle or by instructions is excused if caused by interruption of communication facilities, suspension of payments by another bank, war, emer- gency conditions or other circumstances beyond the control of the bank provided it exercises such diligence as the circumstances require. § 28:4-109. Process of posting The "process of posting" means the usual procedure followed by a payor bank in determining to pay an item and in recording the payment including one or more of the following or other steps as determined by the bank: (a) verification of any signature; (b) ascertaining that sufficient funds are available; (c) affixing a "paid" or other stamp; (d) entering a charge or entry to a customers' account; (e) correcting or reversing an entry or erroneous action with respect to the item. PART 2-COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANK § 28:4-201. Presumption and duration of agency status of collecting banks and provisional status of credits; applicability of article; item indorsed "pay any bank" (1) Unless a contrary intent clearly appears and prior to the time that a settle- ment given by a collecting bank for an item is or becomes final (subsection (3) of section 28:4-211 and sections 28:4-212 and 28:4-213) the bank is an agent or PAGENO="0059" UNIFORM COMMERCIAL CODE 55 sub-agent of the owner of the time and any settlement given for the item is pro- visional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are sub- ject to right of a collecting bank such as those resulting from outstanding advances on the item and valid rights of setoff. When an item is handled by banks for purposes of presentment, payment and collection, the relevant provisions of this article apply even though action of parties clearly establishes that a particular bank has purchased the item and is the owner of it. (2) After an item has been indorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder. (a) until the item has been returned to the customer initiating collection; or (b) until the item has been specially indorsed by a bank to a person who is not a bank. § 28:4-202. Responsibility for collection; when action seasonable (1) A collecting bank must use ordinary care in (a) presenting an item or sending it for presentment; and (b) sending notice of dishonor or non-payment or returning an item other than a documentary draft to the bank's transferor or directly to the depositary bank under subsection (2) of section 28:4-212 after learning that the item has not been paid or accepted, as the case may be; and (c) settling for an item when the bank receives final settlement; and (d) making or providing for any necessary protest; and (e) notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof. (2) A collecting bank taking proper action before its midnight deadline following receipt of an item, notice or payment acts seasonably; taking proper action within a reasonably longer time may be seasonable but the bank has the burden of so establishing. (3) Subject to subsection (1) (a), a bank is not liable for the insolvency, neglect, misconduct, mistake or default of another bank or person or for loss or destruction of an item in transit or in the possession of others. § 28:4-203. Effect of instructions Subject to the provisions of article 3 concerning conversion of instruments (sec- tion 28:3-419) and the provisions of both article 3 and this article concerning restrictive indorsements only a collecting bank's transferor can give instructions which affect the bank or constitute notice to it and a collecting bank is not liable to prior parties for any action taken pursuant to such instructions or in accordance with any agreement with its transferor. § 28:4-204. Methods of sending and presenting; sending direct to payor bank (1) A collecting bank must send items by reasonably prompt method taking into consideration any relevant instructions, the nature of the item, the number of such items on hand, and the cost of collection involved and the method generally used by it or others to present such items. (2) A collecting bank may send (a) any item direct to the payor bank; (b) any item to any non-bank payor if authorized by its transferor; and (c) any item other than documentary drafts to any non-bank payor, if authorized by Federal Reserve regulation or operating letter, clearing house rule or the like. (3) Presentment may be made by a presenting bank at a place where the payor bank has requested that presentment by made. § 28:4-205. Supplying missing indorsement; no notice from prior indorsement (1) A depositary bank which has taken an item for collection may supply any indorsement of the customer which is necessary to title unless the item contains the words "payee's indorsement required" or the like. In the absence of such a requirement a statement placed on the item by the depositary bank to the effect that the item was deposited by a customer or credited to his account is effective as the customer's indorsement. (2) An intermediary bank, or payor bank which is not a depositary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the bank's immediate transferor. PAGENO="0060" 56 TJNIFORM COMMERCIAL CODE § 28:4-206. Transfer between banks Any agreed method which identifies the transferor bank is sufficient for the item's further transfer to another bank. - § 28:4-207. Warranties of customer and collecting bank on transfer or present- ment of items; time for claims (1) Each customer or collecting bank who obtains payment or acceptance of an item and each prior customer and collecting bank warrants to the payor bank or other payor who in good faith pays or accepts the item that (a) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of onewho has a good title; and (b) he has no knowledge that the signature of the maker or drawer is unauthorized, except that this warranty is not given by any customer or col- lecting bank that is a holder in due course and acts in good faith (i) to a maker with respect to the maker's own signature; or (ii) to a drawer with respect to the drawer's own signature, whether or not the drawer is also the drawee; or (iii) to an acceptor of an item if the holder in due course took the item. after the acceptance or obtained the acceptance without knowledge that the drawer's signature was unauthorized; and (c) the item has not been materially altered, except that this warranty is not given by any customer or collecting bank that is a holder in due course and acts in good faith (i) to the maker of a note; or (ii) to the drawer of a draft whether or not the drawer is also the drawee; or (iii) to the acceptor of an item with respect to an alteration made prior to the acceptance if the holder in due course took the item after the acceptance, even though the acceptance provided "payable as originally drawn" or equivalent terms; or (iv) to the acceptor of an item with respect to an alteration made after the acceptance. (2) Each customer and collecting bank who transfers an item and receives a settlement or other consideration for it warrants to his transferee and to any sub- sequent collecting bank who takes the item in good faith that (a) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title and the transfer is other- wise rightful; and (b) all signatures are genuine or authorized; and (c) the item h~s not been materially altered; and (d) no defense of any party is good against him; and (e) he has no knowledge of any insolvency proceeding instituted with respect to the maker or acceptor or the drawer of an unaccepted item. In addition each customer and collecting bank so transferring an item and re- ceiving a settlement or other consideration engages that upon dishonor and any necessary notice of dishonor and protest he will take up the item. (3) The warranties and the engagement to honor set forth in the two preceding subsections arise notwithstanding the absence of indorsement of words of guaranty or warranty in the transfer or presentment and a collecting bank remains liable for their breach despite remittance to its transferor. Damages for breach of such warranties or engagement to honor shall not exceed the consideration received by the customer or collecting bank responsible plus finance charges and expenses related to the item, if any. * (4) Unless a claim for breach of warranty under this section is made within a reasonable time ofter the person claiming learns of the breach, the person liable is discharged to the extent of any loss caused by the delay in making claim. § 28:4-208. Security interest of collecting bank in items, accompanying docu- ments and proceeds (1) A bank has a security interest in an item and any accompanying documents or the proceeds of either (a) in case of an item deposited in an account to the extent to which credit given for the item has been withdrawn or applied; (b) in case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given whether or not the credit is drawn upon and whether or not there is a right of charge-back; or (c) if it makes an advance on or against the item. PAGENO="0061" UNIFORM COMMERCIAL CODE 57 (2) When credit which has beea given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part the security interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first given are first withdrawn. (3) Receipt by a collecting bank of a final settlement for an item is a realiza- tion on its security interest in the item, accompanying documents and proceeds. To the extent and so long as the bank does not receive final settlement for the item or give up possession of the item or accompanying documents for purposes other than collection, the security interest continues and is subject to the pro- visions of article 9 except that (a) no security agreement is necessary to make the security interest enforceable (subsection (1) (b) of section 28:9-203); and (b) no filing is required to perfect the security interest; and (c) the security interest has priority over conflicting perfected security interests in the item, accompanying documents or proceeds. § 28:4-209. When bank gives value for purposes of holder in due course For purposes of determining its status as a holder in due course, the bank has given value to the extent that it has a security interest in an item provided that the bank otherwise complies with the requirements of sectIon 28:3-302 on what constitutes a holder in due course. § 28:4-210. Presentment by notice of item not payable by, through or at a bank; liability of secondary parties (1) Unless otherwise instructed, a collecting bank may present an item not payable by, through or at a bank by sending to the party to accept or pay a written notice that the bank holds the item for acceptance or payment. The notice must be sent in time to be received on or before the day when presentment is due and the bank must meet any requirement of the party to accept or pay under section 28:3-505 by the close of the bank's next banking day after it knows of the requirement. (2) Where presentment is made by notice and neither honor nor request for compliance with a requirement under section 28:3-505 is received by the close of business on the day after maturity or in the case of demand items by the close of business on the third banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any secondary party by sending him notice of the facts. § 28:4-211. Media of remittance; provisional and final settlement in remittance cases (1) A collecting bank may take in settlement of an item (a) a check of the remitting bank or of another bank on any bank except the remitting bank; or (b) a cashier's check or similar primary obligation of a remitting bank which is a member of or clears through. a member of the same clearing house or group as the collecting bank; or (c) appropriate authority to charge an account of the remitting bank or of another bank with the collecting bank; or (d) if the item is drawn upon or payable by a person other than a bank, a cashier's check, certified check or other bank check or obligation. (2) If before its midnight deadline the collecting bank properly dishonors a remittance check or authorization to charge on itself or presents or forwards ~or collection a remittance instrument of or on another bank which is of a kind approved by subsection (1) or has not been authorized by it, the collecting bank is not liable to prior parties in the event of the dishonor of such check, instrument or authorization. (3) A settlement for an item by means of a remittance instrument or authoriza- tion to charge is or becomes a final settlement as to both the person making and the person receiving the settlement. . . (a) if the remittance instrument or authorization to charge is of a kind approved by subsection (1) or has not been authorized by the person receiving the settlement and in either case the person receiving the settlement acts seasonably before its midnight deadline in presenting, forwarding for collec- tion or paying the instrument or authorization,-at the time the remittance instrument or authorization is finally paid by the payor by whichit is payable; (b) if the person receiving the settlement has authorized remittance by a non-bank check or obligation or by a cashier's check or similar primary PAGENO="0062" 58 UNIFORM COMMERCIAL CODE obligation of or a check upon the payor or other remitting bank which is not of a kind approved by subsection (l)(b),-at the time of the receipt of such remittance check or obligation; or (c) if in a case not covered by sub-paragraphs (a) or (b) the person re- ceiving the settlement fails to seasonably present, forward for collection, pay or return a remittance instrument or authorization to it to charge before its midnight deadline,-at such midnight deadline. § 28:4-212. Right of charge-back or refund (1) If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account or obtain refund from its customer whether or not it is able to return the items if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. These rights to revoked, charge-back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final (subsection (3) of section 28:4-211 and subsections (2) and (3) of section 28:4-213). (2) (Omitted.) (3) A depositary bank which is also the payor may charge-back the amount of an item to its customer's account or obtain refund in accordance with the section governing return of an item received by a payor bank for credit on its books (section 28:4-301). (4) The right to charge-back is not affected by (a) prior use of the credit given for the item; or (b) failure by any bank to exercise ordinary care with respect to the item but any bank so failing remains liable. (5) A failure to charge-back or claim refund does not affect other rights of the bank against the customer or any other party. (6) If credit is given in dollars as the equivalent of the value of an item payable in a foreign currency the dollar amount of any charge-back or refund shall be calculated on the basis of the buying sight rate for the foreign currency prevailing on the day when the person entitled to the charge-back or refund learns that it will not receive payment in ordinary course. § 28:4-213. Final payment of item by payor bank; when provisional debits and credits become final; when certain credits become available for withdrawal (1) An item is finally paid by a payor bank when the bank has done any of the following, whichever happens first: (a) paid the item in cash; or (b) settled for the item without reserving a right to revoke the settlement and without having such right under statute, clearing house rule or agreement; or (c) completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith; or (d) made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearing house rule or agreement. Upon a final payment under subparagraphs (b), (c) or (d) the payor bank shall be accountable for the amount of the item. (2) If provisional settlement for an item between the presenting and payor banks is made through a clearing house or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the pre - senting and successive prior collecting banks seriatim, they become final upon final payment of the item by the payor bank. (3) If a collecting bank receives a settlement for an item which is or becomes final (subsection (3) of section 28:4-211, subsection (2) of section 28:4-213) the bank is accountable to its customer for the amount of the item and any provisional credit given for the item in an account with its customer becomes final. (4) Subject to any right of the bank to apply the credit to an obligation of the customer, credit given by a bank for an item in an account with its customer becomes available for withdrawal as of right (a) in any case where the bank has received a provisional settlement for the item,-when such settlement becomes final and the bank has had a rea- sonable time to learn that the settlement is final; PAGENO="0063" UNIFORM COMMERCIAL CODE 59 (b) in any case where the bank is both a depositary bank and a payor bank and the item is finally paid,-at the opening of the bank's second banking day following receipt of the item. (5) A deposit of money in a bank is final when made but, subject to any right of the bank to apply the deposit to an obligation of the customer, the deposit be- comes available for withdrawal as of right at the opening of the bank's next banking day following receipt of the deposit. § 28:4-214. Insolvency and preference (1) Any item in or coming into the possession of a payor or collecting bank which suspends payment and which item is not finally paid shall be returned by the re- ceiver, trustee or agent in charge of the closed bank to the presenting bank or the closed bank's customer. (2) If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the presenting bank which settle- ment is or becomes final, the owner of the item has a preferred claim against the payor bank. (3) If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments, the suspension does not prevent or interfere with the settlement becoming final if such finality occurs automatically upon the lapse of certain time or the happening of certain events (subsection (3) of section 28: 4-211, subsections (1) (d), (2) and (3) of section 28: 4-213). (4) If a collecting bank receives from subsequent parties settlemnet for an item which settlement is or becomes final and suspends payments without making a settlement for the item with its customer which is or becomes final, the owner of the item has a preferred claim against such collecting bank. PART 3-COLLECTION OF ITEMS: PAYOR BANKS § 28:4-301. Deferred posting; recovery of payment by return of items; time of dishonor (1) Where an authorized settlement for a demand item (other than a docu- mentary draft) received by a payor bank otherwise than for immediate payment over the counter has been made before midnight of the banking day of receipt the payor bank may revoke the settlement and recover any payment if before it has made final payment (subsection (1) of section 28:4-213) and before its mid- night deadline it (a) returns the item; or (b) sends written notice of dishonor or nonpayment if the item is held for protest or is otherwise unavailable for return. (2) If a demand item is received by a payor bank for credit on its books it may return such item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in the preceding subsection. (3) Unless previous notice of dishonor has been sent an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section. (4) An item is returned: (a) as to an item received through a clearing house, when it is delivered to the presenting or last collecting bank or to the clearing house or is sent or delivered in accordance with its rules; or (b) in all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to his instructions. § 28:4-302. Payor bank's responsibility for late return of item, In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of section 28:4-207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of (a) a demand item other than a documentary draft whether properly payable or not if the bank, in any case where it is not also the depositary bank retains the item beyond midnight of the banking day of receipt without settling for it or, regardless of whether it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or (b) any other properly payable item unless within the time allowed for acceptance or payment of that item the bank either accepts or pays the item or returns it and accompanying documents. PAGENO="0064" 60 UNIFORM CO~ThfERCIAL CODE § 28:4-303. When items subject to notice, stop-order, legal process or setoff; order in which items may be charged or certified (1) Any knowledge, notice or stop-order received by, legal process served upon or setoff exercised by a payor bank, whether or not effective under other rules of law to terminate, suspend or modify the bank's right or duty to pay an item or to charge its customer's account for the item, comes too late to so terminate, suspend or modify such right or duty if the knowledge, notice, stop-order or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the bank has done any of the following: (a) accepted or certified the item; (b) paid the item in cash; (c) settled for the item without reserving a right to revoke the settlement and without having such right under statute, clearing house rule or agreement; (d) completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith or otherwise has evidenced by examination of such indicated account and by action its decision to pay the item; or (e) become accountable for the amount of the item under subsection (1) (d) of section 28:4-213 and section 28:4-302 dealing with the payor bank's responsibflity for late return items. (2) Subject to the provisions of subsection (1) items may be accepted, paid, certified or charged to the indicated account of its customer in any order convenient to the bank. PART 4-RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER § 28:4-401. When bank may charge customer's account (1) As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdrait. (2) A bank which in good faith makes payment to a holder may charge the indicated account of its customer according to (a) the original tenor of his altered item; or (b) the tenor of his completed item, even though the bank knows the item has been completed unless the bank has notice that the completion was improper. § 28:4-402. Bank's liability to customer for wrongful dishonor A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. WThen the dishonor occurs through mistake liability is limited to actual damages proved. If so proximately caused and proved dam- ages may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case. § 28:4-403. Customer's right to stop payment; burden of proof of loss (1) A customer may by order to his hank stop payment of any item payable for his account but the order must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it prior to any action by the bank with respect to the item described in section 28:4-303. No such order shall he valid, however, unless it shall be in writing specifically describing the item to which it relates by stating th~ amount, date and payee thereof. (2) Anything in this section 28:4-403 to the contrary notwithstanding, any stop payment order transmitted by telephone by a customer to an officer of a bank, while such officer is on the premises thereof, shall be accepted by such bank, upon such identification that will insure the order has been transmitted by such customer, as an effective order for a period of twenty-four hours, after which time it shall not longer be valid unless followed by a written order as provided in this section 28:4-403. A written order is effective for only six month unless renewed in writing. The bank may, at its option and without liability, stop pay- ment of an item after the expiration of a stop payment order or any renewal thereof relating to such item. PAGENO="0065" TJNIFORM COMMERCIAL CODE 61 (3) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a binding stop payment order is on the customer. § 28:4-404. Bank not obligated to pay check more than six months old A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than six months after its date, but it may charge its customer's account for a payment made thereafter in the absence of an effective stop payment order in accordance with section 28:4- 403. § 28:4-405. Death or incompetence of customer (1) A payor or collecting bank's authority to accept, pay or collect an item or to account for proceeds of its collection if otherwise effective is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes such authority to accept, pay, collect or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it. (2) Even with knowledge a bank may for ten days after the date of death pay or certify checks drawn on or prior to that date unless ordered to stop payment by a person claiming an interest in the account. § 28:4-406. Customer's duty to discover and report unauthorized signature or alteration (1) When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement arid items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank prompth after discovery thereof. (2) If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from asserting against the bank (a) his unauthorized signature or any alteration on the item if the bank also establishes that it suffered a loss by reason of such failure; and (b) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the first item and state- ment was available to the customer for a reasonable period not exceeding fourteen calendar days and before the bank receives notification from the customer of any such unauthorized signature or alteration. (3) The preclusion under subsection (2) does not apply if the customer estab- lishes lack of ordinary care on the part of the bank in paying the item(s). (4) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration. (5) If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the customer's claim. § 28:4-407. Payor bank's right to subrogation on improper payment If a payor bank has paid an item over the stop payment order of the drawer or maker or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank shall be subrogated to the rights (a) of any holder in due course on the item against the drawer or maker; and 30-151-64------5 PAGENO="0066" 62 UNIFORM CO~UvIERCIAL CODE (b) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and (c) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose. PART 5-COLLECTION OF DOCUMENTARY DRAFTS § 28:4-501. Handling of documentary drafts; duty to send for presentment and to notify customer of dishonor A bank which takes a documentary draft for collection must present or send the draft and accompanying documents for presentment and upon learinng that the draft has not been paid or accepted in due course must seasonably notify its~ customer of such fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right. § 28:4-502. Presentment of "on arrival" drafts When a draft or the relevant instructions require presentment "on arrival", "when goods arrive" or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank must notify its transferor of such refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods. § 28:4-503. Responsibility of presenting bank for documents and goods; report of reasons for dishonor; referee in case of need Unless otherwise instructed and except as provided in article 5 a bank pre- senting a documentary draft (a) must deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment; and (b) upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or if the presenting bank does not choose to utilize his services it must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor and must request in- structions. But the presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably re- ceivčd; it has a right to reimbursement for any expense incurred in following in- structions and to prepayment of or indemnity for such expenses. § 28:4-504. Privilege of presenting bank to deal with goods; security interest for expenses (1) A presenting hank which, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner. (2) For its reasonable expenses incurred by action under subsection (1) the presenting bank has a lien upon the goods or their proceeds, which may he fore- closed in the same manner as an unpaid seller's lien. PAGENO="0067" UNIFORM COMMERCIAL CODE 63 ARTICLE 5-LETTERS OF CREDIT Sec. 28:5-101. Short title. 28:5-102. Scope. 28:5-103. Definitions. 28:5-104. Formal requirements; ligning. 28:5-105. Consideration. 28:5-106. Time and effect of establiihment of credit. 28:5-107. Advice of credit; confirmation; error in statement of terms. 28:5-108. "Notation credit"; exhaustion of credit. 28:5-109. Issuer's obligation to its customer. 28:5-110. Availability of credit in portions; presenter's reservation of lien or claim. 28:5-111. Warranties on transfer and presentment. 28:5-112. Time allowed for honor or rejection; withholding honor or rejection by consent; "presenter"~ 28:5-113. Indemnities. 28:5-114. Issuer's duty and privilege to honor; right to reimbursement. 28:5-ill. Remedy for improper dishonor or anticipatory repudiation. 28:5-116. Transfer and assignment. 28:5-117. Insolvency of bank holding funds for documentary credit. § 28:5-lOl. Short title The article shall be known and may be cited as Uniform Commercial Code- Letters of Credit. § 28:5-102. Scope (1) Unless a letter of credit is by its terms or by agreement or by custom subject in whole or in part to the Uniform Customs and Practice For Commercial Docu- mentary Credits fixed by the thirteenth or by by any subsequent congress of the International Chamber of Commerce, this article applies (a) to a credit issued by a bank if the credit requires a documentary draft or a documentary demand for payment; and (b) to a credit issued by a person other than a bank if the credit requires that the draft or demand for payment be accompanied by a document of title; and (c) to a credit issued by a bank or other person if the credit is not within subparagraphs (a) or (h) but conspicuously states that it is a letter, of credit or is conspicuously so entitled. (2) Unless the engagement meets the requirements of subsection (1), this article does not apply to engagements to make advances or to honor drafts or demands for payment, to authorities to pay or purchase, to guarantees or to gen- eral agreements. (3) This article deals with some but not all of the rules and concepts of letters of credit as such rules or concepts have developed prior to this subtitle or may hereafter develop. The fact that this article states a rule does not by itself require, imply or negate application of the same or a converse rule to a situation not provided for or to a person not specified by this article. § 28:5-103. Definitions (1) In this article unless the context otherwise requires (a) "Credit" or "letter of credit" means an engagement by a bank or other person made at the request of a customer and of a kind within the scope of this article (section 28:5-102) that the issuer will honor drafts or other demands for payment upon compliance with the conditions speci~ed in the credit. A credit may be either revocable or irrevocable. The engagement may he either an agreement to honor or a statement that the bank or other person is authorized to honor. (b) A "documentary draft" or a "documentary demand for payment" is one honor of which is conditioned upon the presentation of a document or documents. "Document" means any paper including document of title, security, invoice, certificate, notice of default and the like. (c) An "issuer", is a bank or other preson issuing a credit. `(d) A "beneficiary" of a credit is a person who is entitled. under its terms to draw or demand payment. (e). An "advising bank" is a bank which gives notification of the issuance of a credit by anOther bank. ` (f) A "confirming bank" is a bank which engages either that it will itself honor a credit already issued by another bank or that such a credit will be honored by the issuer or a third bank. . (g) A "customer" is, a buyer or other person who causes an issuer to issue a credit The term also includes a bank w hich procures issuance or confirma tion on behalf of that bank s customer PAGENO="0068" 64 UNIFORM COMMERCIAL CODE (2) Other definitions applying to this article and the sections in which they appear are: "Notation of credit". Section 28:5-108. "Presenter". Section 28:5-112(3). (3) Definitions in other articles applying to this article and the sections in which they appear are: "Accept" or "Acceptance". Section 28:3-41(1. "Contract for sale". Section 28 :2-1 01, "Draft". Section 28 :3-104. "Holder in due course". Section 28 :3-302. "Midnight deadline". Section 28:4-104. "Security". Section 28 :8-102. (4) In addition, article 1 contains general definitions and principles of construe.. tion and interpretation applicable throughout this article. § 28:5-104. Formal requirements; signing (1) Except as otherwise required in subsection (1) (c) of section 28:5-102 on scope, no particular form of phrasing is required for a credit. A credit must be in writing and signed by the issuer and a confirmation must be in writing and signed by the confirming bank. A modification of the terms of a credit or con- firmation must be signed by the issuer or confirming bank. (2) A telegram may be a sufficient signed writing if it identifies its sender by an. authorized authentication. The authentication may be in code and the authorized naming of the issuer in an advice of credit is a sufficient signing. § 28:5-105. Consideration No consideration is necessary to establish a credit or to enlarge or otherwise modify its terms. § 28:5-106. Time and effect of establishment of credit (1) Unless otherwise agreed a credit is established (a) as regards the customer as soon as a letter of credit is sent to him or the letter of credit or an authorized written advice of its issuance is sent to the beneficiary; and (b) as regards the beneficiary when he receives a letter of credit or an authorized written advice of its issuance. (2) Unless otherwise agreed once an irrevocable credit is established as regards the customer it can be modified or revoked only with the consent of the customer and once it is established as regards the beneficiary it can be modified or revoked only with his consent. (3) Unless otherwise agreed after a revocable credit is established it may be modified or revoked by the issuer without notice to or consent from the customer or beneficiary. (4) Notwithstanding any modification or revocation of a revocable credit any person authorized to honor or negotiate under the terms of the original credit is entitled to reimbursement for or honor of any draft or demand for payment duly honored or negotiated before receipt of notice of the modification or revoca- tion and the issuer in turn is entitled to reimbursement from its customer. § 28:5-107. Advice of credit; confirmation; error in statement of terms (1) Unless otherwise specified an advising bank by advising a credit issued by another bank does not assume any obligation to honor drafts drawn or demands for payment made under the credit but it does assume obligation for the accuracy of its own statement. (2) A confirming bank by confirming a credit becomes directly obligated on the credit to the extent of its confirmation as though it were its issuer and acquires the rights of an issuer. (3) Even though an advising bank incorrectly advises the terms of a credit it has been authorized to advise the credit is established as against the issuer to ~the extent of its original terms. (4) Unless otherwise specified the customer bears as against the issuer all risks of transmission and reasonable translation or interpretation of any message relating to a credit. § 28:5-108. "Notation credit"; exhaustion of credit (1) A credit which specifies that any person purchasing or paying drafts drawn or demands for payment made under it must note the amount of the draft or demand on the letter or advice of credit is a "notation credit". (2) Under a notation credit PAGENO="0069" UNIFORM COMMERCIAL CODE 65 (a) a person paying the beneficiary or purchasing a draft or demand for payment from him acquires a right to honor only if the appropriate notation is made and by transferring or forwarding for honor the documents under the credit such a person warrants to the issuer that the notation has been made; and (b) unless the credit or a signed statement that an appropriate notation has been made accompanies the draft or demand for payment the issuer may delay honor until evidence of notation has been procured which is satis- factory to it but its obligation and that of its customer continue for a reason- able time not exceeding thirty days to obtain such evidence. (3) If the credit is not a notation credit (a) the issuer may honor complying drafts or demands for payment prč- sented to it in the order in which they are presented and is discharged pro tanto by honor of any such draft or demand; (b) as between competing good faith purchasers of complying drafts or demands the person first purchasing has priority over a subsequent pur- chaser even though the later purchased draft or deman,d has been first honored. § 28:5-109. Issuer's obligation to its customer (1) An issuer's obligation to its customer includes good faith and observance of any general banking usage but unless otherwise agreed does not include liability or responsibility (a) for performance of the underlying contract for sale or other transaction between the customer and the beneficiary; or (b) for any act or omission of any person other than itself or its own branch or for loss or destruction of a draft, demand or document in transit or in the possession of others; or (c) based on knowledge or lack of knowledge of any usage of any particular trade. (2) An issuer must examine documents with care so as to ascertain that on their face they appear to comply with the terms of the credit but unless otherwise agreed assumes no liability or responsibility for the genuineness, falsification or effect of any document which appears on such examination to be regular on its face. (3) A non-bank issuer is not bound by any banking usage of which it has no knowledge. § 28:5-hO. Availability of credit in portions; presenter's reservation of lien or claim (1) Unless otherwise specified a credit may be used in portions in the discretion of the beneficiary. (2) Unless otherwise specified a person by presenting a documentary draft or demand for payment under a credit relinquishes upon its honor all claims to the documents and a person by transferring such draft or demand or causing such presentment authorizes such relinquishment. An explicit reservation of claim makes the draft or demand non-complying. § 28:5-1h1. Warranties on transfer and presentment (1) Unless otherwise agreed the beneficiary by transferring or presenting a documentary draft or demand for payment warrants to all interested parties that the necessary conditions of the credit have been complied with. This is in addition to any warranties arising under articles 3, 4, 7 and 8. (2) Unless otherwise agreed a negotiating, advising, confirming, collecting or issuing bank presenting or transferring a draft or demand for payment under a credit warrants only the matters warranted by a collecting bank under article 4 and any such bank transferring a document warrants only the matters warranted by an intermediary under articles 7 and 8. § 28:5-112. Time allowed for honor or rejection; withholding honor or rejection by consent; "presenter" (1) A bank to which a documentary draft or demand for payment is presented under a credit may without dishonor of the draft, demand, or credit (a) defer honor until the close of the third banking day following receipt of the documents; and (b) further defer honor if the presenter has expressly or impliedly consented thereto. PAGENO="0070" 66 UNIFORM CO~ThIERCIAL CODE Failure to honor within the time here specified constitutes dishonor of the draft or demand and of the credit. (2) Upon dishonor the bank may unless otherwise instructed fulfill its duty to return the draft or demand and the documents by holding them at the disposal of the presenter and sending him an advice to tha~t effect. (3) "Presenter" means any person presenting a draft or demand for payment or honor under a credit even though that person is a confirming bank or other correspondent which is acting under an issuer's authorization. § 28:5-113. Indemnities (1) A bank seeking to obtain (whether for itself or another) honor, negotiation or reimbursement under a credit may give an indemnity to induce such honor, negotiation or reimbursement. (2) An indemnity agreement inducing honor, negotiation or reimbursement (a) unless otherwise explicitly agreed applies to defects in the documents but not in the goods; and (b) unless a longer time is explicitly agreed expires at the end of ten busi- ness days following receipt of the documents by the ultimate customer unless notice of objection is sent before such expiration date. The ultimate customer may send notice of objection to the person from whom he received the documents and any bank receil/ing such notice is under a duty to send notice to its transferor before its midnight deaWine. § 28:5-114. Issuer's duty and privilege to honor; right to reimbursement (1) An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract for sale or other contract between the customer and the beneficiary. The issuer is not excused from honor of such a draft or de- mand by reason of an additional general term that all documents must be satis- factory to the issuer, but an issuer may require that specified documents must be satisfactory to it. (2) Unless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (section 28:7- 507) or of a security (section 28:8-306) or is forged or fraudulent or there is fraud in the transaction (a) the issuer must honor the draft or demand for payment if honor is demanded by a negotiating hank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (section 28:3-302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (section 28:7-502) or a bona fide purchaser of a security (section 28:8-302); and (b) in all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor. (3) Unless otherwise agreed an issuer which has duly honored a draft or demand for payment is entitled to immediate reimbursement of any payment made under the credit and to be put in effectively available funds not later than the day before maturity of any acceptance made under the credit. (4) (5) (Omitted.) § 28:5-115. Remedy for improper dishonor or anticipatory repudiation (1) When an issuer wrongfully dishonors a draft or demand for payment pre- sented under a credit the person entitled to honor has with respect to any docu- ments the rights of a person in the position of a seller (section 28:2-707) and may recover from the issuer the face amount of the draft or demand together with incidental damages under section 28:2-710 on seller's incidental damages and interest but less any amount realized by resale or other use or disposition of the subject matter of the transaction. In the event no resale or other utilization is made the documents, goods or other subject matter involved in the transaction must be turned over to the issuer on payment of judgment. (2) When an issuer wrongfully cancels or otherwise repudiates a credit before presentment of a draft or demand for payment drawn under it the beneficiary has the rights of a seller after anticipatOry repudiation by the buyer under section 28:2- 610 if he learns of the repudiation in time reasonably to avoid procurement of the required documents. Otherwise the beneficiary has an immediate right of action for wrongful dishonor. PAGENO="0071" UNIFORM COMMERCIAL CODE 67 * § 28:5-116. Transfer and assignment (1) The right to draw under a credit can be transferred or assigned only when the credit is expressly designated as transferable or assignable. (2) Even though the credit specifically states that it is nontransferable or non- assignable the beneficiary may before performance of the conditions of the credit assign his right to proceeds. Such an assignment is an assignment of a contract right under article 9 on secured transactions and is governed by that article except that (a) the assignment is ineffective until the letter of credit or advice of credit is delivered to the assignee which delivery constitutes perfection of the security interest under article 9; and (b) the issuer may honor drafts or demands for payment drawn under * the credit until it receives a notification of the assignment signed by the beneficiary which reasonably identifies the credit involved in the assignment and contains a request to pay the assignee; and (c) after what reasonably appears to be such a notification has been received the issuer may without dishonor refuse to accept or pay even to a person otherwise entitled to honor until the letter of credit or advice of credit is exhibited to the issuer. (3) Except where the beneficiary has effectively assigned his right to draw or his right to proceeds, nothing in this section limits his right to transfer or negotiate drafts or demands drawn under the credit. § 28:5-117. Insolvency of bank holding funds for documentary credit (1) Where an issuer or an advising or confirming bank or a bank which has for a customer procured issuance of a credit by another bank becomes insolvent before final payment under the credit and the credit is one to which this article is made applicable by paragraphs (a) or (b) of section 28:5-102(1) on scope, the receipt or allocation of funds or collateral to secure or meet obligations under the credit shall have the following results: (a) to the extent of any funds or collateral turned over after or before the insolvency as indemnity against or specifically for the purpose of payment of drafts or demands for payment drawn under the designated credit, the drafts or demands are entitled to payment in preference over depositors or other general creditors of the issuer or bank; and (b) on expiration of the credit or surrender of the beneficiary's rights under it unused any person who has given such funds or collateral is similarly entitled to return thereof; and (c) a charge to a general or current account with a bank if specifically consented to for the purpose of indemnity against or payment of drafts or demands for payment drawn under the designated credit falls under the same rules as if the funds had been drawn out in cash and then turned over with specific instructions. (2) After honor or reimbursement under this section the customer or other person for whose account the insolvent bank has acted is entitled to receive the documents involved. ARTICLE 6-BULK TRANSFERS Sec. 28:6-101. Short title. 28:6-102. "Bulk transfer"; transfers of equipment; enterprises subject to this article; bulk transfers sub- ject to this article. 28:6-103. Transfers excepted from this article. 28:6-104. Schedule of property, list of creditors. 28:6-105. Notice to creditors. 28:6-106. (Omitted.) 28:6-107. The notice. 28:6-108. Auction sales; "auctioneer". 28:6-109. What creditors protected. 28:6-110. Subsequent transfers. 28:6-111. Limitation of actions and levies. § 28:6-101. Short title This article shall be known and may be cited as Uniform Commercial Code- Bulk Transfers. § 28:6-102. "Bulk transfer"; transfers of equipment; enterprises subject to this article; bulk transfers subject to this article (1) A "bulk transfer" is any transfer in bulk and not in the ordinary course of the transferor's business of a major part of the materials, supplies, merchandise or other inventory (section 28:9-109) of an enterprise subject to this article. PAGENO="0072" 68 UNIFORM COMMERCIAL CODE (2) A transfer of a substantial part of the equipment (section 28:9-109) of such an enterprise is a bulk transfer if it is made in connection with a bulk transfer of inventory, but not otherwise. (3) The enterprises subject to this article are all those whose principal business is the sale of merchandise from stock, including those who manufacture what they sell. (4) Except as limited by the following section all bulk transfers of goods located within this state are subject to this article. § 28:6-103. Transfers excepted from this article The following transfers are not subject to this article: (1) Those made to give security for the performance of an obligation; (2) General assignments for the benefit of all the creditors of the transferor, and subsequent transfers by the assignee thereunder; (3) Transfers in settlement or realization of a lien or other security interest; (4) Sales by executors, administrators, receivers, trustees in bankruptcy, or any public officer under judicial process; (5) Sales made in the course of judicial or administrative proceedings for the dissolution or reorganization of a corporation and of which notice is sent to the creditors of the corporation pursuant to order of the court or administrative agency; (6) Transfers to a person maintaining a known place of business in the District who becomes bound to pay the debts of the transferor in full and gives public notice of that fact, and who is solvent after becoming so bound; (7) A transfer to a new business enterprise organized to take over and continue the business, if public notice of the transaction is given and the new enterprise assumes the debts of the transferor and he receives nothing from the transaction except an interest in the new enterprise junior to the claims of creditors; (8) Transfers of property which is exempt from execution. Public notice under subsection (6) or subsection (7) may be given by publishing once a week for two consecutive weeks in a newspaper of general circulation where the transferor had its principal place of business in the District an advertisement including the names and addresses of the transferor and transferee and the effective date of the transfer. § 28:6-104. Schedule of property, list of creditors (1) Except as provided with respect to auction sales (section 28:6-108), a bulk transfer subject to this article is ineffective against any creditor of the transferor unless: (a) The transferee requires the transferor to furnish a list of his existing creditors prepared as stated in this section; and (b) The parties prepare a schedule of the property transferred sufficient to identify it; and (c) The transferee preserves the list and schedule for six months next following the transfer and permits inspection of either or both and copying therefrom at all reasonable hours by any creditor of the transferor, or files the list and schedule in the office of the Recorder of Deeds of the District. (2) The list of creditors must be signed and sworn to or affirmed by the transferor or his agent. It must contain the names and business addresses of all creditors of the transferor, with the amounts when known, and also the names of all persons who are known to the transferor to assert claims against him even though such claims are disputed. If the transferor is the obligor of an outstanding issue of bonds, debentures or the like as to which there is an indenture trustee, the list of creditors need include only the name and address of the indenture trustee and the aggregate outstanding principal amount of the issue. (3) Responsibility for the completeness and accuracy of the list of creditors rests on the transferor, and the transfer is not rendered ineffective by errors or omissions therein unless the transferee is shown to have had knonledge. § 28:6-105. Notice to creditors In addition to the requirements of the preceding section, any bulk transfer subject to this article except one made by auction sale (section 28:6-108) is ineffective against any creditor of the transferor unless at least ten days before he takes possession of the goods or pays for them, whichever happens first, the transferee gives notice of the transfer in the manner and to the persons hereafter provided (section 28:6-107). § 28:6-106. (Omitted.) PAGENO="0073" UNIFORM COMMERCIAL CODE 69 28:6-107. The notice (1) The notice to creditors (section 28:6-105) shall state: (a) that a bulk transfer is about to be made; and (b) the names and business addresses of the transferor and transferee, and all other business names and addresses used by the transferor within three years last past so far as known to the transferee; and (c) whether or not all the debts of the transferor are to be paid in full as they fall due as a result of the transaction, and if so, the address to which creditors should send their bills. (2) If the debts of the transferor are not to be paid in full as they fall due or if the transferee is in doubt on that point then the notice shall state further: (a) the location and general description of the property to be transferred and the estimated total of the transferor's debts; (b) the address where the schedule of property and list of creditors (section 28:6-104) may be inspected; (c) whether the transfer is to pay existing debts and if so the amount of such debts and to whom owing; (d) whether the transfer is for new consideration and if so the amount of such consideration and the time and place of payment. (3) The notice in any case shall be delivered personally or sent by registered or certified mail to all the persons shown on the list of creditors furnished by the trans- feror (section 28:6-104) and to all other persons who are known to the trans- feree to hold or assert claims against the transferor. § 28:6-108. Auction sales; "auctioneer" (1) A bulk transfer is subject to this article even though it is by sale at auction, but only in the manner and with the results stated in this section. (2) The transferor shall furnish a list of his creditors and assist in the preparation of a schedule of the property to be sold, both prepared as before stated (section 28:6-104). (3) The person or persons other than the transferor who direct, control or are responsible for the auction are collectively called the "auctioner". The auctioner shall: (a) receive and retain the list of creditors and prepare and retain the schedule of property for the period stated in this article (section 28:6-104); (b) give notice of the auction personally or by registered or certified mail at least ten days before it occurs to all persons shown on the list of creditors and to all other persons who are known to him to hold or assert claims against the transferor. (4) Failure of the auctioneer to perform any of these duties does not affect the validity of the sale or the title of the purchasers, but if the auctioneer knows that auction constitutes a bulk transfer such failure renders the auctioneer liable to the creditors of the transferor as a class for the sums owing to them from the transferor up to but not exceeding the net proceeds of the auction. If the auc- tioneer consists of several persons their liability is joint and several. § 28:6-109. What creditors protected (1) The creditors of the transferor mentioned in this article are those holding claims based on transactions or events occuring before the bulk transfer, but creditors who become such after notice to creditors is given (sections 28:6-105 and 28:6-107) are not entitled to notice. (2) (Omitted.) § 28:6-110. Subsequent transfers When the title of a transferee to property is subject to a defect by reason of his non-compliance with the requirements of this article, then: (1) a purchaser of any of such property from such transferee who pays no value or who takes with notice of such non-compliance takes subject to such defect, but (2) a purchaser for value in good faith and without such notice takes free of such defect. § 28:6-111. Limitation of actions and levies No action under this article shall be brought nor levy made more than six months after the date on which the transferee took possession of the goods unless the transfer has been concealed. If the transfer has been concealed, actions may be brought or levies made within six months after its discovery. PAGENO="0074" 70 UNIFORM CO~IERCIAL CODE ARTICLE 7-WAREHOUSE RECEIPTS, BILLS OF LADING AND OTHER DOCUMENTS OF TITLE PART 1-GENERAL Sec. 28:7-101. Short title. 28:7-102. Definitions and index of definitions. 28:7-103. Relation of article to treaty, statute, tariff, classification or regulation. 28:7-104. Negotiable and non-negotiable warehouse receipt, bill of lading or otber document of title. 28:7-105. Construction against negative implication. PART 2-WAnEisousE RECEIPTS: SPECIAL PROVISIONS 28:7-201. Who may issue a warehouse receipt; storage under government bond. 28:7-202. Form of warehouse receipt: essential terms; optional terms. 28:7-203. Liability for non-receipt or misdescription. 28:7-204. Duty of care; contractual limitation of warehouseman's liability. 28:7-205. Title under warehouse receipt defeated in certain cases. 28:7-206. Termination of storage at warehouseman's option. 28:7-207. Goods must be kept separate; fungible goods. 28:7-208. Altered warehouse receipts. 28:7-209. Lien of warehouseman. 28:7-210. Enforcement of warehouseman's lien. P.vrtT 3-BILLS OF LADING: SPECIAL PROVISIONS 28:7-301. Liability for non-receiptor misdescription; "said to contain"; "shipper'sload and count"; improper- handling. 28:7-302. Through bills of lading and similar documents. 28:7-303. Diversion; reconsignment; change of instructions. 28:7-304. Bills of lading in a set. 28:7-305. Destination bills. 28:7-306. Altered bills of lading. 28:7-307. Lien of carrier. 28:7-308. Enforcement of carrier's lien. 28:7-309. Duty of care; contractual limitation of carrier's liability. PART 4-WARRIsOOSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS 28:7-401. Irregularities in issue of receipt or bill or conduct of issuer. 28:7-402. Duplicate receipt or bill; overissue. 28:7-403. Obligation of warehouseman or carrier to deliver; excuse. 28:7-404. No llabllity for good faith delivery pursuant to receipt or bill. PART 5-WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER 28:7-501. Form of negotiation and requirements of "due negotiation". 28:7-502. Bights acq"ired by due negotiation. 28:7-503. Doc"ment of title to goods defeated in certain cases. 28:7-504. Rights acqrired in the absence of due negotiation; effect of diversion; seller's stoppage of deilvery. 28:7-505. Indorser not a guarantor for other parties. 28:7-506. Delivery witho"t indorsement: right to compel indorsement. 28:7-507. Warranties on negotiation or transfer of receipt or bill. 68:7-508. Warranties of collecting bank as to documents. 28:7-509. Receipt or bill: when adequate compliance with commercial contract. PART 6-WAREHOUSE RECEIPTS AND BILLS OF LADING: MISCELLANEOTTS PRoVISIoNS 28:7-601. Lost and missing documents. 28:7-602. Attachment of goods covered by a negotiable document. 28:7-603. Conflicting claims; interpleader. PART 1-GENERAL § 28:7-101. Short title This article shall be known and may be cited as Uniform Commercial Code- Documents of Title. § 28:7-102. Definitions and index of definitions (1) In this article, unless the context otherwise requires: (a) "Bailee" means the person who by a warehouse receipt, bill of lading or other document of title acknowledges possession of goods and contracts to deliver them. (b) "Consignee" means the person named in a bill to whom or to whose order the bill promises delivery. (c) "Consignor" means the person named in a bill as the person from whom the goods have been received for shipment. (d) "Delivery order" means a written order to deliver goods directed to a warehouseman, carrier or other person who in the ordinary course of business issues warehouse receipts or bills of lading. (e) "Document" means document of title as defined in the general defi. nitions in article 1 (section 28:1-201). PAGENO="0075" UNIFORM COMMERCIAL CODE 71 (f) "Goods" means all things which are treated as movable for the purposes of a contract of storage or transportation. (g) "Issuer" means a bailee who issues a document except that in relation to an unaccepted delivery order it means the person who orders the possessor of goods to deliver. Issuer includes any person for whom an agent or em- ployee purports to act in issuing a document if the agent or employee has real or apparent authority to issue documents, notwithstanding that the issuer received no goods or that the goods were misdescribed or that in any other respect the agent or employee violated his instructions. (h) "Warehouseman" is a person engaged in the business of storing goods for hire. (2) Other definitions applying to this article or to specified parts thereof, and the sections in which they appear are: "Duly negotiate" section 28:7-501. "Person entitled under the document" section 28:7-403(4). (3) Definitions in other articles applying to this* article and the sections in which they appear are: "Contract for sale" section 28:2-106. "Overseas" section 28:2-323. "Receipt" of goods section 28:2-103. (4) In addition article 1 contains general definitions and principles of con- struction and interpretation applicable throughout this article. § 28:7-103. Relation of article to treaty, statute, tariff, classification or regu- lation To the extent that any treaty or statute of the United States, regulatory statute of the District or tariff, classification or regulation filed or issued pursuant thereto is applicable, the provisions of this article are subject thereto. § 28:7-104. Negotiable and non-negotiable warehouse receipt, bill of lading or other document of title (1) A warehouse receipt, bill of lading or other document of title is negotiable (a) if by its terms the goods are to be delivered to bearer or to the orderof a named person; or (b) where recognized in overseas trade, if It runs to a named person or assigns. (2) Any other document is non-negotiable. A bill of lading in which it is stated that the goods are consigned to a named person is not made negotiable by a provi- sion that the goods are to be delivered only against a written ordersigned by the same or another named person. § 28:7-105. Construction against negative implication The omission from either part 2 or part 3 of this article of a provision correspond- ing to a provision made in the other part does not imply that a corresponding rule of law is not applicable. PART 2-WAREHOUSE RECEIPTS: SPECIAL PROVISIONS § 28:7-201. Who may issue a warehouse receipt; storage under government bond (1) A warehouse receipt may be issued by any warehouseman. (2) Where 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 has like effect as a warehouse receipt even though issued by a person who is the owner of the goods and is not a warehouseinan. § 28:7-202. Form of warehouse receipt; essential terms; optional terms (1) A warehouse receipt need not be in any particular form. (2) Unless a warehouse receipt embodies within its written or printed terms each of the following, the warehouseman is liable for damages caused by the omission to a person injured thereby: (a) the location of the warehouse where the goods are stored; (b) the date of issue of the receipt; (c) the consecutive number of the receipt; (d) a statement whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his order; PAGENO="0076" 72 UNIFORM CO~IERCIAL CODE (e) the rate of storage and handling charges, except that where goods are stored under a field warehousing arrangement a statement of that fact is sufficient on a non-negotiable receipt; (f) a description of the goods or of the packages containing them; (g) the signature of the warehouseman, which may be made by his auth- orized agent; (h) if the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such ownership; and (i) a statement of the amount of advances made and of liabilities incurred for which the warehouseman claims a lien or security interest (section 28:7- 209). If the precise amount of such advances made or of such liabilities incurred is, at the time of the issue of the receipt, unknown to the ware- houseman or to his agent who issues it, a statement of the fact that advances have been made or liabilities incurred and the purpose thereof is sufficient. (3) A warehouseman may insert in his receipt any other terms which are not contrary to the provisions of this subtitle and do not impair his obligation of de- livery (section 28:7-403) or his duty of care (section 28:7-204). Any contrary provisions shall be ineffective. § 28:7-203. Liability for non-receipt or misdescription A party to or purchaser for value in good faith of a document of title other than a bill of lading relying in either case upon the description therein of the goods may recover from the issuer damages caused by the nonreceipt or misdescription of the goods, except to the extent that the document conspicuously indicates that the issuer does not know whether any part or all of the good~ in fact were received or conform to the description, as where the description is in terms of marks or labels or kind, quantity or condition, or the receipt or description is qualified by "contents, condition and quality unknown", "said to contain" or the like, if such indication be true, or the party or purchaser otherwise has notice. § 28:7-204. Duty of care; contractual limitation of warehouseman's liability (1) A warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exerc~ise such care in regard to them as a reasonably careful man would exercise under like circumstances but unless otherwise agreed he is not liable for damages which could not have been avoided by the exercise of such care. (2) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage, and setting forth a specific liability per article or item, or value per unit of weight, beyond which the warehouseman shall not be liable: Provided, however, That such liability may on written request of the bailor at the time of signing such storage agreement or within a reasonable time after receipt of the warehouse receipt be increased on part or all of the goods thereunder, in which event increased rates may be charged based on such increased valuation, but that no such increase shall be permitted contrary to a lawful limitation of liability contained in the warehouseman's tariff, if any. No such limitation is effective with respect to the warehouseman's liability for conversion to his own use. (3) Reasonable provisions as to the time and manner of presenting claims and instituting actions based on the bailment may be included in the warehouse receipt or tariff. (4) (Omitted.) § 28:7-205. Title under warehouse receipt defeated in certain cases A buyer in the ordinary course of business of fungible goods sold and delivered by a warehouseman who is also in the business of buying and selling such goods takes free of any claim under a warehouse receipt even though it has been duly negotiated. § 28:7-296. Termination of storage at warehouseman's option (1) A warehouseman may on notifying the person on whose account the goods are held and any other person known to claim an interest in the goods require payment of any charges and removal of the goods from the warehouse at the ter- mination of the period of storage fixed by the document, or, if no period is fixed, within a stated period not less than thirty days after the notification. If the goods are not removed before the date specified in the notification, the warehouseman may sell them in accordance with the provisions of the section on enforcement of a warehouseman's lien (section 28:7-210). (2) If a warehouseman in good faith believes that the goods are about to deteri- orate or decline in value to less than the amount of his lien within the time pre- PAGENO="0077" UNIFORM COMMERCIAL CODE 73 scribed in subsection (1) for notification, advertisement and sale, the warehouse- man may specify in the notification any reasonable shorter time for removal of the goods and in case the goods are not removed, may sell them at public sale held not less than one week after a single advertisement or posting. (3) If as a result of a quality or condition of the goods of which the warehouse- man had no notice at the time of deposit the goods are a hazard to other property or to the warehouse or to persons, the warehouseman may sell the goods at public or private sale without advertisement on reasonable notification to all persons known to claim an interest in the goods. If the warehouseman after a reasonable effort is unable to sell the goods he may dispose of them in any lawful manner and shall incur no liability by reason of such disposition. (4) The warehouseman must deliver the goods to any person entitled to them. under this article upon due demand made at any time prior to sale or other dis-~ position under this section. (5) The warehouseman may satisfy his lien from the proceeds of any sale or disposition under this section but must hold the balance for delivery on the demand of any person to whom he would have been bound to deliver the goods. § 28:7-207. Goods must be kept separate; fungible goods (1) Unless the warehouse receipt otherwise provides, a warehouseman must keep separate the goods covered by each receipt so as to permit at all times identi- fication and delivery of those goods except that different lots of fungible goods may be commingled. (2) Fungible goods so commingled are owned in common by the persons entitled thereto and the warehouseman is severally liable to each owner for that owner's share. Where because of overissue a mass of fungible goods is in- sufficient to meet all the receipts which the warehouseman has issued against it, the persons entitled include all holders to whom overissued receipts have been duly negotiated. § 28:7-208. Altered warehouse receipts Where a blank in a negotiable warehouse receipt has been filled in without authority, a purchaser for value and without notice of the want of authority, may treat the insertion as authorized. Any other unauthorized alteration leaves any receipt enforceable against the issuer according to its original tenor. § 28:7-209. Lien of warehouseman (1) A warehouseman has a lien against the bailor on the goods covered by a warehouse receipt or on the proceeds thereof in his possession for charges for storage or transportation (including demurrage and terminal charges), insurance, labor, or charges present or future in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their sale pur- suant to law. If the person on whose account the goods are held is liable for like charges or expenses in relation to other goods whenever deposited and it is stated in the receipt that a lien is claimed for charges and expenses in relation to other goods, the warehouseman also has a lien against him for such charges and expenses whether or not the other goods have been delivered by the warehouseman. But against a person to whom a negotiable warehouse receipt is duly negotiated a warehouseman's lien is limited to charges in an amount or at a rate specified on the receipt or if no charges are so specified then to a reasonable charge for storage of the goods covered by the receipt subsequent to the date of the receipt. (2) The warehouseman may also reserve a security interest against the bailor for a maximum amount specified on the receipt for charges other than those specified in subsection (1), such as for money advanced and interest. Such a security interest is governed by the article on secured transactions (article 9). (3) A warehouseman's lien for charges and expenses under subsection (1) or a security interest under subsection (2) is also effective against any person who so entrusted the bailor with possession of the goods that a pledge of them by him to a good faith purchaser for value would have been valid but is not effective against a person as to whom the document confers no right in the goods covered by it under section 28 :7-503. (4) A warehouseman loses his lien on any goods which he voluntarily delivers or which he unjustiflably refuses to deliver. § 28:7-210. Enforcement of warehouseman's lien (1) Except as provided in subsection (2), a warehouseman's lien may be enforced by public or private sale of the goods in bloc or in parcels, at any time or place and on any terms which are commercially reasonable, after notifying all PAGENO="0078" 74 UNIFORM CO~IERCIAL CODE persons known to claim an interest in the goods. Such notification must include a statement of the amount due, the nature of the proposed sale and the time and place of any public sale. The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the warehouseman is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the warehouseman either sells the goods in the usual manner in any recognized market therefor, or if he sells at the price current in such market at the time of his sale, or if he has otherwise sold in con- formity with commercially reasonable practices among dealers in the type of goods sold, he has sold in a commercially reasonable manner. A sale of more goods than apparently necessary to be offered to insure satisfaction of the obliga- tion is not commercially reasonable except in cases covered by the preceding sentence. (2) A warehouseman's lien on goods other than goods stored by a merchant in the course of his business may he enforced only as follows: (a) All persons known to claim an interest in the goods must be notified. * (b) The notification must be delivered in person or sent by registered or certified letter to the last known address of any person to he notified. (c) The notification must include an itemized statement of the claim, a description of the goods subject to the lien, a demand for payment within * a spe3ified time not less than ten days after receipt of the notification, and a conspicuous statement that unless the claim is paid within that time the goods will be advertised for sale and sold by auction at a specified time and place. (d) The sale must conform to the terms of the notification. (e) The sale must be held at the nearest suitable place to that where the goods are held or stored. (f) After the expiration of the time given in the notification, an advertise- ment of the sale must he 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 they are being held, and the time and place of the sale. The sale must take place at least fifteen days after the first publication. If thereis no newspaper of general circulation where the sale is to be held, the advertisement must he posted at least ten days before the sale in not less than six conspicuous places in the neighborhood of the proposed sale. (3) Before any sale pursuant to this section any person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable ex- penses incurred under this section. In that event the goods must not be sold, but must be retained by the warehouseman subject to the terms of the receipt and this article. (4) The warehouseman may buy at any public sale pursuant to this section. (5) A purchaser in good faith of goods sold to enforce a warehouseman's lien takes the goods free of any rights of persons against whom the lien was valid, despite noncompliance by the warehouseman with the requirements of this section. (6) The warehouseman may satisfy his lien from the proceeds of any sale pur- suant to this section but must hold the balance, if any, for delivery on demand to any person to whom he would have been hound to deliver the goods. (7) The rights provided by this section shall be in addition to all other rights allowed, by law to a creditor against his debtor. (8) Where a lien is on goods stored by a merchant in the course of his business the lien may be enforced in accordance with either subsection (1) or (2). (9) The warehouseman is liable for damages caused by failure to comply with the requirements for sale under this section and in case of willful violation is liable for conversion. PART 3-BILLS OF LADING: SPECIAL PROVISIONS § 28:7-301. Liability for non-receipt or misdescription; "said to contain"; "shipper's load and count"; improper handling (1) A consignee of a non-negotiable hill'whO has given value in good faith or a holder to whom a negotiable bill has been duly negotiated relying in either case upon the description therein of the goods, or upon the date therein shown, may recover from the issuer damages caused by the misdating of the bill or the non- receipt or' hiisdescription of the goods, except to the extent that the document indicatea that the issuer does not know- whether any part or all of the goods in fact were rčcëived `or conform to the description, as where the description is in PAGENO="0079" UNIFORM COMMERCIAL CODE 75 lerms of marks or labels or kind, quantity, or condition or the receipt or descrip- tion is qualified by "contents or condition of contents of packages unknown", "said to contain", "shipper's weight, load and count" or the like, if such indication be true. (2) When goods are loaded by an issuer who is a common carrier, the issuer must count the packages of goods if package freight and ascertain the kind and quantity if bulk freight. In such cases "shipper's weight, load and count" or other words indicating that the description was made by the shipper are ineffective except as to freight concealed by packages. (3) When bulk freight is loaded by a shipper who makes available to the issuer adequate facilities for weighing such freight, an issuer who is a common carrier must ascertain the kind and quantity within a reasonable time after receiving the written request of the shipper to do so. In such cases "shipper's weight" or other words of like purport are ineffective. (4) The issuer may by inserting in the bill the words "shipper's weight, load and count" or other words of like purport indicate that the goods were loaded by the shipper; and if such statement he true the issuer shall not be liable for damages caused by the improper loading. But their omission does not imply liability for such damages. (5) The shipper shall be deemed to have guaranteed to the issuer the accuracy at the time of shipment of the description, marks, labels, number, kind, quantity, condition and weight, as furnished by him; and the shipper shall indemnify the issuer against damage caused by inaccuracies in such particulars. The right of the issuer to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper. § 28:7-302. Through bills of lading and similar documents (1) The issuer of a through bill of lading or other document embodying an undertaking to be performed in part by persons acting as its agents or by con- necting carriers is liable to anyone entitled to recover on the document for any breach by such other persons or by a connecting carrier of its obligation under the document but to the extent that the bill covers an undertaking to be performed overseas or in territory not contiguous to the continental United States or an undertaking including matters other than transportation this liability may be varied by agreement of the parties. (2) Where goods covered by a through bill of lading or other document em- bodying an undertaking to be performed in part by persons other than the issuer are received by any such person, he is subject with respect to his own performance while the goods are in his possession to the obligation of the issuer. His obligation is discharged by delivery of the goods to another such person pursuant to the document, and does not include liability for breach by any other such persons or by the issuer. (3) The issuer of such through bill of lading or other document shall be entitled to recover from the connecting carrier or such other person in possession of the goods when the breach of the obligation under the document occurred, the amount it may be required to pay to anyone entitled to recover on the document therefor, as may be evidenced by any receipt, judgment, or transcript thereof, and the amount of any expense reasonably incurred by it in defending any action brought by anyone entitled to recover on the document therefor. *~ 28:7-303. Diversion; reconsignment; change of instructions (1) Unless the bill of lading otherwise provides, the carrier may deliver the goods to a person or destination other than that stated in the bill or may other- wise dispose of the goods on instructions from (a) the holder of a negotiable bill; or (b) the consignor on a non-negotiable bill notwithstanding contrary in- structions from the consignee; or (c) the consignee on a non-negotiable bill in the absence of contrary in- structions from the consignor, if the goods have arrived at the billed desti- nation or if the consignee is in possession of the bill; or (d) the consignee* on a non-negotiable bill if he is entitled as against the consignor to dispose of them. (2) Unless such instructions are noted on a negotiable bill of lading, a perso:~ to whom the bill is duly negotiated can hold the bailee according to the original terms. PAGENO="0080" ~`76 UNIFORM COMMERCIAL CODE * § 28:7-304. Bills of lading in a set (1) Except where customary in overseas transportation, a bill of lading must * not be issued in a set of parts. The issuer is liable for damages caused by violation of this subsection. (2) Where a bill of lading is lawfully drawn in a set of parts, each of which is numbered and expressed to be valid only if the goods have not been delivered against any other part, the whole of the parts constitute one bill. (3) Where a bill of lading is lawfully issued in a set of parts and different parts are negotiated to different persons, the title of the holder to whom the first due negotiation is made prevails as to both the document and the goods even though any later holder may have received the goods from the carrier in good faith and discharged the carrier's obligation by surrender of his part. (4) Any person who negotiates or transfers a single part of a bill of lading drawn in a set is liable to holders of that part as if it were the whole set. (5) The bailee is obliged to deliver in accordance with part 4 of this article against the first presented part of a bill of lading lawfully drawn in a set. Such delivery discharges the bailee's obligation on the whole bill. § 28:7-305. Destination bills (1) Instead of issuing a bill of lading to the consignor at the place of shipment a carrier may at the request of the consignor procure the bill to be issued at destination or at any other place designated in the request. (2) Upon request of anyone entitled as against the carrier to control the goods while in transit and on surrender of any outstanding bill of lading or other receipt covering such goods, the issuer may procure a substitute bill to be issued at any place designated in the request. § 28:7-306. Altered bills of lading An unauthorized alteration or filing in of a blank in a bill of lading leaves the bill enforceable according to its original tenor. § 28:7-307. Lien of carrier (1) A carrier has a lien on the goods covered by a bill of lading for charges sub- sequent to the date of its receipt of the goods for storage or transportation (in- cluding demurrage and terminal charges) and for expenses necessary for preser- vation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law. But against a purchaser for value of a negotiable bill of lading a carrier's lien is limited to charges stated in the bill or the applicable tariffs, or if no charges are stated then to a reasonable charge. (2) A lien for charges and expenses under subsection (1) on goods which the carrier was required by law to receive for transportation is 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 such charges and expenses. Any other lien under subsection (1) is effective against the consignor and any person who permitted the bailor to have control or possession of the goods unless the carrier had notice that the bailor lacked such authority. (3) A carrier loses his lien on any goods which he voluntarily delivers or which he unjustifiably refuses to deliver. § 28:7-308. Enforcement of carrier's lien (1) A carrier's lien may be enforced by public or private sale of the goods, in bloc or in parcels, at any time or place and on any terms which are commercially reasonable, after notifying all persons known to claim an interest in the goods. Such 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. If the carrier either sells the goods in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with commercially reasonable practices among dealers in the type of goods sold he has sold in a commercially reasonable manner. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable except in cases covered by the preceding sentence. (2) Before any sale pursuant to this section any person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable ex- penses incurred under this section. In that event the goods must not he sold, but must be retained by the carrier subject to the terms of the bill and this article. (3) The carrier may buy at any public sale pursuant to this section. PAGENO="0081" UNIFORM COMMERCIAL CODE 77 (4) A purchaser in good faith of goods sold to enforce a carrier's lien takes the goods free of any rights of persons against whom the lien was valid, despite non- compliance by the carrier with the requirements of this section. (5) The carrier may satisfy his lien from the proceeds of any sale pursuant to this section but must hold the balance, if any, for delivery on demand to any person to whom he would have been bound to deliver the goods. (6) The rights provided by this section shall be in addition to all other rights allowed by law to a creditor against his debtor. (7) A carrier's lien may be enforced in accordance with either subsection (1) or the procedure set forth in subsection (2) of section 28:7-210. (8) The carrier is liable for damages caused by failure to comply with the requirements for sale under this section and in case of willful violation is liable for conversion. § 28:7-309. Duty of care; contractual limitation of carrier's liability (1) A carrier who issues a bill of lading whether negotiable or non-negotiable must exercise the degree of care in relation to the goods which a reasonably careful man would exercise under like circumstances. This subsection does not repeal or change any law or rule of law which imposes liability upon a common carrier for damages not caused by its negligence. (2) Damages may be limited by a provision that the carrier's liability shall not exceed a value stated in the document if the carrier's rates are dependent upon value and the consignor by the carrier's tariff is afforded an opportunity to declare a higher value or a value as lawfully provided in the tariff, or where no tariff is filed he is otherwise advised of such opportunity; but no such limitation is effective with respect to the carrier's liability for conversion to its own use. (3) Reasonable provisions as to the time and manner of presenting claims and instituting actions based on the shipment may be included in a bill of lading or tariff. PART 4-WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS § 28:7-401. Irregularities in issue of receipt or bill or conduct of issuer The obligations imposed by this article on an issuer apply to a document of title regardless of the fact that (a) the document may not comply with the requirements of this article or of any other law or regulation regarding its issue, form or content; or (b) the issuer may have violated laws regulating the conduct of his business; or (c) the goods covered by the document were owned by the bailee at the time the document was issued; or (d) the person issuing the document does not come within the definition of warehouseman if it purports to be a warehouse receipt. § 28:7-402. Duplicate receipt or bill; overissue Neither a duplicate nor any other document of title purporting to cover goods already represented by an outstanding document of the same issuer confers any right in the goods, except as provided in the case of bills in a set, overissue of documents for fungible goods and substitutes for lost, stolen or destroyed docu- ments. But the issuer is liable for damages caused by his overissue or failure to identify a duplicate document as such by conspicuous notation on its face. § 28:7-403. Obligation of warehouseman or carrier to deliver; excuse (1) The bailee must deliver the goods to a person entitled under the document who complies with subsections (2) and (3), unless and to the extent that the hailee establishes any of the following: (a) delivery of the goods to a person whose receipt was rightful as against the claimant; (b) damage to or delay, loss or destruction of the goods for which the bailee is not liable; (c) previous sale or other disposition of the goods in lawful enforcement of a lien or on warehouseman's lawful termination of storage; (d) the exercise by a seller of his right to stop delivery pursuant to the provisions of the article on sales (section 28:2-050); (e) a diversion, reconsignment or other disposition pursuant to the pro-. visions of this article (section 28:7-303) or tariff regulating such right; 30-15L---64-----6 PAGENO="0082" 78 UNIFORM CO~~ERCIAL CODE (f) release, satisfaction or any other fact affording a personal defense against the claimant; (g) any other lawful excuse. (2) A person claiming goods covered by a document of title must satisfy the bailee's lien where the hailee so requests or where the bailee is prohibited by law from delivering the goods until the charges are paid. (3) Unless the person claiming is one against whom the document confers no right under section 28:7-503(1), he must surrender for cancellation or notation of partial deliveries any outstanding negotiable document covering the goods, and the bailee must cancel the document or conspicuously note the partial delivery thereon or be liable to any person to whom the document is duly negotiated. (4) "Person entitled under the document" means holder in the case of a negoti- able document, or the person to whom delivery is to be made by the terms of or pursuant to written instructions under a non-negotiable document. § 28:7-404. No liability for good faith delivery pursuant to receipt or bill A bailee who in good faith including observance of reasonable commercial standards has received goods and delivered or otherwise disposed of them ac- cording to the terms of the document of title or pursuant to this article is not liable therefor. This rule applies even though the person from whom he received the goods had no authority to procure the document or to dispose of the goods and even though the person to whom he delivered the goods had no authority to receive them. PART 5-WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER ~ 28:7-501. Form of negotiation and requirements of "due negotiation" (1) A negotiable document of title running to the order of a named person is negotiated by his indorsement and delivery. After his indorsement in blank or to bearer any person can negotiate it by delivery alone. (2) (a) A negotiable document of title is also negotiated by delivery alone when by its original terms it runs to bearer. (b) When a document running to the order of a named person is delivered to him the effect is the same as if the document has been negotiated. (3) Negotiation of a negotiable document of title after it has been endorsed -4o a specified person requires indorsement by the special indorsee as well as delivery. (4) A negotiable document of title is "duly negotiated" when it is negotiated in the manner stated in this section to a holder who purchases it in good faith ~without notice of any defense against or claim to it on the part of any person and for value, unless it is established that the negotiation is not in the regular course of business or financing or involves receiving the document in settlement or payment of a money obligation. (5) Indorsement of a non-negotiable document neither makes it negotiable nor * adds to the transferee's rights. (6) The naming in a negotiable bill of a person to be notified of the arrival of the goods does not limit the negotiability of the bill nor constitute notice to a purchaser thereof of any interest of such person in the goods. § 28:7-502. Rights acquired by due negotiation (1) Subject to the following section and to the provisions of section 28 :7-205 on fungible goods, a holder to whom a negotiable document of title has been duly negotiated acquires thereby: (a) title to the document; (h) title to the goods; (c) all rights accruing under the law of agency or estoppel, including rights to goods delivered to the hailee after the document was issued; and (d) the direct obligation of the issuer to hold or deliver the goods accord- ing to the terms of the document free of any defense or claim by him except those arising under the terms of the document or under this article. In the case of a delivery order the bailee's obligation accrues only upon acceptance and the obligation acquired by the holder is that the issuer and any indorser will procure the acceptance of the bailee. PAGENO="0083" UNIFORM COMMERCIAL CODE 79 (2) Subject to the following section, title and rights so acquired are not defeated by any stoppage of the goods represented by the document or by sur- render of such goods by the bailee, and are not impaired even though the negotia- tion or any prior negotiation constituted a breach of duty or even though any person has been deprived of possession of the document by misrepresentation, fraud, accident, mistake, duress, loss, theft or conversion, or even though a previous sale or other transfer of the goods or document has been made to a third person. § 28:7-503. Document of title to goods defeated in certain cases (1) A document of title confers no right in goods against a person who before issuance of the document had a legal interest or a perfected security interest in them and who neither (a) delivered or entrusted them or any document of title covering theni to the hailor or his nominee with actual or apparent authority to ship, store or sell or with power to obtain delivery under this article (section 28:7-403) or with power of disposition under this subtitle (sections 28:2-403 and 28:9-307) or other statute or rule of law; nor (b) acquiesced in the procurement by the bailor or his nominee of any document of title. (2) Title to goods based upon an unaccepted delivery order is subject to the rights of anyone to whom a negotiable warehouse receipt or bill of lading covering the goods has been duly negotiated. Such a title may he defeated under the next section to the same extent as the rights of the issuer or a transferee from the issuer. (3) Title to goods based upon a bill of lading issued to a freight forwarder is subject to the rights of anyone to whom a bill issued by the freight forwarder is duly negotiated; but delivery by the carrier in accordance with part 4 of this article pursuant to its own bill of lading discharges the carrier's obligation to deliver. § 28:7-504. Rights acquired in the absence of due negotiation; effect of diversion; seller's stoppage of delivery (1) A transferee of a document, whether negotiable or non-negotiable, to whom ;the document has been delivered but not duly negotiated, acquires the title and rights which his transferor had or had actual authority to convey. (2) In the case of a non-negotiable document, until but not after the bailee receives notification of the transfer, the rights of the transferee may be defeated (a) by those creditors of the transferor who could treat the sale as void under section 28:2-402; or (b) by a buyer from the transferor in ordinary course of business if the bailee has delivered the goods to the buyer or received notification of his rights; or (c) as against the bailee by good faith dealings of the bailee with the trans- feror. (3) A diversion or other change of shipping instructions by the consignor in a ~non-negotiable bill of lading which causes the bailee not to deliver to the consignee defeats the consignee's title to the goods if they have been delivered to a buyer in ordinary course of business and in any event defeats the consignee's rights against the bailee. (4) Delivery pursuant to a non-negotiable document may be stopped by a seller under section 28:2-705, and subject to the requirement of due notification there provided. A bailee honoring the seller's instructions is entitled to be in- * demnified by the seller against any resulting loss or expense. § 28:7-505. Indorser not a guarantor for other parties The indorsement of a document of title issued by a bailee does not make the indorser liable for any default by the bailee or by previous indorsers. ~ 28:7-506. Delivery without indorsement: right to compel indorsement The transferee of a negotiable document of title has a specifically enforceable right to have his transferor supply any necessary indorsement but the transfer becomes a negotiation only as of the time the indorsement is supplied. PAGENO="0084" 80 UNIFORM COM~IERCIAL CODE § 28:7-507. Warranties on negotiation or transfer of receipt or bill Where a person negotiates or transters a document of title for value otherwise than as a mere intermediary under the next following section, then unless other- wise agreed he warrants to his immediate purchaser only in addition to any warranty made in selling the goods (a) that the document is genuine; and ~b) that he has no knowledge of any fact which would impair its validity or worth; and (c) that his negotiation or transfer is rightful and fully effective with respect to the title to the document and the goods it represents. § 28:7-508. Warranties of collecting bank as to documents A collecting b~ank or other intermediary known to be entrusted with documents on behalf of another or with collection of a draft or other claim against delivery of documents warrants by such delivery of the documents only its own good fa1ith and authority. This rule applies even though the intermediary has purchased or made advances against the claim or draft to be collected. § 28:7-509. Receipt or bill: when adequate compliance with commercial contract The question whether a document is adequate to fulfill the obligations of a contract for sale or the conditions of a credit is governed by the articles on sales (article 2) and on letters of credit (article 5). PART 6-WAREHOUSE RECEIPTS AND BILLS OF LADING: MISCELLANEOUS PROVISIONS § 28:7-601. Lost and missing documents (1) If a document has been lost, stolen, or destroyed, a court may order de- livery of the goods or issuance of a substitute document and the bailee may with- out liability to any person comply with such order. If the documdnt was nego- tiable the claimant must post security approved by the court to indemnify any person who-may suffer loss as a result of non-surrender of the document. If the document was not negotiable, such security may be required at the discretion of the court. The court may also in its discretion order payment of the bailee's reasonable costs and counsel fees. (2) a bailee who without court order delivers goods to a person claiming under a missing negotiable document is liable to any person injured thereby, and if the delivery is not in good faith becomes liable for conversion. Delivery in good faith is not conversion if made in accordance with a filed classification or tariff or, where no classification or tariff is filed, if the claimant posts security with the bailee in an amount at least double the value of the goods at the time of posting to indemnify any person injured by the delivery who files a notice of claim within one year after the delivery § 28:7-602. Attachment of goods covered by a negotiable document Except where the document was originally issued upon delivery of the goods by a person who had no power to dispose of them, no lien attaches by virtue of any judicial process to goods in the possession of a bailee for which a negotiable document of title is outstanding unless the document be first surrendered to the bailee or its negotiation enjoined, and the bailee shall not be compelled to deliver the goods pursuant to process until the document is surrendered to him or im- pounded by the court. One who purchases the document for value without notice of the process or injunction takes free of the lien imposed by judicial process. § 28:7-60g. Conflicting claims; interpleader If more than one person claims title or possession of the goods, the bailee is excused from delivery until he has had a reasonable time to ascertain the validity or the adverse claims or to bring an action to compel all claimants to interplead and may compel such interpleader, either in defending an action for non-delivery of the goods, or by original action, whichever is appropriate. PAGENO="0085" UNIFORM COMMERCIAL CODE 81 ARTICLE 8-INVESTMENT SECURITIES PART 1-SHORT TITLE AND GENERAL MATTERS Sec. 28:8-101. Short title. 28:8-102. Definitions and Index of definitions. 28:8-103. Issuer's lien. 28:8-104. Effect of overissue; "overissue". 28:8-lOS. Securities negotiable; presumptions. 28:8-106. Applicability. 28:8-107. Securities deliverable; action for price. PART 2-ISSUE-ISSUER 28:8-201. "Issuer". 28:8-202. Issuer's responsibility and defenses; notice of defect or defense. 28:8-203. Staleness as notice of defects or defenses. 28:8-204. Effect of issuer's restrictions on transfer. 28:8-205. Effect of unauthorized signature on issue. 28:8-206. Completion or alteration of instrument. 28:8-207. Rights of issuer with respect to registered owners. 28:8-208. Effect of signature of authenticating trustee, registrar or transfer agent. PART 3-PURCHASE 28:8-301. Rights acquired by purchaser; "adverse claim"; title acquired by bona fide purchaser. 28:8-302. "Bona fide purchaser". 28:8-303. "Broker". 28:8-304. Notice to purchaser of adverse claims. 28:8-305. Staleness as notice of adverse claims. 28:8-306. Warranties on presentment and transfer. 28:8-307. Effect of delivery without indorsement; right to compel indorsement. 28:8-308. Indorsement, how made; special indorsement; indorser not a guarantor; partial assignment. 28:8-309. Effect of indorsement without delivery. 28:8-310. Indorsement of security in bearer form. 28:8-311. Effect of unauthorized indorsement. 28:8-312. Effect of guaranteeing signature or indorsement. 28:8-313. When delivery to the purchaser occurs; purchaser's broker as holder. 28:S-314. Duty to deliver, when completed. 28:8-315. Action against purchaser based upon wrongful transfer. 28:8-316. Purchaser's right to requisites for registration of transfer on books. 28:8-317. Attachment or levy upon security. 28:8-318. No conversion by good faith delivery. 28:8-319. Statute of frauds. 28:8-320. Transfer or pledge within a central depository system. PART 4-REGISTRATION 28:8-401. Duty of issuer to register transfer. 28:8-402. Assurance that indorsements are effective. 28:8-403. Limited duty of inquiry. 28:8-404. Liability and non-liability for registration. 28:8-405. Lost, destroyed, and stolen securities. 28:8-406. Duty of authenticating trustee, transfer agent or registrar. 28:8-407. Limitation of actions. PART 1-SHORT TITLE AND GENERAL MATTERS § 28:8-lOl. Short title This article shall be known and may be cited as Uniform Commercial Code- Investment Securities. §28:8-102. Definitions and index of definitions (1) In this article unless the context otherwise requires (a) A "security" is an instrument which (i) is issued in bearer or registered form; and (ii) is of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and (iii) is either one of a class or series or by its terms is divisible into a class or series of instruments; and (iv) evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer. (b) A writing which is a security is governed by this article and not by TJniform Commercial Code-Commercial Paper even though it also meets the requirements of that article. This article does not apply to money. (c) A security is in "registered form" when it specifies a person entitled to the security or to the rights it evidences and when its transfer may be regis- tered upon books maintained for that purpose by or on behalf of an issuer or the security so states. (d) A security is in "bearer form" when it runs to bearer according to its terms and not by reason of any indorsement. PAGENO="0086" 82 UNIFORM COM~VIERCIAL CODE (2) A "subsequent purchaser" is a person who takes other than by original issue.. (3) A "clearing corporation" is a corporation all of the capital stock of which is held by or for a national securities exchange or association registered under a statute of the United States such as the Securities Exchange Act of 1934. (4) A "custodian bank" is any hank or trust company which is supervised and examined by state or federal authority having supervision over banks and which is acting as custodian for a clearing corporation. (5) Other definitions apply to this article or to specified parts thereof and the sections in which they appear are: "Adverse claim". Section 28:8-301. "Bona fide purchaser". Section 28:8-302. "Broker". Section 28:8-303. "Guarantee of the signature". Section 28:8-402. "Intermediary bank". Section 28:4-105. "Issuer". Section 28:8-201. "Overissue". Section 28:8-104. (6) In addition article 1 contains general definitions and principles of construc..-. tion and interpretation applicable throughout this article. § 28:8-103. Issuer's lien A lien upon a security in favor of an issuer thereof is valid against a purchaser only if the right of the issuer to such lien is noted conspicuously on the security. § 28:8-104. Effect of overissue; "overissue" (1) The provisions of this article which validate a security or compel its issue~ or reissue do not apply to the extent that validation, issue or reissue would result in overissue; but (a) if an identical security which does not constitute an overissue is reason- ably available for purchase, the person entitled to issue or validation may compel the issuer to purchase and deliver such a security to him against surrender of the security, if any, which he holds; or (b) if a security is not so available for purchase, the person entitled to issue or validation may recover from the issuer the price he or the last pur-~ chaser for value paid for it with interest from the date of his demand. (2) "Overissue" means the issue of securities in excess of the amount which the issuer has corporate power to issue. § 28:8-105. Securities negotiable; presumptions (1) Securities governed by this article are negotiable instruments. (2) In any action on a security (a) unless specifically denied in the pleadings, each signature on the security or in a necessary indorsement is admitted; (h) when the effectiveness of a signature is put in issue the burden of establishing it is on the part~y claiming under the signature but the signature is presumed to he genuine or authorized; (c) when signatures are admitted or established production of the instru-- meat entitles a holder to recover on it unless the defendant establishes a defense or a defect going to the validity of the security; and (d) after it is shown that a defense or defect exists the plaintiff has the burden of establishing that he or some persOn under whom he claims is a person against whom the defense or defect is ineffecitve (section 28:8-202). § 28:8-106. Applicability The validity of a security and the rights and duties of the issuer with respect to registration of transfer are governed by the law (including the conflict of laws rules) of the jurisdiction of organization of the issuer.- § 28:8-107. Securities deliverable; action for price (1) Unless otherwise agreed and subject to any applicable law or regulation respecting short sales, a person obligated to deliver securities may deliver any security of the specified issue in bearer form or registered in the name of the transferee or indorsed to him or in blank. (2) When the buyer fails to pay the price as it comes due under a contract of sale the seller may recover the price (a) of securities accepted by the buyer; and (b) of other securities if efforts at their resale would be unduly burdensome or if there is no readily available market for their resale. PAGENO="0087" UNIFORM COMMERCIAL CODE 83 PART 2-ISSUE-ISSUER § 28:8-201. "Issuer" (1) With respect to obligations on or defenses to a security "issuer" includes a person who (a) places or authorizes the placing of his name on a security (otherwise than as authenticating trustee, registrar, transfer agent or the like) to evidence * that it represents a share, participation or other interest in his property or in an enterprise or to evidence his duty to perform an obligation evidenced by the security; or (b) directly or indirectly creates fractional interests in his rights or property which fractional interests are evidenced by securities; or (c) becomes responsible for or in place of any other person described as an issuer in this section. (2) With respect to obligations on or defenses to a security a guarantor is an issuer to the extent of his guaranty whether or not his obligation is noted on the security. (3) With respect to registration of transfer (part 4 of this article) "issuer" means a person on whose behalf transfer books are maintained. § 28:8-202. Issuer's responsibility and defenses; notice of defect or defense (1) Even against a purchaser for value and without notice, the terms of a security include those stated on the security and those made part of the security by reference to another instrument, indenture or document or to a constitution, statute, ordinance, rule, regulation, order or the like to the extent that the terms. so referred to do not conIfct with the stated terms. Such a reference does not of itself charge a purchaser for value with notice of a defect going to the validity of the security even though the security expressly states that a person accepting' it admits such notice. (2) (a) A security other than one issued by a government or governmental. agency or unit even though issued with a defect going to its validity is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of constitutional provisions in which case the security is valid in the hands of a subsequent purchaser for value and without notice of the defect. (b) The rule of subparagraph (a) applies to an issuer which is a government or governmental agency or unit only if either there has been substantial compliance' with the legal requirements governing the issue or the issuer has received a sub-. stantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security. (3) Except as otherwise provided in the case of certain unauthorized signatures on issue (section 28:8-205), lack of genuineness of a security is a complete defense even against a purchaser for value and without notice. (4) All other defenses of the issuer including nondelivery and conditional de- livery of the security are ineffective against a purchaser for value who has taken without notice of the particular defense. (5) Nothing in this section shall be construed to affect the right of a party to a "when, as and if issued" or a "when distributed" contract to cancel the con- tract in the event of a material change in the character of the security which is the subject of the contract or in the plan or arrangement pursuant to which such security is to be issued or distributed. § 28:8-203. Staleness as notice of defects or defenses (1) After an act or event which creates a right to immediate performance of the principal obligation evidenced by the security or which sets a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer. (a) if the act or event is one requiring the payment of money or the delivery of securities or both on presentation or surrender of the security and such funds or securities are available on the date set for payment or exchange and he takes the security more than one year after that date; and (b) if the act or event is not covered by paragraph (a) and he takes the security more than two years after the date set for surrender or presentation or the date on which such performance became due. (2) A call which has been revoked is not within subsection (1). PAGENO="0088" 84 UNIFORM COMMERCIAL CODE § 28:8-204. Effect of issuer's restrictions on transfer Unless noted conspicuously on the security a restriction on transfer imposed by the issuer even though otherwise lawful is ineffective except against a person with actual knowledge of it. § 28:8-205. Effect of unauthorized signature on issue An unauthorized signature placed on a security prior to or in the course of issue is ineffective except that the signature is effective in favor of a purchaser for value and without notice of the lack of authority if the signing has been done by (a) an authenticating trustee, registrar, transfer agent or other person entrusted by the issuer with the signing of the security or of similar securities or their immediate preparation for signing; or (b) an employee of the issuer or of any of the foregoing entrusted with responsib]e handling of the security. § 28:8-206. Completion or alteration of instrument (1) Where a security contains the signatures necessary to its issue or transfer but is incomplete in any other respect (a) any person may complete it by ifiling in the blanks as authorized; and (b) even though the blanks are incorrectly ifiled in, the security as com- pleted is enforceable by a purchaser who took it for value and without notice of such incorrectness. (2) A complete security which has been improperly altered even though fraudulently remains enforceable but only according to its original terms. § 28:8-207. Rights of issuer with respect to registered owners (1) Prior to due presentment for registration of transfer of a security in registered form the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. (2) Nothing in this article shall be construed to affect the liability of the registered owner of a security for calls, assessments or the like. § 28:8-208. Effect of signature of authenticating trustee, registrar or transfer agent (1) A person placing his signature upon a security as authenticating trustee, registrar, transfer agent or the like warrants to a purchaser for value without notice of the particular defect that (a) the security is genuine; and (b) his own participation in the issue of the security is within his capacity and within the scope of the authorization received by him from the issuer; and (c) he has reasonable grounds to believe that the security is in the form and within the amount the issuer is authorized to issue. (2) Unless otherwise agreed, a person by so placing his signature does not assume responsibility for the validity of the security in other respects. PART 3-PURCHASE § 28:8-301. Rights acquired by purchaser; "adverse claim"; title acquired by bona fide purchaser (1) Upon delivery of a security the purchaser acquires the rights in the security which his transferor had or had actual authority to convey except that a purchaser who has himself been a party to any fraud or illegality affecting the security or who as a prior holder had notice of an adverse claim cannot improve his position by taking from a later bonn fide purchaser. "Adverse claim" includes a claim that a transfer was or would be wrongful or that a particular adverse person is the owner of or has an interest in the security. (2) A bonn fide purchaser in addition to acquiring the rights of a purchaser also acquires the security free of any adverse claim. (3) A purchaser of a limited interest acquires rights only to the extent of the interest purchased. ~ 28:8-302. "Bona fide purchaser" A "bonn fide purchaser" is a purchaser for value in good faith and without liotice of any adverse claim who takes delivery of a security in bearer form or of one in registered form issued to him or indorsed to him or in blank. PAGENO="0089" UNIFORM COMMERCIAL CODE 85 § 28:8-303. "Broker" "Broker" means a person engaged for all or part of his time in the business of buying and selling securities, who in the transaction concerned acts for, or buys a security from or sells a security to a customer. Nothing in this article determines the capacity in which a person acts for purposes of any other statute or rule to which such person is subject. § 28:8-304. Notice to purchaser of adverse claims (1) A purchaser (including a broker for the seller or buyer but excluding an intermediary hank) of a security is charged with notice of adverse claims if (a) the security whether in bearer or registered form has been indorsed "for collection" or "for surrender" or for some other purpose not involving transfer; or (b) the security is in bearer form and has on ~t an unambiguous statement that it is the property of a person other than the transferor. The mere writing of a name on a security is not such a statement. (2) The fact that the purchaser (including a broker for the seller or buyer) has notice that the security is held for a third person or is registered in the name of or indorsed by a fiduciary does not create a duty of inquiry into the rightfulness of the transfer or constitute notice of adverse claims. If, however, the purchaser (excluding an intermediary bank) has knowledge that the proceeds are being used or that the transaction is for the individual benefit of the fiduciary or otherwise in breach of duty, the purchaser is charged with notice of adverse claims. § 28:8-305. Staleness as notice of adverse claims An act or event which creates a right to immediate performance of the principal obligation evidenced by the security or which sets a date on or after which the security is to be presented or surrendered for redemption or exchange does not of itself constitute any notice of adverse claims except in the case of a purchase: (a) after one year from any date set for such presentment or surrender for redemption or exchange; or (b) after six months from any date set for payment of money against presentation or surrender of the security if funds are available for payment on that date. § 28:8-306. Warranties on presentment and transfer (1) A person who presents a security for registration of transfer or for payment or exchange warrants to the issuer that he is entitled to the registration, payment or exchange. But a purchaser for value without notice of adverse claims who re- ceives a new, reissued or re-registered security on registration of transfer warrants only that he has no knowledge of any unauthorized signature (section 28:8-311) in a necessary indorsement. (2) A person by transferring a security to a purchaser for value warrants only that (a) his transfer is effective and rightful; and (b) the security is genuine and has not been materially altered; and (c) he knows no fact which might impair the validity of the security. (3) Where a security is delivered by an intermediary known to be entrusted with delivery of the security on behalf of another or with collection of a draft or other claim against such delivery, the intermediary by such delivery warrants only his own good faith and authority even though he has purchased or made ad- vances against the claim to he collected against the delivery. (4) A pledgee or other holder for security who redelivers the security received, or after payment and on order of the debtor delivers that security to a third person makes only the warranties of an intermediary under subsection (3). (5) A broker gives to his customer and to the issuer and a purchaser the war- ranties provided in this section and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of his cus- tomer. § 28:8-307. Effect of delivery without indorsement; right to compel indorsement Where a security in registered form has been delivered to a purchaser without a necessary indorsement he may become a bona fide purchaser only as of the time the indorsement is supplied, but gainst the transferor the transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary indorsement supplied. PAGENO="0090" 86 UNIFORM COMMERCIAL CODE .~ 28:8-308. Indorsement, how made; special indorsement; indorser not a guarantor; partial assignment (1) An indorsement of a security in registered form is made when an appropriate person signs on it or on a separate document an assignment or transfer of the scour- ity or a power to assign or transfer it or when the signature of such person is written without more upon the back of the security. (2) An indorsement may be in blank or special. An indorsement in blank includes an indorsement to bearer. A special indorsement specifies the person to whom the security is to be transferred, or who has power to transfer it. A holder may convert a blank indorsement into a special indorsement. (3) "An appropriate person" in subsection (1) means (a) the person specified by the security or by special indorsement to be entitled to the security; or (b) where the person so specified is described as a fiduciary but is no longer aerving in the described capacity,-either that person or his successor; or (c) where the security or indorsement so specifies more than one person as fiduciaries and one or more are no longer serving in the described capacity,- the remaining fiduciary or fiduciaries, whether or not a successor has been appointed or qualified; or (d) where the person so specified is an individual and is without capacity to act by virtue of death, incompetence, infancy or otherwise,-his executor, ad- ministrator, guardian or like fiduciary; or (e) where the security or indorsement so specifies more than one person as tenants by the entirety or with right of survivorship and by reason of death all cannot sign,-the survivor or survivors; or (f) a person having power to sign under applicable law or controlling instrument; or (g) to the extent that any of the foregoing persons may act through an agent,-his authorized agent. (4) Unless otherwise agreed the indorser by his indorsement assumes no obliga- ~tion that the security will be honored by the issuer. (5) An indorsement purporting to be only of part of a security representing units intended by the issuer to be separately transferable is effective to the extent of the indorsement. (6) Whether the person signing is appropriate is determined as of the date of *signing and an indorsement by such a person does not become unauthorized for the purposes of this article by virtue of any subsequent change of circumstances. (7) Failure of a fiduciary to comply with a controlling instrument or with the law of the state having jurisdiction of the fiduciary relationship, including any law requiring the fiduciary to obtain court approval of the transfer, does not render his indorsement unauthorized for the purposes of this article. § 28:8-309. Effect of indorsement without delivery An indorsement of a security whether special or in blank does not constitute a transfer until delivery of the security on which it appears or if the indorsement is *on a separate document until delivery of both the document and the security. § 28:8-310. Indorsement of security in bearer form An indorsement of a security in bearer form may give notice of adverse claims (section 28:8-304) but does not otherwise affect any right to registration the holder may possess. § 28:8-311. Effect of unauthorized indorsement Unless the owner has ratified an unauthorized indorsement or is otherwise precluded from asserting its inefiectiveness (a) he may assert its ineffectiveness against the issuer or any purchaser other than a purchaser for value and without notice of adverse claims who has in good faith received a new, reissued or re-registered security or registra- tion of transfer; and (b) an issuer who registers the transfer of a security upon the unauthorized indorsement is subject ot liability for improper registration (section 28:8- 404). § 28:8-312. Effect of guaranteeing signature or indorsement (1) Any person guaranteeing a signature of an indorser of a security warrants that at the time of signing (a) the signature was genuine; and (b) the signer was an appropriate person to indorse (section 28:8-308). and PAGENO="0091" UNIFORM COMMERCIAL CODE 87 (c) the signer had legal capacity to sign. But the guarantor does not otherwise warrant the rightfulness of the particular transfer. (2) Any person may guarantee an indorsement of a security and by so doing warrants not only the signature (subsection 1) but also the rightfulness of the particular transfer in all respects. But no issuer may require a guarantee of indorsement as a condition to registration of transfer. (3) The foregoing warranties are made to any person taking or dealing with the security in reliance on the guarantee and the guarantor is liable to such person for any loss resulting from breach of the warranties. § 28:8-313. When delivery to the purchaser occurs; purchaser's broker as holder (1) Delivery to a purchaser occurs when (a) he or a person designated by him acquires possession of a security; or (b) his broker acquires possession of a security specially indorsed to or issued in the name of the purchaser; or (c) his broker sends him confirmation of the purchase and also by book entry or otherwise identifies a specific security in the broker's possession as belonging to the purchaser; or (d) with respect to an identified security to be delivered while still in the possession of a third person when that person acknowledges that he holds for the purchaser; or (e) appropriate entries on the books of a clearing corporation are made under section 28: 8-320. (2) The purchaser is the owner of a security held for him by his broker, but is not the holder except as specified in subparagraphs (b), (c) and (e) of subsection (1). Where a security is part of a fungible bulk the purchaser is the owner of a proportionate property interest in the fungible bulk. (3) Notice of an adverse claim received by the broker or by the purchaser * after the broker takes delivery as a holder for value is not effective either as to the broker or as to the purchaser. However, as between the broker and the pur- chaser the purchaser may demand delivery of an equivalent security as to which no notice of an adverse claim has been received. § 28:2-314. Duty to deliver, when completed (1) Unless otherwise agreed where a sale of a security is mad~e on an exchange or otherwise through brokers (a) the selling customer fulfills his duty to deliver when he places such a security in the possession of the selling broker or of a person designated by the broker or if requested causes an acknowledgment to be made to the selling broker that it is held for him; and (b) the selling broker including a correspondent broker acting for a selling * customer fulfills his duty to deliver by placing the security or a like security in the possession of the buying broker or a person designated by him or by effecting clearance of the sale in accordance with the rules of the exchange on which the transaction took place. (2) Except as otherwise provided in this section and unless otherwise agreed, a transferor's duty to deliver a security under a contract of purchase is not fulfilled until he places the security in form to be negotiated by the purchaser in the pos- session of the purchaser or of a person designated by him or at the purchaser's request causes an acknowledgment to be made to the purchaser that it is held for him. Unless made on an exchange a sale to a broker purchasing for his own account is within this subsection and not within subsection (1). § 28:8-315. Action against purchaser based upon wrongful transfer (1) Any person against whom the transfer of a security is wrongful for any reason, including his incapacity, may against anyone except a bonn fide purchaser reclaim possession of the security or obtain possession of any new security evi- dencing all or part of the same rights or have damages. (2) If the transfer is wrongful because of an unauthorized indoresment, the *owner may also, reclaim or obtain possession of the security or new security even from a bona fide purchaser if the ineffectiveness of the purported indorsement can be asserted against him under the provisions of this article on unauthorized indorsements (section 28~8~ -311). (3) The right to obtain or reclaim possession of a security may be specifically enforced and its transfer enjoined and the security impounded pending the Etigation. PAGENO="0092" 88 UNIFORM CO]\ThfERCIAL CODE § 28:8-316. Purchaser's right to requisites for registration of transfer on books Unless otherwise agreed the transferor must on due demand supply his pur- chaser with any proof of his authority to transfer or with any other requisite which may be necessary to obtain registration of the transfer of the security but if the transfer is not for value a transferor need not do so unless the purchaser furnishes the necessary expenses. Failure to comply with a demand made within a reasonable time gives the purchaser the right to reject or rescind the transfer. § 28:8-317. Attachment or levy upon security (1) No attachment or levy upon a security or any share or other interest evidenced thereby which is outstanding shall be valid until the security is actually seized by the officer making the attachment or levy but a security which has been surrendered to the issuer may be attached or levied upon at the source. (2) A creditor whose debtor is the owner of a security shall be entitled to such aid from courts of appropriate jurisdiction, by injunction or otherwise, in reaching such security or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process. § 28:8-318. No conversion by good faith delivery An agent or bailee who in good faith (including observance of reasonable com- mercial standards if he is in the business of buying, selling or otherwise dealing with securities) has received securities and sold, pledged or delivered them ac- cording to the instructions of his principal is not liable for conversion or for participation in breach of fiduciary duty although the principal had no right to dispose of them. § 28:8-319. Statute of frauds A contract for the sale of securities is not enforceable by way of action or defense unless (a) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price; or (b) delivery of the security has been accepted or payment has been made but the contract is enforceable under this provision only to the extent of such delivery or payment; or (c) within a reasonable time a writing in confirmation of the sale or purchase and sufficient against the sender under paragraph (a) has been received by the party against whom enforcement is sought and he has failed to send written objection to its contents within ten days after its receipt; or (d) the party against whom enforcement is sought admits in his pleading testimony or otherwise in court that a contract was made for sale of a stated quantity of described securities at a defined or stated price. § 28:8-320. Transfer or pledge within a central depository system (1) If a security (a) is in the custody of a clearing corporation or of a custodian bank or a nominee of either subject to the instructions of the clearing corporation; and (b) is in bearer form or indorsed in blank by an appropriate person or registered in the name of the clearing corporation or custodian bank.or a nominee of either; and (c) is shown on the account of a transferor or pledgor on the books of the clearing corporation; then, in addition to other methods, a transfer or pledge of the security or any interest therein may be effected by the making of appropriate entries on the books of the clearing corporation reducing the account of the transferor or pledgor and increasing the account of the transferee or pledgee by the amount of the obligation or the number of shares or rights transferred or pledged. (2) Under this section entries may be with respect to like securities or interests therein as a part of a fungible bulk and may refer merely to a quantify of a par- ticular security without reference to the name of the registered owner, certificate or bond number or the like and, in appropriate cases, may be on a net basis taking into account other transfers or pledges of the same security. (3) A transfer or pledge under this section has the effect of a delivery of a security in bearer form or duly indorsed in blank (section 28:8-301) representing the amount of the obligation or the number of shares or rights transferred or PAGENO="0093" UNIFORM COMMERCIAL CODE 89 pledged. If a pledge or the creation of a security interest is intended, the making of entries has the effect of a taking of delivery by the pledgee or a secured party sections 28:9-304 and 28:9-305). A transferee or pledgee under this section is a holder. (4) A transfer or pledge under this section does not constitute a registration of transfer under part 4 of this article. (5) That entries made on the books of the clearing corporation as provided in subsection (1) are not appropriate does not affect the validity or e~Tect of the entries nor the liabilities or obligations of the clearing corporation to any person adversely affected thereby. PART 4-REGISTRATION § 28:8-401. Duty of issuer to register transfer (1) Where a security in registered form is presented to the issuer with a request to register transfer, the issuer is under a duty to register the transfer as requested if (a) the security is indorsed by the appropriate persons or persons (section 28:8-308); and (b) reasonable assurance is given that those indorsements are genuine and effective (section 28:8-402); and (c) the issuer has no duty to inquire into adverse claims or has discharged any such duty (section 28:8-403); and (d) any applicable law relating to the collection of taxes has been complied with; and (e) the transfer is in fact rightful or is to a bona fide purchaser. (2) Where an issuer is under a duty to register a transfer of a security the issuer is also liable to the person presenting it for registration or his principal for loss resulting from any unreasonable delay in registration or from failure or refusal to register the transfer. § 28:8-402. Assurance that indorsements are effective (1) The issuer may require the following assurance that each necessary in- dorsement (section 28:8-308) is genuine and effective (a) in all cases, a guarantee of the signature (subsection (1) of section 28:8-312) of the person indorsing; and (b) where the indorsement is by an agent, appropriate assurance of authority to sign; (c) where the indorsement is by a fiduciary, appropriate evidence of appointment or incumbency; (d) where there is more than one fiduciary, reasonable assurance that all who are required to sign have done so; (e) where the indorsement is by a person not covered by any of the fore- going, assurance appropriate to the case corresponding as nearly as may be to the foregoing. (2) A "guarantee of the signature" in subsection (1) means a guarantee signed by or on behalf of a person reasonably believed by the issuer to be responsible. The issuer may adopt standards with respect to responsibility provided such standards are not manifestly unreasonable. (3) "Appropriate evidence of appointment or incumbency" in subsection (1) means (a) in the case of a fiduciary appointed or qualified by a court, a certificate issued by or under the direction or supervision of that court or an officer thereof and dated within sixty days before the date of presentation for transfer; or (b) in any other case, a copy of a document showing the appointment or a certificate issued by or on behalf of a person reasonably believed by the issuer to be responsible or, in the absence of such a document or certificate, other~ evidence reasonably deemed by the issuer to be appropriate. The issuer may adopt standards with respect to such evidence provided such standards are not manifestly unreasonable. The issuer is not charged with notice of the contents of any document obtained pursuant to this paragraph (b) except to the extent that the contents relate directly to the appointment or incum- bency. (4) The issuer may elect to require reasonable assurance beyond that spe&fied in this section hut if it does so and for a purpose other than that specified in sub- section 3(b) both requires and obtains a copy of a will, trust, indenture, articles of co-partnership, by-laws or other controlling instrument it is charged with notice of all matters contained therein affecting the transfer. PAGENO="0094" 90 1J~IFORM COMI\IERCIAL CODE § 28:8-403. Limited duty of inquiry (1) An issuer to whom a security is presented for registration is under a duty to inquire into adverse claims if (a) a written notification of an adverse claim is received at a time and in a* manner which affords the issuer a reasonable opportunity to act on it prior to the issuance of a new, reissued or re-registered security and the notification identifies the claimant, the registered owner and the issue of which the security is a part and provides an address for communications directed to the claimant; or (b) the issuer is charged with notice of an adverse claim from a controlling~ instrument which it has elected to require under subsection (4) of section 28:8-402. (2) The issuer may discharge any duty of inquiry by any reasonable means, including notifying an adverse claimant by registered or certified mail at the address furnished by him or if there be no such address at his residence or regular place of business that the security has been presented for registration of trans- fer by a named person, and that the transfer will he registered unless within thirty days from the date of mailing the notification, either (a) an appropriate restraining order, injunction or other process issues from a court of competent jurisdiction; or (b) an indemnity bond sufficient in the issuer's judgment to protect the issuer and any transfer agent, registrar or other agent of the issuer involved, from any loss which it or they may suffer by complying with the adverse claim is filed with the issuer. (3) Unless an issuer is charged with notice of an adverse claim from a controlling instrument which it has elected to require under subsection (4) of section 28:8- 402 or receives notification of an adverse claim under subsection (1) of this section, where a security presented for registration is indorsed by the appropriate person* or persons the issuer is under no duty to inquire into adverse claims. In particular (a) an issuer registering a security in the name of a person who is a fiduciary or who is described as a fiduciary is not bound to inquire into the existence, extent, or correct description of the fiduciary relationship and thereafter the issuer may assume without inquiry that the newly registered owner continues to be the fiduciary until the issuer receives written notice that the fiduciary is no longer acting as such with respect to the particular security; (b) an issuer registering transfer on an indorsement by a fiduciary is not bound to inquire whether the transfer is made in compliance with a controlling instrument or with the law of the state having jurisdiction of the fiduciary relationship, including any law requiring the fiduciary to obtain court approval of the transfer; and (c) the issuer is not charged with notice of the contents of any court record or file or other recorded or unrecorded document even though the document is in its possession and even though the transfer is made on the indorsement of a fiduciary to the fiduciary himself or to his nominee. § 28:8-404. Liability and non-liability for registration (1) Except as otherwise provided in any law relating to the collection of taxes, the issuer is not liable to the owner or any other person suffering loss as a result of the registration of a transfer of a security if (a) there were on or with the security the necessary indorsements (section 28:8-308); and (b) the issuer had no duty to inquire into adverse claims or has discharged any such duty (section 28:8-403). (2) Where an issuer has registered a transfer of a security to a person not entitled to it the issuer on demand must deliver a like security to the true owner unless (a) the registration was pursuant to subsection (1); or (b) the owner is precluded from asserting any claim for registering the transfer under subsection (1) of the following section; or (c) su~h delivery would result in overissue, in which case the issuer's liability is governed by section 28 :8-104. PAGENO="0095" UNIFORM COMMERCIAL CODE 91 § 28:8-405. Lost, destroyed and stolen securities (1) Where a security has been lost, apparently destroyed or wrongfully taken and the owner fails to notify the issuer of that fact within a reasonable time after he has notice of it and the issuer registers a transfer of the security before receiving such a notification, the owner is precluded from asserting against the issuer any claim for registering the transfer under the preceding section or any claim to a new security under this section. (2) Where the owner of a security claims that the security has been lost, de stroyed or wrongfully taken, the issuer must issue a new security in place of th~ original security if the owner (a) so requests before the issuer has notice that the security has been, acquired by a bona fide purchaser; and (b) files with the issuer a sufficient indemnity bond; and (c) satisfies any other reasonable requirements imposed by the issuer. (3) If, after the issue of the new security, a bona fide purchaser of the original, security presents it for registration of transfer, the issuer must register the transfer' unless registration would result in overissue, in which event the issuer's liability' is governed by section 28:8-104. In addition to any rights on the indemnity bond, the issuer may recover the new security from the person to whom it was' issued or any person taking under him except a bona fide purchaser. § 28:8-406. `Duty of authenticating trustee, transfer agent or registrar (1) Where a person acts as authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of transfers of its securities or in the issue of new securities or in the cancellation of surrendered securities (a) he is under a duty to the issuer to exercise good faith and due diligence in performing his functions; and (b) he has with regard to the particular functions he performs the same obligation to the holder or owner of the security and has the same rights and privileges as the issuer has in regard to those functions. (2) Notice to an authenticating trustee, transfer agent, registrar or other such agent is notice to the issuer with respect to the functions performed by the ~i.gent. § 28:8-407. Limitation of actions (1) In the event of registration, either before or after this subtitle becomes. effective, of a transfer or purported transfer of a security to a person not entitled to it, no action of any kind, legal or equitable, to compel the issue, reissue or de- livery of a like security or `to obtain damages or any other. relief as a result of or or in connection with such registration may he brought, sub4ect to subsection (2), by the true owner or any other person against an issuer, authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of transfers of its securities, more than eight years after the date on which such registra-. tion to a person not entitled has taken place. (2) The time limitations in subsections (1) and (3) of this section may not be tolled or suspended for any reason. This section is additional to, and does not prevent or affect the application of, any other statute of limitations as a defense to any action. This section applies to claims or causes of action which have accrued before this subtitle becomes effective as well as to those which accrue after this subtitle becomes effective. This section does not apply to any action against an issuer which at the time of such registration has fewer than fifty persons regis- tered upon books maintained for that purpose as holders of the class and series, if any, of the security so registered to the person not entitled to it. PAGENO="0096" 92 UNIFORM COMMERCIAL CODE ARTICLE 9-SECURED TRANSACTIONS; SALES OF ACCOUNTS, CONTRACT RIGHTS AND CHATTEL PAPER PART 1-SHORT TITLE, APPLICABILITY AND DEFINITIONS Sec. 28:9-101. Short title. 28:9-102. Policy and scope of article. 28:9-103. Accounts, contract rights, general intangibles and equipment relating to another jurisdiction; and incoming goods already subject to a security interest. 28:9-104. Transactions excluded from article. 28:9-lOS. Definitions and index of definitions. 28:9-106. Definitions: "account"; "contract right"; "general intangible". 28:9-107. Definitions: "purchase money security interest". 28:9-108. `When after-acquired collateral not security for antecedent debt. 28:9-109. Classification of goods; "consumer goods"; "equipment"; "farm products"; "inventory". 28:9-110. Sufficiency of description. 28:9-ill. Applicability of bulk transfer laws. 28:9-112. Where collateral is not owned by debtor. 28:9-113. Security interests arising under articles on sales. (3) If the eight year period specified in this section expires prior to one year after the effective date of this subtitle, such period is extended to one year after such effective date. PART 2-VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO 28:9-201. General validity of security agreement. 28:9-212. Title to collateral immaterial. 28:9-203. Enforceability of security interest; proceeds, formal requisites. 28:9-204. When security interest attaches; after-acquired property; future advances. 28:9-205. Use or disposition of collateral without accounting permissible. 28:9-206. Agreement not to assert defenses against assignee; modification of sales warranties where security agreement exists. 28:9-207. Rights and duties when collateral is in secured party's possession. 28:9-208. Request for statement of account or list of collateral. PART 3-RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY 28:9-301. Persons who take priority over unperfected security interest; "lien creditor". 28:9-302. When filing is required to perfect security interest; security interests to which filing provisions of this article do not apply. 28:9-303. When security interest is perfected; continuity of perfection. 28:9-304. Perfection of security interests in instruments, documents, and goods covered by documents; perfection l)y permissive filing; temporary perfection without filing or transfer of possession. 28:9-305. When possession by secured party perfects security interest without filing. 28:9-3C6. "Proceeds": secured party's rights on disposition of collateral. 28:9-307. Protection of buyers of goods. 28:9-308. Purchase of chattel paper and non-negotiable instruments. 28:9-309. Protection of purchasers of instruments and documents. 28:9-310. Priority of certain liens arising by operation of law. 28:9-311. Alienability of debtor's rights: judicial process. 28:9-312. Priorities among conflicting security interests in the same collateral. 28:9-313. Priority of security interests in fixtures. 28:9-314. Accessions. 28:9-315. Priority when goods crc commingled or processed. 28:9-316. Priority subject to subordination. 28:9-317. Secured party not obligated on contract of debtor. 28:9-318. Defenses against assignee: modification of contract after notification of assignment; term prohibit- ing assignment ineffective; identification and proof of assignment. PUIT 4-FILING 28:9-401. Place of filing; erroneous filing; removal of collateral. 28:9-402. Formal requisites of financing statement; amendments. 28:9-403. What copstitutes filing; duration of filing; effect of lapsed filing; duties of filing officer. 28:9-404. Termination statement. 28:9-405. Assignment of security interest; duties of filing officer; fees. 28:9-406. Release of collateral; duties of ffiing officer; fees. 28:9-407. Information from filing officer. PART 5-DEFAULT 28:9-501. Default; procedure when security agreement covers both real and personal property. 28:9-502. Collection rights of secured party. 28:9-503. Secured party's right to take possession after default. 28:9-504. Secured party's right to dispose of collateral after default; effect of disposition. 28:9-505. Compulsory disposition of collateral; acceptance of the collateral as discharge of obligation. 28:9-506. Debtor's right to redeem collateral. 28:9-507. Secured party's liability for failure to comply with this part. PAGENO="0097" UNIFORM COMMERCIAL CODE 93 PART 1-SHORT TITLE, APPLICABILITY AND DEFINITIONS § 28:9-101. Short title This article shall be known and may be cited as Uniform Commercial Code- Secured Transactions. § 28:9-102. Policy and scope of article (1) Except as otherwise provided in section 28:9-103 on multiple state transactions and in section 28 :9-104 on excluded transactions, this article applies so far as concerns any personal property and fixtures within the jurisdiction of the District (a) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, accounts or contract rights; and also (b) to any sale of accounts, contract rights or chattel paper. (2) This article applies to security interests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, factor's lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended as security. This article does not apply to statutory liens except as provided in section 28:9-310. (3) The application of this article to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this article does not apply. § 28:9-103. Accounts, contract rights, general intangibles and equipment relating to another jurisdiction; and incoming goods already subject to a security interest (1) If the office where the assignor of accounts or contract rights keep his records concerning them is in the District, the validity and perfection of a security in- terest therein and the possibility and effect of proper filing is governed by this article; otherwise by the law; (including the conflict of laws rules) of the juris- diction where such office is located. (2) If the chief place of business of a debtor is in the District, this article governs the validity and perfection of a security interest and the possibility and effect of proper filing with regard to general intangibles or with regard to goods of a type which are normally used in more than one jurisdiction (such as automotive equipment, rolling stock, airplanes, road building equipment, commercial harvest- ing equipment, construction machinery and the like) if such goods are classified as equipment or classified as inventory by reason of their being leased by the debtor to others. Otherwise, the law (including the conflict of laws rules) of the jurisdiction where such chief place of business is located shall govern. If the chief place of business is located in a jurisdiction which does not provide for perfection of the security interest by filing or recording in that jurisdiction, then the security interest may be perfected by filing in the District. For the purpose of determining the validity and perfection of a security interest in an airplane, the chief place of business of a debtor who is a foreign air carrier under the Federal Aviation Act of 1958, as amended, is the designated office of the agent upon whom service of process may be made on behalf of the debtor. (3) If personal property other than that governed by subsections (1) and (2) is already subject to a security interest when it is brought into the District, the validity of the security interest in the District is to be determined by the law (including the conflict of laws rules) of the jurisdiction where the property was when the security interest attached. However, if the parties to the transaction understood at the time that the security interest attached that the property would be kept in the District and it was brought into the District within 30 days after the security interest attached for purposes other than transportation through the District, then the validity of the security interest in the District is to be determined by the law of the District. If the security interest was already per- fected under the law of the jurisdiction where the property was when the security interest attached and before being brought into the District, the security interest continues perfected in the District for four months and also thereafter if within the four month period it is perfected in the District. The security interest may also be perfected in the District after the expiration of the four month period; in such case perfection dates from the time of perfection in the District. If the security interest was not perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into the District, 30-i51-64-----~7 PAGENO="0098" 94 UNIFORM CO~'IERCIAL CODE it may be perfected in the District; in such case perfection dates from the time of perfection in the District. (4) Nothwithstanding subsections (2) and (3), if personal property is covered by a certificate of title issued under a statute of the District or any other juris- diction which requires indication on a certificate of title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate. (5) Notwithstanding subsection (1) and section 28:9-302, if the office where the assignor of accounts or contracts rights keeps his records concerning them is not located in a jurisdiction which is a part of the United States, its territories or possessions, and the accounts or contract rights are within the jurisdiction of the District or the transaction which creates the security interest otherwise bears an appropriate relation to the District, this article governs the validity and per- fection of the security interest and the security interest may only be perfected by notification to the account debtor. § 28:9-104. Transactions excluded from article This article does not apply (a) to a security interest subject to any statute of the United States such as the Ship Mortgage Act, 1920, to the extent that such statute governs the rights of parties to and third parties affected by transactions in particular types of property; or (b) to a landlord's lien; or (c) to a lien given by statute or other rule of law for services or materials except as provided in section 28:9-310 on priority of such liens; or (d) to a transfer of a claim for wages, salary or other conpensation of an employee; or (e) to an equipment trust covering railway rolling stock; or (f) to a sale of accounts, contract rights or chattel paper as part of a sale of the business out of which they arose, or an assignment of accounts, contract rights or chattel paper which is for the purpose of collection only, or a transfer of a contract right to an assignee who is also to do the performance under the contract; or (g) to a transfer of an interest or claim in or under any policy of insurance; or (h) to a right represented by a judgment; or (i) to any right of set-off; or (j) except to the extent that provision is made for fixtures in section 28:9-3 13, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder; or (k) to a transfer in whole or in part of any of the following: any claim arising out of tort; any deposit, savings, passbook or like account maintained witha bank, savings and loan association, credit union or like organization. § 28:9-105. Definitions and index of definitions (1) In this article unless the context otherwise requires: (a) "Account debtor" means the person who is obliged on an account, chattel paper, contract right or general intangible; (b) "Chattel paper" means a writing or writings which evidence both a monetary obligation and a security interst in or a lease of specific goods. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or a series of instruments, the group of writings taken together constitutes chattel paper; (c) "Collateral" means the property subject to a security interest, and includes accounts, contract rights and chattel paper which have been sold; (d) "Debtor" means the parson who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts, contract rights or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the article dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires; (e) "Document" means document of title as defined in the general defi- nitions of article 1 (section 28:1-201); (f) "Goods" includes all things which are movable at the time the security interest attaches or which are fixtures (section 28:9-313), but does not include money, documents, instruments, accounts, chattel paper,~general PAGENO="0099" TJNIFORM COMMERCIAL CODE 95 intangibles, contract rights and other things in action. "Goods" also includes the unborn young of animals and growing crops; (g) "Instrument" means a negotiable instrument (defined in section 28:3-104), or a security (defined in section 28:2-102) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment; (h) "Security agreement" means an agreement which creates or provides for a security interest; (i) "Secured party" means a lender, seller or other person in whose favor there is a security interest, including a person to whom accounts, contract rights or chattel paper have been sold. When the holders of obligations issued under an indenture of trust, equipment trust agreement or the like are represented by a trustee or other person, the representative is the secured party. (2) Other definitions applying to this article and the sections in which they appear are: "Account". Section 28:9-106. "Consumer goods". Section, 28:9-109(1). "Contract right." Section 28:9-106. "Equipment". Section 28:9-109(2). "Farm products." Section 28:9-109(3). "General intangibles". Section 28:9-106. "Inventory". Section 28:9-109(4). "Lien creditor". Section 28:9-301(3). "Proceeds". Section 28:9-306(1). "Purchase money security interest". Section 28:9-107. (3) The following definitions in other articles apply to this article: "Check". Section 28:3-104. "Contract for sale". Section 28:2-106. "Holder in due course". Section 28:3-302. "Note". Section 28 :3-104. "Sale". Section 28 :2-106. (4) In addition article 1 contains general definitions and principles of con- struction and interpretation applicable throughout this article. § 28:9-106. Definitions: "account"; "contract right"; "general intangibles" "Account" means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. "Contract right" means any right to payment under a contract not yet, earned by per- formance and not evidenced by an' instrument or chattel, paper. "General intangibles" means any personal property (including things in action) other than goods, accounts, contract rights,, chattel paper, documents and instruments. § 28:9-107. Definitions: "purchase money security interest" A security interest is a "purchase money security interest" to the extent that itis ` (a) taken or retained by the seller of the collateral to secure all or part of its price; or (b) taken by a person who by making advances or incurring an obliga- tion gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. § 28:9-108. When after-acquired collateral not security for antecedent debt Where a secured party makes an advance, incurs an obligation, releases a per- fected security interest, or otherwise gives new value which is to be secured in whole or in part by after-acquired property his security interest in the after- acquired collateral shall be deemed to be taken for new value and not as security for an antecedent debt if the debtor acquires his rights in such collateral either ir the ordina.ry course of his business or under a contract of purchase made pursuant to security agreement within a reasonable time after new value is given. § 28:9-109. Classification of goods; "consumer goods"; "equipment",; "farm products"; "inventory" Goods are ` ` ` (1) "consumer goods" if they are used or bought for use primarily for personal, family or household purposes; (2) "equipment" if they are used or bought for use primarily in business (in- cluding fai ming or a profession) or by a debtor who is a non profit organization PAGENO="0100" 96 UNIFORM COMMERCIAL CODE or a governmental subdivision or agency or if the goods are not included in the definitions of inventory, farm products or consumer goods; (3) "farm products" if they are crops or livestock or supplies used or produced in farming operations or if they are products of crops or livestock in their un- manufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs), and if they are in the possession of a debtor engaged in raising, fattening, grazing or other farming operations. If goods are farm products they are neither equipment nor inventory; (4) "inventory" if they are held by a person who holds them for sale or lease or to be furnished under contracts of service or if he has so furnished them, or if they are raw materials, work in process or materials used or consumed in a busi- ness. Inventory of a person is not to be classified as his equipment. § 28:9-110. Sufficiency of description For the purposes of this article any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described. § 28:9-Ill. Applicability of bulk transfer laws The creation of a security interest is not a bulk transfer under article 6 (see section 28:6-103). § 28:9-112. Where collateral is not owned by debtor Unless otherwise agreed, when a secured party knows that collateral is owned by a person who is not the debtor, the owner of the collateral is entitled to receive from the secured party any surplus under section 28:9-502(2) or under section 28:9-504(1), and is not liable for the debt or for any deficiency after resale, and he has the same right as the debtor (a) to receive statements under section 28:9-208; (b) to receive notice of and to object to a secured party's proposal to retain the collateral in satisfaction of the indebtedness under section 28:9- 505; (c) to redeem the collateral under section 28:9-506; (d) to obtain injunctive or other relief under section 28:9-507(1); and (e) to recover losses caused to him under section 28:9-208(2). § 28:9-113. Security interests arising under article on sales A security interest arising solely under the article on sales (article 2) is subject to the provisions of this article except that to the extent that and so long as the debtor does not have or does not lawfully obtain possession of the goods (a) no security agreement is necessary to make the security interest en- forceable; and (b) no filing is required to perfect the security interest; and (c) the rights of the secured party on default by the debtor are governed by the article on sales (article 2). PART 2-VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO ~ 28:9-201. General validity of security agreement Except as otherwise provided by this title a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. Nothing in this article validates any charge or practice illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or the like, or extends the application of any such statute or regulation to any transaction not otherwise subject thereto. § 28 :9-202. Title to collateral immaterial Each provision of this article with regard to rights, obligations and remedies applies whether title to collateral is in the secured party or in the debtor. § 28:9-203. Enforceability of security interest; proceeds, formal requisites (1) Subject to the provisions of section 28:4-208 on the security interest of a collecting bank and section 28:9-113 on a security interest arising under the article on sales, a security interest is not enforceable against the debtor or third parties unless (a) the collateral is in the possession of the secured party; or (b) the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops or PAGENO="0101" UNIFORM COMMERCIAL CODE 97 oil, gas or minerals to be extracted or timber to be cut, a description of the land concerned. In describing collateral, the word "proceeds" is sufficient without further description to cover proceeds of any character. (2) A transaction, although subject to this article, is also subject to chapter 20 of Title 2, relating to pawnbrokers, chapter 6 of Title 26, relating to money lenders, chapter 7 of Title 40, relating to liens on motor vehicles, and chapter 9 of Title 40, relating to installment sales of motor vehicles, and in the case of conflict between the provisions of this article and any such statute, the provisions of such statute control. Failure to comply with any applicable statute has only the effect which is specified therein. § 28 :9-204. When security interest attaches; after-acquired property; future advances (1) A security interest cannot attach until there is agreement (subsection (3) of section 28: 1-201) that it attach and value is given and the debtor has rights in the collateral. It attaches as soon as all of the events in the preceding sentence have taken place unless explicit agreement postpones the time of attaching. (2) For the purposes of this section the debtor has no rights (a) in. crops until they are planted or otherwise become growing crops, in the young of livestock until they are conceived; (b) in fish until caught, in oil, gas or minerals until they are extracted, in timber until it is cut; (c) in a contract right until the contract has been made; (d) in an account until it comes into existence. (3) Except as provided in subsection (4) a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement. (4) No security interest attaches under an after-acquired property clause (a) to crops which become such more than one year after the security agreement is executed except that a security interest in crops which is given in conjunction with a lease or a land purchase or improvement transaction evidenced by a contract, mortgage or deed of trust may if so agreed attach to crops to be grown on the land concerned during the period of such real estate transaction; (b) to consumer goods other than accessions (section 28:9-314) when given as additional security unless the debtor acquires rights in them within ten days after the secured party gives value. (5) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment. § 28:9-205. Use or disposition of collateral without accounting permissible A security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor to use, commingle or dispose of all or part of the collateral (including returned or repossessed goods) or to collect or compromise accounts, contract rights or chattel paper, or to accept the return of goods or make reposses- sions, or to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral. This section does not relax the requirements of possession where perfection of a security interest depends upon possession of the collateral by the secured party or by a bailee. § 28:9-206. Agreement not to assert defenses against assignee; modification of sales warranties where security agreement exists (1) Subject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instru- ment under the article on commercial paper (article 3). A buyer who as part of one transaction signs both a negotiable instrument and a security agreement makes such an agreement. (2) When a seller retains a purchase money security interest in goods the article on sales (article 2) governs the sale and any disclaimer, limitation or modi- fication of the seller's warranties. PAGENO="0102" 98 UNIFORM COMMERCIAL CODE § 28:9-207. Rights and duties when collateral is in secured party's possession (1) A secured party must use reasonable care in the custody and preservation of collateral in his possession. In the case of an instrument or chattel paper reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed. (2) Unless otherwise agreed, when collateral is in the secured party's possession (a) reasonable expenses (including the cost of any insurance and payment of taxes or other charges) incurred in the custody, preservation, use or operation of the collateral are chargeable to the debtor and are secured by the collateral; (b) the risk of accidental loss or damage is on the debtor to the extent of any deficiency in any effective insurance coverage; (c) the secured party may hold as additional security any increase or profits (except money) received from the collateral, but money so received, unless remitted to the debtor, shall be applied in reduction of the secured obligation; (d) the secured party must keep the collateral identifiable but fungible collateral may be commingled; (e) the secured party may repledge the collateral upon terms which do not impair the debtor's right to redeem it. (3) A secured party is liable for any loss caused by his failure to meet any obligation imposed by the preceding subsections but does not lose his security interest. (4) A secured party may use or operate the collateral for the purpose of pre- serving the collateral or its value or pursuant to the order of a court of appropriate jurisdiction or, except in the case of consumer goods, in the manner and to the extent provided in the security agreement. § 28:9-208. Request for statement of account or list of collateral (1) A debtor may sign a statement indicating what he believes to be the aggre- gate amount of unpaid indebtedness as of a specified date and may send it to the secured party with a request that the statement be approved or corrected and returned to the debtor. When the security agreement or any other record kept by the secured party identifies the collateral a debtor may similarly request the secured party to approve or correct a list of the collateral. (2) The secured party must comply with such a request within two weeks after receipt by sending a written correction or approval. If the secured party claims a security interest in all of a particular type of collateral owned by the debtor he may indicate that fact in his reply and need not approve or correct an itemized list of such collateral. If the secured party without reasonable excuse fails to comply he is liable for any loss caused to the debtor thereby; and if the debtor has properly included in his request a good faith statement of the obligation or a list of the collateral or both the secured party may claim a security interest only as shown in the statement against persons misled by his failure to comply. If he no longer has an interest in the obligation or collateral at the time the request is received he must disclose the name and address of any successor in interest known to him and he is liable for any loss caused to the debtor as a result of failure to disclose. A successor in interest is not subject to this section until a request is received by him. (3) A debtor is entitled to such a statement once every six months without charge. The secured party may require payment of a charge not exceeding $10 for each additional statement furnished. PART 3-RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY § 28:9-301. Persons who take priority over unperfected security interests; "lien creditor" (1) Except as otherwise provided in subsection (2), an unperfected security interest is subordinate to the rights of (a) persons entitled to priority under section 28:9-312; (b) a person who becomes a lien creditor without knowledge of the security interest and before it is perfected; (c) in the case of goods, instruments, documents, and chattel paper, a person who is not a secured party and who is a transferee in bulk or other buyer not in ordinary course of business to the extent that he gives value and receives delivery of the collateral without knowledge of the security interest and before it is perfected; PAGENO="0103" UNIFORM COMMERCIAL CODE 99 (d) in the case of accounts, contract rights, and general intangibles, a person who is not a secured party and who is a transferee to the extent that he gives value without knowledge of the security interest and before it is perfected. (2) If the secured party files with respect to a purchase money security interest before or within ten days after the collateral comes into possession of the debtor, he takes priority over the rights of a transferee in bulk or of a lien creditor which arise between the time the security interest attaches and the time of filing. (3) A "lien creditor" means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes an assignee for benefit of~ creditors from the time of assignment, and a trustee in bankruptcy from the date of the filing of the petition or a reciver in equity from the time of appointment. Unless all the creditors represented had knowledge of the security interest such a representative of creditors is a lien creditor without knowledge even though he personally has knowledge of the security interest. § 28:9-302. When filing is required to perfect security, interest; security interests to which filing provisions of this article do not apply (1) A financing statement must be filed to perfect all security interests except the following: (a) a security interest in collateral in possession of the secured party under section 28:9-305; (h) a security interest temporarily perfected in instruments or documents without delivery under section 28:9-304 or in proceeds for a 10 day period under section 28:9-306; (c) a purchase money security interest in farm equipment having a pur- chase price not in excess of $2,500; but filing is required for a fixture under section 28:9-313 or for a motor vehicle required to be licensed; (d) a purchase money security interest in consumer goods; but filing is required for a fixture under section 28:9-313 or for a motor vehicle required to be licensed; (e) an assignment of accounts or contract rights which does not alone or in conjunction with other assignments to the same assignee transfer a signifi- cant part of the outstanding accounts or contract rights of the assignor; (f) a security interest of a collecting hank (section 28:4-208) or arising under the article on sales (see section 28:9-113) or covered in subsection (3) of this section. (2) If a secured party assigns a perfected security interest, no filing under this article is required in order to continue the perfected status of the security interest against creditors of and transferees from the original debtor. (3) The filing provisions of this article do not apply to a security interest in property subject to a statute (a) of the United States which provides for a national registration or filing of all security interests in such property; or (b) of the United States pertaining to the District which provides for central filing of security interests in a motor vehicle or trailer which is not inventory held for sale for which a certificate of title is required to be issued under the provisions of chapter 7 of Title 40. (4) A security interest in property covered by a statute described in subsection (3) can he perfected only by registration or filing under that statute or by indica- tion of the security interest on a certificate of title or a duplicate thereof by a public official. § 28:9-303. When security interest is perfected; continuity of perfection (1) A security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. Such steps are specified in sections 28:9-302, 28:9-304, 28:9-305 and 28:9-306. If such steps are taken before the security interest attaches, it is perfected at the time when it attaches. (2) If a security interest is originally perfected in any way permitted under this article and is subsequently perfected in some other way under this article, without an intermediate period when it was unperfected, the security interest shall be deemed to be perfected continuously for the purposes of this article. PAGENO="0104" 100 UNIFORM COMMERCIAL CODE § 28 :9-304. Perfection of security interest in instruments, documents, and goods covered by documents; perfection by permissive filing; tempo- rary perfection without filing or transfer of possession (1) A security interest in chattel paper or negotiable documents may be per- fected by filing. A security interest in instruments (other than instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in subsections (4) and (5). (2) During the period that goods are in the possession of the issuer of a nego- tiable document therefor, a security interest in the goods is perfected by perfecting a security interest in the document, and any security interest in the goods other- wise perfected during such period is subject thereto. (3) A security interest in goods in the possession of a bailee other than one who has issued a negotiable document therefor is perfected by issuance of a document in the name of the secured party or by the bailee's receipt of notification of the secured party's interest or by filing as to the goods. (4) A security interest in instruments or negotiable documents is perfected without filing or the taking of liossession for a period of 21 days from the time it attaches to the extent that it arises for new value given under a written security agreement. (5) A security interest remains perfected for a period of 21 days without filing where a secured party having a perfected security interest in an instrument, a negotiable document or goods in possession of a hailee other than one who has issued a negotiable document therefor (a) makes available to the debtor the goods or documents representing the goods for the purpose of ultimate sale or exchange or for the purpose of load~ ing, unloading, storing, shipping, transshipping, manufacturing, processing or otherwise dealing with them in a manner preliminary to their sale or ex- change; or (b) delivers the instrument to the debtor for the purpose of ultimate sale or exchange or of presentation, collection, renewal or registration of transfer. (6) After the 21 day period in subsections (4) and (5) perfection depends upon compliance with applicable provisions of this article. § 28:9-305. When possession by secured party perfects security interest with- out filing A security interest in letters of credit and advices of credit (subsection (2) (a) of section 28:5-116), goods, instruments, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the hailee receives notification of the secured party's interest. A security interest is per- fected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this article. The security interest may be otherwise perfected as provided in this article before or after the period of possession by the secured party. § 28:9-306. "Proceeds"; secured party's rights on disposition of collateral (1) "Proceeds" includes whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of. The term also includes the account arising when the right to payment is earned under a contract right. Money, checks and the like are "cash proceeds". All other proceeds are "non-cash pro- ceeds". (2) Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by the secured party in the security agree- ment or otherwise, and also continues in any identifiable proceeds including col- lections received by the debtor. (3) The security interest in proceeds is a continuously perfected security interest if the interest in the original collateral was perfected but it ceases to be a perfected security interest and becomes unperfected ten days after receipt of the proceeds by the debtor unless (a) a filed financing statement covering the original collateral also covers proceeds; or (b) the security interest in the proceeds is perfected before the expiration of the ten day period- PAGENO="0105" TJNIFORM COMMERCIAL CODE 101 (4) In the event of insolvency proceedings instituted by or against a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest (a) in identifiable non-cash proceeds; (b) in identifiable cash proceeds in the form of money which is not com- mingled with other money or deposited in a bank account prior to the insolvency proceedings; (c) in identifiable cash proceeds in the form of checks and the like which are not deposited in a bank account prior to the insolvency proceedings; and (d) in all cash and bank accounts of the debtor, if other cash proceeds have been commingled or deposited in a bank account, but the perfected security interest under this paragraph (d) is (i) subject to any right of set-off; and (ii) limited to an amount not greater than the amount of any cash proceeds received by the debtor within ten days before the institution of the insolvency proceedings and commingled or deposited in a bank account prior to the insolvency proceedings less the amount of cash proceeds received by the debtor and paid over to the secured party during the ten day period. (5) If a sale of goods results in an account or chattel paper which is transferred by the seller to a secured party, and if the goods are returned to or are repossessed by~the seller or the secured party, the following rules determine priorities: (a) If the goods were collateral at the time of sale for an indebtedness of the seller which is still unpaid, the original security interest attaches again to the goods and continues as a perfected security interest if it was perfected at the time when the goods were sold. If the security interest was originally perfected by a filing which is still effective, nothing further is required to continue the perfected status; in any other case, the secured party must take possession of the returned or repossessed goods or must file. (b) An unpaid transferee of the chattel paper has a security interest in the goods against the transferor. Such security interest is prior to a security interest asserted under paragraph (a) to the extent that the transferee of the chattel paper was entitled to priority under section 28:9-308. (c) An unpaid transferee of the account has a security interest in the goods against the transferor. Such security interest is subordinate to a security interest asserted under paragraph (a). (d) A security interest of an unpaid transferee asserted under para- graph (b) or (c) must be perfected for protection against creditors of the transferor and purchasers of the returned or repossessed goods. § 28 :9-307. Protection of buyers of goods (1) A buyer in ordinary course of business (subsection (9) of section 28:1-201) other than a person buying farm products from a person engaged in farming opera- tions takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence. (2) In the case of consumer goods and in the case of farm equipment having an original purchase price not in excess of $2,500 (other than fixture, see section 28:9- 313),a buyer takes free of a security interest even though perfected.if he buys without knowledge of the security interest, for value and for his own personal, family or household purposes or his own farming operations unless prior to the purchase the secured party has filed a financing statement covering such goods. § 28:9-308. Purchase of chattel paper and non-negotiable instruments A purchaser of chattel paper or a non-negotiable instrument who gives new value and takes possession of it in the ordinary course of his business and with- out knowledge that the specific paper or instrument is subject to a security interest has priority over a security interest which is perfected under section 28:9-304 (permissive filing and temporary perfection). A purchaser of chattel paper who gives new value and takes possession of it in the ordinary course of his business has priority over a security interest in chattel paper which is claimed merely as proceeds of inventory subject to a security interest (section 28:9- 306), even though he knows that the specific paper is subject to the security interest PAGENO="0106" 102 UNIFORM COM~IERCIAL CODE § 28:9-309. Protection of purchasers of instruments and documents Nothing in this article limits the rights of a holder in due course of a negotiable instrument (section 28:3-302) or a holder to whom a negotiable document of title has been duly negotiated (section 28:7-501) or a bona fide purchaser of a security (section 28:8-301) and such holders or purchasers take priority over an earlier security interest even though perfected. Filing under this article does. not constitute notice of the security interest to such holders or purchasers. § 28:9-310. Priority of certain liens arising by operation of law When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise. § 28:9-311. Alienability of debtor's rights; judicial process The debtor's rights in collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default. § 28:9-312. Priorities among conflicting security interests in the same collateral (1) The rules of priority stated in the following sections shall govern where applicable: section 28:4-208 with respect to the security interest of collecting banks in items being collected, accompanying documents and proceeds; section 28 :9-301 on certain priorities; section 28:9-304 on goods covered by documents; section 28:9-306 on proceeds and repossessions; section 28:9-307 on buyers of goods; section 28:9-308 on possessory against non-possessory interests in chattel paper or non-negotiable instruments; section 28:9-309 on security interests in negotiable instruments, documents or securities; section 28:9-310 on priorities between perfected security interests and liens by operation of law; section 28:9- 313 on security interests in fixtures as against interests in real estate; section 28:9-314 on security interests in accessions as against interest in goods; section 28:9-315 on conflicting security interests where goods lose their identity or become part of a product; and section 28:9-316 on contractual subordination. (2) A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than three months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than six months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest. (3) A purchase money security interest in inventory collateral has priority over a conflicting security interest in the same collateral if (a) the purchase money security interest is perfected at the time the debtor receives possession of the collateral; and (b) any secured party whose security interest is known to the holder of the purchase money security interest or who, prior to the date of the filing made by the holder of the purchase money security interest, had filed a financing statement covering the same items or type of inventory, has received notifi- cation of the purchase money security interest before the debtor receives possession of the collateral covered by the purchase money security interest; and (c) such notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type. (4) A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within ten days thereafter. (5) In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special~ priorities set forth in subsections (3) and (4) of this section), priority between conflicting security interests in the same collateral shall be determined as follows: (a) in the order of filing if both are perfected by filing, regardless of which security interest attached first under section 28:9-204(1) and whether it attached before or after filing; PAGENO="0107" TJNIFORM COMMERCIAL CODE 103 (b) in the order of perfection unless both are perfected by filing, regardless of which security interest attached first under section 28:9-204(1) and, in the case of a filed security interest, whether it attached before or after filing; and (c) in the order of attachment under section 28:9-204(1) so long as neither is perfected. (6) For the purpose of the priority rules of the immediately preceding subsec- tion, a continuously perfected security interest shall be treated at all times as if perfected by filing if it was originally so perfected and it shall be treated at all times as if perfected otherwise than by filing if it was originally perfected other- wise than by filing. § 23:9-313. Priority of security interests in fixtures (1) The rules of this section do not apply to goods incorporated into a structure in the manner of lumber, bricks, tile, cement, glass, metal work and the like and no security interest in them exists under this article unless the structure remains personal property under applicable law. The law of the District other than this subtitle determines whether and when other goods become fixtures. This subtitle does not prevent creation of an encumbrance upon fixtures or real estate pursuant to the law applicable to real estate. (2) A security interest which attaches to goods before they become fixtures takes priority as to the goods over the claims of all persons who have an interest in the real estate except as stated in subsection (4). (3) A security interest which attaches to goods after they become fixtures is valid against all persons subsequently acquiring interests in the real estate except as stated in subsection (4) but is invalid against any person with an interest in the real estate at the time the security interest attaches to the goods who has not in. writing consented to the security interest or disclaimed an interest in the goods as fixtures. (4) The security interests described in subsections (2) and (3) do not take priority over (a) a subsequent purchaser for value of any interest in the real estate; or (b) a creditor with a lien on the real estate subsequently obtained by judicial proceedings; or (c) a creditor with a prior encumbrance of record on the real estate to the extent that he makes subsequent advances. if the subsequent purchase is made, the lien by judicial proceedings is obtained, or the subsequent advance under the prior encumbrance is made or contracted for without knowledge of the security interest and before it is perfected. A purchaser of the real estate at a foreclosure sale other than an encumbrance purchasing at his own foreclosure sale is a subsequent purchaser within this section. (5) When under subsections (2) or (3) and (4) a secured party has priority over the claims of all persons who have interests in the real estate, he may, on default, subject to the provisions of part 5, remove his collateral from the real estate but he must reimburse any encumbrancer or owner of the real estate who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation. § 28:9-314. Accessions (1) A security interest in goods which attaches before they are installed in or affixed to other goods takes priority as to the goods installed or affixed (called in this section "accessions") over the claims of all persons to the whole except as stated in subsection (3) and subject to section 28 :9-315(1). (2) A security interest which attaches to goods after they become part of a whole is valid against all persons subsequently acquiring interests in the whole except as stated in subsection (3) but is invalid against any person with an interest in the whole at the time the security interest attaches to the goods who has not in writing consented to the security interest or disclaimed an interest in the goods as part of the whole. (3) The security interests described in subsections (1) and (2) do not take priority over (a) a subsequent purchaser for value of any interest in the whole; or (b) a creditor with a lien on the whole subsequently obtained by judicial proceedings; or PAGENO="0108" 104 U~IFOR~1 COM~'IERCIAL CODE (c) a creditor with a prior perfected security interest in the whole to the extent that he makes subsequent advances if the subsequent purchase is made, the lien by judicial proceedings obtained or the subsequent advance under the prior perfected security interst is made or con- tracted for without knowledge of the security interest and before it is perfected. A purchaser of the whole at a foreclosure sale other than the holder of a perfected security interest purchasing at his own foreclosure sale is a subsequent purchaser within this section. (4) When under subsections (1) or (2) and (3) a secured party has an interest in accessions which has priority over the claims of all persons who have interests in the whole, he may on default subject to the provisions of part 5 remove his collateral from the whole but he must reimburse any encumbrancer or owner of the whole who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation. § 28:9-315. Priority when goods are commingled or processed (1) If a security interest in goods was perfected and subsequently the goods or a part thereof have become part of a product or mass, the security interest continues in the product or mass if (a) the goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass; or (b) a financing statement covering the original goods also covers the product into which the goods have been manufactured, processed or assembled. In a case to which paragraph (b) a.pplies, no separate security interest in that part of the original goods which has been manufactured, processed or assembled into the product may be claimed under section 28:9-314. (2) When under subsection (1) more than one security interest attaches to the product or mass, they rank equally according to the ratio that the cost of the goods to which each interest originally attached bears to the cost of the total product or mass. § 28:9-316. Priority subject to subordination Nothing in this article prevents subordination by agreement by any person entitled to priority. § 28:9-317. Secured party not obligated on contract of debtor The mere existence of a security interest or authority given to the debtor to dispose of or use collateral does not impose contract or tort liability upon the secured party for the debtor's acts or omissions. § 28:9-318. Defenses against assignee; modification of contract after noti- fication of assignment; term prohibiting assignment ineffective; identification and proof of assignment (1) Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in section 28:9-206 the rights of an assignee are subject to (a) all the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom; and (h) any other defense or claim of the account debtor against the assignor which accrues before the accouni debtor receives notification of the assign- ment. (2) So far as the right to payment under an assigned contract right has not already become an account, and notwithstanding notification of the assignment, any modification of or substitution for the contract made in good faith and in accordance with reasonable commercial standards is effective against an assignee unless the account debtor has otherwise agreed but the assignee acquires corre- sponding rights under the modified or substituted contract. The assignment may provide that such modification or substitution is a breach by the assignor. (3) The account debtor is authorized to pay the assignor until the account debtor receives notification that the account has been assigned and that payment is to be made to the assignee. A notification which does not reasonably identify the rights assigned is ineffective. If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor. PAGENO="0109" UNIFORM COMMERCIAL CODE 105 (4) A term in any contract between an account debtor and an assignor which prohibits assignment of an account or contract right to which they are parties is ineffective. PART 4-FILING § 28:9-401. Place of filing; erroneous filing; removal of collateral (1) The proper place to file in order to perfect a security interest is, in all cases, in the office of the Recorder of Deeds of the District. (2) A filing which is made in good faith in an improper place is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this article and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement. (3) A filing which is made in the proper place continues effective even though the debtor's residence or place, of business or the location of the collateral or its use, whichever controlled the original filing, is thereafter changed. (4) If collateral is brought into the District from another jurisdiction, the rules stated in section 28:9-103 determine whether filing is necessary in the District. § 28:9-402. Formal requisites of financing statement; amendments (1) A financing statement is sufficient if it is signed by the debtor and the secured party, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches. When the financing statement covers crops growing or to be grown or goods which are or are to become fixtures, the statement must also contain a description of the real estate concerned. A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by both parties. (2) A financing statement which otherwise complies with subsection (1) is sufficient although it is signed only by the secured party when it is filed to perfect a security interest in (a) collateral already subject to a security interest in another jurisdiction when it is brought into the District. Such a financing statement must state that the collateral was brought into the District under such circumstances. (b) proceeds under section 28:9-306 if the security interest in the original collateral was perfected. Such a financing statement must describe the original collateral. (3) A form substantially as follows is sufficient to comply with subsection (1): Name of debtor (or assignor) Address Name of secured party (or assignee) Address 1. This financing statement covers the following types (or items) of property: (Describe) 2. (If collateral is crops) The above described crops are growing or are to be grown on (Describe Real Estate) 3. (If collateral is goods which are or are to become fixtures) The above described goods are affixed or to be affixed to: (Describe Real Estate) 4. (If proceeds or products of collateral are claimed) Proceeds-Products of the collateral are also covered. Signature of Debtor (or Assignor) Signature of Secured Party (or Assignee) (4) The term "financing statement" as used in this article means the original financing statement and any amendments but if any amendment adds collateral, it is effective as to the added collateral only from the filing date of the amendment. (5) A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading. PAGENO="0110" 106 UNIFORM COMMERCIAL CODE § 28:9-403. What constitutes filing; duration of filing; effect of lapsed filing; duties of filing officer (1) Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer constitutes filing under this article. (2) A filed financing statement which states a maturity date of the obligation secured of five years or less is effective until such maturity date and thereafter for a period of sixty days. Any other filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of such sixty day period after a stated maturity date or on the expiration of such five year period, as the case may be, unless a continuation statement is filed prior to the lapse. Upon such lapse the security interest becomes unperfected. A filed financing statement which states that the obligation secured is payable on demand is effective for five years from the date of filing. (3) A continuation statement may be filed by the secured party (i) within six months before and sixty clays after a stated maturity date of five years or less, and (ii) otherwise within six months prior to the expiration of the five year period specified in subsection (2). Any such continuation statement must be signed by the security party, identify the original statement by file number and state that the original statement is still effective. Upon timely filing of the continua- tion statement, the effectiveness of the original statement is continued for five years after the last date to which the filing was effective whereupon it lapses in the same manner as provided in subsection (2) unless another continuation statement is filed prior to such lapse. Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original statement. Unless a statute on disposition of public records provides otherwise, the filing officer may remove a lapsed statement from the files and destroy it. (4) A filing officer shall mark, each statement with a consecutive file number and with the date and hour of filing and shall hold the statement for public inspection. In addition the filing officer shall index the statements according to the name of the debtor and shall note in the index the file number and the address of the debtor given in the statement. (5) The uniform fee for filing, indexing and furnishing filing data for an original or a continuation statement shall be $2.00. § 28:9-404. Termination statement (1) Whenever there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must on written demand by tIme debtor send the debtor a statement that he no longer claims a security interest under the financing statement, which shall be identified by file number. A termination statement signed by a person other than the secured party of record must include or be accompanied by the assign- ment or a statement by the secured party of record that he has assigned the security interest to the signer of the termination statement. The uniform fee for filing and indexing such an assignment or statement thereof shall be $2.00. If the affected secured party fails to send such a termination statement within ten days after proper demand therefor he shall be liable to the debtor for one hundred dollars, and in addition for any loss caused to the debtor by such failure. (2) On presentation to the filing officer of such a termination statement he must note it in the index. The filing officer shall remove from the files, mark "terminated" and send or deliver to the secured party the financing statement and any continuation statement, statement of assignment or statement of release pertaining thereto. (3) The uniform fee for filing and indexing a termination statement including sending or delivering the financing statement shall be $2.00. § 28:9-405. Assignment of security interest; duties of filing officer; fees (1) A financing statement may disclose an assignment of a security interest in the collateral described in the statement by indication in the statement of the name and address of the assignee or by an assignment itself or a copy thereof on the face or back of the statement. Either the original secured party or the assignee may sign this statement as the secured party. On presentation to the filing officer of such a financing statement the filing officer shall mark the same as provided in section 28:9-403(4). The uniform fee for filing, indexing and furnishing filing data for a financing statement so indicating an assignment shall be $2.00. PAGENO="0111" UNIFORM COMMERCIAL CODE 107 (2) A secured party may assign of record all or a part of his rights under a financing statement by the filing of a separate written statement of assignment signed by the secured party of record and setting forth the name of the secured party of record and the debtor, the file number and the date of filing of the financ- ing statement and the name and address of the assignee and containing a descrip- tion of the collateral assigned. A copy of the assignment is sufficient as a ~eparate statement if it complies with the preceding sentence. On presentation to the filing officer of such a separate statement, the filing officer shall mark such separate statement with the date and hour of the filing. He shall note the assignment on the index of the financing statement. The uniform fee for filing, indexing and furnishing filing data about such a separate statement of assignment shall be $2.00. (3) After the disclosure or filing of an assignment under this section, the assignee is the secured party of record. § 28:9-406. Release of collateral; duties of filing officer; fees A secured party of record may by his signed statement release all or a part of any collateral described in a filed financing statement. The statement of release is sufficient if it contains a description of the collateral being released, the name and address of the debtor, the name and address of the secured party, and the file number of the financing statement. Upon presentation of such ~ statement to the filing officer he shall mark the statement with the hour and date of filing and shall note the same upon the margin of the index of the filing of the financing statement. The uniform fee for filing and noting such a statement of release shall be $2.00. § 28:9-407. Information from filing officer (1) If the person filing any financing statement, termination statement, state- ment of assignment, or statement of release, furnishes the filing officer a copy thereof, the filing officer shall upon request note upon the copy the file number and date and hour of the filing of the original and deliver or send the copy to such person. (2) Upon request of any person, the filing officer shall issue his certificate showing whether there is on file on the date and hour stated therein, any presently effective financing statement naming a particular debtor and any statement of assignment thereof and if there is, giving the date and hour of filing of each such statement and the names and addresses of each secured party there. The uniform fee for such a certificate shall he $1.00 plus $0.50 for each financing statement and for each statement of assignment reported therein. Upon request the filing officer shall furnish a copy of any filed financing, continuation or termination statement or statement of assignment or release for a uniform fee of $0.50 per page. PART 5-DEFAULT § 28:9-501. Default; procedure when security agreement covers both real and personal property (1) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this part and except as limited by subsection (3) those provided in the security agreement. He may reduce his claim to judg- ment, foreclose or otherwise enforce the security interest by any available judicial procedure. If the collateral is documents the secured party may proceed either as to the documents or as to the goods covered thereby. A secured party in possession has the rights, remedies and duties provided in section 28:9-207. The rights and remedies referred to in this subsection are cumulative. (2) After default, the debtor has the rights and remedies provided in this part, those provided in the security agreement and those provided in section 28:9- 207. (3) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied except as provided with respect to compulsory disposition of collateral (subsection (1) of section 28:9-505) and with respect to redemption of collateral (section 28:9-506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable: (a) subsection (2) of section 28:9-502 and subsection (2) of section 28:9-504 insofar as they require accounting for surplus proceeds of collateral; (b) subsection (3) of section 28:9-504 and subsection (1) of section 28 :9-505 which deal with disposition of collateral; (c) subsection (2) of section 28:9-505 which deals with acceptance of collateral as discharge of obligation; PAGENO="0112" 108 UNIFORM COMMERCIAL CODE (d) section 28:9-506 which deals with redemption of collateral; and (e) subsection (1) of section 28:9-507 which deals with the secured party's liability for failure to comply with this part. (4) If the security agreement covers both real and personal property, the secured party may proceed under this part as to the personal property or he may proceed as to both the real and the personal property in accordance with his rights and remedies in respect of the real property in which case the provisions of this part do not apply. (5) When a secured party has reduced his claim to judgment the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral. A judicial sale, pursuant to such execution, is a foreclosure of the security interest by judicial procedure within the meaning of this section, and the secured party may purchase at the sale and thereafter hold the collateral free of any other requirements of this article. § 28:9-502. Collection rights of secured party (1) When so agreed and in any event on default the secured party is entitled to notify an account debtor or the obligor on an instrument to make payment to him whether or not the assignor was theretofore making collections on the col- lateral, and also to take control of any proceeds to which he is entitled under section 28:9-306. (2) A secured party who by agreement is entitled to chargeback uncollected collateral or otherwise to full or limited recourse against the debtor and who undertakes to collect from the account debtors or obligors must proceed in a commercially reasonable manner and may deduct his reasonable expenses of realization from the collections. If the security agreement secures an indebtedness, the secured party must account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency. But, if the underlying transaction was a sale of accounts, contract rights, or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides. § 28:9-503. Secured party's right to take possession after default Unless otherwise agreed a secured party has on default the right to take posses- sion of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. If the security agreement so provides the secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties. Without removal a secured party may render equipment unusable, and may dispose of collateral on the debtor's premises under section 28:9-504. § 28:9-504. Secured party's right to dispose of collateral after default; effect of disposition (1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Any sale of goods is subject to the article on sales (article 2). The proceeds of disposition shall be applied in the order following to (a) the reasonable expenses of retaking, holding, preparing for sale, selling and the like and, to the extent provided for in the agreement and not pro- hibited by law, the reasonable attorneys' fees and legal expenses incurred by the secured party; (b) the satisfaction of indebtedness secured by the security interest under which the disposition is made; (c) the satisfaction of indebtedness secured by any subordinate security interest in the collateral if written notification of demand therefor is received before distribution of the proceeds is completed. If requested by the secured party, the holder of a subordinate security interest must seasonably furnish reasonable proof of his interest, and unless he does so, the secured party need not comply with this demand. (2) If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency. But if the underlying transaction was a sale of accounts, contract rights, or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides. (3) Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every PAGENO="0113" UNIFORM COMMERCIAL CODE 109 aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized mar- ket, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposi- tion is to be made shall be sent by the secured party to the debtor, and except in the case of consumer goods to any other person who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state or who is known by the secured party to have a security interest in the collateral. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations he may buy at private sale. (4) When collateral is disposed of by a secured party after default, the dis- position transfers to a purchaser for value all of the debtor's rights therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto. The purchaser takes free of all such rights and interests even though the secured party fails to comply with the requirements of this Part or of any judicial proceedings (a) in the case of a public sale, if the purchaser has no knowledge of any defects in the sale and if he does not buy in collusion with the secured party, other bidders or the person conducting the sale; or (b) in any other case, if the purchaser acts in good faith. (5) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or disposition of the collateral under this article. § 28:9-505. Compulsory disposition of collateral; acceptance of the collateral as discharge of obligation (1) If the debtor has paid sixty percent of the cash price in the case of a pur- chase money security interest in consumer goods or sixty percent of the loan in the case of another security interest in consumer goods, and has not signed after default a statement renouncing or modifying his rights under this part a secured party who has taken possession of collateral must dispose of it under section 28: 9-504 and if he fails to do so within ninety days after he takes possession the debtor at his option may recover in conversion or under section 28:9-507(1) on secured party's liability. (2) In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfac- tion of the obligation. Written notice of such proposal shall be sent to the debtor and except in the case of consumer goods to any other secured party who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state or is known by the secured party in possession to have a security interest in it. If the debtor or other person en- titled to receive notification objects in writing within thirty days from the receipt of the notification or if any other secured party objects in writing within thirty days after the secured party obtains possession the secured party must dispose of the collateral under section 28:9-504. In the absence of such written ob- jection the secured party may retain the collateral in satisfaction of the debtor's obligation. § 28:9-506. Debtor's right to redeem collateral At any time before the secured party has disposed of collateral or entered into a contract for its disposition under section 28:9-504 or before the obligation has been discharged under section 28:9-505(2) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and pre- paring the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorney's fees and legal expenses. § 28:9-507. Secured party's liability for failure to comply with this part (1) If it is established that the secured party is not proceeding in accordance WTlth the provisions of this Part disposition may be ordered or restrained on appropriate terms and conditions. If the disposition has occurred the debtor 30-151-64----8 PAGENO="0114" 110 UNIFORM COMMERCIAL CODE or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to ecover from the secured party any loss caused by a failure to comply with the provisions of this Part. If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus ten per cent of the principal amount of the debt or the time price differential plus ten per cent of the cash price. (2) The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner. The principles stated in the two preceding sentences with respect to sales also apply as may be appropriate to other types of disposition. A disposition which has been approved in any judicial proceeding or by any bona fi de creditors' committee or representative of creditors shall conclu- sively be deemed to be commercially reasonable, but this sentence does not indicate that any such approval must be obtained in any case nor does it indicate that any disposition not so approved is not commercially reasonable. ARTICLE 10-CONSTRUCTION WITH OTHER LAWS Sec. 28:10-101. (Omitted.) 28:10-102. (Omitted.) 28:10-103. Inconsistent laws; what law governs. 28:10-104. Laws not repealed. § 28:I0-10I. (Omitted.) § 28:I0-102. (Omitted.) § 28:10-103. Inconsistent laws; what law governs Except as provided by section 28:10-104, if any provision of law is inconsistent with this subtitle, this subtitle shall govern, unless this subtitle or the inconsistent provision of the other law specifically provides otherwise. § 28:10-104. Laws not repealed (1) The article on documents of title (article 7) does not repeal or modify any laws prescribing the form or contents of documents of title or the services or facili- ties to be afforded by bailees, or otherwise regulating bailees' businesses in respects iaot specifically dealt with herein; but the fact that such laws are violated does not affect the status of a document. of title which otherwise complies with the definition of a document of title (section 28: 1-201). (2) This subtitle does not supersede or modify the District of Columbia Uniform Act for Simplifiction of Fiduciary Security Transfers, approved July 5, 1960 (74 Stat. 322), being all of subchapter II of chapter 23 of Title 28 of the District of Columbia Code, 1961 edition, and if in any respect there is any inconsistency between that Act and Article 8 of this subtitle relating to investment securities, the provisions of that Act, rather than Article 8, control. SEC. 2. Section 1265 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1389; D.C. Code, 1961 ed., sec. 12-201), as amended by the Act approved June 30, 1902 (chapter 1329, 32 Stat. 542), is amended by adding at the end thereof the following paragraph: "This section does not apply to actions for breach of contracts for sale governed by section 28:2-725 of the District of Columbia Code.". SEC. 3. (a) Section 839 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1326; D.C. Code, 1961 ed., sec. 22-1209), is amended to read as follows: "(a) A person or any legal successor in interest of such person, having executed a security agreement creating a security interest in personal property securing a monetary obligation owed to a secured party and having under the security agreement: "(1) both the right of sale or other disposition of the property and the duty to account to the secured party for the proceeds of the disposition, sells or otherwise disposes of the property but willfully and wrongfully fails to account to the secured party for proceeds of disposition; or PAGENO="0115" UNIFORM COMMERCIAL CODE 111 "(2) no right of sale or other disposition of the property, willfully and wrongfully secretes, withholds, sells, or disposes of the property; or converts it to his own use, or, without the consent of the secured party, removes it out of the District, or maliciously injures or destroys it, in violation of the security agreement- if the lesser of the value of the proceeds not so accounted for or of the property so secreted, withheld, sold, disposed of, converted, removed, or injured or de- stroyed, or, in either case, of the unpaid balance of the monetary obligation so secured, is more than $100, shall be fined not more than $5,000 or imprisoned not more than five years, or both; or, if the lesser of any of the values as herein described is $100 or less, shall be fined not more than $1,000 or imprisoned not more than one year, or both. `(h) In a case in which a debtor in possession of personal property subject to a security interest, who would be guilty of an offense under this section, is a corporation or a partnership, an officer, director, partner, or agent of the debtor who aids or abets in the commission of the offense shall be punished as provided by subsection (a) of this section. "(c~ As used in this section, `security agreement', `security interest', and `secured party' have the same meanings as those given to the terms by sections 28:9-105(h), 28:1-201 (38), and 28:9-105~i), respectively, of the District of Columbia Code.". SEC. 4 Subsection (b) of section 20 of the Act approved June 8, 1954 (ch. 269, 68 Stat. 189; D.C. Code, 1961 ed., sec 29-908g(b)), as amended by section 3 of the Act approved July 23, 1959 (Pub. L. 96-106, 73 Stat. 240), is amended to read as follows: "(b) Notwithstanding the provisions of section 28:8-204 of the District of Columbia Code, every certificate representing shares the transferability of which is restricted or limited shall state upon the face thereof that the transferability of such shares is restricted or limited and upon the face or back thereof shall either set forth a full or summary statement of any such restriction or limitation upon the transferability of such shares or shall state that the corporation will furnish to any shareholder upon recuest and without charge such full or summary statement.". SEC. 5. Section 2 of the Act approved June 3, 1952 (chapter 361, 66 Stat. 97; D.C. Code, 1961 ed., sec. 38-205), is amended to read as follows: "SEc. 2. (a) All persons storing, repairing, or furnishing supplies of or con- cerning motor vehicles including trailers shall have a lien for their agreed or reasonable charges for such storage, repairs, and supplies when such charges are incurred by an owner or conditional vendee or chattel mortgagor (including a grantor of deed of trust in lieu of mortgage) of such motor vehicle, and may detain such motor vehicle at any time they may have lawful possession thereof. Such lien shall have priority over every security interest and other lien or right in or to the vehicle except as hereinafter limited with respect to claims for storage. Before enforcing such lien, notice in writing shall be given to the title holder, every secured party and other lien holder shown by the certificate of title or regis- try of the vehicle, and any other persons known to claimant who have any in- terest in or lien upon the vehicle. Such notice shall be delivered personally or sent by registered mail to the last-known address of the person to whom given shall state that a lien is claimed for the charges therein set forth or thereto attached and shall demand payment thereof. There shall be incorporated in or attached to said notice a statement of particulars of the charge or charges for which a lien is claimed, to which may be added a claim for storage of the vehicle from the date of said notice to the date of payment or sale, which amount shall be set forth at a daily or weekly rate which shall not be in excess of charges prevailing at the time for similar storage, and shall not be in excess of $3 per day or $21 per week, which additional charge shall in no event cover a period in excess of ninety days. "(b) As used in this section, `security interest' and `secured party' have the same meanings as those given to the terms by sections 28:1-201 and 28:9-105(i), respectively, of the District of Columbia Code." SEC. 6. (a) The definitions of "Lien", "Instrument", and "Lien Information" in section 1 of the Act approved July 2, 1940 (chapter 527, 54 Stat. 736; D.C. Code, 1961 ed., sec. 40-701) are amended to read as follows: "Lien" shall mean any right or interest in or to, any security interest as defined in section 28:1-201 of the District of Columbia Code in, or lien or encumbrance upon any motor vehicle or trailer, or the equipment or accessories affixed or sold to be affixed thereto in favor of a person other than the owner, PAGENO="0116" 112 UNIFORM CO~iERCIAL CODE except (1) a sale of such motor vehicle or trailer accompanied by delivery of possession and on execution of the assignment on the back of the certificate covering it, or (2) any possessory lien now or hereafter provided by law or any lien acquired in any judicial proceeding. "Instrument" shall mean any security agreement, as defined in section 28:9-105(h) of the District of Columbia Code, creating such lien. "Lien information" shall mean the amount, kind, date of lien, name and address of holder or secured party as defined in section 28:9-105(i) of the District of Columbia Code, and recorder's record number, if any. SEC. 6. (b) The second sentence of section 2 of the Act approved July 2, 1940 (chapter 527, 54 Stat. 736; D.C. Code, 1961 ed., sec. 40-702), is amended to read as follows: "The filing provisions of Article 9 of Subtitle I of Title 28 of the Dis- trict of Columbia Code do not apply to liens recorded as herein provided, and a lien has no greater validity or effect during the time a certificate is outstanding for the motor vehicle or trailer covered thereby by reason of the fact that the lien has been filed in accordance with that article.". SEC. 7. The first sentence of section 4 of the Act approved July 2, 1940 (chapter 527, 54 Stat. 737; D.C. Code, 1961 ed., sec. 40-704), as amended by section 1 of the Act approved June 4, 1952 (chapter 365, 66 Stat. 100), is amended by striking out at the end thereof the following words: "and acknowledged by the owner in the manner provided by law for deeds of real estate". SEC. 8. The first sentence of section 8 of the Act approved July 2, 1940 (chapter 527, 54 Stat. 738; D.C. Code, 1961 ed., sec. 40-708), as amended by section 2 of the Act approved June 4, 1952 (chapter 365, 66 Stat. 100), is amended by striking out at the end thereof the following words: "and acknowledged by him in the manner provided by law for deeds of real estate". SEC. 9. (a) Paragraph (9) of section 1 of the Act approved April 22, 1960 (Pub. L. 86-431, 74 Stat. 69; D.C. Code, 1961 ed., sec. 40-901(9)), is amended to read as follows: "(9) `Retail installment contract' means a contract entered into in the District or entered into by a seller licensed or required to be licensed by the District evi- dencing a retail installment transaction pursuant to which the title to or a lien on, or security or a security interest in, the motor vehicle, which is the subject matter of the transaction, is retained or taken to secure, in whole or in part, the retail buyer's obligations. The term includes a security agreement, chattel mortgage, conditional sale contract and a contract in the form of a bailment or a lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the value of the motor vehicle sold and it is agreed that the bailee or lessee is bound to become, or, for no further or a merely nominal consideration, has the option of becoming, the owner of the motor vehicle upon full compliance with the terms of the bailment or lease." (b) Section 1 of the Act approved April 22, 1960 (Pub. L. 86-431, 74 Stat. 69; D.C. Code, 1961 ed., sec. 40-901), is further amended by adding at the end thereof the following paragraph: "(11) `Security interest' and `secured party' have the same meanings as those given to the terms in sections 28:1-201 and 28:9-105(i) of the District of Columbia Code.". SEC. 10. Section 546-C of the code of law for the District of Columbia, ap- proved March 3, 1901 (chapter 854, 31 Stat. 1275; D.C. Code, 1961 ed., sec. 42-102), as so renumbered and amended by section 2 of the Act approved June 5, 1952 (chapter 370, 66 Stat. 126), is amended to read as follows: "SEC. 546-C. It is not necessary for the Recorder of Deeds to spread upon the records of his office the financing statements or other papers filed pursuant to Part 4 of Article 9 of Subtitle I of Title 28 of the District of Columbia Code, but they shall be indexed and, except as hereinafter provided, shall be kept on file and shall be open to inspection by the public, and shall have the same force and legal effect as if they were actually recorded in the books of his office.". SEC. 11. Section 546-D of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1189), as added by section 3 of the Act approved June 5, 1952 (chapter 370, 66 Stat. 126; D.C. Code, 1961 ed., sec. 42-104), and amended by section 1 of the Act approved June 18, 1953 (chapter 126, 67 Stat. 64), is amended to read as follows: "SEC. 546-D. (a) Unless the Recorder of Deeds has notice of an action pending relative thereto, he may remove from the files and destroy: "(1) an instrument filed in his office pursuant to the Act approved July 2, 1940 (chapter 527, 54 Stat. 736; D.C. Code, 1961 ed., sees. 40-701 to 40-712, PAGENO="0117" UNIFORM COMMERCIAL CODE 113 40-713 to 40-715), as amended, which has become void or lapsed, and which has been void or lapsed for one year or more, together with any affidavit, release, assignment, or continuation or termination statement relating thereto; "(2) a lapsed financing statement, a lapsed continuation statement, a statement of assignment or release relating to either, filed pursuant to Part 4 of Article 9 of Subtitle I of Title 28 of the District of Columbia Code, and any index of any of them, one year or more after lapse of the financing statement and every continuation statement relating thereto; and "(3) a termination statement filed pursuant to section 28:9-404 of the District of Columbia Code, and the index on which it is noted, one year or more after the filing of the termination statement. "(b) Subsection (a) of this section does not apply to a bill of sale, mortgage, deed of trust, conditional sale of, financing statement or security agreement covering, railroad rolling stock.". SEc. 12. Section 546-F of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1189), as added by section 3 of the Act approved June 5, 1952 (chapter 370, 66 Stat. 126; D.C. Code, 1961 ed., sec. 42- 106), is amended to read as follows: "SEC. 546-F. When a financing statement filed pursuant to Part 4 of Article 9 of Subtitle I of Title 28 of the District of Columbia Code has not lapsed, but all the collateral described in the financing statement has been released in the manner provided by Part 4 thereof, the Recorder of Deeds, may, after the expiration of three years from the date of the filing of the statement releasing all the collateral, destroy the financing statement and each continuation statement, statement of assignment, and statement of release relating thereto." SEC. 13. Section 546-G of the code of law for the District of Columbia, ap- proved March 3, 1901 (chapter 854, 31 Stat. 1189), as added by section 3 of the Act approi~ed June 5, 1952 (chapter 370, 66 Stat. 126; DC, Code, 1961 ed., sec. 42-107), is amended to read as follows: "SEc. 546-G. (a) Whoever intentionally makes a false statement with respect to a financing statement or other paper filed with the Recorder of Deeds pursuant to Part 4 of Article 9 of Subtitle I of Title 28 of the District of Columbia Code, or, after receipt of payment in full of the debt secured thereby, neglects or refuses, after written demand by the debtor, to send to the debtor a termination statement as provided by section 28:9-404 of the Code, shall be fined not more than $500 or imprisoned mot more than one year, or both. "(b) Prosecutions for violations of this subchapter shall be by the Corporation Counsel of the District of Columbia or any of his assistants, in the name of the District of Columbia.". "(c) As used in subsection (b) of this section `Corporation Counsel' means the attorney for the District of Columbia, by whatever title the attorney may be designated by the Board of Commissioners of the District of Columbia.". SEC. 14. Section 548 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1275; D.C. Code, 1961 ed., sec. 45-701), as amended, is amended to read as follows: "SEC. 548. (a) There shall be a Recorder of Deeds of the District, appointed by the Commissioners of the District of Columbia, who shall: "(1) except as provided by clause (2) of this subsection, record all deeds, contracts, and other instruments in writing affecting the title or ownership of real estate or personal property which have been duly acknowledged and certified; "(2) accept for filing, without acknowledgement or certification, all instruments, financing statements and other papers filed in his office pursuant to Part 4 of Article 9 of Subtitle I of Title 28 of the District of Columbia Code, and the Act of July 2, 1940 (chapter 527, 54 Stat. 736; D.C. Code, 1961 ed., sees. 40-701 to 40-712, 40-713 to 40-715). "(3) perform all requisite services connected with the duties prescribed in clauses (1) and (2) of this subsection; and "(4) have charge and custody of all the records, papers, and property appertaining to his office. "(b) A person may not be appointed Recorder of Deeds unless he has been a resident of the District of Columbia for at least five years next preceding his appointment. "(c) The performance, by the Recorder of Deeds and officers and employees in his office, of their duties and functions shall be subject to the supervision and control of the Commissioners of the District.". PAGENO="0118" 114 UNIFORM COM~'IERCIAL CODE SEC. 15. (a) The following Act and parts of Acts, as amended, are hereby repealed: (1) Section 833a of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1189), as added by the Act approved April 28, 1904 (chapter 1808, 33 Stat. 554), and amended by the Act approved May 27, 1921 (chapter 13, 42 Stat. 9; D.C. Code, 1961 ed., sec. 22-1406). (2) Sections 1304 to 1493, inclusive, of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1395-1414), such sections being known as the Negotiable Instruments Law (D.C. Code, 1961 ed., Title 28, chapters 1 to 10, inclusive, except sees. 28-410, 28-714a, 28-920, 28-1004, 28-1008 to 28-1011, inclusive), except that, with respect to section 1389 of such code of laws for the District of Columbia (31 Stat. 1404; D.C. Code, 1961 ed., sec. 28-616), as amended, this repeal applies only to the first three sentences thereof. (3) Sections 1, 3, 6 and 7 of the Act approved April 5, 1939 (chapter 37, 53 Stat. 566, 567; D.C. Code, 1961 ed., sees. 28-1004, 28-1008 to 28-1010, inclusive). (4) Sections 1 to 5, inclusive, of the Act approved July 26, 1949 (chapter 365, 63 Stat. 481, 482; D.C. Code, 1961 ed., sec. 28-1011). (5) Sections 1 to 3, inclusive, of the Act approved August 7, 1950 (chapter 602, 64 Stat. 416, 417; D.C. Code, 1961 ed., see. 28-714a). (6) Sections 1 to 76a, inclusive, and 79 of the Act approved March 17, 1937 (chapter 43, 50 Stat. 29-48; D.C. Code, 1961 ed., Title 28, chapter 11 to 16, inclusive), known as the Uniform Sales Act. (7) Sections 1 to 5, inclusive, of the Act approved April 28, 1904 (chapter 1809, 33 Stat. 555, 556; D.C. Code, 1961 ed., sees. 28-1701 to 28-1705, in- elusive), relating to bulk sales. (8) Sections 1 to 49, inclusive, 56 to 59, inclusive, and 62 of the Act ap- proved April 15, 1910 (chapter 167, 36 Stat. 301-311; D.C. Code, 1961 ed., Title 28, chapters 18, 19 (except sec. 28-1918 thereof), 20 and 22), consti- tuting part of the Warehouse Receipts Act. (9) Section 1621 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1432; D.C. Code, 1961 ed., sec. 28- 1918). (10) Sections 1 to 26, inclusive, of the Act approved December 23, 1944 (chapter 729, 58 Stat. 927-932; D.C. Code, 1961 ed., sees. 28-2901, 28-2901 notes, 28-2902 to 28-2923, inclusive) constituting the Uniform Stock Transfer Act. (11) Sections 546-A and 546-B, as amended, of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1275), as so renumbered by the Act approved June 5, 1952, chapter 370, sec. 1, 66- Stat. 126 (D.C. Code, 1961 ed., sees. 42-101 and 42-103). (12) Section 546-E of the code of law for the District of Columbia, ap- proved March 3, 1901 (chapter 854, 311 Stat. 1189), as added by the Act. approved June 5, 1952, chapter 370, sec. 3, 66 Stat. 126 (D.C. Code, 1961 ed., sec. 42-105). (13) Section 1119 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1368; D.C. Code, 1961 ed., sec. 12-304). (b) Except as provided by subsection (c) of this section, transactions validly entered into before the effective date specified in section 16 of this Act, and the rights, duties and interests flowing from them remain valid thereafter and may he terminated, completed, consummated or enforced as required or permitted by any statute or other law amended or repealed by this Act as though such repeal or amendment had not occurred. (c) The perfection of a security interest, as defined in section 28:1-201 of the District of Columbia Code, and however denominated in any law repealed by this. Act, which was perfected when this Act takes effect by a filing, refihing or recording under a law repealed by this Act and requiring a further filing, refihing or record- ing to continue its perfection, continue until and will lapse on the date provided by the law so repealed for such further filing, refihing or recording, unless in such case, a continuation statement is filed, in the office of the Recorder of Deeds of the District, by the secured party within twelve months before the perfection of the security interest would otherwise lapse. Any such continuation statement must be signed by the secured party, identifying the original security agreement, how- ever denOminated, state the date of the last filing, refiling or recording and the filing number, and further state that the original security agreement is still effective. E:~cept as herein specified, the provisions of section 28:9-403(3) of the Code apply to such a continuation statement. PAGENO="0119" UNIFORM COMMERCIAL CODE 115 (d) The following British statutes shall no longer have any force or effect in the District of Columbia: (1) 9 and 10 William III (1698), chapter 17, sec. 3 (D.C. Code, 1961 ed, sec. 28-410~. (2) 3 and 4 Anne (1704), chapter 9, sees. 7 and 8 (D.C. Code, 1961 ed., sec. 28-920). SEC. 16. This Act shall become effective on January 1, 1965. Laws enacted after ~he approval of this Act, that are inconsistent with this Ace, supersede it to the extent of the inconsistency. HOUSE COMMITTEE STAFF MEMORANDUM H.R. 5338 (by Tvlr. McMillan) to enact the Uniform Commercial Code for the District of Columbia, and for other purposes PURPOSE The primary purpose of this bill is the adoption for the District of Columbia of the Uniform Commercial Code (hereinafter referred to as UCC). UCC and its revisions were drafted under, and are still under, the joint spon- sorship of the National Conference of Commissioners on Uniform State Laws and the American Law Institute. The work was begun in 1942 and continued with- out interruption until adoption of UCC by its two sponsors in 1952. In the same year it was approved by the House of Delegates of the American Bar Association. Since then, it has been officially revised on several occasions as a result of ex- tensive study by various State commissions and committees and as a result of practical experience in States where UCC has been adopted. The sponsors of UCC established the permanent editorial board for the Uni- form Commerical Code, in order to maintain a continual review of UCC and to recommend modifications in it from time to time. That editorial hoard, after studying the changes made in UCC by the first 18 adopting States, made a num- ber of proposals known as the 1962 recommendations for amendment of the Uniform Commercial Code. The Uniform Commercial Code as included in section 1 of H.R. 5338 is, with relatively few changes, the same as the 1958 official text as modified by the 1962 recommendations. In other words, the proposed District of Columbia UCC is based on the latest official revision of UCC. As of the present time 23 States have adopted the UCC, as follows: Alaska Massachusetts Oklahoma Arkansas Michigan Oregon Connecticut Montana 1 Pennsylvania Georgia New Hampshire Rhode Island Illinois New Jersey Tennessee Indiana 1 New Mexico West Virginia 1 Kentucky New York Wyoming Maryland 1 Ohio 1 Not signed by Govemnor as of March 13, 1963. It is reported that UCC is also still pending (as of isIarch 13, 1963) before the legislatures of the following States: California Missouri Washington Hawaii Nebraska Wisconsin Maine Texas Minnesota Vermont SECTION-BY-SECTION ANALYSIS Section 1 of H.R. 5338 provides for the adoption of UCC as subtitle I of title 28 of the District of Columbia Code. The following is a brief review of the 10 articles of U CC: Article 1 This article deals with matters of general application, and contains general definitions and principles of interpretation. PAGENO="0120" 116 UNIFORM COMMERCIAL CODE Article 2 This article would completely supersede the Uniform Sales Act as contained in chapters 11 through 16 of title 28 of the District of Columbia Code. The Uni- form Sales Act has been completely rewritten and much new material added, to conform to present day commercial practices. Article 3 This article would replace the Uniform Negotiable Instruments Act (NIL) as contained in chapters 1 through 10 of title 28 of the District of Columbia Code. The law pertaining to commercial paper of the short-term type, like checks, drafts, certificates of deposit and promissory notes, has been completely rewritten in modern commercial language, conforming to the remainder of the UCC. Numerous conflicting judicial interpretations, which have developed concerning provisions of NIL over the last 65 years, have been elimiuated in the drafting of article 3. The parts of NIL dealing with negotiation of securities have been transferred to article 8 on investment securities. Article 4 This article, dealing with bank deposits and collections, does not replace any uniform act, and covers a branch of commercial law for which there is virtually no statutory counterpart in the District of Columbia aside from several relatively small sections of the District of Columbia Code. Article 4, which is of tremendous importance to banks and all customers of banks, codifies in relatively simplified form the law pertaining to the handling of the vast number of collection items which are processed daily by banks and to the relations between a customer and his bank. Article 4 is, of course, integrated with article 3 dealing with negotiable instruments and article 8 dealing with investment securities. Article 5 This article puts in statutory form the basic legal principles relating to letters of credit, and should prove of great assistance to any attorney who becomes involved in a letter-of-credit situation. Section 28-5-102(1), however, differs from the official text in that the former makes it absolutely clear that issuers of letters of credit are entitled, if they so desire, to operate under the uniform customs and practice for commercial docu- mentary credits, instead of under the UCC. In view of the substantial national and international acceptance of the uniform customs and practice, it is considered that the right to continue under them should be expressly preserved. Article 6 This article relates to bulk sales, and would replace chapter 17 of title 28 of the District of Columbia Code. Article 6 continues the basic policy of protecting creditors of a merchant who sells in bulk by permitting such creditors to treat the sale as ineffective. Article 6, however, is more detailed and less ambiguous than the existing District of Colum- bia law enacted in 1904. Article 7 This article, dealing with warehouse receipts, bills of lading, and other~documents of title, would replace the Uniform Warehouse Receipts Act as contained in chapters 18 through 22 of title 28 of the District of Columbia Code. Article 7 combines as an integrated unit of legislation the Uniform Warehouse Receipts Act, the Uniform Bills of Lading Act, and those sections of the Uniform Sales Act dealing with the negotiation and transfer of documents of title. It is subject to any treaty or statute of the United States or District of Columbia regu- latory statute or tariff, classification or regulation filed or issued pursuant thereto. Accordingly, the Federal Bills of Lading Act (49 U.S.C. sees. 81-124) would con- tinue to control interstate shipments and foreign exports, and the Carriage of Goods by Sea Act (46 U.S.C. sees. 1300-1315) would continue to control ocean bills of lading covering both exports and imports. Article 8 This article, dealing with investment securities, would replace the Uniform Stock Transfer Act as contained in chapter 29 of title 28 of the District of Colum- bia Code. In addition, it deals with bonds now covered by the Uniform Nego- tiable Instruments Act. As stated in the 1958 official text with comments of the Uniform Commercial Code, article 8 "iS neither a blue sky law nor a corporation code. It may be likened PAGENO="0121" TJNIFORM COMMERCIAL CODE 117 rather to a negotiable instruments law dealing with securities." In general, it covers investment securities like stocks and bonds in both bearer and registered form. Article .9 This article, dealing with the field of secured transactions, would replace little of the District of Columbia Code while making great advances in that field. In gen- eral, it applies to all transactions which are intended to create a security interest in personal property as well as to sales of accounts receivable, contract rights and chattel paper. Although it does not use the terms "mortgage," "conditional sale" and the like, existing security devices are not abolished and may continue to be used. Article 9, however, does abolish formal distinctions between existing security devices and deals with the interests which the secured creditor may obtain under the Code by the same designation, namely, a "security interest" defined (in sec. 1-201 (38)) as "an interest in personal property or fixtures which secures payment or performance of an obligation," which includes "any interest of a buyer of accounts, chattel paper, or contract rights." In general, the term "chattel paper" refers to instruments (like notes and chattel mortgages) used by the owner thereof (like a dealer) to secure his own financing. The security interest under article 9, to be enforceable, must either be a pos- sessory interest (like a pledge) with the secured party in actual possession or he in a writing referred to in the article as a "security agreement." The only require- ments of a security agreement are that it be signed by the debtor and contain (section 9-203 (1) (b)) "a description of the collateral and in addition, when the security interest covers crops or oil, gas or minerals to be extracted or timber to he cut, a description of the land concerned." However, a security agreement may contain the usual provisions now included in existing instruments, like chattel mortgages and chattel deeds of trust, and other agreements of the parties, except a few types of provisions expressly prohibited by the 15CC. With several exceptions (sec. 9-302), in order to "perfect" a security interest that would create a lien effective against third parties, the creditor must have possession of the collateral in case of a possessory interest (like a pledge) or the debtor must, in addition to entering into a security agreement, file a financing statement in the appropriate office, which in the District of Columbia wou]d be the Recorder of Deeds (sec. 9-303). A financing statement may be a very simple document, being legally sufficient (sec. 9-402) "if it is signed by the debtor and the secured party, gives an address of the secured party from which informa- tion concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral." Article 10 This article deals briefly with the matter of the construction of 15CC with other laws: Sections 2 to 14 of H.R. 5338 make appropriate changes in existing statutory law to conform it to the 15CC. Section 15 of the bill provides for (a) repeal of superseded statutes and (b) continued validity of transactions entered into prior to the effective date of the bill. Section 16 states that the bill will become effective January 1, 1965. Mr. IE[TJDDLESTON. In addition, I would like to submit for the record, without objection, a letter from Mr. Thomas S. Jackson, president of the Bar Association of the District of Columbia, dated March 19, 1963, dealing with this legislation. (Mr. Jackson's letter follows:) THE BAR ASSOCIATION OF THE DISTRICT OF COLUMBIA, Washington, D.C., March 19, 1963. Hon. JOHN L. MCMILLAN, Chairman, Committee on the District of Columbia, House of Representatives, Washington, D.C. DEAR MR. MCMILLAN: On behalf of the District of Columbia Bar Association, I am enclosing for your consideration a copy of the Uniform Commercial Code as proposed by the bar association for adoption as title 28, Subtitle I of the Code of the District of Columbia. The proposed bill has been prepared under the supervision of the uniform commercial code committee of the bar association, consisting of Mr. George E. PAGENO="0122" 118 UNIFORM CO~IERCIAL CODE Monk, chairman, and Messrs. Andrew T. Altmann and Jack E. Bindeman, with substantial and valuable assistance from i\'Iessrs. Meldrim Thomson, Jr., and Richard L. Anderson of Equity Publishing Corp. I am enclosing three copies of the reports dated September 26, 1962, and December 18, 1962, respectively, made by that committee to the board of directors of the bar association, recommending that the code be enacted in the District of Columbia. The board of directors of the bar association has accepted and adopted the recommendations of our committee that the uniform code be enacted as part of the statutory law of the District of Columbia and has authorized me to submit to you this request that you introduce our proposed bill for this purpose. The history and purposes of the uniform commercial code are discussed at length in the enclosed report of the uniform commercial code committee of our association. In brief, it was drafted under the continuing sponsorship of the National Conference of Commissioners on Uniform State Laws and the American Law Institute, beginning in 1942, and has been approved by the House of Dele- gates of the American Bar Association. Eighteen States, including many leading commercial States, had adopted the code at the time our committee made its report, and it is believed likely that it will be adopted by other State legislatures in session this year. Our committee, in submitting the proposed draft, has had the benefit of the experience in other jurisdictions and particularly of the changes suggested in 1962 by the permanent editorial board established by the sponsors of the code. As our committee's reports show in detail, the proposed code would replace the existing District of Columbia statutory provisions on negotiable instruments, warehouse receipts, sales of goods, stock transfers, bulk sales and certain provi- sions relating to bank checks. It would not replace the District of Columbia Code sections relating to pawnbrokers, money lenders, liens on motor vehicles and installment sales of motor vehicles. Section 15 of the proposed bill provides for repeal of legislation to be superseded by the code and for validation of trans- actions entered into prior to the effective date of the code. Sections 2 to 14 make appropriate changes in existing statutory law to conform it to the code. Our committee has had the benefit of discussion with Dr. Charles J. Zinn, law revision counsel of the Committee on the Judiciary of the House of Representa- tives. We understand that Dr. Zinn contemplates that those existing sections of title 28 which are not repealed by the proposed bill will be rearranged or revised without undue difficulty before the proposed Uniform Commercial Code actually becomes effective as subtitle I of title 28. The proposed bill provides, in the last section, that it shall become effective on January 1, 1965. This period of time is necessary, in our opinion, in order to permit members of the bar to become familiar with the code. As our committee points out in its reports, the great advantage to the citizens and bar of the District of Columbia, in enacting the proposed Uniform Commercial Code, is to make our law uniform with that of other leading commercial jurisdic- tions which have adopted the code. On many. commercial law questions, there are few judicial precedents in the District, and counsel necessarily look to decisions, unfortunately often conflicting, of the courts of other States. Furthermore, counsel in the District are constantly required to advise on commercial trans- actions having their roots in other jurisdictions. It is believed that there are great advantages in statutory uniformity in these matters of commercial law. Accordingly, we respectfully request that you introduce the proposed bill. In the event that the committee holds hearings on the bill, the bar association would appreciate the opportunity to he represented by one or more of its members who will be ready to testify regarding the proposal. If we can be of any assistance, please call on me or Mr. Robert W. Barker, chairman of our committee on pending legislation. Sincerely yours, TII0MA5 S. JACKSON, President. Mr. HTJDDLESTOX. Without objection, we will put in the record at this point the portion of the Journal of the Bar Association of the District of Columbia dealing with the Uniform Commercial Code committee report, at pages 598 to 622, inclusive. PAGENO="0123" TJNIFORM COMMERCIAL CODE :Extract from the Journal of the Bar Association of the District of Columbia, vol. XXIX, No. 11, November - 1962] UNIFORM COMMERCIAL CODE COMMITTEE REPORT 1 The Uniform Commercial Code Committee was appointed in June of this year to examine into the advisability, as a matter of policy, of this bar association requesting the Congress to enact the Uniform Commercial Code for the District of Columbia. [The board of directors is on record as favoring the adoption of the code by the Congress for the District of Columbia.-Ed. Note.] The committee submits this report which includes its recommendation that the code be enacted in the District of Columbia. The code isa statute designed to cover and integrate almost the whole field of commercial law in a consistent manner. The scope of the code is shown by the titles of its 10 articles, as follows: Article 1. General provisions. Article 2. Sales. Article 3. Commercial Paper. Article 4. Bank Deposits and Collections. Article 5. Letters of Credit. Article 6. Bulk Transfers. Article 7. Warehouse Receipts, Bills of Lading and Other Documents of Title. Article 8. Investment Securities. Article 9. Secured Transactions; Sales of Accounts, Contract Rights and Chattel Paper. Article 10. Effective Date and Repealer. In general, the code would replace the District of Columbia uniform acts on negotiable instruments, warehouse receipts, sales and stock transfers, as well as District of Columbia statutory provisions dealing with bulk sales and several District of Columbia Code provisions relating to bank checks. The code, in the form recommended by this committee, would not replace the District of Columbia Code sections relating, to pawnbrokers, moneylenders, liens on motor vehicles, and installment sales of motor vehicles. HISTORICAL BACKGROUND The Uniform Commercial Code and its revisions were drafted under, and are still under, the joint sponsorship of the National Conference of Commissioners on Uniform State Laws and the American Law Institute. The work was begun in 1942 and continued without interruption until adoption of the code by its two sponsors in 1952. In the same year it was approved by the house of delegates of the American Bar Association. As of the present time 18 States have adopted the code, as follows: State adopting Effective date State adopting Effective date Pennsylvania July 1, 1954 Ohio July 1, 1962 Massachusetts Oct. 1, 1958 Oregon Sept. 1, 1963 Kentucky July 1, 1960 Oklahoma Dec. 31, 1962 `Connecticut Oct. 1, 1961 Illinois July 1, 1962 New Hampshire July 1, 1961 New Jersey Jan. 1, 1963 Rhode Island Jan. 1, 1962 Georgia Apr. 1, 1963 Wyoming Do. New York Sept. 27, 1964 Arkansas Do. Alaska Dec. 31, 1962 New Mexico Do. Michigan Jan. 1, 1964 As shown above, the Pennsylvania Legislature enacted the code almost immedi- ately with the result that the code has been subjected to a vigorous trial on a practical basis for over 8 years in one of the foremost commercial States. In New York, however, the legislature proceeded differently. Instead of enacting the code, it referred the code for study to the New York law revision committee with a large appropriation to finance the work. The revision com- mittee made an intensive study of the code, section by section, holding hearings in various parts of New York. In February 1956 the revision committee released its report which favored the idea "of careful and foresighted codification of all or major parts of commercial law", hut contained many recommendations for change. As a result of the experience in Pennsylvania and the thorough review of the node in New York, as well as suggestions from committees and organizations in 1 George E. Monk, chairman, Andrew T. Altmann, and Jack E. Bindeman comprised the committee. PAGENO="0124" 120 UNIFORM CO~tERCIAL CODE other States; the sponsors of the code prepared a revision designated as the 1958 official text. Pennsylvania amended its code in October 1959 to conform to the 1958 official text, while the New York enactment of the code contained a number of further modifications which do not, however, affect the code's basic structure. The sponsors of the code have established a permanent editorial board for the Uniform Commercial Code. We have been informed that this board is consider- ing all changes in the text of the code which have been made by any of the eighteen States which have enacted it, and that prior to November of this year it will submit a report recommending amendments of the code which are approved for inclusion in 1963 legislative bills. It is expected that the code will be considered in approximately a dozen legislatures in 1963 with the likelihood of a number of enactments. The legal literature with respect to the Uniform Commercial Code is volu- minous, helpful, and interesting. However, this committee considers that a working knowledge of the code may be obtained from the 1958 official text, with comments, of the Uniform Commercial Code published by the American Law Institute and National Conference of Commissioners on Uniform State Laws and the five handbooks on the Uniform Commercial Code entitled respectively "Secured Transactions", "Sales and Bulk Sales", `Bank Deposits and Collec- tions", "Documents of Title", and "Commercial Paper", published by the Joint Committee on Continuing Legal Education of the American Law Institute and the American Bar Association. Other helpful works are the New York Annotations to Uniform Commercial Code and Report of Commission on Uniform State Laws to Legislature of New York State, dated October 2, 1961, together with such Commission's Supplemen- tary Report on Uniform Commercial Code, dated January 24, 1962, reprinted by Practicing Law Institute; the State of New Jersey Study and Report on the Uniform Commercial Code (dated November 1960) by that State's Commission to Study and Report upon the Uniform Commercial Code; and Banks and the Uniform Commercial Code (1962) by Carl W. Funk. For the sake of brevity, the Uniform Commercial Code, 1958 official text, is hereinafter sometimes referred to as the UCC; the District of Columbia Code, 1961 edition, is hereinafter sometimes referred to as the District of Columbia Code; and section references unless otherwise specified pertain to the UCC. Each reader of this report should have available for quick reference the District of Columbia Code and the Uniform Commercial Code, 1958 official text, with comments. RECOMMENDATIONS This committee recommends that the board of directors approve the following as resolutions: [This was done October 5, 1962.-Ed. Note] I The Bar Association of the District of Columbia should support the enactment for the District of Columbia, at the earliest practicable date, of the Uniform Commercial Code in the form of the 1958 official text, to be effective no sooner than 12 months after date of approval, subject to modification for accomplish- ment of the following: (1) Make necessary changes for appropriate reference to the District of Colum- bia, the Recorder of Deeds and the like (sees. 1-105, 1-201, 3-304(3), 6-104(1) (c), 9-102, 9-103, 9-313, 9-401, and 9-402). (2) Delete alternative or optional provisions involving sections 4-106, 6-106, 6-107(2)(e), 6-108(3)(c), 6-109(2), 7-204(4), 7-403(1)(b), 9-401(3). (3) In section 3-121, select alternative A. (4) In section 4-106, delete the period at the end of the sentence and insert in lieu thereof the following: "and under article 3. The receipt of any notice or order by or the knowledge of one branch or separate office of a bank is not actual or constructive notice to or knowledge of any other branch or office of the same bank and does not impair the right of another branch or office to be a holder in due course of an item." (5) Include section 4-212(2). (6) In section 4-403(1), add the following sentence: "No such order shall he valid, however, unless it shall be in writing specifically describing the item to which it relates by stating the amount, date, and payee thereof." (7) In section 4-403(2), change the first sentence thereof to read: "Anything in this section 4-403 to the contrary notwithstanding, any stop payment order PAGENO="0125" TJNIFORM COMMERCIAL CODE transmitted by telephone by a customer to an officer of a bank shall be accepted by such bank, upon such identification that will insure the order has been trans- mitted by such customer, as an effective order for a period of twenty-four hours, after which time it shall no longer be valid unless followed by a written order as provided in this section 4-403." And add the following additional sentence to section 4-403(2): "The bank may, at its option and without liability, stop the payment of an item after the expiration of a stop payment order or any renewal thereof relating to such item." (8) In section 4-404, change the clause commencing with "but" to read as follows: "but it may charge its customer's account for payment made thereafter in the absence of an effective stop payment order in accordance with section 4-403." (9) In section 5-102(1), insert between "(1)" and "This" the following: "Unless a letter of credit is by its terms or by agreement or by custom subject in whole or in part to the Uniform Customs and Practice For Commercial Documentary Credits fixed by the Thirteenth or by any subsequent Congress of the International Chamber of Commerce," (10) In section 9-203, insert in the blank space as statutes to prevail over the UCC the following: "chapter 20 of title 2 of the District of Columbia Code, 1961 edition, relating to pawnbrokers, chapter 6 of title 26 of the District of Columbia Code relating to money lenders, chapter 7 of title 40 of the District of Columbia Code relating to liens on motor vehicles, and chapter 9 of title 40 of the District of Columbia Code relating to installment sales of motor vehicles." (11) In subsection 9-302(3), delete both alternatives of (b), and insert, as an exception to the filing provisions of article 9 of the UCC, the following as (b): "(b) of the United States pertaining to the District which provides for central filing of security interests in a motor vehicle or trailer which is not inventory held for sale for which a certificate of title is required to be issued under the provisions of the act of July 2, 1940, 54 Stat. 736, ch 527, as amended, being chapter 7 of title 40 of the District of Columbia Code, 1961 edition." (12) Section 9-401 (1) should be revised to read as follows: "(1) The proper place to file in order to perfect a security interest is, in all cases, in the office of the Recorder of Deeds of the District." (13) In section 10-102, amend subsection (1) to read as follows: "(1) The following acts and parts of acts, as amended, are hereby repealed: "Uniform Negotiable Instruments Act, as amended, being all of chapters 1 through 10 of title 28 of the District of Columbia Code, 1961 edition except that part of section 28-616 which commences with the fourth sentence thereof and ends at the end of section 28-616. "Uniform Warehouse Receipts Act, approved April 15, 1910, 36 Stat. 301, being all of chapters 18 through 22 of title 28 of the District of Columbia Code, 1961 edition, except chapter 21, entitled `Criminal Offenses,' of said title 28. "Uniform Sales Act, approved March 17, 1937, 50 Stat. 29, being all of chap- ters 11 through 16 of title 28 of the District of Columbia Code, 1961 edition. "Uniform Stock Transfer Act, approved December 23, 1944, 58 Stat. 927, being all of chapter 29 of Title 28 of the District of Columbia Code, 1961 edition. "Act of April 28, 1904, 33 Stat. 555, relating to bulk sales, being all of chapter 17 of title 28 of the District of Columbia Code, 1961 edition. "Sections 546, 546-A, 546-B, 546-D, 546-E, 546-F, and 546-G of the act entitled `An act to establish a code of laws for the District of Columbia,' approved March 3, 1901, 31 Stat. 1275, as amended, being all of title 42 of the District of Columbia Code, 1961 edition. "Section 1119 of the act entitled `An act to establish a code of laws for the District of Columbia,' approved March 3, 1901, 31 Stat. 1368, being section 12-304 of the District of Columbia Code, 1961 edition." (14) In subsection 10-102(2) insert the following proviso after "occurred" in order to take. care of existing chattel instruments: "; provided, however, That the perfection of a security interest, as defined in this Act (sec. 1-201) and however denominated in any law repealed by this Act, which was perfected when this Act takes effect by a filing, refiling or recording under a law repealed by this Act and requiring a further filing, refiling or recording to continue its perfection, continues until and will lapse on the date provided by the law so repealed for such further filing, refiling or recording, unless in such case, a continuation statement is filed, in the office qf the Recorder of Deeds of the District, by the secured party within twelve months before the perfection of the security interest would otherwise lapse. Any such continuation statement must be signed by the secured party, identifying the original security agreement, however denominated, state the date PAGENO="0126" 122 UNIFORM COMMERCIAL CODE of the last filing, refihing or recording and the filing number, and further state that the original security agreement is still effective. Except as herein specified the provisions of Section 9-404(3) apply to such a continuation statement." (15) Change section 10-103 to read as follows: "Section 10-103. Inconsistent Laws: Which Law Governs. "If any other provision of law is inconsistent with this Act, this Act shall govern unless this Act or such inconsistent provision of law specifically provides otherwise." (16) Add the following additional subsection to section 10-104: "(2) This Act does not repeal the District of Columbia Uniform Act for Simplification of Fiduciary Security Transfers, approved July 5, 1960, 74 Stat. 322, being all of subchapter II of chapter 23 of Title 28 of the District of Columbia Code, 1961 Edition." II The Bar Association should support the enactment, simultaneously with the enactment of the code, of additional legislation, as follows: (1) Reenact sections 42-102, 106 and 107, with appropriate modification of cross references contained in said sections, of the District of Columbia Code to apply to instruments under the UCC. (2) Reenact that part of section 42-104, with appropriate modification of cross references therein, of the District of Columbia Code permitting the Recorder of Deeds to destroy void instruments. (3) Modify section 45-701 of the District of Columbia Code to permit the filing with the Recorder of instruments under the UCC without acknowledgment or certification. (4) Modify section 40-702 of the District of Columbia Code to refer to article 9 of the UCC instead of to title 42 of the District of Columbia Code. (5) Delete in sections 40-704 and 708 of .the District of Columbia Code the requirement of acknowledgment. (6) Modify section 40-901(9). of the District of Columbia Code to include security agreements under the UCC. (7) Modify section 29-908g(b) of the District of Columbia Code to refer to section 8-204 of the UCC instead of to section 28-2915 of the District of Columbia Code. (8) Provide that section 12-201 of the District of Columbia Code shall be sub- ject to sections 2-725 and 6-111 setting up statute of limitation periods for actions on contracts for sale of goods (4 years) and actions under the bulk sales article (6 months). (9) Conform, to the UCC, District of Columbia Code sections 1-509 (regarding protest of hills and notes), 22-1209 (regarding embezzlement by chattel mort- gagor), 22-1406 (regarding fraud by conditional vendee), and 38-205 (regarding lien for storage etc. for motor vehicles). III The report (expected in November 1962) of the permanent editorial board for the UCC with respect to recommended amendments should be reviewed with regard to incorporating such recommended amendments in the District of Colum- bia Uniform Commercial Code. This committee should be continued in existence until the enactment of the District of Columbia C ommercial Code, charged with the responsibility of pre- paring or coordinating the preparation of drafts of bills in accordance with recom- mendations I and II of this report, and of recommending to the board of directors such modifications in those bills as may deemed desirable pursuant to recom- mendation III or otherwise, or as may be recommended by members or other com- mittees of the Association or by other interested persons and organizations. V This Bar Association should, during the period between the enactment and effective dates of the District of Columbia Uniform Commercial Code, undertake a program to educate District ofColumhia lawyers and other interested persons concerning such code. An early and orderly effort of this kind will contribute substantially to the initial success of the code in the District. PAGENO="0127" UNIFORM COMMERCIAL CODE 123 VI Appropriate committees of the bar association should be designated to make a continued study, on a permanent basis, of the code and recommendations of the permanent editorial board and to recommend, from time to time, changes in the District of Columbia U'niform Commercial Code. COMMENTS The committee has concluded that the interests of the District of Columbia and its citizens would be better served by an early adoption of the UCC in its presently revised form with only the necessary modifications indicated above rather than by a delayed adoption after a comprehensive section-by-section study of the UCC. The latter method would extend over a period of years, and to be handled properly would require a substantial appropriation and some full-time personnel. It is not realistic to suppose that regular committees of the bar association com- posed of busy lawyers actively engaged in practice could accomplish the stupendous task of thoroughly analyzing the entire UCC within any reasonable period of time. The UCC in its present form has been in the process of development since 1945. The drafting of the UCC has been performed by the joint efforts of hun- dreds of highly competent lawyers and professors of law all over the United States. It has been tried and tested as an enacted statute in Pennsylvania (over 8 years), Massachusetts (almost 4 years), and Kentucky (over 2 years). It is no longer a theoretical dream, but a statute that has proved itself in practice. A number of the uniform acts have been enacted in the District of Columbia with few, if any, modifications. The experience with these acts has been highly satisfactory. The UCC is actually just another uniform act which, however, is more comprehensive and more throughly developed than any of the other uniform acts. The UCC does not represent an abrupt change in commercial law concepts. It codifies commercial law in its present stage of development, filling many gaps and settling a number of questions raised by conflicting judicial decisions. Although uniformity with the statute law of other jurisdictions should not be the sole criterion, nevertheless, it is extremely important in this age of quick transportation and communication when every commercial lawyer is constantly coming into contact with transactions involving the law of one or more other jurisdictions with the resulting problems of what and which. The adoption of the UCC in the District of Columbia would certainly tend to minimize conflict of laws problems in situations involving the District and other code jurisdictions. Moreover, with the relative paucity of judicial decisions on commercial law matters in the District of Columbia, the feature of uniformity would make more pertinent the more numerous decisions of other jurisdictions and assist District of Columbia lawyers in their interpretations of the UCC. The comprehensiveness of the UCC will prove extremely helpful to the prac- ticing lawyers and the people they represent. At the present time, a District lawyer faced with a commercial law problem often finds a complete void in both the District of Columbia Code and the reported District of Columbia opin- ions. He is then forced to resort to standard texts on the subject, law review articles, legal encyclopedias or digests, and then to follow the references to judicial opinions of other jurisdictions. At the conclusion of extensive and time-consuming research he is often still in doubt. On the other hand, the UCC with its reasonably good coverage of the whole field will by itself answer many of the questions. This does not mean, howev r, that the UCC is a universal panacea or that it is without fault. There is no doubt that, if enacte~l in the District, defects requiring correction will be found both before and after its effective date. And also there is no doubt that lawyers will differ in their interpretations of the UCC, and that such differences will on occasion be resolved through judicial interpretation. The following is a brief review of the 10 articles of the UCC: Article 1 This article deals with matters of general application, and contains general definitions and principles of interpretation. Article 2 This article would completely supersede the Uniform Sales Act as contained in chapters 11 through 16 of title 28 of the `District of Columbia Code. The Uni- form Sales Act has been completely rewritten and much new material added, to conform to present day commercial practices. PAGENO="0128" 124 UNII'ORM CO~Th~ERCIAL CODE In addition to providing a far greater coverage than the Uniform Sales Act, article 2 has several noteworthy features including, among others, the application of stricter rules to a merchant (a professional in business), the recognition of a contract of sale whenever it is clear that the parties have intended to be bound the deemphasizing of the passage-of-title concept in favor of specific provisions covering the rights and duties of buyer and seller, the elimination of the effect of seals with respect to contracts of sale, the providing that amendments to con- tracts of sale need no consideration, and the permitting of open price agreements. Article 3 This article would replace the Uniform Negotiable Instruments Act (NIL) as contained in chapters 1 through 10 of title 28 of the District of Columbia Code. The law pertaining to commercial paper of the short-term type, like checks, drafts, certificates of deposit and promissory notes, has been completely rewritten in modern commercial language, conforming to the remainder of the IJCC. Nu- merous conflicting judicial interpretations, which have developed concerning pro- visions of NIL over the last 65 years, have been eliminated in the drafting of article 3. The parts of NIL dealing with negotiation of securities have been transferred to article 8 on "Investment Securities." Interesting features of article 3 are: a cause of action on a demand certificate of deposit accrues on demand thus preventing loss to the depositor by the running of the statute of limitations prior to demand; a forger or unauthorized signer is liable on a negotiable instrument; presentment. of a check may be made within thirty days (after date or issue) to charge the drawer and seven days (after endorsement) to charge an endorser; the drawer of a check or draft is released only to the extent that he is injured by failure to give him prompt notice of dis- honor; the requirement of protest is eliminated except for checks and drafts drawn or payable outside the United States; presentment and notice of dishonor are simplified; and instruments not negotiable because not payable to order or hearer are covered by article 3 other than the provisions relating to holders in due course. Article 4 This article, dealing with hank deposits and collections, does not replace any uniform act, and covers a branch of commercial law for which there is virtually no statutory counterpart in the District of Columbia aside from several relatively small sections of the District of Columbia Code. Article 4, which is of tremendous importance to banks and all customers of banks, codifies in relatively simplified form the law pertaining to the handling of the vast number of collection items which are processed daily by banks and to the relations between a customer and his bank. Article 4 is of course inte- grated with article 3 dealing with negotiable instruments and article 8 dealing with investment securities. The sections of article 4 mentioned below are of interest but are not intended to represent full coverage of tha.t article. Section 4-103 expressly permits the provisions of article 4 to be varied by agreement between a bank and its customer except that no agreement can dis- claim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure. Section 4-206 permits banks to make agreements for the transfer of checks and other items among themselves without formal endorsement, thus making it possible for banks to eliminate on checks the often ifiegible group of overlapping indorsements. Section 4-213, in prescribing rules for determining the time of final payment by a drawee bank of a check or other item, reconciles conflicting judicial opinions on this often disputed matter in the light of present-day banking practices. Sections 4-301 and 302 dealing with deferred posting, together with sections 4-106 and 4-107, although more detailed, leave substantially unchanged.section 27-714a of the District of Columbia Co.de dealing with the same subject. Section 4-402 imposes liability upon a bank for damages proximately caused by the wrongful dishonor of a check or other item, and, when dishonor occurs through mistake, limits liability to actual damage. Section 4-402 would supplant section 28-1009 of the District of Columbia Code which states that no bank shall be liable to a depositor for nonpayment of a check, etc. through mistake without malice unless the depositor shall prove actual damage, limiting liability to the amount of damage proved. Section 4-403 authorizes a customer to stop payment on a check or other item and would supplant section 28-1011 of the District of Columbia Code. This PAGENO="0129" UNIFORM COMMERCIAL CODE 125 committee, however, is recommending that section 4-403 be amended to include several desirable features of said section 28-1011 of the District of Columbia Code. Section 4-407 extends but follows the basic theory of section 28-1011(e) of the District of Columbia Code in allowing subrogation to a dr,awee bank which has improperly paid a cheek after a stop-payment order. Section 4-404 reduces to 6 months the stale check period now 1 year under section 28-1004 of the District of Columbia Code. Section 4-405 permits a bank to pay checks or other items until it has knowledge of the fact of the death or adjudication of incompetency of its customer. It further permits a bank, with knowledge of a customer's death, to pay for 10 days after date of death checks drawn prior to death unless ordered to. stop payment by a person claiming an interest in the account. Section 4-406, covering the customer's duty to discover and report forgeries and alterations, would take the place of section 28-1008 of the District of Columbia Code. Section 4-406 precludes a customer from recovering, after 1 year from the time the statement and checks become available, on alterations and his unau-~ thorized signature. However, section 4-406, unlike section 28-1008 which does not cover forged endorsements, precludes a customer from recovering 3 years after such time on an unauthorized endorsement. Article 5 This article puts in statutory form the basic legal principles relating to letters of credit, and should prove of great assistance to any attorney who becomes involved in a letter of credit situation. This committee's recommended amendment of section 5-102 (1), which is taken from the New York Uniform Commercial Code, is designed to make absolutely clear that issuers of letters of credit are entitled, if they so desire, to operate under the Uniform Customs and Practice for Commercial Documentary Credits, instead of under the UCC. The current uniform customs and practice is a comprehensive set of rules for commercial documentary credits which was revised and adopted at the 13th Congress of the International Chamber of Commerce in Lisbon in 1951. Banks in the United States engaging in the international banking business fully understood these rules and usually incorporate in each of their commercial doou- mentary credits a statement that it is subject to the uniform customs and practice. A number of banks throughout the free world also adhere to the uniform customs. The uniform customs and practice is not a stagnant set of rules, but is one that is revised from time to time to meet changing conditions in letter of credit practices. This committee is of the opinion that, in view of the substantial national arid international acceptance of the uniform customs and practice, the right to continue under the uniform customs should be expressly preserved by way of said recom- mended amendment. Article 6 This article relates to bulk sales, and would replace chapter 17 of title 28 of the District of Columbia Code. Article 6 continues the basic policy of protecting creditors of a merchant who sells in bulk by permitting such creditors to treat the sale as ineffective. Article 6, however, is more detailed and less ambiguous than the existing District of Columbia law enacted in 1904. Under article 6, a bulk transfer is any transfer in bulk and not in the ordinary course of transferor's business of a major part of the materials, supplies, merchan- dise or other inventory of an enterprise subject to article 6; a transfçr of a sub- stantial part of equipment is a bulk transfer only if made in connection with a bulk transfer of inventory; excluded from bulk transfers are, among others, transfers for security, or in settlement of a security interest, general assignments for benefit of creditors, and transfers to a person maintaining a known place of business in the District who becomes bound to pay the debts of the transferor in full and give public notice of that fact, and who is solvent after becoming so bound; enterprises subject to article 6 are all those whose principal business `is the sale of merchandise from stock, including those who manufacture what they sell; the notice to creditors must be given at least 10 days before a transferee takes possession or pays for the goods; all creditors of a transferor `who becon~ie such prior to the bulk transfer are protected, but only those creditors on the list furnished by transferor or known to transferee are entitled to notice; auctioneers who know that the auction is a bulk transfer are liable to transferor's creditors up to the net proceeds of the auction; and actions by creditors must be brought within 6 months after the transfer or, if transfer has been concealed, within' 6 months after discovery. &O-151-64.---9 PAGENO="0130" * 126 UNIFORM COMMERCIAL CODE Article 7 This article, dealing with warehouse receipts, bills of lading, and other docu- ments of title, would replace the Uniform Warehouse Receipts Act as contained in chapters 18 through 22 of title 28 of the District of Columbia Code. Article 7 combines as an integrated unit of legislation the Uniform Warehouse Receipts Act, the Uniform Bills of Lading Act, and those sections of the Uniform Sales Act dealing with the negotiation and transfer of documents of title. It is subject to any treaty or statute of the United States or District of Columbia regulatory statute or tariff, classification or regulation filed or issued pursuant thereto. Accordingly, the Federal Bills of Lading Act (49 U.S.C. sees. 81-124) would continue to control interstate shipments and foreign exports, and the Car- riage of Goods by Sea Act (46 U.S.C. sees. 1300-1315) would continue to control ocean bills of lading covering both exports and imports. Since article 7 makes no provisions for criminal penalties, it may be considered advisable to retain or reenact in modified form chapter 21, entitled "Criminal Offenses," of title 28 of the District of Columbia Code. Article 8 This article, dealing with investment securities, would replace the Uniform Stock Transfer Act as contained in chapter 29 of title 28 of the District of Columbia Code. In addition, it deals with bonds now covered by the Uniform Negotiable Instruments Act. As stated in the 1958 official text with comments of the Uniform Commercial Code, article 8 "is neither a blue sky law nor a corporation code. It may be likened rather to a negotiable instruments law dealing with securities." In general, it covers investment securities like stocks and bonds in both bearer and registered form. Part 4 of article 8 is designed to accomplish the same purposes as the Uniform Act for Simplification of Fiduciary Security Transfers now adopted in the District of Columbia. (District of Columbia Code, sees 28-2321-2330) and in 35 States. The sponsors of the Uniform Commercial Code are recommending that, until there are court decisions affirmatively holding that article 8 is just as effective as the Uinform Simplification Act, the UCC should not repeal the act, but should include express provision (sec. 10-104) that the act is not repealed and should control in event of any inconsistency between the act and the UCC. In view of the highly successful results under the Uniform Simplification Act this committee is of the opinion that the recommendation of the UCC sponsors be followed. Article 9 This article, dealing with the field of secured transactions, would replace little of the District of Columbia Code while making great advances in that field. In general, it applies to all transactions which are intended to create a security interest * in personal property as well as to sales of accounts receivable, contract rights and chattel paper. Although it does not use the terms "mortgage," "conditional sale" and the like, existing security devices are not abolished and may continue to be used. Article 9, however, does abolish formal distinctions between existing security devices and deals with. the interests which the secured creditor may obtain under the code by the same designation; namely, a "security interest" defined (in sec. 1-201 (37)) as "an interest in personal property or fixtures which secures payment or performance of an obligation," which includes "any interest of a buyer of accounts, chattel paper, or contract rights." In general, the term "chattel paper" refers to instruments (like notes and chattel mortgages) used by the owner thereof (like a dealer) to secure his own financing. Article .9 does not apply, among others, to a security interest. subject to a statute of the United States, a landlord's lien, a lien given by statute or other rule of law for services or materials (except to state priority of such liens where there * is a conflicting security interest), a claim for wages, salary or other compensation of an employee, an equipment trust covering railroad rolling stock, a sale of ac- counts, contract rights or chattel paper as part of a sale of a business, a transfer of an interest in an insurance policy, and a transfer of an account in a bank, loan association, credit union or like organizations. The security interest under article 9, to be enforceable, must either be a pos- sessory interest (like a pledge) with the secured party in actual possessiOn or be in a writing referred to in the article as a "security agreement." The.only require- ments of a security agreement are that it he signed by the debtor and contain (sec. 9-203(1)(b)) "a description of the collateral and in addition, when the security interest covers crops or oil, gas or minerals to be extracted or timber to he PAGENO="0131" UNIFORM COMMERCIAL CODE 127 cut, a description of the land concerned." However, a security agreement may contain the usual provisions now included in existing instruments, like chattel mortgages and chattel deeds of trust, and other agreements of the parties, except a few types of provisions expressly prohibited by the TJCC. With several exceptions (sec. 9-302), in order to "perfect" a security interest that would create a lien effective against third parties, .the creditor must have possession of the collateral in case of a possessory interest (like a pledge) or the debtor must, in addition to entering into a security agreement, file a "financing statement" in the appropriate office, which in the District of Columbia would be the Recorder of Deeds (sec. 9-303). A financing statement may be a very simple document, being legally sufficient (sec. 9-402) "if it is signed by the debtor and the secured party, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral." A financing statement may be filed before a security agreement is made (sec. 9-402(1)). The security agreement need not be filed to be effective against third persons. However, a security agreement, if it complies with the requirements of a financing statement, may be filed as a financing statement. Thus, in general, secured financing may be placed on a simplified basis or continued with the same type of existing instruments using the same names and containing only a few modifications to conform to the UCC. An important exception to the requirement of filing concerns consumer goods, meaning goods for personal, family or household purposes (not including motor vehicles). Filing is not necessary to make effective against third persons a security interest taken or retained by a seller or other person who finances the actual purchase of consumer goods. The matter of motor vehicle liens would be continued to be handled, a~ now, under chapter 40 of title 3 of the District of Columbia Code. However, motor vehicles in the hands of a dealer prior to the issuance of a title certificate would be considered as inventory to which the provisions of article 9 would apply. Part 4 of article 9 provides for the remedies of the creditor upon default, re- quiring reasonable notification to the debtor and other interested persons of the sale unless the goods are perishable etc., and the return to the debtor of any surplus after payment of the debt and expenses of collection and sale. The debtor is also given theright to redeem before disposition of the collateral. Article 9 also provides, among other things, for the allowance of broad after acquired property clauses, the validating of security interests in collateral to secure future advances, and for inventory and accounts receivable financing on a sound basis. The doctrine of Benedict v. Ratner, 268 U.S. 353 (1925), is repudiated (sec. 9-205). A fringe benefit of the UCC would be the elimination of the antiquated and useless nuisance requirement that chattel instruments be acknowledged in order to be recorded. Article 10 This~ article would provide for the repeal of the superseded legislation. It would also provide for the effective date of the UCC and for protection of the rights under then existing security instruments. Modifications (13), (14), (15) and (16), relating to article 10, .of recommenda- tion I of this report are modeled after the New York Uniform Commercial Code. Modification (13), amending section 10-102(1), provides for specific repeal of the superseded parts of the District of Columbia Code. Modification (14), amending section 10-102(2), is intended primarily to provied for the continued effectiveness under the code of recorded chattel instruments which now become void after seven years pursuant to section 42-104 of the District of Columbia Code. The official text of the Uniform Commerical Code (sec.. 10-103) proviies for the general repeal of all inconsistent legislation. This committee considers that it would be better to state a rule as to which statute governs, as in modification (15), rather than to repeal outright. In view of the wide coverage of the specific repeal section, there should be relatively few inconsistencies between the com- * mercial Code and existing District of Columbia legislation. CONCLUSION As already indicated, the initial decision to be made by this bar association is whether (a) to strive for the enactment as soon as practicable of the UCC modified to conform to the District of Columbia Code, or (b) to conduct a detailed study PAGENO="0132" `128 UNIFORM dOMMERCIAL CODE of the UCO in order to determine its desirability or to perfect it. This committee considers that the advantages to be derived from an early adoption of the UCC in the District far outweight the benefits of continued study prior to adoption, and that the UCC with the modifications recommended in this report will provide `a satisfactory and entirely workable statute. This, of course, does not mean a Etatute satisfactory to all or a perfect statute since it is not likely that the UCC will ever achieve universal approval or reach perfection. The UCO should be the object of continued study by this association both before and after its enactment. It is quite likely that faults in a* District of Columbia Uniform Commercial Code will be disclosed by the stepped-up study of it after its enactment and by practical problems arising after its effective date. This association should be alert to discover such faults and to endeavor to obtain corrective legislation without delay. The Rip Van Winkle approach to difficulties `in the practical application of uniform acts is outmoded. This committee is of the opinion that there should be at least 1 year between the enactment date and the effective date, in order to give all interested members of the District of Columbia community ample time to become thoroughly familiar with the code and to make the necessary adjustments. An educational program undertaken by this association during such year would be extremely beneficial. There will possibly be a strong desire on the part of some to attempt to make substantive or language changes in, or otherwise to tinker with, the UCC as proposed for the District of Columbia. This committee is of the opinion that such changes should be resisted and not made except for extremely sound reason. The UCC represents the results reached by hundreds of lawyers and law pro- fessors over a long period of years and after considerable trial and error. It is an integrated statute covering almost the entire field of commercial law. Any change in UCC may very well tend to weaken its effectiveness, lessen its uni- *formity and destroy its consistency. Until and unless there is good reason to do otherwise, it will be better to make change in the UCC only after the permanent editorial board has had opportunity to review and make its recommendation. Mr. }]ITJDDLESTON. Without objection, I will also include the First Supplemental Report to the Board of Directors of the Bar Association of the District of Columbia, by the Uniform Commercial Code Committee of the Bar Association, dated December 18, 1962. (The material referred to follows:) UNiFORM COMMERCIAL CODE COMMITTEE,. BAR ASSOCIATION OF THE DISTRICT OF COLUMBIA, December 18, 1962. FIRST SUPPLEMENTAL REPORT TO BOARD OF DIRECTORS OF BAR ASSOCIATION The initial report of this committee, dated September 26, 1962, contained certain recommendations, all of which were approved on October 5, 1962, by the board of directors. This committee is now in the process of preparing, in accordance with recom- mendations I, II, and IV, the proposed legislation which is expected to be in- troduced in the Congress during January 1963. Recommendation III of this committee was as follows: "III * "The report (expected in November 1962) of the permanent editorial board for the UCC with respect to recommended amendments should be reviewed with regard to incorporating such recommended amendments in the District of Columbia `Uniform Commercial Code." This committee has studied the report of the permanent editorial board referred * tO in recommendation III as well as suggestions made by members and other * committees of the association and by other interested persons and organizations. As a' result of this study, it is considered desirable that additional modifications be made in the 1958 official text of the uniform commercial code at the time of its enactment for the District of Columbia For the sake of brevity, the 1962 recommendations for amendment of the uniform commercial code proposed by the permanent editorial board for the uniform commercial code is hereinafter sometimes referred to as the "1962 recom- mendations"; said permanent editorial board is hereinafter sometimes referred PAGENO="0133" UNIFORM COMMERCIAL CODE 129 to as the "editorial board"; the uniform commercial code, 1958 official text, is hereinafter sometimes referred to as the UCC the District of Columbia Code, 1961 edition, is hereinafter sometimes referred to as the "D.C. Code"; and section references unless otherwise specified pertain to the UCC. The editorial board~ in the 1962 recommendations is recommending all the modifications set forth below (except Nos. 8, 9, and 20) for the reasons mentioned immediately following the respective proposals. This committee concurs. Modifications Nos. 9 and 20 set forth below originated in the District of Columbia, and, insofar as the committee knows, were not considered by the editorial board. Each State mentioned below as a source for a proposal means the uniform com~ mercial code as enacted in that State. RECOMMENDATIONS AND COMMENTS This committee recommends that the board of directors approve the following resolutions (the comments and other explanatory statements not being deemed part of the resolution): I Resolved, That the uniform commercial code proposed for enactment for the District of Columbia, in addition to the modifications approved by this board (pp. 602 to 606 of the November 1962 issue of the journal of this association), be subject to further modification for accomplishment of the following: 1. In subsection 1-201(27), add the following additional sentences: "An organi~ zation exercises due diligence if it maintains reasonable routines for communicating significant information to . the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part .of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the infor- mation." Gomment of. the editorial board "The change in subsection (27) clarifies the scope of `due diligence' as used in the subsection. The New York Clearing House Association expressed the fear that the original subsection would require any large business organization to make an extensive investigation, before purchasing commercial paper or investment securities, as to whether it had notice of an adverse claim. As revised, the sub- section removes any basis for the fear, but retains the same standard for financial institutions as. for .other organizations, and applies equally to protect an organi- zation located in a single place and an organization operating through two or more branches. The change is intended to render unnecessary nonuniform amendments. to sections 3-304 and 8-304 enacted in New York and nonuniform ,amendmentstb section 4-106 enacted in Massachusetts and New York." 2. In sUbsection 3-105(1) (c), add after "agreement": "or refers to a separate agreement for rights as to prepayment or acceleration." Comment of the editorial board "Notes very commonly provide that they may be accelerated or prepaid in ,accor,dance with the terms of a loan agreement or mortgage of a particular date. Such notes were regarded as negotiable under the NIL, but doubt as to their status under thecode has arisen.. The additional words are intended to remove these doubts." The source .of this proposal is New York. 3. Subsection 3-112(1) (b) should be revised to read as follows: "(b) a statement that collateral has been given to secure obligations either on the instrument or otherwise of an obligor on the instrument or in the case of default on those obligations the holder may realize on or dispose of the collateral; or Comment of the editorial board "The added language is designed to avoid any possibility that standard cross- collateral provisions found in substantially all bank collateral note forms will render the notes nonnegotiable. That result was never intended." The source .of this proposal is Massachusetts. 4. Subsection 3-122(4)(a) should be revised to read as follows: "(a) in the case of a maker, acceptor, or other primary obligor of a demand instrument, from the date of demand;" PAGENO="0134" 130 UNIFORM CO~ThfERCIAL CODE comment of the editorial board "Although banks are prohibited by law from paSTing iiiterest~ ondemand deposits, fear has been expressed that under section 122 interest might run on a certified check or like demand instrument from its date. Opinions differ as to the necessity for the change which, in any event, avoids this unintended result." The source of this proposal is Connecticut. 5. In subsections 3-412(2) and 3-504(4), delete "continental" to take "account of the admission of Alaska and Hawaii as States." (recommended by the editorial board). 6. Add the following additional section as 4-109: "Section 4-109. Process of Posting. "The `process of posting'. means the usual procedure followed~ by a payor bank in determining to pay an item and in recording the payment including one or more of the following or other steps as determined by the bank: "(a) verification of any signature; "(b) ascertaining that sufficient funds are available; "(c) affixing a `paid' or other stamp; "(d) entering a charge or entry to a customer's account; "(e) correcting or reversing an entry or erroneous action with respect to the item." - Comment of the editorial board "This section is intended to supply guides to the meaning of the terrn, `p'rocess of posting," for the purposes of sections 4-213(1)(c) and 4-303(1)(d), that are more concrete than those that may be readily inferred from the phrase itself The definition will be helpful in determining questions as to payment and priorities arising under those sections in payor banks having centralized or automated bookkeeping procedures, under which the amounts of items are preliminarily posted and the items are then checked for signatures, stop-payment orders any the like. Upon the contpletion of all steps in the payor bank's usual procedure in this regard, including the recording of the payment, the item will be deemed paid for the purposes of section 4-213(1) and the amount of the item will not be affected by any notice, stop order, legal process or setoff that thereafter becomes effective as contemplated by section 4-303 (1)." 7. Add the following additional subsection to section 4-204: "(3) Presentment may be made by a presenting bank at a place where the payor bank has requested that presentment be made." Comment of the editorial board "The new subsection (3) is intended to make it clear that a presenting bank may make presentment of any item at any place requested by the payor bank, even though that place may not be one of those mentioned in section 3-504. This subsection will thus remove any doubt as to the validity of presentment by a presenting bank ata centralized bookkeeping center or electronic processing center maintained or used by the payor bank." The source of this proposal is the Federal Reserve banks. 8. Delete optional provision subsection 4-212(2). - Comment This is a change (recommended by the Law and Legislative Committee of the District of Columbia Bankers Association) in modification No (5) proposed in this čommittee's report (November 1962 Journal of the'~Di~ttict of Columbia Bar Association; p. 598, 602). in the hank collection process, when a check or other item is not paid by the drawee bank, it is returned to the depositary bank through the same chain of banks by which it came. Subsection 4-212(2) authorizes the drawee bank (as well as intermediary banks in the chain) to make a direct return to the depositary bank of any unpaid item in lieu of sending it back through normal banking chan- nels. However, this practice is not followed in the District of Columbia, and is said by the UCC official comments to be "in the process of developing in a few sections of the country." Direct return of unpaid items would involve problems relating to preservation of endorser liability, timely return, return to the wrong bank, and possibly other matters. In view of such problems and the lack of information regarding the effects of the practice of direct returns, it is now considered desirable. not to have such practice authorized in the District 9f Columbia until it has become much more widespread. and has. proyed to he beneficial. The retention of subsection 4-~-212(2) in the code w~ould merely en- courage occasional direct returns which would givérise to the problems mentioned PAGENO="0135" UNIFORM COMMERCIAL CODE. 131 above as well as to difficulties resulting from lack of familiarity with the practice by the banking personnel involved. 9. In subsection 4-403 (2), change the first sentence thereof to read: "Anything in this section to the contrary notwithstanding, any stop-payment order trans- mitted by telephone by a customer to an officer of a bank, while such officer is on the premises thereof, shall be accepted by such bank, upon such identification that will insure the order has been transmitted by such customer, as an effective order for a period of twenty-four hours, after which time it shall no. longer be valid unless. followed by a.written order as provided in this section." Comment . The part italized above is a change. (recommended by the law and legislative committee of the District of Columbia Bankers Association) in modification No. 7, proposed in this committee's report (November 1962 Journal of District of Columbia Bar Association, pp. 598, 602). This change is designed to avoid the hazards resulting from calls to an officer away from the bank when he may be~ without facilities for recording the data or when he may be ill or unable to com~ municate promptly with the bank. 10. Add the following paragraph to section 6-103: "Public notice under subsection (6) or subsection (7) may be given by publishing once a week for two consecutive weeks in a newspaper of general circulation where the transferor had its principal place of business in this State an advertisement including the names and addresses of the transferor and transferee and the effective date of the transfer." Comment of the editorial board "The new paragraph at the end of the section, following a nonuniform section 6-106 enacted in Georgia, gives precision to the provision for `public notice' found in subsections (6) and (7)." The source of this change is Georgia. 11. Add the following sentence to subsection 6-104(2): "If the transferor is the obligor of an outstanding issue of bonds, debentures or the like as to which there is an indenture trustee, the list of creditors need include only the name and address of the indenture trustee and the aggregate outstanding principal amount of the issue." Comment of the editorial board "The new sentence at the end of subsection (2) clarifies the application of the section where there is an indenture trustee for bondholders or the like." The source of this proposal is New York. 12. In subsections 6-107(3), 6-108(3)(b), and 7-210(2)(b), insert after "registered" the words "or certified" in order to make provision for notice by certified mail (recommended by the editorial board). 13. In section 8-102, delete subsection (2), and add the following additional subsections: "(3) A `clearing corporation' is a corporation all of the capital stock of which is held by or for a national securities exchange or association registered under a statute of the United States such as the Securities Exchange Act of 1934. "(4) A `custodian bank' is any bank or trust company which is supervised and examined by State or Federal authority having supervision over banks and which is acting as custodian for a clearing corporation." Comment of the editorial board . "The definition of `proper form' serves no useful purpose except under the 1958 text of section 8-208(1). It is believed the subject matter reflected by this term is more soundly dealt with by proposed amendment of section 8-208(1). "The new definitions of `clearing coporation' and `custodian bank' are made necessary because of recommended new section 8-320." The source of this proposal is New York. 14. Add the following new section 8-107: "Section 8-107. Securities Deliverable; Action for Price. . . "(1) Unless otherwise agreed and subject to any applicable law or regulation respecting short. sales, a person obligated to delivery securities. may deliver any security of the specified issue in bearer form or registered in the name of the transferee or indorsed to him or in blank. "(2) When the buyer fails to pay the price as it comes due under a contract of sale the seller may recovet the price . . . . . `(a) of securities accepted by the buyer and PAGENO="0136" 132 UNIFORM COMMERCIAL CODE "(b) of other securities if efforts at their resale would be unduly burden- some or if there is no readily available market for their resale." Comment of the editorial board "Subsection (1) states the legal consequence of `fungibility' as generally ac- cepted in the organized securities markets. It would appear properly to serve the purpose intended by the New York addition to section 8-105, rejection of which is recommended. "Subsection (2) is designed to meet the objective of new section 8-107 enacted by New York but is restated to stay within the ambit of the dictum in Agar v. Orda (264 N.Y. 248, 190 N.E. 479 (1934)). It provides an action for the price roughly parallel to that appearing in subsection (1) of section 2-709 in the case of goods." "15. In section 8-208, delete in 8-208(1)(a) the words "and in proper form"; and insert in 8-208(1) (c) prior to "within" the words "in the form and." C'omment of the editorial board "As enacted in New York, section 8-208 reduces the warranty as to form to a warranty that the security is in the form which the authentica.ting trustee, regis- trar or transfer agent was authorized to sign or countersign. Under the case law, the responsibility of such party appears to go somewhat further. The editorial board believes that its recommended amendment correctly reflects the responsi- bility indicated by the case law while also reducing the warranty as to form. appear- ing in the 1958 text. In actual practice authenticating trustees, registrars and transfer agents usually rely upon counsel as to matters of form. Among other things, the amendment takes into account such practice." 16. In subsection 8-306(3), delete the last sentence. Comment of the editorial board "As enacted in New York, the last sentence of subsection (3) reads as follows: `A broker acting as a broker in a particular transaction is not an intermediary within the meaning of this subsection.' This New York variation correctly sug- gests necessity of any person, whether the so-called `stockbroker' or anyone else, in fact be acting as a `broker' if he makes the warranties of subsection (5) rather~ than that of an `intermediary' under subsection (3). However, the `New York language seems confusing and the editorial board amendment deletes the last sentience entirely. This leaves to the court in each case the determination of whether' a, particular person (the so-called `stockbroker' or anyone else) was functioning in the particular transaction as a broker (section 8-303, e.g. for a' standard commission or similar compensation) or as an intermediary (subsection (3) of section 8-306, e.g. delivering securities on a customer's instructions, either without' `charge or for a nominal handling charge)." 17. In subsection 8-308(3) (b), insert prior to "his successor" the'words "either that'person or." Cřmment of the editorial board ~"The amendment is recommended as `clarification to avoid any risk that the general requirement of indorsement by `an appropriate person' in any way miii-'. tate~ against the clear `intention of subsection (3)(a) ~of section 8-403 to permit the issuer to rely on the continued power to act of a fiduciary named in a security until receipt of written notice to the contrary." 18. In section 8-313, add the following additional subsection 1(e): "(e) ap- propriate. entries on the books of a clearing corporation are made under section 8-320." `Also delete existing section (2) and add the following subsections in lieu thereof:, "(2) The purchaser is the owner of a security held for him by his broker, but is not' tbo holder except as specified in subparagraphs (b), (c), and (e) of sub-j section (1). Where a security is part of a fungible bulk the purchaser is the owner of a proportionate property interest in the fungible bulk. "(3) Notice of an adverse claim received by the broker or by the purchaser~ after the broker takes delivery as a holder for value is not effective either as to the broker or as to the purchaser. However, as between the broker and the pürcha~er, the purchaser may demand delivery of an equivalent security as to which no notice of an adverse claim has been received." Comment of the editorial board ` "New subparagraph (1)(e) is made necessary by new section 8-320. The amendments proposed in subsections (2) and (3). are intended as clarifications but without any changes in intended results. PAGENO="0137" UNIFORM COMMERCIAL CODE : 133 "Subsection (2) recognizes the difference between the status of a `holder' which is important for various purposes under article 3 (subsec. (20) of sec. 1-201; sec. 8-302; subsec (2) of sec. 8-301) and the status as owner. The affirmative statement that a purchaser becomes the `owner' of a security (either held for him by a broker or constituting part of a fungible bulk) provides protection to customers of brokers against a broker's trustee in bankruptcy and against the United States holding tax liens against the broker, to the extent the protection may be provided by State law. "Subsection (3) provides protection to both broker and customer if notice of an adverse claim is received by the broker after the broker takes delivery as .a holder for value but preserves the original principle of the 1958 text that as between the broker and his own customer, the customer is entitled to a `good delivery' free of any notice of adverse claim. The broker is in the business of handling securities and is better equipped to clear up adverse claims and should not be permitted to pass on these problems to his customer, even though the status of the broker in whole or in part may be that of agent for his customer." 19. Add the following new section 8-320: ~"Section 8-320. Transfer or Pledge Within a Central Depository System. "(1) If a security- "(a) is in the custody of a clearing corporation or of a custodian bank or a nominee of either subject to the instructions of the clearing corporation; and "(b) is in bearer form or indorsed in blank by an appropriate person or registered in the name of the clearing corporation or custodian bank or ~a nominee of either; and "(c) is shown on the account of a transferor or pledgor on the books of the clearing corporation; then, in addition to other methods, a transfer or pledge of the security or any interest therein may be effected by the making of appropriate entries on the books of the clearing corporation reducing the account of the transferor or pledgor and increasing the account of the transferee or pledgee by the amount of the obligation or the number of shares or rights transferred or pledged. "(2) Under this section entries may be with respect to like securities or inter- ests therein as a part of a fungible bulk and may refer merely to a quantity of a particular security without reference to the name of the registered owner, cer- tificate or bond number or the like and, in appropriate cases, may be on a net basis taking into account other transfers or pledges of the same security. "(3) A transfer or pledge under this section has the effect of a delivery of a security in bearer form or duly indorsed in blank (section 8-301) representing the amount of the obligation or the number of shares or rights transferred or pledged. If a pledge or the creation of a security interest is intended, the mak-. ing of entries has the effect of a taking of delivery by the pledgee or a secured party (sections 9-304 and 9-305). A transferee or pledgee under this section is a holder. "(a) A transfer or pledge under this section does not constitute a registration of transfer under part 4 of this article. "(5) That entries made on the books of the clearing corporation as provided in subsection (1) are not appropriate does not affect the validity or effect of the en- tries nor the liabilities or obligations of the clearing corporation to any person adversely affected thereby." Comment of the editorial board "New section 8-320 enacted in New York and hereby approved recognizes and validates a newly developing, efficient, and economical method of transferring or pledging securities. The method is currently in use in New York City and may hereafter be developed and used in other financial centers. Approval of it is consistent with the underlying purposes and policies of the code `to permit the continued expansion of commercial practices through custom, usage, and agree- ment of the parties' (see. 1-102(2)(b)). It utilizes new terms defined for the.first time in recommended changes in section 8-102. The definition of `clearing cor- poration' is broad enough to permit ownership of such corporation by a regulated association of security dealers as well as by a natiOnal securities exchange." The source of this proposal is New York. 20. Add the following additional section 8-407: "Section 8-407. Limitation of Actions. "(1) In the event of registration, either before or after this act becomes effective of a transfer or purported transfer of a security to a person not entitled to it~ no PAGENO="0138" * 134 tJNIFORM:COMMRRCIAL CODE action of any kind, legal or equitable, to ôompel the iinue, reissue, or deliVery of a like security or to -obtain damages or any other relief as a result of or in conneótiou - with such registration may be brought, subject to subsection (2), bythe true owner or any other person against an issuer, authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of transfers of its securities, more than 8 years after the date on which such registration to a person not en- titled has taken place. - "(2) The time limitation in subsection (1) may not be tolled or suspended for any reason. This section is additional to, and does not prevent or affect the application of, any-other statute of limitations as a defense to any action. This section applies to claims or causes of action which have accrued before this act becomes effective as well as to those which accrue after this act becomes effective. This section does not apply to any action against an issuer which at the time of such registration has fewer than fifty persons registered upon books maintained for that purpose as holders of the class and series, if any, of the security so regis- tered to the person not entitled to it." - - Comment - This proposed new section is recommended by this committee in an endeavor to relieve the intolerable storage problem faced by many corporations and trans- - fer agents as a result of the vast number of stock and bond transfers during recent decades. In view of the differences in statute of limitation periods in the various State~ in which a corporation is doing business, the lack of complete certainty as to when some statutory periods start, and the tolling of statutory periods for incompetency and other reasons, a number of corporations and transfer agents, in order to meet possible claims, are retaining all canceled security certificates from the time they started business, and others are retaining such certificates for long periods of many years. Insofar as this committee has been able to ascertain, claims based on allegedly wrongful registration of transfer are few in number, and inquiries concerning canceled certificates are rare well before the end of 8 years after registration. However, since the legal risk of loss exists, there is great reluctance to give up the evidence needed to prevent such loss. As a result, in the District of Columbia the canceled certificates and supporting documents are retained indefinitely, and their constantly growing accumulations needlessly add to business costs and tie up a tremendous amount of space which is becoming difficult to find and which could be better used by the community as well as by the corporations and their agents. Under this new section of the statute of limitations on any claim against a corporation or a transfer agent as a result of an alleged illegal registration of a security transfer would be 8 years and would commence on the date of the regis- tration complained of. There would be no tolling of the statute. Thus, after 8 years a corporation or transfer agent would he able to dispose of its canceled security certificates without fear of losing evidence needed to support its position in a lawsuit. This proposed absolute statutory period of 8 years from the date of registra- tion without provision for tolling would put no unreasonable burden on registered * security holders. Since most issuers having at least 50 security holders -and maintaining transfer books (sec. 8-201(3)) or having a transfer agent or other like agent for the registration of its securities now communicate with their registered security holders on some regular basis as by sending dividend and interest checks, notices of annual meetings and annual reports, a security holder not receiving any communication from his issuer over as few as 3 years should be on notice that there is some question as to his status sufficient to require him to make inquiry. The protection of this section would be denied to issuers having fewer than 50 security holders of the class involved because such corporations do not often have the canceled certificate storage problem and thus need the relief sought, and fur- ther because they often conduct their business in an informal manner without any regular communications to security holders. The proposed new section would not bar any action against the wrongdoer who instigated the wrongful registration. It would merely provide a reasonable limitation for the benefit of the party. performing the ministerial act of registra- tion and issue of a new certificate.- The fact that the issuer and the transfer agent and other like agents would not receive the protection of the section for a period of 8 years is ample to insure careful performance of their work under article 8 of the UCC. - The existing District of Columbia statute of limitations applicable to actions against issuers and transfer agents for wrongful registrations is 3 years from the time when the- right to maintain the action accrued, with tolling of the statute PAGENO="0139" UNIFORM COMMERCIAL~CODE 135 for infancy, insanity and imprisonment (District of Columbia Code, sec. 12-201). The proposed new section would not supplant this existing statute of 3 years, but would be an additional statute designed to eliminate uncertainty by fixing the date of the registration as the time for the starting of the statutory period and by eliminating tolling for any reason. This proposed new section is applicable to claims which shall accrue prior to (as well as after) the effective date of the 11CC in the District of Columbia. The period of 1 year between the enactment date and effective date is believed suffi- cient to give adequate notice of this aspect of the section and opportunity to take appropriate action. The proposal is limited to actions brought in the District of Columbia. Cor- porations doing business in another jurisdiction could be there sued, and would not be entitled to plead in defense this proposed statute of limitations but could plead any statute of limitations enacted in that jurisdiction. However, this inability to give immediate complete relief to some corporations is no reason to deny complete relief to other corporations. 21. In subsection 9-103(2), add the following sentence: "For the purpose of determining the validity and perfection of a security interest in an airplane, the chief place of business of a debtor who is a foreign air carrier under the Federal Aviation Act of 1958, as amended, is the designated office of the agent upon whom service of process may be made on behalf of the debtor." And add the following additional subsection to section 9-103: "(5) Notwithstanding subsection (1) and section 9-302, if the office where the assignor of accounts or contract rights keeps his records concerning them is not located in a jurisdiction which is a part of the United States, its territories or possessions, and the accounts or contract rights are within the jurisdiction of this State or the transaction which creates the security interest otherwise bears an appropriate relation to this State, this article governs the validity and perfection of the security interest and the security interest may only be perfected by notifi- cation to the account debtor." Comment of the editorial board "American banks and other financing institutions have been called upon to make loans on the security of airplanes owned by foreign air carriers making regular flights to the United States and on the security of accounts receivable owed to foreign sellers of goods by account debtors in the United States. In both of these cases an appropriate relation exists to some State of the United States to afford an ample basis for jurisdiction but under the 1958 text of the code no adequate means was provided to achieve perfection. "Under the Federal Aviation Act of 1958, foreign air carriers are required to designate an agent in the United States upon whom process may be served. The last sentence of subsection (2) provides that the office of the agent so desig- nated for the service of process shall be the chief place of business of the foreign air carrier for the purpose of determining the validity and perfection of a security interest in airplanes. Thus for this limited purpose, a foreign air carrier so designating an agent is brought within the ambit of all the provisions of sub- section (2). "Foreign sellers making sales of goods to buyers in the United States on an open account basis may maintain one or more offices in the United States at which records of the accounts are kept. If so, subsection (1) appli3s and filing with respect to security interests in accounts of this type should he made in the State or States in which the foreign seller so keeps records. However, if the foreign seller does not maintain any office in the United States where records of accounts of this type are kept, then subsection (5) provides that a security interest in the accounts may only be perfected by notification to the account debtors. Notice of the assignment of an account or of the existence of a security interest or other notices ordinarily given in financing of this type should meet the requirements of notification." The source of this proposal is New York. 22. In section 9-206, insert after "buyers" the words "or lessees"; after "by a buyer" the words "or lessee"; and after "seller" the words "or lessor". Comment of the editorial board "In view of the substantial growth in lease financing and the quite parallel application of problems dealt with by this section to both conditional sale con- tracts and leases, it is believed this section should be made applicable to leases as well as to more traditional purchase money security interests." PAGENO="0140" 136 UNIFORM CO .RCIAIi CODE 23. Add the following additional sentence to subsection 9-403(2): ~`A filed financing statement, which states that the obligation secured is pay- able on demand, is effective for five years from the date of filing." Comment of the editorial board: ` "This amendment adopted in COnnecticut, Massachusetts, New Hampshire, New Jersey, and New York makes no change from the intended result, but clarifies a point as to which there is sufficient ambiguity to make the amendment desirable." / The source of this proposal is Massachusetts. 24. Add the following to subsection 10-104(2), which subsection has been recommended in this Committee's report (p. 606 of November 1962 Journal): ", and if in any respect there is any inconsistency between that Act and the article of this Act on investment securities (art. 8) the provisions of the former Act shall control", Comment of the editorial board "Doubts have been expressed whether article 8 provides as complete protection on transfers of securities by fiduciaries as the Uniform Act for the Simplification of Fiduciary Security Transfers. The editorial board entirely favors the policy of simplifying fiduciary security transfers and believes that article 8 soundly implements this policy. However, since the shorter Simplification Act has been so widely enacted and has been working satisfactorily, the editorial board recom- mends that it be retained." This change means that the District of Columbia Uniform Act for Simplifica- tion of Fiduciary Security Transfers (subch. II of ch. 23. of title 28 of the D.C. Code) would prevail over article 8 of the UCC. II Resolved, That the Uniform Commercial Code as enacted for- the District of Columbia be incorporated in the D.C. Code as a separate chapter or a separate title, denominated "Uniform Commercial Code", with a list of the UCC articles under the chapter or title heading and a list of sections under each article, heading, and without any change whatsoever in the UCC article, section, and .subsection numbers; and that this system he followed in any revisionof the D.C. Code. Gomment For the sake of ease of reference and speed in research it is all important that the 11CC be taken into the D.C. Code as an entity, and that the same system of numbering be retained with no exceptions. Any renumbering or rearrangement of the UCC provisions would greatly hamper the use, in interpreting the District of Columbia UCC, of State annotations and of texts and articles pertaining to the UCC. coNcLusIoN All recommended changes described above, which are approved by the Board of Directors, will be included in the proposed legislation now in the process of preparation. The Uniform Commercial Code has been enacted in 18 States, in 14 of which, it is now or will be by January 1, 1963, effective. It is hoped that the Distriet of Columbia will soon be permitted to turn the clock forward and join the growing list of jurisdictions which have decided to make a unified and democratic effort' to have their commercial and business life governed basically by. the same progressive written law. . GEORGE E. MONK, C'/iairman. ANDREW T.' ALTMANN. JACK E. BINDEMAN. . Mr. HUDDLESTON. The first witness. on,H.R.. 5338, to enact the Uniform Commercial Code for the District of Columbia, will be from the Bar Association of the District of Columbia.' We have Mr. George Monk and Mr. Howard Anderson. Will you come around, Mr. Monk and Mr. Anderson? . . PAGENO="0141" UNIFORM COMMERCIAL CODE 137 STATEMENT OF GEORGE MONK AND HOWARD ANDERSON, BAR ASSOCIATION OF THE DISTRICT OF COLUMBIA Mr MONK Mr Chairman, my name is George E Monk I am chairman of the Uniform Commercial Code Committee, Bar Associa- tion, District of Columbia. I am authorized to say that this bill was' prepared under the supervision of the bar association and that it heartily endorses it. I would like at this time to put into the record a list of suggested changes. Most of them are typographical errors. The list also contains several changes which have been recommended by the Corporation Counsel's Office and by the Recorder of Deeds. Mr. HTJDDLESTON. Do you, have copies of that? Mr. MONK. I have three copies, here, sir. Mr. .HUDDLESTON. Without objection, that will be incorporated in the record. (The list referred to follows:) SUGGES~ED CHAN~ES IN H.R. 5338 (1) On page 133, line 19, change "part" to "party". (2) On page 133, line 20,' change "holders" to "holder". (3) On page 283, line 14, delete the second "e" in "Dlievery". (4') On page 299, the last three lines at the bottom of the page, now numbered 14,15, and 16, should be inserted after line 10, so that they become lines 11, 12,. and 13; and the title "ARTICLE 9" etc. should immediately follow line 13 as lines. 14, 15, and 16. (5) On page 309, insert the following between existing lines 14 and 15 as an additional line: * "Filing Office". Section 28:9-401(1). (6) On-page' 343, line 11, add the following additional sentence: In this article, "filing officer" means said Recorder. * (7) On pages 350 and 35l~ `delete from the work "mark" in line 22 on page 350 to the end of the sentence in line 1 on page 351, and insert in lieu thereof the following: "attach the statement of release to the instrument to which it relates and shall enter on the released instrument and on the index record thereof the wQrd "released", the `d~te of filing,of the statement of release, and a facsimile of his signature." (8) On page 351, line 23, delete "$0.50 per page", and insert in lieu thereof the following: "$3.00 for the'first two pages or lessand $1.00 for each additional page plus $0.50 for certification." (9)' On page 371, line 7, insert the following immediately after "to": "sections 546-A and 546-B, as amended, of the code of law for the District of Columbia approved March' 3, 1901 (chapter 854, 31 Stat. 1275), as so renumbered .by the Act approved June 5, 1952, chapter 370, sec. 1, 66 Stat. 126 (D.C. Code, 1961 ed., sees. 42-101 and 42-103) or pursuant to". Mr. MONK. I was handed, just before this hearing started, a list of typographical errors which have been found by the members of our committee. At this time I would like to put these into the record, as follows: Page' 235, line 11. The word "on" should be changed to "no". Page 249, line 12. The word "against" is misspelled. Page 259, line 9. The word' "notification" is misspelled. Page 269, line `7. Official text says "price" instead of "prices". .Page 283, line 14. ` "Delivery" is misspelled. Page 299, Index for 28:9-113: Note: Should be "article" instead of "articles". Page 3.07, line 9. The .word "obliged" should be changed to "obligated". . . PAGENO="0142" 138 ~i'on~ COMMERCIAL CODE Page 308, line 4. The word "dealing" is misspelled. Page 308, line 18. 28:2-102 should be 28:8-102. Page 331, line 13. The word "fixture" should be "fixtures". Page 338, line 4. The word "encumbrance" should be "en- cumbrancer". Page 347, line 9. The word "security" should be "secur~d". Page 357, line 13. The words "This State" should be "The Dis~ trict". Page 359, line 12. The words "This State" should be "District". I am also chairman of the Law and Legislation Committee of the Metropolitan Washington Board of Trade. I have a letter addressed to you from President Phillips of the board of trade. It says, "The Metropolitan Washington Board of Trade recommends favorable action on H.R. 5338 * * *" Mr. HIJDDLESTON. Without objection, that letter will be incorpo- rated in the record. (The letter referred to follows:) THE METROPOLITAN WASHINGTON BOARD OF TRADE, Washington, D.C., April 10, 1963. Hon. GEORGE HUDDLESTON, Jr., Qzairman, Subcorn,nittee No. 5, G'ommittee on the District of Columbia, U.S. House of Representatives, Washington, D.C. DEAR MR. HUDDLESTON: The Metropolitan Washington Board of Trade recommends favorable action on H.R. 5338, the proposed District of Columbia Uniform Commercial Code. This measure has been carefully studied by appropriate board of trade com- mittees since 1958. The District of Columbia Bar AssOciation's report has been reviewed by our committees on manufacturing and distribution, manufacturers representatives, insurance, world trade, and law and legislation. Upon the recommendation of all these groups the board of directors unanimously endorses the bar association report favoring adoption of the code. The chairman of our law and legislation committee, Mr. George E. Monk, who is also chairman of the bar association's committee, is authorized and pre- pared to express our views respecting the language of H.R. 5338 at these hearings. Sincerely, CHARLES E. PHILLIPS, President. Mr. HUDDLESTON. Have you a prepared statement? Mr. MONK. No, I do not. I have just a few remarks to make. Really, the two reports which our committee has made constitute our prepared statement. Mr. HTJDDLESTON. As I mentioned at the beginning of these hear- ings, the full committee will meet at 11:15 this morning. So, I would appreciate it if you would confine your remarks to the bare essentials. Mr. MONK. Really, everything is in the record. I think everyone knows that the uniform commercial code is a statute designed to cover and integrate into one body of law the.whole field of commercial law and in a consistent manner. It really brings commercial law up to date without making any abrupt changes in the law. One of the desirable features of it is that it has been enacted, I believe someone said, in 23 States up to now, and it is before the legislatures of possibly 10 others at the present time and may be enacted by a number of them before very long. The element of uniformity cannot be stressed too much because these days, many of the transactions which attorneys and business- men get into are multistate transactions where the matter of conffict of laws is an important element, and with a statute which is the same PAGENO="0143" UMFORM': CO~ERCIAL:: CODE; 139~ or pračtically the same in every State, it is much easier for business- men and for lawyers to handle their various tränsa~tions. Not only that, in the District of. Columbia we have relatively few; judicial decisions on commercial points of these various commercial laws, and we have to rely to a large extent for our judicial law upon the: decisions which are handed down in:otber jurisdictions.. With this uniform commercial law, which has practically the same language in every State in which it is adopted, subject to variations which States do put in, it is possible:for these judicial decisions in other States to mean a great deal more than they .do at present.. The pro.- posed act for the District of Columbia follows the official text, with possibly. 10 minor changes which are designed to meet local conditions. That is it, in brief.. Sections 2 to 14 of the act deal with the changes made in existing District of Columbia law to fit the uniform commercial code into our body of law here. For example, in other portions of the code they refer to mortgages, conditional sales, and so forth. We have changed: the phraseology to include the security agreement and security inter-. *ests. That is the terminology of the uniform commercial code. Mr. HUDDLESTON. I believ,e you stated that 23 States have abeady~ enacted the uniform commercial code, and that it is pending at the present time in 10 additional States. Mr. MONK. Yes. I know definitely that 19 States have done. it. I heard someone say this morning that 23 States had enacted it. I know four States in which,according tomy latest information, the legis-. latures have adopted it but the Governors have not.signed. I am not sure which of~ those Governors have signed. I am sure some of them have. . . Mr. HUDDLESTON. The information we have is that 19 States have enacted it as of March 13, and the legislatures of.4 States have passed it but it has not been signed by the Governor. Mr. MONK. Section 15 of the bill is the repealer section. We have to repeal a number of the statutes now in existence in the District of `Columbia because they are superseded by the uniform commercial. code. Section 16 states .the effective date, which is January .1, 1965. We feel that a period of at least a year between the enactment date and the effective date is very desirable, in order ,to permit . local~ lawyers, the Recorder of Deeds Office, and. others who are .in~erested in the various sections of. the code, to. become adjusted to. it.. It is .not unusual for States, in adopting the bill, to have a period of a year .or so. .1 think New York had a period of almost 2 years. Mr. HTJD.DLESTON. This provides for . an effective .date of January .1, 1965. ` ... . . , . . . Mr. MONK. That is right.. *. . . . .. . . . . .. .. . .,. .Mr. .HUDDLESTON. Have you any questions, Mr. Cohelan? Mr. COHELAN. . Yes. I am asking these questions merely to help'. define the problem in my. own mind. Is there any Opposition to. the proposed uniform commercial code?: . . . . ... Mr. MONK. I have not had any adverse comment as faras thcsub- :stantive features, of the bill are concerned, and I have had very few even on the matter of style. Some. people feel. they could. draft better, but that is all. The bar' association. report was circulated among its 3,500 members, and I did not receive one adverse commOtit from any of those members. .~ ` ... ... .~.. .. ` .~. : ... ` I PAGENO="0144" 140. UNIFORM COMMERCIAL CODE Mr. COHELAN. How about the American Municipal Association or the League of California Cities or leagues of cities, organizations like that, which have to do with public administration? Mr. MONK. I just cannot answer that question, except the code has been adopted now by the legislatures of 23 States, and I suppose if they did have opposition, it would have been reflected in that respect. Mr. COHELAN. Then it is your testimony that you kiiow of no group that is actively opposed to this program? Mr. MONK. I know of no group that is actively opposed to it; that is correct. Mr. COHEIJAN. Have you any information about the status of the uniform code arrangement in the State of California, which is the State I represent? Mr.. MONK. I thinkit is in the legislature there. Mr. COHELAN. You say it is pending in the legislature. Do you know what its prospects are? Mr. MONK. I haven't the slightest idea. Mr. COHELAN. How about the large jurisdictions like New York, Massachusetts, Pennsylvania, California, and so on? I see Massa- chusetts has passed it, and Pennsylvania and New York have, too. Mr. MONK. Of course, Pennsylvania was the first State to pass it~ Pennsylvania passed it in 1954, sO it has had almost a 10-year trial in Pennsylvania. Everyone that I have come in contact with from Pennsylvania is very much delighted with it. I am sure some people are not happy with it, but I have not found any from Pennsylvania. Mr. COHELAN. I wonder, sir, if you could give me a little detail in regard to article III. The outline I have in front of me says this article replaces the uniform Negotiable Instruments Act. Then you go on to discuss it. It says that numerous conificting judicial inter- pretations which have developed concerning provisions of NIL over the. last 65. years have been eliminated, and so on. What are the differences? HOW does this differ in respect to this particular matter from what exists today? Mr. MONK. I would say the main difference is bringing the NIL up to date. The NIL is approximately 60 years old. During the course of its stay in this country it has served commerce and the businessman very well. As I recall, there are at least 65 provisions~ of it which are the subject of judicial conflict. This code eliminates those. It brings the language of it up to date. I cannot list the specific ways in which it changes. They have been the subject of many law review articles and many comments. I can say it does not make abrupt changes in the law. It is more a matter of develop- ment, rather than any radical change in what the NIL effects. Mr. COHELAN. Can you help me in this way? What were the conflicts in legal opinions that are resolved by this action? Mr. MONK. I just cannot list them. I have seen 65 of them. I have read them, but I just cannot list them. I could get that for you. Mr. COHELAN. That is not necessary. That is all I have, Mr. Chairman. Thank you very much~ Mr. HUDDLESTON. Mr. Nelsen. Mr. NELSEN. I have no questions. Mr. HUDDLESTON. Mr. Schwengel. Mr. SCHWENGEL. I have no questions. PAGENO="0145" UNIFORM COMMERCIAL CODE 141 Mr. HUDDLESTON. Thank you, Mr. Monk and Mr. Anderson. Next we shall hear Judge Jo. Morgan, of the District of. Columbia Tax Court. STATEMENT OF HON. JO. V. MORGAN, JUDGE, DISTRICT OF COLUMBIA TAX COURT; COMMISSIONER OF UNIFORM STATE LAWS OF THE DISTRICT OF COLUMBIA; CHAIRMAN, COMMITTEE ON UNIFORMITY OF JUDICIAL DECISIONS OF THE NATIONAL CONFERENCE OF COMMISSIONERS OF UNIFORM STATE LAWS Judge MORGAN. I appear here, not as a judge of the District of Columbia Tax Court, but as Commissioner of Uniform State Laws in the District of Columbia, and also as chairman' of the Committee on Uniformity of Judicial Decisions of the National Conference of Com- missioners of Uniform State Laws. I am tremendously interested in the adoption of the uniform code for the District of Columbia. I think the gentlemen who have pre- pared it and submitted it deserve a great deal of credit and the thanks.. not only of Congress but of all the District of Columbia. They have done a wonderful job, especially in the portion dealing with the repeal. As a matter of fact, there was a general committee of the bar associa- tion on uniform laws, and that committee approved the uniform corn-~ mercial code in its entirety, but they never got around to the trernen-: dous and tedious job of picking out what acts ought to be repealed. I assume that the very able president of the bar association, Mr.' Jackson, got a little impatient, and he appointed a more active corn-,, mittee which brought forth this act. While I think the commercial law of the District of Columbia, commercial transactions, and business in general in the District of Columbia would be greatly improved by the adoption of this act, I must'in honesty believe'that it would be immensely better if it were a uniform act. As it stands, it is not uniform.. Where you have variations from the uniform act, while it may be commendable and very desirable, it is not a uniform act. Mr. Monk stated the advantages in the improvement of commercial law. One of the principal advantages intended by the Conference on Uniform State Laws and the American Law Institute was, uniformity. There are so many advantages to uniformity that 1 do not think I need to recite them. I would remind you of two of them. Businessmen can understand what they have to do in other jurisdic- tions where they carry on business, and there are great advantages in the interpretation of statutes by other courts. Once you indulge in variation, then you lose a good deal of uniformity. Mr. HUDDLE5TON. Judge, do you favor the enactment of H.R.' 5338 in its present form? Judge MORGAN. I approve it if you do not enact- Mr. HUDDLESTON. In other words, a half load is better than none. Judge MORGAN. That is it, exactly. I think it is a vast improve- ment over the present commerical law of the District of Columbia, and I thnik it would do a great deal of benefit. I have no statement, but I do wish to incorporate in the record a statement by Mr. William A. S~hnader, who is `a very good friend of mine, whom I have known for many years, one of the most able 3O-1~1-64-1O . PAGENO="0146" 142 UNIFORM ~C iwIAI4" CODE: attorneys in the United States. Before I introduce `it, I would like to read the introductory statement in the record. I would like to impress on the gentlemen of your committee Mr. Schnader's qualifications. Mr. HIIDDLESTON. Judge, we are a little pressed for time. Is that very long? Judge MORGAN. No. It is about one paragraph. Mr. HIJDDLESTON. As I mentioned, the full committee meets at 11:15, and we must do our best to dispose of the bifi by then. Judge MORGAN. Let me say that Mr. Schnader's qualifications are there in the introductory portion of this paper, and this includes his article. I would like to introduce it. Mr. HIJDDLESTON. Without objection, we will insert that in the record. (The article referred to follows:) [Reprinted from State Government, winter 1963, published by the Council of State Governments] Just over a decade ago, in 1952, the uniform commercial code, most massive of all the uniform laws, was adopted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute. As of April 11, 1963, 23 of the 50 State legislatures had adopted it, and it is expected to be before many of the remaining legislatures this year. The article that follows is by William A. Schnader, who originally proposed the writing of the code and who has led since then in its completion and revision. He here explains its purposes and progress, urges its adoption in States that have not enacted it and, under- scoring the need for uniformity, recommendsthat the code in each State, whether adopted in prior years or henceforth, be made to conform with the official text as now revised by a permanent editorial board for the code. Mr. Schnader, former attorney general of Pennsylvania, and former president of the National Associa- tion of Attorneys General, is now president of the Pennsylvania Bar Association. He was president of the National Conference of Commissioners on Uniform State Laws when he proposed the code and a member of the original editorial board for it. Currently he is chairman of the Commercial Code Committee, of the NCCUSL and acting chairman of the permanent editorial board for the code. THE UNIFORM COMMERCIAL CODE-WHAT Is ACCOMPLISHED-WHAT REMAINS (By William A. Schnader) It is to be hoped that most readers of State Government have absorbed the excellent article in the summer 1962 issue by Walter P. Armstrong, Jr., president of the National Conference of Commissioners on Uniform State Laws. His' article was entitled "Uniform State Laws and the National Conference." Per- haps I shall be pardoned if I begin where Mr. Armstrong ended. On page 189 of the summer issue, Mr. Armstrong stated a historical fact: that our Federal Constitution evolved from a conference of representatives from several of the colonies called to consider the possibility of unifying the laws of commerce so as to promote trade between them. On the next page, Mr. Armstrong con- cluded his article with this paragraph: The greatest single achievement of the conference to date lies in this same field' in the form of the commercial code, the product of,more than 10 years of coopera- tive effort [by the NCCUSL] with the American Law Institute. This compen- dium of the laws of commerce is already the law of 18 States and is clearly des-' tined to become that of many others in the very early future. The commercial code will greatly simplify and expedite interstate commerce. Moreover, in view of the fact that it is under the guise of authority granted by the commerce clause that the Federal Government most frequently' undertakes to intervene in what would otherwise be exclusively State' affairs, it may be that uniformity `of State = legislation in this field wifi prove a salutary antidote to this ,type of encroachment., STATE OR FEDERAL ACTION? Are the States going to surrender to C, on'gress one more field in which they have: hitherto had a free hand? Are they going to delay in making the uniform corn- PAGENO="0147" URM~'CO~4~RCIAL ~fl~' 143 `mercial code the law of every State until Congress is forced by pressure from business and financial interests all over the country to regulate such transactions as sales, the negotiation of commercial paper, the issuance of letters of credit, and most of the other facets of commercial law with which the code deals? And, even if the 50 States enact the commercial cOde, will individual State actiOn, as in the making of scores of nonuniform amendments, indicate to those calling fOr adequate solutions that the States cannot satisfactorily continue to function in what has thus far been an important area of States rights? That these questions are not mere figments of the imagination was rather definitely defnonstrated by the fact that in the 1930's a Federal Sales Act was introduced in Congress because the Uniform Sales Act (a) had not been universally enacted by the States and (b) was not fluid enough to take account of new prac-, tices in trade and commerce which had developed since the act was drafted many years before, and whIch were continuing to develop at a more rapid pace than ever. It was only because the late Karl N. Liewellyn, then chairman of the Com- mercial Acts Section of the National Conference of Commissioners on Uniform State Laws, assured the proponents of the FOderal Sales Act that the Uniform Sales Act would be modernized, that they agreed to withdraw the Federal act and give the conference another opportunity to show what it could accomplish. WHAT THE CODE IS Here let us stop for a moment to review what the uniform commercial code' is. It is a code `regulating a great variety of commercial transactions, all of them of first importance. The code takes th,e place of all or parts of nine uniform acts which had been promulgated by the National Conference of Commissioners on Uniform State Laws before the task of preparing the code was undertaken, in' 1942. These acts were the Uniform Sales Act,,the Negotiable Instruments `Law,' the Uniform Bills-of-Lading Act, the Uniform Warehouse Receipts Act, the Uni- form Stock Transfer Act, the Uniform Conditional Sales Act, the Uniform Trust' Receipts Act, the, Uniform Written Obligations Act, and the Uniform Fiduciaries" Act. The commercial code deals with sales, commercial paper; bank deposits and collections; letters of credit; bulk sales; documents of title, including warehouse receipts and bills of lading; investment securities; and secured transactions, including sales of accounts, contract rights and chattel paper. Although the code is long, it is not nearly as long as the combined length of all of the acts it supersedes. The code, moreover, deals with several subjects which were never covered by uniform legislation. These additional subjects are bank' deposits and collections, letters of credit and bulk sales. There are 400 sections in the code, but the nine uniform acts previously listed, which are superseded in whole or in part by it, contained 492 sections. When these facts are kept in mind, the code's size is not at all stupendOus. WHY A SINGLE CODE? The question naturally arises, Why was it necessary to abandon the nine uniform acts, some of which were enacted by every State in the Union? There are several answers. First, the most important uniform commercial acts which are being superseded were drafted in the early part of this century' and modeled after English legislation, which had been drafted still earlier. They were not adapted to the business practices which followed in the wake of t'he' tremendous development of methods of communication and transportation that has characterized the past 40 years. In addition, some of the acts were drafted rather hurriedly. By the year 1940, 80 ,of the 198 sections of the negotiable instruments law had different meanings in different States because the highest': courts of different States had construed them differently. `Finally, experience' had taught the commissioners on uniform State laws that, while they `rriight propose sets of amendments to these several uniform acts, legislatures were `slow to pass the amendments and bring the acts up to date. Therefore it was felt that it would b~ much more feasible if the States were to remain in control of this field of legitlation-the regulation of commercial trims- actions-to embody in one great commercial code all of the import~tnt facets of commercial law It was thought that it would be much easier to have the code amended from time to time than it would be to have six or eight separate uniform acts, each dealing with one phase of commercial law, kept up to date by the process of amendment. ` ` ` Whether this will prove to be true only the future will tell. " ` ` ` ` PAGENO="0148" 144 UNIFOI~ COMMERCIAL ~CODE DEVELOPMENT OF TEE CODE; FIRST ENACTMENTS The uniform commercial code was proposed in 1940. Shortly afterward the American Law Institute and the National Conference of Commissioners, on Uniform State Laws undertook the task as a joint project. An editorial board consisting of representatives of both bodies was created, and the code was drafted under its supervision. There were draftsmen for each of the articles of the code, aild there were committees of advisers to assist the draftsmen as the work pro- gressed. The code was almost the sole subject on the agenda at meetings of the institute and the conference for at least 5 years, and during most of those years there were two joint meetings each year. At last, in the fall of 1952, at a joint meeting of the commissioners and the institute, the code was finally adopted by them. Promptly thereafter it was endorsed by the American Bar Association. When the Pennsylvania Legislature met in 1953, the code was one of the first bills introduced, and it was the first bill to be enacted and signed by the Govenor- Act No. 1 of the 1953 session, which appears on page 3 of the 1.953 laws. It was hoped that' New York also would enact the code in 1953. However, the New York Legislature referred it for study to its expert statutory drafting agency, the New York Law Revision Commission. That action by the New York Legislature effectively stopped the progress of the code for the time being. Everyone outside of Pennsylvania awaited the verdict of the New York commission. That verdict was announced in February 1956. The commission's conclusion was that a code of commercial law . was entirely feasible, but that in its then form the uniform commercial code was not ready for passage by the New York Legislature. The staffs of the code's editorial board and the New York commission were in constant communication while th~e New York study was proceeding, so that the board was not surprised by the New York pronouncement. It immediately resumed work, reviewed the recommendations made by the New York commission, and in the fall of 1956 promulgated a revised uniform commercial code. The revised code was introduced into the Massachusetts Legislature early in 1957, and w~s e~cted in SePtember 1957, to become effective on October 1, 1958. RECENT ENACTMENTS; STATE AMENDMENTS Enactments of the code did not really gain momentum until 1961. Kentucky. enacted it in 1958, Connecticut and New Hampshire in 1959, and Rhode Island in 1960. Then, in 1961, Wyoming, Arkansas, New Mexico, Ohio, Oregon, Okla- homa, Illinois, and New Jersey became code States, and they were followed in' 1962 by Georgia, Alaska, New York, and Michigan. Meantime, in 1959, the Pennsylvania Legislature completely reenacted the code, substituting the revised for the original version. While it is true that the 18 States which have enacted the code will have, generally speaking, the same law regulating commercial transactions when their: codes all become effective,' it is also true that in some of the States a number of nonuniform amendments have, to some extent, impaired the chief value of the code, which is uniformity in State law regulating commercial transactions. That the nonuniform amendments are by and large of a freakish nature, is. evident from the fact that only one section of the code has been amended in as many as 10 States. This is section 9-401, which relates to the place of filing financing statements. Unfortunately, the section was promulgated with a num- ber of alternatives, and the alternatives were published in the official text in a. manner which was highly confusing. That is being corrected in a new edition of the official text which is about to be published. One section of the code was amended in seven States and another in six. Three sections were amended in five States, four sections in four States, and five sec- tions in three States. The remaining amendments modified the same sections of the code in not more than two States. In most cases there is little similarity between the language or substance of amendments made by two or more States to the same section of the code. Also, there is a great disparity in the total number of nonuniform amendments made by each of the 18 enacting States. Pennsylvania, with more than 8 years' experience under the code, has in its present code only one variation from the 1958 official text.2 The banking, busi- ness, and financial interests, and the credit associations in Pennsylvania were completely satisfied with the original code. There was no demand anywhere in I The code was not to be effective until after Jan. 1, 1983, in four of the States which had enacted it. 2 That variation is due to the fact that one phrase in the 1952 version of art. 9 was deleted in the 1958 official text, but was unchanged in the reenacted Pennsylvania code. PAGENO="0149" UNIFORM `COMMERCIAL CODE 145 `Pennsylvania for the code's revision. The revised version was substituted for `the original in 1959 solely in the interest of uniformity. Turning now to the other States, we find that Alaska and Michigan each have but one variation from the official text. Illinois has only three, Kentucky and `New Mexico have four each, and the other States have larger numbers. WORK OF THE EDITORIAL BOARD In an effort to stop the making of miscellaneous unauthorized amendments to satisfy the draftsmen's vagaries in a single State, the suggestion was made in 1961 that a "Permanent Editorial Board for the Uniform Commercial Code" be established. An application was made by the American Law Institute to the Maurice and Laura Falk Foundation of Pittsburgh3 for a fund, the income of which would endow the work of such a board. The fund was granted, and the board was created early in 1962. It will review the code not less often than once in 5 years and, with `the approval of the Executive Committees of the National Conference of Commissioners on Uniform State Laws and of the American Law Institute, will make recommendations `for amendments to the code to keep it up to date. This board will also examine and report on any unauthorized amend- ments which' are made by the States which either have enacted the code or will enact it in the future. The permanent editorial board and three subcommittees have studied all amendments to the code made in the 18 enacting States. As' of October 31, 1962, the board made its Report No. 1. It recommended 23 amendments to the code, offered three new optional provisions, and rearranged the alternative provisions in section 9-401 in such a way as to render them more understandable. It also rejected 180 amendments made by the 18 States and gave its reasons' for rejecting them. It should be' made clear that the fact that the permanent editorial board is recommending several `dozen amendments at this time does not mean that it is going to recommend amendments with great frequency or in large numbers hencefor,th. , The code as a whole was reviewed by the original editorial board in 1956 after the report of the New York Law Revision Commission became available. Until 1962 there had been no further official review ~f the entire code.4 The agreement between the conference and the institute enjoins the permanent editorial board to promulgate a minimum number of amendments and places strict limits on the board's jurisdiction. There is no danger whatever that the' board will undertake to write a new code. LOOKING TO THE FUTURE Of the 32 States which have not enacted the code, only 5 seem to have done nothing' whatever looking toward. its' enactment. The code will be introduced into the legislatures of many of the remaining 27 States in 1963, and it is safe to predict that when the 1963 sessions have come to an end there will be no less than 30 code states-and those of us who have been assiduously urging the universal adoption of the code'by the States certainly hope that the number will be greater. NEED FOR UNIFORMITY EMPHASIZED We cannot urge too strongly that the texts of the codes introduced into and `enacted by 1963 legislatures be the 1962 official text with no variations. This will be the 1958, official text with the amendments recently promulgated by the permanent editorial board. In' the 18 States which have enacted the~ code there is substantial work to be done to make the codes conform to the 1962 official test. We do not understand the fear which has been . expressed in some quarters that legislatures will resent having the' most recently' promulgated amendments introduced in 1963 and being asked to repeal all nonuniform amendments-or to state it differently to "clean up" their codes. The' commercial code'project would never have been undertaken except in an effort to bring about uniformity in State law regulating commercial transactions. :Unless the importance of this is emphasized all around, then, of course, a legisla- ture may be annoyed by the introduction of a bill'to bring the code of its particular State up to date especially if it is only a year or so ago that the code was enacted 3 This foundation contributed more than $275,000 toward the original cost of preparing the code. 4 In 1958 several amendments to two articles of the code were promulgated. These amendments are included in the 1958 Official Text. PAGENO="0150" ~146 UNIFORM ~COMMERCIAL CODE On the other hand, it would seem that the banking, business, and financial in- terests of every State would want to see their legislature take whatever steps may be necessary to press forward toward the goal of uniformity. As a result of.the passage by 18 States of the uniform commercial code and its nonpassage by 32, the law regulating commercial transactions is less uniform today than it has been for many, many years. It is, of course, true that a majority of the States which are included among the 10 States that lead in volume in prac-. tically all categories of manufacturing, business and finance have enacted the code. However, this is not enough. If the objective is to be met, all of the States must enact the code and all of them must enact it as promulgated and without any nonuniform variation from the official text. We use the word "must" because, with the increasing tempo of business and finance, it is unthinkable that American businessmen and financiers will tolerate much longer a system under which the law relating to exactly the same transaction differs from State to State. So many business are today conducted in more than one State, that unless the States show by prompt and uniform adoption of the commercial code that they can and will handle this important field of legislation to meet modern conditions, Congress, we are convinced, will step in and add the regulation of commercial transactions to the many fields formerly occupied by State and local governments hut now preempted by Federal legislation. Federal legislation would, of course, be confined to transactions "in or affecting interstate commerce"; but we know from previous experience that this would be a most flexible limitation. Only timely and uniform action by the States will save to them the regulation of commercial transactions. Judge MORGAN. For the benefit of some of the gentlemen of the committee, I have a list of the enactments in the various States show- ing the States, the dates of enactment, and the effective dates. There are 23 in all; and also, a list of the States in which the matter is now pending in the legislature. Mr. HUDDLESTON. Without objection, that wifi be inserted in the record. (The list referred to follows:) LAW OFFIcEs, SCHNADER, HARRISON, SEGAL & LEwIs, Philadelphia, April 9, 1963. Hon. Jo V. MORGAN, District of Columbia Tax Court, Washington, D.C. DEAR JUDGE MORGAN: On the enclosed sheet you will find a list of all the States that have enacted the uniform commercial code to date and a list of the States in the legislatures of which the code is now pending. Sincerely, WM. A. SCENADER. ~~tates in which the uniform commercial code has been adopted in the order of adoption and the effective dates State Adoption date Effective date State Adoption date Effective date Pennsylvania Do Massachusetts Kentucky Connecticut 1953 1959 1957 1958 1959 `July 1, 1954 2Jan. 1, 1960 Oct. 1, 1958 July 1, 1960 Oct. 1,1961 Oklahoma fllinois New Jersey Georgia Alaska 1961 1961 1961 1962 1962 Dec. 1, 1962 July 2,1962 Jan. 1, 1963 Dec. 31, 1963 Dec. 31, 1962 New Hampshire Rhode Island Wyoming Arkansas New Mexico Ohio Oregon 1959 1960 1961 1961 1961 1961 1961 July 1, 1961 Jan. 2, 1962 Jan. 1, 1962 Do. Do. July 1 , 1962 Sept. 1, 1963 New York Michigan Indiana Maryland Montana Tennessee West Virginia 1962 1962 1963 1963 1963 1963 1963 Sept. 30, 1964 Jan. 1, 1964 July 1, 1964 Feb. 1, 1964 Jan. 1, 1965 June 30, 1964 July 1,1964 I Original version. 1958 official text. PAGENO="0151" UNIFORM COMMERCIAL CODE .147 States. in which code bills are pending in' 1963.: California, Hawaii, Maine~ Minnesota, Missouri, Nebraska Texas, Vermont and Wisconsin Mr COHELAN Do you know anybody who opposes this bill, Judge? . . . Judge MORGAN. No; I do not. Mr. COHELAN. Any organization or individual? Judge MORGAN. No, I do not; except to' the extent that I think it is a vast improvement, I would much rather have a uniform law. Mr. HUDDLESTON. Thank you, Judge. It was nice to have you with us this morning. STATEMENT OF FRANK A. GUNTHER, CHAIRMAN, LAW AND' LEGISLATIVE COMMITTEE, DISTRICT OF COLUMBIA BANKERS ASSOCIATION * Mr. HUDDLESTON. Mr. Frank A. Gunther, chairman of the Legis.. lative Committee of the District of Columbia Bankers Association. Have you a prepared statement, Mr. Gunther? * Mr. GUNTHER. Yes, sir; I have. Mr. HUDDLESTON. If you will insert that in the record, Mr. Gun- ther, and make yourself available for questions by the subcommittee, I would appreciate it. Without objection, Mr. Gunther's statement will be included in the record. Mr. GUNTHER. Mr. Chairman, I am Frank A. Gunther, president of Security Bank, Washington, D.C., and chairman of the Law and Legislative Committee of the District of Columbia Bankers Association. The District of Columbia Bankers Association fully supports the passage of H.R. 5338. Much of the proposed legislation applies to commercial transactions not directly related to the business of bank- mg. However, in regard to banking matters, which are very fully covered in parts of the Uniform Commerical Code, we consider that many uncertainties and ambiguities encountered daily in the banking business will be greatly clarified. The Congress can also confer an indirect benefit upon other parts of our country by adopting the Uniform Commercial Code for the District of Columbia. When this compilation of uniform laws has been adopted in all the States of the United States, the handling of any particular covered transaction under the same rules in all places will, most certainly, facilitate trade, commerce, and banking. We respectfully urge favorable consideration by this committee, and express appreciation for the opportunity to be heard. Mr. HUDDLESTON. Briefly, what is the position of the District of Columbia Bankers Association regarding H.R. 5338? Mr. GUNTHER. The District of Columbia Bankers Association fully supports the bill as it is written. In regard to the matter of changes in the bill, I am not a lawyer and am not competent to pass on any except one or two that were `suggested by the Bankers Association after long study of this. I would like first to give you an idea of one change which appears. on page 197 of the bill, section 28:4-403, paragraph 2. Speaking from memory, I think I am correct that the uniform code provides that a verbal order to stop payment on a check' is good for 14 days, PAGENO="0152" 148 UNIFORM COMMERCIAL CODE and no stop payment is good for longer than 6 months unless renewed. Banks in Washington do business under some difficulty, as has been mentioned here, due to the lack of complete coverage of commercial transactions in the code. For instance, we do not have here an assignment of accounts or any ~ay to take a lien on a moving inven- tory. We have to rely on improvisation. These things are not covered in the code. * In this particular case, the matter of stop payment, the Bankers Association has been responsible in the past, through the courtesy of Congress in having enacted what we thought was a very excellent law in regard to verbal stop payments. When we got to that section, we were stopped by the 14 days. We think that is too long for a verbal order to stand, as specified in the uniform code. We have suggested the adoption of the code provision that we now have in the District of Columbia Code. The adoption of that, it seems to us, probably would not have any adverse effect in the use of this as opposed to the uniform code, because this only applies to banks in Washington, doing business here with their own customers in the city. Mr. HUDDLESTON. This section provides for an oral stop payment of 14 days and a written stop payment for 6 months. Mr. GUNTHER. Yes. That is the provision of the District of Columbia Code. Mr. HUDDLESTON. Any questions of Mr. Gunther? Mr. COHELAN. I wonder if you could tell me, is there anything in here about interest rates and any limitation on interest rates? Mr. GUNTHER. No, sir. J\'lr. COHELAN. In other words, the present interest rate policy would stand. Mr. GUNTHER. The present usury laws would govern. It is set at 6 percent in the absence of a contract, simple interest; 8 percent by contract. * Mr. COHELAN. Six percent is the limit? Mr. GUNTHER. Yes, sir. Mr. COHELAN. How does that compare with other States? * Mr. GUNTHER. I think that is pretty general where the rate is not specified in the instrument. Mr. COHELAN. How does it compare with California, for example? * Mr. GUNTHER. I think California is higher. At least, it is our impression here that the banks get a higher rate of interest on loans. Mr. COHELAN. I was not thinking about loans. I was thinking about general lending institution policies, particularly with reference to loan companies and that sort of thing. * Mr. GUNTHER. I can only give you an impression formed over many years, that the banks out there are getting a higher rate, and so are the mortgage lenders and others, but I do not know the laws of California. Mr. HUDDLESTON. This does not make any change in the small loan laws of the District of Columbia? * Mr. GUNTHER. None whatever. Mr. SCHWENGEL. Under the present law, you say, it is 6 percent. :1 have seen 6-percent interest advertised, but it is actually 12 percent. Mr. GUNTHER. The District of Columbia Code, sir, reads 6 percent per annum. As far as the banks are concerned here, they take that to mean simple interest per. annum, not add-on and not discount. PAGENO="0153" UNIFORM COMMERCIAL CODE 149 Mr. HUDDLESTON. Thank you, Mr. Gunther. We appreciate: your coming before the committee. Mr. GUNTHER. Thank you, sir. STATEMENT `OP ROBERT F. KNEIPP, ASSISTANT CORPORATION COUNSEL, DISTRICT OF COLUMBIA Mr. HUDDLESTON. Mr. Robert F. Kneipp, the Assistant Corporation. Counsel. Mr. KNEIPP. Mr. Chairman, the Commissioners did not receive the committee's request for a report until Monday of this week, and* the Commissioners have not had an opportunity to meet and con- sider the bill. The principal impact of the bill, as far as the government of the District of Columbia is concerned, is in the Office of Recorder of Deeds, and I think the Commission would be guided in large measure by his views on the bill. I might mention there has been discussion between the Corporation Counsel's Office and Mr. Monk and between the Corporation Coun- sel's Office and Mr. Ridley, the Recorder of Deeds, on certain pro-. posed amendments before the committee now, particularly amend-j ments numbered, in what was handed to the committee just this* morning, 5, 6, 7, and 8, made available to the committee by Mr. Monk. I am not able really to reflect the Commissioners' views on the bill' at this time, but hope to get a report in as soon as possible, recogrnzmg. the committee's desire to move promptly on the billl. I should like to defer to Mr. Peter Ridley, the Recorder of Deeds,', to assist the' committee in those portions of the bill that really affect the govern- ment of the District of Columbia itself. Mr. HUDDLESTON. Thank youi, Mr. Kneipp. The Commissioners',: report, when received, will be made a part of the record (The report referred to follows) GOVERNMENT OF THE DIsTRIcT OF COLUMBIA, EXECUTIVE OFFICE, Washington, D.C., April 22, 1963. Hon. JOHN L. MCM'ILLAN, Chairman, Committee on the District of, Columbia, U.S. House of Representatives, Washington, D.C. . Mv DEAR MR. MCMILLAN: The Commissioners of the District of Columbia have for report H.R 5338, 88th Congress, a bill to enact the Uniform Commerical Code for the District of Columbia, and for other purposes. The Commissioners are informed that H.R. 5338 is similar in form and substance to the uniform commercial code drafted under the joint sponsorship of the National Conference of Commissioners on Uniform `State Laws and the American Law Institute. The bill would supersede the District of Columbia Uniform Acts on negotiable instruments, warehouse receipts, sales, and stock transfers, and certain statutory provisions dealing with bulk sales and bank checks, but would not replace existing. District of Columbia law relating to pawnbrokers, moneylenders, liens on motor vehicles, installment sales on motor vehicles, or the Act for Simplifi- cation of Fiduciary Security Transfers. The Commissioners are informed that the bill is supported by the Bar Association of the District of Columbia, the Bankers Association, and the Metropolitan Washington Board of Trade. The Commissioners note that H.R. 5338 imposes a number `of duties on the. Recorder of Deeds of the District of Columbia. In the interest of clarifying the bill insofar as it relates to the Recsrder of Deeds and bringing the procedures established. PAGENO="0154" 150 1~~iFORM COMMERCIAL CODE by the bill into conformity with the procedures presently being followed in his office, the Commissioners recommend that the bill be amended as follows: (1) On page 309, insert the following between existing lines 14 .apd 15 as ~n additional line: ` "Filing Office". Section 28:9-401(1). (2) On page 343, line 11, add the following additional sentence: "In this article, ~fihng officer' means said Recorder." (3) On pages 350 and 351, delete from the word "mark" in line 22 on page 350 to the end of the sentence in line 1 on page 351, and insert in lieu thereof the fol- lowing: "attach the statement of release to the instrumentto which it relates and shall enter on the released instrument and on the index record thereof the word `released', the date of filing Of the statement of release, and a facsimile of his signature." (4), On page 351, line 23, delete "$0.50 per page", and insert in lieu thereof the following: "$3.00 for the first two pages or less and $1.00 for each additional page plus $0.50 for certification". (5) On page 371, line 7, insert the following immediately after "to": "sections 546-A and 546-B, as amended, of the code of law for the District, of Columbia approved March 3, 1901 (chapter 854, 31 Stat. 1275), as so renumbered by the~ Act approved June 5, 1952, chapter 370, sec. 1, 66 Stat. 126 (D.C. Code, 1961 ed., secs. 42-101 and 42-103) or pursuant to". The Commissioners believethat the entire business community of the District of Columbia will benefit from the enactment of ll.R. 5338, representing,- as they believe it does, a modernized, comprehensive code of business and banking law. Accordingly, the Commissioners favor the enactment of the bill, particularly if it be amended as set forth in the preceding paragraph. The Commissioners are not in a position at the present time to furnish an' estimate of the additional cost to the District of Columbia which would result from the enactment of the bill, inasmuch as any such determination is dependent On the number of persons taking advantage of the provisions of the bill and the volume of business arising therefrom. Initially, however, the additional cost to the District is expected to be only nominal, but as the business community becomes more familiar with the provisions of the bill, it is anticipated that there will be some additional cost to the District. To what extent these additional Losts will be met in whole or in part by the fees which may be charged under the authority of the bill, the Commissioners, in the absence of any experience as to the `amount of~businesswhich would be generated by the `bill,:insofar as.4he Gov- -ernment of the District of Columbia is concerned, are unable to determine at the present time. Very sincerely yours, (Signed) WALTER N. TOBRINER, President, Board of Commissioners, District of Columbia.. Mr. HtTDDLESTON. Mr. Peter Ridley, Recorder of Deeds of the District of Columbia. Have you a prepared statement? STATEMENT OF' PETER S. RIDLEY, RECORDER OF DEEDS, DISTRICT OF COLUMBIA Mr. RIDLEY. I do not; because I got this very late, but we have studied it and my statement will be very brief. Mr. Anderson and Mr. Monk, of the bar association, have already included the main adjustments in this bill to be requested, and they, are on 5, 6, 7, and 8. We ask that those changes be made in order to fit in this bill, which in our judgment is a very good bill, with the pro- cedures in the District of Columbia, and to prevent my confusion in -searches and transactions that exist between `the District of `Columbia' ~nd other States. PAGENO="0155" UNIFORM COMMERCIAL CODE 151 The bill actually improves and helps a great deal the District of Columbia law as it is now practiced here, and we are entirely in favor of it, except for the changes, which I think are basic. Mr. HUDDLESTON. You refer to what Mr. Monk and Mr. Anderson have presented. Mr. RIDLEY. Yes, unless you have questions, that is all I would have to say. Mr. HUDDLESTON. Are there questions? [No response.] Thank you, Mr. Ridley, for appearing before the committee. That concludes the list of witnesses~on H.R. 5338. The committee wifi now go into executive session. (The subcommittee proceeded into executive session at 10:55 a.m.) PAGENO="0156" PAGENO="0157" APPENDIX [88TH CONG. 1st leSS., HOUSE OF REPRESENTATIVES REST. No. 219] UNIFORM COMMERCIAL CODE FOR THE DISTRICT OF COLUMBIA APRIL 12, 1963.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed Mr. MCM1LLAN, from the Committee on the District of Columbia, submitted the following REPORT [To accompany H.R. 5338] The Committee~ on the District of Columbia, to whom was referred the bill (H.R. 5338) to enact the Uniform Commercial Code for the District of Columbia, and for other purposes, having considered the same, report favorably thereon with amend~ ments and recommend that the bill as amended do pass. The amendments are as follows: 1. Page 133, line 19, strike out "part" and insert in lieu thereof "party". 2. Page 133, line 20, strike out "holders" and insert in lieu thereof "holder". 3. Page 235, line 11 strike out "on" and insert in lieu thereof "no". 4. Page 249, line 12, strike out "aginst" and insert in lieu thereof "against". 5. Page 259, line 9, strike out "nontification" and insert in lieu thereof "notifica. tion". 6. Page 269, line 7, strike out "prices" and insert in lieu thereof "price". 7. Page 283, line 14, strike out "Delievery" and insert in lieu thereof "Delivery". 8. Page 299, immediately after line 10, insert: (3) If the eight-year period specifie,d in this section expires prior to one year after the effective date of this subtitle, such period is extended to one~ year after such effective date. 9. Page 299, in line just above line 14, strike out "articles" and insert in lieu thereof "article". 10. Page 299, delete lines 14, 15, and 16. 11. Page 307, line 9, strike out "obliged" and insert in lieu thereof "obligated". 12. Page 308, line 4, strike out "deaing" and insert in lieu thereof "dealing". 13. Page 308, line 18, strike out "28:2-102" and insert in lieu thereof "28:8- 102". 14. Page 309, immediately after line 14, insert: "Filing Office". Section 28:9-401(1). 15. Page 331, line 13, strike out "fixture" and insert in lieu thereof "fixtures". 16. Page 338, line 4, strike out "encumbrance" and insert in lieu thereof "encumbrancer". 17. Page 343, line 11, immediately after the period, insert: In this article, "filing officer" means said Recorder. 18. Page 347, line 9, strikeout "security" and insert in lieu thereof "secured". 19. Page 350, line 22, through page 351, line 1, delete: mark the statement with the hour and date of filing and shall note the same upon the margin of~the index of the filing of the financing statement. and insert in lieu thereof: attach the statement of release to the instrument to which it relates and shall enter on the released instrument and on the index record thereof the word "released", the date of filing of the statement of release, and a facsimile of his signature. 20. Page 351, line 23; delete "$0.50 per page." and insert in lieu thereof "$3.00 for the first two pages or less, and $1.00 for each additional page, plus $0.50 for certification.". 21. Page 357, line 13, strike out "this state" and insert in lieu thereof "the District". 22. Page 359, line 12, strike out "this state" and insert in lieu thereof "the District". 153 PAGENO="0158" 154 UNIFORM COMMERCIAL CODE 23. Page 371, immediately after line 7, insert: sections 546-A and 546-B, as amended, of the code of law for the District of Columbia approved March 3, 1901 (chapter 854, 31 Stat. 1275), as so renumbered by the Act approved June 5, 1952, chapter 370, section 1, 66 Stat. 126 (D.C. Code, 1961 éd., sees. 42-101 and 42-103) or pursuant to PURPOSE OF THE BILL The primary purpose of this bill is the adoption for the District of Columbia of the Uniform Commercial Code. In general, this code would replace the District of Columbia uniform acts on negotiable instruments, warehouse receipts, sales and stock transfers, as well as District of Columbia statutory provisions dealing with bulk sales and several District of Columbia Code provisions relating to bank checks. This code would not replace the District of Columbia Code sections relating to pawnbrokers, money lenders, liens on motor vehicles, and installment sales of motor vehicles. A number of the uniform acts have been enacted in the District of Columbia with few, if any, modifications. The experience with these acts has been highly satisfactory. The Uniform Commercial Code is actually just another uniform act which, however, is more comprehensive and more thoroughly developed than any of the other uniform acts. * The Uniform Commercial Code does not represent an abrupt change in com- mercial law concepts. It codifies commercial law in its present stage of develop- ment, filling many gaps and settling a number of questions raised by conflicting judicial decisions. Although uniformity with the statute law of other jurisdictions should not be be the sole criterion, nevertheless, it is extremely important in this age of quick transportation and communication when every commercial lawyer is constantly coming into contact with transactions involving the law of one or more other jurisdictions. The adoption of the Uniform Commercial Code in the District of Columbia would certainly tend to minimize conflict of laws problems in situations. involving the District and other "code" jurisdictions. Moreover, with the relative paucity of judicial decisions on commercial law matters in the District. of Columbia, the feature of uniformity would make more pertinent the more numerous decisions of other jurisdictions and assist District Of Columbia lawyers in their interpretations of the Uniform Commercial Code. The comprehensiveness of the Uniform Commercial Code should prove extremely helpful to the practicing lawyers and the people they represent. At. the present time, a District lawyer faced with a commercial law problem often finds a complete void in both the District of Columbia Code and the reported District of Columbia opinions. He is then forced to resort to standard texts on the subject, to law review articles, legal encyclopedias or digests, and then to follow the ref ereiěces to judicial opinions of other jurisdictions. At the conclusion of extensive and time-consuming research he is often still in doubt. On the other hand, the Uniform Commercial Code with its reasonably good coverage of the whole field will by itself answer many of the questions. This committee has concurred in the recommendations of the Bar Association of the District of Columbia that there should be at least 1 year between the enact- ment date and the effective date, in order to give all interested members of the District of Columbia community ample time to become thoroughly familiar with the code and to make the necessary adjustments. At the public hearing held on this bill, its enactment was urged by the Recorder of Deeds for the District of Columbia, the Bar Association for the District of Columbia, the Metropolitan Washington Board of Trade and the District of Columbia Bankers Association. No expressions in opposition to the substance of the bill has been presented to the committee. BACKGROUND Drafting of the Uniform Commercial Code and revisions thereof are under the joint sponsorship of the National Conference of Commissioners on Uniform State Laws and the American Law Institute. Work was begun on this code in 1942 and completed in 1952, in which latter year it was approved by the House of Delegates of the American Bar Association. The reported bill, to become the District of Columbia Uniform Commercial Code, is básOd upon the latest official revision of the Uniform Commercial Code. * As of the present time 23 States have adopted the Uniform Commercial Code as follows: PAGENO="0159" `UNIFORM COMMERCIAL CODE 155 Alaska Massachusetts Oklahoma Arkansas Michigan Oregon Connecticut Montana 1 Pennsylvania Georgia. New Hampshire Rhode Island Illinois ` New Jersey Tennessee Indiana 1 New Mexico West Virginia 1 Kentucky . New York Wyoming Maryland I Ohio. Your committee is also informed that the Uniform Commercial Code is also still pending (as of March 13, 1963) before the legislatures of 10 other States, namely: California Missouri , Vermont Hawaii Nebraska Washington Maine Texas Wisconsin Minnesota SECTION-BY-SECTION ANALYSIS OF THE BILL Section 1 of H.R. 5338 provides for the adoption of the Uniform Commercial Code as subtitle I of title 28 of the District of Columbia Code. The following is a brief review of the ten articles of the Uniform Commercial Code (hereinafter referred to as UCC): Article 1: This article deals with matters of general application, and con- tains general definitions and principles of interpretation. Article 2: This article would completely supersede the Uniform Sales Act as contained in chapters 11 through 16 of title 28 of the District of Columbia Code. The Uniform Sales Act has been completely rewritten and much new material added, to conform to present day commercial practices. Article 3: This article would replace the Uniform Negotiable Instruments Act (NIL) as contained in chapters 1 through 10 of title 28 of the District of Columbia Code. The law pertaining to commercial paper of the short-term type, like checks, drafts, certificates of deposit and promissory notes, has been completely re- written in modern commercial language, conforming to the remainder of the UCC. Numerous conflicting judicial interpretations, which have developed concerning provisions of NIL over the last 65 years, have been eliminated in the drafting of Article 3. The parts of NIL dealing with negotiation of securities have been transferred to Article 8 on "Investment Securities". Article 4: This article, dealing with bank deposits and collections, does not replace any uniform act, and covers a branch of commercial law for which there is virtually no statutory counterpart in the District of Columbia aside from several relatively small sections of the District of Columbia Code. Article 4, which is of tremendous importance to banks and all customers of banks, codifies in relatively simplified form the law pertaining to the handling of the vast number of collection items which are processed daily by banks and to the relations between a customer and his bank. Article 4 is of course integrated with Article 3 dealing with negotiable instruments and Article 8 dealing with investment securities. Article 5: This article puts in statutory form the basic legal principles relating to letters of credit, and should prove of great assistance to any attor- ney Who becomes involved in a letter of credit situation. Section 28-5-102(1), however, differs from the official text in that the former makes it absolutely clear that issuers of letters of credit are entitled, if they so desire, to operate under the Uniform Customs and Practice For Commercial Documentary Credits, instead of under the UCC. In view of the substantial national and international acceptance of the Uniform Customs and Practice, it is considered that the right to continue under them should be expressly preserved. Article 6: This article relates to bulk sales, and would replace chapter 17 of title 28 of the District of Columbia Code. Article 6 continues the basic policy of protecting creditors of a merchant who sells in bulkby permitting such creditors to treat the sale of ineffective. Article 6, however, is more detailed and less ambiguous than the existing District of Columbia law enacted in 1904. Article 7: This article, dealing with warehouse receipts, bills of lading and other documents of title, would replace the Uniform Warehouse Receipts Act as contained in chapters 18 through 22 of title 28 of the District of Columbia Code. 1 Not signed by Governor as of Mar. 13, 1963. PAGENO="0160" 156 UNIFORM COMMERCIAL' CODE Article 7 combines as an integrated unit of legislation the Uniform Ware- house Receipts Act, the Uniform Bills of Lading Act, and those sections of the Uniform Sales Act dealing with the negotiation and transfer of documents of title. It is subject to any treaty or statute of the United States or District of Columbia regulatory statute or tariff, classification or regulation filed or issued pursuant thereto. Accordingly, the Federal Bills of Lading Act (49 U.S.C. secs. 81-124) would continue to control interstate shipments and foreign exports, and the Carriage of Goods by Sea Act (46 U.S.C. secs. 1300- 1315) would continue to control ocean bifis of lading covering both exports and imports. Article 8: This article, dealing with investment securities, would replace the Uniform Stock Transfer Act as contained in chapter 29 of title 28 of the District of Columbia Code. In addition, it deals with bonds now covered by the Uniform Negotiable Instruments Act. As stated in the 1958 official Text with Comments of the Uniform Com- mercial Code, Article 8 "is neither a `blue sky' law nor a corporation code. It may be likened rather to a negotiable instruments law dealing with securi- ties". In general, it covers investment securities like stocks and bonds in both bearer and registered form. Article 9: This article, dealing with the field of secured transactions, would replace little of the District of Columbia Code while making great advances in that field. In general, it applies to all transactions which are intended to create a security interest in personal property as well as to sales of accounts receivable, contract rights and chattel paper. Although it does not use the terms "mortgage", "conditional sale" and the like, existing security devices are not abolished and may continue to be used. Article 9, however, does abolish formal distinctions between existing security devices and deals with the interests which the secured creditor may obtain under the code by the same designation, namely, a "security interest" defined (in sec. 1-201 (38)) as "an interest in personal property or fixtures which * secures payment or performance of an obligation", which includes "any * interest of a buyer of accounts, chattel paper, or contract rights". In general, the term "chattel paper" refers to instruments (like notes and chattel mortgages) used by the owner thereof (like a dealer) to secure this own financing. The security interest under Article 9, to be enforceable, must either be a possessory interest (like a pledge) with the secured party in actual possession or be in a writing referred to in the article as a "security agreement". The only requirements of a security agreement are that it be signed by the debtor and contain (sec. 9-203(1)(b)) "a description of the collateral and in addition, when the security interest covers crops or oil, gas or minerals to he extracted or timber to be cut, a description of the land concerned". However, a security agreement may contain the usual provisions now included in existing instruments; like chattel mortgages and chattel deeds of trust, and other agreements of the parties, except a few types of provisions expressly pro- * hibited by the UCC. With several exceptions (sec. 9-302), in order to "perfect" a security interest that would create a lien effective against third parties, the creditor must have possession of the collateral in case of a possessory interest (like a pledge) or the debtor must, in addition to entering into a security agreement, file a "financ- ing statement" in the appropriate office, which in the District of Columbia would be the Recorder of Deeds (sec. 9-303). A financing statement may be a very simple document, being legally sufficient (sec. 9-402) "if it is signed by the debtor and the secured party, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral". Article 10: This article deals briefly with the matter of the construction of 11CC with other laws. Sections 2 to 14 of H.R. 5338 make appropriate changes in existing statutory law to conform it to the 11CC. Section 15 of the bifi provides for (a) repeal of supsereded statutes and (b) continued validity of transactions entered into prior to the effecrive date of the b1l~ection 16 states that the bill will become effective January 1, 1965. (There follows "Changes in Existing Law Made by the Bill, as Re- ported", not included herein.) 0