public law 88 243 and 88 244[1]

r i l

630

Public Law 88-24.3 t:ieeembu 30, 1963 AN ACT _:_H_. _R_. _53_3_8_l - To flltl<•t tilt> rulform <'Ullllllt'"l'(•iltl Code for thf' Uii<tr!Pt or ("ohtmbin. lllld for

other purpol'IE'll.

Oi•trlct of Columbia.

Unifo.-.n Commercial Code.

Be it etw<'ted b!J the Senate and House of llepre1Je1lfttffre.'J of thf'. T:nited States of America in Corigress n11sembl~d, That the rnifomt Commercial Code is enacted as Subtitle I of Title 28 of the District of Columbia Code, in which. it shall be designated "Subtitle 1-t::'niform Comme.rcial Code'\ and may be eited ns "D.C'. ('ode, § -'', as follows!

J

SUBTITLE I-UNIFORM COMMERCIAL CODE

ARTJCLE NECrro:v

1. GE:"!EB...\L PBO\'ISlO~S----------------------------------------- 28: 1-101 2. SALES------------------------------------~------------------ 28: 2--101 3. Coinn:acuL PAPEB------------------------------------------- 28: 3--101 4. BA:-i'K DEPOSITS AND COLl.ECTI0$8 _____________________________ 28: 4-101

5. LETTEB& OF CltEDlT------------------------------------------ 28: 5--101 6. BL'l.K T&A~SFEBS-------------------------------------------- 28: 6--101 7. W.uumot:SE RECEIPrs, BILLS OF LADI~G A:'llD OTHEB. Docl:'ME.,..TS

01' 'rlTT.E--~----------------------------------------------- 28: 1~101 8. l.NVE&TYENT SEC\'RITIE'.8-------------------------------------- 28: 8-101 9. SECt:'UI> TBA:O.SACTIONS; SALES OF ..\.COOCXTS, CO:ll'TRACT. RIGHTS

AND CKATl'EL PAPER---------------------------------------- 28: 9--101 10. C'ol'll'ITR.t7CTIO!S' WITH OTHER LA\\'"8----------------------------- 28:10-101

ARTICLE I-GENERAL PROVISIONS l'.\RT 1-SHOQT TITLE,. CO:SSTllCCTIO'Y, • .\:Pt>U(."ATIO:S AYD St:'BJECT ~IAT'rE!l"

See. 28 :1-101 •. Short title. ~ :1-102. Purposes; rules of construction; nrlatlon by agreement. 28 :1-103. Supplementary general principles of law appllcable. 28 :1-104. Construction 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. :m :1-107. Waiver or renunciation of claim or right after hreach. 28 :1-108. Set'erabillty. 2R :1-109. Section captions.

PART 2--0E."l"ER.AL DEFlNrTlO!S'S AXD PKIXCIPrJo:S OF b"TEBPBEl'.\.TJO::-f

28 :1-201. General de1lnltions. :28 :1-202. Prima faeie evidence by third party docu1nents. 28 :l-203. Obligation of good faith. 28 :1-204. Time; reasonable time; "seasonably". 28 :1-265.. Course of dealing and usage of trade. 28 :1-206. Statute of frauds for kinds of personal property not otherwise

eovered. 28 :l-207. Performance or acceptance under reservation of rights. 28 :1-208. Option to accelerate at will.

I

I

77 STAT.]

PART I-

§28:1-101 This sub

mercial Co § 28:1,-:-100

(1) Thii its underly

(2) UnC: (a)

mercia (b)

thrOUJi (c)

(3) The ment, ex<..-e\ obligutiom by this sul may by ap;: of such ob· festl,y unr:

(4) The "unless otl that thee under sub~

(5) Int . (a) the pl

(b) ueute1 may1

§28:1-10 Un:less 1

principles t-elative t .. misreprest va,lidn.tin~

§28:1-1(; Thissul

subj1!Ct m: by subsec: a.voided. §28:1-IC

· (1) Ex hears a re the partif state or r a.~roemem re.a.tion tc

(2) W1 the a.ppli( is effectiv ftictofla'' .,....

77 STAT.)

§ 28:1-101. Short title

"TRUCTION, APPLICA MATTER

631

This subtitle shall be known and may be cited as 'Lniform Com· citatlorl orntte.

ll)ercial Code. . § 28:1-102. Purposes; rules of construction; variation by agree

ment ( 1) This subtitle shall be liberally construed and applied to promote

its underlying purposes and policies. -(2) Underlying purposes a.nd policies of this subtitle are

(a) to simplify, clariiy a.nd modernize the faw go'·eming com-mercial transactions; -

(b) to pennit the continued expansion of commercial practices L . - .1f, Ct:i; -& .a)

K through custom, usage and agreement of the parties; Ft~J71i tft ·. • /J/:fi . (c) to m~ke uniform the law among the various jurisdictions.r-- /TT/ /4 5'foJC-.;f' ~,i)v (3) The effect of proYisions of this subtitle may be varied by agree- u

lli .fl . mentl.-et'cept as otherwise provided in this subtitle a~~;G~t that the ~ /

• c,J::;.iJ by this subtitle mav not be disclaimett_bv agreell}ent but t 1e parties /~ -.- · ; V" ;;ibbligations of _g_ood faith, diligence, reasonableness !L · reseribed c.....-- ~,,.IJ/'tr'-~··

tfl may by agreement determme the standards by which the perfonnance J a-) 1 //< of such obl!gations .is to be measu~ if~.· c i standards are not mani- ~ festly unrel\sonahle. µ SC ~/ .. / ~c:·t" i

(4) The presence in certain provision of this subtitle of the words t~i l ~'unless otherwise agreed" or words of similnr import does not imply 1 .. : tl1at the effect of other provisions may not be nrierl by agreement / t~! ~ under subsection ( 3) . f

(5) In this subtitle unless the context otherwise requires / ·.., .:::l k . ~ 5'~ · (a) words in the singular number include the plural, and in !;:;!:£- r~ .

the plural include the singular; ~ · - /' [ .~:: • (b) words of the masculine gender include the feminine and the /[)";, ~d ~,J ~ 7 !;~:

neuter, and when the sense so indicntes words oft he neuter gender . ft ;t:z,i\. may refer to any gender. . f _ / tJ ) • · • '"I

§ 28:1-103. Supplementary general principles of law. applicablg 'j/ . ?Y j)C.7 ~ ~~) t7nless displaced by the particular provisions of this subtitle, tl1e ~ '1.;' -rf·~~ r:· 1

. principles of law and equity, including the law merchant and t.he law /IV t 7 .,,~· '·

re}ative to acit to contract, l?rincipa.l and a~ent, estoppel, fraud. &' · .1msrepresent n, uress, coercion, m1stake.,nkruptcv, or otl1er c:P;;~~.t.J L£..._J

i )·~datmg or i~ validating cau~- shall supplement its provisions. a ..,,,.l'/ ;-;;j/;_f" ~ ,,,..J .

: ,iJ .r§ 28 :1-104. Constructionagainst implicit repeal ~ s ~ >'"'' c;;, .,,,..,/

,.pr u This subtitle being a general act intended as n unified coverage of it~ b 0 iP/ .,, subj1!Ct matter, no J?art of it shall be deemed to be impliedly repealed '

by subsequent legislation if such construction can reasonably be twoided.

28:1-105. Te:::::: a::~::::,1: r:~hls subtitle; parties' power . • 1V(}<pi/l.:,t.· .. 1.··~~ e.JdvJ (1) Except as provided hereafter in this section, when · ransaction lP

bears Q.Basonable relation to the District and also to , sta. s.•or nat.ion i ~··. the parties m.ay agree that tliela\\;eitner of the District or o such '/} .J-i , .. '.state or nation shall govern their rights and duties. Failing sue~ fV r., 1 1' ?ngreement this subtitle applies to transactions bearing an appropriate , 1 J relation to the District. _ · (2) Where one of the following provisions of this subtit.le specifies U"J /~ ~)" ~-<'!.

the applicable la.w, that prm·ision go''ems and a contrary agreement / v- 'ti ') ( . '7 is eft'ective only to the extent permitted by the la". (including the con- /1 ,;;{r-?-,,. ,r ~ Hict of laws rules) so specified: ( ·Pi'

Rights of creditors against sold goods. Section 28 :2-402. pl . A:pplicability of the article on bauk deposits and collections.

1.)

Section 28 :~102. L;,, ( }I/

LP (J. 'J, '>

PUBLIC LAW 88-243-DEC. 30, 1963 (77 STAT.

Bulk trnusfers subject to the nrticle on bnlk ti-ansfet'S. Section 28:6-102.

Applicability of the article on in\"estment 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 ndmin

iste~ to t~e end that the aggrieved party may be put in as good a positI!>n as if tl~e other party had fully performed but neither consequen~ial ~r s~ml n<?r fenaJ damages may be had except as specifically provided m this subt1t e or ;y: other rule of Jal\·.

(2) Any right or obligatlond'eciared by this subtitle is enforceable ~y ;flCtion unless the provision declaring it. specifies a different and hm1ted effect. § 28:17107. Waiver or renunciation of claim or right after breach

.Any c~aim or rig~t arising out of a1~ alle~ed breael1 can be 9J~ l'harggd 11! w_bole _or m part w1t!1out consideration by a written waiver or renu11c1atlon signed and g«tlivered by the aggrieved party. § 28:1-108. Severability -If any provision or clause of this subtitle or application thereof to

any person or cir!!t~mstances is }1el~ invalidi ~uch myalidity sball not a!f ect other p1'0\·1s1ons or apphca.t1ons of t us subtitle which can be given effect without the im·alid pro\·ision or applic1.ttion and to this end the provisions of this subtitle are declared to be sev~rable. § 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 pa.rts thereof, nnd unless the context otherwise requires, in this subtitle:

(1) "Action" in the sense of a judicial proceeding includes recoupme~t, ~unterelaim, set-o~, suit in equity and any other proceedings m

-......_which risrhts are determme<l. / .......... (2) "Aggrieved garty" means a party entitled o resort to a remedy . ./ Sa.f?;/"

(3) ".Agreement' means the bargain o e parties in fact as found in their Ja1~~ or by implication from other circumstances including course of dea:bng 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 determined by the provisions of t.his subtitle, if applicable; otherwise by the law of contracts (section

~ 28:1-103). (Cc>mpare "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 securitr, payable to bearer or indorsed in blank.

( 6) "Bill of lading ' means a document evideneiilg the receipt of goods for shipment issued by a person engaged in the business of trans porting or forwarding go<>ds, and includes an airbill. -"Airbill" means a document ser'ing for air tran~rtatiou ns a bill of lading does £01· marine or rail tl'nnsportation, and includes an air consignment note or ah· waybilJ.

?

j

77 STAT.] PUB

(7) "Branch'' inclml• of a. bank.

(8) "Burden of establ the triers of fa.et that ti its non-uistence.

( 9) "Buyer in ordina good faith and without of the ownership right~ goods buys in ordinary 1

~of that kind but d be for cash or by exc unsecured credit and in under a. preexisting con in bulk or as secunty fo debt.

( 10) "Conspicuous'': written that a reasom\b: to ha.ve noticed it. • N EGOTL\BLE BILL OF LA: of a. form is "conspicuot or color. But in a. t \Vhether a term or dal the court.

( 11) "Conh-acf' mea from the parties' agreeu applicable rules of law.

(12) "Creditor'' inch a lien creditor and a.n assignee for the benefit < in equity and an execm

. or assignor's estate. (18) "Defendant" in

in a cross-action or cour (14) "Delivery" witl

cl1attel paper or securi (14a) "District" me

includes the District. ( 15) "Document of ·

(lock receipt, warehous1 and also a.11y other doc.t or financing is treatOO. possession of it is entitlE und the goods it covers. purport to be issued by goods in the bailee's I fungible portions of an

(16) "Fault" means (11) "Ftingible" wit

or securit.ies of which : equh·alent of any other be deemed fungible for lUlder a particular agre equivalents.

(18) "Genuine" mea: (19) "Good faith." m

tion concerned. (20) "Holder" mean

of title or nn instrumei indorsecl to him or to h

t7 STAT.] ~~~LAW 88-2-~, DEC. 30, 199~ {ji) "Branch .. i1wlmlr1' it 81:'p1n·1ttely incorpon1tecl •. fot'@ign lmmch

of a bank. ""-' c tu ... t-::.ii • ..__ (S) "Burden of eshiblishing·• n fac..'t filenns the hm·<len of >et-sttaclin

theitders of f~tl't thnt the existerwe of the fa t is mo· o 1 le t , its non-ex1s ence.

G9) "Buyer in ordinnry course of lmsiness .. means a person who in gajd faitl1 and without knowledge that. the sale to him 1s in •iolation of '.f;he .Q._wnershRI rights or secm·1iy interest of a third pa1ty in the g<>Rds buys m C! mary com·se f.rom a person in the business ?f selling ~oOds of that kmd but does not. nu·lude a pawnbroker. •1Buymg'' may be ! for cash or 2l exdut~ of other property or on secured or Ul1~e<:mred credit ana mdu es receh·ing goods or documents of title miller a preexisting contract for ~tle but does not include a transfer in;~mlk or as security for or in total or paitfol s.i.tisfaction of a money debt.

7 :(10) "Conspicuous'~: A tenu or clause is conspicuous when it is so w~itten that a reasonnble person 1tgni11st whom it is to operate gght /,&>-f;i:_,d to hase noticed it. A printed· heading iu c4tpitals (ns: - .. o!i-S'»;oTIABLE BILL OF L.rnnm) is conspicuous. Language in the body of;a form is "con;;picuous'! if it is in larger or othei: contmstipg ~ orf color. But m a. telegram a;11:y stated term is ''conspJC.uous . Wjhether a term or dnuse is "conspicuous" or not is fot· decision by

~b~court. • . . . ;(11) "Contmct.' menus the total legal obhgatlon '"'luch results

frpm the parties' agreement as affected by this subtitle and nny other .. applicable rules of law. (C'ompare "Agreement''.) . , Ui·i i-

)(.12) "C'r~ditor'' includes a genera} creditor. :i secll:red et;editm.:..4u S C rlo~,{) ._!;.; a.} hen creditor and 1iny re~1-esentat1ve of creditors, mdudmg an ,,, ;-.,-r l"'i ft.. ~ "-"' < ~$igm;e for the benefit of creaitors? a. trustee in ban~ruptey, a receh~er -'" f"} 11t. eq~1ty a_nd an exeeutor or ndnumstrntor of an msoh-ent debtor's ....r.· _,,_.'" t·1 or assignors estate. . . y ".;/I c~ .

..._._.-j(13) "Def~ndnnt .. includes.n person in the. position of defendant Afa-.13 -P ~~ · in a. cross-act.ion or counterchum. L · e_,,.-,,,.;.v > "''.ti:·

-) (14) "Deli\'ery" with t•espect to instrwnents, doouments of title, i.l'? 7d.u ·£~,,,. c:patt.el pa~r <?r securities means .:rnluntary transfey of possession. { // 4 • ..si 0 . .J , r::·~; (14a.} "Dist!1ct:' means the D1str1ct of COlumbia; and "state" .-r J.d ,...,.,,..1' 1l1c1udes the Dtstrict. ~AT

.__ (15) "J?oeument of title" _includes bill of lading,, dock \\·anint, In f ~ tlock receipt, warehouse 1·ece1pt or order fot• the dehvery of goods" -'.:l D ~'(I_ rreA'lJ' · : ~d also any 9ther document which in the regular course of busmess . ' or financmg is treated as ndequately evidencing t11at the persou. in . , · · . ' , , . ". ·. : -_, -. , possession of it is entitled to receh·e,.boJ.d and, clis.Jx.>80 of the document ,, . · . .._, ~ , l}nd t~.~--ws }t cede~. To be a document ?f title a. document must ·· ~ purport t6 e issu y or addressed !O a batleE! and purp01t to cover p ; i · . / #;oods in the bailee's ~ession which n.re ~ither. identified or_a~ c·./~,- / .. ,,_,,· /_-; .. · -:- .. . fungible portions of an identified mnss. --:::-::-:-:: ~ , A ~ "Fault" means wrongful act, omission or breach. .

V ; 1'1 ''Fungible'' wit11 respect to goods or securities means good.;; or urities of which any unit is, by nature or usage of trade, the ·f<iuh-aleut of a~v other like unit. Goods ~·hich ~re not fungible shall be deemed fungible for the purposes of tlus subtitle to the extent t11nt •,under a particula1· agreement or doomnent unlike units are treated a$ iequivalents. T (18) "Genuiue" means free of forgery or counterfeiting.

:; (19} "Good faithn means honesty in fact in the conduct or trausac-.....__ition concerned. i (~} "Hold~r" means a perso!l 'vho is in p~ssion of a <!ocwnent

.of title or an instrument or an m>estment secunty drawn, tsSUed or Hndorsecl to him or to his order or to bearer or in blank.

__ .,,,,.,.-


..........._ (21) To ':honor~! is to p~tv or to accept nn.d pay, or where a credit s6 engages .to purchase or cliscow1t a. draft complying with the terms of the credit.

. J:i4 (22) "Insok~ncy proceedings'' includes any assigrunent for the

77 STAT.) PUBLIC

(3a) ··n .... 1u·t'St."11tnth·e·~ ilu 01· as.<;oeiation, atul a tl'tlstee. any other person empowe1-e<i

(:16) "Ri~hts~' includes r( (:ii) '"Security iutel'est'~ ;j_ sir<..:--- henefir _of creditors or othe1· procee.dings intencted to liquidate or

' rJ ·. rehab1htate the ~tat~ Of the eerson 1;I1VOlved. v~ .t-. ... :: •.. '~M. (:!3) A llerson is "msoh-ent:: who either has censed.to pay his debts ,.

; m the ordinary. ci;>urse of bn~m~ or cann<?t pay lus del:)t.s as they •·. become due or is msoh·ent w1thm the mea.mng of the federal hank-

s ?.~ 1::-:M~neY:' means a medium of exchange authorized or adopted -'jf /V

lixtul'es whirh secures paym retention or reservation of shipment 01· (lelivery to the I to a reser\·ution of a "secnr interest of a buyer of accoui ii;; subject to artiele 9. Th ~oods on identifica.tion of :1e<'tion 28 :2-401 is not a 11<'<1nire a "security interest

• · b~mestic or fore~~l ~m:ernment as a part of its currency. I' l. ·.·["-.. il.J· (2a) Apersonhas•nohce·'ofa.factwhen ·7'·rU • · /)pL (a) he has actual knowledge of it; or j { b) he has received. a notice or notification of it; or · . ©. from ~11 the facts and circumstances ~own to him at the

t.1me m question he has renson to know that it exists. -.\ person "kn!>ws!'. 01: hns "kno,>1 " of a fact when he has.~ct.yal kngwledi;m of J.t.. '"Discove · or "learn or a. wo1·d or phrase of s1m1 a.r import. refers to knowledge rather tha.11 to reason to know. The time

, nnd c.ircumstnn<'es m1der whieh a. notice or notification may cease t-0 he i~t-tl'ective are not <'.f.ete~h~~d by .thii::.subtit.le. . •

;; f)/J /,., ( 26 >.A person .. notifies· or "gives·· a notice o~ not1fi~at1011 to anothei· ' _ r !•Y tak~ng such. step~ as may be reasonably requned to mfol"m the othel" 1 Ill ~rdmary course w~eth~r 01· n?f; such ot;her actmilly comes to know ·· of n. .\ person •'recel\·es .. a notice or notification when

(it) it comes to his attention ; or (b) it is duly delh·ered 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 comm.uniea.tions.

(z7) Xoti<'P., knowledge or a notice or not.ification :received by a.n organizntion is etfect.ive for a (larticula.r transaction from the time when it .is brought to t-he attention of the individual conducting that t r1111si1ctlon, and in any e,·ent from the tim.e when it \\'ould have been bt'OU~ht to his attention if the organization had exerc.ised due diligence. .\.u orgm1izatio11 ex 'ses due dili nee if it. maintains e routines for communicating significant m ormatlon o e person con<luctinµ- the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the orbranization to communicate information unless such information is purt of his regular duties or unless he has reason to know of the transact-ion ancl that the transaction would be matel'ially affected by thr infonuation.

i f Pnse or eonsi~ri1ment is inte / under is not. a "security in ./~, · · ,:ubject to tbe prOl·isions ' J- 1. ' \Yhether a lease is intended

of each ease; however, (a) . 1~ot of itself mnke the lease

· ment. that upon complinnc< lieeome or hus the option t 1ulditionnl considerntion 01 lease one intended for seeu

(38) .. Send'~ in ('Otmecl deposit in the mnil or de means of communi('ation w for nud properly nddress1 1uldress specified thereon • any address reasonable un writing or notice wit.bin t properly sent has the effec

(39) "Signed"' includes with present. intention to r

( 40) "Surety" includes ( 41) "Telegram" incluc

1~able, any mechanical met ( 42) "Term" means tha

particular matter. (43) "Unauthori2;ed" :

"·ithout actual, implied 01 ( 44) "Value". Except

C28) ·'Or~1mization" includes a corporation, government or govem..: 'I 5 e !nentnl subdn·ision or.~' blJ.Smess f rust, !S.1tn.te,..trust, partnershin ? -

tiable instruments and Ila and 28 :4-209) a. person

(a) in return for for the extension of drawn upon and wlu the event of difficulti

t t l t 7.-.. ;!..-or nssocut ion, wo or more ~rsons iavmg a JOm Qr common mterest2 , ...,. . ...- ) 01· any other Ie~al or commercial entity. · ' •

(29) "Party·', as distinct. from "third party", means a person who has engaged in a. transaction or made an agreement within this subtitle.

(30) •'Person" includes an indh·idual or an organization (see sec-t ion 28:1-102).

'.'""') (31) ;'Presumption" or "presumed" means that the trier of fact •·, fl' must find tbe existence of the fact presumed unless and until evidence

' · 1s mttoduced which would support a finding of its nonexistence. (32) "Purchase" includes ta.king- by sale, discount, negotiation,

.·.. mortgage, pied~, lien, issue or re-issue, gift or a.ny other voluntary rnnsaction creatin~ an interest in pro~rty. _. ft.

( 33) "Purchasel7' means a person w o takes by purchase. - ,_/,,..,.'" c .. (34) "Remedyn means any remedial right to which an aggrieved C.r"4/.

i party is entitled with or without resort to tribunal

(b) as security fo existing claim; or

( c) by accepting · for purchase; or

( d) ~nerally, in 1

port a simple contra ( 45) "\Vs.rehouse rece

~aged in the business of : · J ~ (-16) "Written" or "w ..,. other intentional reducti S 7;ke-z

7 ST~'r. J PUBLIC LAW 88-24f"'·Ec. 30, 1963

(3·J} "Ut>pt·est'llfnth·e .. i1wludes 1111 agent, an officer of 1\ c01·ponltiou rr a::;!#x.•httion. and a trmdel', exe<.•utor or :ulministrntor of an estnte, Ol'

Ill\' o~her pel'8oll Pmpowt"l·ed to :wt for imother . .. i :1€)) ··Ri~hts·· includes remedies. /!:::? . ( :n) •·S~·urity intere:<t .. means an interest in J.>ersona.l prope!:!U!' 1xtut"fS wlm·h secun>S p11yme11t or >t•rformance 6 an oblt<71lfl0n,/"The :l'tent;ion or reserYation of title by n sel er o ~ooc s notw1t 1standin:? •hipnlent 01· deli,·erv to the buver (section 28 :2-101) is limited iu effect w a t;eser,·ation of a "se<.·urity . ~rnsf\ The term also mdmles any interest of a buyer of account c fattel a er 01· contract ri<7hfs whieh i!'t su~ject to article 9. The spec 1u J!t'operty interest o a uyer of ~o<xl$ on identificn.tion of such goodS to a contract for sale under ,;ec-tiqn iR :2--401 is not 1\ "securitv inte1-est'\ but a buye1· may also im1u.i)-e u ''security interest" hY coinplying with article 9. {;n1ess a lt•n8(>;m· consigument is intended ns security, rese1·,·ntion of title thereumlej· is not n .. secnritv interesf' but a ronsignment is in any e\•ent :<ubject to the prm·isioi1s on consignment sales (section 28 :2-320). Whether n lease is intended as security is to be determined by the facts of et~:t'h case; howe,·er, (a) the inclusion of nn option to purchase does 1~ot ~i itse)f make the lease one intended for security, and ( b) 1111 ngreemen~ that u1l011 compliance with the terms of the lense the lessee shall liet•oiue or hns the option to become the owner of the property for no .1dditionnl considerntion or for a nominal considen1tion does make the len~ one intended for security. ~ ·

( :18) •'Send'~ in eonnection with any writing or notice means to i~; 1 ..

depqsit iu the nmi1 or delh·er for tmnsmission by any othel" usual 1,.·: · me1tns of communication with postage or cost of transmission proYided :;:: ~ for·n· nd prop~i-ly addressed and in. the case of a1~ instrument to an ~· ~ I ndch-ess specdiecl thereon or otherwise agreed, or 1f there be none to , , imy:~1~dress i·eitsonable unde1· the circumstances. The receipt of any . / ,{ t.R"'r , :~ wri~inp: or notice within the time at which. it would ha\·e 1trrived if .. ) 1 µ,cu · pmperly sent has the eff eet of a proper send mg. pw

· - (:~9) "Signed'~ includes any symbol executed or adopted by 1\ party' witl1 present intention t<> authenticate a writing. .-..,.., -1 .-uSIJt.'

(40) "Surety" includes guarantor. (·/r .. /J · (41) "Telegram" includes a. message transmitted by radio, teletype, fo,· 1-/ol.r/L/

1:ahle, any mecbani<'al method of transmission, or the like. J'31£ (~2) "Term" means that portion of an agreement whicl1 relates to a......._ •

patj:icular matter. J-~ (:-13) "Unauthorized" signature or indorsement means one made

witfhout actual, implied or apparent authority and includes a forgery. (•4:4) "Value". Except as otherwise provided with respect to nego

tiable instruments and 'bank collections (sections 28:3-:{03, 28 :4-208 anij 28 :4-~09) a person gh·t;S "~·alue'' for. rights if he acquires ~hem /2.'P.,u1, j

l (a) m retu~\ for .a. b!nqmg comnptment to. extend c1-ed1t or ~ _ ,,,, #.; ~· for the extension of 1mmedmtely aYa1lable 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 fol" or in total or partial satisfaction of a pre- !fad,, f ~ ?.c..I ~ J existing claim ; ur _

; (c) by accepting delivery pursuant to a pre-existing contract ;:r,..,,e/:e:.f P""'J ' for purchase; or : ( d) generally, in return fol" any consideration sufficient to sup-

.; port a simple contract. ~· S..A-;( 45). "Wareb~use receipt'~ means a receipt issued by a person en- / ,,,.,/1: (?.,.,~hhre.;f;"'

gt).~ed m the business of stormp; goods for lure. :H46) "l\.,.l'itten" or "~iting'' includes printing, typewriting or any --:/~

otl1er i~n~l reduction to tangible form. if '

PUBLIC LAW 88·243-DEC. 30. 1963 ?

(17 STAT.

§ 28 :1-202. Prima f · e evidence by third party documents ' _.\ d<?<:lllllt'llt i1_1 \It' form 1~11~·p<Jrt i!llf' to. Le 11. oill of !:!ding. ,.u._olie\" f.,l'5(_

or certtfit-ate of llll"IU'lllll't>. oftw1nl we1µ:he1· s 01· lllS()(:><'tor s certilfoate Ct'consular in\·oice, or :iuy otlwr d<.~f .. ument n111 ho1·ize<l or r~quired by r .t. <::::the coutrnct to be il'l.'iHetl l>\' a I hll'd"Pnrtv ~hnil he 1rimn fi1<·1e endence 9J 1tS own authentidt_,. aiid bre1111i11enei>s am o t 1e acts st11t mt 1e document by the tlurd party.

77 STAT.] PUBLIC

§28:1-207. Performance rights

A party wbo with explici ises performance or assenb or offered by the other pa1 resen·ed. Such words as "' like are sufficient. §28:1-208. Option to ace· § 28 :l-203. Obligation of good faith

:r:very contract. or duty within this suotitle. imposes an obligation of good fnith in its perform111we 01• enforcement. § 28:1-2o.t. Time; reasonable time; "seasonably"

/.-:'").&·- ~-.,_,./... A term providing that o

.1accelerate nayment or perf ( a.-o ,,::, .. r/V'f collateral 'tat will" or "whe:

similar import shall be co1 to do so only if be in good : or performance is impairee faith is on the llarty a.ga

(1) "'hene\·er this subtitle requires any nt·tion to be taken within n. reasonable time. an> time which is not nmnifesth- tmreasonaole may be fixed by a~reeme1it. C-a 1.)-1-,....:, , ./:-' ~

(2) ,'\.lmt ts a re11so1mble time for taking nny i1ctiou depends on th~ nature, purpose ancl d1"l'llll1Sta11ces of such nct1011.

(3) .:\n action is tnkeu "sensomtbJy!! when it. is tnken at or within the time ngt'l'ed or if no time is agreed at or within a rei1s01mble time. l y

i /!: § 28:1-205. Course of_de~ling and usage of t~ade

f Iii; 4 (1) ·-\course of d~nlmg is :l seq1~euce of p1:eno~1s conclnct between /!C -y the parties to :t p1nt1cnlar trimsiwtwn wl11eh is fairly to be regarded rf;ifl .d.J"' as estab.Iishing n t•ommon bnsis of understanding for interpreting their

IJ,/.,. ex1;>ress1ous and other cmHlu<-t. jAµ: (i (2) .\. usa,_,re of tmde is auv pmdice or m\!'thotl of dealing havina

·· such reguhl!·ity of o~ser~·irnce 111 il pince, 'Y<.'1ttion or trade as to just~fy .•• an expectation that it w1J he ( Pned with rt>speet to the tnmsact1ou ·;:. 12.

AR'I v 2 #'JO(-d.,. PART 1-snou.T TITr.E, n

Sec. 28 :2-101. Short title. 28 :2-10'.?. Scope; eertllin sect

article. 28 :2-103. Definitions and ind 28 :2-l<H. Delinltions: "Merel 28 :2-100. Definitions: transf

Dlerelal unit". ,,, ;;f 28 :2-100. Definitions: "con tr

.e "' ~present sale"; cellatlon". 1 D in es 1011. he ex1ste11ee and scope of such ll us:t~e tp be provetD c')?

;,fi as nctis., If it is established thnt s1wh n usage is em 1ed ma w1·nten . ... A,../

~') rll'f)·····.·.· f; tra e cooe 01'..:'iimilnr writing the interpretation of the writ~g_ji;;_~ Jvl"'1~· ,. . .r

28 :2-107. Goods to be severe.

PART 2-FOB.ll, FoJll)

28 :2-201. Formal requireme1 28 :2-202. Final written e:x::pl'I 28 :2-203. Seals inoperative. 28 :2-204. Formation In gene 28 :2-205. Firm oilers.

.,. r Uie comt. 1 '1 ,,.,,._,, // .1..~· - {3) X course of dealing between parties nncl :m./'usi1ge'lof trade in ,/i/t· . . vl the vocation or t111de i!l which .they are eniplged o~'<if which they are r./ 'Ls~;!/ Or should be llWlll'e gl\'e partlclll:tr meanmg to Ulld SUpplement Or

7}. 4t qualifv tet'lns of an agreement. 1/1, .• ( 4) .The express terms of nn agreement and au applicable eourse of

' dealing or usnge of trade shall be t·onstrned wherever 1·ensonable 11s consistent with ench other: but when such construction is unreasonable express terms control hoth <·om-se of dealing and usage of trade and course of dealiug controls usage oft rade. ·

' . ( 5) An applicable usnµ;e of trn<le iu the place where any piut of · .. ·.·. i. ,perfornrnnee is to oecur shall he used in interpreting the abrreement • yr1') .. lf1s to thnt purt of the perfommnce. / , \·(; ol' (6) EY1<lem.'e of a relernllt U~l~e of trade offered by one ri~n,:!.y is 'J. o~·

;; ,tlt.•.•.·. J 'r not ndmissible nnle;s nud until he has ,riwn the other pnrty suc1 notice 1~ I~? I .J!!.. \', iis the <'ot!l't tinds suflkiem to pren•nt uufair surprise ro th~ latter.-l""·~ ' fJ § 28:1-206. Statute of frauds for kinds of personal property not

otherwise covered (1) Except in the cases described in subsection(:!) of this section

a eontr~wt fort he sale of persounl prope1tv is not enforceable by way of action or defense beyond fh·e thousand ~dollars in nmount or value of remedy unless there is some writing which indicntes thnt it contract for sale hns been miu.le. between the parties nt n defined or stuted price, reasonably identifies the subject matter, nml is signed by the pa.tty against whom enforcement is sou~ht or by his nut horized a.gent.

(2) Subsection (1) of this section does uot apply to co11t1-acts for the sale of goods (sect ion :l8 ::l-:W I ). nor of securities (section 28 :8- . /. ;ll9) nor to seeurity llbrreements (section ~8:9-203). i e ~J,,~ .. ry f

<? "r' eii& ·7

28 :2-206. Olfer and aceepta1 28 :2-207. Additional terms ii 28 :2-208. Course of perform 28 :2-209. llodification, rescl 28 :2-210. Delegation of per1

P .ABT 3-GSNEB..U. 01

28 :2-301. General obltgatlo1 28 :2-302. Unconscionable cc 28 :2-303. Allocation or dlvi

~a? ..a!8 :2-304. Price payable in n: l"'C ~ /'1 28 :2-305. Open price term.

28 :2-306. Output, requiremt 28 :2-307. Delivery in single 28.:2-308. Absence of specifi 28 :2-309. Absence of speclfi

~ IJ 28 :2-310. Open time for pa: t'¥- }'f reservation.

28 :2-311. Options and ooop 28:2-312. Warranty of tit

against lnfrlngt 28 :2--313. Express warrant 28 :2-314. Implied warrant: 28 :2-315. Implied warrant 28 :~16. Exclusion or m01 28 :2-317. Cumulation and

- - -- . .

,,...,...,,_

77 STAT,] PUBLIC LAW 88-24 : .EC. 30, 1963

§ 28:1-207. Performance or acceptance under reservation of · rights

A party who with ex licit reservation of ri hts edorms or rom~ ises performance or assen s o pe · ormance m a manner eman e or offered by the other part:r does not thereb i·e · udiee. the ri hts reserYed. S~ch words as .. without pteJU ice .. ~ .. mu er prote:<t' or the bke are sufficient. · § 28 :1-208. Option to accelerate at will

Atenn providing that one party or his successor in interest ·may accelerate P-ayment or performance or ~uire collateral or additional collateral' at will" or ''whe e deems himself insecure" or in words of similar import shall be constru to mean that he shall have power to do_ so only if he in good faith believes that the p1·ospect of pafment or performance is impaired. The burden of estaolishmg lack o ~ood faith is on the. party agiUnst whom the powe1· hl\s been exercised.

ARTICLE 2-SALES . PART 1-Sm>RT T1Tr.£, 0£:SEK.u. Co:>"STllt:CTmY ,\:SD St"BJECT lfATTF.R

Sec. 28 :2-101. Short title. 28 :2-10"2. Scope; certain security and other tro.uAA.r:tions excluded fron1 this

article. 28 :2-103. Definitions and index of deflnitions. 28 :2-104. Detinltlons: "}lerchant"; "between merchants"; .. financing agency". 28 :2-105. Definitions: transferabilit.T; "goods"; "'future" goods; "lot"; "com-

mercial unit". 28 :2-106. Definitions: "contract"; "agreement": "contract for sale" ; '"sale";

"present sale": "conforming" to contract; "termination" : "cancellation".

28 :2-107. Goods to be severed from realty: recording.

PA.BT 2-l!"'o1uc, FOBYATIO:N AND READJ"CSTYENT OF CONTRACT

28 :2-201. Formal requirements ; stature 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 off~rs. 28 :2-206. Offer and acceptance in formation of contract. 28 :2--2111. Additioual terms in aeceptance or confirmation . . 28 :2-208. Course of performance or practical construction. 28 :2-209. Modification, rescission and waiver. 28 :2-210. Delegation of performanee: assignment of rights.

PART 3-Gi.:..'iEBAL 0BLIGATIOY AND Co:s:snucrto:<r OF CoNTRACT

28 :2-301. General obligations of parties. 28 :2-302. Unconscionable contract or clause. 28:2--303. Allocation or dil"islon of risks. 28 ;2-004. Price payable in money, goochl, real ts. or otherwise. :?8 :2-305. Open price term. 28;2-306. Output, requirements and exclusive dealings. 28:2-307. Delivery in single lot or &e\·eral lots. 28::2-308. Absence of specified place for delinry. 28.:2-309. Absence of specific time pro\"isions; 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. :?B :2-314. Implied warranty: merchantability ; usage of t.-ade. 28 :2-315. Implied warranty: fitness for particular purpose. 28 :2-316. Exclusion or modification of warranties. 28 ;2-317. Cnmulation and conftict of warranties express or Implied.

i ,11!:. ! . •ft i t. ,.. ! .

·-'"' ' ..,,, .... ' ...

i38 PUBLIC LAW 88-243-DEC. 30, 1963

ARTICLE 2-SALES-Continued

[77STAT.

p A.RT 3-GF.SER.\L OBLIGATION A:s'D. CO:l"STRUCTION OF CONTRACT-Continued

!lee. 28 :2-318. Third party beneficiaries of warranties express or implied. 28 :2-319. F.O.B. 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''; war-

nmty of condition on arrival. 28 :2-322. Delivery "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--Trru:, CREDITORS AND GOOD FAITH PURCHASERS

28 :t-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. rower to transfer; good faith purchase of goods; "entrusting".

PART 5--PERFORMANCE

28 :2-aOl. b1surable interest in goods: manner of identifkntion of goo<ls. 28 :2-502. Bu~·er':,; right to goods on seller's insol\"ency. <!8 :2-503. Manner of seller's tender of deli\·ery. :!8 :2-561.. Shipment by seller. 28 :2~505. Seller's shipment under reservation. 28 :2-l'iOO. Rights of financing agency. :.!8 :2-507. Effect of seller's tender: delivery on condition. 28 :·2-508. Cure by seller of improper tender or deli\"ery ; replacement. 28 :2-509. Risk of los:,; in the absence of breach. 28 :2-510. Etrect 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 :2-51-1:. When documents deliverable on acceptance; when 011 payment. 28 :2-515. Preser'ring e'rldence of goods in dispute.

PART 6-BREACH, REPUDIATION AND EXCUSE

28 :2-601. Buye1·'s rights on Improper delivery. 2l.h2-602. Manner .and etrect of rightful rejection. , . 28 :2--603. l!erchant buyer's duties as to rightfully rejected goods. 28 :2-004. 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 acceptanc.-e ; notice of breach ; burden of establishing breach

after acceptance ; notice of claim or litigation to person answerable over.

28 :2-608. Revocation of acceptaure 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.

P.ART 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. 28 :2-704. Seller's right to identify goods to the contract notwithstanding breach

or to sal\'age. unfinished goods.

77 STAT.]

Se~.

PUBL

ARTICL:E

28 :2-70G. ~eller's 11t.01>page 1

28 :2-706. Seller't1 resale Inc 28 :2-707. "Person in the po~ 28 :2-708. Seller's damages l 28 :2-709. Action for the pri 28 :2-710. Seller's lnddenta 28 :-2-711. Buyer's remedie;

goods. 28 :2-712. •·cover"; buyer's 28 :2-713. Buyer's damages 28 :2-714. Buyer's damages 28 :2-715. Buyer's incident.a 28 :2-716. Buyer's right to 11 28 :2-717. Deduction of dam 28 :2-718. Liquidation or Un 28 :2-719. Contracted n1o4it 28 :2-720. Eft'ect of ·•ca nee

breach. 28 :2-721. Remedies for frn 28 :2-722. Who can sue thlr• 28 :2-723. Proof of market I 28:2-724. Admissibility of 1 28 :2-725. Statute of limit.al

PART 1-SHORT Tl'J ~

§ 28 :2-101. Short title This article shall be k

cial Code-Sales. § 28:2-102. Scope; ce

exclude( Unless the context otl

actions in goods; it does in the form of an unc( intended to operate only impair or repeal any sta other specified classes of § 28 :2-103. Definition:

( 1} In this article unl (a} "Buyer" me

goods. (b} "Good faith'

fact and the obser fair dealing in the t

( c} "Receipt" o: them.

d) "Seller" mea goods.

(2) Other definition~ thereof, and the sections

"Acceptance". ~ "Banker's credit' "Between meroht "Cancellation". "Commercial uni "Con.firmed creel: "Conforming to <

77 STAT.]

Sel!.

PUBLIC LAW 88·243- .C. 30, 1963

ARTICLE 2-SALES-Continued

l' AH.T i-IlEMEDIES--C'ontillUt'd

28 :2-i05. ::leller's ><top1iage of delin•ry in tm11,.it or othern·i><t'. 28 :2-706 .. Seller's re,;:ale induding t·outral·t for re:<ale. 28 :2-707 ... Person in the position of a l'o(>llE'r". 28 :2-708. Seller's damages for non-ac<'t"ptanc't" or repudi11tion. 28 :2-709. Action for the pri<.'t'. 28 :2-710. SellE'r's ineid('ntal damagE's. 28 :Z.-711. Buyer'i.; rE'mE'dies iu gE'neral: l!nyE'r's sE'Curity iutt>re,;t in rf'jt'l·tt~cl

goods. 28 :2-712. "CoTer'' : huyE'r's 1>rol·Urement of substitute good,;. 28 :Z.-713. Buyer's damag('s for 11011-deliTery or rE'pudintion. 28 :2-714. Buyer's damagE'S for breach in n>gnrd to aeee-pted gomk 28 :2-715. Buyer's Incidental and ron.sequE'ntlal damages. 28 :Z.-716. Buyer's right to i-ipeciftc performam't" or rE'11lcffill. 28 :2-717. De-duc-tion of damages from the. 1>riee.

6

28 :2-718. Liquidation or limitation of damages: clepositi-i. 28 :Z.-719. Contra<-ted modification or limitat.ion of remedy. / 1

28 :2-720. Effect of "c-ancellation" or "resl'ii<.'-'iou" on daim>< fur antt><"t'dc'nt I I 5

// .£/ breaeh. /

28:2-721. Remedies for fraud. f /, '{!'/ % f 28 :2-722. Who c-an sue third pa1ties for injury to iruod:<. ff { '

1. I. v

28 :Z.-724. Admissibility of market quotations. ,{) ~' ~~I _ 'P' £-28:2-723. Proof of market price: t:ilueand plaeE'. ~.,r.I'· %: 28 :2-725. Statute of li1111tatio11s in eontracts for i-i1lle. ·:J:·•/ ~

PART 1-SHORT TITLE, GENERAL CONSTRUCTION AND 'f ;;J,/r /'·¥- . " SUBJECT MATTER /~ jh(, · t" ... Jl· ! ,.-., . ,~ ... ,

§ 28 :2-101. Short title This article shall be known and may be cited 1\S Fnifonn Commer- Citation of a ....

cial Code-Sales. Hele.

§ 28:2-102. Scope; certain security and other transactions excluded from this article .

Unless the context otherwise requires, this a1·ticle applies to t.rans- .- d,·ctJ actions in goods; it does not apply to any trausaetiou whieh although~,..,- _t I

_ in the {onn of an unconditional rontral'f to SJ!H or present sale is · ,fl)? ., ~ G.- < -\_ ~nded to operate only as a security transaction nor does this article ~v ... d ~/ l.7 { pair or repeal any statu~ulatmg sales t onsmuen; armers or -·:i ,v~

othe!' specified classes of buyers. ""'-r(£Jll.c,kl..e4r ~ -,1,n1,ee· r"'-' 4 , ... ,

§ 28:2-103. Definitions and index of definitions ~r ( 1) In this article unless the context otherwise requires

(a) "Buye1·" 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 obserYanre of reasonable commercial stnndards of fair dealing in the trade.

(c) "Receipt" of goods means taking physical pos.<>ession of them.

d) "Seller'! means a . person who sells or contracts to sell - (!~ f goods.

(2) Other definitions applying to this article or to specified parts thereof, and the sections in which they appear are: ..J4

"Acceptance". Section 28 :2--606. ~ ~ "Banker's credit". Section ~8 :2-325. 1-~ IJ1 e./C' J:~,,.,f /lfe. "Between merchants". Section 28 :2--104. r L .-:;, /

"Cancellation". Section 28 :2--106 ( 4). · /.;..,A j .t'!-.J "Commercial unit". Section 28 :2--105:--- ..P "Confinned credit". Section 28 :2--325. / .1-//~C/' "Conforming t-0 contract". Section 28 :2--106. - f,v.e:/...e:~ ~

PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

(2) Other deti11itio11s a.pplyi11g to this atti(·ll"! <•fr.-{'ont.inued "Contra .. ct for sale''. S<'Ctiou 28 :2-106. "Cover". Section 28 :2-712 .

........._,'Entrusting". Section 28 :2--i0/'3. "Financing agency''. :Section 28 :2-10-1. "F'nture goods". Sect.ion 28 :2-105. "Goods". Section 28 :2-105.

'-........"Identification~'. Section 28 :2-501. "Installment contract". 8eetion 28 :2-612. ''Letter of Credit,''. Seel ion 28: 2-::J25. ''Lot". Sert.ion 28: 2-105.

''-"::\[err.lumt". Section 28: 2-104:. "O,·erseas". Section 28: 2-:i2:t "Person in f>OHition of seller". St•ctio11 ~~: 2-iOi. "Present S.'l e". Section 28: 2-lOfi. "Sale". Section 28: 2-106. "Sale on appron1l''. Section 28: 2-:)2fi.

)/ "Sale or return". Soction 28: 2-:126. /(.,~'Termination~'. Seetion 28: 2-106. ·-

( (:~) .The following clelinitions in other artieh·~ apply 10 this a1ticle: -"Check". Section 28: :l-10-1.

"Consignee". Section 28: 7-102. "Consignor". Sedion 28: i-102.

/•H4 / "Consumer goods". Section 28: fl-10!>. 1,,f"-(""'.._ __ . "Dishonor". Section 28: a-iWi.

--''Draft". Section 28: :3-104:. (4:) In addition article 1 contains geneml definitions and pl'ineiples

of construction and interpretation applicable throughout this article. § 28 :2-104. Definitions: "merchant"; "between merchants"; "fi.

nancing agency" (1) "Merch.irnt" means a person who deals in goods of the kind or

otherwise by his occupation holds himself out i1s lun·ing knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill rnay be attributed by his employment .,,..,,,-of an agent or broker or ot.her intermedinry who by his occupat.i~ J holds himself out as havin* such knowle<lge or skill. __-.- ~,.

(2) "Financing agency' means a hank, finance compnuy or other f,,.-... u ,J person who in the ordinary course of business !Hakes nc.lrnnces i1g!linst f'e·tli' .<i' l!QQda or .~eut~LPLti~ or who by arrangement with either the 11 seneF"' or tnel:iuyer-·intervenes in ordimiry course to make or collect ·-7 f...i ~ r payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances agninst it or by merely taking it for collection whether or not documents of title accompany the draft. "Financing aO'ency" includes i1lso a. bank or other person who similarl:y intervenesbetween persons who are in the position of seller and buyer m respect to the goods (section 28: 2-707). .

( 3) "Bet ween merchants" means in any transaction with respect'-, to which both parties are chargeable with the knowledge or skill of/ merchants. § 28 :2-105. Definitions: transferability; "goods''; "future" goods;

"lot"; "commercial unit"

l ( 1) "Goods" means all things (including specially manufactured IV ~oods) which are movable at the t.iine of identification to the contract

r'""" tor sale other than the money in which the price is to be paid, invest- .. ~ ment securities (article 8) and things in action. "Goods" also includes~

~, fJI the unborn young of animals and growing crops and other identified r7 things attached to realty as described in the section on goods to be

se,·ered from realty (section 28 :2-107). ·

77 STAT.] PUBLIC l

(2) GomlH must be both e:> in them can pass. Goods \YI are ''.future~' goods. A purp auy mterest therein operates

(a) There may be a sale of : (-1) .\tt undh·ided share i1

snflirit\ut ly identified to be is not detN·mined. Any :igre tity thereof agreed upon by the extent of the seller's inte then becomes an owner in co

( 5) "Lot" meims a pnrce· mutter of a separate sale or perform the contract ..

( 6) "Commercial unit'~ me usage is a single whole for materially impairs its chara comme.rcinl unit may be u articles (as a suite of furniti (as a bale, gross, or carload rele\'nnt market as a single' § 28 :2-106. Definitions: "

sale"; "sale tract; "terr

(1) Int-his article unless and "agreement" are.Jimite• sale of goods. "Contract fo and n eontrn<'f to sell goods passing of title from the s1 2--101). A "present sale~' makin~ of the contract.

(2) Goods or conduct ine forming" or conform-to the the obligations under the cc

(3) · "Termin::i.tion" occu created by ngreement or lM for its breach. On "terr executory on both sides ar breach or performance sur

( 4) "Cancelhtion" occr contract for breach by thi: -'terminntion" except that 1 for breach of the whole co § 28:2-107. Goods to be

( 1) A contra.ct for the structure or its materials the sale of goods within 1 seller but until seYerance not eff ectfre as a transfer contract to sell.

( 2) A contract for the ! other things . attached to material harm thereto but for the sale of goods wit is to be severed oy the bu) of the rea.lty at the time c fication effect a present si

93-02~ 0-64-43

77 STAT.] PUBLIC LAW 88-243 x. 30, 1963

(2) Goods must be Loth existing and identified before any interest in them can pnss. Goods which are not both existin"' and identified

"f ., l \ <l "' are uture goo< s. . purporte prest'nt sale of future "'Oods or of any interest tlierein 01wrafl'!:i as a contract to sell. "'

(:1) Tliere m:•Y. bea ;;ale of.n, par~ inte~·est in existing identified goods. (-!) .\n unchnded share 111 an 1de11ttfied bnlk of fun..,ible "'Oods is

sulliciently identified to he sold although the quantity of tl1e bulk is not determined. Any agreed propo1tion of such a bulk or any quantity thereof agreed upon by um11ber, 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 snch a unit of goods as by commercial 11sage is a single whole for purposes of sale and division of which materially impairs its clrnraeter or value on the market or in use. A <·ommercinl unit may be n. single article (as a machine) or a set of articles (as a suite of furn itnre or an assortment of sizes) or a quantity (as a b11le, gross, or carload) or any other unit treated in use or in th relevant market as a single whole. § 28 :2-106. Definitions: "contract"; "agreement"; "contract for

sale"; "sale"; "present sale"; "conforming" to contract; "termination"; "cancellation"

(1) In this article unless the context otherwise requires "contract" ,,.and "agreement" are limited to those relating to the present or future r sale of goods. '"Contract. for snle" includes both a present sale of ~oods nnd a contract to sell goods at a future time. A ' sale" consists m the ~assin.., of title from the seller to the buyer for a price (section 28: j .; :0:--101). A ''present sale'' means ti sale which is accomplished by the r ( ( r//I I makino- of the contract.

(2) l1oods or conduct induding any part of a performance are "conforming" or conform·to the contract when they are in accordance with the oblii?Utions under the contract.

(:~) "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 disclu~rged but any right based on prior breach or performance survives.

( 4) "Cancelhtion" occurs when either party puts an end to the contra.ct for brea.ch 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 lmperformed 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 be severed by the seller but until se,·erance a purported present sale thereof which is not eft'ectfre as a transfer of an interest in land is effective only as a contract to sell.

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

93-025 0-64-43


(3) The provisions of this section are subject to any thinl part\· 1·ights prodded b~· the law relating to realty records, nnd the contritct. for snle may be executed nnd recorded as a dcx:mnent trnnsferring: nn interest. in land and shall then constitute notic<> to third parties of the buyer·s rights unde1· the cont.met 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 contmct for the /} v, l J

ilale of goods for the price of $500 or more is not enforceable bv way // 'r of action or defense unless t~~()!lli: writing.sufficient to indicate that a contract for sale has oeen made between the parties and si~ned 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 tenn agreed upon hut the contrnct is not enforce-able under this paragr:~ph 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 sufficie1it against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subseetion ( 1) against sueh party unless written notice of objection to its contents is ginn within ten days after it is received.

(3) A contract which does not satisfy the requirements of subsection ( 1) btit 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 t11e ordinary course of the seller's business and the seller, before notice of repudiation is received mid under circumstances which reasonably indicifte that the goods are for the buyer, has made either a subsfantial beginning of their manufacture or commitments fort heir procurement; or

(h) if the party against whom enforcement is sought admits in his pleading, test1111ony or otherwise in court that a contrnd for &'l.le was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

( c) with respect to goods for which payment has been made and 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 contemporaneous oral agreement hut 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

j/ (b) by evidence of consistent additional terms unless the court 1 finds the writing to have been intended also as a complete and

, ,l ii:.)',.1 / exclusive statement of the terms of the agreement.

/ 1, 1: f ( § 28 :2-203. Seals inoperative

, /Ji ) The affixing of a seal to a writing evidenc:ing a contr~c~ for sale or J ? an offer to buy or sell goods does not constitute the wr1tmg n sealed

instrument and the law with respect to sealed instruments does not '-n pply to such a contract or offer.

77 STAT.] PUBLIC

§ 28 :2-204. Formation ir ( 1) A. contract for sal1

sufficient to show agroome1 recognizes the existence of E

(2) An agreement suffi< be found even though the r

( 3) Even though one o sale does not fail for ind1 make a contract and there appropriate ·remedy.

§ 28 :2-205. Firm offers .An off er by a merchant t

by its terms gives assuran< for lack of consideration, c for a reasonable time. hut i excee~ three months; hut supplied by the otferee mu § 28 :2-206. Off er and ac

( 1) lJnless otherwise m ,. i r('umstances

(a) an offer to mal u~ceptance in any ma 1.•1rcumstances;

( b) an order or otl1 shipment shall be coi prompt promise to sh <·onformmg or non-c non-conforming good seller seasonably noti only as an accommodi

( i) Where the beginni: able mode of acceptance ~ within a reasonable time : acceptance.

§ 28 :2-207. Additional 1 ( 1) A definite and seas•

eonfirmation which is ser acceptnnce even though it those offered or agreed conditional on assent to l

(2) The additional teri tion to the contract. Bet the contract unless:

(a) the offer expr offer;

( h) they materiall ( c) notification of

or is given within : received. ·

(3) Conduct by both · contract is sufficient to es1 i ngs of the parties do not the te1!11.s of the particul the w~1tmgs of the parti tenns mcorporated under

77 STAT.} PUBLIC LAW 88-2iL-OEC. 30. 1963

§ 28 :2-204. Formation in general ( 1) A contract for snle ~f goo?s may be made in anY. maru:er

sufficient to show agreement, mcludmg conduct by both parties which recognizes the existence of sue h a contract.

(2) ~\n agr~ment 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 g1vmg an nppropriate remedy. § 28:2-205. Firm offers

An offer by a merchant to buy or sell goods in a signed writing which Lv its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. § 28 :2-206. Off er and acceptance in formation of contract

(1) linless otherwise unambiguously indicated by the language or l'i r(·umstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any mediwn reasonable in the •!ircumstances; . / ·

(b) an order or other offer to buy goods for prompt or current /1 i#7 shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of l'Onformmg 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 reasonnble 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

eonfirmation which is sent within a reasonable time operates as an aecepbmce even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

( 2) The additional terms are to be construed as proposals for addition to the contract. Bet,veen 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 (~) i~otificat}oi~ of objection to ~hem has already been given ..

or 1~ given mthm a reasonable time after notice of them is / j,-117 ~~~ ,~

(3) Conduct by both parties which recognizes the existence of a, /)-' contract is sufficient. to establish a contract for sale although the writ- · ings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any sup.Plementary te11ns incorporated under any other provisions of this subtitle.

.1'.'. ' 1!( .

1H t :?i.

iF~ ~


§ 28:2-208. Course of performance or practical construction ( 1) "·here the •·ont raet for sn IP i nn>h·e,; re pea te<l oc<':1si<.'11s for

perfornrnuee by l:'itlwr pnrty with k11owledg-e of the 11at111·e of the perfornrn11ee and opportunity fo1· ohje<"ti011 to it hy the other, any course of perfornrn111·e. aceepted or aequie&·ed i11 without objertion shall be 1-elenrnt. to determine the mean inir of the agreeuien-t-. --

(2) The express te1'111s of the agTeernent and anv s11eh eonrse of performirnee. as well as nny <'onrse of dealing an<l m:;age of tmde shall be construed whene,·er reasonable as consistent with ead1 other; but when such eonstrnetinn is 11nreasonnble, express terms shnll control course of perform a n('e and ('OHI'se of performa nee shn 11 eo11trol both course of <leali11ir and usag-e of trade ( ,-eetion :!8 :1-:Wn). ,

(3) Subject to the provisions of the next set"tion on modification and waiYet\ snch eourse of performatH'e shall he relevant to show a waiver or moditication of am· term inconsistent with ,;;ueh ('Ollrse of performan<'e. ·

§ 28:2-209. Modification, rescission and waiver (1) An agTeement modifying n eontraet within this article needs

no consideration to be binding. (2) .\.signed agreement whi<·h ex<'ludes moditi!'ation 01· reseission

except by a siirned writing- en111wt he otherwise moditie<l or resC'inded. but exe.ept as between me1·t'hnnts Sll!'h a requ ireme11t m1 n form supplied by the rnerthant must he ,.;eparately sig!led by the other par(ty. . f , .

1 . . . .

3) The reqmrements o the statute of frnm s se<'l10n of this :ntiele (section :28: :!-'.WI) mnst he satisfied if the <'<>ntnwt as modified is within its provisions.

(4) Although an attl'mpt at moclifil'ation or 1·eseission does not satisfy the requirements of sub.;ection (:.!) or (:\), it can operate as a wniver.

(5) .\ par:.r who hns made a wni,·er affedillg an eXl'<'ntory portion of the rontra<:t may retraet the waiYer hy reasonnhle 11otifientio11 received by the other pai·ty that st l'iet performan<'e will he required by an:r term wn ived, 11 n les,; the ret rnct ion wo11 l<l he 1111j ust in view of :t material eha nge of posit ion in rel ia nee 011 the wa i ,·er.

§ 28 :2-210. Delegation of performance; assignment of rights

77 STAT. ] PUBLIC

promise is e11foreei1ble hy l

vriginal contract. ( 5) The other pnrty m

performance as creatin~ r without. prejudice to his : :rnces from the assignee ( se•

PART 3-GENERAL OE

~ 28 :2-301. General obli The obligation of the s

the buyer is to accept and

") § 28 :2-302. Unconsciom (1) If the court as a, m:

of the contract to have b1 Aet.tf the court may refuse to . r J.t/ remaind~r .of the contra~ cl~ may so ltm1t the applicat

//any unconscionable result. . 1 /Vf fl) (2) When it is claime•

('ltrA.l or a.ny clause thereof n t)Y"lf( -") idfor~led it r~~asonable op]

mercml settmg, purpose determination.

§ 28 :2-303. Allocation • Where this article allor

"unless other wise agreed" tion but may also divide

§ 28 :2-304. Price payal ( 1) The price can be 11

pa.yable in whole or in pn which he is to transfer.

(2) E\·en though all 01

realty the transfer of the ence to them are subject terest in realty or the tra

(1) A pnrty mny perform his duty t!mmgh a del~~tt unless otherwise agreed or unless the other party has a s11bstn11trn1 rntere:;t in having his ori~nnl promiso1· perform or eolltrol the nets reqnire'l hy the cont met. l Xo clell'i,!ation of pe1·forma11ee relie\·es the party\'__..... , delegating of an.r duty to pC'dom or any liability for hrenrh. J ·

(2) {;nless otherwise agreed n II 1·igltts of l'it her S('ller or buyer can be assiglled except where the assignment wonl<l materially challge

§ 28 :2-305. Open price ( 1) The parties if the

tWen though the price is sonable price at the tim<

(a) nothing is sn (b) the price is le the duty of the other vnrty, or i!lcrease lllat{'l'ially the hm·dl'H 01' risk

imposed 011 him hy his (•011tmet, or impair matPl"ially his chance of obtaining ret11111 perfomurnee. .\ right to damages for breach of the whole contrnl't or a right al"ii-;ing ont of the assiir11or'i-; due performance of his l'lltire ohligntion can lie assigned despite agreement otherwise.

(3) l:nless the cir~:umstam:es indicate the contrnry n prohibitio11 of assignment of ''the cont rad., is to ue construed as hn rri11g only the delegation to the assig-nee of the ns.'iig1101•'s performance.

(4) An ussig11llle11t of "the <·011tmcf~ or of "nll my rights umler the co11trart'~ or nn-assigmllent. in similar geneml tel'ms is nn assig11-roent of rights and 1111 less the hrnguage or the C'il'('lllllstn 11ees (as in an assignment for secmity) indicate the contrary, it is u delegation of perfornum(·e of the duties of the assignor nrnl its aceeptnnce by the assign~ <·onstitntes a promise by him to perform those duties. This

-

agree; or , (c) the price is tc

other standard as se it is not so set or re•

(2) A priceto be fixe< him to fix in good faith

( 3) When a price left parties fails to he fixed hi~ option trent the co11 price.

('4) \Vhere, however, price be fixed or it.greed tract. In such a case th< or if w1nble so to do m

- . .

77 STAT.] PUBLIC LAW 88-:.c43-DEC. 30, 1963

promise is enforceahle hy either the assig1101· or the other partv to the oriainal contract. ·

(5) T11e other party may treat any assignment. which de.lega.tes performance as creating reasonable grounds for insecurity and may without prejudice to his ri~hts against tlw assignor demand itssurances from the assignee (sect 1011 28 :~-609).

PART 3-GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

s 28 :2-301. General obligations of parties The obligation of the seller is to transfer and deliver and that of

.>45

the buyer is to accept and pay in accordnnce with the contract. _Jl L

§ 28:2-302. Unconscionable contract or clause .;-uvJ j l/

(1) If the comt its a. matter of law lirnh; the cont rad 01· any clause ( e, of t.he contract to ha,·e been uncon§(•jonahle n.t the time it was made I /" /L-the court 1m1y refuse to enforce the contract, or it. may enforee the ( ... 7 /,,. remainder of the contract. without the unconscionable clause, or it p may so limit the application of any unconscionable clause as to amid ,.,,,J.(? /( any unconscionable result. )'J. _.,, ~ r ,,,r/j:e

(2) "rhen it. is claimed or appears to the court that the contrnct (ll""" , tr ~v- '

or any clause thereof may be unconscionable the parties shall he ~ a.fforded f1, reasonable o) ) t1 1 • • to re.sent. evidence as to its com- /l.""'( /' ,.n,L.,,mercial set mg, pmpose and effect to a1 t 1e court m making- the /} ~ ;;..,v,.r'Y( determination. 7) v -'f r § 28 :2-303. Allocation or division of risks )

Where this article. allocates a risk or a burden as between the pa1'ties .:unless otherwise ugreed·', the agreement may not onlv shift the a11oc11-tion 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 euch party is il seller of the goods whi<'h he is to tmnsfer.

(2) Enn though aH or part of the iwice is payable in irn interest in realty the transfer of the goods and the selJer's obligations with reference to them are subject to this nrtiele, hut 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 cont.met for sale

eYen though the price is not. sett led. In such a case the p1·ice is a re;isonable price at the time for delh,ery if

(a) nothing is said as to price; 01· (b) the price is left to be agreed by the parties and they fail t-0

agree; or ( c) the pri<'e is to be fixed .in terms of some agreed market 01·

othe1· standard as set 01· recorded by a third person or ng-ency and it is not so set or recorded.

( 2) A price t-0 be fixed by the seller or by the buyer means a price for him to fix in g-ood faith.

( 3) 'Yhen a price left to be fixed otherwise than by agreement of the pn1·ties fails to he fixed through fault of one party the other may at his option treat the contract :is cancelled or himself fix a reasonable price. . .

(4) Where, however, the p_nr!tes mtend 1~ot to be bound ~mless the price be fixed or iigreed nnd it ts not fixed or agreed there is no ~ontract. In such ii cnse the buyer must return any goods already r~ce1ved or if wiable so to do must pny their reasonable value at the time of


delin•ry and th!:' ;-;ell!:'1' mu:->t retm·n any portion of the pricl:' paid on ll<'l'Ollllf.

§ 28 :2-306. Output, requirements and exclusive dealings (1) .\ te!·m whieh measures the quantity hy the output of the seller

or the re<1mrenH.'IHS of the buyer means sueh actua I out put or requirements as may o(·eur i11 good faith, ex<'ept that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stnted estimate to any normal or otherwise comparahle prior m1tput or requi1·ements mav be tende1·ed or deurnwled.

(:2) A lawful agreement by either the seller or the buyer for exclu$iYe dealing in the kind of goods concerned imposes unles.<> otherwise agreed an obligation by the seller to use hest 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

r 11 less otherwise agreed a JI goods called for hy a eollt 1·a('f for sale must be tendered in a single deli,·ery and payment is due only on $nch tender but where the circumstitnees gfre either party the right to make or demand deli\·ery in lots the price if it can he ilpportioned may be. demanded for each lot. § 28 :2-308. Absence of specified place for delivery

rnless otherwise agreed (a) the phwe for delivery of goods is the seller's place of busi

ness or if he lrns none his residence: but (b) in u contract for sale of identified goods which to the

knowledge of the J>nrties at the time of contracting are in some other place, that pace is the place for their delivery: and

(c) documents of title may be deJi,·ered throu~h customary banking <-luumels.

§ 28 :2-309. Absence of specific time provisions; notice of termi• nation

( 1) The time for shipment or deli,·ery or any other action under a contract if not pro\'ided in this article or agreed upon shnll be a reusonahle time. .

(2) \Vhere the contract provides for successi\'e performances but is indefinite in duration it is ,·alid for a reasonable time but unless otherwise agreed may be terminated at uny time by either party.

(3) Termination of a contract by one pm1y except on the happening of an agreed e\·ent requires that reasonable notification be 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; author

ity to ship under reservation T;nless otherwise agreed ·

(a) payment is due at the tim<' and place at which the buyer is to receive the goods e,·en though the place of shipment is the place of delh·ery; and

(b) if the seller is authorized to send the goods he may ~hip them under reserYation, and may tender the docwnents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (section 28 :2-51:3); and

(c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then I?ayment 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

77 STAT.] PUBLIC

( d) where the seller on credit the credit p post-dating the invoic mgly delay the startin~

§ 28 :2-311. Options and (1) .An agreement for!

(subsection (3) of sectior invalid by the fact that it 11 fled by one of the parties good faith and within lir

( 2) Unless otherwise a~ the goods are at the buyersubsections ( 1) ( c) and arrangements relatmg to i

( 3) '\Vbere such specif party's performance but i cooperation is necessary t is not seasonably forthcon remedies

(a) is excused for and

(b) may also eitl· manner or after the t ance treat the failur failure to deliver or a

§ 28 :2-312. Warranty c obligatio1

(1) Subject to subsect ranty by the seller that

{a) the title conv£ and

( b) the goods sha or other lien or enccontracting has no k:

( ~) A warranty unde1 only by specific languag reason to know that the or that he is purportin1 third person may have.

(3) Unless otherwise dealing in goods of the k free of the rightful clair or the like but a buyer' hold the seller harmlel* compliance with the spe

· § 28 :2-313. Express w . tion, sar

( 1) Express warrant (a) Any affi.rmat

buyer w h1ch relate of the bargain Cl"ef

conform to the affi.1 (b) Any descriJ,=

basis of the barga1 shall conform to tl

( c) Any sample the bargam create goods shall confor1

77 STAT.] PUBLIC LAW 88-24 .. . EC. 30, 1963

(d) wliere the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondmgly 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 be a contract is not made invalid by the fact that it leans particulars of performance to be spedfied by one of the parties. Any such specification must be made in good faith and within limits set b;>: commercial reasonableness.

(2) Unless otherwise a~reed 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 shipment are at the seller's option.

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

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

(b) may also either proceed to .rx;rform in any reasonable manner or after the time for a material part of his own performance treat the failure to specifv or to cooperate ns 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 shnll be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(~) 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 mav have.

(3) Unless otherwise agreed a seller who is a merchant re!rularly dealing in goods of the kind warrants that the goods shall be deiivered 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 \'l"hich arises out of compliance with the specifications. § 28 :2-313. Express warranties by affirmation, promise, descrip-

l

(1) Express warranties by the seller are created as follows: Ii tion, sample p

(a) An-, 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 descriJ?tion of the goods which is made part of the basis of the bargam creates an express warranty that the goods shall conform to the description.

(c) Any sample or model which is macle part of the basis of the bargam creates an express warranty that the whole of the goods shall conform to the sample or model.

PUBLIC LAW 88-243-DE:C. 30, 1963 (77 STAT.

(2) It is not necessary to the creation of an expre:>s warrant\· that the seller use formal words such as "wnrranf' or "guarantee·· o'r tlrnr. he have a specific intention to make 11 warranty, but an aflim1ation merely of the Yalue of the iroods or ii statement purporting to be merehthe seller's opinion or rommendation of the goods does not rt'eate ;l warranty.

§ 28 :2--314. Implied warranty: merchantability; usage of trade (1) Unless excluded or modified (section 28:2-.'H6), a warranty

that the goods shall be mercluintable is implied in a eontrart for thei'r sale if t.he seller is a merchnnt with respect. to goods of that kind. Under this section the serYing for value of food or drink to he (•onsumed either on t.lte premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least sneh as (a) pass without objection in the t mde under the eontmd

description; and (b} in the case of fungible goods, are of fair anrnge quality

within the description; and " ( c) are fit for the ordinary purposes for whirh sneh goods are

nsed; and (d) run, within the rnriations permitted lw the agt·eement, of

enn kind, quality and qnantity within each imit and among all units inYoh·ed: :u1d

( e) are adequa.te]~· contained, paekaged. and labeled as the agreement may reqmre; 1ind

(f) conform to the promises or affirmations of fact made on the container or label if anv.

(3) rnless excluded or modi"fi.ed (section 28 :2-316), other implied warmnties mny nrise :from ('OUI'se of <lenling or usage of trade.

§ 28 :2--315. Implied warranty: fitness for particular purpose 'Where the seller nt the time of contmcting hns reason to know nm·

particnlnr purpose for which the iroods iu·e required nnd that tli'e buyer is relying on the seller's skill or judp:me11t to seleet or furnish smtable g-oods, there is unless excluded or modified nnder the 11ext section an implied warranty that the goods shall he fit for such purpose.

§ 28:2--316. Exclusion or modification of warranties (1) "\Yords or co11d11ct relevirnt to the nentio11 of an express war.

ranty and words or conduct tendinir to negate or limit warranty shnll be ronstruecl wherewr rensonnble as <"Onsistent with each othei:. bnt subject to the provisions of this article on parol or extrinsi~ evidence (section 28 :2--202) negation or limitation is inoperative to the extent that such construct ion is unreasonable.

(2) Subject to subsectio11 (:l), to exclude or modifr the implied warr'!-nty of merch~n.tability_ or any part .o.f it the 1;rng-11nge must ment1011 merchantab1l!ty and ~11 cn~e of a wr1tmg m.ust he <"onspicnons, and to exe:lude or mochfy any unphed wnrrnntv of fitness the exclusion ~nust. be by a '':'riting and eonspicuons. L~rngnaire to exclude all unphed wnrrant1es of fitness is sufficient if it states. for example, thilt ~'There are no warranties whieh extend beyond the description on the face hereof."

(a) Xotwithstanding subseC"tion (2) (a) u!1less the circnmstanee.<> indicate otherwise, nll implied

warranties are excluded hy expressions like "as is'' "with all faults~' or other langunge which in c·ommon nnderstn;1dinu calls the. buyer's attention to the exclusion of warrnnties and ~nnkes plam that there is no implied warranty; and

77 STAT.] PUBL

(b) when the bUY examined the goods o or has refused to exm with regard to defect: stances to ha Ye reveal

( c) an implied wa course of dealing or ,

( 4) Remedies for brea1 with the prO\·isions of thi ~1ges and on contractual 718 and 28:2-719). § 28:2--317. Cumulatior.

plied '\Y'arranties whether e:

!:'istent with each other a: unreasonable the intentic ranty is dominant. In a: apply:

(a) Exact or tee! sample or model or ~

(b) A sample fr general language of

( c) Express warr ties other than an i purpose,

§ 28 :2--318. Third par· implied

.A seller's warranty wl ral person who is in the guest in his home if it is · consume or be affected I breach of the warranty. tion of this section.

§ 28 :2--319. F .O.B. an< ( 1) Unless otherwise

on hoard") at a namecl with the stated price, is

(a) when the te1 must at that pince : article (section 28 :: ting them into the l

(b) when the ter must at his own e place and there ter m this article ( sec1

( c) when under sel, car or other v expense and risk le vessel the buyer mi the seller must c01~ form of bill of ladi

(2) Unless otherwisE "free alongside") at a r with the stated price, i

(a) at his own e vessel in the mam and provided by

77 STAT.] PUBLIC LAW 88-243-DEC. 30, 1963

(b) when the bm·er before entering into the contract has examined the goods or the snmple or model as full~· as he desired or has refused to examine the a.-oods there is no implied warranty with regard to defpr•ts which an examinntion ought in the circumstances to ha Ye renaled to him; and

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

( 4:) Remedies for breach of warranty cnn be limited in accordance with the prorisions of this article on liquidation or limitation of damages and on contractual modification of remedy (sections 28 :2-il8 and 28 :2-719).

§ 28 :2-117. Cumulation and conflict of warranties express or implied

\Yarranties whether express or implied slrnll be construed as con!:'istent with each other and as cumulnt.ive. but if such construction is unreasonable the intention of the parties shall determine which warranty is domina1it. In nscertaining thnt intention the following rules :ipply:

(a) Exact or teehnical specifications displace an inconsistent sample or model or general lan~uage of description.

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

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

§ 28 :2-118. Third party beneficiaries of warranties express or implied

A seller's warranty whether express or implied extends to any natural person who is in the fnmily or household of his buyer or who is a guest in his home if it is rea:-:onable to expect that such person may use, consume or be affected hy the goods and who is inj!!red in person by breach of the warranty. A seller may not exclude or limit the operationof this sec'1i'Oi1:'-§ 28 :2-119. 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, eYen though used only in connection with the stated price, is a delivery term under which .

(a) when the t~rm is F.0.B. the place of shipment, the seller must at that place ship the goods in the manner proYided 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 expen!"e and risk transport the goods to that place and there tender delh·ery of them in the manner provided m this article (section 28 :2-503) ;

(c) when under either (a) or (b) the term is also F.O.B. ,·essel, car or other ,-ehicle, the seller must in ad<lition at hi:- own expense and risk load the goo<ls on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropdate case the seller must comply with the pro,·isions of this article on the form of bill of lading (section 28 :8-323).

(2) Unless otherwise ag-reed the term F.A.S. vessel (which means "free alongside") at a named port, enn though used onlv 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

,

PUBLIC LA\\" 88-2..t.3-DEC. 30, 1963 [77 STAT.

(Ji) outai11 and kmh•r a l'<Weipt for the <'OrnJi-; ill l'X<'.liilll"e for wh~ch the <'arrie1: is under a. duty to issue. 1:'bill of ladiug-. ,...,

(3) { 11less othennse <llfl'el:'d 111 1111y <·ase falli11g within s11ll8e<'tion (1) (a) or (e) or subs(•<·tion (:t) the huyer must senso11nbly give anv needed instnwtions for making deli,·p1·y, inchulinl! when the term [.;; l<'.A.S. or F.O.B. the loatli11g lwrlh of the ,·essel and in an appropriate <'ase its name n11<1 sailing date. The selle1· mav treitt the failure of needed i11stru<:tions as a fitilnre of 1·ooperntio11 1i11<ler this artide (section 28:i-:HI). He lllay also at his optio11 mo,·e the goods in imv reasonable nuu11wr prepnratory lo deJi,·e1·y or shipment. •

(4) l'rnler the term F.O.B. n~ssel or F .. \.S. unless otherwise agreed the buyer m11st make payment agn inst tender of the requ i 1·ed clocnments and the selle1· mny 11ot tender 11or the b11ver delllarnl deJi,·ery of the goods in substitution for the doeutllents. •

§ 28 :2-320. C.I.F. and C. & F. terms (1) The term C.I.F. means that the pri<'e includes inn lump sum the

rost of the goo1ls nnd the insurance an<l freii.d1t to fhe 11i1med destination .• The term C. & F. or C.F. means that the price so indudes cost and freight to the named· !lest innt ion. . · . ·

(2) l'nless otherwise al!reed nnd e,·en t houg-h nsed only in 1·011-

nection with the slitted price and <lestiw1tiou, the term C.I.J<\ 1lestiuation or its equintlent requires these.Her at his own expense aucl risk to

(a) pnt the goods into the possession of n <'arriei· at the port. for shipment and obtnin it negotiable bill or hills of ht<linrr covering the entire transportaiton to the 1ia111ed destinntion: and

(b) load th~ g0<>~ls nml o.btain n r~ceipt fron! the carrier (wJ:ich may be contallled Ill the bill of hulmg) showmg that the fre1glit has been paid 01; pro,·i<led for; und ·

. ( c). obt:1in n poliey or e.e1tificate of insura1we, i11elu<lin1-t any war risk msurance. of a kmd and on terms then current at the port of shipment iii the usual amount, in 1he currency of the contract, sho~,·1~ to C(ffer the same goods covered by the bill of hiding :md prondmg for payment of loss to the order of the buyer

. or for the account of whom it may eoncei11; but the seller may n<ld to the prire tlw amo1111t of the preminm for any such war risk immrance: and

(d) p1·epare an i11voi1·e of the l!oocls and procure any otlle1· documents required to etl'eet shipment or to comply with the contract; and

( e) forward nnd tender with 1·omme1'<'iu l p1·omptness :tll the documents in due fo1111 nnd with any i11dorseme11t necessary to perfect the buyer's ribiol1ts.

(3) Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obli~utions and risks as a C.I.F. term except the oblig-atiou as to insurance.

(4) Under the term C.I.F. or C. & F. unless otherwise agreed the hu;yer must make payment against tender of the required documents und the seller m:ty not tender nor the buyer demand delivery of the goods in substitution for the documents.

§ 28 :2-321. C.I.F. or C. & F.: "net landed weights"; "payment on on arrival"; warranty of condition on arrival

Under a contract containing a term C.I.F. or C. & F. (1) Where the price is baied 011 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 t.he documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.

77 STAT.] PUB!

(2) .\n agreement de qu:tlity 01· <'oi1dition oft risk of ordinary deteric tion but has no effect < <·ontract for sale or deli

(3) Unless otherwise ment on or after arriva allow such preliminary lost delivery of the doc should have arrived.

§ 28 :2-322. Delivery ' ( 1 ) Unless otherwise

(which means from the not. restricted to a pa1t which has reached a p goods of the kind are m

(2) l!nder such a ter ( u) the seller m

riage and furnish carrier under a dut

(b) the risk of } lea•·e the ship's tac:

§ 28 :2-323. Form of I "overse

( l) Where the cont tu ins it term C.I.F. or ( wise ll!,rJ:eed must ohta ;.,_J"Qods have been loade ('. & F., received for sh:

( 2) Where in a case issued in a set of part< 11ot to be sent from ab set; otherwise only or l•:Yen if the agreemen

(a) due tender visions of this arti of section 28 :2-t

(b) even thoug sent from abroad nevertheless requi the buyer in good

(3) A. shipment by l'hipment is "overseas' !-iubject to the comme1 i!-itic of international d

§ 28:2-324. "No arri Under a term "no a

otherwise agreed, (a) the seller r

arrive by any n assumes no oblig ca used the non-ai

(b) where wit or have so deteri1 arrive after the< had been casualt;


(2) ~\ n ngTeement. described in subsection ( 1) or any wnrranty of quality or condition of the ~oocb 011 arrirnl places upon the seller the risk of orcli11nry detel"iorat1on, shri11kage and the like in transportation but hns no effect on the place 01· time of identili.cation to the l"Ontract for sale or delivery or on the passing of the risk of loss.

( 3) Unless otherwise agreed where the contract pro,·ides for payment on or after arrin1l of the goods the seller must before pay-ment allow such preliminary inspection as is feasible; but if the goods are lost delivery of.the documents and pnyment are 1lne when the goods should have arrived. § 28 :2-322. Delivery "ex-ship"

( 1) unless otherwise agreed a term for ilelinry of goods "ex-ship~' (which means from the carrying vessel) or in equivalent language is not restricted to a paiticular slup and requil"es delivery from a ship which has reached a place at the 11a111ed port. of destmation where goods of the kind are usually discharge~.

(2) "Gnder such a term 1111less otherwise agreed (a) the seller must discharge all liens arising out. of the car

riage and furnish the buyer with a direction which puts the carrier under a duty to dell\·er 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) "There the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise a~reed must obtain a negotiable bill of ladinf(J' stating that the goods nave been loaded on board or, in the case o a terrn 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 11ot 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. E\·en 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 contemplating such !:'hipment is "overseas" insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce. § 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 arrh·e 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 contract time, the buyer may proceed as if there had been casualty to identified goods (section 28 :2-613).

651

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52 PUBLIC LAW 88-243-DEC. 30, 1963 (77 STAT.

§ 28 :2-325. "Letter of credit" term; "confirmed credit" ( 1) Failure of the buyer seni,;onably to fumish an agreed letter of

credit is a brendi of the eon tract for sale. · (2) The delirery to sel1er of aproper letter of eredit suspends the

buyer·s obligation to pay. If the letter of credit is dishonored, the :>eller may on seasonnble notification to the buyer require payment directly from him.

(3) Cnless otherwise agreed the term "letter of credit~· or "banker~s c1·edit'' in a contract for sale means an irrevocable credit issued by a financin~ agency of good repute and, where the shipment is ornrseas, of good mternational repute. The term "confirmed credit'~ means that the.credit must also enn'}' 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) rnless otherwise agreed, if deli\·ered goods may be returned by

the buyer emu though they l'Onform to the contract., the transaction is (a) a .. sale on approya}'' if the goods are deli,·ered primarily

for use, and (b) a "sale or return" if the goods are delirnred primarily

for resale. (:t) Except as prodded in subsection (3), goods held on approval

are not subject to the claims of the buyer's creditors unti1 acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.

(3) \Vhere goods are <lefo·ered to a person for sale and such person maintains a place of business at which he deals in goods of the kind im·oked, 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 an agreement purports to resene title to the person making delivery until paj'ment or resale or uses such words as "on consignmenC' or "on memorandum". However, this subsection is not applicable if the person making delivery . . . . . . .

(a) complies with an applicable law prov1dmg for a consignors interest or the like to be e\·idenced by a sign, or . .

( b) establishes that th~ person conductmg the bus mess .1s generally known by his creditors to be substantially engaged m selling the goods of others, or

( c) complies with the filing provisions of the article on secured transactions (article 9).

( 4) Any "or return" term of a contract for sale is to be treated as .a separate contract for sale within the statute. o~ frauds section of this article ~section 28 :2-201) and as contrad1ctmg the sale aspec.t ~f the contract within the provisions of this article on parol or extrms1c e\"idence (section 28 :2-202). § 28:2-327. Special incidents of sale on approval and sale or

return (1) Underasaleonapproval unlessotherwiseagreed .

(a) although the goods are identified t-0 the coi:tract 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 tna l is 1;1ot acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, a~d if the goods conform t~ the contract acceptance of any part is acceptance of the whole, and

I I l

! l I

I I

"'7STAT.] PUBL

( c) after due notifi . the seller's risk and , any reasonable instru<

(2) Under a sale or retu (a) the option to re

unit of the goods wh but must be exercised

(b) the return is at § 28 :2-328. Sale by auc

( 1) In a sale by aucti< :mbject of a separaro sale.

( 2) A sale by auction i by the fall of the hamn a bid is made while the bid the auctioneer may ir the goods sold under the

(3) Sltch a sale is with put up without reserve. may withdraw the good: of the sale. In an aucti· for bids on an article or unless no bid is made bidder may retract his bi· pletion of the sale, bu1 previous bid.

( 4) If the auctioneer l or the seller makes or I given that liberty for st option avoid the sale or faith bid prior to the er not apply to any bid at a

PART 4-TITLI

§ 28 :2-401. Passing o1 plicatio1

Each provision of thi and remedies of the sell applies irrespective of refers to such title. In provisions of this articl the following rules appl

( 1) Title to goods c t.heir identification to otherwise explicitly ag u special property as lu vation by the seller c delivered to the buyer i interest. Subject to t article on secured tran the seller to the buyer i agreed on by the partiei

-

(2) Unless otherwiE the time and place at v reference to the physi tion of a security inter

. .

77 STAT.] PUBLIC LAW 88-2·. -DEC. 30, 1963

(c) after due notificatjon of election to return, the return is at .the seller's risk and expense but a merchant buyer must follow any rea . .,onable instructions.

( 2) Under a sale or return unless otherwise agreed (a) the option to return extends to the whole or any commercial

unit of the goods while in substantially their original condition, but must be exercised seasonabll; and ··

( b) the return is at the buyer s risk and expense. § 28 :2-328. Sale by auction ·

(1) In a sale by auctio11 if goods are put up in lots each lot is the :,mbject 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. \Vhere a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.

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

( 4) If the auctioneer knowingly receh·es 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 bu[er may at his option avoid the sale or take the goods at the price o 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, pur~r other third parties applies irrespective of title to the good~vhere the provision refers tosuch title. Insofar as situations are not cornred by the other provisions of this article and matters concerning title become material the following rules a_pply:

( 1) Title to goods cannot pass under a contract for sale prior to their identificatwn to the contract (section 28:2-501), and unless otherwise explicitly .agreed the buyer acquires by their j.deutjficatjon tt.l?Pecial profu:rt~ as limited by this subtitle. .i\ny retention or reserYat1on by t e se ler of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a securit interest. Subject to these provisions an o t ie provis10ns o t e

·article on secured transactions (article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly a~eed on by the tarties. ·· · ·· · · · ·

2) Unless ot en"'ise 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, <®spite ani reservation of a security interest and even though a document of t.itle is to be

,kttt1~s.1J

t,;t:C-/ 7 ru/I IA>~t.J~


delivered at a ditt'N·ent time ot· phwe: aml in particular am\ dP,.;pitf' nny resenation of a se(·nrity interest hy the. hill of Jading

(a) if t.11e cont met requires or 'irnt 1101'.lz~e;;.!.· .;;t l;!1e..!!!se~l:Tle!.!.tt=.· -;--t1-) -s-e1-117l-t:-h_e_ goods to the buyer but does not require him to deliYer them at destination, tit le pas54:'s to the buyer at the time a n<l phwe of shipment; but

(b) if the contraet requires 1lelin>ry at 1le:::ti11ation, title pa:-;ses on tender there. ·

(3) rnless otherwi:-;e explieitl~· :~g-1·e.e<I \\'here <lelinry is to flt' made \~jthout moving the goods. ,- (a) if tlie seller isto de\i,·er a do<:Hrne11t of title, title pa::;ses nt

the time when and the plal'e where he dt>liwrs s11eh <l<H'llllH'nts;' or

(b) if the goods a1·e ut the time of 1·011t1·ading already identified and no <lve1m1e11h; nre to he deliwre<l, title passes at the time and place. of 1•ont1·acting.

(4) A rejection orothe.r refusal hy thf' huyerto rel'ei,·e or retain the goods, whether or not justified, or a justified rerncntion of aecf'ptnnl'e revests title to the goods in the seller. ~neh l't'\'esting Ol'<'lll'S by operntion of law and is not a .. sale". ·

§ 28 :2-402. Rights of seller's creditors against sold goods ( 1) Except as 1n·o,·ided in suhseet ions ( :t) n nd ( ;~), rights of

unsecured creditors of the seller with respect to goods which hin·e been identified ton eontraet fo1· sale are subject to the huyer·s rights to 1-ecm·er the goods maler this nrticle (sections :!R::!-i'lO:! and :!8::!il6).

(i) A aeditm· of the seller mav treat il sale 01· an identification of goods to ll • .. • for sale as voi1l if as a ainst \um a retent' n l r . >OSSeSSiOll b' the lier is fratH 11 Hler any I'll e 0 fiW...Qf the

/J L~· .-htate w iere the goods are situated, exeept that retention of possession p 111 goOd faith aml current conrse of tmde by a me.rdrnnt-seller for a.

~ rommercially reasonable time after a sale or identification is not / fra ndulent. . I (:-I) Nothing in this artide shall he deemed to impah· the rights

of 1·1·editors of the seller (a) under the prO\·isions of the artil'l!' on seenre<I tmnsaeti::?1s

(article 9) ; or (b) where identification to the eontrnct or delh·N·y is made

not in current course of trade but in snt isfaction of or as secm·ity for a pre-existing claim for money, security or the I ike and is made nnder circumstances whid1 under nny rule of law of the state where the goods are situated "·onld npart from this article con:-;titute the transnetion n, fraudulent transfer 01· voidable preference.

§ 28:2-403. Power to transfer; good faith purchase of goods; "entrusting"

( 1) A purchaser of goods acquires all title which his trnusferor had or had power to trnnsfer except that a purehase1· of n limited interest aequires riuhts only to the extent of the interest purchased. A person with ,-oid1:l)le title has power to transfer u good title to u. good faith purclrnser for value. "'hen goods luwe been delirnred under a. t rummction of purchase the pur{·\rnser has such power e,·en though

(a) the t.rnnsferor was deceived as to the identity of the purchaser, or

( b) the delh·ery was in e.xdrnnge for a check which is later <lishonored, or

( c) it wns agreed that, the transaction was to be a "cash sa.le", or

l.tJP} ~· (d) the delivery was procm·ed through fraud punishable as • ( ~ larcenous under the criminal Jaw. ·

7

PUBLIC'

(2) .\ny entl'll!:iting of pc in goods of that kind gh·e~ entruster to n buyer in ordir . (3) '·Entrusting·' inC'lud

retention of possessiou reg11 the parties to the <lefo·ery . the procurement. of the euti goods ha ,.e been such as to . ( 4) The rights of other r

governed by the 1\rticles on · fers (n1·t1cle 6) and documi

PART

§ 28 :2-501. Insurable in• of goods

( 1 ) The buyer obtains : in goods by identification • tract refers even though t and he has an option to · can be made at any time the parties. In the absern

(a) when the cont ah-eady existing and

(b) if the contrnc1 those described in par or otherwise designa· tract refers;

( c) when the cro1 (·rops m· the young a nnbmi.1 young to be · or for the sale of ere the next normnl ha longer.

( :l) The seller retains a or any security interest identification is by the s1 or notification to the lrn other goods for those id€

(:-1) Nothing in this~ nized under any other st:

§ 28 :2-502. Buyer's ri: ( 1) Subject to subsec

been shipped a buyer w in which he has a spec mediately precedin~ sec of any unpaid port10n the seller becomes insol installment on their pri

( 2) If the identifier made by the buyer he : they conform to the co1

§ 28 :2-503. Manner o ('l) Tender of deliv

forming goods at the notification reasonably manner, time and plac and this article, and in

77 STAT.] PUBLIC LAW 88-24. EC. 30, 1963

(2) .\uy e11tr11sti11g of possession of goods to a 111en:h:111t \\"ho cleals in goods of that kiu<l gh-es him power to transfer nil rights of the entruster to a buyer iu oi·dinary course of business.

(3) '•Entrnsti11g·' i1wlmles nuy clefo·ery nud any a<'qniesrenre in retention of possession regardless of any conditioll expressed hetweeu the parties to the clelin•ry or aequiescelll'e and re~ardless of whether the procurement of the entrusting or the posses.<;or·s disposition of the goods hn,·e been sueh as to he larcenous under the criminal law. · { 4) The rights of other purchasers of goods and of lien creditors are

governed by the nrtic1es on secured transactions (article 9), bulk tmnsfers (article 6) and documents of title {article i).

PART 5-PERFORMANCE

§ 28 :2-501. Insurable interest in goods; manner of identification of goods

(I) The buyer obtains a special property and an iusurable interest in goods by identification of existing goods as goods to which the contritct refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification cnn be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit a~reement identificittion ocrnrs

(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 fntme goods othe1· than those described in paragraph ( c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contrnct refers;

(c) when the crops are planted or othei·wise become growing <'rops or the yon11g are conceh·ed if the contral't is for the sale of unborn young to he born within tweh-e months after l'ontl':t('ting or for the snle of crops to be hanested within twelve months or the next normal hnnest season after C'ontrncting whil'he\·er h; longer.

(~) The seller retaim; an insurable interest in goods so long as tit le to ~ or nny security interest in the goods remains in him and where the identification is by the seller alone he may until defnnlt or insolvency or notification to the huyer thnt the identification is final snbstitnte other goods for those identified.

(:~) Nothing in this section impnir!'l 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 e\·en though the ~oods 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 keepini:r 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 identificnJion creatin~ his special property has been made by the buyer he acquires the right to recover the goods only if they conform to the contract for sale. § 28 :2-503. Manner of seller's tender of delivery ~~

(1) Tender of delivery re~uires that the seller put and hold conforming goods at the buyers disposition and iriYe the buyer a.ny notification reasonably necessary to enable him to tnke delivery. The manner, time and place for tender nre determined by tht) agreement and this article, and in particular


(a) tender must lie at a rea:;onahle hour. a11<l if it is of goods they must. be kept available for f!ie period rea~onnhly necessary to enable the hnJer to take possession: but

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

(2) "There the case is within the next se<'tio11 respel'ting shipment tender requires that the seller rnmply with its prm·isions.

(3) lrhere the seller is required to deli,·ei· at a partieular destination tender requires that he <'omply with subseetion ( 1) and also in :my appropriate cnse tender doeument!:! it:; described in subsections ( 4) and ( 5) of this section.

(4) 'Where goods are in the possession of a lmilee alHl are to be <lelh·ered without being moYed

(a) tender requires that the selle1· either tender n negotiable document of title covering such l?Oo<ls or procure acknowledgement by the ba.ilee of the buyer's rig-ht to possession of the goods; but.

( b) tender to the buyer of <\ non-negotinble document of title or of a written direction to the bailee to deliver is suflkient tender unless the buyer seasonably objects, and ret·eipt by the bailee of notification of the buyer's rig'hts tixes those rights as against the bailee and all third persons: but risk of loss of the goods and of any failure by the bailee to honor the non-neg-otiable dQ('ument of tit'le 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 bililee to honor the document or to obey the direction defeats the tender.

(5) W'here the contract requires the seller to deli,·er documents (a) hl' must tender all such documents in co1Tect form except

as provided in this arti~le with respect to bills of lading in a set. (subsection (2) of section 28: 2-a2:l); and

(b) tender through customary banking ehannels is sufficient and dishonor of a draft ac<'ompanying the documents <'Onstitutes non-acceptance or rejeetion. •

§ 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 contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case ; and

(b) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or 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 J?roper 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) 'Vhere the seller has identified goods to the contract by or before 1>hipment:

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

77 STAT.] PUBLIC L

(b) a non-negotiable reserves possession of th conditional delh•ery (su negotiable bill of ladm~ no security interest eve the bill of lading.

(2) When shipment by interest is in Yiolation of t proper contract for transp1 impairs neither the rights ; tification of the goods to l 1older of a negotiable docm § 28 :2-506. Rights of fini

( 1) A financing itgency which relates to a shipme payment or purchase and ii and any document of title ~oods mcluding the right have the draft honored by

(2) The right to reimb in good faith honored or or authority from the buy of defects with refere1lC'e t ently regular on its face. § 28:2-507. Effect of sel

( 1) Tender of delh·ery the goods and, unless oth Tender ent.it les the seller nc<'ording to the oontra~t

(2) Where payment. 1~ hnyer of goo~s or docun to retain or chspose of tl ment due. § 28 :2-508. Cure by SE

placemer ( 1 ) Where any tende1

non·l'Ollforming and the seller may seasonably n may then within the cor

(2) Where the buyer seller had reasonable gr without money a.llowan1

huyer have a further ren § 28:2-509. Risk of lo · (1) Where the. cont1

the goods by c.arr1er (a) 1f it does rn

destination, the rh are duly deliv~red under reservation

(b) if it does l'E

tination and the possession of the when the goods nr to take delivery.

93-025 0-64-44

77 STAT.] PUBLIC LAW 88-24..:. £C. 30, 1963

(b) a non-negotiable bill of lading to himself or his nominee reserves possession of the goods as security but. except in a case of conditional delivery (subsection (2) of section 28 :2--507) a nonnegotiable bill of ladmg naming the buyer as consignee reserves no security intere~t 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 transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document. § 28 :2-506. Rights of financing agency

(1) A. financing agency by paying or purchasing for valne a draft which relates to a shipment of goods acquires to ffie extent o~ 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 delinry and the shipper's right to ham the draft honored by the buyer.

(2) The right to reimbursement of a financing agency which lrns in good faith honored or purchased the draft. under commitment to or nuthority from the buyer is not. impaired by subseq.uent discovery of defects with referen<"e to •lllY relernnt document wluch was apparently regular on its face. § 28 :2-507. Effect of seller's tender; delivery on condition

(1) Tender of deJi,·ery is a eondition 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 acceptanee of the goods and to payment acC'ording to the contract. ·

( 2) '\'11ere payment is due a n<l demanded on the deli very to the huyer of goods 01· dotnments of title, his right as against the seller to retain or dispose of the'IH is ('OIHlitiorniJ npon his making the payment due. § 28:2-508. Cure by seller of improper tender or delivery; re

placement (l) Wliere any tende1· or delher,y by the seller is i·ejected beeause

11on-eo11formi11g and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time niake a eonforming delivery.

(2) Where the buyer rejech; n 1101H·onforming tender wluch the. se.ller had reasonable grounds to believe would be acceptable with or without money iillowance the seller may if he seasonably notifies the huyer have a further renson11ble t.in1e to snhstitnte a conforming tender. § 28:2-509~ Risk of loss in the absence of breach · (1) ·where the contmet re1p1ires or authorizes the seller to ship

the goods by carrier - (a) If it does not require him to clelh·er them at a particular destination, the risk of loss pnsses to the buyer when the goods are duly delh·ered to the <'arrier even though the shipment is nuder reserrntion (sedion 28 :2-505); but

(b) if it doe..<> t·eqnire him to delh·er them at a/articular destination and the goods nre there clnly tendere while in the possession of the. <'arrier, the risk of loss passes to the 'buyer when the l:!Oods m·e tlwrp <lnly so tendered as to enable the buyer to take delivery.

93-025 0-64-44

··············••1!111••••••$4'1J<Nr-: .. ...,,- .

PUBUC LAW 88-243-DEC. 30, 1963 (77 STAT.

(2) "'he1·e the µoo<ls are held hy a bailee to he (leliwre<l without lit>ill" mo1·e(l. the 1·isk of lrn;s pns.<;es to tht> huve1·

· e (a) on his reet>ipt of a negotiable drn-,ument of title <'01·ering the goods: or , . . .

(h) 011 a<'knowled~ment hy the rnulee of the buyers nght to possession of the goods; or

(c) after his receipt of 11 non-negotiable don1rnent of title or other written <li1·eet1on to <lelh-t>r. as prm·icled in ~mhsectiou ( i:) ( b) of sect ion 28 :2-503.

(3) Iu anv case not within subsection (1) or (2). the risk of loss passes to the~buyer on. his reteipt of the g-oods if the seller i~ a merchant.: otherwise the risk passes to the buyer on tender of delirnry.

( 4) The provisions of this seetion are subject to contrary ag1·ee111ent of the parties :rnd to the pro1·isions of this article on sale on approval (section 28 :2-:~2i) and on effe<'t of breach on l'isk of loss (seetion ~8:2-510).

§ 28 :2-510. Effect of breach on risk of loss (1) ·where a tender or deliw1rof g-oods so foils to ronform to the

contract as to p:iYe ll 1·il!ht of re]e<:tion the risk of their loss remains on the seller until cure or nc<·eptnnce.

(2) ·where the buyer rightfull:· 1·eyokes aeceptanee he may to tl1e extent of nny delicieney in his effecti1·e in:'llll':IJl<'e <'01·erage treat the risk of loss as having l'ested m1 the seller from the heg:i1ming-.

(:~) \Yhere the ln1Yer ns to <'onforming goods nlreadv identified to the contract for salev repudintes or is othel'wise in brenl·h hefore risk of their loss hns passed to him, the seller may to the extent of nnv deficiency in his effe<'tiYe insurance covernge trent the risk of loss its resting on the huyer for a <'Ollllllereinlly rensonnhle time.

§ 28 :2-511. Tender of payment by buyer; payment by check ( 1) l"nless otherwise ng-reed tender of pn:·ment is n condition to

the sellel'~S dut;y to tender nnd complete any delivery. (2) Tender of payment is sufficient when mnde by any means 01~

in any manner current in the .ordinary course of business unless the seller demands payment in legal tender and giws any extension of time reasonably necessary to p1·ocure it.

(~) Subject to the p1·0Yisions of this subtitle on the effect of nn i11strument 011 an obligation (section 28 ::i-80:.0, payment by cheek is conditional nnd is defe11te<l as between the parties h:· dishonor of the check on due presentment. § 28 :2-512. Payment by buyer before inspection

q) "\\~here the contract requires pnyment before inspection nonconfornnty of the goods does not ex<·use the buyer from so mnking payment unless

(n) the 11011-conformity a\)pears withont inspeetion: 01· (h) despite tender of t 1e required d0<.'ll11uents the circum

stances would justify i11junetion ap:ainst honor under the provisions of this subtitle (section 28 :5-lli:).

( :2) Payment pursuant to subse(•tion ( 1) do<>s not 1·011stitnte nn ac('eptnn.<'e of goods or impair the huyel'·s right to inspe<'t or any of his remedies. § 28 :2-513. Buyer,s right to inspection of goods

( 1) rnless otherwise agreed and snbjeet to subseetion (!"J), where g-oods are teudered or delivered or identified to the <·ont1·1u·t for sale. the bnye1· has a rig-ht before payment or ncceptn1we to inspect them n,t any i·easonable place and time and in any rensonable maimer. \Vhen the seller is required or authorized to send the goods to the buyer, the inspeetion may be after their anirnl.

I ~l

77 STAT.] PUBLIC

(2) Expenses of inspect recornred from the seller i·

(8) Unless otherwise a; article OH ( '.l.F. contrnctE buyer is not. entitled to irn when the contract proddi::

(a) for delh·ery "( \ b) for payment a~

payme1~t is due only mspectlon.

( i:) A plaee or methm sumed to be. exelusi1·e but postpone identification 01

the risk of loss. If comp! as prOl·ided in this secti01· intended ns an indispem contract.

§ 28 :2-514. When docm payment

rn less otherwise agree are to be delh·ered to th payable more than three payme11t. § 28 :2-515. Preserving

In furthenrnce of the a (a} either party o

the purpose of aseer the right to inspect, them as may be in tl

(h) the parties n Ye\' to determine the aµ:.ree that the fin di l:ieque11t litigntion o

PART &-BREA<

S 28: 2-601. Buyer,s r' " S•1hject to the provisi( tra('ts (section 28:2-H se.ctions on contritctmil : ~8:2-719), if the good to conform to the rontr

(a.) reject the wl (b) accept the " ( (') nrcept nny ('

§ 28 : 2-602. Manner 10

(1) Rejection of goo delivery or tender. It fies the seller ..

( 2) Subject to the re jeeted goods (section

· (a) n ft er reject i respect. to any cmr nnd

( b) if the buye1 of goods in which prO\'isions of this:

77 STAT.) PUBLIC LAW 88-2'<-,_,-DEC. 30, 1963

(2) Expenses of i11spertion must be borne hy tl1t• liun•r lmt 111:1v lw recovered from tlw :-;elle1· if tlte goo<ls do not co.11forn1 ai1d a1·t• rejt>t:ted.

(3) Unless otherwise agreed and subjeet to tlw pro1·isio11;; ;if this article. 011 { 'J.F: eolltra~ts (s11bN.'etio11 (:~) of sect io11 :lS ::2-:\:!l ), tht• buyer IS 11ot e11t1t led to mspeet the goods before pa vmellt oft lw price when the cont raet pr<>l'ide8 · . ·

( H) fo1· deli 1·e1·1· ·'C.O.D." or 011 other like terms: or (b) for.paymeilt against documents of title, exeept where such

payme1.1t is due only after the goods are to heeome available for mspect1011.

(4) .\. pln<"e or method of inspertion fixed by the parties is presumed to be exclusive but unless otherwise expressh· ngree<l it does not posfJ?Olle ide11tifieatio11 or shift the plare for <leli\·ery or for passing the risk of loss. If romplinnee heromes impossible, i11speetio11 shall he. as prm·ided in this section unless the place or rnethc><l lixe<i was denrh· intended as n11 indispensable co11ditton failure of which a voi<ls t lie contra rt.

§ 28 :2-514. When documents deliverable on acceptance; when on payment

rnless otherwise agreed documents ngainst whi<·h a draft i::: drnwll nre to be delil·ered to the drnwee on acceptall('e of the tlraft if it is payable more than three days after prese11rnie11t: ot hendse, 011ly 011 payment.

§ 28 :2-515. Preserving evidence of goods in dispute In furtherance of the adjnstment of any daim or dispute

(n) either party 011 reasonnhle notificntiou to the other nml for the purpose of as<'ertai11i11g the facts and presen·i11g evidence has the right to i11speet, test n11d sample the goods i11elndi11g snch of them as mny be in the possession or eo11trol of the other; and

(h) the parties may ngl'ee to a third pa11y inspection or smYeY to detem1ine. the eonformity or condition of tl1e goods a 11d may ag'ree that the findings shall be binding upon them in nny subsequent litigation or adjustment.

PART &-BREACH, REPUDIATION AND EXCUSE

§28: 2-601. Buyer's rights on improper delivery E'11lJject to the provisions of this article 011 breach in installment eon

t.m<"ts (section 28 :2-li12) and unless otherwise agl'eed under the sections on contmctual limitations of remedy (se<"tion,;; :!8 :~--il~ and ~8:2-719), if the goods 01· the tender of delin1 1·y fail iu any l'espect to confo11n to the rontmct, the hnyer may

(a) reject the. whole: or (b) neoopt the whole: or (r) nrrept any !'OIHmer<'inl unit or units an1l rejeet the rest.

§ 28: 2-602. Manner and effect of rightful rejection (1) Rejection of g-oods mnst be within a reasonal>le time after thei1·

delivery or tender. It is inetfectiYe unless the buyer seasonably notifies the seller.

(:l) ~ubjeet to the provisions of the two following sertions on rejeeted i;roods (sections 28::!-fiO:l and 28:2-60-!),

· (a.) nfter rejection any exercise of ownership by the buyer with respect. to any commercial unit is wrongful as against the seller: nnd

(b) if the buyer has before rejection taken physical possession of goods in which he <loes not have it security interest under the p1·ovisions of this arti<"le (subsection ( :~) of seetion 28 ::.!-ill), he

,.,. ~~·

I ;~ ''

.. '

• t;

-:.::! .~}


is under a d11t\· a fte1· 1·<.>jedion to holrl t.hem with reasonahh <·are at the seller's clisposition for a time sufficie11t to permit the seller to remo,·e them: but

(c) the buyer ha;; no further ohligatio11H with rei.ranl to goo<ls rig-htfully rejected. .

(3) The seller's rights with respect to goods wrong-fully reJe<'te<l are "OYe.rned bv t.11e tlrO\·isions of this article on Seller's remedies in ... ~ . general (seet1on 28 :2-703).

§ 28: 2-603. Merchant buyer's duties as to rightfully rejected goods

(1) Subject to any seeurity interest in the lmyel' (s11l>Heetio11 (:)) of sect ion 28 :2-711), when the seller has 110 ngent orJ>l:t<'e of husines.'i nt the market of rejection a merchnnt buyer is nn er a duty nfter rejection of goods in his p0$session or <'Ontrol to follow 1111y remmnable instructions recei,·ed from the seller with respeet to the p:oods nnd in the u.bsen<'e of su<'h iustrudions to make reaso11able efforts to sell them for the seller's act'otmt. if they are perishable or threaten to (leeline in ,-n.lue speedily. Ir.struetio11s are not reasonable if 011 (lemand indemnity for expenses is not forthroming.

\~) \rhen the buyer sells ~oods under subst><·tion ( 1 ), he is l'ntitled to reimlmr~me1.lt from the selle_r or out of the proreeds for ren~01rnble expeuses of <·a1·mir for and sellmg them, and if the expenses mdude 110 sellinir <'Oll11nission then to such commission as is usunl in the trade ·1r if there is none to a 1·easo11able sum not exceeding ten per <·ent on the «ross p1·oceeds.

(:~) In t·omplyin~ with this section the buyPr is held only to g-oo<l faith and good faith conduct hereunder is neither a<'ceptance nor c·om·ersion nor the basis of an ad ion for damages.

§ 28: 2-604. Buyer's options as to salvage of rightfully rejected goods

Subject to the prorisions of the immediately preeeding section on perishables if the seller gives no instructions within a reasonable time after notifi<"ation of rejeC.tion the buyer mny store the rejeeted goods for the seller's account or reship them to him or resell them for the seller's necount. with reimbursement as provided in the preceding section. Such nction 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 par· I ienlar defect which is nsce11ainable by reasonable inspection predndes him from relying on the unstated defect to justify rejection or to establish breach

(a) "·here the seller rould ha \"e cured it if stated seasonably; or

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

(2) Payment against documents made without reserrntion 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 he will take or retain them in spite of their nonconformity; or

-

(b) fails to make a.Il effective rejection (subseetion (1) of section 28:2-602), but such acceptance does not occur until the bnyer has had a reasonable opportunity to inspect them; or

i !

t \..~. l .

77 STAT.] PUBLIC

(c) does any ad irn if sneh ad is wrongful if ratified by him.

( 2) Acceptnnce of n pni that entire unit.

§ 28 :2-607. Effect of ace · tablishing I

or litigatio ( 1) The buyer must pa~ (2) Acceptance of goo

eoods accepted and if ma1 not. be revoked because of able assumption that the hnt acceptance does not oj this article for non-confo

( 3) 'Where a tender ha! (a) the buyer mm=

or should have disco' he barred from any rE

(b) if the claim i~ (3) of section 28 :2-a breach he must so r he receh·es notice of over for liability esta

( 4) The burden is on' Io the tzoods accepted. • ( 5) Where the buyer

gation for which his selle (a) he may give

the notice states tha1 the seller does not d· by his buyer by nr litigations, then un not.Ice does come in :

(b) if the claim ( 3) of section 28 :2-ing that his buyer t· ing settlement ore also agrees to bear ment, then unless t1 does turn over cont

(6) The provisions obligation of a buyer ti or the like (subsection

§ 28 :2-608. Revocatic ( 1) The buyer may

unit whose non-confo1 he has accepted it

(a) on the reaso be cured and it ha

(b) without di! was reasonablv in acceptance or.by

(2) Revocatioi: of . after the buyer d1scov and before any substr not caused by their c notifies the. seller of it

(3) A buyer wh~ · regard to the goods n

- . - . .

r 77 STAT.] PUBLIC LAW bo-L43-DEC. 30, 1963

(c) does any act i11co11siste11t with the seller's O\\"llership; but if sudt ad is wrongful us agn ii.st the !"Pller it is an acceptance only if ·atified by him.

(2) ·.Acceptance of a part of any commercial unit is acceptance of l hat entire unit. § 28 :2-607. Effect of acceptance; notice of breach; burden of es

tablishing 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 b,Y the buyer precludes rejection of the

!!;Oods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonnble assumption that the non-conformity would be seasonably cured hut acceptance does not of itself impair any other remedy provided by this article for non-conformity.

( 3) Where a tender has been accepted (a) the buyer must within a reasonable time after he discovers

or should have discovered any breach notify the seller of breach or be barred from any remedy: nnd

(b) if the claim is one for infringement or the 1ike (subsection (3) of section 28 :2-312) and the buyer is sued as a result of such a breach he must so notifv the seller ,\·ithin a reasonable time after he receirns notice of the litigation or be barred from any remedy over for liability established by the litigation.

( .J) The burden is on the buyer to establish any breach with respect to the goods accepted. •. ( 5) \Vhere the buyer is sued for breach of a warranty or other obli

gation for which his seller is answerable 0\-er · (a) he may give his· seller written notice of the litigation. If

the notice states that the seller mav 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 hy any determmat.lon 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 c]aim is one for infringement or the like (subsection (3) of section 28 :2-312) the original seller may demand in writing th.at his buyer turn over to him control of the litigation inc1uding 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.

(6) The prmrisions of subsections (3), (4) and (5) apply to any obligation of a buyer to ho1d the seller harmless against infringement or the 1ike (subsection (3) of section 28 :2-312). ·

§ 28 :2-608. Revocation of acceptance in whole or in part (1) The buyer may re.voke his acceptnnce of a lot or commercial

unit whose non-conformity substantially impairs its Ynlue to him if he has accepted it

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

(b) without discm·ery of such non-conformity if his acceptance was reasonably induced ~ither by the difficulty of discoYery before accepllince or by the se11er's assurances.

(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it nnd before any substantial change in condition of the goods which is not caused by their mvn 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.

661


§28:2-609. Right to adequate assurance of perfor~ance ( 1) A. contract for sale imposes an. obligation on each J?,arty that

the other's expectation of receiving du~ perf~rman~ w.111 not be impaired. "When reasonable grounds for msecur1ty ari~ ~1th respect to the performance of eit.her party the other may in ,1n1tm~ demand adequate assurance of due performance and until he receives such

'assurance may d commercially reasonable suspend any performance for which he has not already received the agreed return.

(2) Between merchants the reasonableness of grounds for ins.ecurity and the adequacy of any assurance offered shall be determmed 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 w1thm 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 wil~ substantially impair the value of the contract to the other, the af;("gr1eveq party may

(a) for a eommercially reasonable time await performance by the repudiating party; or

(b) resort to any remedy for breach. (section 28 :2-;-793 or sect.ion 28 :2-711), ernn though he has not 1 tied the repud Ill tmg party that he would awnit the latter's performance and has urged retraction; '.l.nd .

( c) in eith~r cnse susp~1~d his owl! per~onnance or pro~ee~ m accordance with the provis10ns of tlus a~icle on.the sellers right to identify goods to the contract notwithstandmg breach or to salYage unfinished goods (section 28 :2-704:).

§ 28:2-611. Retraction of anticipatory repudiation ' ( 1) Until the repudiating party's next .Performance is du~ he can retract his repudiation unl~ the aggrieve4 pa~:y: has smce ~he repudiation cancelled ?r materially c~an.ged lus positmn or otherwise indicated that he considers the repudiat10n .final. . .

(2) Retraction ma.y be by any.m~thod whic~ clearly mchcates to the aggrieved party that the repudrntmg party mt ends to perforn:-,. but must include any assurance justifiably demanded under the provisions of this article (section 28 :2-609) . . . , .

( 3) Retraction reinstates the repud1atmg party s r:ghts under the contract with due excuse and allowance to the nggriHed })arty 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 con-tract" or its equivalent. .

(2) The buyer ID:ay reject any inst;allm~nt which is non-conf?rmmg if the non-conformity substantially impairs the value of that mstallment and cannot be cured or if the non-conf?rmity is tt defect it?- t~e required documents; but if the non-conformity does not fall w1thm subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.

(3) Whenever non-conf?rmit:y or ~efau}t with respect to one or more installments substantially impairs the value of the whole con-

77 STAT. J PUBLIC l

tract there is a breach of tl states the contract if he acce seasonably notifying of ca: respect only to past mstallrr installments. § 28 :2-613. Casualty to it

Wl1ere the contract requ when the contract is made, i of either party before the proper case under a "no arri

(a) if the loss is tot (b) if the loss is pa

no longer to conform 1 demand inspection an< avoided or accept the! price for the deteriora out further right agair

§ 28 :2-614. Substituted : ( 1) Where without faul

ing, or unloading facilitie: unavailable or the agreed· mercially impracticable b available, such substitute I

( 2) If the agreed mea: domestic or foreign goven or stop delivery unless thE ment which is commercial already been taken, paymby . the. regul0:ti~n dischar lat1on is d1scrmunatory, o: § 28 :2-615. Excuse by f

Except so far as a selle1 subject to the pre~ding.&

(a) Delay m dehv seller who complies ' of his duty under a c been made impractic non-occurrence of w contract was made applicable foreign o whether or not it late

(b) Where the ca a part of the ~ll~r's tion and deliveries include regular cust own requirements !1 in any manner whic

( c) The seller rr will be delay or n< under paragraph (l for the buyer.

§ 28 :2-616. Procedure (1) Where the buyer

<lelay or an allocation by written notificat~on 1 where the prospective the whole contract uni

77 STAT.} PUBLIC LAW 88-243 · :c. 30, 1963

tract there is a breach of the whole. But the ag~rieved party reinstates the contract if he accepts a non-conforming mstallment without seasonably notifying of cancellation or if he bring an action with respect only to past mstallments or demands performance as to future installments. § 28:2-613. Casualty to identified goods

"\Vhere the contract requires for its performance goods identified \vhen the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case unaer a "no arrivalhno sale" term (section 28 :2--324) then

(a) if the loss is total t e contract is a voided; 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, load

ing, or unloading facilities fail or a,n 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 substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the r~lation 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 suhject to the preceding section on substituted performance:

(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and ( c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract "us 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.

(h) ·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 buyer seasonably that there will be delay or non-delivery and, when allocation is req_uired under paragraph (b), of the estimated quota 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 a.rticle relating to

f

<1."<:" \'. ·:~.: ,,. ... • 'r· •

'!'. I.,\

664

t • ,. l

if I

~

I


breach of installmeut eontraets (section 28 :2-fi12), then also as lo the whole,

(a) terminate and thereby discharge any 1111executed portion ofthecontract;or

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

(2) If after receipt of such notification from tJ1e seller the buyer fails so to modify the contract within a reasonable time not exceedm•r thirty days the contract fapses with respect to any deliveries affecte<r.

(3) The provisions of this section may not be negated by agreeme11t except in so far as the seller has assumed a greater obligation under the preceding section.

PART 7-REMEDIES

§ 28:2-701. Remedies for breach of collateral contracts not impaired

Remedies for brench of all\" obi i;.rat ion m· Jm>m ise rollnteral or ancillary to a contrnct for sale· are 11ot impnire by the pl'Ovisions of this article. § 28 :2-702. Seller's remedies on discovery of buyees insolvency

(1) 'Vhere 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 thnt the buyer has received goods on credit while insolwnt he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been mnde to the particular seller in writing within three months before delivery the ten day limitation does not apply. Except ns provided in this subsection the seller may not base a right to 1·eclaim goods on the buyer's fraudulent. or innocent misrepresentntion of solvency or of intent. to pay.

(3) The seller's right to redaim under subsection (2) is subject to the rights of a buyer i11 ordinary eourse or other good faith purrhaser or lien creditor under this nrtide (sedion 28 :2--tm)). Successful reclmna.tion of goods excludes all other remedies with respect lo them. § 28 :2-703. Seller's remedies in general

'Vhere the buyer wrongfully rejeets or revokes neceptance of goods or fails to make a payment due on or before delinry or repudiates with respect to a part or the whole, then with respect to imy 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 sueh goods; (b) stop delivery by irny bailee as hereafter provided (section

28:2-705); (c) proceed under the next section respecting goods still

unidentified to the contract; (d) resell nnd recowr dnmnges ns hereafter provided (section

28:2-706); ( e) recover damages ~or non-:teceptance (sect.ion 28 :2-7'08)

or ma proper ense the prtee (section 28 :2-709); (f) cancel.

77 STAT. ]

§ 28 :2-70-1. E

0) _\ni~g (a) idt

identified possessio1

(b) trc strably h those goo

(2) Where exercise of rea i n:r loss and < and wholly il and resell for able manner. § 28:2-705. ~

(1) The se 1·arrier or otl (section :l8 :2 planeload or repudiates or other reason 1

(~) As agn ( n) re< ( h) llt'

ex<·ept n <

(e) SUI

111ei1t or n (cl) ne

tit le (•oYe ( :~) ( 11) To

1 lie ba1 lee by ( b) After

goods accord i to the hailee f

( c) If II Ile l mi lee is not < tile clo<"ntnent

( d) A (·nn ol1lig:ed to ohe I he consignor § 28 :2-706. :

( 1) ruder nmiedies, the balance there< merdally ren bet.ween the incidental dn; tion28:2-71 breach.

(2} Except otherwise ag1 Ha.le by way c existing cont1 imd at any t.i ~:tle indudin1 commercially us referring

77 STAT. ] PUBLIC LAW 88-243-· ~c. 30, 1963

§ 28:2-i0-1. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods

11) .\n :~ggrieYed seller undel' the prel'P<ling seetion may (a) identify to the eo11t1·n<'t eonfonning- goods not nh-eady

identified if nt the. time hP IPnrned of the hread1 the,· are in his possession or <·ontrol; ·

(b) trent as the suhjeet of resale good:' whieh hnYe demonstrably been i 11ten<led for the pa rt ic11la1• eontraet t>.nn t hong-h those goods are unfinished.

(2) 1Yhere the goods nre unfinished an nggl'ie,·ed 1;eller mny iu the t•xercise of reasonable eommereial judgment for the pnrposes of n\·oiding loss and of effecti,·e realization either eomplete the numufoeture :md wholly identify the goods to the ("Olltrnet or eense nurnufacture :ind resell for scrnp or sah-nge rnlue or p1·oceed in any other reasonnble manner. § 28:2-705. Seller's stoppage of delivery in transit or otherwise

(1) The selle1; n~ay stop deliw1:y of goods in the posses~ion of a n1rrier or other bailee when he dtscowrs the buyer to be 111soh'ent. (section :.:!8 :2-70:.:!) and mny stop deli,·ery of earlond, trncklond, planeload or la~·ger shipn1ents of express or freii.rh.t when ~ l~e buyer repudiiites or fails to make a pnvment dne before <lei n·ery or 1f for any other reason the seller has a right to withhold or 1·edaim the g:ood,,;.

(:!) As against such buyer tlie seller may Htop deli,·e1-.r until (n) reeeipt of the goods hy the buyer; or (h) a<'knowledgment to the buyer hy any bailee of the goods

t>xeept a earrier that the lmilee holds the goodR for the buyer; or (d such acknowledgment to the buyer hy a n1rrier hy reship

me11t or as warehousemirn : or {d) 11egotintio11 to the buyer of any neg"Otinhle doeument of

tit le eornrinl! the goods. 1a) (n) To stop defo·ery the seller mnst so notify as to ellahlt>

1l1e ha1lee hy 1·eas01inhle diligence to pre,·e11t deJi,·ery of the goods. (h) After such notification the bailee must hold and deliYer tht

/.!O<xls ncconli11g to the direetions of the seller hut the seller is liable 10 the hailee for any e11s11in:z 1·lrnrg-es or damages.

(l') If a negotiahle document of title has been issued for goods the liailee is not ohlig-ecl to obey a notitieation to Htop until surrender of the chwnmen t.

( d) .\. earrier who has issue1l 11 no11-11egotinhle bill of lnding is not ol,Jiged to ohey a 11otilieatio11 to stop recl'ived from a person othe1· than the eon signor.

§ 28 :2-706. Seller's resale including contract for resale ( 1) l-uder the eonditiow; stnted in ~et ion ~8 :2-7oa 011 selle1··s

l"l'meclies, the seller may resell the goo<lH «oncerned or the uude}i,·el'e<l Im lance thereof. "'here the resale is made in good faith and in il commercially renso1u~ble manner the seller may reco,·er the difference between the resale priee arnl the eontraet price tog:ethe1· with nnv incidental dnnmg:es allowed under the provisions of this 11rticle (section 28:~-710)~ hut Jess expenses sa,·ed in consequence of the buyer's brench.

(2) Except as othen\"ise pro,·ided in suhl,;ectio11 (3) 01· unless otherwise ngree<l resale may be at. public or priYate sale including sale by way of one or more contmcts to sell or of identification t-0 an existing contract of the seller. Sn le may be as n, unit or in parcels irnd nt any time and place and on any terms but every aspect of the s11le including the method, manner, time, place and terms must. be commercially reasonable. The i-es.'1.le must be r~lsonably identified ns referring to the broken contract, but it is not nece8sary that the

PUBLIC LAW 88-243-0EC. 30, 1963 (77 STAT.

goods be in existence or that any or all of them have been identified to the contract before the breach.

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

(-!) 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 is reasonably a\·ailable and except in the case of goods which are perishable or threaten to decline in value speedily the !'leller must gh·e the buyer reasonable notice of the time and place of the resale; and

( c) if the goods are not to be within the ,·iew 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 m crood faith at a resale takes the goods

free of any rights of the originaf buyer even though the seller fails to •·omply with one or more of the requirements of this section.

( 6) The seller is not a~countabl~ ~o the buyer for any profit made on any resale. A person m 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 intert•st, as hereinafter defined (subsection (3) of section 28 :2-711). § 28:2-707. "Person in the position of a seller"

( 1) A "person in the position of a seller" includes as against a prin-1·ipal an agent who has paid or become responsible for the price of goods on behalf of his principal or anyone who otherwise holds a security interest or other right in goods similar to that of a seller.

(2) A person in the position of a seller may as provided in this article withhold or stop deliYery (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 bv 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 prodded m this article (section 28 :2-710), 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 woul<l 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. § 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 dam.ages under the next section, the prioo

(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

77 STAT.] PUBLIC

(b) of goods identif after reasonable effort circumstances reasona tma vailing.

( 2) '\-'bere the seller sue a.ny goods which have beer his control except that if re :111y time pt'i01· to the C'Olle<'· any such resale must be c judgment entitles him to a:

( 3) After the buyer ha8 of the goods or has failed (section 28 :2-610), a selle this section shall neverthel( un<ler the preceding sectio1 § 28 :2-710. Seller's incid

lnci<lentn 1 dnmages to u1 reasona.ble charges, expen deli very, in the transport! buyer's breach, in connect otherwise resulting- from t

§ 28:2-711. Buyer's rem« in rejected

( 1) Where the seller f; huyer rightfully rejects o respect to any goods inYo breach goes to the whole c cancel and whether or not : so much of the prioo as ha

(a) "cornr" and ha the goods affected wh contract; or

(b) recoYer damag cle (section 28:2-71:

( 2) '\\'bere the seller f: also

(a) if the goods lu in this article ( sectio1

(b) in a proper c the goods as proYide<

(3) On rightful rejecti buyer has a security inte1 any payments made on incurred in their inspecti• and may hold such goc

. nggrieved seller (section §28:2-712. "Cover"; hr

(1) After a breach w "co•·er" by making in g0< reasonable purchase of o for those due from the se

(2) The buyer may re ence between the cost of any incidental or conseq tion 28 :2-715), but less breach.

{3) Failure of the bu: bar him from any other :

77 STAT.] PUBLIC LAW 88-243 ~c. 30, 1963

(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 re.asonably indicnte that such effort will be unavailing.

(2) '\'11ere the seller sues for the price he must hold for the buyer :tny goods which ha\·e been identified to the contract and are still in his control e.xcept that if resale becomes possible he may resell them at :lll v time prior to the <"olled ion of the j 11dgmei1t. The net prn<·eeds 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 selle.r who is held not entitled to the price under this sect ion shall nevertheless be awn rded damages for non-acceptance under the. preceding section. § 28 :2-710. Seller's incidental damages

Iucidental damage:; to an ag-~rie,·ed seller indmle any eo111me1·<'ially reasorntble charp:es, expenses or commissions iiwurred in stopping delivery, in the transportatiou, cnre and l'UStody of goods after the buyer's breach, in connection with retnr11. or re:omle of the goods or otherwise res11lth1g- from the hread1. § 28 :2-711. Buyer's remedies in general ; buyer's security interest

in rejected goods (1) '\'\'here the :;eller fails to make delivery or repudiate:; or the

huyer rightfully rejects or justifiably rernkes ael'eptmwe theu with respect to any goods inrnh·ed, and with respect to the whole of the breach goes to the whole contract (section 28 :2-612), the buyer may cancel and "-hether or not he has done so may in addition to recovering so much of the price as has boon paid

(a) "cO\·er!' and han 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-delfrery as prodded in this article (section 28 :2-713).

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

(a) if the goods ha\·e been identified recover them as provided in this article (section 28 :2-502); or

(b) in a proper case obtain specific performance or rep levy· the goods as provided in this article (section 28:2-716).

(3) On rightful rejection or justifiable reYOcation of acceptance a buyer has a security interest in goods in his possession or control for nny payments made on their price and any expenses reasonably incurred in their inspection, rece1pt, transportation, care and custody and may hold such goods irnd 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 "co\·er" 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 reco\·er from the seller as damages the differellee between the cost of co\·er and the contract price together with any incidental or consequential damages as hereinafter defined (section 28 :2-715), but less expenses sased in consequence of the seller's breach.

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

::1 "(I r.i


§ 2.8 :2-713. Buyer's damages for non-delivery or repudiation (1) Subjee.~ to the l?''o\·is~ons r;_f this a1ticle with respect to proof

of market price (seetwn 2s:2-i:23), the measure of damages for non-deli,·erv or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contritct price together with any incidental and consequential damages prodded in this artic1e (seetion 28 :2-715 ), hut less expenses saved in consequence of the seller's breach.

(2) :Market price is to be determined as of the place for tender or, in cases of rejeetion after a1Tirnl or revocation of ncceptance, as of the pla.ce of arrirnl. § 28:2-714. Buyer's damages for breach in regard to accepted

goods (1) 'Where the huyer has accepted goods and giwn 11otificatio11

(subsection (3) o.f section 28::2-607) he m~y r~cover as ?-amages for any non-confornuty of tender the loss resultmg m the ordmary course (1f events from the seller's breach as determined in ilm' manner which is reasonable. ·

(2) The measure <)f damages for breach of warrantv is the <liffert•nce at the time and plnce of acceptance between the vnli'ie of the goods accepted and the value the~· would lrn,·e had if they had been as warranted, unless special circumstances sho\\· proximllte damages of a different amount.

(3) In n proper cnse any incidental and consequentinl damages nuder the next section may also be recoYered. . § 28:2-715. Buyer's incidental and consequential damages

(1) Incidental damages resulting from the seller's breach include <>xpenses reasonably incurred in inspect.ion, receipt, transportation :md care and rnstody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

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

(a) any loss resulting from gen end or particular requirements and needs of which the seller at the time of contracting had reason to know a_nd which ecrnld not reasonably be prevented hy co\·er or otherwise: and

(b) injury to person 01· property prox\ma tely resulting from any breach of \varranty.

§ 28 :2-716. Buyer's right to specific performance or replevin (1) Specific performanee may be decreed where the goods art•

unique or in other proper circmnstances. (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 hns a right. of repleYin for goods identified to the contract if after reasonable effo1t he is unable to effect cover for such ~oods or the circumstances reasonably indicate t.hat such effort will oe 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 pa1t of the damages resulting from any breach of the contract from any pa1t of the price still due under the snme contract.

77 STAT.] PUBLIC 1

§ 28:2-718. Liquidation 01

( 1) Damages for breach agreement but only at an a: the anticipated or actual h: of proof of loss, and the inc obtaining an adequate rerr. liquidated damages is void a

( 2) Where the seller just' of the buyer's breach, the bu hy which the sum of his pay

(a) the amount to terms liquidating the section (1), or

(b) in the absence o of the total performan the contract or $500, w

( 3) The buyer's right to to offset to the extent that ti

(a) a right to reco article other than subs·

(b) the amount or ' directly or indirectly 1:

( 4) Where a seller has 1 value or the proceeds of tl

' the purposes of subsectioi buyer's breach before reSf his resale is subject to ti· resale by an aggriHed sell § 28 :2-719. Contractual

( 1) Subject to the pro section and of the precedi damages,

(a) the agreement or in substitution fc limit or alter the m article, as by limiting and repaJment of th( conforming goods or

(b) resort to a r · remedy is expressly r sole remedy.

( 2) Where circumstan fail of its essential purp• subtitle.

( 3) Consequential dan limitation or exclusion is damages ~or injury. to t prima fac1~ u~consc10nal IS commercial IS not. § 28:2-720. Effect of"•

antecede Unless the contrary in

cellation" or "rescission' strued as a. renw1ciatio1 an antecedent breach.

- - -- . .

'7 STAT.] PUBLIC LAW 88-243-·; 30, 1963 •.

§ 28 :2-718. Liquidation or limitation of damages; deposits (1) Damages for breach by either party may be liquidated in the

:igreement 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 o_bW;ining an adequ.ate ~emedy. A term fixing unreasonably large liquidated damages is void as a penalty. -·

(2) 'Vhere the seller justifiably withholds deli\'erv of goods because of the buyer's breach, the buyer is entitled to restitnt"ion of any amount hy which the sum of his pttyments 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 v11lue of an:v benefits received by the buyer directly or indirectly by reason of the contract.

( 4) Where a seller has r~eived payment in goods their reasonable , rnlue or the proceeds of their resale shall be treated as payments for the purposes of subsection (2) ; but if the seller has notice of the buyer's breach before reselling uoods received in part performance, his resale is subject to the eonaitions laid down in this article on resale by an aggrie,·ed seller (section 28 :2-706). § 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 substitution for those rrovided in this article and may limit or alter the measure o damages recoverable under this article, as by limiting the buyer~s remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and

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

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

( 3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the ease of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. § 28 :2-720. Effect of "cancellation" or "rescission" on claims for

antecedent breach Unless the contrary intention clearly appears, expressions of "can

cellation" or "rescission" of the contract or the like shall not be construed as a renui1ciation or discharge of any claim in damages for an antecedent breach.

66

'· t'.i '~l

. 11 ... ')

t ..

PUBLIC LAW 88-243-DEC. 30, 1963 [77STAT.

§ 28 :2-721. Remedies for fraud Remedies for matl'rial 111isrepresentatio11 or fraud i•1clmle a.ll

remedies antilable un<ll'r this artiele fot• nonfraudulent breach. Xeither reseission or a daim for reseissiou of the <·ontmct for sale nor reiection or return of the goods shall bar or be deemed inconsistent with n clnim for dmunges or other remedy. § 28:2-722. Who can sue third parties for injury to goods

"~here a third party so deals with goods whil'h ha\·e been identified to a eontrnct for sale ns to <·ause a<'tiounble injury to a party to that eoutract

(a) a right of adion against the third party is in either party to the cont met for sale who hns tit le to or a security interest or a special property or nn insurable interest in the goods; and if the goods luwe heen destroyed or com·erted n right of action is also in the party who either bore the risk of loss under the contract for sale or has sinl'e the injury assumed t hnt risk as against the other;

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

(c) either pnrty 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 acti011 based on anticipatory repudiation comes to trial

before the tin1e for performnnce with respect to some or all of the goods, any damages based on market price (section 28 :2-708 or section 28 :2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.

(2) If evidence of a price prevailing at the times or places described in this article is not readily arnilable 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 ser~;e as a resonable substitute for the one described may be nsed, making any proper allowance for the cost of transporting the goods to or from such other place.

(3) Evidence of a relevant price prevailing at a time or place other than t.he 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 comt finds sufficient to prevent unfair surprise. §28:~24. Admissibility of market quotations

\Vhenever the prerniling price or value of any uoods regularly bought and sold in any established commodity madet is in issue, reports in official publmttions or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in eYidence. The circumstances 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 ciwse of action has accrued. Ily the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach

77 STAT. J PUBLIC

of wnrranty occurs when where :i warranty explici goods aud discoyery of th formance the cause of act ha Ye been discovered.

( 3) Where an action e<. section ( 1) is so terminate action for the same breach the expiration of the tim• termination of the first a• voluntary discontinuance prosecute.

( 4) This section doe.s t of limitations nor does it a before this subtitle hecomi

ARTICLE 3-l'AHT 1-~noa·:

8ec. :!H :3-101. ~hort title. :!~ :3-102. Hefinitlons and inc :!8 :3-10:{. J,imitation.~ on sco :!8 :3-104. Forlll of negotiabl

deposit'" ; '"note" :!8 :3-10:). When promi11e or :!8 :3-106. Suw certailL :!8 :3-107. Money. :!8 :3-108. Payable on clemau :.!8 :3-109. Definite time. :.!1' :3-110. Payable to order. :!8 :3-111. Payable t:o bearer :!8 :3--112. Terms and omisf!i< :!8 :3-113. Seal. :!8 :3-114. Date,· antedating, 28 :3--115. Incomplete instrn: 28 :3-116. Instruments payal 28 :3--117. Instruments payal 28 :3-118. Ambiguous terms :!8 :3-119. Other writings af 28 :3-120. lnlltruments "pay: 28 :3-121. Instrument!! payal :!8 :3--122. Accrual of cause ,

l'ART 2·

28 :3-201. Transfer: right ti 28 :3-202. Xegotiation. 28 :3--203. Wrong or lllisspel 28 :3-204. Special indorsemE 28 :3-205. Restrieti'fe indor: 28 :3--206. Effect of restricti 28 :3--207. Negotiation effect 28 :3-208. Reacquisiti<>n.

PAl

28 :3--301. Rights of a holdE 28 :3-302. Holder in due co 28 :3-303. Taking for value 28 :3-304. Notice to purcha: 28 :3-300. Rights of a holdE 28 :3--306. Rights of one not 28 :3--307. Burden of establi

77 STAT.] PUBLIC LAW 88-2" ')EC. 30, 1963

of wnrranty· occurs when tender of delive~ is made. except that where :i warranty explicitlj extends to fu ure perfo11nance of the ;.roods and discowry of the Lrearh nrnst await the time of such performance the cause of adion accrues when the breach is or should ha,·e been discovered.

(3) Where a.n action commenced within the time limited by sub:;ection (1) is so tenninated as to leave available a remedy by another action for the &'\me 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 termination resulted from ,·oluntary discontinuance or from dismissal for failure or neglect to prosecute.

( 4) This section does not alter the law on tolling of the statute of ]imitations nor does it apply to causes of action which have accrued liefore this subtitle becomes pjfecth·e.

ARTICLE 3-COMMERCIAL PAPER l'All'f l-l'l110RT T1n.t:. I!'ORM .ow lxn:RPRt:TAnox

i>ec. :!X :3-101. ~hort titlt>. :!::; :3-102. I >etinitions 1111tl indt'X of detiuitious. :!H :3-lo:i. J,imitationi;; on scope of article. :!8 :3-104. l<'or!ll of nt>gotiable ini<tt·umPnts: ''llraft"'; "cbPck"; "certificate of

deposit" ; "note". :!8 :3-100. When promi~e or or(ler unconditional. :!8 :3-106. Sum certain. :!8 :3-107. Money. :!8 :3-108. l'ayable 011 demaml. 28 :3-109. Definite t.inie. :!1' :3-110. ·Payable to order. :!8 :3-111. Payable to bearer. :!8 :3-112. Terms and omissioms uot nfft>C'ting nt>gotinbility. :!8 :3-113. Seal.. 28 :3-114. Date, antedating, postdating. 28 :3-115. Incornt)lete iustruments. 28 :3-116. Instruments pa,,·able t.o two or more persous. 28 :3-117. Instrwueutg payable with words of description. 28 :3-118. Ambiguous terms and rules of construction. · :.!8 :3-119. Other writings affecting instrument. 28 :3-120. Instruments "payable through" bank. 28 :3-121. lm1truments payable at bank. 28 :3-122. Accrual of cause of action.

l'ART 2-TRANSFER AND :.\'EGOTU'fION

28 :3-201. 'l'ransf.,,·: right to imlorsement. 28 :3-202. ~egotiation. 28 :3-203. Wrong or misspelled name. 28 :3-204. Special lndorsement; blank indorsement. 28 :3-200. Restrictive indorsements. 28 :3-206. Effect of restrictive indorsement. 28 :3-207. Xegotiation effective although it may be rescinded. :!8 :3-208. Rea.cqnisition.

PART 3-BIGHTS OF A Hor.m:R

28 :3--801. Rights of a holder. 28 :3-302. Holder in due course. 28 :3-303. Taking for value. 28 :3--804. :Sotice to purchaser. 28 :3-.~. 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, llefenses and due course.

'';} :~ ; . ...

' '

'" ,,

• ,· •. .:/

[)r sale.

nenced within 1greement the year but may

1rdle.ss of the trranty occurs nty explicitly ~breach must ies when the

~section (1) is > for the same • -~ n of the time action unless dismissal for

Jf limitations this subtitle 1; 1973 Ed.,

· doctrine of Under the doct time does not iscovers, or by discovered, the 'ord Motor Co I. .,

tiff's appeal to . barred by the tissed as frivo-was initiated

·act was made. •pp. D.C., 304

825 F.2d 448 v. Khambata,

LEASES

ARTICLE 2A. LEASES.

Part 1. General Prouisions.

~t·c. :io:2A-101. Short title. :!K:2A-102. Scope. . .. ·JK·2A-103. Definitions and mdex of definitions. ~~;2A-104. Leases subject ~o o~her law .. »i;·»A-105. Territorial apphcation of article to - ·- goods covered by certificate of ti-

tle. 28:2A-106. Limitation on power of parties to

consumer lease to choose applicable law and judicial forum.

28:2A-107. Waiver or renunciation of claim or right after default.

28:2A-108. Unconscionability. 28:2A-109. Option to accelerate at will.

Part 2. Form~tion and Construction of Lease Contract.

28:2A-201. §tatute of frauds. 28:2A-202. Final written expression: parol or

extrinsic evidence. 28:2A-203. Seals inoperative. 28:2A-204. Formation in general. 28:2A-205. Firm offers. 28:2A-206. Offer and acceptance in formation

of lease contract. 28:2A-207. Course of performance or practical

construction. 28:2A-208. Modification, rescission, and

waiver .. 28:2A-209. Lessee under finance lease as ben

eficiary of supply contract. 28:2A-210. Express warranties. 28:2A-211. Warranties against interference

and against infringement; lessee's obligation against infringement.

28:2A-212. Implied warranty of merchantabil-ity.

28:2A-213. Implied warranty of fitness for particular purpose.

28:2A-214. Exclusion or modification of warranties.

28:2A-215. Cumulation and conflict of warranties express or implied.

28:2A-216. Third party beneficiaries of express and implied warranties.

28:2A-217. Identification. 28:2A-218. Insurance and proceeds. 28:2A-219. Risk of loss. 28:2A-220. Effect of default on risk of loss. 28:2A-221. Casualty to identified goods.

Part 3. Effect of Lease Contract.

28:2A-301. Enforceability of lease contract. 28:2A-302. Title to and possession of goods. 28:2A-303. Alienability of party's interest un-

der lease contract or of lessor's residual interest in goods; delega-

69

Sec. tion of performance; transfer of rights.

28:2A-304. Subsequent lease of goods by lessor. 28:2A-305. Sale or sublease of goods by lessee. 28:2A-306. Priority of certain liens arising by

operation of law. 28:2A-307. Priority of liens arising by attach

ment or levy on, security interests in, and other claims to goods.

28:2A-308. Special rights of creditors. 28:2A-309. Lessor's and lessee's rights when

goods become fixtures. 28:2A-310. Lessor's and lessee's rights when

goods become accessions. 28:2A-311. Priority subject to subordination.

Part 4. Performance of Lease Contract: Repudiated, Substituted, and Excused.

28:2A-401. Insecurity: adequate assurance of performance.

28:2A-402. Anticipatory repudiation. 28:2A-403. Retraction of anticipatory repudia-

tion. 28:2A404. Substituted performance. 28:2A-405. Excused performance. 28:2A-406. Procedure on excused performance. 28:2A-407. Irrevocable · promises: finance

leases. ·.~,~ ··...:~,..::; ....

Part 5. Default. ··

A. In General.

28:2A-501. Default: procedure. 28:2A-502. Notice after default. 28:2A-503. Modification or impairment of

rights and remedies. 28:2A-504. Liquidation of damages. 28:2A-505. Cancellation and termination and

effect of cancellation, termination, rescission, or fraud on rights and remedies.

28:2A-506. Statute of limitations. 28:2A-507. Proof of market rent: time and

place.

B. Default by Lessor.

28:2A-508. Lessee's remedies. 28:2A-509. Lessee's rights on improper deliv

ery; rightful rejection. 28:2A-510. Installment lease contracts: rejec

tion and default. 28:2A-511. Merchant lessee's duties as to

rightfully rejected goods. · 28:2A-512. Lessee's duties as to rightfully re

jected goods. 28:2A-513. Cure by lessor of improper tender

or delivery; replacement. · 28:2A-514. Waiver of lessee's objections.

§ 28:2A-101 COMMERCIAL INSTRUMENTS AND TRANSACTIONS

Sec. 28:2A-515. Acceptance of goods. 28:2A-516. Effect of acceptance of goods; notice

of default; burden of establishing default after acceptance; notice of claim or litigation to person answerable over.

28:2A-517. Revocation of acceptance of goods. 28:2A-518. Cover; substitute goods. 28:2A-519. Lessee's damages for nondelivery,

repudiation, default, and breach of warranty in regard to accepted goods.

28:2A-520. Lessee's incidental and consequential damages.

28:2A-521. Lessee's right to specific performance or replevin.

28:2A-522. Lessee's right to goods on lessor's insolvency.

C. Default by Lessee.

Sec. 28:2A-523. Lessor's remedies. 28:2A-524. Lessor's right to identify goods to

lease contract. 28:2A-525. Lessor's right to possession of

. goods. 28:2A-526. Lessor's stoppage of delivery in

transit or otherwise. 28:2A-527. Lessor's rights to dispose of goods. 28:2A-528. Lessor's damages for nonaccep

tance, failure to pay, repudiation, or other default.

28:2A-529. Lessor's action for the rent. 28:2A-530. Lessor's incidental damages. 28:2A-531. Standing to sue third parties for

injury to goods. 28:2A-532. Lessor's rights to residual interest.

Part 1. General Provisions.

§ 28:2A-101. Short title.

This article shall be known and may be cited as the Uniform Commercial Code - Leases. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. - Law 9-128, the "Uniform Commercial Code, Leases, Act of 1992," was introduced in Council and assigned Bill No. 9-19, which was referred to the Committee on Consumer and Regulatory Affairs. The Bill was adopted on first and

~~ § 28:2A-102. Scope.

second readings on April 7, 1992, and May 6, 1992, respectively. Signed by the Mayor on May 28, 1992, it was assigned Act No. 9-212 and transmitted to both Houses of Congress for its review. D.C. Law 9-128 became effective on July 22, 1992.

This article applies to any transaction, regardless of form, that creates a lease. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. - See note to § 28:2A-101.

§ 28:2A-103. Definitions and index of definitions.

/,~ (a) In this article unless the context otherwise requires: !/.n~ (1) "Buyer in ordinary course of business" means a person who in good·

(i J e faith and without knowledge that the sale to him or her is in violation of the

jc ownership rights or security interest or leasehold interest of a third party in L the goods buys in ordinary course from a per5on in the business of selling goods (i'.-....11f of that kind but does not include a pawnbroker. "Buying'' may be for cash or by

~hange of other property or or(secured.)or u~ecured credit and includes receiving goods or documents of title under a pre-existing contract f~e but does not include a transfer in bulk or as security-for or in total or partial satisfaction of a money debt.

70

LEASES § 28:2A·103

(2) "Cancellation" occurs when either party: puts an end to the lease contract for default by the other party.

(3) "Commercial unit" means such a unit of goods as by commercial usage r; d I?) is a single whole for purposes oflease and division of which materially impairs/',_ (

/

its character or value on the market or in use. A commercial unit may be a -'-single article, as a machine, o(a set of articles) as a suite of furniture or a line t!:;:r L .. of machinery, or a quantity, as a gross or carload, or any other unit treated in /~, use or in the relevant market as a single whole. U..Sl. I

( 4) "Conforming" goods or performance under a lease contract means e ~/l.. goods or performance that are in accordance with the obligations under the lease contract. ~ ..._\...e,.> ~ e.. T

(5) "Consumer lease" means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is an individual and who takes under the lease primarily for a personal, family, or household purpose, if the total payments to be made under the lease contract, excluding payments for options to renew or buy, do not exceed $25,000. .

(6) "Fault" means wrongful act, omission, breach, or default. /£bf (7) "Finance lease" means a lease with respect to which: (

(A) The lessor does not select, manufacture, or supply the goods; (B) The lessor acquires the goods or the right to possession and use of V'

the goods in connection with the lease; and (C) One of the following occurs:

(i) The lessee receives a copy of the contract by which the lessor .......acquired the goods or the right to possession and use of the goods before signing the lease contract;

(ii) The lessee's approval of the contract by which the lessor acquired V the goods or the right to possession and use of the goods is a condition to ft: l effectiveness of the lease contract;

(iii) The lessee, before signing the lease contract, receives an accurate and complete statement desifil!!!ting the pr£!:lises and warE!.nties, and ~ disclaimer of vt.arranties, limitations or modifications of remedies, or liquidated damages, including those of a third p:irty, such as the manufacturer of~/ the goods, provided to the. lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or

'(iv) If the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing of the i~ty of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the!essor to acqurre the goods or the right to possession and use of the goods from that person; that the lessee is entitled under this article to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; and that the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.

71


(8) "Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (§ 28:2A-309), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals.

(9) "Installment lease contract" means a lease contract that authorizes or requires the delivery of goods in separate lots to be separately accepted, even though the lease contract contains a clause "each delivery is a separate lease" or its equivalent.

( 10) "Lease" means a transfer of the right to possession and use of goods for a term in return fqr consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.

(11) "Lease agreement" means the bargain, with respect to the lease, of the lessor and the lessee 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 article. Unless the context clearly indicates otherwise, the term includes a sublease agreement.

(12) "Lease contract" means the total legal obligation that results from the lease agreement as affected by this article and any other applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract.

{13) "Leasehold interest" means the interest of the lessor or the lessee under a lease contract.

{14) "Lessee" means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee.

(15) "Lessee in ordinary course of business" means a person who in good faith and without knowledge that the lease to him or her is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods leases in ordinary course from a person in the business of selling or leasing goods of that kind but does not include a pawnbroker. "Leasing'' may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods nr documents of title under a pre-existing lease contract but does nqt include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

( 16) "Lessor" means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor.

(17) "Lessor's residual interest" means the lessor's interest in the goods after expiration, termination, or cancellation of the lease contract.

{18) "Lien" means a charge against or interest in goods to secure payment of a debt or performance of an obligation, but the term does not include a security interest.

(19) "Lot" means a parcel or a single article that is the subject matter of a separate lease or delivery, whether or not it is sufficient to perform the lease contract.

72

LEASES § 28:2A-103

(20) "Merchant lessee" means a lessee that is a merchant with respect to goods of the kind subject to the lease.

(21) "Present value" means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into.

(22) "Purchase" includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other voluntary transaction creating an interest in goods.

(23) "Sublease" means a lease of goods the right to possession and use of which was acquired by the lessor as a lessee under an existing lease.

(24) "Supplier" means a person from whom a lessor buys or leases goods to be leased under a finance lease.

(25) "Supply contract" means a contract under which a lessor buys or leases goods to be leased.

(26) "Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.

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

"Accessions". § 28:2A-310(a). "Construction mortgage". § 28:2A-309(a)(4). "Encumbrance". § 28:2A-309(a)(5). "Fixture filing". § 28:2A-309(a)(2). "Fixtures". § 28:2A-309(a)(l). "Purchase money lease". § 28:2A-309(a)(3). (c) The following definitions in other articles apply to this article: "Account". § 28:9-106. "Between merchants". § 28:2-104(3). "Buyer". § 28:2-103(1)(a). "Chattel paper". § 28:9-105(1)(b). "Consumer goods".§ 28:9-109(1). "Document."§ 28:9-105(1)(£). "Entrusting". § 28:2-403(3). "General intangibles". § 28:9-106. "Good faith". § 28:2-103(1)(b). "Instrument". § 28:9-105(l)(i). "Merchant". § 28:2-104(1). "Mortgage". § 28:9-105(1)(j). "Pursuant to commitment". § 28:9-105(1)(k). "Receipt". § 28:2-103(1)(c). "Sale". § 28:2-106(1). "Sale on approval". § 28:2-326. "Sale or return". § 28:2-326. "Seller". § 28:2-103(1)(d).

73


(d) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this article. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.) .

Legislative history of Law 9·128. - See note to § 28:2A-101.

§ 28:2A-104. Leases subject to other law.

(a) A lease, although subject to this article, is also subject to any applicable: (1) Certificate of title statute of the District; (2) Certificate of title statute of another jurisdiction(§ 28:2A-105); or (3) Consumer protection statute of the District, or :final consumer protec-

tion .decision of a court of the District existing on the effective date of this article.

(b) In case of conflict between this article, other than§§ 28:2A-105, 28:2A-304(c), and 28:2A-305(c), and a statute or decision referred to in subsection (a) of this section, the statute controls.

r/ (c) Failure to comply with an applicable law has only the effect specified therein. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9·128. - See note to§ 28:2A-101.

§ 28:2A-105. Territorial application of article to goods covered by certificate of title.

Subject to the provisions of§§ 28:2A-304(c) and 28:2A-305(c), with respect to goods covered by a certificate of title issued under a statute of the District or of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute are governed by the law (including the conflict oflaws rules) ofthe,jurisdiction issuing the certificate 1!-ntil the earlier of (i) surrender of the certificate, or (ii) 4 months after the goods are removed from that jurisdiction and thereafter until a new certificate of title is issued by· another jurisdiction. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:1-105 and 28:2A-104. note to§ 28:2A-101.

§ 28:2A-106. Limitation on power of parties to consumer lease to choose applicable law and judicial forum.

(a) If the law chosen by the parties to a consumer lease is that of a jurisdiction other than a jurisdiction in which the lessee resides at the time the lease agreement becomes enforceable or within 30 days thereafter or in which the goods are to be used, the choice is not enforceable.

(b) If the judicial forum chosen by the parties to a consumer lease is a forum that would not otherwise have jurisdiction over the lessee, the choice is not enforceable. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

74

LEASES § 28:2A-109

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in§ 28:1-105. note to § 28:2A-101.

§ 28:2A-107. Waiver or renunciation of claim or right after default.

Any claim or right arising out of an alleged default or breach of warranty may be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. See note to § 28:2A-101.

§ 28:2A-108. Unconscionability.

(a) If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(b) With respect to a consumer lease, if the court as a matter oflaw finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief.

(c) Before making a finding of unconscionability under subsection (a) or (b) of this section, the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof, or of the conduct.

(d) In an action in which the lessee claims unconscionability with respect to a consumer lease:

(1) If the court finds unconscionability under subsection (a) or (b) of this section, the court shall award reasonable attorney's fees to the lessee.

(2) If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he or she knew to be groundless, the court shall award reasonable attorney's fees to the party against whom the claim is made.

(3) In determining attorney's fees, the amount of the recovery on behalf of the claimant under subsections (a) and (b) of this section is not controlling. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A·l09. Option to accelerate at will.

(a) A term providing that one party or his or her successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "w he; he ckshe deems himself or herself insecure" or in words

75


' '

of similar import must be construed to mean that he or she has power to do so only if he or she in good faith believes that the prospect of payment or performance is impaired.

(b) With respect to a consumer lease, the burden of establishing good faith under subsection (a) of this section is on the party who exercised the power; otherwise the burden of establishing lack of good faith is on the party against whom the power has been exercised. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


Part 2. Formation and Construction of Lease Contract.

§ 28:2A-201. Statute of frauds. (a) A lease contract is not enforceable by way of action or defense unless:

(1) The total payments to be made under the lease contract, excluding payments for options to renew or buy, are lli.ss than $1,000; or

J (2) There is a writing, signed by the party against whom enforcement is sought or by that party's authorized agent, sufficient to indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term.

v (b) Any description of leased goods or of the lease term is sufficient and satisfies subsection (a)(2) of this section, whether or not it is specific, if it reasonably identifies what is described.

(c) A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under subsection (a)(2) of this section beyond the lease term and the quantity of goods shown in the writing.

(d) A lease contract that does not satisfy the requirements of subsection (a) of this section, but which is valid in other respects, is enforceable:

(1) If the goods are to be specially manufactured or obtained for the lessee and are not suitable for lease or sale to others in the ordinary course of the lessor's business, and the lessor, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the lessee, has made either a substantial beginning of their manufacture or commitments for their procurement;

(2) If the party against whom enforcement is sought admits in that party's pleading, testimony, or otherwise in court that a lease contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or

(3) With respect to goods that have been received and accepted by the lessee.

(e) The lease term under a lease contract referred to in subsection (d) of this section is:

(1) If there is a writing signed by the party against whom enforcement is sought or by that party's authorized agent specifying the lease term, the term so specified;

76

LEASES § 28:2A-204

(2) If the party against whom enforcement is sought admits in that party's pleading, testimony, or otherwise in court a lease term, the term so admitted; or

(3) A reasonable lease term. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. - See note to§ 28:2A-101.

§ 28:2A-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 contemporaneous oral agreement but may be explained or supplemented:

( 1) By course of dealing or usage of trade or by course of performance; and. (2) 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. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. This section is re- Legislative history of Law 9-128. - See ferred to in § 28:2A-214. note to § 28:2A-101.

§ 28:2A-203. Seals inoperative.

The affixing of a seal to a writing evidencing a lease contract or an offer to enter into a lease contract does not render the writing a sealed instrument and the law with respect to sealed instruments does not apply to the lease contract or offer. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-204. Formation in general.

(a) A lease contract may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a lease contract.

(b) An agreement sufficient to constitute a lease contract may be found..........although the moment of its making is undetermined.

(c) Although one or more terms are left open, a lease contract does not fail ..r". for indefiniteness if the parties have intended to make a lease contract and there is a reasonably certain basis for giving an appropriate remedy. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


77

§ 28:2A-205 COMMERCIAL INSTRUMENTS AND ThANSACTIONS

V § 28:2A-205. Firm offers.

An offer by a merchant to lease goods to or from another person in a signed writing that by its terms ~s a!?..fil!rance it will be held open is n~ revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period of irrevocability exceed 3 months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.}


§ 28:2A-206. Offer and acceptance in formation of lease contract.

(a) Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed as invi.,.Eng accepta..nce in any manner and by any medium reasonable in the circumstances.

(b) If 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. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-207. Course of performance or practical construction.

(a) If a lease contract involves repeated occasions for performance by either party with knowledge of the nature of the performance arid opportunity for objection to it by the other, any course of performance accepted or acquiesced in ·without objection is relevant to determine the meaning of the lease agreement.

(b) The express terms of a lease agreement and any course of performance, as well as any course of dealing and usage of trade, must be construed whenever reasonable as consistent with each other; but if that construction is unreasonable, express terms control course of performance, course of performance controls both course of dealing and usage of trade, and course of dealing controls usage of trade.

(c) Subject to the provisions of § 28:2A-208 on modification and waiver, course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


78

LEASES § 28:2A-209

§ 28:2A-208. Modification, rescission, and waiver.

(a) An agreement modifying a lease contract needs no consideration to be binding.

;,// (b) A signed lease agreement that excludes modification or rescission except V by a signed writing may not be otherwise modified or rescinded, but, except as

between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party.

(c) Although an attempt at modification or rescission does not satisfy the requirements of subsection (b) of this section, it may operate as a waiver.

(d) A party who has made a waiver affecting an executory portion of a lease contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in § 28:2A-207. note to§ 28:2A-101.

§ 28:2A-209. Lessee under finance lease as beneficiary of supply contract.

(a) The benefit of a supplier's promises to the lessor under the supply contract and of all warranties, whether express or implied, including those of any third party provided in connection with or as part of the supply contract, extends to the lessee to the extent of the lessee's leasehold interest under a finance lease related to the supply contract, but is subject to the terms of the warranty and of the supply contract and all defenses or claims arising therefrom.

(b) The extension of the benefit of a supplier's promises and of warranties to the lessee (§ 28:2A-209(a}) does not:

{1) Modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise; or

(2) Impose any duty or liability under the supply contract on the lessee. (c) Any modification or rescission of the supply contract by the supplier and

the lessor is effective between the supplier and the lessee unless, before the modification or rescission, the supplier has received notice that the lessee has entered into a finance lease related to the supply contract. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed, in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that were so modified or rescinded as they existed and were available to the lessee before modification or rescission.

(d) In addition to the extension of the benefit of the supplier's promises and of warranties to the lessee under subsection (a) of this section, the lessee retains all rights that the lessee may have against the supplier which arise from an agreement between the lessee and the supplier or under other law. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830; July 25, 1995, D.C. Law 11-30, § 7(a), 42 DCR 1547.)

79

§ 28:2.A-210 COMMERCIAL INSTRUMENTS AND TRANSACTIONS

Effect of amendments. - D.C. Law 11-30, in (a), substituted "part of the supplyn for "part the supply"; and, in the introductory language of(b}, substituted "benefit of a supplier's promisesn for "benefit a supplier's promisesn and "(28:2A-209{a))" for "(28:2A-209{1))."


Legislative history of Law 11-30 Law 11-30, the "Technical Amendments Act of1995,"

was introduced in Council and assigned Bill No. 11-58, which was referred to the Committee of the Whole. The Bill was adopted on first and second readings on February 7, 1995, and March 7, 1995, respectively. Signed by the Mayor on March 22, 1995, it was assigned Act No. 11-32 and transmitted to both Houses of Congress for its review. D.C. Law 11-30 became effective on July 25, 1995.

~ 28:2A-210. Express warranties.

(a} Express warranties by the lessor are created as follows: (1) Any affirmation of fact or promise made by the lessor to the lessee

which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise.

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

{3) Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model.

(b) It is not necessary to the creation of an express warranty that the lessor use formal words, such as "warrant" or "guarantee," or that the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the lessor's opinion or commendation of the goods does not create a warranty. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-211. Warranties against interference and against infringement; lessee's obligation against infringement.

{a) There is in a lease contract a warranty that for the lease term no person holds a claim to or interest in the goods that arose from an act or omission of the lessor, other than a claim by way of infringement or the like, which will interfere with the lessee's enjoyment of its leasehold interest.

{b) Except in a finance lease there is in a lease contract by a lessor who is a merchant regularly dealing in goods of the kind a warranty that the goods are delivered free of the rightful claim of any person by way of infringement or the like.

(c) A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim by way of infringement or the like that arises out of compliance with the specifications. (July 22, 1992, D.C. Law 9-128, § 2{b), 39 DCR 3830.)

80

LEASES § 28:2A-214

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in§§ 28:2A-214 and 28:2A-516. note to§ 28:2A-101.

§ 28:2A-212. Implied _warranty of merchantability.· 4( (a) Except in a finance lease, a warranty that the goods will be merchant

able is implied in a lease contract if the lessor is a merchant with respect to goods of that kind. ·

(b) Goods to be merchantable must: · (1) Pass withqut objection in the trade under the description in the lease

agreement; (2) In the case of fungible goods, be of fair average quality within the

description; (3) Be fit for the ordinary purposes for which goods of that type are used; (4) Run, within the variation permitted by the lease agreement, of even

kind, quality, and quantity within each unit .and among all units involved; (5) Be adequately contained, packaged, and labeled as the lease agree

ment may require; and (6) Conform to any promises or affirmations of fact made on the container

or label. (c) Other implied warranties may arise from course of dealing or usage of

trade. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-213. Implied warranty of fitness for particular purpose.

Except in a finance lease, if the lessor at the time the lease contract is made has reason to know of any particular purpose for which the goods are required and that the lessee is relying on the lessor's skill or judgment to select or furnish suitable goods, there is in the lease contract an implied warranty that the goods will be fit for that purpose. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-214. Exclusion or modification of warranties.

(a) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit a warranty must be construed wherever reasonable as consistent with each other; but, subject to the provisions of§ 28:2A-202 on parol or extrinsic evidence, negation or limitation is inoperative to the extent that the construction is unreasonable.

(b) Subject to subsection (c) of this section, to exclude or modify the implied warranty of merchantability or any part of it the language must mention "merchantability", be by a writing, and be conspicuous. Subject to subsection (c) of this section, to exclude or modify any implied warranty of fitness the

81

§ 28:2A-215 COMMERCIAL INSTRUMENTS AND 'ThANSACTIONS

exclusion must be by a writing and be conspicuous. Language to exclude all implied warranties of fitness is sufficient if it is in writing, is conspicuous and states, for example, "There is no warranty that the goods will be fit for a particular purpose".

(c) Notwithstanding subsection (b) of this section, but subject to subsection (d) of this section:

(1) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is," or "with all faults," or by other language that in common understanding calls the lessee's attention to the exclusion of warranties and makes plain that there is no implied warranty, if in writing and conspicuous;

(2) if the lessee before entering into the lease contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed; and

(3) an implied warranty may also be excluded or modified by course of dealing, course of performance, or usage of trade.

(d) To exclude or modify a warranty against interference or against infringement(§ 28:2A-211) or any part of it, the language must be specific, be by a writing, and be conspicuous, unless the circumstances, including course of performance, course of dealing, or usage of trade, give the lessee reason to know that the goods are being leased subject to a claim or interest of any person. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9·128. See note to § 28:2A-101.

J~I J§ 28:2A-215. Cumulation and conflict of warranties ex-press or implied.

Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention the following rules apply:

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

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

l3) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


82

LEASES § 28:2A-218

§ 28:2A-216. Third party beneficiaries of express and implied warranties.

A warranty to or for the benefit of a lessee under this article, whether express or implied, extends to any person who may reasonably be expected to use, consume, or be affected by the goods and who is injured by breach of the warranty. The operation of this section may not be excluded, modified, or limited with respect to injury to the person of an individual to whom the warranty extends, but an exclusion, modification, or limitation of the warranty, including any with respect to rights and remedies, effective against the lessee is also effective against the beneficiary designated under this section. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§. 28:2A-217. Identification.

Identification of goods as goods to which a lease contract refers may be made at any time and in any manner explicitly agreed to by the parties. In the · absence of explicit agreement, identification occurs:

(1) When the lease contract is made if the lease contract is for a lease of goods that are existing and identified;

(2) When the goods are shipped, marked, or otherwise designated by the lessor as goods to which the lease contract refers, if the lease contract is for a lease of goods that are not existing and identified; or

(3) When the young are conceived, if the lease contract is for a lease of unborn young of animals. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in § 28:2A-522. note to § 28:2A-101.

§ 28:2A-218. Insurance and proceeds.

(a) A lessee obtains an insu~ble interest when existing goods are identified to the lease contract even though the goods identified are nonconforming and the lessee has an option to reject them.

(b) If a lessee has an insurable interest only by reason of the lessor's identification of the goods, the lessor, until default or insolvency or notification to the lessee that identification is final, may substitute other goods for those identified.

(c) Notwithstanding a lessee's insurable interest under subsections (a) and (b) of this section, the lessor retains an insurable interest until an option to buy has been exercised by the lessee and risk of loss has passed to the lessee.

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

(e) The parties by agreement may determine that one or more parties have an obligation to obtain and pay for insurance covering the goods and by

83


agreement may determine the beneficiary of the proceeds of the insurance. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-219. Risk of loss.

(a) Except in the case of a finance lease, risk of loss is retained by the lessor and does not pass to the lessee. In the case of a finance lease, risk ofloss passes to the lessee.

(b) Subject to the provisions of this article on the effect of default on risk of loss(§ 28:2A-220), if risk ofloss is to pass to the lessee and the time of passage is not stated, the following rules apply:

(1) If the lease contract requires or authorizes the goods to be shipped by carrier

(A) And it does not require delivery at a particular destination, the risk ofloss passes to the lessee when the goods are duly delivered to the carrier; but

(B) If it does require delivery at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the lessee when the goods are there duly so tendered as to enable the lessee to take delivery.

(2) If the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the lessee on acknowledgment by the bailee of the lessee's right to possession of the goods.

(3) In any case not within paragraph (1) or (2) of this subsection, the risk of loss passes to the lessee on the lessee's receipt of the goods if the lessor, or, in the case of a finance lease, the supplier, is a merchant; otherwise the risk passes to the lessee on tender of delivery. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history 'of Law 9-128. See ferred to in § 28:2A-529. note to § 28:2A-101.

§ 28:2A-220. Effect of default on risk of loss.

(a) Where risk of loss is to pass to the lessee and the time of passage is not stated:

(1) If a tender or delivery of goods so fails to conform to the lease contract. as to give a right of rejection, the risk of their loss remains with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance.

{2) If the lessee rightfully revokes acceptance, he or she, to the extent of any deficiency in his or her effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning.

(b) Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency in his or her effective insurance coverage may treat the risk of loss as resting on the lessee for a

84

LEASES § 28:2A-302

commercially reasonable time. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re· Legislative history of Law 9·128. - See ferred to in § 28:2A-219. note to § 28:2A-101.

§ 28:2A-221. Casualty to identified goods.

If a lease contract requires goods identified when the lease contract is made, and the goods suffer casualty without fault of the lessee, the lessor, or the supplier before delivery, or the goods suffer casualty before risk of loss passes to the lessee pursuant to the lease agreement or § 28:2A-219, then:

( 1) If the loss is total, the lease contract is avoided; and (2) If the loss is partial or the goods have so deteriorated as to no longer

conform to the lease contract, the lessee may nevertheless demand inspection and at his or her option either treat the lease contract as avoided or, except in a finance lease that is not a consumer lease, accept the goods with due allowance from the rent payable for the balance of the lease term for the deterioration or the deficiency in quantity but without further right against the lessor. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


Part 3. Effect of Lease Contract.

§ 28:2A-301. Enforceability of lease contract.

Except as otherwise provided in this article, a lease contract is effe~and enforceable according to its terms between the parties, against purchasers of the goods and against creditors of the parties. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.) -


§ 28:2A-302. Title to and possession of goods.

Except as otherwise provided in this article, each provision of this article applies whether the lessor or a third party has title to the goods, and whether the lessor, the lessee, or a third party has possession of the goods, notwithstanding any statute or rule oflaw that possession or the absence of possession is fraudulent. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


85


§ 28:2A-303. Alienability of party's interest under lease contract or of lessor's residual interest in goods; delegation of performance; transfer of rights.

(a) As used in this section, "creation of a security interest" includes the sale of a lease contract that is subject to Article 9, Secured Transactions, by reason of§ 28:9-102(1)(b). ?"4" tl.t:-i ,P.C...~

(b) Except as provided in subsections (c) and (d) of this section, a provision in a lease agreement which (i) prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creati()l1 or .enforcement ofa security interes_t, or attachment, levy, or other judicial process~ of an interest of a party under the lease contract or of the less.or's_r~§!du,aUnterest. in the goods, or (ii) makes such a transfer an event of default, gives rise to the right and remedies

... 11 f provided in subsection (e) of this section, but a transfer that is prohibited or is (1~r.,.. an event of default under the lease agreement is otherwise effective.

(c) A provision in a lease agreement which (i) prohibits the creation or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods, or (ii) makes such a transfer an event or default, is not enforceable unle_ss, and then only to the extent that, there is an actual transfur by the lessee of the lessee's right of possession or use of the goods in violation of the provision or an actual delegation of i:t~l ~r[2rmance of either party to the lease contract in violation of the provision. Neither the granting .nor the enforcement of a security interest in (i) the lessor's interest under the lease contract, or (ii) the lessor's residual interest in the goods is a transfer that materially impairs the

j I prospect of obtaining return performance by, materially chang,fill_t!i-~ . .!!l1.!l.. of, or ~I, materially increases t~µrd.&U._Qr_risk_j:rp.pQ!!ed on,_the .. les~ee ... within the

purview of subsection (e) unless, and then only to the extent that, there is an .... actual delegation of a material performa~ce_ of the. !~ssor. ·

(d) A provision in a lease agreemeiifwhich (i) prohibits a transfer of a right to damages for default with respect to the whole lease contract or of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, or (ii) makes such a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract within the purview of subsection (d) of this section.

(e) Subject to subsections (c) and (d) of this section: (1) If a transfer is made which is made an event of default under a lease

agreement, the party to the lease contract not making the transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in§ 28:2A-501(b);

(2) If paragraph (1) is not applicable and if a transfer is made that (i) is prohibited under a lease agreement, or (ii) materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract,

86

LEASES § 28:2A-304

unless the party not making the transfer agrees at any time to the transfer in the lease contract or otherwise, then, except as limited by contract, (i) the transfer is liable to the party not making the transfer for damages caused by the transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer, and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer.

(f) A transfer of"the lease" or of"all my rights under the lease", or a transfer in similar general terms, is a transfer of rights, and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable by either the transferor or the other party to the lease contract.

(g) Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other party of any duty to perform or of any liability for default.

(h) In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830; May 16, 1995, D.C. Law 10-255, § 21, 41DCR5193; July 25, 1995, D.C. Law 11-30, § 7(b), 42 DCR 1547.)

Section references. - This section is re- 1994," was introduced in Council and assigned ferred to in §§ 28:2A-304 and 28:2A-305. Bill No. 10-673, which was referred to the · Effect of amendments. D.C. Law 10-255 Committee of the Whole. The Bill was adopted validated a previously made section reference on first and second readings on June 21, 1994, change at the end of (e)(l). and July 5, 1994, respectively. Signed by the

D.C. Law 11-30, in (e)(l), substituted Mayor on July 25, 1994, it was assigned Act No. "§ 28:2A-50l(b)" for "§ 28:2A-501"; and, in 10-302 and transmitted to both Houses ofCon(e)(2J(ii), substituted "jurisdiction" for gress for its review. D.C. Law 10-255 became "jurisdication." effective on May 16, 1995.

Legislative history of Law 9·128. - See Legislative history of Law 11-30. - See note to § 28:2A-101. note to § 28:2A-209.

Legislative history of Law 10-255. - Law J 10-255, the "Technical Amendments Act of /} 04f .J?.dt.-l'"'~ d,~v;

§ 28:2A-304. Subsequent lease of goods by lessor. e!• (~ 61

;!jts (a) Subject to § 28:2A-303, a subsequent lessee from a lessor_Qf goods under f . , •

an existing lease contract obtains, to the extent of the leasehold interest \· transferred, the leasehold interest in the goods that the lessor had or had power to transfer, and, except as provided in subsection (b) of this section and § 28:2A-527(d), takes subject to the existing lease contract. A lessor with voidable title has power to transfer a good leasehold interest to a good faith subsequent lessee for value, but only to the extent set forth in the preceding sentence. If goods have been delivered under a transaction of purchase, the lessor has that power even though:

(1) The lessor's transferor was deceived as to the identity of the lessor; (2) The delivery was in exchange for a check which is later dishonored; (3) It was agreed that the transaction was to be a "cash sale"; or

87

§ 28:2A-305 COMMERCIAL INSTRUMENTS AND 'ThA.NSACTIONS

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

(b) A subsequent lessee in the ordinary course of business from a lessor who is a merchant dealing in goods of that kind to whom the goods were entrusted by the existing lessee of that lessor before the interest of the subsequent lessee became enforceable against that lessor obtains, to the extent of the leasehold interest transferred, all of that lessor's and the existing lessee's rights to the goods, and takes free of the existing lease contract.

(c) A subsequent lessee from the lessor of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of the District or of another jurisdiction takes no greater rights than those provided both by this and by the certificate of title statute. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislati"e history of Law 9-128. - See ferred to in §§ 28:2A-104 and 28;2A-105. note to § 28;2A-101.

§ 28:2A-305. Sale or sublease of goods by lessee.

{a) Subject to the provisions of§ 28:2A-303, a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as provided in subsection (b) of this section and § 28:2A-51l(d), takes subject to the existing lease contract. A lessee with a voidable leasehold interest has power to transfer a good leasehold interest to a good faith buyer for value or a good faith sublessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transac.tion of lease the lessee has that power even though:

(1) The lessor was deceived as to the identity of the lessee; (2) The delivery was in exchange for a check which is later dishonored; or (3) The delivery was procured through fraud punishable as larcenous

under the criminal law. (b) A buyer in the ordinary course of business or a sublessee in the ordinary

course of business from a lessee who is a merchant dealing in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all of the lessor's and lessee's rights to the goods, and takes free of the existing lease contract.

(c) A buyer or sublessee from the lessee of goods that are subject to an· existing lease contract and are covered by a certificate of title issued under a statute of the District of Columbia or of another jurisdiction takes no greater rights than those provided both by this section and by the· certificate of title statute. (July 22, 1992, D.C. Law 9-128, § 2(b), 38 DCR 3830; July 25, 1995, D.C. Law 11-30, § 7(c), 42 DCR 1547.)

Section references. This section is re-ferred to in§§ 28;2A-104 and 28:2A-105.

Effect of amendments. - D.C. Law 11-30 substituted "subsection (b) of this section" for "subsection (b)" in the first sentence of (a).

88

Legislative history of Law 9·128. - See note to§ 28:2A-101.


LEASES § 28:2A-308

§ 28:2A-306. Priority of certain liens arising by operation of law.

If a person in the ordinary course of his or her business furnishes services or materials with respect to goods subject to a lease contract, a lien upon those goods in the possession of that person given by statute or rule of law for those materials or services takes priority over any interest of the lessor or lessee under the lease contract or this article unless the lien is created by statute and the statute provides otherwise or unless the lien is created by rule of law and the rule of law provides otherwise. (July 22, 1992, D.C. Law 9~128, § 2(b), 39 DCR 3830.)

Section references. This section is re- Legislative history of Law l}.128. - See ferred to in§ 28:2A-307. note to§ 28:2A-101.

§ 28:2A-307. Priority of liens arising by attachment or levy on, security interests in, and other claims to goods.

(a) Except as otherwise provided in § 28:2A-306, a creditor of a lessee takes subject to the lease contract.

(b) Except as otherwise provided in subsections (c) and (d) of this section and in §§ 28:2A-306 and 28:2A-308, a creditor of a lessor takes subject to the lease contract unless:

(1) The creditor holds a lien that attached to the goods before the lease contract became enforceable;

(2) The creditor holds a security interest in the goods and the lessee did not give value and received delivery of the goods without knowledge of the security interest; or

(3) The creditor holds a security interest in the goods which was perfected (§ 28:9-303) before the lease contract became enforceable.

(c) A lessee in the ordinary course of business takes the leasehold interest free of a security interest in the goods created by the lessor even though the security interest is perfected and the lessee knows of its existence.

(d) A lessee other than a lessee in the ordinary course of business takes the leasehold interest free of a security interest to the extent that it secures future advances made after the secured party acquires knowledge of the lease or more than 45 days after the lease contract becomes enforceable, whichever first occurs, unless the future advances are made pursuant to a commitment entered into without knowledge of the lease and before the expiration of the 45-day period. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-308. Special rights of creditors. ---(a) A creditor of a lessor in possession of goods subject to a lease contract may treat the lease contract as void if as against the creditor retention of

89

§ 28:2A-309 COMMERCIAL INSTRUMENTS AND 'TRANSACTIONS

possession by the lessor is fraudulent under any statute or rule of law, but retention of possession in good faith and current course of trade by the lessor for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent ..

(b) Nothing in this article impairs the rights of creditors of a lessor if the lease contract (i) becomes enforceable, not in current course of trade but in satisfaction of or as security for a preexisting claim for money, security, or the like, and (ii) is made under circumstances which under any statute or rule of law apart from this article would constitute the transaction a fraudulent transfer or voidable preference.

(c) A creditor of a seller may treat a sale or an identification of goods to a contract for sale as void if as against the creditor retention of possession by the seller is fraudulent under any statute or rule oflaw, but retention of possession of the goods pursuant to a lease contract entered into by the seller as lessee and the buyer as lessor in connection with the sale or identification of the goods is not fraudulent if the buyer bought for value and in good faith. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in§ 28:2A-307. note to§ 28:2A-101.

§ 28:2A-309. Lessor's and lessee's rights when goods be· come fixtures.

(a) In this section: (1) Goods are "fixtures" when they become so related to particular real

estate that an interest in them arises under real estate law;[.] (2) A "fixture filing" is the filing, in the office where a mortgage on the real

estate would be filed or recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of § 28:9-402(5) .

. I (3) A lease is a "purchase money lease" unless the lessee has possession or V use of the goods or the right to possession or use of the goods before the lease

agreement is enforceable. (4) A mortgage is a "construction mortgage" to the extent it secures an

obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates.

(5) "Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.

(b) Under this article a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this article of . ordinary building materials incorporated into an improvement on land.

(c) This article does not prevent creation of a lease of fixtures pursuant to real estate law.

(d) The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if:

(1) The lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of

90

LEASES § 28:2A-309

the lessor is perfected by a fixture filing before the goods become fixtures or within 10 days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate; or

(2) The interest of the lessor is perfected by a :fixture filing before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate.

(e) The interest of a lessor of fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:

(1) The fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable;

(2) The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable;

(3) The encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as :fixtures; or

(4) The lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time.

(f) Notwithstanding subsection (d)(l) of this section but otherwise subject to subsections (d) and (e) of this section, the interest of a lessor of fixtures, including the lessor's residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage.

(g) In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor's residual interest, and the conflicting interest of a encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate.

(h) If the interest of a lessor of fixtures, including the lessor's residual interest, has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may (i) on default, expiration, termination, or cancellation of the lease agreement but subject to the lease agreement and this article, or (ii) if necessary to enforce other rights and remedies of the lessor or lessee under this article, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but the lessor or lessee must reimburse any encumbrancer or owner of the real estate who is not the lessee 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

91

§ 28:2A.;310 COMMERCIAL INSTRUMENTS AND TRANSACTIONS

removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.

(i) Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures, including the lessor's residual interest, is perfected by filing a financing statement as a fixture filing for leased goods that are or are to become fixtures in accordance with the relevant provisions of the Article on Secured Transactions (Article 9). (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-310. Lessor's and lessee's rights when goods become accessions.

(a) Goods are "accessions" when they are installed in or affixed to other goods.

(b) The interest of a lessor or a lessee under a lease contract entered into before the goods became accessions is superior to all interests in the whole except as stated in subsection (d) of this section.

(c) The interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions is superior to all subsequently acquired interests in the whole except as stated in subsection (d) of this section, but is subordinate to interests in the whole existing at the time the lease contract was made unless the holders of such interests in the whole have in writing consented to the lease or disclaimed an interest in the goods as part of the whole.

{d) The interest of a lessor or a lessee under a lease contract described in subsection (b) or (c) of this section is subordinate to the interest of:

(1) A buyer in the ordinary course of business or a lessee in the ordinary course of business of any interest in the whole acquired after the goods became accessions; .or

(2) A creditor with a security interest in the whole perfected before the lease contract was made to the extent that the creditor makes subsequent advances without knowledge of the lease contract.

(e) When under subsections (b) or (c) and {d) of this section, a lessor or a lessee of accessions holds an interest that is superior to all interests in the whole, the lessor or the lessee may (i) on default, expiration, termination, or cancellation of the lease contract by the other party but subject to the provisions of the lease contract and this article, or (ii) if necessary to enforce his or her other rights and remedies under this article, remove the goods from the whole, free and clear of all interests in the whole, but he or she must reimburse any holder of an interest in the whole who is not the lessee 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 party seeking removal

92

LEASES § 28:2A-402

gives adequate security for the performance of this obligation. (July 22, 1992, . D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-311. Priority subject to subordination.

Nothing in this article prevents s,ubordination_by agreement by any person entitled to priority. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. See note to§ 28:2A-101.

Part 4. Performance of Lease Contract: Repudiated, Substituted, and Excused.

§ 28:2A-401. Insecurity: adequate assurance of perfc:.:r1 r!

mance. · / '/i/ (a) A lease contract imposes an obligation on each party that the other's /~

expectation of receiving due performance will not be impaired. ;~ (b) If reasonable grounds for insecurity arise with respect to the perfor- -~

mance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assur- l ance, if commercially reasonable the insecure party may suspend any perfor-mance for which he or she has not already received the agreed return.

( c) A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed 30 days after receipt of a demand by the other party.

( d) Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.

(e) Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in§§ 28:2A-402 and 28:2A-403. note to§ 28:2A-101.

§ 28:2A-402. Anticipatory repudiation. ---If either party repudiates a lease contract with respect to a performance not yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party may:

(1) For a commercially reasonable time, await retraction of repudiation and performance by the repudiating party;

93


(2) Make demand pursuant to§ 28:2A-401 and await assurance offuture performance adequate under the circumstances of the particular case; or

(3) Resort to any right or remedy upon default under the lease contract or this article, even though the aggrieved party has notified the repudiating party that the aggrieved party would await the repudiating party's performance and assurance and has urged retraction. In addition, whether or not the aggrieved party is pursuing one of the foregoing remedies, the aggrieved party may suspend performance or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this article on the lessor's right to identify goods to the lease contract notwithstanding default or to salvage unfinished goods (§ 28:2A-524). (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. See ferred to in§§ 28:2A-508 and 28:2A-529. note to§ 28:2A-101.

§ 28:2A-403. Retraction of anticip~tory repudiation.

(a) Until the repudiating party's next performance is due, the repudiating party can retract the repudiation unless, since the repudiation, the aggrieved party has cancelled the lease contract or materially changed the aggrieved party's position or otherwise indicated that the aggrieved party considers the repudiation final.

(b) Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under the lease contract and includes any assurance demanded under§ 28:2A-40L

(c} Retraction reinstates a repudiating party's rights under a lease contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. (July 22, 1992, D.C. Law 9-128, § 2(b}, 39 DCR 3830.)


§ 28:2A-404. Substituted performance.

(a) If without fault of the lessee, the lessor and the supplier, the agreed berthing, loading, or unloading facilities fail or the agreed type of carrier becomes unavailable or ..the agreed manner ()f delivery otherwise becomes commercially impractieabl~~ but a comm~;-ci:ill:Yreasonable substitute is available, the substitute performance must be tendered and accepted~-

(b) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation:

(1) The lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means or manner of payment that is commercially a substantial equivalent; and

(2) If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee's obligation unless the regulation is discriminatory, oppressive, or predatory. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

94

LEASES § 28:2A-406

Section references. This section is re- Legislative history of Law 9-128. - See ferred to in§ 28:2A-405. note to§ 28:2A-101.

§ 28:2A-405. Excused performance.

Subject to § 28:2A-404 on substituted performance, the following rules apply:

(1) Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with paragraphs (2) and (3) of this section is not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order, whether or not the regulation or order later proves to be invalid.

(2) If the causes mentioned in paragraph (1) of this section affect only part of the lessor's or the supplier's capacity to perform, he or she shall allocate production and deliveries among his or her customers but at his or her option may include regular customers, not then under contract for sale or lease as well as his or her own requirements for further manufacture. He or she may so allocate in any manner that is fair and reasonable.

(3) The lessor seasonably shall notify the lessee and in the case of a finance lease the supplier seasonably shall notify the lessor and the lessee, if known, that there will be delay or nondelivery and, if allocation is required under paragraph (2) of this section, of the estimated quota thus made available for the lessee. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. See ferred to in § 28:2A-406. note to § 28:2A-101.

§ 28:2A-406. Procedure on excused performance.

(a) If the lessee receives notification of a material or indefinite delay or an allocation justified under § 28:2A-405, the lessee may by written notification to the lessor as to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (§ 28:2A-510):

(1) Terminate the lease contract(§ 28:2A-505(b)); or (2) Except in a finance lease that is not a consumer lease, modify the lease

contract by accepting the available quota in substitution, with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor.

(b) If, after receipt of a notification from the lessor under§ 28:2A-405, the lessee fails so to modify the lease agreement within a reasonable time not exceeding 30 days, the lease contract lapses with respect to any deliveries affected. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


95

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

§ 28:2A-407. Irrevocable promises: finance leases.

(a) In the case of a finance lease that is not a consumer lease, the lessee's promises under the lease contract becom~ocable and independent upon the lessee's acceptance of the goods.

(b) A promise that has become irrevocable and independent under subsection (a) of this section:

(1) Is effective and enforceable between the parties, and by or against third parties including assignees of the parties, and

(2) Is not subject to cancellation, termination, modification, repudiation, excuse, or ;ubstitution without the consent of the party to whom the :promise runs.

(c) This section does not affect the validity under any other law of a covena in any lease contract making the lessee's promises irrevoc~n mdependent upon the lessee's acceptance of the goods. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. See ferred to in § 28:2A-508. note to§ 28:2A-101.

Part 5. Default.

A. In General.

§ 28:2A-501. Default: procedure.

(a) Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this article.

(b) If the lessor or the lessee is in default under the lease contract, the party seeking enforcement has rights and remedies as provided in this article and, except as limited by this article, as provided in the lease agreement.

(c) If the lessor or the lessee is in default under the lease contract, the party seeking enforcement may reduce the party's claim to judgment, or otherwise enforce the lease contract by self help or any available judicial procedure or nonjudicial procedure, including administrative proceeding, arbitration, or the like, in accordance with this article.

(d) Except as otherwise provided in § _28:1-106 or this article or the lease agreement, the rights and remedies referred to in subsections (b) and (c) of this section are cumulative.

(e) If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this part as to the goods, or under other applicable law as to both the real property and the goods in accordance with that party's rights and remedies in respect of the real property, in which case this part does not apply. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830; May 16, 1995, D.C. Law 10-255, § 22, 41 DCR 5193; July 25, 1995, D.C. Law 11-30, § 7(d), 42 DCR 1547.)

96

LEASES § 28:2A-504

Section references. - This section is referred to in § 28:2A-303.

Effect of amendments. - D.C. Law 10-255 validated a previously made section reference change in (d).

D.C. Law 11-30 substituted "of this article" for "or this article" in (d). However, effect has· not been given to the change by Law 11-30; the technical correction made to (d) by that act

would have made an unintended substantive change in the text.


Legislative history of Law 10-255• - See note to § 28:2A-303.


§ 28:2A-502. Notice after default.

Except as otherwise provided in this article or the lease agreement, the lessor or lessee in default under the lease contract is not entitled to notice of default or notice of enforcement from the other party to the lease agreement. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-503. Modification or impairment of rights and remedies.

(a) Except as otherwise provided in this article, the lease agreement may include ri_ghts and remedies for default in addition to or in substitution fur those provided in thisarticle and ipay limit or alter the measure of damages recoverable under this article.

(b) Resort to a remedy provided under this article or in the lease agreement is optional unless the remedy is eJillr.essly a~d to be exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or provision for an exclusive remedy is unconscionable, remedy may be had as provided in this article.

(c) Consequential damages may be liquidated under § 28:2A-504, or may otherwise be limited, altered, or excluded unless the limitation, alteration, or exclusion is unconscionable. Limitation, alteration, or exclusion of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but limitation, alteration, or exclusion of damages where the loss is commercial is not prima facie unconscionable.

(d) Rights and remedies on default by the lessor or the lessee with respect to any obligation or promise collateral or ancillary to the lease contract are not impaired by this article. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-518, 28:2A-519, 28:2A· note to § 28:2A-101. " 527, and 28:2A-528.

§ 28:2A-504. Liquidation of damages.

(a) Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or lo'SS or damage to lessor's residual interest, may be liquidated in the lease

' -97

§ 28:2A-505 CoM:.IERCIAL INSTRUMENTS AND TRANSACTIONS

agreement, but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission.

(b) If the lease agreement provides for liquidation of damages and the provision does not comply with subsection (a) of this section, or the provision is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this article.

(c) If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (§ 28:2A-525 or § 28:2A-526), the lessee is entitled to restitution of any amount by which the sum of his or her payments exceeds:

(1) The amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages in accordance with subsection (a) of this section; or

(2) In the absence of those terms, 20 percent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of the amount or $500.

(d) A lessee's right to restitution under subsection (c) of this section is subject to offset to the extent the lessor establishes:

(1) A right to recover damages under the provisions of this article other than subsection (a) of this section; and

(2) The amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-503, 28:2A-518, 28:2A- note to§ 28:2A-101. 519, 28:2A-527, and 28:2A-528.

§ 28:2A-505. Cancellation and termination and effect of cancellation, termination, rescission, or fraud on rights and remedies.

(a) On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on prior default or performance survives, and the cancelling party also retains any remedy for default of the whole lease contract or any unperformed balance.

(b) On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives.

(c) Unless the contrary intention clearly appears, expressions of "cancellation," "rescission," or the like of the lease GOntract may not be construed as a renunciation or discharge of any claim in damages for an antecedent default.

(d) Rights and remedies for material misrepresentation or fraud include all rights and remedies available under this article for default.

(e) Neither rescission nor a claim for rescission of the lease contract nor rejection or return of the goods may bar or be deemed inconsistent with a claim for damages or other right or remedy. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

98

LEASES § 28:2A-507

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in §§ 28:2A-406, 28:2A-508, and note to§ 28:2A-101. 28:2A-523.

§ 28:2A-506. Statute of limitations.

(a) An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within 4 years after the cause of action accrued. By the original lease contract the parties may reduce the period of limitation to not less than 1 year.

(b) A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should have been discovered by the aggrieved party, or when the default occurs, whichever is later. A cause of action for indemnity accrues when the act or omission on which the claim for indemnity is based is or should have been discovered by the indemnified party, whichever is later.

(c) If an action commenced within the time limited by subsection (a) of this section is so terminated as to leave available a remedy by another action for the same default or breach of warranty or indemnity, the other action may be commenced after the expiration of the time limited and within 6 months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

(d) This section does not alter the law on tolling of the statute oflimitations nor does it apply to causes of action that have accrued before this article becomes effective. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-507. Proof of market rent: time and place. (a) Damages based on market rent (§ i8:2A-519 or § 28:2A-528) are

determined according to the rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the time of the default.

(b) If evidence of rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at "the times or places described in this article is not readily available, the rent prevailing within any reasonable time before or after the time described or at any other place or for a different lease term 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 difference, including the cost of transporting the goods to or from the other place.

(c) Evidence of a relevant rent prevailing at a time or place or for a lease term other than the one described in this article offered by one party is not admissible unless and until he or she has given the other party notice the court finds sufficient to prevent unfair surprise.

(d) If the prevailing rent or value of any goods regularly leased in any established market is in issue, reports in official publications or trade journals

99

§ 28:2A-5Q8 . COMMERCIAL INSTRUMENTS AND TRANSACTIONS

or in newspapers or periodicals of general circulation published as the reports of that market are admissible in evidence. The circumstances of the prepara-tion of the report may be shown to affect its weight but not its admissibih.·t.y. A-(July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.) 11 ....£_...,... ..

Legislative history of Law 9-128. - See u·41,(;_ ~ note to § 28:2A-101. t

J

B. Default by Lessor.

§ 28:2A-508. Lessee's remedies.

(a) If a lessor fails to deliver the goods in conformity to the lease contract

/.

(§ 28:2A-509) or repudiates the lease contract (§ 28:2A-402), or a lessee '} rightfully rejects the goods(§ 28:2A-509) or justifiably revokes acceptance of [' ) the goods (§ 28:2A-517), then with respect to any goods involved, and with 'J..I ) I respect to all of the goods if under an installment lease contract the value of the

1 r, f//1 P·f' whole !ease_.~tra~§!!.l:!_~tE:P.ti~1J~yJ.!!!.P.~!red (§ 28:2A-510), the lessor is in lQ Al . default under the lease contract and the lessee may:

liltlrft) (1) Cancel the lease contract (§ 28:2A-505(a)); lif" (2) Recover so much of the rent and security as has been paid and is just

t!f f {ju) under._the circumstances; or

1 0., 7 fc3) Cover an.d recover damages as to all goods affected whether or not they

~ f h~been identified to the lease contract(§§ 28:2A-518 and 28:2A-520), or ' I recover damages for nondelivery(§§ 28:2A-519 and 28:2A-520).

I·' (b) If a lessor fails to deliver the goods in conformity to the lease contract or .

Ji repudiates the lease contract, the lessee may also: ~ _,,,/,,, ll '' (1) If the goods have been identified, recover them (§ 28:2A-522); or ,,..C.C../"''-'2..d 1.J

(2) In a proper case, obtain specific performance or replevy the goods (§ 28:2A-521).

(c) If a lessor is otherwise in default under a lease contract, the lessee may /./i) 11,.1/Cr: exercise the rights and pursue· the ~he J~~~e_ !!i>Jl!r.act, p.e 4 c:..e which may include a right to cancel the lease, and in§ 28:2A-519(c). is .>ril"'f

(d) If a lessor has breached a warranty, whether express or implif:ld, the lessee may recover damages (§ 28:2A-519(d)). - /i}jal£

(e) On rightful rejection or justifiable revocation of acceptance, a lessee has a security inte~in goods in the lessee's· possession or control for any rent and ~ that has been paid and~ any expenses reasonably incurred in their inspection, receipt, transportation, and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, su1Uect to§ 28:2A-s21<e>.

(f) Subject to the provisions of§ 28:2A-407, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or any part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

100

LEASES § 28:2A-511

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in §§ 28:2A-511, 28:2A-512, 28:2A- note to § 28:2A-101. 518, and 28:2A-527.

§ 28:2A-509. Lessee's rights on improper delivery; rightful rejection.

(a) Subject to the provisions of§ 28:2A-510 on default in installment lease contracts, if the goods or the tender or delivery fail in any respect to conform to the lease contract, the lessee may reject or accept the goods or accept any commercial unit or units and reject the rest of the goods.

(b) Rejection of goods is ineffective unless it is within a reasonable time after tender or delivery of the goods and the lessee seasonably notifies the lessor. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. This section is re- Legislative history of Law 9-128. - See . ferred to in §§ 28:2A-508 and 28:2A-515. note to § 28:2A-101.

§ 28:2A-510. Installment lease contracts: rejection and default.

(a) Under an installment lease contract a lessee may reject any delivery that is nonconforming if the nonconformity substantially impairs the value of that delivery and cannot be cured or the nonconformity is a defect in the required documents; but if the nonconformity does not fall within subsection (b) of this section and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery.

(b) Whenever nonconformity or default with respect to one or more deliveries substantially impairs the value of the installment lease contract as a whole, there is a default with respect to the whole. But, the aggrieved party reinstates the installment lease contract as a whole if the aggrieved party accepts a nonconforming delivery without seasonably notifying of cancellation or brings an action with respect only to past deliveries or demands performance as to future deliveries. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-406, 28:2A-508, 28:2A- note to§ 28:2A-101. 509, and 28:2A-523.

§ 28:2A-511. Merchant lessee's duties as to rightfully rejected goods.

(a) Subject to any security interest of a lessee(§ 28:2A-508(e)), if a lessor or a supplier has no agent or place of business at the market of rejection, a merchant lessee, after rejection of goods in his or her possession or control, shall follow any reasonable instructions received from the lessor · or the supplier with respect to the goods. In the absence of those instructions, a merchant lessee shall make reasonable efforts to sell, lease, or otherwise dispose of the goods for the lessor's account if they threaten to decline in value

101

§ 28:2A-512 COMMERCIAL INSTRUMENTS AND 'TRANSACTIONS

speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.

(b) If a merchant lessee (subsection (a) of this section) or any other lessee (§ 28:2A-512) disposes of goods, he or she is entitled to reimbursement either from the lessor or the supplier or out of the proceeds for reasonable expenses of caring for and disposing of the goods and, if the expenses include no disposition commission, to such commission as is usual in the trade, or ifthere is none, to a reasonable sum not exceeding 10% of the gross proceeds.

(c) In complying with this section or§ 28:2A-512, the lessee is held only to good faith. Good faith conduct hereunder is neither acceptance or conversion nor the basis of an action for damages.

(d) A purchaser who purchases in good faith from a lessee pursuant to this section or § 28:2A-512 takes the goods free of any rights of the lessor and the supplier even though the lessee fails to comply with one or more of the requirements of this article. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR

3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in§§ 28:2A-305 and 28:2A-512. note to § 28:2A-101.

§ 28:2A-512. Lessee's duties as to rightfully rejected goods.

{a) Except as otherwise provided with respect to goods that threaten to decline in value speedily(§ 28:2A-511) and subject to any security interest of a lessee (§ 28:2A-508(e)):

( 1) The lessee, after rejection of goods in the lessee's possession, shall hold them with reasonable care at the lessor's or the supplier's disposition for a reasonable time after the lessee's seasonable notification of rejection;

(2) If the lessor or the supplier gives no instructions within a reasonable time after notification of rejection, the lessee may store the rejected goods for the lessor's or the supplier's account or ship them to the lessor or the supplier or dispose of them for the lessor's or the supplier's account with reimbursement in the manner provided in§ 28:2A-511; but

(3) The lessee has no further obligations with regard to goods rightfully rejected.

(b) Action by the lessee pursuant to subsection (a) of this section is not acceptance or conversion. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR

3830.)

Section references. - This section is ·re- Legislative history of Law 9-128. - See ferred to in§ 28:2A-511. note to § 28:2A-101.

§ 28:2A-513. Cure by lessor of improper tender or delivery; replacement.

{a) If any tender or delivery by the lessor or the supplier is rejected because nonconforming and the time for performance has not yet expired, the lessor or the supplier may seasonably notify the lessee of the lessor's or the supplier's

102

LEASES § 28:2A-515

intention to cure and may then make a conforming delivery within the time provided in the lease contract.

(b) If the lessee rejects a nonconforming tender that the lessor .or the supplier had reasonable grounds to believe would be acceptable with or without money allowance, the lessor or the supplier may have a further reasonable time to substitute a conforming tender if he or she seasonably notifies the lessee. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in § 28:2A-514. note to § 28:2A-101.

§ 28:2A-514. Waiver of lessee's objections.

(a) In rejecting goods, a lessee's failure to state a particular defect that is ascertainable by reasonable inspection precludes the lessee from relying on the defect to justify rejection or to establish default:

(1) If, stated seasonably, the lessor or the supplier could have cured it (§ 28:2A-513); or

(2) Between merchants if the lessor or the supplier after rejection has made a request in writing for a full and final written statement of all defects on which the lessee proposes to rely.

(b) A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent on the face of the documents. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-515. Acceptance of goods.

(a) Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods, and

(1) The lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are conforming or that the lessee will take or retain them in spite of their nonconformity; or

(2) The lessee fails to make an effective rejection of the goods (§ 28:2A-509(b)).

(b) Acceptance of a part of any commercial unit is acceptance of that entire unit. (July 22, 1992, D,C. Law 9-128, § 2(b), 39 DCR 3830.)

Legislative history of Law 9-128. See note to§ 28:2A-101.

103


§ 28:2A-516. Effect of acceptance of goods; notice of default; burden of establishing default after acceptance; notice of claim or litigation to person answerable over.

(a) A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully rejected or not delivered.

(b) A lessee's acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this article or the lease agreement for nonconformity.

(c) If a tender has been accepted: (1) Within a reasonable time after the lessee discovers or should have

discovered any default, the lessee shall notify the lessor and the supplier, if any, or be barred from any remedy against the party not notified;

(2) Except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the like (§ 28:2A-211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and

(3) The burden is on the lessee to establish any default. (d) If a lessee is sued for breach of a warranty or other obligation for which

a lessor or a supplier is answerable over the following apply: (1) The le.ssee may give the lessor or the supplier, or both, written notice

of the litigation. If the notice states that the person notified may come in and defend and that if the person notified does not do so, that person will be bound in any action against that person by the lessee by any determination of fact common to the 2 litigations, then unless the person notified after seasonable receipt of the notice does come in and defend, that person is so bound.

(2) The lessor or the supplier may demand in writing that the lessee tum over control of the litigation including settlement if the claim is one for infringement or the like(§ 28:2A-211) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred.

(e) Subsections (c) and (d) of this section. apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (§ 28:2A-211). (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


104

LEASES § 28:2A-518

§ 28:2A-517. Revocation of acceptance of goods.

(a) A lessee may revoke acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the lessee if the lessee has accepted it:

(1) Except in the case of a finance lease, on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or

(2) Without discovery of the nonconformity if the lessee's acceptances was reasonably induced either by the lessor's assurances or, except in the case of a finance lease, by the difficulty of discovery before acceptance.

(b) Except in the case of a financial lease that is not a consumer lease, a lessee may revoke acceptance of a lot or commercial unit if the lessor defaults under the lease contract and the default substantially impairs the value of that lot or commercial unit to the lessee.

(c) If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the lessor.

(d) Revocation of acceptance must occur within a reasonable time after the lessee discovers or should have discovered the ground for it and before any . substantial change in condition of the goods which is not caused by the nonconformity. Revocation is not effective until the lessee notifies the lessor.

(e) A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. This section is re- Legislative history of Law 9-128. See ferred to in § 28:2A-508. note to§ 28:2A-101.

§ 28:2A-518. Cover; substitute goods. (a) After default by a lessor under the lease contract of the type described in

§ 28:2A-508(a), or, if agreed, after other default by the lessor, the lessee may cover by making any purchase or lease of or contract to purchase or lease goods in substitution for those due from the lessor.

(b) Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 28:2A-504) or otherwise determined pursuant to agreement of the parties(§ 28:1-102(3) and§ 28:2A-503), if a lessee's cover is by a lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessee may recover from the lessor as damages (i) the present value, as of the date of the commencement of the term of the new lease agreements, of the rent under the new lease agreement applicable to the period of the new lease which is comparable to the then remaining term of the original lease agreement minus the present value as of the same date of the total rent for the then remaining lease term of the original lease agreement, and (ii) any incidental or consequential damages, less expenses saved in consequence of the lessor's default.

(c) If a lessee's cover is by lease agreement that for any reason does not qualify for treatment under subsection (b) of this section, or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected

105

§ 28:2A-S19 COMMERCIAL INSTRUMENTS AND 'TRANSACTIONS

not to cover and§ 28:2A-519 governs. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in§§ 28:2A-508 and 28:2A-519. note to§ 28:2A-101.

§ 28:2A-519. Lessee's damages for nondelivery, repudiation, default, and breach of warranty in regard to accepted goods.

(a) Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 28:2A-504) or otherwise determined pursuant to agreement of the parties (§§ 28:1-102(c) and 28:2A-503), if a lessee elects not to cover or a lessee elects to cover and the cover is by lease agreement that for any reason does not qualify for treatment under§ 28:2A-518(b), or is by purchase or otherwise, the measure of damages for nondelivery or repudiation by the lessor or for rejection or revocation of acceptance by the lessee is the present value as of the date of the default, of the then market rent minus the present value as of the same date of the original rent, computed for the remaining lease term of the original lease agreement, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.

(b) Market rent 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.

(c) Except as otherwise agreed, if the lessee has accepted goods and given notification (§ 28:2A-516(c)), the measure of damages for nonconforming tender or delivery or other default by a lessor is the loss resulting in the ordinary course of events from the lessor's default as determined in any manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.

(d) Except as otherwise agreed, the measure of damages for breach of warranty is the present value at the time and place of acceptance of the difference between the value of the use of the goods accepted and the value if they had been as warranted for the lease term, unless special circumstances show proximate damages of a different amount, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default or breach of warranty. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-507, 28:2A-508, and note to § 28:2A-101. 28:2A-518.

§ 28:2A-520. Lessee's incidental and consequential damages.

(a) Incidental damages resulting from a lessor's default include expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected or goods the acceptance of which is justifiably revoked, any commercially reasonable charges, expenses or com-

106

LEASES § 28:2A-523

missions in connection with effecting cover, and any other reasonable expense incident to the default.

(b) Consequential damages resulting from a lessor's default include: (1) Any loss resulting from general or particular requirements and needs

of which the lessor at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

(2) Injury to person or property proximately resulting from any breach of warranty. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. This section is re- Legislative history of Law 9-128. - See ferred to in§ 28:2A-508. note to § 28:2A-101.

§ 28:2A-521. Lessee's right to specific performance or re- J plevin. ~ff t'

(a) Specific performance may be decreed if the goods are unique or in other proper circumstances.

(b) A decree for specific performance may include any terms and conditions (..../'"' as to payment of the rent, damages, or other relief that the court deems just.

(c) A lessee has a right of replevin, detinue, sequestration, claim and delivery, or the like for goods identified to the lease contract if after reasonable effort the lessee is unable to effect cover for those gooqs or the circumstances reasonably indicate that the effort will be unavailing. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in§ 28:2A-508. note to § 28:2A-101.

§ 28:2A-522. Lessee's right to goods on lessor's insolvency.

(a) Subject to subsection (b) of this section and even though the goods have not been shipped, a lessee who has paid a part or all of the rent and security for goods identified to a lease contract (§ 28:2A-217) on making and keeping good a tender of any unpaid portion of the rent and security due under the lease contract may recover the goods identified from the lessor if the lessor becomes insolvent within 10 days after receipt of the first installment of rent and security.

(b) A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in § 28:2A-508. note to § 28:2A-101.

C. Default by Lessee.

§ 28:2A-523. Lessor's remedies.

(a) If a lessee wrongfully rejects or revokes acceptance of goods or fails to make a payment when i:lue or repudiates with respect to a part or the whole,

107


then, with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired(§ 28:2A-510), the lessee is in default under the lease contract and the lessor may:

(1) Cancel the lease contract(§ 28:2A-505(a)); (2) Proceed respecting goods not identified to the lease contract(§ 28:2A-

524); (3) Withhold delivery of the goods and take possession of goods previously

delivered(§ 28:2A-525); (4) Stop delivery of the goods by any bailee(§ 28:2A-526); (5) Dispose of the goods and recover damages(§ 28:2A-527), or retain the

goods and recover damages (§ 28:2A-528), or in a proper case recover rent (§ 28:2A-529); or

( 6) Exercise any other rights or pursue any other remedies provided in the lease contract.

(b) If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under subsection (a) of this section, the lessor may recover the loss resulting in the ordinary course of events from the lessee's default as determined in any reasonable manner, together with incidental damages, less expenses saved in consequence of the lessee's default.

(c) If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and pursue the remedies provided in the lease contract which may include a right to cancel the lease. In addition, unless otherwise provided in the lease contract:

(1) If the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the rights and pursue the remedies provided in subsections (a) and (b) of this section; or

(2) If the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided in subsection (b) of this section. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is referred to in §§ 28:2A-524, 28:2A-525, 28:2A-527, 28:2A-528, and 28:2A-529.


Editor's notes. - The word "or," appearing in D.C. Law 9-128, was deleted from the end of (a)(4).

§ 28:2A-524. Lessor's right to identify goods to lease con-tract. ·

(a) A lessor aggrieved under § 28:2A-523(a) may: (1) Identify to the lease contract conforming goods not already identified

if at the time the lessor learned of the default they were in the lessor's or the supplier's possession or control; and

(2) Dispose of goods (§ 28:2A-527(a)) that d~monstrably have been intended for the particular lease contract even though those goods are unfinished.

(b) If the goods are unfinished, in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization, an

108

.LEASES § 28:2A-526

aggrieved lessor or the supplier may either complete manufacture and wholly identify the goods to the lease contract or cease manufacture and lease, sell, or otherwise dispose of the goods for scrap or salvage value or proceed in any other reasonable manner. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128.--'" See ferred to in§§ 28:2A-402 and 28:2A-523. note to§ 28:2A-101.

§ 28:2A-525. Lessor's right to possession of goods.

(a) If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods.

(b) After a default by the lessee under the lease contract of the type described in § 28:2A-523(a) or § 28:2A-523(c)(l) or, if agreed, after other default by the lessee, the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business, and may dispose of goods on the lessee's premises (§ 28:2A-527).

(c) The lessor may proceed under subsection (b) of this section without judicial process if it can be done without breach of the peace or the lessor may proceed by action. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830; Apr. 18, 1996, D.C. Law 11-110, § 26, 43 DCR 530.)

Section references. - This section is referred to in §§ 28:2A-504, 28:2A-523, and 28:2A-527.

Effect of amendments. -D.C. Law 11-110 substituted "the lessor has the right" for "the lessee has the right" in the first sentence of (bl.


Legislative history of Law 11-110. - Law 11-110, the "Technical Amendments Act . of

1996," was introduced in Council and assigned Bill No. 11-485, which was referred to the Committee of the Whole. The Bill was adopted on first and second readings on December 5, 1995, and January 4, 1996, respectively. Signed by the Mayor on January 26, 1996, it was assigned Act No. 11-199 and transmitted to both Houses of Congress for its review. D.C. Law 11-110 became effective on April 18, 1996.

§ 28:2A-526. Lessor's stoppage of delivery in transit or otherwise.

(a) A lessor may stop delivery of goods in the possession of a carrier or other bailee ifthe lessor discovers the lessee to be insolvent and may stop delivery of carload, truckload, planeload, or larger shipments of express or freight if the lessee repudiates or fails to make a payment due before delivery, whether for rent, security or otherwise under the lease contract, or for any other reason the lessor has a right to withhold or take possession of the goods.

(b) In pursuing its remedies under subsection (a) of this section, the lessor may stop delivery until:

(1) Receipt of the goods by the lessee; (2) Acknowledgment to the lessee by any bailee of the goods, except a

carrier, that the bailee !lolds the goods for the lessee; or

109

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

(3) Such an acknowledgment to the lessee by a carrier via reshipment or as warehouseman.

(c)(l) To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods. ·

(2) After notification, the bailee shall hold and deliver the goods according to the directions of the lessor, but the lessor is liable to the bailee for any ensuing charges or damages.

(3) A carrier who has issued a nonnegotiable bill oflading is not obliged to obey a notification to stop received from a person other than the consignor. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128. - See ferred to in §§ 28:2A-504, 28:2A-523, and note to § 28:2A-101. 28:2A-527.

§ 28:2A-527. Lessor's rights to dispose of goods.

(a) After a default by a lessee under the lease contract of the type described in § 28:2A-523(a) or § 28:2A-523(c) or after the lessor refuses to deliver or takes possession of goods (§ 28:2A-525 or § 28:2A-526), or, if agreed, after other default by a lessee, the lessor may dispose of the goods concerned or the undelivered balance thereof by lease, sale, or otherwise.

(b) Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 28:2A-504) or otherwise determined pursuant to agreement of the parties (§ 28:1-102(3) .and § 28:2A-503), if the disposition is by lease agreement substantially similar to the original lease agreement and the lease agreement is made in good faith and in a commercially reasonable manner, the lessor may recover from the lessee as damages (i) accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, (ii) the present value, as of the same date, of the total rent for the then remaining lease term of the original lease agreement minus the present value, as of the same date, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement, and (iii) any incidental damages allowed under § 28:2A-530, less expenses saved in consequence of the lessee's default.

(c) If the lessor's disposition is by lease agreement that for any reason does not qualify for treatment under subsection (b) of this section, or is by sale or otherwise, the lessor may recover from the lessee as if the lessor had elected not to dispose of the goods and § 28:2A-528 governs.

(d) A subsequent buyer or lessee who buys or leases from the lessor in good faith for value as a result of a disposition under this section takes the goods free of the original lease contract and any rights of the original lessee even though the lessor fails to comply with one or more of the requirements of this article.

(e) The lessor is not accountable to the lessee for any profit made on any disposition. A lessee who has rightfully rejected or justifiably revoked acceptance shall account to the lessor for any excess over the amount of the lessee's

110

LEASJi;S § 28:2A-529

security interest(§ 28:2A-508(e)). (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830; July 25, 1995, D.C. Law 11-30, § 7(e), 42 DCR 1547.)

Section references. - This section is referred to in §§ 28:2A-304, 28:2A-508, 28:2A~ 523, 28:2A-524, 28:2A-525, 28:2A-528, and 28:2A-529.

Effect of amendments. - D.C. Law 11-30 validated a previously made change in the introductory language of (b) and substituted

"comparable to the then" for" comparable to the ten" in {b){ii).


Legislative history of Law 11-30. - See note to § 28:2A-209. ·

§ 28:2A-528. Lessor's damages for nonacceptance, failure to pay, repudiation, or other default.

(a) Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 28:2A-504) or otherwise determined pursuant to agreement of the parties(§§ 28:1-102(3) and 28:2A-503), if a lessor elects to retain the goods or a lessor elects to dispose of the goods and the disposition is by lease agreement that for any reason does not qualify for treatment under § 28:2A-527(b), or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in § 28:2A-523(c)(l), or, if agreed, for other default of the lessee (i) accrued and unpaid rent as of the date of default if the lessee has never taken possession of the goods, or, if the lessee has taken possession of the goods, as of the date the lessor repossesses the goods or an earlier date on which the lessee makes a tender of the goods to the lessor, (ii) the present value as of the date determined under clause (i) of this subsection of the total rent for the then remaining lease term of the original lease agreement minus the present value as of the same date the market rent at the place where the goods are located computed for the same lease term, and (iii) any incidental damages allowed under § 28:2A-530, less expenses saved in consequence of the lessee's default.

(b) If the measure of damages provided in subsection (a) of this section is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the present value of the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under § 28:2A-530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-507, 28:2A-523, 28:2A- note to§ 28:2A-101. 527, and 28:2A-529.

§ 28:2A-529. Lessor's action for the rent. (a) After default by the lessee under the lease contract of the type described

in § 28:2A-523(a) or § 28:2A-523(c) or, if agreed, after other default by the lessee, if the lessor complies with subsection (b) of this section, the lessor may recover from the lessee as damages:

(1) For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged within a commercially

111

LEASES § 28:2A-532

§ 28:2A-581. Standing to sue third parties for injury to goods.

(a) If a third party so deals with goods that have been identified to a lease contract as to cause actionable injury to a party to the lease contract:

(1) The lessor has a right of action against the third party, and (2) The lessee also has a right of action against the third party if the

lessee: (A) Has a security interest in the goods; (B) Has an insurable interest in the goods; or (C) Bears the risk ofloss under the lease contract or has since the injury

assumed that risk as against the lessor and the goods have been converted or destroyed.

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

(c) Either party with the consent of the other may sue for the benefit of whom it may concern. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


§ 28:2A-582. Lessor's rights to residual interest.

In addition to any other necessary recovery permitted by this article or other law, the lessor may recover from the lessee an amount that will fully compensate the lessor for any loss or damage to the lessor's residual interest in the goods caused by the default of the lessee. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)


113


reasonable time after risk ofloss passes to the lessee(§ 28:2A-219), (i) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (ii) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (iii) any incidental damages allowed under section § 28:2A-530, less expenses saved in consequence of the lessee's default; and

(2) For goods identified to the lease CQntract if the lessor is unable after reasonable effort to dispose of them at a reasonable price or the circumstances reasonably indicate that effort will be unavailing, (i) accrued and unpaid rent as of the date of default, (ii) the present value as of the date of default of the rent for the remaining lease term of the lease agreement, and (iii) any incidental damages allowed under§ 28:2A-530, less expenses saved in consequence of the lessee's default.

(b) Except as provided in subsection (c) of this section, the lessor shall hold for the lessee for the remaining lease term of the lease agreement any goods that have been identified to the lease contract and are in the lessor's control.

(c) The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subsection (a) of this section. If the disposition is before the end of the remaining lease term of the lease agreement, the lessor's recovery against the lessee for damages is governed by § 28:2A-527 or § 28:2A-528, and the lessor will cause an appropriate credit to be provided against a judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to § 28:2A-527 or § 28:2A-528.

(d) Payment of the judgment for damages obtained pursuant to subsection (a) of this section entitles the lessee to the use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement.

(e) After a lessee has wrongfully rejected or revoked acceptance of goods, has failed to pay rent then due, or has repudiated(§ 28:2A-402), a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for nonacceptance under§§ 28:2A-527 and 28:2A-528. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9·128 .. - See ferred to in § 28:2A-523. note to§ 28:2A-101.

§ 28:2A-530. Lessor's incidental damages.

Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the lessee's default, iri connection with return or disposition of the goods, or otherwise resulting from the default. (July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830.)

Section references. - This section is re- Legislative history of Law 9-128. - See ferred to in §§ 28:2A-528 and 28:2A-529. note to§ 28:2A-101.

112

,{'"""\

PUBLIC LAW 88-.:::43-DEC. 30, 1963 [77 STAT.

ARTICLE 3-COMMERCIAL PAPER-Continued

I'.\ HT 4--J.unII.ITY OF P .\RTIES Sec. 28 :3-401. :-liguat11r1>. 28 :3-402. Signtitnre in amhiguons rapacity. 28 :3--!0:t ::Signature by 11uthorized representative. 28 :3-404. rnauthorlzed signatures. 28 :3---40rt. Imposters: signature in name of payee. 28 :3-406. Negligenre C'011tributing to alteration or unauthorized signature. 28 :3-407. Alteration. 28 ::~-408. Considt>rution. 28 :3-40fl. Draft not an assignment. 28 ::l--410. Definition and 01ieration of acceptance. 28 :3---411. Ct>rtiflt•tHion of a check. 28 :3-412. Arreptance varying draft. 28 :3--lrn. ('ontract of maker, drawer and aC'Ceptor. 28 :3-414. ('ontral't of indorser; order of liability. 28 :3----n:;. <'ontrart of nccommodation party. 28 ::l--ll<t t'outral't of guarantor. 28 ::{-417. Warranties 011 presentment and transfer. 2l'l ::l-418. 1''inality of payment or acceptance. 28 ::l-41!1. ('om·ersion of instrument; innocent represeutath-e.

P . .\RT :'t--PRESE.'lT~IE.'lT, XoTICE OF DISHOSOR ASD PRon:sT

28 :H-:".tll. \\'hen presentment, notice of dishonor, ll.Ild protest ne(·essary or ~ permissible.

28 ::{-:\02. l'ne:xcused delay; discharge. 28 :3-:;03. Time of prest>ntment. 28 :3-::JO-l. How presentment made. 28 :3-:JO;:J. Rights of party to whom presentment is made. V 28 :3~){)6. Time allowed for acceptance or payment. 28 :3-507. Dii:;hono1·; holder's right of recourse; term allowing rt>-pref<eutment . ../

" 28 :3--:;os. Xotice of dishonor. 28 :3-=>00. Protest; noting for protest. 28 :3-510. J<~,·idence of dishonor and notke of dishonor. :!8 :3-:;11. Wah·Pd or excused presentment, protest or notice of dishonor or

delay therein. PART 6--DISCHARGE

( 28 :3-601. Discharge of parties. V ' 28 :3-60-l. Effect of discharge against holder in due eourse.

28 :3-603. Payment or satis:t'action.

Citation of a,.... icle ..

28 :3-604. Tender of payment. 28 :3-605. Cancellation and renunciation. 28 :~00. Impairment of recourse or of collateral.

PART 7-ADYICE OF INTERNATIONAL SIGHT DRAFT

28 :3-701. Lettt>r of advice of international sight draft.

PAJ!.T 8--MrsCE!.LANEOUS 28 :3-801. Drafts in a set. 28 :3-802. Effect of instrument on obligation for which it is given. 28 :3-803. Xotice to third party. 28 ::l--804. Lost, destroyed or stolen instruments. 28 :3-805. Instruments not payable to order or to be.arer.

PART 1-SHORT TITLE, FORM AND INTERPRETATION

§ 28 :3-101. Short title This a1ticle shall be known and may be cited as Uniform Commer

cial Code-Commercial 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 paj' and must be more than

an authorization or request. It must identify the person to pay

, l

77 STAT.] PUBLIC L

with 1·easonable eertaint such persons jointly or ·

( c) A "promise'~ is at than an acknowledgment

( d) "Secondary oarh (e) "Instrumenf' mer

( ~) Other definitions app whieh they appear are:

"Acceptance". Sectic "Accommodation part "Alteration''. Sectio1 ·'Certificate of deposit "Certification''. Sect "Check". Section 28 "Definite time''. Sec "Dishonoe'. Section "Drn ft". Section 28 "Holder in due cours1 "Negotiation". Secti "X ote". Section 28 :: "Xotice of dishonor''. "On demand''. Secf "Presentmenf'. Sec1 "Protest". Section~ "Restrictive Indorse1 "Signature". Sectio

( 3) The .following definit "Accounf'. Section "Banking day". Se• ·'Clearing house". ~ "Collecting bank". "Customer". Sectio "Depositary bank". "Documentary draft "Intermediary bank' "Item". Section 28 "Midnight deadline' "Payor bank". Sec

(-!) In addition article 1 of eonst.ruction and interp § 28:3-103. Limitations 1

( 1) This article does n i nYestment securities.

( :! ) The provisions of t the n1ticle on bank depos transactions (article 9). § 28 :3-104. Form of ne1

"certificat ( 1) .Any writing to be

must (a) be signed by th· (b) contain an un•

certain in money and given by the maker 01 and

(c) bepayableon( ( d) be payable to<

93---025 0-64-4 5

~ 77 STAT.] PUBLIC LAW [!43-DEC. 30, 1963

with re11so1111ble eertaintv. It 11rnv be adclres~ecl to one 01· mo1·e such persons jointly or in the a ltemati\·e but not in sm·cession.

( c) A "promise .. is an unde.rtakin~ to pny and nrnst be more than an acknowledgment of an obligation.

( d) "Secondnry party" means a drawer or endo1"St"1'. ( e) "Instru:~1ent.'· means a. negotiable instrument.

1:2) Other definitions applying to this article and the seetio11s iu which they appear are:

"Acceptance··. Section :28 :3---110. "Accommodation party~~. Section 28:3--U5. "Alteration~~. Section 28 :3---40i. "Certificate of deposit". Section 28 :3-10-l. "Certification~'. Section 28 :3---111. "Check". Section 28 :3-104. "Definite time·'. Section 28 :3-109.

·'-.,J "Dishonor~~. Section 28 ::1-507. "Draft". Section 28 ::1-104. "Holder in due course". Section 28 ::3-:30:2. "Negotiation". Sect ion 28 :3-:202. "Xote". Section 28 :3-104:.

~ ';Xotice of dishonor~'. Section 28 ::3-308. "On demand·~. Section 28 :3-108. "PresentmenC. Section 28 :3-504. "Protesf~. Seetion 28 :3-509.

---i· "'Restrictive Indorsemenf'. Section 28 ::3-205. "Signature". Section 28 :3---101.

i3) The following definitions in other artieles apply to this article. "Accounf'. Section :28 :-1--10-1. "Banking day". Section 28 :-1--10-1. "Clearing house". Section 28 :-1--104. "Collecting bank'~. Sedion 28 :!--105. "Customer". Section 28 :-1--104. "Depositary bank'\ Section 28 :4-105. "Documentary draft'~. Section 28 :-1--10!. "Intermediary bank~·. Section 28 :-1--105. "Item". Section 28 :-1--104. "Midnight deadline". Section 28 :!--104. "Payor bank". Section 28 :-1--105.

( 4) In addition article 1 contains general definitions apd principles of construction and interpretation applicab~e throughout this article. § 28:3-103. Limitations on scope of article

673

. (1) This arti~]~ does not apply to money, documents of title or) mYestment securities. / I

(2) The provisions of this article are subje('.t to the proYisions of _-.--;.

7 :::::;::..o&.Jc-

the article on bank deposits and collections (article 4) nud secured //~u transactions (article 9). d /A;S ~ § 28 :3-104. Form of negotiable instruments; "draft"; "check"; -b

"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 a.nd 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.

93-025 0-64-45

• ' .

674 PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

(2) A writing whid1 eomplies with the reqnireme11ts of this !.'ection is

(a) a "draff! ("bill of exchange") if it is an order; (b) a "check'' if it is a draft drawn on n. bank and payable

on demand; ( c) a "certifkate of deposit'' if it is an acknowledgment bv a

J.l ~nk of receipt of money with an engagement to repay it; • 1 IA @le( d) a "note~· if it is a promise other than a certificate of deposit.

OJ? -(3) As used in other articles of t.his subtitle, and us the context. '/ / ma require, the te1ms "draft'\ "check·~, "certificate of deposit'' 1md '/ "note" may refer to instruments which are not negotiable within this

article as well as t-0 instruments whic-h are so negotiable. · § 28 :3-105. When promise or order unconditional

(1) A promise or order otherwise unconditional is not nrnde c.on~ ditional by the .fact that the instrument ·

(a) is subject to implied or constructirn eonditions; or (b) states its co11sider11t.ion, whether performed or promised,

or the transa.ction which gave rise to the instrument, or thnt the promise or order is made or the instrument matures in nceordance with or "as per·~ such transaction; or

( c) refers to or stntes that it arises out of a separate agreement. or refers t-0 a sepnrllte agreement for rights as to prepayment or aeceleration; or ·

( d) states that it is dm wn undel' a letter of credit; or ..___ (e) states that it is secm·ed. whether by mortgitge, reservation

of title or otherwise; or · ( f) indicates a particular nccount to be debited or nny other

fund or source from which reimbursement is expeeted; 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 gO\'ernment or gm·ernmental agency or unit; or .

(h) is limited to payment out of the entire assets of n pa1tnership, unincorporated association, trust or estate by or on belrnH of whieh the instrument is issued.

(2) A promise or order is not unconditional if the instrument (a) states that it is subject to or gm·erned by any other agree

ment; or (b} states that it is to he pnid only out of a particular fund

or source except as prodded in this section.

§ 28 :3-106. Sum certain ( 1) The sum payable is n sum ce1iain enn though it is to be paid

la) with stated interest or by stated installments; or (b) with stated different rates of interest before and after

default or a specified date; or (c) with a stated discount or addition if paid before or after

the date fixed for payment; or ( d) with exchange or less exchange, whether at a fixed rate or

n.t the current rate; or ( e) with costs of collection or an attorney"s fee or both upon

/ 1 k default.

J v V (2) Nothing in this section shall ntlidate any term which is other-~ /.. ,jfJwise illegal.

0() V § 28:3-107. Money . t, (1) An instrument is payable in mone~he medium of exchange

f\ ~ ~ in which it is payable is money at the tune the instrument is made. · J r' ~\n instrument payable in "currency" or "current funds" is payable ~ ~"' ir: money.

71

77 STAT •. ] PUBLl

( 2) .-\. promise or ordE is for 11 smn certain in m ment is specified in the that number of dollars wl at the buying sight rate instrument is payable or, If such an instrument s1 payment the instrument § 28 :3-108. Payable OI'

Instruments payable c on presentation and the § 28 :3-109. Definite tiJ

( 1) An instrument is is payable-

(a) on or before f

date; or (b) at a fixed pe1 ( c) at a definite · ( d) at a definite

holder, or to extens the maker or accep act or event.

(2) ~-\.n instrument ~ upon an act or event un at a definite time even th § 28 :3-110. Payable t

(1) An instrument · payable to the order 01

rensonable certainty, 01 ously designated on itf payee. It may be payal

(a) the maker o (b) the drawee; (c) a payee wh ( d) two or mor• ( e) an estate, ti

order o:f the repN successors; or

( f) an office, or is payable to the I successors may act

( g) a partnersr it is payable to indorsed or trans

(2) An instrument such 'Words as "pa.ya indorsed".

( 3) An instrument payable to order unlE written. § 28 :3-111. Payable

An instrument is p: to-

(a) bearer or t (b) a specified ( c) "cash" or t

cloes not purport

' .~.

77 STAT •. ] PUBLIC LAW 88 .. -ta-DEC. 30, 1963

(2) A promise or order to pay a sum stated in 1\ 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 v.ayment of that number of dollars which the stated foreign currency will purchase at the buying sight rate for that currency on the day on which the instrument is payable or, if P,ayable 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 presentation 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 nt 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 l'ensonable 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 U .:;,

(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 e!Yable t() the princilal but the incumbent of the office or his successors may act as if ie 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 ~uch 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 type~ written. , § 28:3-111. Payable to bearer

An instrument is payable to bearer when by its terms it is payable to-

b) a specified person or bearer; or !a) bearer or the order of bearer; or

c) "cash" or tlie order of "cash", or any other indication which does not purport to designate a specific payee.

::: :: ·;· :.! ~.. .•f ~ .....

"~ -:ii

·,_. ~ ,·t):''_r' .

PUBLIC L\W 88-2-1-3-DEC. 30, 1963 (77 STAT.

§ 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 siren 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 additional 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 wah·e the benefit of any law intended for the adrnntage 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 effecti,·e only if no other part has been honored.

(2) Nothing in this section shnll rnlidnte any term which is otherwise illeµ-al. § 28 :3-113. Seal

An instrument otherwise neg-otiable is within this article evell though it is under 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) 'Vhere the instrument or any signature thereon is dated, the date is presumed to be correct. § 28 :3-115. Incomplete instruments

(1) "'hen 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 cmmot be enforced until completed, but when it is completed in accordimce with irnthority 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 pape_r ~>as not delivered by the maker or drawer; but the burden of estabhslung that nny 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 alternatiYe is payable to any one of them and may

be negotiated, discharged or enforced by any of them who has possession of it;

(b) if not in the alternative is payable to all of them and may be negotiated, 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

77 SnT.] PUBLIC LA 1

payable to tl~e payee a e.nforced by lum;

( c) in any other manr ally and the additional pa1t.ies.

§ 28 :3-118. Ambiguous ten The following rules apply

(a) Where there 1s d· or :t note the holder ma the drawer is effective a.l'

(b) Handwritten tern and typewritten control

( c) "r ords control fig ous figures control. -

( d) Unles..c; otherwise i11te1·est at. the judgmen1 <late of the. instrument, '

(e) rnless the instr persons who sign as mr as a part of ths same tr eYen though the instrm to pay~'.

( f) r nless otherwise a single extension for con:-ent to extension, exr ondn r>· parties and ace exercise his option to · of a maker or accepto1 section 28 :3-604 ten( is due.

§ 28 :3-119. Other writing (1) As between the oblig

feree the terms of an instr1 other written agreement el' except that a holder in due his rights arising out of th notice of the limitation wh1

(2) A separate agreeme instrument. § 28 :3-120. Instruments

An instrument which sti the like designates that bar but does not of itself autho § 28 :3-121. Instruments · A note or acceptance wh equivalent of a draft dra out of any funds of the mn wise available for such pa: § 28 :3-122. Accrual of c

( 1) A cause of action a, (a) in the case of a (b) in the case of :

date is stated, on the • (2) A cause of action

certificate of deposit ace certificate may not be mac

P) 77 STAT.] PUBLIC LAW 88-243-D ,' 30, 1963

payable to the p~tyf'e and may he Jll:'j!Otiated. <lisd1argecl or e.nforced bv him:

(c) in a'nv othe1· mam1er is pa,·able io the pane unconditionally _:md Ile additioll'll words ai·e without elfect on !'Hbsequent parties.

§ 28 :3-118. Ambiguous terms and rules of construction The following- rules apply to Het·y instrument:

(a) "'here there is doubt whether the. instrument is n drnft or a note the holder mav treat it a.s either. ~\. drnft drawn on the dra.wer is effecti w iis n note.

( b) Handwritten term::- <'ontrol typewritten and printed terms, nnd type.written control printe.(l. ·

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

( d) rn less otherwise specified a Pl'O\"ision for interest me.ans interest at. the judgment rnre at the place of pnyment from the date of the instrument, or if it is undated from the date of issue.

( e) l'nless the instmment. otherwise spet'ifies two or more persons who sign as maker, ncceptor or drawer or indorser and ns a part. of tlrn s~une transaction are jointly and sewrally liable e\·en though the instrument contains such words as "I promise to pay~'.

( f) rn1ess otherwise speeified consent to extension authorizes a single extension for not longer than the orig'inal period. A consent to extension, expressed in the instrument, is binding on secondary parties and accommodntion makers. A holder may not exercise his option to extend an instrument o,·er the objection of a maker or acceptor 01· other party who in nccordance with section :!B :3-·604 ten<l.ers full pn.yment when the instrument is due.

§ 28 :3-119. Other writings affecting instrument ( 1) As between the obligor nnd his immediate obligee or any trans

feree the terms of an instrument may be modified or affected by any other written agreement executed as a part of the same transaction, except that a holder in due course is not affected by any limitation of his rights arising out of the separate written agreement if he had no notice of the limitation when he took the 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 hank 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 pavnble at a bank is the

equirnlent of a draft drawn on the bank payable when it fnlls due out of any funds of the maker or acceptor in current account or otherwise a,·ailable 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 o:f issue. (2) A cause of action against the obligor of a demand or time

certificate o:f deposit. accrues upon demand, but demand on a tim~ certificate may not be made until on or after the date of maturity.

67'

~: ~ .. , I ...... '

" (' ·I


(3) A ca use of nction agninst a dm wer 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 nn instrument provides otherwise, interest runs at the rate provkled 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 cnses from the date of accrual of the ca nse of action.

PART 2-TRANSFER AND NEGOTIATION

§ 28:3-201. Transfer: right to indorsement ( 1) Transfer of an instrument ,·ests in the t1·ansferee snch rights

as the transferor has therein, except t hnt a transferee who has himself been a Earty to any fraud or illegality affecting the instrument or who as a prior holder had notice of a defense or claim against it canilOf improve his position by taking from a later holder in due course.

(2) A tra!lsfer of a security int~rest in an instrument vests the foregoing rights in the transferee to the extent of the interest transferred.

(3) l'nless otherwise agreed any transfer for rnlne of an instrument not then p1tyable to bearer gives the transferee the specifically enforceable right to l11H·e the unqualified indorsement of the transferor. Segotiation 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. "S egotiation

( 1) Negotiation is the transfer of an. instrument in such form that -y-./··7A--VLA""'

the.,Ygnsferee becomes it holder. If the mstrument 1s ~yahle to order I' it is negotiated by delivery witli. any necessary indorsement; if payable-~-~ to ~it is negotiated by delh·ery. .

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

· (3) An indorsement is effectiYe for negotiation only when it conveys the entire instrument or any unpaid residue. If it p.urports tv 'oe of less it operates only as n: partial assignment.

(4) '\Vords of assignment, condition, wai,·er, guaranty, limitation or disclaimer of liability nnd the like accompanying an indorsement · do not affect its character as an indorsement.

'f2s :3-203. Wrong or misspelled name W'here im instrument is made payable to a person under a mis

spelled name or one other than his own he may mdorse in that name or his own or both; but signature in both names ma ' be r uired b a person paying or giYing rnlue fort e instrumen . § 28 :3-204. Special indorsement; blank indorsement

( 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 deli very alone until specially indorsed.

(3) The holder may convert a blank indorsement into a s~ia.1 indorsement by writing over the signature of the indorser in blank any contract consistent with the character of t.I1e indorsement.

77 STAT. ] PUBLIC L

§ 28 :3-~05. Restrictive fo, An indorsement is restric1

(a) is conditional; 01

(b) {>Urports to proh ( c) mcludes the wo

any bank", or like term tion ·or

( d) otherwise statei indorser or of another

§ 28 :3-206. Effect of resf (1) No restrictive indon

at.ion of the instrument. ( 2} An intermediary bar

tary bank, is neither given tive indorsement of .any pe1 or the person presenting fo1

(3) Except for an intE indorsement which is cow tion", "for deposit", "pay_ (a) and ( c) of section 28: by him for or on the seem indorsement and to the ex· value. In addition such otherwise complies with tl1 constitutes a holder in due

( 4) The first taker un indorser or another persm must pay or apply any ' of the instrument consiste t hnt he does so he becemei is a holder in due course ments of section 28 :3-80' A later holder for value i b:y such restrictive indo fiduciary or other person action for his own benefi• (2) of section 28 :3-804) §28:3-207. Negotiation

( 1) Negotiation is eft' the negotiation is

(a) made by an or any other person

(b) obtained bY. f ( c) part of an illt ( d) made in brea1

(2). ~xcept. as agairn negotiation ism an appr tion of a constructive t1 § 28 :3-208. Reacquisit

Where an instrument he may cancel any indor reissue or further negoti is discharged as against not in due course and ' charged as against subs1

77 STAT.] PUBLIC LAW 88-~ _,.-DEC. 30, 1963

§ 28 :3-205. Restrictive indorsements An indorsement is restrictiYe which either

(a) is conditional ; or (b) :purports to prohibit further transfer of the instrument; or ( c) mcludes the words "for collection", "for deposit", "pay

rmy 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 pre\.·ents further transfer or negoti

ation of the instrument. (2) An intermediary bank, or a payor bank which is not the deposi

tary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the bank's immediate transferor or the person presanting 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 (subpara.graphs (a) and ( c) of section 28 :3-205) must pay or apply any value ~ven

Ju: him for or on the security of the instrument consistently wit the inaorsement 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 constitutes 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 b;y him for or on the security of the instrument consistently with the mdorsement and to the extent that he does so he becomes n holder for rnlue. In addition such taker is a holder in due course'ilfie oHierwise complies wlth the requirements of section 28 :3-302 on what constitutes a holder in due course. A later holder for value is neither given notice nor otherwise affected by such restrictive indorsement he has knowledge that n fiduciary or other person has negotia the instrument in any trans-nction for his own benefit or otherwise in breach of clu_!y (subsection (2) of section 28 :3-304). .,..... § 28 :3-207. Negotiation effective although it may be rescinded

(1) Negotia::lon is effective to trnnsfer the instrument although the negotiation is

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

(b) obtained b:r 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 rescission1 the declaration of a constructive trust or any other remedy permitted by la.w. § 28 :3-208. Reacquisition

Where an instrument is returned to or reac9uired by a prior party he may cancel any indorsement which is not necessary to his title and reh3~Ue or further negotiat!t.ili_e instrument, but any intervening party is discharged as agaillst the reacqmrmg 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.

I

-079

PUBLIC LAW 88-243-DEC. 30, 1963

PART 3-RIGHTS OF A HOLDER

§ 28 :3-301. Rights of a holder

[77 STAT,

The holder of a.n instrument whether or not he is the owner may · transfer or negotiate it and, exce.pt us otherwise pro,·ided in section ~8 :3--603 on payment or satisfaetion, diseharge it or e.nforce piwment in his °'"°n name. · • § 28 :3-302. Holder in due course

(1}, A holder in due course is a holder who takes the instrument . _.J (a) for value; and ~ (b) in good faith; and ·

( c) without notice that it is oYerdne 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 snle or hy taking it under

legal process; or (b) by acquirins- it in taking oYer an estate; or (c) by purchasmg it. as part of a bulk transaction not in

regular course of business of the transferor. ( ±) A purchaser of a limited interest can be a holder in due course

only to the extent of the interest pnrclrnserl. § 28 :3-303. Taking for value

A holder takes the instrument for rnlne (a) to the extent that the agreed eonsideration has been per

formed 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 giYes n 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 c ]aim or defense if

(a) the instrument is so incomplete, bears such visible evidence of forger;r 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

t/(b) the purchaser !ms notice that the obligation of any party is rnidable in whole or in part, or that all parties have been discharged.

(2) The purchaser has notice 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.

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

(a) that any part of the principal amount is overdue or that there is an u~cured 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 sta.tes and territories of the rnited States and the District is presumed to be thirty days. ·

77 STAT.] PUBLIC l

( ±) Knowledge of the f, purchaser notice of a def ens•

(a) that the instrum (b) that it was issue

promise or aC(\()mpanie chaser has notice that a thereof;

( c) tha,t any party : {d) that an incomp

the purchaser has noti· ( e) that any perso1

fiduciary; (f) that there has 1

instrument or in paym the same series.

( 5) The filin~ or recor< stitute notice within the l would otherwise be a holde

( 6) To be effective notic manner as to give a reason: § 28:3-305. Rights ot a I

To the extent that a ho instrument free from

( 1) all claims to it on tl ( 2) all defenses of an~

holder has not dealt excep (a) infancy, to the

tract; and ( b) such other inci:

action, as renders the ( c) such misrepre~

the instrument with n1 to obtain knowledge<

{ d) discharge in ii ( e) any other disc

he takes the instrume § 28 :3-306. Rights of 01

Fnless he hns the right the instrument subject to

(a) all valid claim ( b) all defenses o

a.ction on a simple cc ( c) the defenses (

f ormance of any co for a special purpose

( d) the defense t the instrument acqui tion to such holder restrictive indorsem instrument is not ot liable thereon nnles~ for such party.

§ 28 :3-307. Burden of course

( 1) lJ nless specificallJ instrmnent is admitted. in issue

I

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77 STAT. J PUBLIC LAW 88-2 . .'JEC. 30, 1963

(-!) Knowledge of the following fads dot>fl not of itself gi\·e the purchaser notice of a <lefense 01· claim

(a) that the instrument is antetlated or postdated; ( b) that it was is.5ue<l or negotiated in return for an executory

promise or accompanied by a separate agreement., unless the purchaser has notice that n defeuse or claim hns arisen from the terms thereof;

( c) that any party has signed for accommodation; ( d) that an incomplete instrument has been completed, unless

the purchaser has notice of any improper completion; ( e) that any person negotrnting the instrument is or was a

fiduciary; (f) that there has been default in payment. of interest on the

instrument or in pnyment of any other instrument, except one of the same series .

. ( 5) The. filin~ o_r recording. o.f a docum.ent d?e.s not of itself constitute notice withm the prov1s1ons of tlns 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.

1

§ 28 :3-305. Rights of a holder in due course , /1?/ ~ To the extent that a holder is a holder in due course he takes the ~~Jcru.r ~

instrument. free from /VI) 12-.e-;t . (1) all claims to it on the part of any person; and --- ::: ·: · (2) all defenses of any party to the instrument with whom the

holder has not dealt except (a) infancy, to the extent that it is a defense to a simple con

tract; and (b) such other incapacity, or duress, or illegality of the trans

action, as renders the obligation of the party a nullity; and ( c) such misrepresentation as has mduced 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. § 28 :3-306. Rights of one not holder in due course

Fnless he hast.he rights of 11 holder in due com'l".ie any pe.rson take~ the instrument subject to

(a) all valid claims to it on the part of any person; and t../ (b) all dtlenses of any party which would be available in an

net.ion on 1tsimpfe contract; and (c) the defenses of want or failure of consideration, nonper

formance 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 sueh holder would be inconsistent with the terms of a restrictive indorsement. The claim of any third person to the instrument is not otherwise anlilable ns 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) rnless specifkally denied in the pleadin:,,rs each signature on an instrument is admitted. " 7hen tht' etfe<:tin.•ness of a signature is put in issue

,. '·1

682 PUBLIC l .I 88-243-DEC. 30, 1963 [77 STA.

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

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

(2) 'When signatures are admitted or established, prodm.,"l:ion of the inst.rument entitles a. holder to recover on it unless the defendant estab. lishes a defense.

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

PART 4-LIABILITY OF PARTIES

§ 28 :3-401. Signature (1) No person is linble on an instrument unless his signut11re

nppears thereon. . (2) A signature is made.~x_ use of an· 1ame including any trade

or assumed naJne, upon an mstrument, or y nny word or inark used · in Tieu of a written signature. .. § 28 :3-402. Signature in ·ambiguous capacity · Unless the instrumEiint clearly indicates that a si1C111ttm·e is made in Some other capacity pt is an indorsement. · § 28 :3-403. Signature y authorized representative

( 1) A signature may be made by an agent or othei: representative, ./ft: {!, und his authority to make it may be established as in other cases of 1·£>presentation. No J.>a11icu111r form of !Rpointment is necessary to ~stablish such authonty. . · · · .

(2) An authorized representntirn who signs his mfn name to an instrument · _

(a) is personally obligated if the instrument neitl.1er 1~ames the person represented nor shows that t.he representatn•e s1g:n.ed 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.sh°''' that the represei1tative signed in a representative capacity, or if the instrument does not name the person represen~ed but ~oes show that the representative signed ma representative capacity.

F~) Jt~xcept as otherwise established the name of nu ?rga~liz~ti?n ·preceded or followed by the name and office of an authorized md1vid-1111l.is a signature made in a representath·e 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 ope1-ates as the signature of. the unauthorized :<igner_in favor of any person who in good faith pays the instrument o~ takes it for value. ·

(2) Any unauthorized signature may be ratified for all purposes of this article. Such ratificat10n does not of itself affect any rights of the person ratifying against the actual signer.

77 STAT.] PUBLIC

§ 28 :3-405. Impostors; ( 1) An indorsement b

il'l eff ecth·e if (a) an imposter l

the maker or drawe federate in the name

(b) a person sigi intends the payee to

( c) an agent or e1 him with the name such interest.

( 2) Nothing in this se '.'of the person so indorsir § 28 :3-406. Negligenc•

signatur Any rrson who by l

mnteria alteration of mututhorized signature lnck of authority agaim or other ,payor who r accordance with the rea: or. payor's business. § 28:3-407. Alteration

(1) Any alteration oi <'Ontract. of any pai1y t·hange in

(a) the number< (b) an incomple1

as nut hori'zed; or (c) the writing 1

part of it. (2) As agninst any J

course (a) alteration b::

rial discharges any that party assents•

(b) no other all ment may be enfc incomplete instrun

( 3) A subsequent he instrument according 1

instrument has been ~c § 28 :3-408. Consider:

'\Vant or failure of c not having the rights t•:ccept that no. cons~de1 hon thereon gn'en m p ~ation of any kind. } any statute outside thi notwithstanding lack · consideration is a defe ascertained or liquidat § 28 :3-409. Draft no

( 1) A check or oth• ment of any funds in ment, and the drawee:

(2) Nothing in this or otherwise arising i i-epresentation which i

77 STAT.] ~

PUBLIC LAW 88-243· .> 30, 1963

§ 28 :3--405. Impostors; signature in name of payee ( 1) An indorsement by any person iu the name of a JH\lllt><l pnyee

i::-; etfecfo·e if (ii) an imposter by use of the mnils or otherwise has induced

the maker or di-awer to is.<me the instrument to him or his confederate in the name of the payee; or

( b) a person signing as or on be ha 1 f of a nmker or drawer intends the payee to have no interest in the instrument; or

(c) an agent or employee of the maker or dmwer has supplied him with the name of the payee intending the lntter to haYe no such interest.

(2) Nothing in this section shnll affect the criminal or cidl liability of the person so in<lorsing. § 28 :3--406. Negligence contributing to alteration or unauthorized

signature Any ferson who by his negligence substantially eontributes to a

mnteria alteration of the instrument or to the making of an nnauthorized signature is precluded from asserting the alteration or lnck of authority against a holder in due course 01· aguinst n drawee or other payo1· who pays the instrument in good faith and in accordance with the reasonable conuuercial standat·ds of the drawee's or payor's business. § 28:3--407. Alteration

(1) Any altemtion of an instrument is mnterial which changes the (•ontmct of any party thereto in any respect, including any such t·hange in

(a) the number or relations of the parties: or (b) an incomplete instrument, by completing it otherwise than

ns iiuthorized; or ( c) the writing ns signed, by adding to it or by removing nny

part of it. (2) As against any pe1·son other than a subsequent holder in due

course (a) alteration by the holder which is both fraudulent and mate

rial discharges any party whose contract is thereby changed unless that party assents or is .Precluded from asserting the defense;

( b) no other alteration discharges any partv and the instrument may be enforced according to its or1ginal 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

\Vant or · . f consideration is a defense as against any person not ha. ving the rights o a o er m ue course (section 28 :3-305), except that no consideration is necessary for an instrument or obligation thereon gn-en m payment of or as security for an antecedent obligation of any kind. Nothin~ in this section shalf13'e taken to displace :my statute outside this subtitle under which a ,,itromise is enfof£eahle notwithstanding lack or failure of consideration. Partial failure of consideration is a defense pro tanto whether or not the failure is in an nscertained 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 otherwis_e arisi!lg ~rom any letter of creCl.it or other obligation or representation which is not an acceptance.

' . ..

-------------_...~·"·'·"• PUBLIC LAW 88-243-DEC. 30, 1963 (77 STAT.

§ 28:3--UO. Definition and operation of acceptance ( 1) .\creptanre is the drawee's signed engagement to honor the

clraft as presented. It must be written on the draft, and may consist of his si1:rnnture alone. It becomes operath·e when completed by delivt•rv 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 clishonored.

(3) Where the draft is payable at a fixed period after sight and the acceptor fails to date his acceptance the holder mav complete it by )'npi;lying a date in good faith. •

§ 28 :3--Ul. Certification of a check · (1) Certification of a check is acceptan<'e. "?here a holder pro-

cures certification the drawer and all prior indorsers are discharged. (2) l'nless otherwise agreed a bank has no obligation to certify a

c·heck. (3) A bank may certify a check before returning it for Jack of

proper indorsement. If it does so the drnwer is discharged. § 28 :3-412. Acceptance varying draft

(1) 'Vhere the dmwee's proffered acceptance in any manner varies the draft as presented the holder may refuse the acceptance and treat lhe draft as dishonored in which case the drawee is entitled to have !tis acceptance cancelled.

(2) The terms of the draft are not varied by an acceptance to pay at any particular bank or phice in the l:nited States, unless the accepta11ce states that the draft is to be paid only at such bank or place.

(3) 'Where the holder assents to an acceptance varying the terms of the draft each drawer and indorser who does not affirmatively nssent is dis('harged. § 28:3-413. Contract of maker, drawer and acceptor

(1) The maker or acceptor engages that he will pay the instrument nccording to its tenor at the time of his engagement or as completed pursuant to section 28 :3-115 on incom ete instruments.

(2) The drawer engages that upon · onor 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 drnwee the existence of the payee and his then capacity to indorse.

' § 28 :3-414. Contract of indorser; order of liability (1) 'C'nless 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 one another in the order in which they indorse, which is presumed to be the order in which their signatures appear on the instrument.

if § 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.

I

77 STAT.] PUBLH

(2) When the i11str11111e th, U("<'Ommo<lation party signed eYen though the ta

(3) As a~ainst a holde acconHnodution oraJ proof gin:- the accommodation p his l'harncter ns such. I1 may he shown by oral pro1

( 4) An indorsement wl is notice of its accommoda

( 5) An accommodatior dated, and if he pays thE instrument against such I § 28 :3-416. Contract of

( 1) "Payment guaranr ture mean that the signe1 when due he will pay it holder to any other part.}

( 2) "Collection guariu ture mean that the signe1 when due he will pay it holder has reduced his cla and execution has been neceptor has become ins< useless to proceed against

( 3) 'Vords of guarnnt payment.

(4) Xo words of guar or acceptor affect his lial to the signature of one a presumption that the others.

( 5) When words of dishonor and protest an

( 6) Any guaranty wr: :-1tanding any statute of i §28:3-417. Warrantie

(1) Any person who· 1 r1msferor warrants to a

(a) he has a goc obtain payment or title: and

(b) he has no k1 tlra wer is 11nautho1 by a holder in due c

(i) to a mak or

(ii) toa dra whether or not

(iii) to an r took the draft a.nee without unauthorized;

( c) the instrum1 this warranty is n good faith

.·;·;


('.!) "'hl:'n tlu• i11s11·u111l:'11t lws bl:'en takl:'11 for rnlut> bl:'forp it is due r~rn ae<'om111o<lation party is liable i1~ the capacity in which hf' has ;.:1gne~l e\·en t.hongh the taker knows of the accommodation.

(3) ~\.s against n holde1· in due course and without notit't' of the a~·l·ommodntion ornl prnof of the aeeom~nodat~on is not iulmissible to ~~n the accommodnt10u pnrty the benefit of discharges dependent on lus character ns such. In other cases the aecommodation drnrnctl:'r may be shown bJ 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 pnrtv accommo<lnterl, and if he pnys the instrument lrns a right of recourse on the instrument against such party. ·

§ 28 :~16. Contract of guarantor ( 1) "Payment guaranteed'~ or equirnleut words ad( led to a signa-

1 ure mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor without resort hy the holder to any other party.

(:2) "Collection guaranteed·~ or equinilent words atlded to n signnr ure mean that the signer engages that if the instrnme11t is not paid when due he will pay it according to its tenor, but only after the holder has reduced his chlim against the maker or acceptor to judgment an<l execution has been returned unsatisfied, or after the maker or acceptor has become insoh·ent or it is otherwise apparent that it is useless to proceed against him.

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

(4) Xo words of guaranty added to the signature of a sole maker or acceptor affect his liability on the instrument. Such words added to the sigmiture of one of two or more mnkers or acceptors create n presumption that the signature is for the accommodation of the others.

( 5) \rhen words of guaranty nre used presentment, notice of <lishonor and protest are not necessary to charge the user.

(6) Any guaranty '"ritten on the instrument is enforcible notwith~tanding any statute of frauds.

§ 28 :~17. Warranties on presentment and transfer ( 1) Any person who obtains payment or acceptance and any prior

I ransferor warrants ton person '.tllo in good faith~r acce .ts that (a) he has a good title to~ or fi:;-aut 10rized to

obtain payment or acceptance on behalf of one who hns n, good title: and

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

(i) to a maker with respect to the maker's own signature; or

(ii) toa drawer with res_pect to the drawer~s own signature, whether or not the drawe1· is also the drawee; or

(iii) to an acceptor of a draft if the hold~r in due course took the draft after the acceptance or ohtamed the accept.a.nee without knowledge that the drawer's signature was unauthorized; and

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

685


(i) to the maker of a note; or (ii) t-0 the drawer of i~ draft whetlwr or not the dmwer is

also the drawee; or (iii) to the acceptor of a draft with respect to an altera

tion made prior to the acceptance if the holder in due course took the draft after the acceptance, even though the acceptance proYide<l "payable as originally drawn" or e.quivalent terms; or

(iv) t-0 the arceptor of a draft with respect to an altera-tion made after the acceptance.

· (2) .\ny person who transfers au 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 accephmce on behalf of one who has a good title and the transfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and (c) the instrument l.ias not been materially altered; an~ ( d) no defense of any party is good agiiinst him; and ( e) he has no knowledge of any insolvency proceeding insti

tuted with respe.ct to the maker or acceptor or the drawer of an unac.cepted instrument.

( 3) By transferring "wit hont reeourse.!· 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 disc.lose the fa.ct 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 1wovided in the article on bank deposits and collections (article 4) and except for liability for breach of warranty on presentment. under the prec.eding section, payment or acceptance of any instrument is final in favor of a holder m 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 n.cceptance refuses to

return it on demand; or (b) an,y person to whom it is delivered for pnyment 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 dmwee 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 p1·esumed 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 reptesentl't• live dealt with au 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 ba.nk 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 consistently with the restrictive indorsement of an indorser other than its immediate transferor.

77 STAT.] PUBLIC

PART 5-PRESENTMI

§ 28 :3-501. When presen1 necessary o

( 1) rnless excused (sec1 to drn!·ge secondary parties

(a) presentment. fo1 drawer and indorsers o payable elsewhere that the drawee, or its datt' ment. The holder ma1 other draft payable at';

( b) presentment fo indorser;

( c) in the case of ar at a bank or the make1 for payment is necess: charges such drawer, r. 28:3~502(1)(b).

(:.?) rnless excused (sect (a) notice of any di (b) in the case of ni

nt a bank or the make1 dishonor is necessnry, such drawer, acceptor • (l)"(b).

(3) L'nless excused (sec necessary to charge the dr its face appears to be drav ritories of the rnited Sta his option make protest ' and in the. case of a foreig before maturity make prot•

( 4) K otwithstanding a scntment nor notice of dii= indorser who has indorse<

§ 28 :3-502. Unexcused ' (1) 'Where without exr

dishonor is delayed beyon (a) any mdorser h (b) any drawer 01

or the maker of a not or payor bank becom funds maintained wi instrument may disc] the holder of his ri: respect of such fund; otherwise discharged

(2) Where without ex the time when it is due a § 28:3-503. Time of prE

( 1 ) Unless a different for any presentment is d

(a) where an inst a stated date any pr( before the date 1t is ]

.~

77 STAT.] PUBLIC LAW 88-'.' ... )EC. 30, 1963

PART 5-PRESENTMENT, NOTICE OF DISHONOR AND PROTEST

§ 28:3-501. When presentment, notice of dishonor, and protest necessary or permissib1e

{ 1) rnless excused (section 28 ::~-511) presentment is neeessn ry to eharge secondary parties as follows:

(a) presentment for acceptance is necessary to eha1·i.re the drawer and indorsers of a. draft where the draft so provides, or is payable elsewhere that at the residence or pince of busineRS of the drawee, or its date of payment depends upon such present-ment. The holder may at his option present for ncceptance an_y / other draft payable at a stated date;

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

(c) in the case of any drawer, the acceptor of a draft payable at a bank or the maker of n note payable at a hank, presentment for payment is necessary, but failure to make presentment discharges such drawer, acceptor or maker only as st11ted in section 28:3-502(1)(b). .

(::!) Fnless 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 [ /v?1 /, dishonor is necessary, but failure to give such notice dischar~es ~ ;;i y)/O such drawer, acceptor or maker only as stated in section 28 :3-502" ' L ( 1 H b) . Jt"' .- 1- ~

(3) Unless excused (section 28:3-511) protest of imy dishonor is /JJ5 µ/' ~el.-necessary to charge the drawer and indorsers of any draft which on ~y ,~ r its face appears to be drawn or paynble outside of the states and ter- hvf ritories of the rnited States and the District. The holder may at I his option make protest of any dishonor of any other instrument ic:,~ and in the case of a foreign draft may on insolYency of the acceptor IV7 ·

before maturity make protest for better security. (4) Notwithstanding any provision of this section, neither pre

sentment nor notice of dishonor nor protest is necessary to charge an indorser who has indorsed an instrument. after maturity. § 28 :3-502. U nex:cused delay; discharge

( 1) 'Where without excuse any necessa r:y 1;>resentment or notice of dishonor is dela,ved beyond the time when it 1s due

(a) any mdorser 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 bunk who because the drawee or pa.yor bank becomes insolvent during the delay is deprived of funds maintained with the drawee or pa_yor bank to cover the instrument may discharge his liability by written assignment to the holder of his rights ng1dnst the drawee or a ·or bank in respect of such funds, but such drawer. acreptor or ma er is no . 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 he 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 whicheYer is later;

( c) where an instrument shows the date on which it is payable presentment. 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 tra<le and the facts of the particular case. In the case of an uncertifled check which is drawn ancl payable within the rnited States and which is not il 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 <lays after 1A t:,i4 date or issue whiche,·er is later; and · IJtf"' [

. (~) with respect to the liability of an in<lorser, seYen <lays after7 S'tA lus mdorsement. /

(3) ·where any presentment is due on a day which is not a full business dav 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 he made at 11 rensonable hour, :md if nt n bnnk <luring its banking day. § 28 :3-50~ How presentment made

( 1) Presentment is a demand for acceptance or payment made upon the make1·, acceptor, drawee or other pay01· by or.on behnlf of the holder.

(2) Presentment may be ma.de (a) by mail, in which event the time of presentment is deter

mined by the time of receipt of the mnil; or ( b) through a clearing house; or ( c) at the place of acceptance or payment specified in the

instrument or if there be none nt the place of busines8 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 n<·cessible at such place presentment is excused.

(3) It mny be made (n) to any one of two or more makers, acceptors, drnwees or

other payors; or (b) to any person who has nuthority to make or refuse the

:u:ceptance or payment. ( .J:) A draft accepted or a note made pnynble at a bank in the

rnited States must be presented at such bank. ( 5) In the cases described in section 28 :!--210 Presentment may

he 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 present

ment and evidence of his authority to make it if made for 1mother; 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 m the circumstances; and

77 STAT. ] PUE

( <1) a signed 1

full payment aml (2) Failure to cm

the p1·~sentment but in which to comply : from the time of comi: § 28 :3-506. Time all

( 1) Acceptance ma of the next business als0 in a good faith dishonor of the instr postponement of acce

( 2) Except as a 101 1lrafts drawn under : agreed to by the pat deferred without disl mine whether it is ] in any event before t § 28 :3-507. Dishono

re-pre (1) An instrument · (a) a 11ecessa1

due acceptance within the presc instrument is SE (section 28 :4-8{

(b) presentme accepted or paid.

(2) Subject to ~n: holder has upon d1sli 1lrnwers and indorse1

( ;) ) Retnm of an i 1lishonor.

(4) A term in u d time for re-presentm nonacceptnu('e if 11 .ti: the holder ns agairn option to wah-e the ~econdary pnrty and time. § 28 :3-508. Notice

(1) Notice of disl liable on the instrun who has himself rec~ pelled to pay the ins lrn.nds t.he instrumen· rnstomer or to anotr l'e(·eived.

(2) Any necessnr: night deadline and 1 hnsiness day aft.er d

(3) Notice ma.y l oral or writ.ten and state that it. has bee mislead the party n instrument. bearing or payment has beer to the instrument is

93--025 0-64-46


(4) "\Yritten notiee is gfren when sent althmwh it j,. not re<·ei,·ed. (5) _Xotiee to one pmtner is notice to eaeh ~!though the Jinn hus

been d1ssoh·ed. . ( 6) "\Yhe~1 nny pn tty is in im;oh·ency proceeding;; instituted dter the issue oft he yustrum_ent notice may be gi,·en either tot he pnrty or to the representat.ffe of lus estate.

. (i) "\Yhen any pn11y is <lend or incompetent notiee may he sent to lus lnst~kn.own i1ddress or girnn to his personal representath·e.

( ~) ); ot1l'e operates fort he benefit of nll partie; who hnn rights on the mstrument against the party notified.

§ 28 :3-509. Protest; noting for p,rotest (1) A. protest is a certificate of dishonor made nnderthe hand and p

~l of a CnitecJ. §t:1tes consnl .or vi_ce eonsul or;n notary puDlfo or other erson n.uthor1ze<l to ce111f · d1sh01 · by t te law of the pince where c is ionor occurs. It may )e made upon information sutis- -;r::-;e ~ factory to such person. - ·

(2) The protest must identify the instrument and l'e1tify eitherf that due presentment has been made or the reason whylt 1s excuse<I /~ nnd that. the instmment has be€n dishonored hy nom1c<·eptance or ~ nonpayment.

(3) The protest nmy also certify tlmt notice of dishonor has been izfren to aJl parties 01' to SJ?e<.•ified parties.

(4) Subject to subsection ( 5) any neces.sary protest is <lne hy the time that notice of dishonor is due.

( 5) If, before protest is due, au instrument hns been noted for protest by the officer to make protest, the protest may be made at anv time thereafter as of the dnte 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 sho,\-n: ·

(a) a document regular in form as prodded in the precedi1w section which purports to be a protest;

0

(b) the.Purported stam~ or writing of the d1"1:1wee, payor bnnk or presentmg bank on the mstrument or aceompanying it stating that acceptance or payment has been refused for reasons consistent with dishonor;

(c) any book or record of the drawee, payor bnnk, or nny eollecting bank kept in the usual course of business which shows dishonor, e\·en though there is no e~·idence 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 <·~msed b · circumst n his control and he exercises reason-n) e I 1gence after the cause of the delay ceases to operate. ~

(2) Presentment or notice or protest as the case may be is entirely t>xcused when

(a) the party to be charged has waiYed it. expressly or by· imP.hcation either before or after it is due; or

cu (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. ( 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 insti-tuted after the issue of the instrument; or ·

77 STAT.) PUBl

\ b) ncceptance < proper presentment

( 4:) Where a drn ft Ii presentment for payme: nonpayment are excuse been 11ccepted.

( 5) A waiver of pr< notice of dishonor e\·en

( 6) "\Yhere a wah·er • in the instniment itself

, u. J written abo\·e the sigm1 ~.,,.---

p

§ 28 :3-601. Discharg ( l) The extent of ti

instrument is govemed (a) payment or (b) tender of p ( t•) cance1latior ( d. ) impairmeu

~8 :3-606) ; or ( e) reacquisitio

28 :3--208) ; or ( f) fraudu1ent (g) certificatio ( h) acceptance ( i) unexcused

protest (section 2 (2) Anypnrtyisah

to another pnrty by n1 would discharge his s

(3) The liability o hns himself no right.

(a) reacquires (b) is discha.r;

ns otherwise pro' of recourse or of ·

§ 28 :3-602. Etf ect o X o discharge of n

n~ainst a subsequent when he takes the ins § 28 :3-603. Payme1

( 1) The liability • payment or satisfnct kno,•;ledge of a claim to such payment or :-:npplies indemnity discharge or enjoins eompetent jurisdicti nnd the holder are p in the discharge of ti

(a) of a par who acquired th rights .of a. hol acquired it; or

\b) of a par bank which is :

77 STAT,) PUBLIC LAW 88-2 JEC. 30, 1963

( d) a si:rned rN·eipt on the instrument for :rny partial or full payment nnd its surrender upon full pa.yment.

(2) FailmP to rnmply with any such requirement inrnlidntes the p1·~sentment but the person presenting has a reasonable time in w11ich to C"omply and the time for nC"eei)tance or pnyment runs from the time of eompl:ance. § 28 :3-506. Time allowed for acceptance or .payment

(1) AcceptanC"e 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 obtam acceptanee and "·ithout either dishonor of the instrument or discharge of secondary pnrties allow postponement of aC"ceptance for an additional business day.

(2) Except as a longer time is allowed in the case of documentary 1lrafts drawn under a letter of credit, and unless an earlier time is agreed to by the party to pny, payment of an instrument may be 1leferred 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 (I) 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 midnight deadline (section 28 :4-301) ; or

(b) presentment is excused and the instrument is not duh-accepted or paid. •

(2) Subject to any necessary notice of dishonor a·nd protest, the l101der has upon dishonor un immediate right of recourse against the <lm we rs nnd indorsers.

(a) Return of an instrument for lack of proper illdorsement is not dishonor.

(4) A term inn draft or an indorsement thereof allowing 11 stated time for 1·e-pre...c:;entment in the event of imy dishonor of the draft by uonacceptanee if a time draft or by nonpayment if a sight draft gives the holder ns ngninst any secondary party bound b)· the te1m an option to waive the dishonor without affecting the liability of the ~eondary patty and he mny present again up to the end of the stated time. ·

~ 28 :3-508. Notice of dishonor (1) Xotice of dishonor may be given to any person who may be

liable on the instrument by or on behalf of the holder or any party who has himself received notice, or any other party who can be com-

f)elled to pay the instrument. In addition an agent or bank in whose rnnds the instrument is dishonored may give nt?tice to ~1is principal or

eustomer or to another ngent or·bank from winch the mstrument was re<•eived.

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

(3) Notice may he given in any reasonable manner. It may be oral or written and in any terms which identify the instrument and state that it has been dishonored. A misdescription which does not mislea<l 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.

93-02, 0-64-46

. )

,:,,:;

77 STAT.] PUBLIC LAW 88-. Ji.DEC. 30, 1963

( b) aeceptanee or payment is refnsell Lut uot for· wnut of proper presentment.

(-±) "There a drn ft hns been dishonored by nonacceptance a later presentment for payment nnd any notice of dishonor and protest for nonpiiyment are excused unless m the meantime the instrument has been accepted.

( 5) A wa iYer of protest is also a wafrer of presentment 11 nd of notice of dishonor eyen though protest is not required.

(6) 'Yhere a wah·er of presentment or notice or protest is embodied in the instrument itself it is binding upon all parties; but where it is written abm·e. the signature of an indorser it binds him only.

PART &-DISCHARGE

§ 28 :~01. 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

. _,:Jl

( b) tender of payment (section 28 :3-604) ; or (c) cancellation 01· renunciation (section 28 ::3-605) ; or . / ,,-~ (d.) impairment of right of recourse or of collateral (section-· UI) cid-f'r'

28 :3-606) ; or (e) reacquisition of the instrument by a prior party (section ---

28 :3-208 > ; or I ( f) fraudulent and material alterntion (section 28 :3-'-:l:Oi) ; or - U.<; e. An · )~ev.fr (g) certification of a check (section 28 :3-411); or u;f lfr""// (h) acceptance ntrying n. draft (section 28 :3--412) ; or ( i) unexcused delay in presentment or notice of dishonor or}

( J_ protest (section 28 :a-502). . -....,:.... ( 2) Any pnrty is also discharged from his liability on an instrument

to another pn1ty by imv other act or agreement with such party which would discharge hi's simple contract for the payment of money.

(3) The liability of all parties is discharged when any party who has himself no right of action or recourse on the instrument J;

(a) rencquirestheinstrnmentinhisownright;or --· \.....JLLC. ~ ... L-~e 1.1

(b) is discha.rged under any provision of t.his article except as otherwise provided with resJ.>ect to discharge for impairment of i·ecourse or of collateral (section 28 :3--606).

§ 28 :3-602. Effect of discharge against holder in due course Xo dischnrge of any party provided by this a1ticle is effective

a~tinst a subsequent holder in due course unless he has notice thereof when he takes the instrument. <

§ 28 :3-603. Payment or satisfaction (1) The liability of any party is discharged to the extent of his

pnyment or satisfaction to the holder 'even though it is made with knowledge of a claim of another person to the instrument unless \)rim:

j to such payment or satisfaction the person making the c]ajm e1th.e1· ;,1.r ;::m>mies indemnity deemed adequate bv the party seeking the

dise arge or enjoins payment or satisfaction by order of a court, of

I} e,~ompetent jurisdiction in an action in which the adverse claimant

'f.J:1 and the holder are parties. This. subsection does not, however, result 'J' ( in the discharge of the liability

(a) of a pa1ty 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 pa;yor bank which is not a depositary bank) who pays or satisfies the


holdt:>r of nil i11str11mt:>11t which has been rt:>strkth·ely in<lorsed in a Ill<lllJH'r nol eo11sistt:>11t with tht:' tt:>rms of s11d1 rt:'strietire i11<lor~cment.

{ 2) Paymt:'11t or sat i:-;fad ion may he made with the consent of the holder by any person inel11di11g a :-;trnnger to tht:> instrument. Surrender of the instrnmeut to such a person gi\·es him the rights of a I r1111sferee (sect ion 28 ::1-:W 1).

§ 28 :3-604. Tender of payment (1) Any party making tender of full payment to a holder when 31:0_,.

or 11fter it is due is discharged to the extent of all subsequent liability !J7f n· interest, costs, and attomey"s fees. (2) The holder\; refusal of such tender wholly di~·harges any pa1iyl

ho has a right of recourse against the party making the tender. ~ (3) ·where the maker or acceptor of u.n instrument payable other-

wise than on denrnnd is a hie and read • to n • n eYer · lace tn ·ment si)eeiliec m the instrument w 1en 1t 1::; dut:', it is equindent

to ten< er. § 28 :3-605. Cancellation and renunciation

( 1) The holde1· of an instrument may e\·eu without consideration ilischa1·ge a~1y party

(a) many manner apparent on the face of the instrument or the i11dorsement, 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 11 writing signed and deliYered or by surrender of the instrument to the party to be discharged.

l~) Xeither cancellation nor renunciation wirhont 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

1l111t without such party's consent the holder (a) without express reservation of rights releases or ngrees not

to sue any person against whom the party has to the knowledge of the holder a right of re.course or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person, except that failure or delay in effecting any reqmred presentment, protest or notice of dishonor with respect. to an:y such person does not discharge any party as to whom presentnient, protest or notice of dishonor 1s effective or unnecessary; or

(b) unjustifiably impairs any collateral for the instrumentL il(i,·eu by or on behalf of the party or any person against whom <'"

he has a. right of recourse. .; ( :!) By express reservation of rights against a party with a right of

l't:>•'ottrse the holder preserves (a) all his rights against such party as of the time when the

i11:;trument 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.

l

I f

I I I

77 STAT.) PUBLIC

Pl.RT 7-ADVICE OF

§ 28 :3-701. Letter of adv (1) .\."letter of n<h·i<'e"'

thnt a described draft hasl (2) l~nless otherwise a~

hank a letter of 1Hh·i<·e of bank may immediately del ning of interest pro tnnto. any· account co,·erin,z ouh power to stop payment or ( no trust or interest in fa,·o:

(:3) l:nless otherwise a under a. credit issued by t s;ght draft owes the dri~m it does so and the draft is 1 er's a<·cotmt.

PART

§ 28 :3-801. Drafts in a ( 1) Where a draft is d1

bered and expressed to l:: honored, the ,,·hole of t.h any part may become a he

(2) Any person who 1

of a draft drawn in a set course of that part as if i holders in due course to the holder whose tit.le fir proceeds.

( 3) As against. the dra in a set is the part entitle and payment. Acceptan the drawee liable thereo1 ~t holder and to the dra" of a draft payable at si~ notwithstandmg an effet

( 4) Except as othen• of a draft in a set is di draft is discharged.

§ 28 :3-802. Eff~ct of given

(1) Unless otherwisE underlying obliga~ion.

(a) the obhgat1< maker or acceptor the instrument a~a

(b) in any otn1: until the instrume its presentment. be maintained on charge of the u~de him on the obhgat

(2) The taking in g• not of itself so extend charge a surety.

·:-~~

77 STAT.] PUBLIC LAW 88-243 :c. 30, 1963

PART 7-ADVICE OF INTERNATIONAL SIGHT DRAFT

§ 28:3-701. Letter of advice of international sight draft (1) .\.''letter <>f ach-iee .. i8 a drawer's l'OilllllllJli(•/ltion to tht> dmwee

that a described draft ha:-; been drawn. (2) l-nless otherwise agreed wheu a hunk i·ec·ehes from another

bank a letter of 11<h-i('e of 1rn intenwtional sight draft the drawee bank nmy immediately debit the drnwer's iu·eount imd stop the running of interest pro tnnto. Sueh a debit nnd any resulting credit to nny · nccount co,·erinµ- outstanding dm fts leaves in the drnwer fuJl power to stop pnymeut or othel'\dse dispose of the amount imd creates no trust or interest in fin-or of rhe holder.

(:3) L'n1es..,; otherwise iwreed and except where a draft is dmwn under ii credit issued by the drawee, the drnwee of an international ";ght drnftowes the drnwer 110 duty to pay an unadYised draft but if it does so and the drnft is g-enuine, may appropriately debit the draw-er's 1wcount. ·

PART 8-MISCELLANEOUS

§ 28:3-801. Drafts in a set (1) 'Vhere a draft is drawn in a set of parts, each of which is num

bered nnd expressed to be an order only if no other part has been honored, the whole of the parts constitutes one draft but a taker of any part may become a holder in due course of the draft.

(2) Any person who negotiates, indorses or accepts a single part of a draft drawn in a set thereby becomes liable to any holder in due course of that part as if it were the whole set, but as between different holders in due course to whom different parts have been negotiated the holder whose tit.le first accrues has all rights to the draft and its proceeds.

( 3) As against. the drawee the first presented part of a draft drawn in a set is the part entitled to payment, or if a time draft to acceptance and payment. Acceptance of any subsequently presented part renders the drawee liable thereon under subsection (2). With respect both to 1L holder and to the drawer payment of a subsequently presented part of a draft payable at sight has the same effect as payment of a check notwithstanding an effective stop order (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 othendse 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

underlJ:ing obligation rn the obligation is pro tanto discharged if a bank is drawer, ihte"r or acceptor of the instrument and there is no recourse on

he instrument against the underlying obligor; and ~ in any other case the oblignt1011 is suspended pro tanto

unhf the instrument is due or if 1t is payable on demand until its presen!ment. I~ the instrument is dishonored. act.ion m~y be maintained on either the instrument or the obhgat1on; discharge of the underlying obligor on the instrument also discharges him on the obligation.

(2) The taking in good faJth of a check .w!1ich is i~ot ~ostdated d~s not of itself so extend the time on the or1gmal obhgat10n as to discharge a surety.

69"

,. , • "

PUBLIC LAW 88-243-DEc. 30, 1963

§ 28 :3-803. Notice to third party

(77 STAT.

Where a defendant. is sued for hreal'h of 1111 obligation for which a third person is answerable <n-er under this article he may give the third person written notke of the liti~ntion, and the person notified may then <rive similat• notice to any other person who is answe1·able over to hi~ under this artic.le. If the notice states that the rerson notified may come. in and defend and thnt if the person notified does not do so he will in any action against him by the pe1·son gh·ing the notice be bound by any determinntion of fact common to the two

"litigations, then unless after seasonable rPceipt of the notice the person notified does come in and defend he is so b:mnd. § 28 :3-804. Lost, destroyed or stolen instruments

The owner of an instrument which is lost, whethet• by destruction, theft or otherwise, nuw maintain an action in his own name and recover from any part); liable thereon upon due proof of his ownership, the facts wluch prevent his produetion of the. instrument and it.s terms. The court may require security indemnifying the defendant ngainst loss by reason of further claims on the instrument. § 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 :uticle but which is not payable to order or to bearer, except that there can be no holder in due course of such an instrument.

See.

ARTICLE 4-BANK DEPOSITS AND COLLECTIONS

PAR"r 1-GENER.Al. PROVISIONS AND DEFINITIONS

28 :4-101. Short title. 28 :4-102. Applicability. 28 :4-103. Variation by agreement; meaimre of damages; certain action con

stituting ordinary aare. 28 :4-104. Definitions and index of definitions. 28 :4-105. "Depositary bank": intermediary bank"; "collecting bank"; "paYI'.'"

bank"; "presentiug 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.

P ABT 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. Responsibility for collection ; when action seasonable. 28 :4-203. Eire.ct of instructions. 28 :4--204. Methods of sending and presenting ; sending direct to payor bank. 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 present

ment of items; time for claims. 28 :4--208. Security interest of collecting bank in items, accompanying docu

ments 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 tor withdrawal.

28 :4--214. Insolve.ncy and preference.

I I I

l I l '

(77 STAT. PUBLIC

l':4'l'.

ARTICLE · COLI

28 :4-:·ml. llt>ft>rre1l 11oi11l11 dishonor.

28 :4-·30'l. Payor hnnk•i;; ref 2s :~ao:~. Wlwn lteml'I su

order in whi<·I

PART 4-Rt:l-\T!ONS

28 :4-401. When bank lllll) 28 :4-402. Bank's liability 28 :4-403. Custo111er'111 righ 28 :4--404. Bank not ohllga 28 :4--405. Death or hwom 28 :4--406. Customt>r'i1 dut

alteration. 28 :4--407. Payor bank's ri

28 :4-501. Handling of do to notify cust

28 :4-:>02. Presentment of 28 :4-503. Responsibility

of reasons fo1 28 :4-504. l'rivilege of pr

tor expe.nses.

PART1-GENER

§ 28 :4-101. Short tit: This article shall be l

Code-Bank Deposits § 28 :4-102. Applicab

( 1) To the extent tl scope of articles 3 and articles. In the event those of article 3 but t article.

(2) The liability of any item handled by i lection is governed by ln the case of action o of a bank, its liability branch or separate offi § 28:4-103. Vari~tio

tain a ( 1) The effect of t

agreement except tha· b11ity for its own lack or can limit the measl parties may by agreE respousibihty is to be unreasonable.

(2) Federal Reser house rules, and the section ( 1), whether interested m items ha

(77 STAT. PUBLIC LAW 88-2 ""'"')EC. 30, 1963

jlp,•,

;,,"'

ARTICLE 4-BANK DEPOSITS AND COLLECTIONS-Continued

l'.\1rl' 3--l'm.1.t:cnox m· In:~1s: P.\YOR H.\XKS

28 :4-·:·m I. l>t'ft1rrt1d prn<I i11g ; rt>t•oyny of p11yuw11t h~· rt-turn of ltt1111" : I 11111· of dishonor.

2S :4-·302. l'nyor hank's respon;:ihility for lnte return of Item. 2S :+-30:-i. When Items i<ubjeo;ot to notice, stop-order, legal proce"s or ;:t>tofr;

order in whit·h items may be C'hnrgetl or (•ertified.

P.\K'r 4-R.:1..\noxH111P BE1'WEt::x PAYOR BA:->K .\xu h's l'1·i:;1·0Mt:11

28 :4--101. "'hen hank mny (•harge l'Ustomer's aC'C'Otmt. 28 :4-402. Bank's liability to customer for wrongful clishonor. 28 :4-403. Customer'i:< right t.o stop payment; burden of proof of loss. 28 :4--104. Bank not obllgnted to pay check more than ,;ix mouths oltl. 28 :4--!0::i. Deatb or int•o1111ietE'nl'e of cnstnmer. :.!8 :4--406. <'ustonwr',.; duty to di:i<'m·er nml rt1f1ort 1111a11thorizt1d ..;ii.:1111 I nr1• ur

alterntion. 28 :4--107. Payor hank',; rlgllt to subrogntiou 011 lm11roper payment.

l'.\RT :i-COl.U:<"TIOX OF ))Ocl'~!EXT.\llY l>ll.\t'1'S

:.!8 :4--::iOl. Haudllug of <loe11111t111tu ry draft,;; duty to >'t>nd fo1· 11rt1..;t111111wnt :11ul to notify <'Ustorner of dishonor.

28 :4-:ro2. Presentment of .. on arrl\"al" drai'ts. 28 :4-503. Responsibility of presenting bank for documents nnd goods; rt1port

of reasons tor dishonor; referee in case of need. 28 :4-l'i04. l'ril'ilege of presenting bank to deal with goodl; security interest

for expe.nses.

PART 1-GENERAL PROVISIONS AND DEFINITIONS

§ 28 :4-101. Short title

i95

This article shall be known and may be cited as Uniform Commereial . Citation ot ...... Code-Bank Deposits and Collections. tiele.

§ 28 :4-102. Applicability (1) To the extent that items within this article are also within the

scope of articles 3 and 8, the are subject to the provisions of those articles. In the event of c ict the provisions of this article govern those of article 3 but the provisions of article 8 govern those of this article.

(2) The lia.bility of a. bank for action or non-action with respect to any item handled by it for purposes of presentment, payment or col- ,,, ~k ,....~Cir" leetion is governed by the 1 e 1 where the bank is located. - ~ n ;JE; ln the case of action or non- n by or at a branch or separate office e;;r B · 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; cer·

tain action constituting ordinary care ( 1) The effect of the provisions of this article may be varied b,Y

agreement except that no agreement can disclai!ll a bank's responsibility for its own lack of ood faith or failure to exercise ordinary care or can limit e measure o amages for sue ac or a1 ure; u e parties may by agreement determine the standards by 'fh1ch such responsibility is to be measured if such standards are' not mamfestly unreasonable.

(2) Federal Reserve regulations and operating letters, clearing liouse 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.

~f.~.~~ti11~·~ . . -.~::


(:~) .\.ction or 11011-<wtion approved hy thi;; artiele m· p1mmant to Federal Reserve re1[11latio11s or operating- letters t•onstitntes the exercii;e of ordinnt·y rare nnd, i11 the nbse1we of special i11Htr1wtions, nction or non-nct1on consistent with clearing house rnles nml the like t)I' with a !?'.eneral banking- usage not disappr<n-ed II\' thi:-> a1ti<•le, prima facie eanstitutes the exercise of ordinary care. ·

{ 4) The spedtieation or approvnl of eertitin pr<X'e<lmes hv this a1·tiele does not constitute disapptoval of other pr<)('ed11res whieh mny he reasonable under the eireumstanees.

(5) The measure of damages for foihtre to exer<"ise or<linan- enre in handling nn item ii; the amo1111t of the item redtwed h\· an ainount which could not lrn w been rea 1 ized ln- the use of ord im\n· <'are, and where there is bad faith it ineludes oti1er damnl!es, if uny. 'sntfere!l hy the party as a p1·ox1mate consequence. § 28 :4-104. Definitions and index of definitions

( 1) In this niticle unless the eontext otherwise requires (a) "Account .. 1ueaus anv ael'Ollllt with il hauk nud i1wlmles

ll <"hecking, time, interest or Sn\·in!lS llCl'OUllt; (b) "Afternoon~· meaus the pe~iod of a chn- between noon and

midnight; • ( c). "Banking day .. m~ans that pi~rt of any <lay '.m which a

bank 1s open to the puhhc for <'llrrymg on s11bsta11t11tllv all of its banking functions; ..

( d) "Clearing house~· means anv assoeiatiou of hank:> or other payors regularly clearing items; ·

(e) "Customer'' means any per»on hadng an account with :1 bank or for whom. n bnnk has agreed to eolleet items and meludes a bnnk carrymg an 11ceount with another bank: . ( f) "Docum~ntnry draft'' ~eans any nel[otiahle or nonnego

tiable draft with accompanymg documents, seeurities or other papers to be delh·ered against honor of the draft;

(g) "Item''. t~eans any in.strument for the p~yment of money e\·en though it is not negotiable but does uot mclude money;

(h) "Midnight deadline'' with respect to a Lank is mid1iio'ht on i!s next banking d:iy followin.I! the banking ~a.y 011 which it receives the rele\·ant item or notice or from which the time for taking action commences to run, whichever is later;

(i) "Properly payable'' includes the arnilability of funds for payment at the time of decision to pay or dishonor;

(j) ~'Settle'' means to P?-Y in cash, by clearing house settlement, m a charge or credit or by remittance, or otherwise as instructed. A settlement may be either pro\·isional or final; . (k) "Suspends payments" with respect to a bank means that it has ?een closed by order of !he supervisory authorities, that a public officer has been appomted to take it o\·er 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 apJ;>ear are:

"Collectmg bunk". Section 28 :4-105. "Depositary bank''. Section 28 :4-105. "Intermediar¥ hank". Section 28 :4-105. "Payor hank'. Section 28 :4-105. "Presenting bank". Section 28 :4-105. "Remitting bank". Section 28 :4-105.

77 STAT. J PUBLIC LA

( :i) The followinp definiti< '' ~\cce.pt:ance' . 8ectio1 "Certificate of deposif "Certification". Secfi "Check". Section 28: "Draft''. Section 28 :: "Holder in due coul'Se ":S otice of dishonor". "Presentment". Secti "Protest". Section 2f "Secondary party". :

( 4) In addition article 1 c of construction and interpre § 28:4-105. "Depositary Ii

ing bank"; "remitting 1

In this article unless the c (a) "Depositary ban

is transferred for collec· (b) "Payor bank" n:

as drawn or acceptoo; ( c) "Intermediary· 1:

is transferred in coun payor hank;

( d) "Collectin!l ban· eollection except the p~

( e) "Presenting ba1 except a payor bank;

( f) "Remittinl! ban remitting for an citem.

§ 28 :4-106. Separate offi1 A branch or separ-ate offi

pose of computing the tim at or to which action may nnder this article and und order by or the knowledgt is not actual or constructiv· or office of the same bank branch or office to be a hok § 28:4-107. Time of rect

( 1) For the purpose oi nnces and make the ne<:'e position for the day, a bo or later as a cut-off hour i making of entries on its 1::

(2) Any item or depos off hour so fixed or a.fter as being received at the <

§ 28 :4-108. Delays ( 1) Unless otherwise i

effort t-0 secure p&yment without the approval of i time limits imposed or r excess of an additional l parties and without liabi

(2) Delay by a. collec prescribed or permitted I

·~ ·~

77 STAT.] PUBLIC LAW 88-'"ia-DEC. 30, 1963

(a) The following definitions in other art iclt>s ;q..1plY to 1 hi:-; a rt i<' lt>: "Acceptance". Section 28 :3--:IJO. · · "Certificate of deposif'. Section 28 ::~-JC». "Certification·~. Section 28 :3--:IJ J. "Check". Section 28 :3-10±. "Draft''. Section 28 :3-10±. "Holder in due. course". Section i!8 :!i-!i0'2. "Notice of dishonor·~. Section 28 :3-508. "Presentmene'. Section 28 :3-504. "Protest". Section 28 :3-509. "Secondary party''. Section 28 :3-102.

( ±) In addition article 1 contains general definitions and prineiples of construction and interpretation applicable throughout this nrticle. § 28 :4-105. "Depositary bank"; "intermediary bank"; "collect

ing 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 eYen thongh it is also the payor bnnk: (b) "Payor bank!~ means a b:mk by which an item is payable

ns drawn or accepted; (c) "Intermediary bank~· mem1s any bank to which nn item

is transferred in course of collection except the depositary or payor bank;

(d) ."Collecting bank'' means any bank hnndling the item for eollection except the payor bank; ·

( e) "Presenting bank·~ means nuy bank pl'esenting: an item except a payor bank;

(f) "Remitting bank~· menns any pnyol' or i11te11nediary bnnk remitting for an item.

§ 28 :4-106. Separate office of a bank A branch or separate office of a bank is n separate bank for the pur

pose of computing the time within which and determinin~ the place itt 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 constructiYe 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, proYe balances and make the necessary entries on its books to determine its position for the day, a bank may fix an nftemoon hour of two P.lf. 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 cutoff 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) L'.'nless otherwise instructed, a collecting bank in a good faith effort t.o secure payment may, in the case of specific items and with or without the approval of any person involved, waive, modify or extend time limits imposed or permitted by this 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

697

' . ~··

-

•• PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

cnnsed by i11terr11ptiou of <·omm11niention fneilitiei..;, :;nspension of payments by another ba.nk, wnr, emergency conditions or other circuml>tances beyond the control of the bnnk pro,·ided it exercises such diligence as the circumstances require. § 28 :4-109. Process of posting

The "process of posting~· means the usun 1 procedure followed by a payor bank in determining to pay nn item 'iuul in reeording the payment including one or more of the following or other steps ns rleter-

. mined by the bank: (a) verification of nny signature; (b) ascertaining that sufficient funds are arnilnble; ( c) affixing a ''pnid~' or other stamp; ( d) entering a. charge or entry to a customer's account: ( e) correcting or reYersing an entry or enoneons iwtion with

respect to the item.

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"

( 1) l"nless n. contrary intent clearly appears and prior to the time that a settlement gh·en by a collecting bank for nn item is or becomes final ( subseetiou (:3) of section 28 :4--211 nnd soctions 28 :4--212 nnd 28 :4--213) the bank is an ngent or sub-agent of the owner of the item and any settlement given for the item is prm·isional. This provision applies regardless of the form of indorsement or hwk of indorsement and eYen though credit gh·en for the item is subject to immediate withdrawal as of right or is in fnct withdrawn; but the continuance of ownership of nn item by its owner and nny rights of the owner to proceeds of the item are subject to rights of a collecting bnnk such as those resulting from outstanding adnrnces on the item und Yalid rights of setoff. When nn item is handled by banks for purposes of presentment, payment and colledion, the releYant prm·is10ns of this article apply even though action of parties cl~uly establishes that a particular bank has purchased the item 1111d is the owner of it.

(2) After an item has been indorsed with the words "pay any hank" or the like, only a bank may ncquire the rights of n holder

(a) until the item has been returned to the customer initiating collection; or

(b) until the item has been specially indorsed by n bank ton 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 1t 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 receiYes final settlement; nnd

( d) making or providing for any necessary protest; and (e) notifying its transferor of any loss or delay in transit

within a reasonable tim~ after discovery thereof. ( 2) A collecting bank taking proper action before its midnight

deadline following receipt of an item, notice or payment acts season-

77 STAT.] PUB LI

ably: taking proper act ;.:emionnble but the bnnk

(~) ~ubject to snbse< insolnncy, neglect, mis1 or person or for loss m possession of others. § 28 :4-203. Effect of i

Subject to the proYisio men ts (section 28 :3-41 I his article concerning re 1 rnnsferor citn gfre ms1 notice to it and a collect :l<'tion taken pursuant t agreement with its tram § 28 :4-204. Methods <

to payo1 ( 1) A collecting ba

method taking into cons of the item, the number 1 ion im·oh·ed und them im<'h items.

( :l) A collecting bani (u) anyite.mdi1 (b) nnyitemto:

feror; and (c) any item otl

pnyor, if authorize letter, clearing hou

( :3) Presentment ma: the payor bank has requ § 28 :4-205. Supplyini

indorse ( 1) A clepositnry ba

supply any indorseme.1 unless the item conta1 or the like. In the ab~ on the item by the de tleposited by a custom• c·ustomer's mdorsemen

(2) An intermedinr: hnnk, is neither given indorsement of any pe § 28 :4-206. Transfer

Any agreed method for the item's further t § 28 :4-207. Warrant

fer or ( 1) Each customer

:teet»ptance of an iteff warrants to the payo: or accepts the item th:

(a) he has a g payment or acce} and

(b) he has no drawer is unautl"


ably: taki11g propPr action \\"ithin a rea:;onalily longer t i1t1P lll:lY he :-ea:;onahle lmt the bank has the lmr<len of so estat1lishing:.

(;{) ~ubjeet to subsection (l)(a), a hank is not liable for the i nsoh·eney, negleet. Ill iseon<luet, mistake or de fa 11 It of a not her hank or person or for loss or <lest ruction of an item in t ra n:;it or in the possession of others.

§ 28 :4-203. Effect of instructions Subject tot he pro,·isions of article :3 concerning coll\·en;ion of inst ru

ments (section 28:~---119) and the prO\·isions of both article :1 and I his article concernin~ restrict in~ indorsements 011 ly a collecting bank'::; 11·ansferor can gi,·e 111structions \\"hich affeet 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 a<·c·onlan<'e \\"ith any agreement with its transfernr.

§ 28 :4-204. Methods of sending and presenting; sending direct to payor bank

(1) A eollecting bank must send items by 1·ea:;onably prompt method taking into consideration any relenrnt instruetions, the nature of the item, the number of such items 011 hand, and the eo,.;t of eolle<'t ion im·oh·ed and the method generally n,.;ed by it or others to present ~neh items.

(~) A collecting bank may send (a) any item direct to the payor hank: (b) any item to any non-bank payor if authorized by its trans

feror: and ( c) any item other than documentary <Ira fts to any non-bank

payor, if authorized by Fe<leral Rese1Te regulation or operating: letter, clearing house rule or the like.

(:3) Presentment may be made by a presenting bank at a place where the pnyor bank has requested that presentment be made. § 28 :4-205. Supplying missing indorsement; no notice from prior

indorsement (1) A depositary bank which has taken an item for eollection may

supplv 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. tlwt the item was deposited by a customer or credited to his account is effectirn as the <·nstomer's mdorsement.

(2) ~.\..n intermediary bank, or payor bank which is not a depositary bank, is neither given not ice nor otherwise n tfected by a restrictirn indorsement of any person except the bnnk's immediate transferor.

§ 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 presentment of items; time for claims

(1) Each customer or collecting bank who obtains payment or :tl'eeptance 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 one who has a good title; :ind

(b) he has no knowledge that the signature of the maker or drawer is unauthorizerl, except that this warranty is not gh·en

699


hy any customer 01· rolleding bnnk that is a holder in due course ancl 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 clue 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 dmwee; or (iii) to the acceptor of an item with respect to an altera

tion made prior to the aeceptmH'e if the. holder in dne course took the item after the acceptmice, e\·en though the acceptaILce provided ';payable as originally drawn" or equivalent terms; or

(h·) to the neceptor of nn item with respect to an alteration made after the acceptance.

(~) Each customer and collectmg bank who transfers an item and re<·e1,·ei; n settlement or other <·011:-:idernt io11 fo1· it wnna11ts to his transferee nnd to nnv subsequent collecting bank who takes the item in good faith that •

(a) he has a good title to the item or is authorizell to obtain payment or acceptance on behalf of one who has n Jroml title ancl the tmnsfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and (c) the item has not been mllteriallv altered; and (d) no defense of any pnrty is good against him: and ( e) h~ has no knowledge of 1rny insoh·ency proceeding insti

tuted with respect to the maker or 1tcceptor or the drawer of an unaccepted item.

In addition each customer and collecting bank so transferring an item and recei\"ing a settlement or other consideration engages that llJ?Oll 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 j WO preceding subsections flrise 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 h;ansfe.ror. 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 <'harges and expenses related to the item, if any.

( 4) Unless a claim for breach of warrantv under this section is made within a reasonable time after the person claiming learns of the breach, the person liable is discharged to the extent of any loss <·aused by the delay in making claim. § 28 :4-208. Security interest of collecting bank in items, accom

panying documents and proceeds (1) A bank has a security interest in an item and any accompany

ing 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;

-

77 STAT.] PUBLIC

(b) in case of an for withdrawal as whet her or not the c: is a ri~ht of charge-·

( c) if it makes an r (2) When credit whi<

at one time or pursuant t in part the security inte pnnying documents or 1 th is section, credits first;

( 3) Receipt by a coll• is a realization on its seci ments and }n·oceeds. T1 receiYe fina settlement 1 or accompanying docun security interest continn except that

(a) no security ' interest enforceable and

(b) no filing is 1

( c) the security i security interests proceeds.

§ 28 :4-209. When ban course

For purposes of dete1 bank has ~iven value to item provided that the l of section 28 ::l--302 011

§ 28 :4-210. Presentm througl

(1) Unless otherwiSl item not payable by, th accept or pay a written ance or payment, The before the day when p1 requirement of the pa by the close of the bu requirement.

( 2) 'Where presentn request for complia11c1 is received by the clO!' the case of demand itei da.y after notice was s. dishonored and charge the facts. § 28 :4-211. Media of

in rem ( 1) A collecting bn

(a) a check of bank except the ri

(b) a cashier's ting bank which i~ same clearing hot:

(c) appropriat bank or of anothe

- -. .

~ 77 STAT.} PUBLIC LAW£

/ J-DEC. 30, 1963

" (b) in case of a11 item fo1· which it !ms gin•11 nedit arnilahlt•

for withdrawal as of right, to the extent of tht• <'1·edit given whether or not the credit is drawn upon n11<l wht>thPI' or not therP. is a right of charge-bnck; or

( c) if it makes an ndrnnce 011 or against !ht' itt>lll. (2) "Then credit which has been given for se,·ernl items recein'\l

at one time or pursuant to a single agreement is witlHlrnwn 01· applied in part the security intel'est remains upon all the items, nnv accompanying documents or the proceeds of eithe1·. For the pttrpose of this section, credits first given are first withdmwn.

(:)) Receipt by a collectinp: hank of a ti11al settlement for an item is :t renlization on its set·Prity interest in the item, n1·eompnnying documents and proceeds. To tlre extent and so long as the ba11k does not !'ecein•. final settlement for the item or gi,·e lip possesHion of the item or accompanying documents for pllrposes other than collection, the security interest. continues a11d is suhjl.'('t to the provi:-;ions of article 9 except that

(a) no security agreeme11t is 11ecessan· to make the security interest enforceable (subsection (1) (b) "of section 28:V-203); ~d ' .

(b) no filing is req~1ired to perfe('t the secmity i1itere~t: and (c) the security interest has prioritv over contticting perfected

security interests in the item. iwcompanyinl! documents or proceeds.

§ 28:4-209. When bank gives value for purposes of holder in due course

For purposes of determininl! its statusm; a holde1· i·n due course, tlw. ~auk has giYen rnlu.e to the extent t.hat it hn~ a se~urity inter~st. in an item provided that the bunk otl)erw1se complies with the reqmrements of section 28 :3-302 on what constitutes n holder in due course. § 28 :4-210. Presentment by notice of ite~ not payable by,

through or at a bank; liability of secondary parties ( 1) "Gnless otherwise instructed, a collecting bank may present an

item not payable by, through or at a hank by sending to the party to accept or pay a written notice that the bank holds the item for .acceptance or payment.. The notice musf 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 pny under section 28 :3-505 by the close of the bnnk's next bnnkinl! day after it knows of the requirement.

(2) \Vhere presentment is nrnde by notice and neither honor nor request for compliance with a requirement under section 28:3-505 is receh·ed by the close of business on the day after. maturity or in the c.ase of demand items by the close of huKinei:;s on the third banking day after notice was senL 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 tlll 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 elears thl'ottgh a member of the same clearing house 01" group as the. collecting bank; or

( c) appropriate authori~y to charge nn account of the remitting bank or of another bank with the collecting bank; or

701

702

•·',

PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT,

(d) if tlw item is drawn upon or pa_yahle hy a person other than a bank. n ('nsh ier's l'hel'k, eert ified eheek 01· other b1111k check or obligation.

( i) If before its mi1lnight clen<lli lit> the colleeting hnnk properly 1lishonors a remittnn<'e l'heek or authorization to elmrge on itself or presents or forwards for rolle<"tion n remittance instrument of or on another bank whi<·h is of n kind approved by subsection (1) or has 11ot been authorized by it, the colle<·ting bank is not liable to prior parties in the eYent of the dishonor of such check, instrument or authorization.

(3) A settlement for an item by means of a remittance instrument or authorization to charge is or ~omes n final settlement as to both the person making and the person receiving the. settlement.

(a) if the remittance instrument or nuthorizntion to charge is of a kind appro,·ed by subsection ( 1) or has not been authorized by the person receiving the settlement nnd in either citse the person receiving the settlement acts seasonably before its midnight deadline in presenting, fonrnrding for collection or paying the instrument or nuthorization,-nt the time the remittance instrument or authorization is finally paid by the payor by which it is payable;

(b) if the person recei,·ing the settlement has authorized remittance tw a non-bank check or obligation or by a cashier's check or similar primary obligation of or a check upon the payor or other remitting bank which is not of a kind approved by subsection (1) (b),-at the time of the receipt of such remittance check or obli~ation; or

(c) if in .a .case not covered by s~1b-paragraphs (a) or (b) the person rece1nng. the settlement fails to se~sonablY: present, forward for collectton, pay or return a remittance mstrument 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 pro,·isional sett Jement 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 it~m whic~ is or becomes final, the bank may rernke the settlement gwen bJ: it, charge ,back the amount .of any credit given for the item to its customers account or obtam refund from its customer whet~er or n?t _it is able to return th~ items if by its midnight deadline or w1thm a. longer reasonable time after it learns the facts it returns the item or sends notification of the facts. These rights to revoke, clrnrge-back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final (sub.. section (3) of section 28 :4-211 and subsections (2) and (3) of section 28 :4-213).

(2) (Omitted.) (3) A deposi~ary ban~ 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 go,·erning return of an item received by a payor f?ank for credit on its books (section 28 :4-301).

( 4) The r1~ht to charge-back is not affected by (a) pr~or use of the credit given ~or the ~tern ; or (b) . failure by any bank to exercise ordmary care with respect

to the item but any bank so failing remains liable. ( 5) A failure to charge-back or claim refund does not affe.ct

other rights of the bank against the customer or any other f,arty. (6) If credit is given in dollars as the equivalent of the va ue of

an item payable in a foreign currency the dollar amount of any charge-

77 STAT.] Pl

back or refund sha rate for the foreigr entitled to the cha1 payment in ordinar § 28 :4-213. Final

sion crec

(1) An item is. done any of the foll

(a) paid thE (b) settled

the settlement clearing house

(c) complet account of th therewith; or

(d) made a revoke the set1 ute, clearing l

rpon It final paym hank shall be acoot

(2) If provisi01 nud payor banks credits m an accou debits or credits fc sentin~ and payor · collectmg banks s· the item by the pay

(3) If a collect or becomes final ( of section 28 :4-2 a.mount of the it.ei an account with it

( 4:) Subject to: gation of the custc with its customer

(a) in an:} settlement fo1 the bank has is final;

(b) in any ii payor bunk bank's secom

( 5) A deposit to any right of tl customer, the de] at the opening of deposit. § 28 :4-214. lnsc

(1) Any item: ing ba.nk which ~ shall be returnee closed bank to th

(2) If a. pa.yo without making presenting bank · item has a prefe1

-~ ;

77 STAT.] PUBLIC LAW Sb .. :43-DEC. 30, 1963

back 01· refund shall he calculated on the basis of the buying sight t·ate for the foreign currency preYailing 011 the dav wh~n the person entitled to the charge-back or refund fearns that 1t ''ill not receh·e payment in ordinary course. § 28 :4-213. Final payment of item by. payor bank; when provi

sional 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, 'vhichever 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 re\·oke the sett lemeut in the time and mnnner permitted by statute, clearing house rule or agreement.

l'pon a final payment undersubp1lragraphs (b), (c) or (d) the payor bank shall be acoountable for the amount of the item.

(2) If provisional settlement for an item between the presenting nnd payor banks is made through a clearing house or by debits oi· credits m an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collect.mg 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 ~8 :4-211, subsection (2) of section 28 :4-213) the bank is accountable to its customer for the a.mount 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 oblig.ition of the customer, credit given by a bank for an item in an account with its customer becomes available for withdrawal !\S of right

(a) in any case where the bank has received a provisional settlement for the item.-when such settlement becomes final and the bank has had a reasonable time to learn that. the settlement is final;

(b) in any case where the bank is both a de2ositary bank ancl n. payor bank and the item is finally pnid,-at the opening of the bank's second banking day following receipt of the item.

( 5) A deposit of money in a bank is fiilal when made but, subject to any right of the bank to apply the deposit to an obligation of the customer, the deposit becomes available for withdrawal as of right at the opening of the bank!s next banking day following receipt of the deposit. § 28:4-214. Insolvency and preference

( 1) Any item in or coming into the possession of a payor or collecting ba.nk which suspends payment and which item is not finallyfaid shall be returned by the receiver, trustee or t in charge o the dosed bank to the presenting bank or the cl nk's customer.

(2) If a payor bank finally pays an item and susp.ends payments without making a settlement. for the item with its customer or the presenting ba.nk which settlement is or becomes final, the owner of the item has a preferred claim against the payor bank.

. 703

-!''·


(3) If a pnyol' bank µiYes or a !'Olle('ti11µ u;rnk l!iYes or 1·el·ei\'es a provisional settlement fol' an item arnl t hereafter s11spe11<ls payments, the suspension does not prewnt or interfere with the seHlement becoming final if such finality occm·s automatically upon the lapse of certain time or t.he happening of certain ernnts (subsection (3) of section 28 :4-211, subsections (1) ( d), (2) and (3) of sect.ion 28: 4-213).

( 4) If a collecting bank receives froni subsequent. piu·t ies settlement for an item \vhich settlement is or he(·omes fina 1 and suspends payments without making a settlement for the item with its customer w·hich is or becomes final, the owner of the itPm has a preferred clnim against such collecting lmnk.

PART 3-COLLECTION OF ITEMS: PAYOR BANKS

§ 28 :4-301. Deferred posting; recovery of payment by return of ~ items; time of dishonor

( 1) "There an ant horized settlement for n demand item (other than n documentary draft) recei,·ed Ly a payo1· hank otherwise than for immediate payment onr the eounter hns Leen made before midnight of the banking day of receipt the payor bank may rHoke the settlement an~ recoYer nny payment if hefore it has m.ade ~un~ payment (subsection ( 1) of section 28 :4-21:)) <llld before its nrnlmght deadline it

(a) returns the item; or (b) sends written notice of (lish011or or no.np;1y111e11t if the

item is held for protest or is othel'wise unanulahle for return. (2) If a demaJl(l item is reeeiwd by n paym· bank for credit on ib

books it may return sueh item or sernl notiee of dishonor nnd mny re\'oke any credit giwn or 1·erowr the arnonnt thereof withdrawn by its customer, if it acts within the time limit and in the mnnnel' specified in the precedin~ s11hseetion.

(3) Unless pre\·ious notiee of dishonor has b(l'en sent nn item is dishonored at the time when foi· purposes of dishonor it is 1·et11med or notice sent in nccordnnce with tlus se<'tion.

( 4) An item is returned: (a) as to im item i·eceiYed thmngh n clearing house~ whe11 it

is delivered to the presenting or last. collecting hank 01· to the clearing house or is sent or delivered in iweordanee with ib rules; or . . . .

(b) in all other cases, when 1t is sent o!' <~eliYere<~ to the banln; customer or trnnsferor or ptmmant to lus mstrnct ions.

§ 28:4-302. Payor bank's responsibility for late return of item In the absence of a n11id defense such as breach of it presentment

wnrrnnty (subsection ( 1) of section 28 :-J:.-207), settlement effected or t.he like, if an item is presented on and recein'd hy n payor bank the bank is accountable fort he amount of

(a) a demand item other thnn a documentary draft whether properly payable or not. if the.bank, i1~ any case whe1:e i~ is not also the depositary bank, retams the item beyond m1dmght of the banking day of receipt wit hont settling for it or, regardles." of whether it is also the deposita n· bnnk, does not pay or retum the item or send notice of <l1shon01: nntil after its midnight deadline· or

(b) any other propel'ly p11yable item un~es;; within the .time allowed for ucceptnll<'e. or payment of that item the bnnk either accepts or pnys the it.em or retnrm; it. and al'companying documents.

77 STAT.)

§ 28 :4-303. Wher or cer

( 1) Any knowh serYed upon or &

effect.h-e under of the bank's right c account for the ite1 such right or duty is recei\•ed or sern expire~ or the setr followmg:

(a) accepte (b) paid th1 ( c) sett.led

the settlemen clearing house

(d) comple' account of th<:' with or ot hen account. and bi

(e) become subsection ( 1 dealing with t

(2) Sub1ect to .nccepted, .raid, ce enstomer many or

PART 4-RELA'

§ 28 :4-401. Whe1 ( 1) As aga!nst .

any item wluch : e,,·en though the Ci

(2) A bank ;v may charge the 1!·

(a) the or11 (b) the te1

knows the ite1 the completio

§ 28 :4-402. Bani A I>ayor bank

caused by the wr occurs through ill' If so proximately for an arrest or ] damarres. Whetl causea by the wro: in each case.

§ 28 :4-403. Cust of

( 1) A custome item payable for time and in such n to act on it prior. described in sect1 ever, unless it shf which it relates b

93-02~ 0-64-47

77 STAT.] PUBLIC LAW 88-~ ... &-DEC. 30, 1963

§ 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 knowledg-e. 11otiee or stop-order receiwd by, legal process ser,·ed upon or setoff exercised by a payor bank, whether or not effectfre under other rules of law to terminate, suspend or modify the bank's right or duty to pay an item or to charge its cnst<'lmer's nccount. for the item, comes too late to so terminate, suspend or modify such right or duty if the knowledge, notice, stop-order or legal proces.<s is receiYed or ser\·ed and a reasonable time for the bank to act thereon expires or the setoff is exerl'ised 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 re.serdn~ a right to rernka

the settlement and without luH·ing such right 1\nder 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 eddence<l by examination of such i11dicnted account. and by action its decision to pay the item: or

(e) become aceountable :for the amount of the item unclPJ' subsection ( 1) ( d) of sect ion 28 :4--213 and section 28 :-t-aM dealing with the payor bank's responsibility for late return items.

(2) Sub1ect to the prm·isions of subsection (1) items may be .accepted, paid, ce1titied or charged to the indicated account of its customer in any order cmn-e.11ient 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 nct·om1t

any item which is otherwise properly payable from thnt account (·Wen though the clrnrge creates an overdraft..

(2) A bank which in good faith makes payment to a holder may charge the indicitted account. of its customer according to

(a) the originn.l tenor of his altered item; or (b) the tenor of his completed item, even though the hank

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 proximtttely

caused by the wrongful dishonor of an item. 'Vhen the dishonor occurs through mistake liability is limited to actual damag-es proYed. If so proximately caused and proved damages may include damages for an arrest or prusecution of the customer or other consequential damaO'es. 'Vhether any consequential damages are proximately causea 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 bank stop payment of any

item payable for his account but the order must be receh·ed 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 seetion 28 :4-303. No such order shall be 'valid, however, unless it shall be in writing specifically describing the item to which it relates by stating the amount, dnte and payee thereof.

9 :>-02 5 0-64-·P

705


(:!) • .\nything- in this ::;ection 28 :-1----J.O:~ t.o the ro11trnry notwithstanding, any stop payment order. trnns1111tt~d b~· telephone b.y a l'UStomer to an officer of a bank. while sul'h otlfrer 1s on the premises thereof, shall be ael'epted by such bank1 upon sul'h identitil'ation that will insure the order has been trammutte<l by snl'h l'llstorne_r, as. an effective order for a perio<l of twenty-four hours,, after wh1l'h time it shall no longer be rnlid unless follo~wd by n w~·Itten o~·der as provided in this section :!8 :~O~. :\.. wrltt~n order 1s etfectlY~ for 01.1ly six months unless renewed rn wnt111g. r.he bank mny, at ~ts <~pt1on and without !iabilitv. stop payment of an Itelll afte1'.the exp1rnt1<?11 of a stop payment or<ler or i11~y ~·enewal thereof relatmg to snch Item.

( :~) The burden of estabh~l11ng the fad and a!11ot.mt of loss resulting from the payment of an item contra1·y to a lnndm;.! stop payment order is on the l'\\Storner. § 28 :4--404. Bank not obligated to pay check more than six months

old A bank is under no obligation to a l'llS.t?mer having i.1 ch.ecking

a<'count to pay a <'hel'k, other than :1 l'ert1tied eh~ck, whll'h 1s p~esented more than six months after its date, bnt 1t may charge Its customer's ac,·01mt for a payment lllade thereafter in the absenre of an etfeetive stop payment order in accordanee with section :!H :-1--103.

§ 28 :4-405. Death or incompetence of customer ( 1) A payor or l'olleding bank's au~ !10rity to. aee~pt. pay ~r collect

an item or to account for proceeds of its eo!lect10n If othennse effectirn is not rendered inetfectiw by .incompetence of a customer of either bank existing at the time the item is issued or its eollection is undertaken if the hank does not know of an adjudication of incompetenee. Xeither death nor incompetence of a eustomer rernkes such authoritv to aceept, pay, eollect or aceount until the bank knows of the fal't 'of death or of an adjudication of incompetence and has reasonable opportnnity to aet on it.

(2) Even with knowledge a bank may for ten days after the date of death pay or ceI1ify eheeks drawn on or prior to that date unless ordered to stop paylllent by a person da nni11g an interest in the account. § 28 :4-406. Customer's duty to discover and report unauthor

ized signature or alteration ( 1) "·hen a bank sends to its customer a statement of account

uecompanied 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 and items an!ilable to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or anv alteration on an item and must notify the bank promptly after discO\~ery 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 sub!:'ection (1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if the bank also establishes that it suffered a loss by reason of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the first item and statement was arnilable to the customer for a reasonable period not exceeding fourteen calendar days and before the bank recei,·es notification from the customer of any such unauthorized signatme or alteration.

77 STAT.] PUBLI

( :~) The preclusion i

eustomer establishes lac in paying the item(s).

( 4) Without regard or the bank a customer the statement and items ( 1) ) discover and repo1 on the face or back of that time discover an precluded from assertin or indorsement or such :

( 5) If under this sec a claim of a customer u waives or fails upon r1 assert against any colle transferring the item a alteration giving rise to § 28 :4-407. Payor ha

ment If a payor bank has I

drawer or maker or ot1 objection by the draw1 only to the extent n~cf its payment of the Ite rights

(a) of any hold or maker; and

(b) of the pay• drawer or maker , of which the item

(c) of the dra holder of the iter the item arose.

PART 5-COLL:E

§ 28 :4-501. Handlin preser

A bank which takes or send the draft and upon learning that f course must seasonab it may Im ye discount• able for withdrawal a § 28 :4-502. Present

'When a draft or ti arrival" "when good: ' . . . present until m its : goods has expired. J not arrived'is not dis! refusal but need not J so or learns of the arr § 28 :4-503. Respon

good~ case

Unless otherwise i bank presenting a d1

77 STAT.]

I - ·~

i,'

PUBLIC LAW 88-243-DEC. 30, 1963

(::~) The preclusion u1tder ::;uhsection (2) does not apply if the eustomer establishes lnck of ordinary care on the part of the bank in paying the item(s).

(4) 'Vithout 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 (I)) 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 agamst 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 w1anthorized signature or alteration giving rise to the customer's claim. §28:4-!07. Payor bank's right to subrogation on improper pay

ment If a payor bank has paid an item m·er the stop payment order of the

drawer or maker or otherwise under circumstances givins a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank shall be subrogated to the rights

. (a) of any holder in due course on the item against the drawer or maker; and

( b) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and

( c) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

PART 5-COLLECTION OF DOCUMENTARY DRAFTS

§ 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 leaming that the draft has not been paid or aceepted in due course must seasonably notify its customer of such fact even though it may ha\'e discounted or Loug;ht the draft or extended credit nnulable 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 a1Tived'is not dishonor; the Lank must 11otify its transferor of such refusal but need not }?resent the draft again until it is instructed to do so or learns of the arr1 val 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 presenting a documentary draft

707

, •.


(a) must <lelh·er the documents to the <lra wee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment; and

(b) upon dishonor, ~ither 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 asce1·tain the reason for dishonor, must notify its transferor of the 1lishonor 1111d

of the results of its effort to ascertain the reasons therefor and must request instructions. ·

But the presenting bank is under no obligation with respect to goods represented by the documrnts except to follow any rensonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions 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 bank ,fhich, following the <lishonor of a docu

mentary drnft1 has seasonably requested mstructions but. does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.

(2) For its reasonable expenses incurred by action under subsection (1) the presenting bank has a lien upon the goods or their proceeds, which may be foredosed in the same manner as an unP'aid seller's lien.

ARTICLE 5-LETTERS OF CREDIT Sec. 28: l>-101. Short title. 28: 5-102. Scope. 28: l>-103. Definitions. 28: l>-104. Formal requirements; signing. 28: l>-105. Consideration. 28: 5-106. Time and etTect of establishment of credit. 28: 5-107. Advice of credit; confirmation; error in statement of terms. 28 : 5-108. "Notation credit" ; exhaustion of credit. 28: l>-109. Issuer's obligation to its customer. 28: 5-110. Availability of credit in portions; presenter's reservation of lien or

claim. -"'\,. 28: l>-111. Warranties on transfer and presentment.

"· 'l 28: l>-112. Time allowed for honor or rejection; withholding honor or rejection "-. by consent; "presenter". ~ 28: l>-113. Indemnities.

28: l>-114. Issuer's duty and privilege to honor; right to reimbursement. 28: l>-115. Remedy for improper dishonor or anticipatory repudiation. 28: 5-116. Transfer and assignment. 28: l>-117. Insolvency of bank holding funds for documentary credit.

§ 28 :5-101. Short title citation of ar- The article shall be known and mav be cited as Uniform Commercial

t1c1e. Code-Letters of Credit. ·

§ 28 :5-102. Scope ( 1) This article a-pp lies

· (a) to a credit issued by a bank if the credit requires a docu-mentary 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 accom-panied by a document of title; and ·

( c) to a credit issued by a bank or other person if the c~it is not within subparagraphs (a) or (b) but conspicuously states that it is a letter of credit or is conspicuously so entitled.

77 STAT..] PUBI

( ~) rnless the en:x: ( 1), this artide does 1

to honor drafts or dern ehase, to guarantees OI

( 3) This article dea eepts of letters of credi to this subtitle or may states a rule does not li the sa.me or a convers person not sped tied by § 28 :5-103. Definitio;

( 1) In this article u (a) "Credit" or

bank or other per~ kind within the sc issuer will honor compliance with t may be either ren either an agreemE other person is aut

(b) A "documt payment" is one h1 tion of a documen1 including docume of default and the

( c) An "issuer~ ( d) A "benefici:

its terms to draw < ( e) An "advisi1

the issuance of a c1 (f) A "confirm

it will itself hono that such a credit

(g) A "custom• issuer to issue a 1

procures issuance customer.

(2) Other definitio1 which they appear are

"Notation of cr1 "Presenter". 81

(3) Definitions in < sections in which they:

"Accept" or "A• "Contract for sa "Draft". Secti< "Holder in due • "Midnight dead "Security". Se•

( 4) In addition, art of construction and in . § 28 :5-104. Formal 1

( 1) Except as othe 28 :5-102 on scope, nc credit. A credit must confirmation must be A modification of the by the issuer or confin

77 STAT .• J PUBLIC LAW L 143-DEC. 30, 1963

(~) r11les.'\ tlie eni.rag:ement meets the 1·eq11ir!:'lllents of ,.,uhsedio11 ( 1), this article does not a ppl,v to !:'lll!H/.fements to make ad rn11ees 01· to honor drafts 01· dt>IH:lllds fo1· payment. to a11thoritie::; to pay 01· purd1ase, to ;..·uarnntees or to .i.re11eral agreements.

(3) This nrtide deals with sorne hut 11ot all of the rules and eoneepts of letters of eredit as s1wh 1·ules or 1·01H'epts lrnw developed prior to this subtitle or mny hereafter develop. The faet that this artide states a rule does not hy itself reqni:e. i1~1ply or neg:tte application of the same or n conn'I'Se rule to 11 s1tnat1011 not pro\"i<led for or to a person not speeitied by this nrtide. § 28:5-103. Definition&

(1) In this art ide unless the contt-xt otherwise rt>quire:.; {a) '"Credif" or "'lt>tte1· of credit .. means an engag:ernent by a.

hnnk or other person made at the request of n eustomer and of a kind within the scope of this 1111iele 1seetio11 :l~:5-10:l) that the issuer will honor drafts or other demands for puynwnt upon compliance with the eouditions speeitied in the credit. A credit may be either renx·able or irrevoeable. The engagement may be either an agreement to honor or a statement tluit the bank or other person" is authorized to honor.

{b) A ''documentary dmft"" or a "documentary demand for payment'' is one honor of which is conditioned upon the presentation of a document or documents. "'D()('lJlllenf' means any paper including document of title, security. im·oice, certificate, notice of default and the like.

( c) An "issuer'" is a bnnk or other person issuing n credit. . ( d) A "beneficiary'' of a credit is a person who is entitled under its terms to drnw or demand pityment.

(e) An ''adYising bank'' is a bank which gives notification of the issuance of a credit by another bank.

( f) A ''confirming birnk" is a bank which engages either that it will itself honor n credit already issued by another bank or thnt such a credit will be honored by the issuer or a third hank.

(g) A "customer'' is a buyer or other person who causes nn issuer to issue a credit. The te11n 1dso includes a bank which procures issuance or confirmation on behalf of that bank's customer.

(2) Other definitions applying to this a1ticle and the sections in which they appear are:

"Notation of credit". Sect.ion 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:

"Accepe' or "Acceptance". Section 28 :3--110. ''Contract for sale"'. Section 28 :2-106. "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 construction 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 t>hrasing 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 hank. A modification of the terms of a credit or confirmation must be signed by the issuer or confirming bank.

709


(2) A telegrnm may be a sufficient :;igned writing if it identifies it;, sender by an authorized authentication. The anthenticMion may be in code and the authorized naming of tlie is::mer in an advice of credit is a sufficient signing. § 28 :5-105. Consideration

No consideration is necessary to establish a l'redit or to enlarge or otherwise modify its terms. § 28 :5-106. Time and effect of establishment of credit

(1) lTn]ess otherwise agreed a credit is established (a) as regards the customet· as soon as a letter of credit is

sent to him or the letter of credit or an authorized written adYice of its issuance is sent to the benefkiarv; and

(b) as regards the beneficiary w'hen he recei,·es <l letter of credit or an authorized written ad,·ice of its issnnnce.

(2) Unless otherwise agreed once an irrerncable 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 onl:r with l_tis. consent:

(3) rnle.ss othennse 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) Xotwithstanding any modification or 1·e,·ocation of a revocable <>redit. auy person authorized to honor 01· negotiate under the terms of the orig:urnl 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 moditkntion or reYOt'<ltion and the issuer in turn is entitled to reimlrnrseme11t from its customer. § 28:5-107. Advice of credit; confirmation; error in statement of

terms ( 1) C11less otherwise specified an ad vising bank by advising a

credit. issued by another bank does not assume any obligation to honor clrafts drawn or demands for payment made under the credit but it does assume obligation for the accuracv of its own statement.

(2) A confirmi1lg 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 ad,·ising bank ineoneetlv advises the tt:dns 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) 'Gnless otherwise specified the customer bears as against the issuer all risks of transmission and reasonable translation or interpretation of any message relatiug to a credit. § 28 :5-108. "Notation credit"; exhaustion of credit

( 1) A credit which specifies that any person pmchasing or paying drafts drawn m· demands for payment made under it must note the amount of the <ka ft or demand 011 the letter or a ch-ice of credit is n "notation credit'·.

(2) l:"ndet· a notation credit (a) a person pa~·in~ the beneficiary or purchasing a draft or

demand for payment from him acquires <l right to honor only if !he appropriate notntion is made and by transfening or forward, mg for honor the rlocuments un<ler the credit such a person warrants to the issuer tlm.t the notiltion has been made; and

(b ). unless the eredit or 11 signed statement that an appropriate notation hJlS been miule accompanies tl!e dr~ft or demand for payment the issuer may delay honor until endence of notation has been prol'urecl which is satisfndorv to it but its oblirration and • e .

77 STAT. ] PUI

thnt of its t·11sti11m thirtv <luvs to ohti1

(:q Ifthe~·reditis1 ( u) the issuer

p1lyment presente1 and is dts<.'hnrge( demand; ·

(b) as between <lmfts or denumd: a subsequent pm·<· demand has been ·

§ 28 :5-109. Issuer's 1

( 1) An issuer's obli obsernrnce of any O"en (loes not include li~il'

(a) for perfor other transaction

(b) for any act its own branch c or doeument in tr

(c) based on h of any particular

(2) An issuer must th11.t on their face n credit but unless oth sibility for the genui which appears on su

(3) A non-bank i~ which it has no knowl § 28 :5-110. Availabi

tion of (1) Unless otherw:

in the discretion of th (2)1 Unless otherw

mentary draft or de1 upon its honor all cl ferring such draft or such relinquishment. draft or demand non-§ 28 :5-111. Warran

( 1 ) Unless otherw presenting a docume to all interested part ha\·e been complied arising under articles

( 2) Unless othel'"\\· collecting or issuing b for payment under by a collecting bank a document warrants under articles 7 and 8 § 28 :5-112. Time a

hono:r (1) A bank to whl

is presented underac or credit

~ . '

77 STAT.] PUBLIC LAW&. .A3-DEC. 30, 1963

that of its ('\lsto11n•r ('01\tinue for a reasonable ti1ne 11ot exceedi11/,! thirtv davs to obtai11 sud1 evidence.

pq I (the Z·r.:>dit is not a 11otation credit (a) the is~m.:>r may honor complying- <lra fts or <lema1Hls for

payn~ent presented. to it in the order in whi<'h they are presente<l and 1s <l1schar/.!ed pro tanto by honor of any such draft or (lemand;

(b) as between competing good faith purchasers of complyin/.! drafts oi· <lemands the person first purchasing has priority over a subsequent purchaser even though the later purchased draft or demand 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

olisernmce of any &"eneral banking usage but unless otherwise ngree(l (loes not include liability or responsibility .

(a) for performance of the underly mg 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 usag-e 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 :5-110. Availability of credit in portions; presenter's reserva

tion of lien or claiin ( 1) l_;nless otherwise specified a credit may be used in portions

in the discretion of the beneficiary. (2)1 Unless otherwise specified a person by presenting a docu

mental}' 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. § 28:5-111. Warranties on transfer and presentment

(1) tJnless otherwise agreed the beneficiary by transferring or presenting a documentary draft or demand for l?ayment warrants to all interested parties that the necessary condit10ns of the credit have been complied with. This is in addition to any warranties arising under articles 3, 4, 7 and S..

(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

711

.I•'. '.

712

- ,.......,,~~

-~-c

PUBLIC LAW 88-243-DEC. 30, 1963 [77 STA_:

(a} tlefer honm until the dose of the tl1inl liankingday following receipt. of the do<'lllllellts: aml

(b) further defer honor if the presentN ha:-: expressly or impliedly consented thereto.

Failure to honor within the time here speeifie.d constitutes 1fo,J10nor of the. draft or demand nml of the cre<lit.

(2) {)pol). dishonor the bank mnv 11nle:;s otherwise inst1·1wted fulfill its duty to return the draft or demnnd and the documents by holding them at the disposal of the presenter and sendin~ him an ad dee to that effect.

(3) "Presenter .. means any person presenting n draft or demand for payment for honor under n credit e\·en thongh that person i;.; a l'onfh1n-1H,!! bank or other e01-respomlent "·hirh is nrting under an i;.;s11er's nut horization. § 28 :5-113. Indemnities

(1) A bank seeking to obtain (whether for itself or another) honor. negotiation or reimbursement under n credit may :,!iH an indemnin; to.mduce. such honor, negotintion or reimbursement. •

(2) An indemnity ag-reement inducing honor, negotiation or reimlmrsement

(a) unless otherwise explicitly a.irreed applies to defects in the documents but not .in the jeoods: and

(b) unless a longer time. is explicitly agreed expires nt the end of ten business 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 receivintr such notice is under a dntv to send notice to its transferor before its midnight deadline. · .

§ 28:5-114. Issuer's duty and privilege to honor; right to reim-. bursement ·

· (1) An issue.i· must honor a draft or demand for payment. which complies with the tern1s of the relevant.credit regardless of whether the goods or 9.ocuments conform to the underlying contrnct for sale or other contract betw.een the customer· and the henefkiary. The issuer is not excused from honor of s1ich a draft or demand by reason of an additional generni term that all documents must. be satisfactory to the. i~uer, but ~:n issuer may require that specified documents. must he satisfactory to 1t. ·

(2) Fnless otherwise ngreed when documents appear on their.face to comply with the terms of a credit hut a required document does not in fact conform to the warranties mi1de on ne~otiation or trnnsfe1 .. of :i d6cument of title (Se('tion :28:7-507) or of a se('uritv (section :!8 :8-306) or is forged or fraudulent or there is fraud in.the transaction

.( il) the issuer must honor the drnft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand U11der the credit and under circumstances which would make ir a holder in due ~ourse (section 28 :3-'-302) and in an af p~opriate case would make it a person to whom a <loenment o title has been duly negotiated (section 28 :7-502) or a bonil fide purchaser of u. security (section 28 :8-::-302) ; and

(b) ·in all other cases as against its customer, an issuer acting in good faith may honor the <lmft. 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.

77 STAT.] PUl

(3) rnless otherw draft or demand for of any pavment mac a.vailable funds not I: a nee made under the

(4) (5) (Omitted.) § 28 :5-115. Remed)

pudia ( 1) When au issu•

payment presented m respect to any docun seller (section 28 :2-amount of the draft under section 28 :2-but less any amount the subject matter of utilization is made i1wolved in the tram ment of judgment.

( 2) When an iss1 a. credit before prese1 under it the benefici: l'epudiation by the b repudiation in time i

documents. Otherw·i for wrongful dishon< § 28 :5-116. Transf•

(1) The right to d only when the crec assignable.

(2) Even thought able or nonassignabl conditions of the ere ment is an assignme: transactions and is g

(a) the assig1 ad vice of credit stitutes perfecti(

(b) the issuer under the credit signed by the b involved in the assignee; and

(c) after.wh3 been received t1 or pay even to a of credit or adv

(3) Except where to draw or his right t to transfer or negoti § 28 :5-117. Insolvt

credi ( 1) Where an iss·

which has for a cm bank becomes insolv <"redit is one to whi (a) or (b) of sectirn

~,

77 STAT. J PUBLIC LAW 88-24: iEC. 30, 1963

(3) rnless otherwise agreed an issuer which has duly honored a draft or demand forJ)ayment is entitled to immediate reimbursement of a,ny pavment ma e nuder the credit and to be put in elfel•tivelY a.vailable funds not later ~lum the day before maturity of any aeceptance made under the credit.

(4) (5) (Omitted.) § 28 :5-115. Remedy for improper dishonor or anticipatory re

pudiation ( 1) W'hen an issuer wrongfully dishonors a draft or demnll(l for

payment presented under a credit the person entitled to honor has with respect to any documents the rights of a person in the position of a seller (section 28 ::2-707) and may recover from the issuer the face amount of the draft, or demand to~ether with incidental damages under section :28 :2--710 on seller·s mcidental 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 utilizatwn is made the documents, goods or other subject matter involrnd in the tmnsaction must be turned over to the issuer on payment of judgment.

(2) "•hen an issuer wrongfully cancels or otherwise repudiates a credit before presentment of a draft or demand for payment drnwn under it the beneficiary has the rights of a seller after anticipatory repudiation by the buyer under section 28 :2--610 if he le..'lrns of the repudiation in time reasonably to avoid procurement of the required documents. Otherwise the beneficiary has im immediate right of action for wrongful dishonor. § 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 nonassignable the beneficiary may before performance of the conditions of the credit assign his right to proceeds. Such an assignment is an assigmnent 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 delh·ered 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 adnce of credit is exhibited to the issuer.

(3) ExceJ?t 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 hank 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 oblignticms under the credit shall have the following results:

(a) to the extent of any funds or collateral turned o\·er 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 cucstomer or other person for whose account the insoh·ent bank has acted is entitled to receive the documents involved.

ARTICLE 6-BULK TRANSFERS See. 28 :6-101. Short title. 28 :6-102. '"Hulk transfer"; trnusfers of equipment; enterprises subject to this

article ; bulk transfers subject to this article. 28 :6-103. Transfers excepted from this article. 28 :6-104. Schedule of property, list of creditors. 28 :6-105. Xotice to creditors. 28:6-106. (Omitted.) 28 :6-107. The notice. 28 :6-101:\. Auction sales; '"auctioneer" :!8 :6-100. What creditors protected. 28 :6-110. Subsequent transfers. :IB :6-111. Limitation of actions and le\·ies.

§ 28 :6-101. Short title Citation or a... This article shall be known and may be cited as Uniform Com-

t!ele. mercial Code--Bulk Transfers. § 28 :6-102. "Bulk transfer''; transfers of equipment; enterprises

subject to this article; bulk transfers subjeet to this article

( 1) A "bulk transfer~' is any transfer in bulk and not in the ordinary course of the transfemr's business of a major part of the materials, supplies, merchandise or other inventory (section 28 :9-109) of an enterprise st1Lject to this article. -

(2) A transfer of a substantial part of the equipment (section ~8 :9-lOV) of such an enterprise is a bulk tmnsfer if it is made in connection with a bulk transfer of inventor,v, 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 the District 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) Geneml assignments for the benefit of all the creditors of the

trn.nsferor, and subsequent transfers by the aS8ignee thereunder;

l 12 : ::i::::; /~"(

775TAT.] PUE

(:~) Transfers in !:ie interest;

( -J.) Sales by execu ruptcy, or any public

( 5) Sitles made in 1 ings for the dissolut which notice is sent order of the court or 11

( 6) Transfers to a in the District who bt in full. and gives pul: becommg so bound;

(7) A transfer to : nnd continue the busi and the new enterpr receives nothing fror t>nterprise junior to 1

( 8) Transfers of r Public notice unde

liy publishing once a of general circulntim lrnsiness in the Dist1 :lddresses of the tm1 the transfer. § 28:6-104. Schedu

( 1) Except as pro1 108), a bulk transfer ('reditor of the transf

(a) The trnm his existing cred

(b) The parti sufficient to iden

( c) The trun months next fo either or both :i1

nny creditor of 1 office of the Reci

(2) The list of c1 Ly the transferor or l nd<lresses of all ere< known. and also the teror to assert t' hti disputed. If the trr bonds, debentures or the list of creditors indenture trustee an the issue.

( 3) Responsibilit of creditors rests or ineffective by error shown to have had l § 28:6-105. Notice

In addition to t bulk transfer subjei (section 28 :6-108) feror unless at leas1 or pays for the~, w of the transfer m t (section 28 :6-107)

l 77 STAT.] PUBLIC LAt. dS-243-DEC. 30, 1963

. (:l) Transfers i11 sPttlt>lllt>llt Ol' I"ealization of n lit.111 or othl:'r ;;;ecnrity mtl:'l'est :

(-l) Sales by execntors, administmton;. I"e<'ei,·el's, trustees in bankruptcy, or any public officer under judieia I process:

{5) Sales made in the eonI"se of judicial or ndministrative proceedings for the <lissolution or reorganization of a eorpol'ntion and of which notice is sent to Jhe creditors of the corporation pursuant to order of the con rt or n<lministratiye n.g~ncy:

(6) Transfers to n person nuuntnmmg n known place of business in the District who becomes bound to pay the debts of the transferor in full and giYes publit· notice of thnt fact, aud who is so]yent after becoming so bound;

( 7) A transfer to a new lmsiness enterprise or~anized to take over nnd continue the business, if public notice of the tmnsaction is given and the new enterprise assn mes the debts of the transferor and he receives nothing from the trnnsnction except an interest in the new "'nterprise junior to the claims of creditors;

( 8) Tnmsfers of property which is exempt from execution. Public notice under subsection ( 6) or subsection ( i) mny be given

hy publishing once a week for two consecutive weeks in a newspaper of general circulntion where the transferor had its principal place of lmsmess in the District an adrertisement indnding the names and :'1ddresses of the transferor nnd transferee nnd the effective date of 1 he transfer. § 28 :6-104. Schedule of property, list of creditors

(1) Except as prodded with respect to auction sales (section 28 :6-108), a bulk transfer subject to tlus article is ineffective against any l'reditor of the transferor unless: ·

(a) The trnnsferee 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 tt·ansferred sufficient to identify it; and ·

( c) The transferee preser,·es the list nnd schedule for six months next following the transfer and permits inspection of either or both 1tnd copying therefrom at all reasonable hours by any creditor of the tmnsferor, or tiles 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 nffirmed Ly the trnnsferor 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 aT! persons who nre known to the transferor to assert elnims against him e\·en though such claims nre disputed. If the t1~rnsferor is the obligor of an outstanding issue of Louds, debentures or the like as to which there is an indenture trustee, the list of creditors need ineh1de only the name and address of the indenture trustee and the nggregnte outstanding principal amount of the issue.

(3) Responsibility for the completeness and accumcy of the list of creditors rests on the transferor, nnd the transfer is not rendered ineffective by errors or omissions therein unless the transferee is shown to have had knowledge. § 28 :6-105. Notice to creditors

In addition to the requirements of the preceding section, any hulk transfer subject to this article except one made by auction sale (section 28 :6-108) is ineft'ectiYe against any creditor of the transferor unless at least ten days before he takes possession of the ~oods or pays for them, whiche\·er happens first, the transferee #{ives notice of the transfer in the mi1.11ner and to the persons hereafter provided (section 28 :6-107). ·

715

PUBLIC LAW 88-243-DEC. 30, 1963

~28:6-106. (Omitted.) § 28:6-107. The notice

[77 STAT.

(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 trnnsferor and tnmsferee, and all other business names and addresses used hy 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 n result of the transaction, and 1f 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 :-hull state further:

(a) the location and genernl description of the property to he transferred imd 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 eonsideration and if so the amount of such consideration and the time and place of payment.

(:~) The notice in nny <'nse shall be delivered personally or sent h\· registered or certified mail to all the persons shown on the list of ei:editors furnished by the transferor (section ~R:fi-104) and to all other persons whoarn known to the transferee to hold or assert claims against the transferor. § 28 :6-108. Auction sales; "auctioneer"

{1) A bulk trnnsfe1· is subject to this nrticle even though it is by :-ale at auction, but onlv 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 prepu.red us before stated (section 28 :6~104).

(3) The person or persons other thirn the tnmsferor who direct, rnntrol or are responsible ·for the auction nre collectively called the ';mwtioneer''. The auctioneer shall:

(a) receive and retain the list of creditors and prepare and retain the schedule of property for the period stated in this article (section 28 :6-104):

(b) g-ive noti<'e of the auction personally or by registered or certified mail at least ten days before it 0ccurs 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 ii.ny of these duties does !IOt affect t.he validity of t11e sale or t.he title of the purchasers, but if the auct10neer knows that the auction constitutes a bulk transfer such failure renders the auctioneer Jiahle to the creditors of the transferor as a class for the sums owing to them from the transferor n.p to but n~t exceeding the net proceeds of the auction. If the auct10neer 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 o~ transactions or events occurring before the bulk transfer, but creditors who become such after notice to

77 STAT.] PUBLIC

c:reditors i~ given (sertio11 to notice.

(2) (Omitted.) § 28 :6-110. Subsequent

·when the title of a tra reason of his non-compli then:

( 1 ) a purchaser o who pays no value , pliance takes subject

(2) a purchaser notice taKes free of s

§ 28 :6-111. Limitation No action under this 1

than six months after tl sion of the goods unle~ transfer has been concer within six months after

ARTICLE r/-WAI LADING AND 0

See. 28 :7-101. Short title. 28 :7-102. Definitions and i 28 :7-103. Relation of artic 28 :7-104. Negotiable and

other docwne1 2S :7-10::>. Construction ag.

PART 2-WAF

28 :7-201. Who may issm bond.

28 :7-202. Form of warehc 28 :7-203. Liability for no 28 :7-204. Duty of care; 28 :7-205. Title under wa1 28 :7-206. Termination of :is :7-207. Goods must be 28 :7-208. Altered wareho 28 :7-209. Lien of warehc !!8 :7-210. Enforcement o1

PART3-1

2:-< :7-301. Liability for "shipper's Jo;

28 :7-802. Through bills c 28 :7-803. Diversion; rec• 28 :7-304. Bills of lading 28 :7-805. Destination bil 28 :7-806. Altered bills o: 28 :7-807. Lien of carrie1 28 :7-308. Enforcement o 28 :7-809. Duty of care;

I' ART 4--W AREllOUSE R

28 :7-401. Irregularities 28 :7-402. Duplicate rece 28 :7-403. Obligation of 28 :7-404. No liability f•

~', 77 STAT.] PUBLIC LAW St, ·J~-DEC. 30, 1963

r:reditors is l!iren (sect ions 28 :fi-105 :rnd 28 :f»-107) nre not entitlecl 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 \Yith the requirements of this article, then:

( 1) a purchaser of any of such property from such transferee who pays no value or \~ho takes with notice of such non-compliance takes subject to such defect, but

(2) a purchaser for value in good faith and without such notic~ 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 he brought or leYies made within six months after its discovery. ·

ARTICLE '7-W AREHOUSE RECEIPTS, BILLS OF LADING AND OTHER DOCUMENTS OF TITLE

Sec. PART 1-GEXER.A.L

28 :i-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

other document of title. !!S :i-10.:>. Construction against negative implication.

PART 2·-,VA.REHOUSE RECEIPTS: SPECIAL PRO\'ISIOXS

28 :7-201. ""ho n1ay issue a warehouse receipt; storage under goYernruent bond.

28 :i-202. Form of warehouse receipt; essential terms; optional terms. 28 :7-203. Liability for non-receipt or lllisdescription. 28 :7-204. Duty of care; contractual limitation of warehouseman's liability. 28 :i-205. Title under warehouse receipt defeated in certain cases. 28 :7-206. Termination of storage at warehouseman's option. :!8 :7-207. Goods must be kept separate; fungible goods. 28 :7-208. Altered warehouse receipts. 28 :7-209. Lien of warehouseman. :!8 :7-210. Enforcement of warehouseman':; lien.

PART 3---BILLS OF LADING; SPECIAL PROVISIO:li!S

2X :7-301. Liability for non-receipt or misdescri11tion; "said to contain"; ''shipper's load and count" : improper handling.

:!8 :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 cnrrier's liability.

I' ART 4--W AREIIOUSE 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 liability for good faith dell.,.ery pursuant to receipt or bill.

717

718 PUBLIC LAW 88-243-DE.C. 30, 1963 [77 STAT.

ARTICLE 7-W AREHOUSE RECEIPTS, BILLS OF LADING AND OTHER DOCUMENTS OF TITLE

Continued

l'.rn-r :-.--\\'An•:11onu: HEn:1PTs .\:>ll BI1.1.1-1 o~· LAm:>o: XKGOTIATIO:"! A:St> Tll.\Nsn:1:

See. :!8 :7-:JOl. Form of 1wgotiado11 1111(1 re1111irt>u11•11ts of "due negotiation ... :!8 :7-:iO:!. Rights ae1111il·ed LJ~· due negotiation. :!X :7-:-,oa. noemneut. of title to goo<ls deft'nh•d in eert11i11 eases. :!I') :7-;:i04. Ri;.:bts nequirt>d in the nhst>IWe of due nt>gotiation: efrl:'l.!t of <liYPr,;ion;

sellt>r's ;;top1mge of dt>lin·r~-. :!8 :7-:JI);). Iudorser not n guarantor for othe1· pa1'tie><. :.!S :7-500. Dt>live1·y without indor:<t>lllt>llt: right to t•om1iel indorsement. :.!8 :7-J07. Wnrrantit>>< on llt>;.(otintiou or trirnsft•1· of reeeipt or bill. :!8 :7-508. \\'arrantiei;; of <'ollecting bunk as to documents. :!8 :7-509. Receipt 01· I.Jill: when adequate c·omplian<'e with commercial contract.

l'ART 6--\VAREHOUSE RECEIPTS AND BILLS OF LADING: )!ISCEl.l.ANEQC:S PROVISIO:\'K

:.!8 :7-601. Lost and 111i;;:-1ing cl1K·Umt>11t:<. :.!8 :7-60:!. Attndnnent of iroods covt>recl lJy a negotiablt• document. :!8 :7-603. Confikting <'laims: interpleader.

PARTl-GENERAL

§ 28 :7-101. Short title 7 ft Citation of ar- This article shnll be known and may be l'ite<l as Uniform Commer- /)&,, . 1

ticle. (t.inl Code--Documents of Title. ~ .' .A,,,;.TP § 28:7-102. Definitions and index of definitions i ~~ (1) In this article, unless the context otherwise re<1uit·es: l

;~tfW >"' -- (a} "Bailee~· meims the person ,\·ho by a wnrehouse receipt~ . .-1 pC~ l ,()., bill of lading or other document of title i~cknowled~s possession .;1 tJ---;::: · •b .-pt I"" of goods and contrilcts to deli\·er them. .f-J t5 •d .....-_

1] t,.>;O ....- (b) "Consignee'' m~ans t~e. person. named in a bill to whom ~: .. ~n ti,__...

or to whose order the bill promises delivery. c.. • v'V - ·; . ,,; -( c) "Consignor·' means the person nnmed in a bill as the ,

f;k S /)<.- person from whom the ~oods ha,·e been received for shipment. : _,..,.-· (d) "Delivery order' means a written order to deliver goods

4 cf"{.,, directed to a warehouseman, cnrrier or other person who in ti1e J • 01·dinary course of business issues warehouse receipts or bills of

e lading. /) /rv"' ·--;:z-- ( e) "Documenf~ means document of title as defined in the y J;,' general definitions in article 1 (section 28 :l-201). {} . ~ .h __;.. (f) "Goods~' means all things which are trented as mornble

/ /'"'.-;·"' I ;tl,,4'-l for the purposes of a contract ot storage 01· trn,nsportation. ,;ttt t ""Ts ~~(g) "Issuer'~ means a bailee who issues a document except

-"// f; r' that in reln.tion to an unaccepted delivery order it means the {J pf/ ft/• '! ~ person who orders the possessor of goods to deliver. Issuer in-

L:"r f"f/[ tJI' eludes a.n erson for whom an ~ent or employe~ purpiitijtO act / "1 P- in issuing a ocument if the agent or employee has real or ap

parent authority to issue documents, notwithstanding that the

77 STAT.] p

( :~) lJetinitions i ~edions in which tl

"Contract fo "0,·erseas" s "Receipt"' of

( .J.) In addition ~ of eonstruction nnd § 28 :7-103. Relati

cati1 To the extent that

tory statute of the or issued pursuant t a1·e subjeet thereto. § 28 :7-104. Negot

of I. ( 1) A warehouse

1wgotiable · (a) if by its

the order of a l

(b) where rE person or assig:

( 2) Any other d which it is stated ti not made negotiablE only against. ii writ person. § 28 :7-105. Consti

The omission frrn Yision correspondin, imply that a corresJ

PART 2-WAREH

§ 28:7-201. Who n gove

(1) .\warehouse ( 2) Where goods

mo<lities nre stored drnwnl or a license :

. house receipts, a re<' house l'El<'eipt even t: goods and is not n '' § 28 :7-202. Form t

term (1) A warehouse (2) Unless a wa

printed terms each dumages caused by tl

(a) the locat: issuer received no goods or that the goods were misdescribed or that in any other respect the agent or employee violated his instructions. ; . (b) the date

/fl i · /J •1 (c) the conse .-- (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).

:-- cvm_ce.rct v ~z:: 1ft'(d) a statem• ?vi}-"(- /2 t:.<--Lr.:-J to the bearer, to i..... t /J e£ C~5;pc;:- order;

: (e) the rate o goods are store( ment of that fact

/""'·~, . -. 77 STAT.] PUBLIC LAW,._ ~43-DEC. 30, 1963

1:1) l>etiniti011s i11 other artieles appl:·ing- to this arti<'lt• antl tlw st-dions in which they nppeat are:

"Contract fot· snle'· section 28 :2-106. "0,·ei'Se.as" section 28 :2-32:3. "Receipt" of goods section 28:2-10:!.

( +) In add it ion :utide 1 cont a ins genera I de fin it ions n n<l pri Ill' i pies of con st ruction and interpt-Ptation n pplit'a hle th mnghout th is a 1t tcle.

~ cation or regulation . . § 28:7-103ielation of article to treaty, statute, tariff, cJassifi-

I ''.:

719

/t;·f-J 12-L To the ext nt that.~ treaty or statute of the r nitf.!..L.S.t.ates, regulatory statute of the Distric.t. or tariff, classification or regulation filed or JSsue<l pursuant thereto is applicable, the proYisiom; <if this a 1tiel<> a re ~nbject thereto.

7 sµ 2--? 1J ·

§ 28 :7-104. Negotiable and non-negotiable warehouse receipt, bill of lading or other document of title

(1) Awnrehouse rel'eipt, bill ofladingorotherdocnment of title is 11eg:otinble

· (a.) if by its terms the goods nre to be delin~red to bearer or to the order of n name<l person; or

(b) where recogmze<trilO,·ersens tmde, if it runs to a nnm~l person or assigns. ·

(2) ~"lny 0th.er document is non-negotiable. .\. bill of lading i11 which it is stated that the goods are consigned ton m1med person is not made negotinble by a p1;ovisio11 that the goods are to he delh·ered 011 ly against. a written order signed by the ·same or 1rnot ht!r named person. ~ 28:7-105. Construction against negative implication

The omission from either part. 2 or part 3 oft his article of a proYision corresponding to a provision mi:tde in the other pnrt does not imply that. a corresponding r~le of law is no_!:}ll~1k!tl~Je.

PART 2-WAREHOUSE RECEIPTS: SPECIAL PROVISIONS

§ 28:7-201. Who may issue a warehouse receipt; storage under

///JJ;~ ,; A,! .f 4-n,1 e, .. /,.,~

J...:'4--> /':.t. 45 ~µV L

h .. ~ti-' , 1 p;,,J /tj/~-

govern1n:ent bond . 0 k.-0

_ ~ (1) A warehouse receipt may be issued by any warehouseman. - ~-~ ~ ( 2) Where goods including distilled spirits and agricultural com- . ;.,_ d

lllO<lities lll'e Stored U!lder a Statute requiring ti bond I\ ainst With- ~IV r .· drn.wnl or a licc1se for the issuance of receipts 111 t 1e\J.uliJ1re f ":!'!.f_e..: house receipls, a receipt issued for the goods has like effect ns a warelilluse-1~e<.-:eipt even though issued by a person who is the owner of the :,roods and is not a wnrehouseman. § 28 :7-202. Form of warehouse receipt; essential terms; optional

terms · ( 1) A warehouse rec~ipt need not be in any particular form. ~ l'?.l< ·t\-.. (2) Unless a warehouse receipt embodies within its written or sc..~.J..,

printed terms each of the followmg, the warehouseman is liable for damages caused by the omission to a person injured thereby:

(a) the location of the warehouse where the goods are stored; (b) the date of issue of the receipt; (c) the consecutive number of the receipt; ( d) a statement whether the goods received will be delivered

to the bearer, to a specified person, or to a specified person or his order;

(e) the rate of storage and handling charges, except that where goods are stored under a field warehousing arrangement a statement of that fact is sufficient on a non-negotiable receipt;

l-


(f) a desniption of the goods or of the }><tt·knges eontnining them:

(I!) the sigw1t11re of the warehouseman, which may be ma1le by his authorized agent;

{h) if the reeeipt is issued for goods of which the warehouse-man is owner, either solely or jointly or in common with others, the faC't of sueh ownership; and .

(i) a statement of the amount of advances made and Q:f...1.ia: bilities inC'urred for which the warehouseman claims a lien or s~curitv interest (seetion :.28:i-2U9). If the precise amount of such aarnnces made or of such liabilities incurred is, at the time of the issue of the receipt, unknown to the warehouseman or to his ai;rent who issues it, a statement of the fad that adrnnces have been made or liabilities incurred and the purpose thereof is

77 STAT~] PUBLIC

§ 28 :7-205. Title under cases

A buyer in the ordinary and delivered by a wareho· ing and selling such goods receipt even though it has l

I _ § 28 :7-206. Termination Pe J1. - [; <'•;) ( 1) A warehouseman m: 3 . I f, J the goods are held and an

/ .,.,p .,-;, in the,O'oods require paym1 from the warehouse at th€ by the document, or, if nc less than thirty days aft removed before the date ' man may sell them in ac< on enforrement. of a wnre1

(

. sufficient. ( :3) A wnrehousemim may insert in his reeeipt any other terms which

ire not contrary to the provisions of this subtitle and do not impair iis oblii:ration of delivery (section 28 :7--:l:O:·n or his duty of cnre (see- L ion :28:7-204). Any contrary prm·isions shall be ineffective. /, S' "f (...J

(2) If a warehousemai a.bout to deteriorate or de lien within the time pn ndYertisement nnd sale, tItion any reasonable short 1 he goods are not remove

§ 28 :7-203. Liability for non-receipt or misdescription / t: f!,,1-1, tJ 8 A party to or purchaser for value in good fnith of a document of ;)ft1!'

title other than a bill of lnding relying in either case upon the description therein of the goods mi1y recm·er from the issuer damages caused by the non-receipt or misdescription of the goods, except to the extent that the document conspicuously indicates that the issuer does not know whether anv part or all of the goods in fact were! received or conform to the aesrription, as \~here 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 warehouse

man,s liability ( 1) A warehouseman is liable for dama s for loss of or inj urv to

the goods caused by his rn ure to exe such care in r~arg_to fliem as a reasonably careful man would exercise under like circumstances 6ut unless othenv1se 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: Provi4ed, 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 char~ed based on such increased ,·aluation. but that no such increase shall oe permitted contrary to a lawful limita-tion of liability contained in the warehousemanls tariff, if any. Xo such limitation is effecti\·e with respect to the warehouseman's liabilitv 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. "'JJ

(4) (Omitted.) .:::---- V

than one week after a sii (3) If as a result of a

the warehouseman had n a hazard to other prop€ warehouseman may sell advertisement on reasonll an interest. in the goodE effort is unable to sell th1 manner and shall incur 1

( 4) The warehousem: titled to them under thi prior to sale or other disf

( 5) The warehousem: any sale or disposition for delivery on the der. been bound to deliver thi § 28:7-207. Goods mui

(1) linless the warel man must kee(l separat permit a.t all hmes ide: that. different lots of ft

(2) Fun~ible goods persons entitled theret• each owner for that c mass of fungible goods warehouseman has iss1 holders to whom over' § 28:7-208. Altered'

'"Where a blank in a without authority, a l want of authority, ma unauthorized alterati4 issuer according to its

93-on 0-64-48

77 STAT.] PUBLIC LAW 88~'-DEC. 30, 1963

§ 28 :7-205. Title under warehouse receipt defeated in certain cases

A buyer in the ordinary course of busiues,; of fungible goods sold nnd deliwred by a warehouseman who is also in the business of buving and selling such goods takes free of any claim under a mnehouse receipt even. though it has been duly negotiated. § 28 :7-206. Termi~ation of storage at warehouseman's option

(1) A warehouseman may on notifying the person on whose 11ccount the goods are held and any other person kn°'n1 to claim an interest in the,goods require payment of any charges and removal of the goods from the warehouse at the termination of the period of storage fixed by the document, or, if no period is fixed, within a stated period not less than thirty days after the notifieation. 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 wnrehonsenurn's lien (section 28:i-210).

(2) If a warehouseman in good faith believes that the goods art> about to deteriorate or decline m rnlue to less than the amount. of his lien within the time prescribed in subsection ( 1) for notificatiop, advertisement and sale, the warehouseman mny specify in the not1ticafion 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 ~oods of which the warehouseman had no notice at the time of deposit the goods are n hazard to other property or to the warehouse or to persons, TilF ~seman may ~ITTh-e 1m9ds a~. public or -~".:Uf~J3al~~ with~ut advertisement on reasonable not1ficat1on to all persons known to claim an interest in the goods. If the ''arehouseman after a reasonable effort is unable to sell the goods he may dispose of them in irny lawful ma.nner and shall incur no liability by reason of such disposition.

( 4) The warehouseman must defo·er t.he goods to any person entitled to them under this article upon due demand made at any time prior to sale or other disposition under this section.

(5) The warehouseman may satisfy his lien from the proceeds of nuy sale or disposition under this section but must hold the balance for delivery on the demand of iu1y person to whom he would have been bound to deliver the goods. § 28 :7-207. Goods must be kept separate; fungible goods

(1) 'C'nless the warehouse receipt otherwise provides, a warehouseman must. keel? separate the ~oods coYered by each receipt so as to permit at all times identification and delivery of those goods except that different lots of fungible goods may be comming-led.

(2) Fungible goods so commingled are owned in common by the persons ent.1t.led thereto and tlie warehouseman is severally liable to each owner for that owner's share. \Vhere because of overissue a mass of fungible goods is insufficient to meet all the receipts which the warehouseman has issued against it, the persons entitled include all holders to whom 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 nnd without notice of the want of authority, may treat the insertion as authorized. Any other unauthorized alteration leaves any re<'eipt enforceable against the issuer according to its original tenor.

93-02~ 0-64-48

721

.. ~ i,


§ 28 :7-209. Lien of warehouseman ( J) .\ wan•hm1st:>rna11 has a lien 11gai11:<! tlw hailm· 011 the gomls

1·01·ered by n warehouse reeeipt or ou the procee<rs t he1·eof in his possession for chnrges for stornp:e or tmnsportation ( i11elmlh1g <lenrnrra.ge and terminal ch-arges). insm•mtce. labor, or charges preseiif or future iii relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their snle p1mmant to law. If the person on whose account the goods are held is liable for like 1·lmrges or expenses in relation to other goods whene,·er deposited nud it is ::;tated in the receipt that a lien is ela imed for eharges and i>xpenses in reliltion to other p:oods, the warehouseman also has a lien agninst him for such charges nnd expenses whether or nof"the other :.roods lun·e been deliwred by the warehouseman. But ngainst a person to whorn a negotiable wnrehouse reeeipt is duly negotiated n warehonseman 's lien is limited to clrnrg:es in an amomit or at a. rate specified on the receipt or if 110 dmrges are so specified then to a rensonable ehnrge for storage of the goods eovered-hv the receipt suhseq11ent to the(d)ateTo

1fthere

1ceipt. l • . !_ ..

2 le ware 10nseman may a so reserve a 8ecn1·1tv interest against t:,(. ~<'.'. r the bnilor for a maximum amount spee1fied 011 the receipt~ other tlurn those specified in subsection (1), such ns for m01iev :id vanced a11d i11terest. ~ueh a securitv interest is governed by the n rtide on secured trnnsnctions ( nrtide 9).

(3) A warehouseman's lien for charges and expenses under subsection ( 1) or a security interest under subsection (2) is also effecth·e :t/,!ainst any person who so entrusted the bailor with posses.'lion of the g-oods that a pledge of them by him to a good faith purchaser for rnlue would hin-e been rnlid but is not effecti,·e agninst a person as to whom the document confers no right in the goods covered by it under :<ection 28 :7 - -503.

(4) A warehouseman l@es his lien on any goods which he voluntarily delivers ol· which he unjustifiably refuses to deliver. § 28:7-210. Enforcement of warehouseman's lien

(1) Except as prodded in subseetio11 (2). a warehouseman's lien 111ny he enforced by public or prirnte sale of the goods in bloc or in parcels, nt any time or place and on any terms which nre commercially rensonahle. after uotifving a1l )ersons known to claim an interest in the go0<_h>. · Su<'h not1 'eat10n must me uc en statementofine.amom1f due, the nature of the proposed sale and the time and place of any puhlie sale. The fnet that a better price could ha,·e been obtained by a sale at a different time or in a different method from that selected liy the warehouseman is not of itself sufficient to establish that the s:;le was not m:tde in a commereially reasonable manner. If the ,,·arehouse-man either sells the goods in the usual manner in any reco~Ynizecl n1nrket therefor, or if he sells at the J;rice current in such nwrket at the time of his sale, or if he has otherwise sold in conformity with commercially reasonable praetiees among dealers in the type of µ:oods sold, he has sold in a commercinlly reasonable manner. A sale of more goods than ap(>arently necessary to he offered to insure satisfaction of the obligation is not eommercially reaso11able except in 1·ases co\·ered by the preceding sentence.

(2) A warehouseman's lien on goods other than goods stored~ merchant in the course of his business may be enforced only as follows: ""= (a) AIJ persons known to claim an interest in the goods must

be notified. , (h) The notifieation must be delivered in person or sent by t---"--;

Yegistered or eertitied letter to the last known address of any 1

~to he Hot ified. . - ·

77 STAT.] PUB

(e) The notifiea the da im, a de:,'rrip for payment withi1 receipt of the notifo the claim is paid wi sale and sold by au

(d) The snle mu (e) The sale mu

where the goods uri (f) After thee~

an adYertisement < two weeks consecu where the sale is t· deseription of the~ they are being he: sale must take ~la· tion. If there IS I

sale is to be held, da;rs before the sal neighborhood of ti

(3) Before any sale right in the goods ma: and the reasonable ex~ the goods must not bes subject to the terms of·

( 4) The warehouser this section.

( 5) A purchaser in houseman s lien takes t whom the lien was vali with the requirements

( 6) The warehouse1 any sale pursuant to th delivery on demand to to delh·er the goods.

(7) The rights pro' other rights allowed b.

( 8) Where a lien i> of his business the lien section (1) or (2).

( 9) The warehouse: comply with the requ' of willful violation IS

PART 3-BILLS

§ 28 :7-301. Liability contai1 handli

(1) A consignee 01 good faith or a hol< negotiated relying in l?oods, or upon the di dama_ges caused by th· descnption of the goc cates that the issuer goods in fact were rec• description is in tern dition or the receipt

... ~;~]

77 STAT.] PUBLIC LAW a. i-3-DEC. 30, 1963

tc) Thi" 11otitinition 11111,.;t inelnde an itemizNl :;tatPrne11t of tlw rlaim, a dt»·wription of tlw good,.; ,.;11hjeet to tht> lien, a dt'nt:11HI fo1· payment within a »peeitied timl' not le;o;s than ten day,; after rt'eeipt of the notiti<"ation, and a 1·onspi1·11011s statement that 1111less the dai111 is paid within that time the g-oods will he aih-t>rtised for sale and sold by am·tion at a »peeitied time and pla<'e.

(d) The snle must <"Onfonu to the terms of the notification. (e) The sale must be heldat the ne;\rest ;;;uitable pince to that

where the g-oods are held or stored. (f) ~\fte1· the expiration of the time given in the notification,

an ndvertiseme11t of the &lie must be published once 11 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 g'()(Xls, 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 fiftee-n days after th!' first publication. If there is no newspaper of g-enernl eirc11lntion where the snle is to be held, the advertisement must be posted at least ten dnvs be.fore the sale in not less than six conspicuous ·plnces in the ne.lg:hborhood of the. proposed sale.

(3) Before anv sale pursuant to this se.('tion an~· person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable expenses incurred under this section. In that event the goods must not be sold, but must be retn.ined bv the wal'ehouseman subject. to the terms of. the receipt and this nrticle.' · · ·

( 4) The warehouseman may buy at any public sale pursuant to this section. · ··

(5) A purchaser in good faith of gnods sold to enforce a warehouseman s lien takes the ~oods free of nny rights of persons against whom the lien was valid; despite nonc-0mplinnce by the ware.houseman with the requirements of this section.

(6) The warehouseman may satisfy his lien from the proceeds of any sale pursuant to this section but must hold the hnlance. if any, for delivery on demand to any person to whom he would have been bound to deliYer the goods. · · ·

(7) The rights provided by this section shall be in addition to all other rights al1owed by law to a creditor ngainst his debtor.

(8) 'Vhere a lien is on ~00<ls stored by :\. merchant in the cO\ll"Se 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 Yiolation is liable for com·ersion. ·

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 bill who has gh'en yalue in good faith _or a lrolder to whom a. negotiable bill has been duly negotiated relying in either case upon t.he description therein of the. ~oods, or upon the da.te therein shown, may recover from the issuer damages caused by the misdating of the bill or the non-receipt or misdescription of the goods, except to the extent that the document indicaW5 that the issuer does not know whether any part or all of the goods in fact were received or conform to the description, as where the description is in terms of marks or labels or kind, quantity, or condition or the receipt or description is qualified by "contents or con-

) 723

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C /,.,.:;._,,)..v:, "'--> C.

USl)e 1-::. >7 fe.,;;(r .fvv Se::c~47j

, .. i. j -


dition of contents of packages unknown'', "said to contain'\ ''ship;Jt>1·'s weight load and count .. or the like. if such indicHtion be trne.

(2) \n1en goods are loade<l hy ii.n issuer wl~o is a commo1~ carrier, 1 he issuer must count the packages of ~oods if package freight and ascertain the kind nnd quantity a bulk treight. In such Cll8eS ''shipper's .w~ight, load and count"~ o~ other wo~·ds in4icnting that the description was made by the shipper are metfeetn·e exeept as to freight concealed by pnckages.

(3) "'hen bulk freight is loaded by n shipper "·ho mnkes nvnilable to the issuer adequate f:wilities for weighing- sneh freight, an issuer who is a common carrier must nscertnin the kind and quantity within a reasonable time after receiving- the written request of the ship~er to do so. In such cases '·shipper's wei~hf' or other words of hke purport are ineffective. . . . . . . .

( 4) The issuer may bv msert mg Ill the h1 II the words ''slupper s weight, load and count" or other words of like purport indiente that the goods were loaded by the shippe1·; and if such statement be true the issuer shall not be liable for dama(res caused by the improper loading. But their omission does not im\)ly liability for such damages.

( 5) The shipper shall be deemed to un·e guaranteed to the issuer the accuracy at the time of shipment of the des<·ription, marks, labels, number, kind, quantit;·, eondition and weight, as furnished by him: and the shipper shall mdemnify the issuer ag-ninst damage caused by inaccuracies in such partif'ulars. The right of the issuer to such indemnity shall in no \Vay limit his responsihility and liability under the contract of carriage to any person other thai} the shipper. § 28 :7-302. Through bills of lading and similar documents

(1) The issuer of a through bill of hlding or other doeument emhodyiug an undertaking to be performed In part by persons acting as its ngents or by connecting earriers is liable to anyone entitled t<} recover on the document for any breach by such other persons or by a connecting carrier of its obligation mHler the document but to the <•xtent that the bill coYers an tmdertnki11g to be performed overseas or in territory not co11tig-uous to the contii1ental l'nited States or nn undertakinµ including nrntters other than transportation this liability max be varied by agreement of the pnrties.

(2) 'Vhere goodsco,·ered by a through bill of lading or other document embodyin.!]: an u11dertakmg to be performed in part by persous <~t~1er than the 1~uer are received hy any such person, he is subject w1tl.1 respect to lu.s O\~·n pedorm:u1<·e wlul~ the ~oo(!s :n:e in his pos::;ess101~ to the obhgat1011 of the issuer. His obhgnt1on is discharged hy deln·ery of the goods to a not hel' su('lt person p11 rsuant to the document, and does n_ot include liability for breach hy auy other such persons or by the issuer.

(3) . The issuer of such through bill of lad in/! or other docmnent. shall !>e entitle~ to recover from the conneding earrier or snch other person m possess10n of the p:oods when the breach of the obligntio11 u11der the doc~ment occurred, the amount it may be required to pay to anyone t•nhtled ~o re~over on the doc11111e1.1t therefor,, as may be evidenced by :my receipt, Judgment, or transcript thereof, and the amount of any expense reaso~ably incurred by it in defending any action brouglit hy anyone entitled to recover on the document therefor. § 28 :17-303. Diversion; reconsignment; change of instructions

(1) Unless the bill of Jading otherwise proddes, the carrier may deliver the goods to it person or destination of.her tlrnn that stated in the bill or m:iy otherwise dispose of the goods on in!,tr1wtio11s from

(a) the holder of a nep:otiable hill; or

77 STAT.] PU!

(b) the t·onsiir11 contrnry instrut'tic

( c) the eonsign 1·ontrnry instructi arri,·ed at the bill sion of the bill: or

( d) the consigr against the ronsigi

(:2) rnless s11d1 insing, n person to whom aecording to the origin § 28 :7-304. Bills of 1

( 1) Except where < lading must not be isi di1mages ca used by ,·ic

(2) 'Vhere a bill of of which is numbere( ha Ye not been delivere 1·onstitute one bill.

(3) Where a. bill 01 different parts are n• holder to whom the fi the document and tbE received the goods fi 1he carrier's obligat.io1

(4) Any person wh luding drawn in a set whole set.

( 5) The bailee is ol article against the fi drawn in a set. Such whole bill. § 28 :7-305. Destina

( 1 ) Instead of iss\ of shipment a carrie the bill to be issued ri

the request. (2) upon ~eq!lest'

the goods wlnle m tr: lading or other rece a substitute bill to l: § 28 :7-306. Altere«

An unauthorized 11

len\·es the bill enforc § 28:7-307. Lien 01

( 1) A carrier has charges subseq~1ent '. or transportation (' for expenses necessa transportation or rE But. a~i~st !!' P!lr<; carrier·s hen is hm1 tariffs, or if no char

(2) A lien for ch which the carrier w etfective against th unless the carrier l

- - - .

77 STAT.] .('?:~

PUBLIC LAW 88· ;_:::DEC. 30, 1963

(b) the eo11sig110t• on n 11011-ne~otinble hill 1101 wit hstandinO' ~ontJiH)' in:->trul'tions from the consignee: or "

(l'} the .<'Ollsignee 011 a 11011-11e7otinble bill in the nhse1we of 1·ontrnry i11:;tnwtio11s from the eonsip:nor, if the goo<ls haw arrived nt the billed de,.;tination or if the l'Oll1'lignee is in possession of the hill: or

(<l) the consignee 011 11 11011-negotiable bill if he is entitled us ngainst the consignor to dispose of them.

(2) rnless SlH'h instructions nre noted on a negotinble bill of lading, a person to whom the hill is duly negotiated can hold the bailee lll'cording to the original te11ns. § 28 :7-304. Bills of Jading in a set

( 1) Except where customary in O\"ersens transportation, a bill of la<ling must not be issued in a set of parts. The issuer is liable for damages caused by violation of this subsection.

(2) '\Vhere a bill of lading is lawfully drawn in a set of parts, each of which is numbered and expressed to be rnlid only if the goods have not. been delivered against any other part, the whole of the parts <'Onstitute one bill. ,

( 3) 1\-.here a bill of lading is lawfully issued in a set of parts and different pa1ts are negotiated to different persons, the title of the holder to whom the first due negotiation is made prentils as to both the dorument and the goods even though any later holder may have i·eceived the goods from the carrier in good faith imd discharged lhe carrier's obligation by surrender of his part.

( 4) Any person who negotiates or trnnsfers a single pnrt. of a bill of ln<ling drnwn in a set is linble to holders of that pnrt as if it were the whole set.

( 5) The bailee is obliged to deliver in accordance with part 4 of this article ngainst the first presented part of a bill of ladmg 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 nt the place of shipment a carrier may at the request of the consiJ,rnor 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 filling in of a blank in a bill of lading leaves the .bill enforceable according to its ~iginal tenor:.. § 28:7-307. Lien of carrier

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

(2) A lien for charges and expenses under subsection (1) on goods which the carrier was required by law to receive for transportation is effective against the consignor or any person entitled to the goods unless the carrier had notice that the consignor lacked authority to

~5

; ~ . ,


subject th(> goo(ls to sneh charges and expenses. .\nv other lien under :mbsect ion. ( 1) is etf ect i \'e against the consignor ana any person who permitted the bailor to h:lYe control or possession of the goods unless the carrier had notice that the bailor Jacked sud1 authority.

( 3) .A carrier loses his lien on any goods which he volnntarily deli\·ers or which he unjnstifiably refuses to delh·er. § 28:7-308. Enforcement of carrier's lien

(1) A carrier·s lien may be enforced by ~bJlc or arivate sale of ·1?/Cthe goods, in bloc or in parcels, at any time or p ace an 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 re:1sonable prn<:tices among denJers in the type of goods :-;old. he has sold ma commercrnlly reasonable manner. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not connnercinlly reasonable except in cases cov-ered by the preceding sentence; ·

(:2) Before any sale pursuant to this section any person claiming a right in the goods mny pay the amount necessary to satisfy the lien an<l the reasonable expem;es incurred under this section. In that e\·em the goods must not be sold, but must be retained by the earrier subject to the terms of the bill and this Article.

(3) The carrier may buy at ;my public sale pursunnt to this section. ·

(:I:) A purchaser in goo<l faith of. goods sol<l to enforce a carrier's 1ien takes the goods free of any rights of persons against whom the lien was rnlid, despite nonc01n1)I innce 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 deliver;' on demand to any person to whom he would have been bound to deliver the goods.

(6) The rights prodded by this section shall be in addition to all other rights 11llowed 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 ~8:7-210.

(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 chan~e any law or rule of Jaw which imposes liability upon a common carrier for damages not ('aused by its negligence.

(2) Damages may be limited by a provision that the carrier's lia· bility shall not exceed a vnlne stated in the document if the carrier's rates are dependent upon rnlue and the consignor by the canier's

77 STAT.] PUBL

ta1·itf is afforded an opp• as lawfully provided int wise advised of such OPJ with respect to the carr1

( 3) Reasonable provi~ c1aims and institutmg ac in a bill of lading or tari:

PART 4-WAREHOU~ GE1'

§ 28:7-tOl. Irregularit issuer

The obligations impoSt ment of title regardless c

(a) the documen: this article or of an form or content; or·

(b) the issuer mr of his business ; or

( c) the goods co bailee at the time the

( d) the person is definition of warel receipt.

§ 28:7-t02. Duplicate :Neither a duplicate nc

cover goods already rep :-;a.me issuer confers any 1·ase of bills in a set, ov l'nbstitutes for lost, stol1

. liable for damages cau~ duplicate document as s1 § 28 :7-t03. Obligation

excuse (1) The bailee must (

1locument. who complies the extent that the baih

(a) delivery of tl as against the clain:

(b) damage to < which the bailee is·

( c) previous sa l enforcement of a 1 of storage;

( d) the exercise suant to the provi 705);

( e) a diversion, to the provisions regulating such ri$".

( f) release, satis defense against the

(g) anyotherla (2) A person claimi

satl.Sfy the bailee's lien is prohibited by law fJ. paid.

77 STAT.]

tu riff is afforded an opportunity to declare a higher rn lue or a ni lue ns lawfully prO\'ided in the tariff, or where no tariff is filed he is otherwise advised of such opportunity; but no such limitation is etfectin~ with respect to the carrier·s liability for· com·ersion to its own use.

(3) Reasonable provisions as to the time and manner of presenting claims and institutmg actions based on the shipment may be included in a bill of lading or tariff.

PART4-WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS

§ 28 :7-401. Irregularities in issue of receipt or bill or conduct of issuer

The ob~igations imposed by this article on an issuer npplv to a d0<.·u-ment of title ~ardless 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 luwe Yiolated laws regulating the eondnct of his business : or

(c) the goods coYered by the document were owned In- the bailee at the time the docume11t was issued: or ~

( d) the person issuing the document d0es not come within the (~-~~!.11 of warehouseEE.l.!! if it purports to be a warehouse receipt.

§ 28:7-402. Duplicate receipt or bill; overissue -~ther a duplicate nor any other document of title purporting to

('over goods already represented by an outstanding document of the snme issuer confers any ri~ht in the goods, except as prO\·ided in the 1·ase of bills in a set, o,·enssue of documents for fungibl~o~~~ nn.d substitutes for lost, st Olen or destroyed doc11ments. Rut the. issuer 1s

. liable for damages c<rnsed by his oYerissue 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 delh·er the goods to a person entitled under the

document who complies with subsections (2) and (3), unless and to the extent that the bailee establishes any of the following:

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

(b) damage to or delay, loss 01· destruetion of the goods for which the bailee is not liable;

(c) previous sale or other disposition of the ~oo<ls in lawful enforcement of a lien or on warehouseman's lMdul termination of storage;

( d) the exercise by a seller of his right to stop de 1 h·ery pursuant to the provisions of the article on sales (section 28 :2-705);

( e) a diversion, reconsignment or other diseosition pursuant to the provisions of this articJe (section 28:1-303) or tariff regulating such ri~ht;

(f) release, satisfaction or any other fact affording n 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 bailee so requests or where the bailee is prohibited by law from delivering the goods until the charges are paid.

.27

v-- ;:;4J v/i'~· c?ft'ndj FF

';


( 3) Unles:; the person claiming is one a;p1i11st 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, nnd 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 ne(Yotiated.

( 4) "Person entitled under the document~ means holder in !he case ol a negotiahl.e._d_Qcument, or the person to whom delivery is to be made by the terms of or pursunnt to written instructions under a nonnegotiable document. § 28 :7-404. No liability for good faith delivery pursuant to receipt

or bill A bailee who in g?Od faith ineluding obsen·ance of reasonable ~gm

mercial standards lills recei,·ecl goods and delivered or otherwise disposed of them according to the terms of the document of tit le 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"

X: ( 1) A negotiable document of tit le running to the order of a named ,,. ·) "V 1 person is negotiated by his indorsemeut and· delivery. After his in-/ . ktl , dorsement in blank or to bearer t~ny person can negotiate it by delivery

ji/'{) Ji'/ ...< , alone. · ~. , ft fj>f- · (2) (a) A negotiable document of title is also negotiated by delivery r .. , ~/ rv alone when by its original terms_it runs to bearer. .

; n,..il' (b) 'When a document runnmg to the order of a named person is 'r· delivered to him the effect is the same as if the document had been

negotiated. (3) Negotiation of a negotiable document of title after it has<::?

been indorsed to a specified person requires indorsement by the ~ ·special indorsee as well as delivery.

( 4) A negotiable document of title is "duly negotiated~' when it is negotiated m 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; (b) title to the goods;

. ( c) .all r~ghts accruing un~er the la.w of a~encl or esta;pel, l>-~ mcludmg rights to goods delivered tOflie ba.i ee a ter the0cu-ment was issued; and

77 STAT.} p

(<I) the <lire1 µ-oocls :H·rm·<lin• or <'la im bv hi <hwument <ll' ur the bailee's obli g-atiou 11<•q11i reel will pr()('ure th<

(~) tiuhjeet to ti a t·e not defeated b· dot·mnent or hv su: i 111 pn ired e\·en ·t hon ~itute<l a breach 1

<lepri,·ecl of possess accident, mistake < . ' a prenous sale or c made to a third per § 28 :7-503. Docun

(1) A document . ,,·ho before issuan perfected security i

(a) delivere• ing them to ti authority to sh under this arti< under this sub statute or rule

(b) acquiesc of any docume-

( 2) Title to go< subject to the right: or bill of lading cc u title may be defE the rights of the is>'

( 3) Title to goo forwarder is subje< thA freight forw:.u• in accordance witl lading discharges t ~28:7-504. Right

etfe ( 1) A transfer•

negotiable, t~~ wh .. ·.c negotiated, a uir< liad actual aut 1or~

(2) In the case the bailee receives feree may be defea

(a) by tho: sale as void m

(b) by a l business if ti received notifi

(c) as agai with the tram

(3) A d.iversioi eons1gnor m a no not to deliver to tl if they have been and in any event

,-) 77 STAT.] PUBLIC LAW bu-243-DEC. 30, 1963

(cl) the clirt>t't obligation of tlit> iss\IPI' to hold 01· dt>li,-er the goods <ll'l'01"cli11g to tlJp tel'lllS of nip dO<'lllllellt free of any defense 01· <'la i Ill L ,. Iii 111 PX<'ept t host:> a risi 1w under t ht:> terms of the do('11111_t:>nt. <;I' 11~Hlt:>1: tl1is arti\'lt:>. In t{e ease of a de]i,-ery order the. lrndet:> s ol>l1gat . .in a<Tl'lles <•11ly upon a\'<'eptanC'e an<l the obligation a<·quired by the holder is that the issuer and any indorser will pr0<·111·e the a<·<·e1Ha11ce of the bailee.

(~) ~ubj~et to the following section. title and rights so acquired are not defeated by any 5to > >nge of the goods represented by the clo<·ume11t 01· Ii\' s11ne11<ler o sue 1 uoods bv the bailee and are not i1.npai1·ed e\·en 'though the negotiati~n or a11y prior negotiation con!'Jtut~d a ?reach C!f <luty or even though any person has been de1~r1,·ed of. possess10n of the document by misrepresentation. fraud, aec1de11t, mistake, duress, loss, theft. or co1ffersion. or even thouuh a pre,·ious sale 01· other transfer of the goods or document. hns be~n 111ade to a third person.

§ 28 :7-503. Document of title to goods defeated in certain cases (I) _-\. doeu.ment of title confers no right in goods ag:ainst a person

'llio be.fore 1~srnrnce of the document h;1d a legal interest or a perfeeted_§e!'.lll'U.): _i1_1j_~_r~~t _in them and who neither --·- · -··

. (a) delin~red or ~1irriiSted-fhenCoral"iyoocume11t of title cover-mg them to the b;ulor or his nominee -with a<'hrn I or apparent authority to ship. store or sell or with power to obtain delivery under this article (section 28 :7---103) or with power of disposition under this subtitle (sections 28 :2---103 and 28 :D-:307) or other statute or rule of law; nor

(b) acquiesced in the procurement bY. the bailor or his nominee of any document of tit.le. -

(2) Title to goods based upon an mrncc~('ted deliwry order is subject to the rights of anyone to whom a 1~otmbfe warehouse recei t or bill of lading covering the goods has been duly negotiate . uch a title may be defeated under the next section to the same extent as the rights oft.he issuer or a transfe1-ee from the issuer.

( 3) Title to goods based upon a bill of lading issued to a ;freight forwarder is subject to the rights oranyone to whom a bill issuer! ).>y the freight forwarder is duly negotiated; but delivery by the earner in accordance with part -! of this article pursuant to its own bill of lading discharges the carrier's obligation to deliver. S 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 nonnegotiable, to whom the document has been delivered but not duly negotiated, acquires the title and rights which l\is transferor had or Jiad act,y;tl authority to convey. · (2) In the ca~ of a non-negotiable document, t~ntil but. not after the bailee r~ives notification of the transfer, the r1ght.s 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 transferor.

(3) A diversion or ot~er cha!1ge of s~ipping. instructions by ~he consignor in a non-nego.tiable bill of ladmg :wlucl~ c~uses the bailee not to deliver to the c<;ms1gnee defeats tl~e cons~gnee s title to the g_oods if they have been delivered to a b~yer i,n o!'dmary C?urse of b~smess and in any event defeats the consignee s rights agamst the bailee.

729


( 4) Deli\·en- put"Hllnllt to a 11on-negotiablt>.<l<x:u111l'11t may !'t> stopped by a seller under se<"tion :!8 :l!-70;\ at_Hl subject. to the reqm~·e!iwnt. of due notification there provi<le4. A ba1lt>e. honoring t!1e sellers mstr.uctions is entitled to he. indemmfied by the seller agn111st any resnltmg loss or e.xpense. § 28 :7-505. Indorser not a guarantor for other parties

The indorsement of a document of title is...,ned by a bailee d<lt'S not make the indorser liable for any default hy the hallee or by previous indorsers. ·

§ 28 .:7-506. Delivery without indorsement: right to compel indorsement .

The transferee of a negotiable document of title has a spe_cifically.} w;;·. · enforceable right to have his transfel:or supply any nece;:;sary l}tdorse- (l. ment but the transfer becomes a negotiation 011ly as of the time the indorsemen t is i-;u pp I ied. § 28:7-507. Warranties on negotiation or trarisfer of receipt or

·~ ~iAI". D ·:t . "'here a. net.;>~ fiei!~>t iates 01· t ra1.1sfers a document of tit le f.<~r q~J!!.e

otherwise. than ns a mere intermedia1·y under the n~x~ follm~·1111! 8ection, then unless otherwise 11~reed h!L»:n.t:I:llll.t.:> t<~ his U~lll!edrnte pur.. h.wc-r ouly in ndfl1tion to any warranty mndi> m selhnJ! the.Jroods

· (a).thatthedocumentis~enuine:irnd ~ . (h) that he hmi no knowledJ!e of any fa<'t whit·h \multi i1Hpair

its validity or worth: and ._.... · ( c) that his negotintion or tm11sfer is rightful and fully t>ffe<'th·e with respect to the title to the do('Ulllellt and the goods it represents. ·

§ 28:7-508. Warrant:es of collecting bank as to documents A collecting- hank or other intermediary known to he entrusted with \:'{1 C.....

<lo<'uments Qll heh:tlf of another or \nth colleetion of n draft or other a.·e; . .?~ dulm against delivery of do<'uments \Yarrants liy suc-h deliYery <>f the

· documei1ts only its own ~ood f:iith and authority. This rule applies· twen though the intermediary has purchased or made advanees ain1i11st the claim or draft to be collected.

§ 28:7-509. Receipt or bill: when adequate compliance with co.mmercial contract

The question whether a document is adequate to fulfill the ohliJrat ions of a contract for.s.al~,nr the conditions of a credit is l!m·e1;ned hr the articlesOii=s:rteirtn.-rticl~ 2) and on lettet'S of eredit (artiele 5). '

PART6-WAREHOUSE RECEIPTS AND BILLS OF LADING: MISCELLANEOUS PROVISIONS.

§ 28 :7--601. Lost and missing documents 1

.. ( 1) If !1- document has been los.t, stolen, or destroyed, n c·om·t may

or<ler delivery of the goods or issuance of a substitute document and the bn.ilee may without liability to any person c.omply with such order. If the document was negotiable the claimant must post security approved by the court to indemnif:y any person who may suffer loss as a result of non-surrender of the document.. If the docu~ent was not pegotiable, such security.may be required at the discretion of the court. The court may nlso m its discretion order payment. of the baiJee's reasonable costs and counsel fees.

(2). A baiJee wh~ ".·ithout c<?urt order deliv~t'S _goods to a person cla1mmg under a mtssmg negotiable document is liable to any person injured thereby, and if the delivery is not in good fait.h he<"omes !:able

77 STAT. J PUBLIC

for eo11\·ersio11. l>eli\·ery accordance with a filed cla: or tariff is filed, if the cl: amount at least double the indemnify any person in~ claim within one year afte1 § 28:7--602. Attachment

ment Except wher{} the doc1

of the goods by a person lien attaches by virtue of~ of a bailee for which a 1

unless the document be fir enjoined, and the bailee pursuant to process unt impounded by the court. without notice of the pre posed by judicial process. § 28 :7-603. Confticting

If more than one pers< bailee is excused from < to ascertain the validity to compe! . all ~laimarit~ pleader, either m defend: by original action, which·

ARTICLES-PARTl-8

See 28 :8-101. Short title. 28 :8-102. Definitions and i 28 :8-103. Issuer~s lien. 28 :8-104. Effect ot overh!e· 28 :S-105. Securities negot 28 :8-106. Applicability. 28 :S-10r; Securities delivE

28 :8-201. "Issuer". 28 :8-202. Issuer's respon: 28 :8-203. Staleness as no 28 :8-204. Effect of issuer' 28 :S-205. Effect of unautl 28 :8-206. Completion or t 28 :8-207. Rights of issue1 28 :S-208. Effect of stgn1

agent.

28 :8--301. Rights acquir• .bona ftde pu

28 :8-302. "Bona ftde pm 28 :8--303. "Broker". 28 :8--304. Notice to pure 28 :8--305. Staleness as n· 28 :8-306. Warranties or 28 :8--307. Effect of dell• 28 :8--308. Indorsement.

antor; part 28 :8-300. Effect of indo 28 :8--310. Indorsement · 28 :8--311. Effect of una 28 :8--312. Effect of gUal

77 STAT.] PUBLIC LAW ~-243-DEC. 30, 1963

for l'OJl\"er:;ion. l>elivl'r.v iu good faith is not eo11n•rsio11 if 11rndl' in accordance with a. tiled classification or tnriff or, where no cl:ts.-;itieation or tariff is filed, if the claimant posts security with the bailee in nu amount at least double the n1lue of the goods at the time of posting to indemnify any person injured by the deli\·ery who files a notice of claim within one year after the delivery.

§ 28 :7-602. Attachment of goods covered by a negotiable document

Except wher~ the document was originally issued upon delivery of the goods by a person who had no ower to dispose of them, no ie b v · ue of · ocess to goods in the possession

of a bailee for ch a ocument 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 delh·er the good<> pursuant to process until the document is sunendered to him or impounded hy the court. One who purchases the document for value without notice of the proeess or injunction hlkes free of the lien imposed by judicial process. § 28 :7-603. Conflicting claims; interpleader

~f m?re than one person _claims titJe or possession of the goods, the bailee 1s ~::-i:cused fr.orp delivery until he h~s had a re~sonable time to ascertam the vahd1ty of t.he adverse ~hmno o .. 1-n hrm!! a.n action to com e~ all claimaf!ts to_!.l!!~l'.l?le.ad. and m~y~~pel such interplea er, either m e enamg an action for ilon=-delivery of the goods, or by original action, whichever is appropriate.

ARTICLE 8-INVESTMENT SECURITIES PART 1-SHOBT TITLE AND GENERAL MATTERS

Sec 28 :8-101. Short title. 28 :8-102. Definitions 11.nd index of definitions. 28 :8-103. Issuer's lien. 28 :8-104. Effect of overh•"ue; "overtssue". 28 :8-105. Securities negotiable; presumptions. 28 :8-106. Applicability. 28 :8-107. Securities deliverable; action for price.

PART 2--IBBUE---ISBUEB 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 inst~ent. 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--PURCHABE

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-&M. Notice to purchaser of adverse cl~ims. 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 mdorsement. 28 ;8-308. Indorsement, how made; special indorsement; indorser not a guar-

antor ; 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 mdorsement.

731

732 [77 STAT. PUBLIC LAW 88-243-DEC. 30, 1963

ARTICLE 8-INVESTMENT SECURITIESContinued

PAR.T :~-l't:RCHAsr.-Coutinued

~e;&-:n3. When deli¥ery to the purehaser occurs; purchaser's broker as holder. 28 :8-314. Duty to delh·er, when completed. . 28 :8-315. Action against purchaser based upon wr.ougft~l transfer. , _ 28 :8-31tl. Purchaser's right to requisites for reg1strat1011 of tram•fer llll hooks. 28:8-317. Attachment or leQ· upon seeuri~~'. 28 :8-318. Xo conversion by good faith delivery. 28 ·8-319. Statute of frauds. . 28 ;8-320. Transfn or llledge within a central depository sr::;tem.

PART 4--REGISTRATIO~

28 :8--401. Duty of issuer to register transfer. . 28 :8-402. Assurance that indorsements are efl'ect1 ve. 28 :8--403. Limited duty of inqui:;:· . . 28 :8--404. Liability ancl non-liab1hty for re~1~tratwn. 28 ·8--405. Lost destroyed, and stolen securities. . 28 ;8--406. Duty of authenticating trustee, transfer agent or 1·ei;1strar. 28 :8-407. Limitation of actions.

PART 1-~HORT TITLE AND GENERAL MATTERS

§ 28:S-101. Short title

77 STAT.] Pl

( ;1) Other tlefinitio t ht'rPof and the 8ecti•

"Adverse claim "Bona fide pttr< "Broker". Sec "Guarantee of 1 ''Intermediary "Issuer".. Sec1 "0,·erissue". ~

( 6) In addition art of <·onstruction and i: § 28 :S-103. Issuer's

A lien upon a seem n purchaser only if t sp1cuously on the seen § 28 :S-104. EtJect o

( 1) The provisions pel its issue or reissue or reissue would resul1

Citation of ar- This article shall be known and may be cited as Uniform Commer-ticle, cial Code-Investment Securities. ~ [,.,.;)

(a) if an idem issue is reasonaL' issue or validatio such a security t which he holds;<

(b) if a secur entitled to issue price he or the l: from the date of 1

§ 28 :S-102. Definitions and index of definitions ~ t ,. '

( 1) In this article unless the context otherwise requires ti 1\< ' "' (a) A "security" is an instrument which p,1 iv

1 fl -":} ~ v ( i) is issued in bearer or re~istered f?rm ; and . . / p c lJP< (ii) is of a type common y dealt m _upon. secur1t1es e~- -- t

chnui,;t.:> Vl HM1kCto or ~ommo?lly recO,gnJzed Ill flllY !\!'ea ln · P' which it is issued or dealt in as a medium for investment; and

( 2) "0,·erissue" m1 which the issuer has § 28:S-105. Secnrit; ,,.- ( 1) Soouritiea Pov

~ ( (2) In any action fl'"''°'' (a) unless spE

1),,.1 on the security 1

,. t. &tAJ II~ ~ (iii) is either one of a class-or series or by its terms is di vis- ~ 'J {t vr , tr~ ( ible into a class or series of instruments; and ~· (iv) evidences a share, participation or other interest in ff-fJ

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 // ;i ,J not by Uniform Commercial Code--Commercial Paper even r I"' though it also meets the requirements of that article. This article does not apply to money. ~ K"i

( c) A security is in "registered form., when it specifies a person {Jv ~· ; entitled to the security or to the rights it evidences and when its

(b) when the burden of establ nature but the si

( c) when sig: of the instrume defendant estab· of the security;

transfer -may be registered upon books maintained for that purpose by or on behalf of an issuer or the security so states.

( d) A security is in "bearer form~' when it runs to bearer according to its terms and not by reason of any indorsement.

( d) after it ii tiff has the burc whom he claim>

· l is ineffective (s• · ~ N § 28 :S-106. App lie

(2) A "subsequent purchaser" is a person who takes other than by /\-~'--} r• The validity of a

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 associ<ttion registered under a statute of the United States such as the Securities Exchnnge Act of 1934.

"'r with respect to re~ .{ 1lf l (including ~he confl I ,

1 .l'" t10n of the issuer.

l (6 7 § 28 :S-107. Securi ') ' (1) -pnless oth~r

regulat10n respectm ties may deli,'er an: registered in the n

( 4) A "custodian bank" is any bank or trust company which is supervised and examined by state or federal authority having superYision over banks and which is acting as custodian for a clearing " corporation.

. tfl/~,,,,/~ 4-7~ ~ &'f ~r~ blB.nk.

- - -•

77 STAT.] PUBLIC LA. d8-243-DEC. 30, 1963

( i>) Other \lefinit i?11s a_Pplying to th is a rt icle or to ~)><'\' j tied pa i·1,..: 1 lw1·eo'., and the se~tJ<!!lS ~n -:·hich theJ· appenr :ire:

Acb·erse rln1m· . ::Section 28 :8-:101. ;:Bona. fi~e p~1rchnser''. Section :?S :8-:-302 . . ·Broker-·. ~eC'tion 28 :8-:10:~. ;;Guarante~ of the signature". Se('f ion 28 :6---to~. ,Intermediary bank''. Section ~8:4--105. 'Issuer". Section 28 :8---201

"Overissue''. Section 28 :8-i04.

733

(6) In ad?ition ar.ticle 1 contains general definitions :rnd priiwi >les of constrnction and mterpretntion npplienble throughout this art~«l~. (!.} c:f"\{ § 28 :~103. Issuer's _lie~ l ,,, t ..J ii _

I . A hen l\~011 a .s~cur1ty ~n faYOr of l~ll issuer thereof is \'H l i<l aga in,..,t t) e L . t~/ ·~purchaser only If th~ right of the issuer to such Ji~1 i~ 11.ote<l eon- A9a~YrV ~ sp1cuously on the security. g/~~~le::.s~ µ,....-'/ ~

/ §28:&-104. Effect of overissue; "overissue" ~IY~-~ri p..r (~) '~'he provi~ions of this :1rticle which rnlidate a seeuritv or <·om-

p:l 1~s 1ssui: or reissue ~lo not :i-pply to the extent that n1lidat'ion, issue 01 reissue" onld result m o,·er1ssue: but ·

. (a). if an identical security which does not constitute an over-}Ssue IS rea~ona.uly n .. ·niln'bl .. fnr [~urchase, the person en tit.led· to issue or vah4at1on ~ay eompel the issuer to purc1m~ ""'' ,l~1~- •••

such a security to him against surrender of the security if anY which he holds; or ' ~'

(b) if a ~ecurity is i~ot so avaih\ble for purchase, the person entitled to issue or validation mav recover from the issuer the price he or the last purchaser for value paid for it with interest from the date of his demand.

(2) "O,·erissue'' means the issue of securities in excess of the amount which the issuer has corporate power to issue. § 28 :S-105. Securities negotiable; presumptions

(1) Securities ~oYern~d uy tllis art1ele are negotiable instruments. (2) In any action on a security

(a) unless specifically denied in the pleadings, each sig1H1tnre on the security or in a necessary indorsement is admitted;

(b) when the effecth·eness of a signature is put in issue the burden of establishing it is on the party claiming under the signature but the signature is presumed to be genuine or authorized;

[

(c) when sigriatures are admitterl or established production of the instrument ent it 1es a holder to recover on it unless the defendant establishes a defense or n defect going to the rnlidity of the security; and

(d) after it is shown that a defense or defect exists the plain: tiff has the burden of establishing that he or some person under whom he claims is a person against whom the defense or defect is ineffective (section 28 :8-202).

§ 28:&-106. Applicability The validity of a security and the rights and duties of the issuer

":ith respect to re~istration of transfer nr~ goY~r1~ed by the ~aw (including the conflict of laws rules) of the ]Hrtsd1ction of organization of the issuer. § 28 :S-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 indorsecl to him or in blank.

734 PUBLIC LAW 88-243-DEC. 30, 1963 (7i STAT.

(2) "~he-n the bnyer fails to pay the pric~ ns it eonw:-i due under a <·ontract of sale the seller may recover the price

(a) of securities accepted by the bu ye~; and (b) of other securities if efforts ~t their .resale wouhl bt> nndul.Y

burdernmme or if there is no readily fl\'atlable market for their resale.

PART 2-ISSUE-ISSUER

§ 28 :8-201. "Issuer" . w ,, (1) 'Vith respect to obligations on or defenses to a security issuer

77 STAT.] PUBLI<

(5) Xothing in this s• of a party to a "when, contract to cancel the cc the character of the seci in the plan or arrange1 be issued or distributed. § 28 :8-203. Staleness :::

includes a person who . . . (a) places or authorizes the placmg of lus nanJ_LOn a security

(otherwise than as authenhcatn~g trustee, registrar, t.ra;n~fer agent or the like) to eYidence that 1t rep~-esents a shar~. partic.1p~tion or other interest in his property o_r m .rm ent~rpr1se or to en-

(1) After an act ore formance of the princi' which sets a date on or : i:mrrendered for redem.Pt uotice of anv rlefe<:t in it~

SS 71 /1 £,r(" Y (a) if the act or

/

ri. t/lfi.- 1.--1

, ,.,Y,_,t:/ or the delivery of s1 r v of the security and

dence his duty to perform an obhgat.10n endenced by the f7t .t"7C..- date set for paymer

than one year after security; or · 1 • • l ·

(b) directly or indirectly <.T~ates fmct10m1 mter~sts 111 us rights or property whi<'h fra.ctwnal mterests a rt> evidenced by securities; or .

(c) becomes respoi~::;ible. for ~r 111 place of any other person described as an issI\Pt· 1n. th"':' ooct........ .

(Q) "•"lt.tt respect to obhgat10ns on o_r defenses to it security a. ~narantor is an issuer to the exte~1t of lm1 gm1nrnty whether or not his obliga_tion is noted m1 t_he se~ur1ty. . . ,c.,,

(3) 'V1th respect to reg1stmt1011 of tmnsfer (putt .J: of this article) .... (.~ .J. f!. "issuer" means a person on whoHe ht>half tmnsfer books a.re f"._. A n1aintained. L~~ § 28 :8-202. Issuer's responsibility and defenses; notice of defect

or defense ( 1) Even against a purchaser for ntlue and ,~·ithout notice, the

- \ t.••mo ol n. "ceuri.t;r ineh•..lo tlu~ ~t~tted Oil the security !llld those made <) Uc l, part of the security by reference to another ll!Stl'Ulll®t, indenture or V .f document or to a constitu ·on, stafote, ordmance, rule;- regulation,

JI" vA J.; order or the like er . le extent t1111t the terms so referred to do not

(j°:f!{,,~ ("Onflict with the stated terms. Such a refet·ence does not of itself .· l'harge a rurchaser for value with notice of a defect going to the s rnlidity o the security even though the security expressly states that

a person acc~pting it admits such notice. (2) (a) A security other tlum one issued by a goYernment or gov

t>rnmental agency or unit even though issued with n defect going to it.5 rn1idity is valid in the hands of a purchaser for ntlue and without notice of the particular defect unless the defect i1wolves a violation of constitutional provisions in which cnse the security is valid in the hands of a subsequent pm·chaser for vahw and without notice of the defect.

(b) The rule of subparagraph (tt) applies to an issuer which is a government or governmental agency or unit only if either there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.

(

(3) Except as otherwise provided in the <'ase 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 delivery of the security are ineffective against a p~rchaser for value who has taken without notice of the particular defense.

I I

(b) if the act 01 he takes the securi1 surrender or preser became due.

, ( 2) A call whic11 ha

§ 28 :8-204. Effect of Unless noted conspi<

fer imposed by the issl except against a person § 28 :8-205. Effect of

An unauthorized sif course of issue is ine in favor of a purchas• authority if the signin

(a) nn 1rnthenti person entruste~ ~ of similar secunt: or

(b) an emplo.} entrusted with r•

§ 28:8-206. Comple1 (1) Where a. ~ur

or transfer but is mco (a) any persc

authorized; and (b) even thou

as completed is 1

and without not (~) A complete S<

t houO'h fraudulent!.} ., originnl terms. § 28:8-207. Rights

(1) Prior to dm ;-;t>curity. in registerE the reg1stei:ed oym receive 11otificat.10n powers of an owner

(2) Xot.hing int of the registered < like.

~. 77 STAT.] PUBLIC LAW f .. 1;i3-DEC. 30, 1963

(5) Xothing i1~ this section shall be construed to aff Pct the rig-ht of a party to a "when, as and if issued .. or a "when distributed .. contract to cancel the con!ract i~ th~ event o~ a material change in !he character of the security wluch is the sub3ect of the contract or m the plan or arrangement pursuant to which such securitv is to be issued or distributed. · § 28 :8-203. Staleness as notice of defects or defenses

(1) After an act ?r ~nnt w~ich_create~ a right to immediate perfor!Ilance of the prmc1pal obligation endenced by the security or which sets a date on or 8:fter which the security is to be presented or sur~endered for red~m_pti?n or exchange, a purchaser is charged with 11ot1ce of any defect m its issue or defense of the issuer

(a) if t_he act or eve~t. is one requiring the payment of money or the dehv~ry of secur1t1es or both on l?resentat10n 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 paraO"raph (a) and he takes the security ~10re than two years after the date set for surrender or presentation or the date on which such performance became due.

(2) A call which Im~ been rm•okod. ;., not. within subsection (1). § 28:8-204. Effect of issuer's restrictions on transfer s

Fnless noted conspicuously on the security a restriction on transfer imposed by the issuer enn though otherwise lawful is ineffective except against a person with actual knowledge of it. § 28:8-205. Effect of unauthorized signature on issue

Au 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 la~k of authority if the signing has been done by

(a) nn authenticu.ting trn;,ilee, 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 responsible handling of the security.

§ 28 :8-206. Completion or alteration of instrument (1) 'Vhere a "t1eurity contains the signatures necessary to its issue

or transfer but is incomplete in any other respect (a) any person may complete it by filling in the blanks as

authorized; and (b) even though the blanks are incorrectly filled in, the security

as completed is enforceable by a purchaser who took it for value and without notice of such incorrectness.

(~) A complete security which has been improperly alt~red ev~n though fraudulently remains enforceable but only accordmg 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 :it'curity in registered form the issuer or m~enture t~ustee may treat the register:ed o:wner as the pe~on exclusiv~ly entitled t<;> vote, to receive notificat10ns and otherwise to exercise all the nghts and powers of an owner. . ..

(i) Xot.hing in this article shall be construed to affect the hab1hty of the registered owner of a security for calls, assessments or the like.

735


§ 28:8-208. Effect of signature of authenticating trustee, registrar or transfer agent

(1) _\. person pl:icing his signature _11pm_1 n sel:1~rity .. a~ .. •rnt!1enticating trustee, registrar, tran~fer agent 01. the like \\,U1.mts to n purchaser for vnlue without notice of the part1cuh1r defect that

(a) the security i~ genu_ine ~and . . : . . . .· . ( b) his own part1c1J,Jllt10n m the issue of the se~lll 1.ty 1;; '' l!lun

his capacity and withm the scope of the nnthor1znt1on recen·ed by him from the issuer; and . . . : . .

(c) he has reas?m~ble gronnds to behe,:e tlrn.t ~he. ;;ecm~~,Y ism the form and w1thm the amount the 1ssue1 is .mtho11zed to

issue. 1 · I · · (2) Unless otherwise.ng~·eed, a person_b~· ~op arn'.i:r. 1~~ ~1f!111tt111·~

<loes not assume respons1b1hty for the vnhdit) of the set 1111t) m othe1 respects.

PART 3-PURCHASE

§ 28 :8-301. Rights acquired by purchaser; "adverse claim"; title acquired by bona fide purchaser . .

(1) Upon. delin~y of. n secur~ty the purchaser a~qt'.1r~s the ~:1~hts in the security winch lus transferor had ~>r had act11.1l .rnth011ty to convey except that ii l;!lll'qhitSf>t' who ha.."' lum,,cH been a pn~-ty to imy .i;~ ..... .J. ... a- m~gttmy affectmg the secm:1ty or wl~o as :1 ynor hol~er had notice of an adverse chum cannot unpro,·e Ins pos1t10n hy takmg from a later bona fide purchaser. "Adverse claim'! in~lndes a claim that a transfer wns or would be wrongful or that a pnrt1c11lnr ad,·er:;e person is the owner of or has nn interest in the security.

(2) A bona fide purchaser in addition to acquiring the rights of a purchaser also acquires the security free of any adverse claim.

(3) A purchaser of n limited interest acquires rights only to the extent of the interest purchased. 8 !ltil .g ~oo, "Un.nA fide nuuhaser"

A "bona fide purchaser·~ is a purchaser for rnlt11:! in guud faith and without notice of any adverse claim who takes delivery of a security in bearer form or of one in registered form issued to him or indorsed to him or in blank.

§ 28 :8-303. "Broker" "Brokf'r~' means a person engaged for all or part of his time in the

business of buying and selling securities, who in the transaction conl'erned acts for, or buys a security from or sells a security to a customer. ~othing 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 bank) 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 m bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor. The mere writing of a name 011 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

77 STAT. ] PU

notice of a<herse clai intermeuiary bank) I or that the transactio1 otherwise in breach o adverse claims. § 28 :8-305. Stalenei

An act or event wh the principal obligation or after which th· redemption or excha :1dn:·rse claims except

(a) after one surrender for re<

(b) after six 1 ngainst presenta available for pay

§ 28:8-306. Warrar (1) A person who

or for payment or ex< the regisfration, pay without notice of ad,, istered security on re1 knowledge of any 11 11ecess11ry indorseme1

(2) A person by warrants only that

(a) his transi (b) the secur

and (c) he knO\n

security. ( 3) Where a secu

f'ntrusted with delh collection of a draf mediary by such d :mthor1ty even tho1 the claim to be collec

( 4) A pledgee or rity received, or af that security to a n mediary under subs

(5) A broker giv• l he warranties prO\ leges of a purchas( farnr of the broke1 warranties given b3 § 28 :8-307. Etrect

pel Where a securiti

chaser without a r purchaser only as C the transferor the chaser has a spec indorsement suppl

9Hl25 0-64-49

77 STAT.] PUBLIC LAW 88-~ ;_DEC. 30, 1963

notice of 1Hhe1'8e daims. If, howe,·er, the purchaser (excluding an intermtdiary bank) has knowledge that the proceeds are being used or than he transaction is for the indh·idual benefit of the fiduciary or otherwike in breach of duty, the purchaser is charged with notice of n<lverse 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 11<h·erse 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 pre.sentatiou or surrender of the security if funds are a,;ailable for payment Oil 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 ad,·erse claims who receives a new, reissued or re-regir-;tered security Oil 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 purchnser for value warrants only that

(a) l11s transfer is effective and rightful; an<l (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 delivereq by an intermediary known to be

('Jltrusted with delivery of the security on behalf of another or with <'ollection of a draft or other claim against such delivery, the intermediary by such delivery warrants only his own good faith and authority e\·en though he has purchased or made advances against the claim to be collected against the delivery.

( 4) A pledgee or other holder for security who redelivers the secun rity 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 i he warranties provided in this section and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable wnrranties given by and in favor of his customer. § 28 :8-307. Effect of delivery without indorsement; right to com

pel indorsement ·where a security in registered form has been delivered to a pur

chaser without a necessary indorsement he may become a bona fide purchaser only as of the time the indorsement is supplied, but against the transferor the transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary indorsement supplied.

9Hl2~ 0-64-49

/37

'38 PL:BLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

§ 28 :8-308. Indorsement, how made; special indorsement; indorser not a guarantor; partial assignment

(1) .\n indorsement of a security in registered form is made when an appropriate person signs on it or 011 a separate document an assignment. or transfer of the security or a power to assign or transfer it or when the signature of such person is written without more upon .ft> the back of the security. _ ,,[,,

(:2) .\n in<lorsement may be in blank or special. ..-\n indorsement ,,-~,, , in blnnk inclmles an indorsement to bearer. .\ special indorsement v

svedfies the person to whom the security is to be transferred, or who has power to transfer it. .\ holder nun: convert a blank indorsement into a special inclorsement. •

(:~) '"An appropriate person .. in subsection (1) means (a) the person spe<.'itied by the Sl'enl'ity or by spedal indorse

ment to be entitled to the seemity: or ( b) where the person so !'peci lie(l is <lesnibed as a liduciarv

but is no longer sen·ing in the described capa(·ity,-either dui't person or his successor; or

(e) where the security or indo1·sement so specifies more thnn one person as fiduciaries and one or more are no longer serving in the cleseribed capacity,-the remnining fiduein1·y or fiduciaries, whether or not n successor has been appointed or qualified; or

( d) where the person so specitied 1s an individunl and is without capacity to act hy ,·irtne of denth, ineompetence, infancy or ot herwise,-his executor, ndmiu istrntor, guard inn or like fiduciary; or

(e) where the security or indorsement so specifies more than one person ns tenants by the entirety or with right of sur\·i,·orship and by reason of death all cannot sign,-the smTivor or survivors; or

(f) a person having power to sign under applicable htw or controlling instrument; or

(g) to the extent that any of the foregoing persons mny act throu(J'h an agent,-his authorized agent.

(i:) Uniess otherwise agreed the indorser by his indorsement assumes no obligation that the security will be honored by the issuer.

(5) An indorsement purporting to be only of pn1t 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 hnving j1trisdiction 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. Eff eet 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 appe.'1.rs or if the indorsement is on a separate document until delivery of both the document and the security. § 28:8-310. lndorsement 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 nny right to registration the holder may possess.

77 STAT.] PUBL

~ 28 :8-311. Effect of 1

F nless the owner hn otherwise precluded fr01

(a) he may asse purchaser other th of adverse claims " or re-registered sec

(b) an issuer wr unauthorized indo registration ( sectic

§ 28 :8-312. Effect of ; (1) Any person gu

l"\>curity warrants that (a) the signatu r (b) the signer '

28 :8-308) ; and ( c) the signer ht

But the guarantor doe: particular transfer;

(2) Any person mHJ "o doing warrants not rightfuln~s of the pa1 may reqmre a gunrant• of transfer.

(3) The foregoing tlealing with the secnr: tor is liable to snch pt warranties. ~ 28 :8-313. When de w broker

( 1) Delivery to a p1 (a) heorape1

security; or ( b) his broke1

indorsed to or iss( c) his broker

by book entry ?J broker's .PossesSH

( d) with respe ~tiJl in the possesi edges that he l~o

( e) nppropr1a are made under s

( 2) The purchaser broker, but is not tl ( b), ( c) and ( e) of fongible bulk the pm interest in the fungil

(3) Notice of an purchaser after the I elf ective either as to between the broker delivery of an equiv: daim has been recei1

77 STAT.]

~. r '

PUBLIC L:\W Sv-243-DEC. 30, 1963

~ 28:8-311. Effect of unauthorized indorsement Fnless the owner has ratified an unauthorized imloi·=-enwnt or is

otherwise pre(']uded from asserting its ineffectiYeness (a) he may assert its ineffectiveness uga inst the iss1ter or any

purchaser other than a purchaser for ntlue arnl withont notice~ of adverse claims who has i11 good faith received a new, reissue(! or re-registered security on registration of transfer: and

(b) an issuer who registers the transfer of a se<'urity upon the? unauthorized indorsement is subject to linbilitv for improper registration (section ~8 :8--!0-1). ·

§ 28:8-312. Effect of guaranteeing signature or indorsement (1) Any person guaranteeing a signature of an indorser of a

:-t>eurity warrants that nt. the time of sip:ning (a) the signature wast,renuine: :llld (b) the signer was an nppropriatf person to indorsp (:oeetion

28:8-308); and ( c) the signer lnu.l legal capacity to siµ-n.

But the guarantor does not otherwise warrant the rig-htfulness of the particular transfer.

(2) Any person may gmmrntee an indorsemeut of a st><'urity and by so doinO' warrants not only the signatnre (snbse('tion 1) hut also the rightfufi1ess of the particulnr transfer in nil respeets. But no issut>1· may require a guarantee of indorsement as a eondition to registration of transfer.

(3) The foregoing warranties are made to any pe1-son taking or 1lealing with the security in reliance on the gunrnntee and the guarantor is liable to such person for any loss resulting from brenl'h of the w:lrranties. § 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 hy him acquires possession of a seeurity: 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 pnrchnse and also by book entry <;>r otherwise ~dentifies a specific se('urity in the broker's ;possession as belongmg to the J,:ntrchnser: or ·0

(d} with respect to an identified security to be delivered while still in the possession of a third person when that person neknO\vledges that he holds for the purchaser; or

(e) npprol>rinte entries on the hooks of n clearing corporation are made unc er section 28 :8-:320.

(2) The purchaser is the owner of a security held for him by his hroker, but is not the holder except as specified in subparngraphs 1b), (c) and (e) of subsection (1). Where a security is part of a fungible bulk the purchaser is the owner of a proportionate property i;1terest 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. Ho·we\·er, as between the broker and the purchaser the pur('haser may demand delivery of an equivalent security as to which no notice of an adverse cl aim has been received.

739


§ 28:8-314. Duty to deliver, when completed ( 1) l"nless otherwise agreed where a sn le of a seeurity is 1u.1de on

an exchange or otherwise through brokers. . (a) the selling customer fulfills Ins duty to deltYer when he

pluces snch a security in the possession of the selling broker or of a person designated by the broker or if requested causes an itcknowledgment to be made to the selling hroker that it is hehl for him; and

( b) the selling, broker i ncl11di11g a corres\>ornlent broker net ing for a selling customer fulfills his duty tot eli,·er by placing the security or a I ike secnrity in the possession of the buying hroker or a person designnte<l by him or by effecting den ranee of the sale in accordnnce with the rules of the exchange on which the trans-action took pince. · ·

( 2) E:x:cept as otherwise l>l'OYided in this sect ion and unless otherwise agreed, n trnnsferor's duty to deliwr n seeurity under a cont met of purchase is not fulfilled until he places the. se<.·urity in form to be 11egotiated b~· the purdmser iu the possessio11 of the purehaser or of a person desi~nnted by him or at the purl'haser's request eanses nn acknowledgment to he nmde to the purchaser thnt it is held for him. t•nless mnde. on an e:s:t•han/!e a snle to n hrnker lmrchnsing for his own neconnt is within this suhset•tion and not wit 1i11 subsection (1).

§ 28:8-315. Action against purchaser based upon wrongful transfer

(1) .\ny person ng-ainst whom the transfer of a securitv is wrongful for any re1~:'1011, i11dutling his .i11capiwity7 may agaiiist a~1yo11e f·X<.'ept a bona. fide purehaser ret·la~m po~sess1~m of the se<·urity or ohta m _possession of nny new see111·1t :· ende11e111g all or pa rt. of the same r1:.rhts or hnYe damagPs. ·

(2) If the transfer is wrongful lwt·anse of :111 111rn11t hol"ized imloriiement, the ow!1er ma,v ulso rel·lni111 or obtain possession of the securit:· or new security eYen from a bona fide pnrl'lrnser if the i11efferti,·eness of the purported indorsement l'Hll he asi-;ertetl against him under the provisions of this n rticle 011 m1i111t horized indorsements (sect ion 28 :8-"-311) .

(3) The right to obtnin. or reclnim pos~e:sion of a secmity may h~ specifically enforced and its tr:rnsfer ellJOllled and the securitv im-) pounded pending the litigntion. •

§ 28:8-316. Purchaser's right to requisites for registration of transfer on books

Cnless otherwise ngreed the tmnferor must on dne demand supply his purchaser with any proof of his authority to transfer or with any other requisite which may be necessary to obtain registration of 1he tram.fer of the security but if the trnnsfer is not for Yalue a transferor need not do so miless the purchaser furnishes the necessary expenses. Failure to comply with n demnnd made within a reasonable time gives the purchaser the right to reject or rescind the tmnsfer. § 28:8-317. Attachment or levy upon security

(1) :So attachment or levy upon a security 01· nn.r share or other interest evidenced thereby which is outstanding shall be nilid until the security is actually seized by the officer making the attachment or levy but a security which has been surrendered to the issuer mny be attached or levied upon at the source.

(2) A creditor whose debtor is the owner of a security shnll he entitled to such aid from courts of appropriate jurisdicti.on, by injunction or otherwise, in reaching such security or in satisfying- the claim by means thereof as is allowed nt law or in equity in regind

77 STAT.] PU

to p1·operty which c: dinary legal process.

§ 28:8-318. No con' An agent or bailee

sonable commercial st or otherwise dealing pledged or delivered cipal is not liable f, fiduciary duty alth.m~

§ 28 :8-319. Statute A contract for th1

nction or defense uni (a) there is s

eufor<"ement is :: ficient to indicat• quantity of desc

(b) delivery• been mude but only to the exten

(c) within a sale or purchase (a.) has been re< sought and he h within ten days:

(d) the part' his pleading, u; made for sale ( defined or stated

§ 28 :8-320. Transf sysb

( 1) If a. seeurit.y (a) is in the•

bank or a nom dearing corpon

(b) is in bea person or regis1 custodian bank •

(c) is shown books oft he clea

then, in addition to or any interest ther entries on the hook~ of the transferor or feree or pledgee by shares or rights tran

(2) Fnder this$( 01· interests therein to a quantity of a p: the registered owm appropriate cases, · transfers or pledges

( 3) A. transfer o livery of a. security 28 :8-301) represei of shares or ri~hts t of a security mtere of a taking of deli 28 :9-304 a.nd 28 :9-is a holder.

- - - .

77 STAT.] PUBLIC LA~ lil3-243-DEC. 30, 1963

to property which cannot.readily be attached or levied npoll by 01·dinary legal process. § 28 :8-318. No conversion by good faith delivery

An agent or bailee who in good faith (including observnnce of reasonable commercial standards if he is in the busine8s of buying. selling or otherwise dealing with securities) has received securities and sold, pledged or delivered them according to the instructions of his principal is not liable for conversion or for participntion 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 miy of action or defense unless

(a) there is some writing signed by the party against whom enfon·ement 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 reasoil!lble time a writing in confirmation of the sale or purchase and sufficient. against the sender under paragraph (a.) has been received by the party aga.inst 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 pleiiding, testimony or otherwise in court that a contract was 1

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 sec.urity (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 den ring 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 /. 11~

( c) is shown on the account of a. transferor or pledgor on the"/ /(,l"P- { books oft he clearing corporation; .

then, in addition to other methQds, a transfer or pledge of the security or any interest therein ma.y be effected by the making of appropriate entries on the hooks 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 shat"es or rights transferred or pledged.

(2) Cnder this section entries may be with respect to like securities or interests therein as a. pa.rt of a fungible 'Qulk and may re~er merely to a quantity of a particular seeur1ty 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 pledged. If a pledge or the creation of a security interest is intended, the making of entries has the effect of it taking of delivery by the pledgee or a secured party (sections 28 :9-304 a.nd 28 :9-305). A transferee or pledgee under this section is a holder . ..

741


I 4) .\. t m rn;fer or ple.dp:e lmder this se<.·tion does not l.'onst itute a re:.rist ra tiou oft mnsfer under patt 4 of this a rticJe.

( 5) That entries made on the books of the clearing corporation as prO\·ided in subsection (1) are not appropriate do~s not affect the rnlidity or effect of the entries nor the liabilities or obligations of tlw 1.'learing corporation to any person adversely affected thereby.

PART 4-REGISTRATION

§28 :8-401. Duty of issuer to register transfer ( 1) ·where il 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 :tppropriate person or persons ( se.ct ion 28 :8--308) ; and

(b) reasonable assurance is giYt>n that t h08e indorsements are genuine a.nd etfecth·e. (section 28:8-40~); and

( c) the issue.r has no duty to inquire. into ndwrse elaims or lrns disc ha rge<l any such duty (sect ion 28 :8--10:3) ; and

( d) any applicable ln w relating to the collection of taxes has been complied with; and

( e) the transfer is in fact rightful or is to a bonn fide purchaser. ( :Z) ·where an issuer is under a duty to register a transfer of a

seeurity the issuer is also liable to the person presenting it for registrn.tion or his principal for loss resulting from anv unreasonable delay in registration or from failure or refusal to register the transfer. § 28 :8--402. Assurance that indorsements are e1ieetive

(1) The issuer may require the following assurance th.at each neces:-;itry indorsement (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 incumbt'ncy;

( d) where there is more than one fiduciary, reasonable assurance that a.ll who are required to sign ha.Ye done so;

( e) where the indorsement is by a person not covered by any Y of the foregoing, assurance appropriate to the case corresponding

. .\~ as nearly :ts may be to the foregoing.

~ Iv> (2) A "guarantee of the signature .. in subsection (1) means a

6 guarantee signed by or on behalf of a pe1·son reasonably believed by the issuer to be resP.onsible. The issuer may' adopt standards with

'7 respect to responsibility pro\"ided such standards are not manifestly unreasonable.

(:~) •:Appropriate evidence of appointment or incumbency~' in subsedion (l) 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 thilt 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 ap· pointment or a certificate issued by or on behalf of a :{Jenron reasonably believed by the issuer to be responsible or, m 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

ltC'-v

(efi, i,S_

(lo 51

77 STAT. ] PUBl

pursuant. to this l contents relate dir1

{ 4) The issuer may 1 hat s\>ecified in this Sf than t rn t specified in s of a will, trust, indent1 controlling instrument tained therein affectin~ § 28 :8--403. Limited •

( 1) An issuer to w· nuder a duty to inquire

(a) a written i

time and in a n opportunity to ac or re-registered s• ant, the registere a part and pro,·i the claimant; or

(b) the issuer a controlling im subsection ( 4) of

( 2) The issuer ma able means, includin or certified mail at th itddress at his reside1 lias been presented fo that the transfer will date of mailing the n

(a) an appr1 process issues fr

(b) an inderr protect the issue of the issuer im by complying "

( 3) Unless an isi from a controlling subsection (4) of ~ adverse claim unde: presented for regis1 persons the issuer In particular

(a) an issue who is a fiduci: to inquire into fiduciary relati out inquiry th fiduciary until is no longer ac1

(b) an issu ~duciary. is n< m compliance state having j any law requi transfer; and

(c) the iss1 court record o though the d transfer is m ciary himself

j' .. ~~ 77 STAT.] PUBLIC LAV .:243-DEC. 30, 1963

pm-:-;trn11t to thi::; paragrnph (b) except to the exte1lt that tht> contents relate directly to the appointment or i11<·11mhe1H"y.

(-l) The issuer may elect to 1·equire reasonable nssul'ance beyond that specified in this section but if it dol:'s so irnd for n pmpose oth1•1· I lmn that specified in s11bsect io11 :H b) both reqnires and obt:\ i11s a copy of a~ • ..t.!ll.st, indenture, artideti of co-partnership, bv-law:; or otlwr t•ontrolling instrument it is charged with uoti<"e of all mattl:'rs eontaine<l therein affecting the transfer. § 28:8--403. Limited duty of inquiry

743

(1) An issuer to whom a security is presented for registration is . nnder a duty to inquire into adYerse claims if c. <; fr

(a) a written notification of an adYerse elaim is reeeived 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 11ot1ficat1on identifies the chum-iiht, the registered owner ami the issue of whwh the security is apart and provides an address for comm1mieations dil'eded ro the claim:u:i.t; or · · ' (b) the issuer is charged with notiee of an ath·erse claim from a controlling instrument which it has elected to require under subsection ( 4) of sect ion 28: 8-----102.

(2) The is;>uer n~ay disc)rn1:ge any duty of inquiry by any reasonable ~eans, ir:cludmg notifying- a~1 nckerse. claimant by registered or certified mail at the address furn1shecl hv lum or if there he no such address at his residence or regular pince o'f lmsiness that the security has been presented for registr1ition of tnmsfer hy n !lllll1ed person, and that the transfer will be registered unless within thirty days from the <late of mailing the notification, either

(a) an appropriate restraininir order. injunction or other V process issues from a court of competent jmis<liction; or

(b) an indemnity bond sufficient in the issuer's jmlg-ment to . ./ protect the issuer and any transfer agent, reg-istrar or other al!ent V of the issuer invoh·ed, from any loss whieh it 01· they may suffer by complying with the adverse claim is filed with the issuer.

(3) Unless an issuer is charged with notice of an a<h·erse claim from a controllinf()' instrument which it has elected to require under subsection (4) o section 28 :8-402 or re('eives notitkation of an :tdverse claim under subsection ( 1) of this section. wlwre a security presented for registration is indorned by the n ppropriate person or persons the issue1· is under 110 duty to inquire into :Hh·erse t·laims. In particular

(a) an issuer registering a se<·urity in the name of a person who is a fiduciary or who is des('ribed as a fiduciary is not bound to inquire into the existence, extent, or correet 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 t.he fiduciary is no longer acting as such with respect to the particular security;

(b) an issuer registering transfer on an indorsement by n, fiduciary is not bound to inquire whether the transfer is made in compliance with a eontrollin~ instrument or with the law of the state having jurisdiction of the fidn<'iiu·.y relationship, including any law requiring the fiduciary to ohtatn eonrt appro,val of the transfer; and

(c) the issuer is not charged with notice of the <·011tents of any court record or file or other recorded or unreeorded document even though the document is in its possession :md e\•en though the transfer is made on the indorsement of u fidm·iury to the fiduciary himself or to his uomine('.

l4 PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

§ 28 :8-404. Liability and non-liability for registration (1) Except. as otherwii-;e proYided in 11nv law relating- to the ('ollec

tion of taxes, the issuer ii; not liable to the· owner or any other person i-;uif'ering loss as a result of t\ie, registration of a transfer of a se('llritv if

• (a) thPre were on or with the st>('lll'ity the ne('es~mry in<lorse-ments (section ~8 :8-:·W8) ; aml

(b) the iss11e1· had no duty to inquire into adYerse «lnims or has discharged any sn('h duty (sedion :!8:8--40:1).

(:l) "'here an ii.;suer has registered a tmm;fer of a ,.;e('urity to a person 11ot entitled to it the is.<Juer on denrnnd nmi-st deliwr a like

'

se1·uritv to the true owuer unless ·(a) the registration was pursuant tos11hi;eetio11 ( 1): 01· (b) the owner h~ pre1·luded from assertin~ •rny elnim for re.gis

tering the trnm;fer under s11bsedion ( 1) of the followiug ~<'tion; or

' (c) snch delinry would result i11 m·eriss11e, in whi<'h 1·ase the

K \ issuer's liability 1s gm·emed by seetion :!8 :H-104.

§ 28 :8-405. Lost, destroyed and stolen securities ( 1) "'here a security has been lost, a1>pa1·ent ly destroye1l or wrong-

fully tnken nnd the owner fails to notify the issuer of that fad withm ;1 reasonable time. nfter he has notice of it nud the issuer registers a tmnsfer of the seeurity before receiving sueh a notifil'ation, the owner is precluded from asserting against the issuer any el aim for registering the transfer under the pre1·eding section or nny daim to a new security nnder this section.

(2) 'Vhere the owner of a security claims that the security has been lost, destroyed or wrongfully taken, the issuer must issue a new security in place of the original se<'urity if the owner

(a) so requests before the issuer has notil·e that the security has been acquired by a bona fide purehaser: nnd

( b) files with the issue1· a sufficie.nt indemnity bond; nnd ( c) satisfies any other reasonu ble requirements imposed hy 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 gO\·erned by section 28 :8-104. In addition to any rights on the indemnity bond, the issuer may ecover the new security from the person to whom it was issued or any >erson taking under him except n. 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 1111 issuer in the registration of trnnsfers 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 hns with regnrd to the pa.rticulnr functions he performs the same oblig-ation to the holder or owner of the security and has the same rights and privileges as the issuer has in regard oo those functions.

(2) Notice to an authenticating trustee, transfer agent, registrar or other such agent is notice to the issuer with respect to the functions performed by the agent.

77 STAT.] PUBL

§ 28 :8-407. Limitatior ( l} In the e\·ent of r

he<:omes etfeeth·e, of a t a person not entitled tc to eompel the issue, rei: damages or any other t

registration may be br owner or nny other pe transfer agent, regist1i1· of t rausfers of its seeu which such registratio1

(2) The time limita· mny not be tolled or sr tional to, and does not statute of limitations a to clnims or causes of becomes etfecth·e ns w becomes eif'ecti,·e. Th issuer which 11t the tin sons registered upon b the class and series, if not entitled to it.

(3) If the eight ye to one year n fter the • tended to one year nftt

ARTICLE 9-SE OF ACCOUN CHATrEL PJ.

PART 1-Su Sec. 28 :9-101. Short title. 28 :9-102. l'olicy and sci 28 :9-103. Accounts, cor

to another security in

28 :9-10-l. Transactions 28 :9-105. Definitions a1 28 :9-106. Definitions: 28 :9-107. Definitions:· 28 :9-108. When after-. 28 :9-100. ClassifiC'atio1

products": 28 :9-110. Suffidency o 28 :9-111. ApplicabilitJ 28 :U-112. Where collat 28 :9-113. Security int

P.\RT 2-V ALIDITY OF

28 :9-201. General vali 28 :9-202. Title to colh 28 :9-203. Enforceabil' 28 :9-204. When secu·

advances. 28 :9-205. Use or dlsi 28 :9-206. Agreement

sales wa1 28 :9-207. Rights and 28 :9-208. Request fo1

'~" 77 STAT.] PUBLIC LAW t i.3-DEC. 30, 1963

§ 28 :8--407. Limitation of actions (1) In the e\·ent of registration, either before or after this subtitle

beeomes effe<'tive, of n transfer or purported transfer of a security to a person not entitled to it, no aetion of any kind, legal or equitable, to compel the issue, reis~::e or delivery of n like security or to obtain damages or any other relief as a result of or in connection with such registration may he brought, s~1bject to subsection (~), ?Y the true owner or any other person agamst nn ii>:mer~ authent1catmg trustee, transfer agent, regist rnr, or other agent for an issuer in the registration of transfers of its se<"nrities, more than eight years after the date ou which such registration to a person not entitled has taken place.

(2) The time limitations in subsections (1) and (:i} of this section may not be tolled or suspended for any reason. This section is additional to, and does not prnent or affect the application of, any other statute of limitations as a defense to any aetion. This section applies to daims or ('anses of action which lun·e a<'crued before this subtitle Lecomes effeetiYe as well as to those which accrue after this subtitle becomes etfe('ti\·e. This section does not apply to nny action ngainst an issuer which at the time of sul'h re~istrat10n has fewer than fifty persons registered upon books mnintnmed for that purpose as hoJders of the class and series, if any, of the secmity i;o registered to the person not entitled to it.

(ii} If the eight year pe.riod spe<'itied.in thi~ se('tion expi_res .Prior to one year after the effedffe date of tlus subtitle, Hll('h period 1s extended to one year after such efl'ecti,·e date.

ARTICLE 9-SECURED TRANSACTIONS; SALES OF ACCOUNTS, CONTRACT RIGHTS AND CHA TI'EL PAPER

l'ART 1-dHORT TITLE, APPLICARILITY ASD DEFIXITIOSS See. 28 :9-101. Short title. 28 :9:-102. Policy and scope of artiele. 28 :9-103. Accounts, (•outract rights, general intangibles and equipmeut relating

to another jurisdiction ; and ineoming goods already i,;ubject to a se<·urity iuterest.

28 :9-104. Transactions excluded from artide. 28 :9-10.3. Deflnitiom; aud index of definitions. 28 :9-106. Definitions: ·•account"; ·•contract right"; "general intangibles". 28 :9-107. Definitions: "purchase money security interest". 28 :9-108. When after-acquired collateral not security for antecedent debt. 28 :9-lO'J. Classification of goods: "consumer goods"; "equipment"; "farm

products"; "inventory". 28 :9-110. Suffidency of descri1>tion. 28 :9-111. Applicability of bulk transfer laws. 28 :9-112. Where collateral is not owned by debtor. 28 :9-113. Security interests arh,;ing under article on sales.

PART 2-VALIDITY OF SECURITY AGREEllENT ASD RIGHTS OF PARTIES THERETO

28 :9-201. General validity of security agreement. 28 :9-202. Title to collateral immaterial. 28 :9-203. J<}nforceability of security interest; proceeds, formal requisites. 28 :9-204. When security interest attaches; after-acquired property; future

advances. 28 :9-205. t:se 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 C"ollateral is in secured party's possession. 28 :9-208. Request for statement of account or list of collateral.

745

I j j

I

Citation of article.


ARTICLE 9-SECURED TRANSACTIONS; SALES OF ACCOUNTS, CONTRACT RIGHTS AND CHATTEL PAPER-Continued

l'.\K'l' 3-Huarrs <w T11rnu l'.rnn•:s: l'•:Hn:1"n;u .\XII 1·xl't:H•·•:cn:11 8t:1THITY lxn:HF.STS; l(n.t:s <W l'HIOHITY

:!1:1 :U-:lol. l'ersum; who take prio1·ity ol't>r 111111erfedeil :<l'Clll'itl· iutert>:<ts; "lit>u creditor".

:.!l'l :U-30:.!. When tiling i" rt'(]uired to lll'rfeet ,;e<·urity intere:>t; :security intert>sh; to whieh filing pro,·b•ious of this 111·tide do not 11pply.

:!/'\ :U-:~03. When seeurity intere:<t is lll'rfeeted; continuity of perfection. :!X :V-mH. l't>rfeetion of l'.'et•urity interest in instruments. documents, and good"

1·ol'ered b~· t!IX'lllnent:s; perfedion by permissh·e filing; temporary perfe.-tion without tiling or transfer uf po,.,,.e:>sion.

:!8 :tl--:io:i. When pos:<e""ion hy >'eeuretl 11arty perfects i::eeurity intere8t without filing.

:!1:1 :U-30li ... l'ro<:eeds··; 8t!C11red 11arty·,; rights 011 (li>'position of eollntt>rnl. :!1:1 :U--307. l'rotediou of huyerl'! of goods. :!8 :!l-:iOl:I. l'm·eb1H<I' of dmttel paper 1111d non-negotiable in><trumenti;. :.!S :tl-:iOtl. l'rott>dion of 1mrehu:<el'l'! of i11:<t1·11111ent:< and 1locuments. :.!8 :U-:iltl. l'riurit.'· of <'t'rtnin lien:; arising hy 01wratiou of law. :.!8:11--lll1. .\lit•m1bility of 1lPbtor'" Tights: judidal proees.'-'. :!1:1 :tl-:31:.?. l'rioritit>:-: nmoug (•ontlieting set•urity interests ill the ~uue eolhtlt'l'al. :!8 :9-3I:t l'riority of >'t•1•urity iutere:;ts in fixtures. :.!8 :9--:iH. At."t:essiuns. :.!8 :11--:n:;. l'riority when gnod8 are commingled or 1irucessed. :.!8 :9-3lll. Priority snhjeet to subordination. :.!8 :9-317. ~t-cured party not obligated on contract of debtor. :.!8 :0--318. l>efenses agaiu:.t assignee; moditkution of contract after notitit-ativn

••f assignment; term prohibiting assignment ineffecth·e; identification nud proof of assignment.

P.-1.RT 4-FrLING

28 :9--101. Place of filing; erroneous filing; removal of collateral. 28 :9--402. Formal requisites of financing statement; amendments. 28 :9--403. What constitutes filing; duration of filing; effect of lapsed filing;

duties of filing officer. 28 :9--404. Termination statement. 28 :9---105. Assignment of security interest: duties of filing officer; fees. :!8:9---106. Release of collateral; duties of filing officer; fees. :.!8 :9-407. Information from filing officer.

PART 5--DEFAULT

28 :9-.'501. Default; procedure when security agreement co\'ers 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 def a ult; effect of

disposition. 28 :9-505. Compulsory disposition of collateral; aC<'eptance of the eollateral 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.

PART 1-SHORT TITLE, APPLICABILITY AND DEFINITIONS

§ 28 :9-101. Short title This article shall be known and may be cited as Uniform Commer

cial Code-Secured Transactions. § 28 :9--102. Policy and scope of article

(1) Except 11s otherwise provided in section 28 :9-103 on multipl~ state transactions and in section 28 :9-10! on excluded transactions, this artic1e applies so far as concerns any personal·property and fixtures within the jurisdiction of the District

-----'-~~~--~~~

77 STAT • .] PUI

( n) to any tri: intended to create tures including g· b1es, chattel pape

(b) to any salE (2) This article ap

including pledge, assi < leecl, factor!s lien, ec other lien or title rete11 as security. This art 1n·0Yided in section 21

(3) The applicatirn obligation is not affe secured by a trnnsae1 apply. § 28 :9--103. Account

equipr com in

( 1) If the office wl keep his records cone perfect ion of a securi of proper filing is g (including the confli< offi('e is located.

(~) If the chief p this article gm·erns t and the possibility ai

intangibles or with re in more than one jur: stock, airplanes, roa equipment, construct <'hissified as equi}Jme being leased by t le <. the eonflict of laws r of business is locatec: loeatecl in a jurisdid security interest by l seenrity interest. ma~ purpose of determi111 est. m an nirplane, t foreign air carrier till is the- designated offi1 he made on behalf 01

(3) If personnl p (I) and (2) is alreac into the District, th· is to be determined of the jurisdiction " atta<'hed. Howe\'er the time t.Jrnt the se be kept in the Dist ao dnys after the SE

transportation thrm interest in the Disti· If the security inte jurisdiction where tl nncl before being b1 tinues perfede(r in if wit Inn the four m

l .,

l:~\

77 STAT.] PUBLIC LAW'- .!~3-DEC. 30, 1963

(a) to any transaction (rep:anlles,:; of its for111) whi<'h .is intended to create a seeurity i11te1·est in personal propertv or fix-

747

tures including goods, doc11111ents, instruments, p:e.1wral lnta11gi".. 4 oles, chattel pn per, ae<•ounts or cont ra<'t rights; an<l a bo

lb) to any snle of :H'eo1mts, contr:H't rights or chattel paper. / (2) This artirle applies to security interests r~.e_<Loy C()ntract / ', ·' ; t~ ( I

indmling }.l_ledge, assignment, chattel mortg-age, cnattel trust, trust [.,; 1: , ,,, ,:• deed, factorslien, equipment trust, conditional sale, trust receipt, -1 : ,,·, i" ,, _

1 Other lien Or title retention COntrad l\lld lense Or Consignment intended r I / '-'

i _a::; security. This article does not a p1)l§"'to sf.\fofory li-e11s exrept as . I "' c !- ,,. '

.. proYidP<1 in sef'tion 28 :9-310. , , /t.· (3) ';fhe '.lpplicati<~n of this arti<·I<' lo a !-iecurity int~rest_in n.sec.:mec~···· . '·

obhgat1011 1s not alle-cted by the fa<'t that the ohligat1011 1s itself ,. secured hy n tmnsaetion or interl'st. to whieh this arti<'le does no

'.'.'./'/applv. , L '. § 28 ;9-103. Accounts, contract righ_ts, general intangibles and /7 /,~~--- }!j

equipment relating to another jurisdiction; and in- {/_;? ~ .-- ;g! ~oming goods al~eady subject to a security int~rest /C.4· &J ___. -'1 ;~(,

( 1) If the office where the assignor of ilC'co11.nts or contract rights, ) ~ vJ 0.:..J "' !~)f. keep his records concerning them i§ in the·Distri<:t, tlievalidity an'tl "'\ ~ • "P t ~ pel'feetion of .a se:·urity interest ther.em ai~cl the possih_ility and effect US (JC -£J(!. ~ .p;:! of proper filmg· 1s gO\·erned by this article; othennse by the law r'''.r (inclu<lin~ t11e conflict of laws rules) of the jmisdiction where suC'h {I /,.f •'1

offi<·e is located. . { /J,e/ ~ (~) If the chief place of business of n dehtor is in the .District, ; I ,1 d• . ·

this article gO\·ei:ns the rnlidity and perfel't1on of a security interest r :uHI th~ possibil~ty and effeC't of proper filing w.ith regard (o'ffeneral 111ta11g1ble.fi_or mth regard to goods of a type wluch are norma y·nsecl m more than one .i11risdiC'tion (snch as autom<.>th·e equipment, rolli11g stock, airplanes, rond huilding equipment,. cornn1etTinl hanesting t>quipment, <'Onstruetion nmrhinery and the like) if such goods are dnssified as equipn1ent or C'lassified as in\"e.ntory by reason .of their being leased by the debtor to others. Otherwise, the law (including I · ·-

.the conflict of lnws rules) of the jnrisdiC'.tion where such rhief place/ of business is located .sfrn.11 go,·ei·n. If the <'hief place of business is lo<'ated in a jttrisdidion·whiC'h does not' proyide forperfection of the set•m·!t.r !nterest by filing or recording .i_n tl:at juris(.liC't!on, then the secuntv mterest mn.r be perfected by filmg 111 the D1str1ct. For the pmvose of determining the rnlidity and pel'fed ion of a !oiecurity interest man airplane, the ehief phwe of business of a debtor who is a foreign air carrier under the Federal.\ ,·iation .\et of 1958, as amended, i:-; the. designated office of the agent upon "'hom sen· ice of process may be made on hehaJf of the debtor. .

(3) If ;ersonal property other than that gm·erned hy subsections ULand 2 1s already subject. to a secnrit · interest when it is brought into t le District, the nilidity o rn security interest in the District is to be determined by the law (including the eouflid of laws rules) of the jurisdiction where the property wa" when the secnritv interest i~~L However, if the parfles to the tm11sadi<ii'iliilderstood at ffie tune tlrnt the seemity interest atta<.:hed that the property would be kept in the District and it was brought into the District within :w days after the security interest attached for. purposes other than tr:msportation through the District, then the validity of the security intet-eHt in the District is to be determined by the law of the District. If the security interest was already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into the District, the security interest continues perfeeted· in the District for fom· months and also thereafter if within the fom month period it is perfected in the District. These-

748

r I


c111;it.v i11terest'may n lso lie pel'fl•eted in the l>istrkt a ft er the expirati<>n of the four mo11th pe1·iod: in sneh <·ase perfection dates from the time of perfection in the Distril't. If the security interei;t was not perfected nnder the law of the jurisdiction where the property was when the :;ecurity interest attached and before being- brought into the District, it may be perfected in the District; in s1wh ease perfection dates from the time of perfection in the Distri<'t.

(-1) Xot,\·ithstnndingsnhseetions (A!) and (:1), if personal property is eonred by a <'ertitieate of title issued under 11 statute of the District or any other jtiriSdiction which requires in<lieation on a certilicatc of title of any security interest in the property as a c•ondition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate.

(i>) Xotwithstnnding snbsertion (1) :rnd set"tion ~S:!l-:102. if the office where the assignor of ncconnts or co11tr:u·ts ri1 . .d1ts keeps his records concerning them is not locatecl in a jm·isdictio11 which is a part of the l.7nited States, its territories or possessions, nnd the nt•t•otmts or contract rights are within the jmisdtction of the District. 01· the tl·nnsaction which creates the sel'm·ity interest otherwise bears an appropriate relation to the Distrid, this al'ticle ,!!'O\·erns the rnlidity an<l perfection of the secnrity inte1·est and the se<'lll'ity interest may only be perfected by notificntion to the a<•co11nt debtor. § 28:9-104. Transactions excluded from article

This article does not apply (a) to a seeurity interest subject to any stntnte of the l ;nited

States sueh as the Ship .'.\lmtl!llge .\ct, rn~o, to the. extent that such statute governs the rights of parties to and third pa11ies 1tffected by transact ions in pnrticn lar types of property; or

(b) to a lnndlord~s lie1l;~ or ( c) to a lien given by stl\tute or other rn le of ln w for services

or materials except as provided in section i8 :0-:110 on priority of such liens; or

(d) to a transfer of a claim for wages, salary or other compensation of an employee; or

(e) to an equipment. trust conring n~ihrny rolling stock: or· (f) to a sale of accounts, contract rights or chattel puper as

part of a sale of the business out of which they arose, or an assignment of a.ccounts, ·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 performnnce under the contract; or

(g) to a transfer of an interest or elnim 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 tlu~t prons1on Is made f?r fixtur~ m

section 28 :9-313, to the ·creation or transfer of u.n mterest m or lien on real estate, including a lease or rents thereunder; or

(k) to a tx:a!1sfer in whole or in part o! any ?f the following: any claim ar1smg out of tort; any deposit, savmgs, passbook or like account maintained with a bank, ~wings 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 obligated 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 ~j_ty}~tere~~ in or a

;/

77 STAT.] Pl

leas1e of spee!Iic /1

sue l 1t security a series of instrum stitntes chattel p:

( c) "Coll at era terest, and inclw which have been~

( d) "Debtor" performn nee of or has rights in t

/ 'contract rights 01 1 of the collateral:

.; 1.J ' the owner of the

1 with the collater ., ///' rob ligation, and 11

( e) "Documer eral definitions c

( f) "Goods" i the security inte1 :n3), but does 1

counts, chattel J other things in : of animals and g

(g) "Instrum1 section 28 :3-10-or anv other wr' mone)· and is no type which is in ery with :tny nee

·(h) "Security or provides for ;

( i) "Secured whose favor tlH whom accounts, When the holder equipment trust or other person,

(2) Other definiti which they appear a

"Account". S "Consumer ~o "Contract rig! "Equipment". "Farm prodm "Filing Office' "General inta1 :'Inventory". "Lien credito1 "Proceeds". "Purchase mo

( 8) The followin~ "Check". Se· "Contract for "Holder in du "Note". Sect "Sale". Sect;

( 4) In addition a of construction and

- ~ - .

;.~~·,

77 STAT.] PUBLIC LAW, i-t.3-DEC. 30, 1963

lea~e of :::pe<·i lje goml:;. \Ylw11 a t 1·:rn:-a\'I io11 i:- ,.,. id1•11n·d I 101 h h,,. s~h :i security aµ.l~elllt'llt qt:,,HI~~ and l1y an i11cl.!'.!.!_llll'll( OI' a St>!'if's of i.i:-t1·1111w11t~. tlw gro11p of \\:riling-.; 1:1kP11 togt•lht>1' ('Oil· st1tute~ chattt>l papt>1·:

(r) "('01l:ttP1·al .. uw:111s the pmpl'l'I\' :-11bj1•('f to :t '."'t'c11rit\' intt>rt>~t, n11d inclmles :1t•eo1111ts, co11tr:1<·t 1·ights a1Hl ('hattt•l 1;:qwr which have bt>ell sold; -~~---.-

( d) "Debtor'! means the pei·::mn who owes paylllent or otl1er __ ,. , perform a nee of the ohl igation seeure1l, whet her m· not he owns

or hns rights in the eollnfern 1, :rnd inclndesfTfe-'sellet-"of ncro1111ts, contrad rights or chattel paper. \Yhere the debtor and the owner of the collateral nre not the snme person, the term "debtor'' means the owner of the collnternl in any pro,·ision of the nrtide den ling with the collnternl, the obli~or in nny JH'<ffision dealing "·ith the obligation, and lllny include both wh!.'re the context :;o requires:

(e) "Doeunwnt'' m<'ans doemnent of title as <h•filw<l in th{' irenernl definitiorn; of nrticle 1 (sel'fion 28:1-201):

(f) "Gornls" inC"llld<'s nil things whid1 are mornhle nt the time the security intel'est nttaehes or whi1·h nl'e fixtures (seC"tion 28 :fl~H3), but 'dces not i1lt'lmle m011ey, documents, inst rnments, a.ccounts. chattel paper, :,reneral intnn:,ribles, co11traet ri:,rhts nnd other thinirs in action. "Goods" also indnde the 1111hom young of nnimnls nnd growing crops;

(g) ''Instrm11enf~ n\enns n ll<'gotinhle instrument ( defineq in section 2B :3-104), or n security (defined in sedion 28 :8-102) or nny other writin:;r which eYidences a right to the payment of money nnd is not itself a security n::rreement 0_1:.Jea,i'e and is of a type which is in ordinary course of business transferred by delivery with nny necessary indorsement or assignment;

(h} "Security ng-reement'~ means an ai,neement which neates or provides for a seenrity interest:

(i) "Secured party" means n lender, seller or other person in. whose favor there is a security interest, including a person to "

0hom accounts, contract rights or chattel paper haYe been sold. 'Vhen the holders of obligations issued under ar)!1denture 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 whieh they appear are:

"Account". Section 28 :9-106. "Consumer ~oods~'. Section 28 :9-109(1). "Contract right". Section 28 :9-106. ~- -· "Equipment". Section 28:9--109(2). "Farm products". Section 28:9-109(3). "Filing Office". Section 28 :9-401 ( 1). "General intangibles". Section 28 :9-106. t,~ , ;'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. i:_...../

(:1) 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.

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

7-t.9

750 PUBLIC LAW 88-243-0EC. 30, 1963 [77 STAT.

§ 28 :9-106. Definitions: "account"; "contract right"; "general intangibles"

"Account'' means any ri~ht to pa vment for goods sold or leased or for services rendered whirh is not evide11('ed hv an iusi'h1111enf'"or chattel pa per. "Cont rnet righC men ns any riglit to paf ment nuder a contract. 1~aj:. ye.t earn~d_J)y perfornuuwe a n<l not e\· ident•t>d hy an instrument or chattel pa per. ..General int:tnf!ihles .. men ns n 11 v persona 1 prol>erty ( i!wh1<Un~ things in at'! ion) other t lum goods, iH·1~01mt:-:. contmct rights, cha tte 1 pa per, <loc11111ents and inst1·11111e11ts. § 28 :9-107. Definitions: "purchase money security interest"

A security intt'rest is n .. purchase monev set•111'it,· i11tf'rest'' to tht> l'Xtent that it is • ·

77STAT.) PUB

§ 28 :9-112. Where <

Unless otherwise af is owned by a person is entitled to receive j 28 :9-50'2(2) or undf debt or for any defic the debtor

1 • (a) to receive,

-</.:: h (b) to receive , posnl to retain t

under section 28 ( c) to redeem ( d) to obtain

507(1); and f (a) taken _(n· re: a ine<l by the sellt'I' of the 1·olh1tem l to sel'lll'I:' , a 11 or part of its price; or

( e) to recover J /

/; ~,f< " .~· ;- ;;. § 28 :9-113. Securit; (b) taken hy a pe1·son who hy making a<lnllH'l:'S or in('11rri1w an obligation gin•;; \":tlue to e11:1hle the dehtor to a1·q11i1·<· right;,; in or the use of 1·ollatera l if s1wh rn hie is in fal't so nsl."11.

:, ·,.., ·· ~. __, A security interest

§ 28 :9-108. When after-acquired collateral not security for ante-cedent debt

'\Yhere a sen1re<l party makes an a1h·:111t·e. inl'nt-z.; :111 obli;.rntion, 1 , .:. - / ~" < /

releases a perfe!'ted sernrity interest, or otht'rwise gi\·es 11ew ,-:tlue I ' which j::; to be set·nrt'd in whole or in pa1·t hy after-nP'<lflirPd property / .:- : -his security interest in the a ftt'r-al'qui1·ed 1·ollatera I shall he dt'emed -'i,/ .,,.f? · to be taken for new vah1t' and not as se('l\l'it ,. for ;111 :rntect>dent !lebt 'i if the debtor acquires his rights in sneh <'oll;tternl eitht>r in the ordi- " nary course of hh; ln1si11e:->s or undPr a ('011tr:1l't of purehase llHHle pm·suant to the seeul'it\· al!reement within a reusonnbh• time nfte1· new value is gi ,-en. ~

§ 28 :9-109. Classification of goods; "consumer goods"; "equipment"; "farm products"; "inventory"

• Goods are V 1/1 G(l) "consumer goods" if they are used 01· houl,!ht for 11se priurnriJ:. r I/ for persona 1, fiuni1:r or household purposes;

(2) "equipment'· if they nre w;ed or bought for use primarih· in business ( induding fur111 ing or a profession) or by n <lebto1· who.is a non-profit, organization or a gm·ern111e11t11l s11bdi,·isio11 or agl'llt'V or if the goods are not included i11 the <lefi11itio11s of im·t'ntory, farm products or consumer goods;

2) is subject to the p that and so long as t

1 tain possession of thf (a) no securit.

terest enforceabl ( b) no filing is ( c) the rights

governed by the

PART 2-V ALII RIGI

§ 28 :9-201. Genera Except as otherwi

effective a.ccording t< of the collaterol an<da tes any charge or thereunder governir the like, or extends to any transaction n· § 28 :9-202. Title t

Each provision of remedies applies wl in the debtor. (3) "farm products'~ if they are crops or Ji,·estock or supplies used

or produced in farming operations or if they are products of crops or livestock in their unmanufactured states (such as ginned cotton, wool- 1 ,,,._J dip, maple syrup, milk and eggs), and if they are in the possession of ; · l/"'

§ 28 :9-203. Enf or· requ

a debtor engaged in raising-, fattening, grazing or other farming open\- ; J !ions. If goods are farm products they are neither equipment nor J11 / /'o/ mventory; eJ ¥ rtzr

( 4) "inventory" if t~1ey nre ]1eld bya perso11 who hol<ls}l.1em for sale ~ i or lease or o be furnished under contracts of ser,·ice or if he has so_, /) //!, furnishe~m, or i i~y are r~w ma eria s, wor 111 p1~ocess <;>r mate- f./l rrars-uSed oroonsumed m a business; Im·entorv of a person IS not to be classified as his equipment. w

§ 28 :9-110. Sufficiency of description For the rurposes of this article any description of personal prop

erty or rea estate is sufficient whether or not it is specific if it reason-nbly identifies what is described. · § 28 :9-111. Applicability of bulk transfer laws

The creation of a security interest is not a bulk transfer under article 6 (see section 28:6-103).

( 1) Subject to ti interest of a collecti est arising under th able against the deb

(a) the col111 (b) the deb1

tains a descrii: security iutere.s or timber to l describing coll further descri1

(2) A transilctic to chapter 20 of T 26, relating to mor

--------------------------------........

77STAT.] ~,~;:;.

PUBLIC LAV ,:243-DEC. 30, 1963 751

§ 28 :9-112. Where collateral is not owned by debtor y·r 1 I · d I 1 I 11 l '•i· Y. 1 \ • 1 .'rl· 1... n ess ot 1erw1se agree , w 1en a secure( party knows t 1at co at era (A' ,.,,.

is owned by a person who is not the debtor, the ownt>r of the collateral \ ·(, ; 1

f7 ·'1 11_ ",· I is entitled to receive from the secured party nn.r smplus under section K"" J .1"' 28:9-502(2) or umler section :.?S:!l-504(1) .. and is not liable f01· tlw J:r 1) 1

• ') 1'. ..111 debt Or for an.r deficienC.)' after resale, Hild he has the S:lll\e right :I~ l !,i a~ J I .

thedebtor . ,y r'~1,J r (a) to recei,·e statements under section 28 :0-208; ' .. 1

., 1!·' 1 VV (b) to recein notice of and to object to a secured party's pr~~· G ' ~1·

posal to retain the collateral in satisfaction of the indebtedness c Jc i/ under section 28 :9-505; g, 0 \

( c) to redeem the collateml under section 28 :9-506; J; · ,&, (d) to obtain injunctive or other relief nnder section 28:9- ( I -:{

507(l);and yJ ( e) to reco,·er losses caused to him under section 28 :ll-:W8(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 tlrnt to the extent that nnd so long as the debtor does not ham or does not lawfully ob- I tain possession of the goods · /;

(a) no security ngr·eement is necessar.r to mnke the security in· .·· terest enforcenble; and ·

( b) no filing is required to perfect the security interest; and "'\ (c) the rights of the secured party on default by the debtor nre

governed by the urticle 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 seem·ity agreement is

effective n.ccordin!! to its terms betweei1 the part~_~, against purchasers of the ~nd ngamst c e.d.i1liii Nothing in this nrticle validates any charge or m:acti~e_ illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or -I-the like, or extends the ilpplicntion of any s11eh statute or regulation ~~ f Co to any transaction not otherwise subject thereto. § 28 :9-202. Title to collateral immaterial

Each provision of this article with regard to.,.rig}1ts. obligations and remedies applies whether title to collateral is m t le secured part_x~_Qt,:_ in the uebtor. § 28 :9-203. Enforceability of security interest; proceeds, formal

requisites (1) Subject to the provisions of section 28 :-1--208 on the security

interest of a collecting bank and section 28 :9-113 on tt 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 luu; signed a security ngt·eement which con

tains n description of the collateral and in addition, when the security interest. covers crops or oil, gas or minemhi to he extracted or timber to be cut, a description of the land concerned. In describing collateral, the w0t·d ''proceeds .. is sufficient without further description to cover proceeds of any (•lumwtet·.

(2) A tr:rnsaetion, although subject to thh; urtiele, is also subject to chapter 20 of Title 2, rela,ting to pnwnbrokers, chapter 6 of Title o.c. Code 2-

96 reh.tin()' to money lenders chtlI)ter 7 of Titlt> .J.O rt>lating to liens 2001 to 2- 2019; • ! ' ' b ·' ' 26-601 to 26-611;

40.70 l to 40•71 S.

·52 PUBLIC LAW 88-243-DEC. 30, 1963 ['77 STAT.

o.c. Code 40- on motor vehil'les, and ehapter !) of Title 40, rt>l11ti11g- to installment 1 to 40-910. sales of motor ,·ehicles, and in the rase of contlict between the pro\'i-

8ions of this article and any snch stntnte, the prod8ions of such statute control. Failure to comply with nny applicable statute has only the effect which is specified therein. § 28 :9-204. When security interest attaches; after-acquired prop-

erty; future advances . ,. ( 1) ..-\. ~cnrity interest cannot attal'h until there is agreement (sub! /~· / section(!~) of se<;"tion ~8 :1-:Wl) that it attach and \•alue is given aml 1 • /' !. the debtor has rights m the collateral. It nttal'hes as soon as ull of ;!._;, ./ the events in the ])receding sentence han tnken plal'e unless explieit, ' agreement. postpones the time of nttachi11g-.

/ / (2) For the purposes of this section the debtor has 110 ri}El~1ts , /~/~· . (n) in r1:ops until they nr~ planted o~\'lselieco111~ grow-

.: / / mg crops m the youwr of hvesto1:k until they are l'o11re1ved: // (b) in 'tish until cat:g.ht, in oil, gas or minerals until they at\> / extracted, in timber until it is cut; \

---·-" (c) in a rontraet right until the l"Ontmd has Leen made: J '-( d) in an ncconnt until it comes into existence.

- --·pq Except as provided in subsectio~t (-l) a security agreem~nt 1~iay provide that collnternl, )dienever n<'qmred, shall secure all obhgat1011s l'overed by the security agreement. .

(4) Xo security interest attaches nn<ler an after-iwqmred property dause

(a.) to crops which become such more tlrnn one year after the security iwreement is executed except thnt a security interest in .:rops whicl1 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 uttnch to crops to be grown on the lanrl concerned during the period of such real estate transaction:

(b) to consumer goods other than accessions (section 28:9-r i .J)- 314) when given as additional security unless the debt~r acquires

!'

• • '· ; .) ,,,' . ---- ri<rhts in them within ten days nfter the secured party gwes value. r (5) ~Obligations covered by a seeurity agreement may inchtde fu!ure

, .. - , ndnrnces or other value whether or not thenrl\·ancesor 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 agaii~st creditors by renson ofJlbetl,}W!!.Jh~ debt~r to use, con:_~E_:gle or diSI!Q$0 of all or part of the collateral (m.cludmg returned or repossessed goods) or to colle<:t or compromise accounts, eontract rights .or chattel paper, or to accept. the return of goods or make repossess1o~s, or to use, commingle or dispose of pr01?eeds, or by reason of the failure of the secured party to ~·equir~ the debtor to account fo!' proceeds or repln;ee collateral. Tlns section does not relax the reqmrements of possess10n where perfection of a security interest depends upon possession of the collateral by the secured party or by a bailee. 6 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 daim or defense which he may have ~gain:>t the seller or 10SS?r is ep.foi:ceable by. an assignee who takes his assignment for value, m good faith and w1~hout 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·

77 STAT.] PUB LI

ment under the article 01 as pa1t of one transacti• ~urity agreement makr

(2) When a seller re g-oods the article on sal

/ .. !aimer, limitation or mi

/ 2 k 5 ~ {!'(§ 28 :9-207. Rights am~ l - , . 4,,1 _ . possess1c I I Al t -·~

_,,,.., r • ·v · ( 1) A secured party l preser,·ation of collateri

I

ment or chaUel paper r, w preserve rights agair

(2) Unless otherwise possession

(a) reasonable e and payment of tn presenation, use o the debtor and are

(b) the risk of the extent of any•

( c) the secured increase or profits but money so rec' applied in reducti<

(cl) the secured fungible collateru 1

( e) the secured which do not imp1

(3) A secured part: meet any obligation im lose his security inte1-e~

( 4) A secured part: pose of preserving the of n c>onrt of itpprop1 snmer goods, in them agreement. § 28 :9-208. Request

(1) .\ debtor mny lie the aggregate amo1 and mny send it to th1 lie approved or corre· c·nrity ngreement or n lies the <:ollateral a d• a pp rove or correct. a Ii

( 2) The se<"ured pi weeks after receipt b I he secured party cla of c>ollnteral owned b an<l need uot apprO\.; I he secured party wit for any loss caused t. l'rly included in his or a list of the collatE interest only as sho'' failure to comply. ol· collateral at the llame and address o i,.; liable for :my los~

93-025 0--64-50

77 STAT.) 4)

PUBLIC LA\\ _ . .:~43-DEC. 30, 1963

ment under the article on comme1·rial paper (article:)). ~\ huyer who as part of one trnrnmction signs both ii negotiable inst mment and :1 security agreement makes such an agreeme1!t.

(2) \Vhen a seller retains a. purchase money security interest i11 goods the article on salE:s (article 2) g<H"ems the snle an<l am· <lisdaimer, limitation or modification of the seller's warrunties. • § 28 :9-207. Rights and duties when co1Jateral is in secured party's

possession (1) A secured party must. use reHsonable ea re in the custody an cl

preserYation of collateral in his posses.<>ion. In the rase of an instrument or chatt.el paper reasonable care includes taking necessary steps to preserve rights against prior part.ies unless otherwise agreed.

(2) Unless otherwise agreed, when eollaternl is in the secured partv':-i . . possession

(a) reasonable expenses ( inclmling- the •.·ost of any immrnnce and payment of taxes or other charges) incurred i11 the custody, preservation, use or operation of the <·ollatern l a 1·e ehaqreahle to the debtor and are secured by the tollaternl:

(b) the risk of accident a I loss or damage i:-; on the debtor to the extent of any deficiency in any effective insurance covernge; . ( c) the secured party may hold as additional seeurity im;r mcrease or pl'Ofits (except money) 1-eceind from the collateral. but money so reeeirnd, unless remitted to the dehtor, shall he applied in reduction of the secured obligation;

( d) the secured part\· must. keep the colhiteml identifinble but fungible collatera! may~he commingled:

( e) the secured pa11y may rep ledge the <·ollateriil upon tem1s which do not impair the debtor·s right. to redeem it.

(3) A secured party is liuble for uny loss <~aused by his failure to meet any obligation impo:-;ecl by the preceding subsections hut does not lose his seem·ity inte1-est.

(-l) A secured pa11y may use or opernte the collateral for the purpose of preservin~ the eollater:il or its rnlue or pursuant to the order of n rourt of appropriate jurisdiction or, except in the ense of consumer goods, in the manner and to the extent provided in the security ag1-eement. § 28:9-208. Request for statement of account or list of collateral

( 1) .\. debtor may sign a statement indicating what he belie\·es to be the aggregate amount of unpaid indebtedness as of a specified date and may send it to the seeurecl party with a request that the statement he approved or <·orre<"tecl nnd retumed to the debtor. "11en these-1·urity ngreement or any other record kept hy the secured party identities the collateral a debtor may Himilarly re€1ue:-;t the secured party to a ppro•·e or correct a list of the tollateral.

(2) The serured party mu:-;t romply with sueh u request within two weeks after receipt by sending IL written l'OtTeetion or approntl. If 1 he secured pa.My clauns a security interest in all of n particulnr type of collateral owned by the debtor he may indicate that fact in his reply and need not appro,·e or correct an itemized list of sueh collateral. If the secured party without reasonnble excuse fails to comply he is liable for any loss caused to the debtor thereby; and if the debtor has propPrly 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 agamst persons misled by his failure to comply. If he no longer has an intere:-;t in the obligation ot· 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 linhle for any ]oss caused to the debtor as a result of fa,ilure to dis-

93-025 0-64-50

753

754

' . - . . ~ . • • ""~i·;,.,~:: .. ,.,,,.:;;;,. ~\·cyt,,~K· ... ' :::_.':.,.s t~:1~ ". •

t-'i~·{ ' :t' " ·t e · ~·~~ :.~,.\.: ;;,,.~ $~ · ,


<'1o:-ie .. \ :-;mTessor in i111e1·e:<t j;.; not s11hjet'f to this sedio11 1111til n re'Jnest is receh·ed h.v him.

_(:~) A debtor is entitled to s1wh n stntemen~ 01we every six months without t·hnqre. The secured pnrty may reqmre payment of a chnrrre not exceeding$11l forench nddttionnl statement fumished. · "'

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) Ex<'ept as otherwise provided in subsection (2), an 1mperfe<'te<l security interest is subordinate to the rights of

(a) persons entitled to priorit~· under .seetio1~ 28 :n-:n2; (b) a person who becomes a hen creditor w1tho11t k11owled1re

of the security interest and before it is perfected: "' ( c) in the cnse of goods, instrnments. documents, and drnttel

pa per, a person who is not a secured pn rt y n nd who is n t rn nsferee m bulk or other buyer not in ordinnry course of business to the extent that he gins mine and reeeiYes deli\·erv of the collateral without knowledge of the security interest ·and before it is perfected;

(d) in the case of accounts, contract rights, and genernl intangibles, a person wl,10 is not a secured party nnd who is ii trnnsferee tot he extent that he gh·es mine wit lwut knowledge of the security interest and before it is perfected.

· (i) If the secured party files with respect to n purehnse money t'iecurity interest before or within ten days after the col1atera.l comes into possession of the debtor, he hikes priority o,·er the rights of a transferee in bulk or of a lien creditor which nrise between the time the security interest attaches and the -time of filin~.

(3) A "lien creditor" means a creditor who has ncquired a lien on the property im·olved 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 receiver in equity from the time of appointment. Unless all the ereditors represented had knowledge of the security interest such a representath·e of creditors is a lien creditor without knowledge e\·en 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

(I) A financing statement must he filed to perfect all security interests except the following:

(a) a security interest in collaternl in possession of the secured party under section 28 :!J-305;

(b) a security intere;t 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) 1i purchase money security interest in farm. equipment having a purchase price not in excess of $2,500; hut filmg is required for n fixture under section 28 :9-31:i 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 :!J-313 or for a motor velucle required to be licensed;

77 STAT.} PUBL

( e} an nssigmneu not alone or in con' assignee transfer a · or contract rights of

(f) a security in 208) or arising und or covered in subsec·

( 2) If a seemed part) under this article is req1 of the security interest original debtor.

(3) The filing provis interest in property sub:

(a) of the Fnih istrntion or filing 1

(b) of the Unite ,·ides for central fil trailer which is not of tit le is required of Title 40.

( -1) .\ security inter1 in subsection (3) can b( that statute or by indici tit le or a duplicnte then § 28 :9--303. When sef · perfecti

(I) . .:\ secul'ity inter< :ill of the applicable s Such steps are specifie and i8 :9-306. If su< attaches, it is perfected

(2) If a security in mitted under this artic wuy under this article, perfected, the security tinuously for the pnt'P• § 28 :9--304. Perfectic

men ts, by per1 filing c

(1) A security inte may be perfected by fi than instruments whic fected only by the se< ,-ided in subsections ( <

(2) During the pe issuer of a negotinble ~oods is perfected by and any security inter• period is snbje~t t~ere

(3) A security 1?1te than one who has 1ssr by issuance of a docm bailee's receipt of no· filing as to the ~oods.

( 4) A secur1ty int< perfected without fl.Ii

77 STAT. ]

··~ fj}

PUBLIC LAW 88-243-DEC. 30, 1963

( e) nn assignment of nccounts or cont rad rights which does not alone or in conjunction with other nssi.!!nnwnts to the ;.;ame assignee transfer <\ signitkn11t pnl't of the c'Jntstanding nero11nts or contract rights oft he assignor;

( f) a security interest of a co lied ing bank (section ~8: +-208) or arising under the artide on sales (see section ~8:9-113) or conred in subsection (:3) of this seetion.

(2) If a secured pnrtv assigns a perfected sec11l'ity interest, no tiling under this article is reqiiired in order to eontin11e the perfe<'ted status of the security interest against creditol's of and trnrn;fe1·ees from the original debtor.

(3) The filing proYisions of this article do not apply to a seeurity interest in property subject to a statute

(a) of the rnited States which p1·0,·i<les for a national 1·egistrntio11 or filing of all security interests in such property: oi-

(b) of the United States pertaining to the Distriet which pro,·ides for central filing of secnritv interests in a motor Yehicle or trniler which is not in\·entory hefd for sale for whidt a c.ertificate of tit le is requil'e<l to be i~sued under the pro\"isions of ('ha pt er 7 of Title 40.

(!) .\security interest in property eo\"ered hy a statute described in suhse('tion (3) can he perfected only by l'egistration or filing under thitt statute or by indication of the security interest on a eertificate of title or a duplieate thereof by a p11blic officiul. § 28 :9-303. When security interest is perfected; continuity of

perfection (1) _\security interest is perfected when it has ntta<'hecl and when

nil of the applicable step~ required fo1· perfection hnYe been taken. Such steps are specified in sectiom; 28 :0-302, 28 :!.l-30-!-, 28 :9-305, and 28 :9-306. If sueh steps are taken before the security interest attaches, it is perftcted at.the time when it nttaches.

(2) If a security interest is orij.!innlly perfected i11 any way permitted under this article and is snh~equently perfected in some other way under this article, without an intermedinte period when it was unperfected, the security interest. shall be deemed to he perfected continuously for the purposes of this a1·ticle. § 28 :9-304. Perfection of security interest in instruments, docu

. ments, and goods covered by documents; perfection by permissive filing; temporary perfection without filing or transfer of possession

(1) A security interest in chattel paper or negotiable documents may be perfected by filing. .A security interest in instruments (other than instruments which constitute part of clrnttel paper) can be perfected only by the secured party's taking possess10n, except as pro,·ided in subsections (4) and (5).

(2) During the period that goods are in the possession of the issuer of a negotinhle document therefor, a security interest in the ~oods is perfected by perfecting a security interest in the document, nnd any security interest in the goods otherwise perfected during such period is subject thereto.

(3) A security interest in goods in the possession of n, bailee other than one who has issued a negotiable document therefor is perfected hy is.'lunnce of a document in fhe name of the secured party or by the bailee's receipt of notification of the secured party's interest or by filing as to Hie goods.

( 4:) A security interest in instruments or negotiable documents is perfected without filing or the taking of possession for a period of

755


21 days from the time it attnd1es to the extent that it ariSE>s for new rnlue given under ii written security 1wreement.

· (5) A security interest remains pe1·fected for a period of 21 days without filing where ii secured l?arty hitYing a perfected security interest in an instntment. a negotiable document or goods in possession of a bnilee other thnn one who has issued a, negotiable document. therefor

(a) makes nvnilable to the debtor the goods or documents representing the goods for the purpose of ultimate sale or exchnnge or for the purpose of loading, unloading, storing, shipping. transshipping, manufacturing, prO<'essing or otherwise dealmg with them in a manner preliminary to their sale 01· exchange; or

(b) delivers the instrument to the deht01· fm· the purpose of ultimate sale or exclump:e or of present at io11, collection, renewal or registration of transfer.

(6) After the 21 day period in snhseetions (4) untl (5) perfection depends upon compliance with applicable proYisions of this article. § 28 :9--305. When possession by secured party perfects security

interest without filing A security interest in letters of credit. and adYiees of credit (sub

section (2)(a) of section 28:5-116), goods, instruments, negotiable documents or chiittel paper may be perfected by the secured pnrty's taking/ossession of the collateral. If such collateral other than goods covere by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. .A security interest is perfected hy possession from the hroe possession is taken without relation back and continues only so l01ig 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

coHateraJ (1) "Proceeds·' includes whatever is received when collateral 01·

pr1weeds is sold, exehanged, collected or otherwise disposed of. The term also includes the nceount arising when the right to payment is enrned under a contract right. Monev, checks and the like are '"cash proceeds". All other proceeds are ''non-cnsh proceeds".

(2) Except where this article otherwise pro,·ides, a security interest 1·011ti11ues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by the secured party in the security agreement or otherwise, and also 1~ontinues in any identifiable proceeds including collections received hv the debtor.

v (:3) The security interest in p1·oceeds is a continuously perfecte<l !oleeurity interest if the interest in the orig-inal collateral was perfected hut it ceases to be a perfected security interest and becomes unperfeded 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 da.y period.

(-1:) In the event of insolvency proceedings instituted by or al?ainst a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest

(a) in identifiable non-cash proceeds;

77 STAT.] PU Bl

(h) in i1leut ifiable not <·ommingled wit prio1· to the insolve

( c) in identifiabh. like which are not insolvency proceedii

( d) in all cash a1

11roeeeds have been lilt. the perfected s

( i) subject t; (ii) limited

any cash l!roc! before the mstl mingled 01· dep proceedings le~ debt01· and pai· period.

( 5) If a sale of good is trllnsferred by the s1 J"t"tllrlled to 01" are rer 1 h1:> following rules det(

(a.) If the good debtedness of the s interest attaches UJ security interest ii were Hold. If the tiling which is stil t.inue the perfecte· must take posse~ must file.

(b) An unpaid interest in the goc est is prior to it se the extent that th1

priority under ~c1 (c) An unpaid

in the goods aga imbordinate to a ~

( d) A security paragraph (b) o creditors of the t possessed goods.

§ 28:9--307. Protecti ( 1) A buyer in 01

irection 28:1-201) ot a. person engage<_i in ~ est created by his sel imd even though the \:

(2) In.the case .o~ ment ha vmg an or1g1 than fixtures, see sec interest even though Hecurity interest, for hold purposes or h purchase the secure< Huch goods.

~\

77 STAT. ] ' ':~

PUBLIC LAW a._ .. 43-DEC. 30, 1963

(h) in i<le11tifiaule cnsh proceeds in the fomi of moneJ which is uot comminirle<l. with other money or deposited in a ha11k lH'('OUllt

prior to the· insoh-ency proceedings; ( c) in identifiable cash proceeds in the form of checks aml the

like which are not deposited in a bank account prior to the insoh·ency proceedings; and

(d) in all c1tsh and bank accounts of the debtor, if other ca~h

11roceeds have been commingled or deposited in a bank account, mt. the perfected security interest under this paragraph (d) is

( i) subject to any dght of set-off; and (ii) limited to an amount not greater than the amount of

any cash eroceeds received by the debtor within ten days before the mstitution of the insolvency proceedings and commingled or deposited in a bank aceount prior to the insolvenc.r proceedings less the amount of cash proceeds received by the debtor and pa.id over to the secured party during the ten day period.

(f>) If a sale of goods results in an account or chattel pnper which is trnnsferred by the seller to a se<'ured party, and if the goods :tr\.' '"turned to or are repossessed by the seller or the secured pa11y, the following rules determine priorities:

(a) If the goods were collateral at the time of s:tle for an indebtedness of the seller which is still unpaid, the original security interest. attaches again to the goods and continues as a p:?rfected security interest if it was pedected at the time when the goo~ls were wld. If the security interest was orig:nally perfected by .l.

tiling which is still elfective, nothing further is required to continue the perfected status; in any other ease, the secured pilrty must take possession of the. returned or 1-epossessed goods or must file.

( b) An unpaid trnnsferee of the chattel paper has a security interest in the goods against the trnnsferor. Such security interest is prior ton security interest asserted umlt>r 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 interei:;t 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 paragraph (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 operat'.ons takes free of a security interP.st created by his seller even though the security interest is perfected 1md even though the buyer knows of its existence.

(2) In the case of consumer goods and in the case of form e<p1iprnent having an original purchase price not in excess of $2,500 (other th1m fixtures, see section 28:9-318), a buyer takes free of a security interest even though perfected if he buys without knowledge of the Hecurity 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 11uch goods.

757

i8 PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT.

§ 28:9-.'lOS. Purchase of chattel paper and non-negotiable instruments

.\. purehaser of <'hnttel pa per 01: a 11011.-n~got iahle i.nsl rm11e11t who gfres new rnlue and t11kes possess10n of 1t m the 01"<l111ary <·011rse of his husines...; a11<l witho11t k11owle1lgl'. that the spe<"iti<~ paper or in.stru-111e11t. is subject to 11 i:;e<·mity interest. has priority m·er a ?e<;urit:y .in-1 p1·est wh i<·h is pt>deded nn<ler sl'd.1011 ::!H :H-:\04 (perm 1Hs1 \'e tilmg :11ul te111 porn r·y perfeC'tio11) .. .\. l?l!rt;hnser of ~~hattl'l pa per wit~> giv~is new \'al11e and takei:; posst•s:-;1011 of 1t m the onl111ary <·0111·se of l11s bui:;1-11esi:; has priority o\·er a Hl'<'ll.''!ty i11tl:'l'e:->t ir~ chattel pap~r ":hich is dai111ed 111erely a:-; prrn·ee<ls of 111\'e11tory s11hJel'f to a se!'11~·1.ty 111terei:;t (sedio11 ::!H:9-:1!16), e\·eu tho11,td1 lw knows that the spp1•1fk paper is imbject to the se1·11rity interest.

§ 28 :9-.309. Protection of purchasers of instruments and docu-ments · ·

Xothi11g in this a1;ti<·le limits thp 1·ights of a lwl<ln in due <·011rse <if a 11e1rotiable. i11str11111ent (sectio11 ::!8 ::\-:10-2) or a holde1· to whom a. 11eirotiable <lrn·11111e11t of tit le h:ts hePll duh· 1wgot iate<l ( se<~t ion i8 :7-tilll) or n lm11a fide [Hll'<'lt:1se1· of n ~ec·11r'1t \' · (s(•c·1 ion :!8 :K-:~01) and siwh holders or p111·c·hase1·s take pt·ior:ty ,;\'Pl' au earlier sec·ur ty i11-

. t Prest e\'ell though perfedt>c l. l•'i I i111! 1111de1· th is a rt ic·le doP., 11ot. eon!.t; t11te 110tic•1;> of the se1·11rity i11te1·est his1wJ1 holder::; or p1m·hasers.

§ 28 :9--.310. Priority of certain liens arising by operation of law "·lien a person in the orct:11:1ry !'0111·s(> of liis_ lmsi1iess l\1mi.s!1es ser\·

i1·1;>i:; or nmterials with respet't to gornls.suhje!'t to a se('111·1ty mrerest, a lien upon goods in the p!!Hse:::sim1. of such perso_ll gi\'e11 h,\~ st11tute or nrle of Ju w for s1wh ma term I:-; or sPn wes takes 1iriont .v <H"e1· a pl'rfe<"ted s1;><·11ritv interest 1111'1;>ss the l_il'll is stnt11tory a11<l tlw statute exprf:'Hsly provides otherwise.

§ 28 :9-311~ Alienability of debtor's rights~ judicial process The llehtor's l'ights in !'ollareml may IJP ,-ol1111t~1r-ily or ill\«Jl111it11rily

t rani:;fer1·e<.l (by way of sale, ~'l'P:~t i.0111.1f a se<·11rity in.tP1 est, a!taC'lunent! lPvy, ,garn1i:;hment. pt• other ,111d1<·rnl p:o~·~ss) notw1thst1~1_1d111g 11 p_rovision in the. see11r1ty agree111e11t prol11h1t111g nny t1·:111sfer or makmg the tmnsfer constitute a default.

§ 28 :9;-.--312. Priorities among conflicting security interests in the same collateral

(1) The rules of priority stnted in the fo!lowing :-1e<'tio11i; r-;hall g~,·ern where applieahle: ;;edion 28:4-208 with resped to the see11l'lt)' interei;t of collect in~ hauks_in items ™;ing colle<'te<~, :1<'<'<?lllP:!11ying <l~l<'-11me11ts and proceeds: sed1011 28 :n-.~01 011 <·e1t:1 m 1>1·1ont.'"'s.: Sl'd ion 28 :9-304 on goods co,·ered by documents;· section 28 :9-.~0h 011 proceeds and repossessions; sect ion 28 :9-!307 011 buyers of goo<ls; se<'t ion 28 :9-308 on possessory against non-possesHory interests in chat!el paper or non-ne ..... otinble instruments; section 28 :!l-:109 on security interests in negotiable instruments, documents or securities; section 28 :9-31~ on priorities b.etween perfected secu~ity. interests. and lien~ by ope!-'atu~n of law i section 28 :9-313. on security mterests 11_i fi~ture~ as ngamst mterests m real estate; section 28 :9-:U4 on security rnterests in accessions as against interest in goods; section 28:~)--~15 on conflicting security interests where goods lose their identity or.hec«;>nw part of a product; and se~tioi:i 28 :9~16 on contractual subord1:iatton.

(2) A perfected security mterest m crOJ?S for new valu~ f!trnn ·to enable the debtor to produce the crops durmg the product10n se1u:io11 and given not more than three months before the crops become :rro.winu crops by planting or otherwise takes priority over an earher pe~fected security interest to the extent that snch earlier interest

1

I

77 STA.T. J PUBLI

scc11res obligations due 111

g1·owil1g crops by planti1 iiw new vah1t- lrnd know

(a) A purchase money pl'iority m·er a conflicti11

(a) the purcluu1e time the debtor rece

(b) any secured J

1 he holder of the pm to the date of the money security inter the same items or ty the purchase money possession of the coll: interest.; and · (c) such notifi<·ati

has or expects to aC' in:ventory of the debt

(-:I:) A purchn~ :i.1one i1H·e11tory hrcs priority o\ !'Ollnteral if the pure has! time the debtor receires 1lavs thereafter-.

·u>) In a 11 cases not 1:!' ( i11cludi11g cases -0f _pure qualify for the specml_p1 of this seetion), priority same eoll11.teml shall be df - (it) in the order o-

less of whieh seeurit :!04( 1) ·au<l ""hether

(l>) in the order "filing, regardless of section 28:9-20-:1:(1; whether it nttachedl:

(c) in the order< long- as neither is per

(Ii) For the purpose< 1·eding subsection, a. eont tn•ated at all times as i rwrf(>(·ted and it shall be than hy liling if it was<

§ 28 :9-313. Priority of ( 1) The rules of this s

a !itl'Ucture in the manm work and the like and l

a1;ticle unless the structt bte law. The law of th whe1her nnd when other pre,·ent creation of nn e !'llll nt tot.he law applicnb

(2) A security mtere~ fixtures takes priority n who have an interest in ( 4:).

(:1) A security iutere lixt ures is valid against in the real estate excer against any person witl

t

------------------------------------------

77 STAT. J PlBLIC LAW 88-2-t.3-DEC. 30, 1963

secures obligations 1hw 11101·e than ,.;ix 111011ths ht•fore thf' cl'Ops lil'<'ot110

growing crops OJ pla111i11g or otlit-1·wise, l'\"Pll though tlie 1wrso11 g;i1·i11g ne-w \'a]11p had knowledge of tlw 1•arli1•1· sp1·11rity intt•n•st.

(a) A purchase money secm·it~' interest in inn•ntory 1·ollateral ha,.; prio1·ity o,·er a contlictin,!! see1mty intPre-st in the same collateml if

(a) the purchase money security intert>st is perfl'cte1l at the time the debtor reeei\'e8 poi;se11sio11 of the collateml: and

(b) any secured pnrty whose ;:;eeurity interest. i:-i k11ow11 to the holder of the purchase mo11ey 11ecurity interest or who, prior to the <lnte of the filing 1111ule by the holde1· of the p11rclu1se money security interest., had filed :t fi11anci111! st:lteme-nt 1·ove1·i11;.r the same items or tvpe of in,·entorv, has received notification of the purchase money se<·nrity i11te1-E-st before the debtor l'P<'1•i1·es possession of the collateral l'o1·ered hv the p111·<'hase 111011e,· til'<'nritv i11terest:nnd · · ·

(c) such 11otitfratio11 states that the pt>rson giving the notice has or expects to 1H.'<p1ire rt pm·1•hase money i:;el'Hl'ity inte1·est in im·entory of the debtor, des1·1·ihing sueh inwntm·v hv item 01· t\·pe.

(.:!) A purchase money security interest in eoll:lte11il other tlwn inventory has priority o,·er a t•o11tficti11g security interest in the same !'Ollateral if the pmchnse mo11ev securitv intel'est is perfede<l at the time the debtor recei,·es pm;i:;e8sion of the collateral or '"ithin ten 1lnys thereafter.

(5) In all cases not gm·e1·1ie(l hy other rnll•s state1l i11 this sedion ( iuC'luding cases of purchase money sel'lll'it y i 11te-rests w h kh 1lo not qualify for the speeial priorities set forth in subsedions (:l) h1ul (-j.) of this se<'tion), priority between contlirting S(;'l'11rity i11ten~sts in the snme collatern l shall be clete1111i11ed as follows:

(ii) int he order of Iii ing if both are iwrfeded by filing, regardless of which seeurity interest attached tirst umler tie<'t ion ~8 :!)-204( 1) nnd wh0~ther it attached before or a ft er fi I ing;

(b) in the order of perfection 1111les.-; hoth are perfeeted by tiling, regardless of which security i11tere::;t attachetl fir& under section 28:9-20-l(l) and, in the <'ase of a filed se<'urity interest, whether it attached before or after filing; and

(c) in the order of attachment. nmler sedion 28:0-20-J.(1) so long as neither is perfected.

(ti) For the puq)()se of the priority rules of the immediately preceding subsection, a contin11ously perfected security interest shall be treated nt all times as if perfected by filing if it wns originally so perfected and it shall be treated nt all times as if perfected otherwise than by filing if it was originally perfected otherwise than by filing. § 28 :9-313. Priority of security interests in fixtures

(1) The rules of this seetion 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 seeurity interest in them exists under this article unless the structure remains personal property under applkabte 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 mterest which attaches to 1:toods before they become fixtures tnkes priority as to the goods over the claims of all persons who ha.ve au 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

759

760 PUBLIC LAW {lB-243-DEC. 30, 1963 [77 STAT.

security interest attaches to the goods who has not in wl'itiiw consented to the security interest or disclaimed an interest in the "'goods as fixtures.

(4) The security interests described in subsections (2) imd (3) do not take priority owr

(a) a subsequent. purchaser for rnlue 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 encumbrnnce of record on the real estate to .the extent that he makes subsequent advances

if th~ subsequent purchase is made, the lien by jud!cial proceedings is obtamed, or the subsequent advance under the pnor encumbrance is made o~ c.ontracted for without knowledge of the security interest and before 1t 1s perfected. A purchaser of the real estate nt a foreclosure sale other than an encumbrancer purchasing at his own foreclosure sale is a subsequent purchaser within this section.

(5) 'Vhen under subsections (2) or (3) and (-l) 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 estllte 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 Ya lue of the real estate caused by the absence of the J?:OOds removed or by nny 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 athtches 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 in valid against any person with an interest in the whole at the time the secu~ ritv interest attaches to the goods who has not in ''-riting 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

( 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 interest is made or contracted for without knowledge of the security interest and before it is perfected. A purchaser of the whole at a. foreclosure sale other than the holder of a perfected security interest purchasing at his own foreclosure sale is a subsequent purchaser within this section.

77 STAT.]

(-!) "'hen under~ has an interest in ace persons who have in to the provisions of he must reimburse a not the debtor imd wl of nny physical inju whole caused by the ,, for replacing them. permission to remov1: for the performance o

§ 28 :9-315. PrioritJ (1) If a security i

the goods or a part · the security interest c•

(a) the goods commingled that

(b) a financir covers the prodw proeessed or asse1

In a case to which pa; in that part of the processed or a.ssemblt ~8:9-314.

( 2) 'Vhen under : attaches to the prod1 ratio that the cost ( nttached hears to the< § 28 :9-316. PrioritJ

.Nothing in this iu1 person entitled to pri• § 28:9-317. Securec

The mere existe11c1: 1lebtor to dispose of • liability upon the se• § 28 :9-318. Def el1S4

after assig1 assig

( 1) rnless nn nee not to assert defense ;;ection 28 :9-206 the

(a) all the te and assignor am

( b) any othe1 the assignor wl notification of tl

(2) So far as the 1

has not already beco of the assignment, 1u made in good faith standards is effectiv has otherwise agree( under the modified 01

''ide that such modifi ( 3) The account {

account debtor receh

77 STAT.]

~f~ PUBLIC .. /Sa-243-DEC. 30, 1963

(4:) "·hen under subsections (1) or (:l) arnl (:~) a sec·u1·ed pal'ty lias an interest in aeeessions \\'hiclt has priol'ity oYer the claims of all persons who have interests in the whole. he nrnv on default suhjed to the proYiSiOllS Of part ;) remo\·e his coJ1atera i from the whole but he must l'eimburse any encumbrancer or owne1· of the whole who is not the debtor and who has not otherwise agreed for the cost of repai1· 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 11eces...,it\· for replacing them. A person entitled to reimbursement may refns'e permission to remove until the secured party gi,·es adequate sernritv 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 snbsequent ly the goods or a part thereof h;tve 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 identitv is lost in the prod!1ct or mas:i; 01·

(b) a financing statement· coverincr the original goods also covers the product into which the gooJs ha,·e been manufactured, proeessed or assembled.

In a case to which paragraph ( b) applies, no separnte security interest in. that part of the original goods which hns heen manufactured, processed or assembled into the product may be claimed under section ='8:9-314.

(2) 'Vhen under subsection ( 1) more than one security interest attaches to the product or mass~ they rank equally aceording to the ratio that the cost of the gooas to which each interest originally attached bears to the cost of the total product or mnss. § 28 :9-316. Priority subject to subordination

:N'othing: in this :u~ic~e prevents snbordinntion by agreement by any person entitled to pr10r1ty. § 28:9-317. Secured party not obligated on contract of debtor

The mere existence of a security interest or authority gi,·en to the debtor to dispose of or use collateral does not impose contmct or torr liability upon the secured party for the debtor~s acts or omissions. §28:9-318. Defenses against assignee; modification of contract

after notification of assignment; term prohibiting assignment ineffective; identification and proof of assignment

(1) Fnless an account debto1· 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 contrnct between the account debtor nnd assignor and any defense or claim arising therefrom; and

(b) any other defense or claim of the account debtor ago.inst the assignor which accrues before the account debtor receives notification of the assignment.

(2) So far as the right to payment under an assigned contract right has not already become an account, and notwithstanding notification of the assignment, any modification of or substitution for the contract made in good faith and in accordance with reasonable commercial standards is effective against an assignee unless the account debtor has otherwise agreed but the assignee acquires corresponding rights under the modified or 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

761


:uul that pilyment is to he made to tl~e assigne.e. _\. ~ot.ificatio~1 which Joes not reasonnblv identify the rights assigned is meffect1ve. If requested bv the a('Z·ount debtor, the assignee must seasonably furnish reasonable ·proof that the assignment has. been made and unless he (loes so the a('count debtor may pay the assignor.

(-!) A term in any contract between an account debtor an~ an assi~nor which prohibits assignment of an account or contract right to which they are parties is ineffectire.

PART 4-FILING

§ 28 :9-4:01. Place of filing; erroneous filing; removal of collateral ( 1) The proper place to file in order to perfect a security ii:ter~t

is, in nil cases, in the office of the Recorder of Deeds of the D1str1ct. In this a1·ticle, ''filing officer'! means said ~eco~der .. ~"'ir"-'7 O'~

(2) A tiling which is made in good faith m an improper !?lace 1s 11evertheless etfe<'tive with reO'ard to 1lJ~Ollnteral as to wluch the tilmg ('Omphed with the requi~ements of this artic.Ie an~ is also effective with regnrd to collateral co,·ered by the finnncmg s~atem~nt against any person who lrns knowledge of the contents of such financmg :statement. . .

(:3) A tiling whieh is mac_le in the properflac~ contmues effect.1ve eYen though the debtor's residence or place o busmess .o~ the lo~at10.n of the colh1teral or its use, whicheYer controlled the or1gmal filmg, 1s thereafter changed. . . . .

(-!) If collateral is brought. into the District fr<?m .another .Jurisdiction, the rules stated in section ~8 :!J-103 determme whether fffii.lg

·tsc:necessary in the District. § 28 :9-402. Formal requisites of financing statement; amend

ments (1) ..\. financing stiitement is suffi<'ient if it is signed by the debtor

and the secured party, gi,~es an address o~ the secured party ~rom which information concerning the security mter~st may be o:bta!ne~, o'i\-es a mnilinu address of the debtor nnd contams a statement md1-~ating the typ~, or describing the item~, of collateral.. _.\. financing statement may be tiled before a security agreement !S made or a security interest otherwise attaches. "~hen the fin~ncmg statement coYers crops growin(J' or to be grown or goods which are or are to become fixtures the ~tatement must also contain a description of the real estate con~rned. A copy of the security ag1~ment i~ sufficieJ?-t ns a financing statement if it contains the above mformat10n and is signed bv both .Parties.

(2) A. fimmcm(J' statement which otherwise complies with subsection (1) is suffici:nt although it is signed only by the secured party when it is filed to perfect a security interest in

(a) collateral already subjed to a secu~ity. interest in another jurisdiction when it is brought into the District. Such a financmg statement must state that the collateral was brought into the District under such circumstances.

(b) proceeds under section 28 :9-306 if the securi.ty interest in the original collateral was perfected. Such a financmg statement must describe the original collateral.

77 STAT.] PUBLIC

\ 3) _\. form substantially ;.;nbsection (1):

Name of debtor (or Address------------· Name of secured pa1 Address ___________ _

1. This financin; (or items) of prop.

(Describe' 2. (If collateral

are growing or are (Describe

oF O~ytf?. 3. (If collateral .,--(!JI" f!ures) The above

t..£-vI'f er to: (Describe

4. (If proceeds Prot'eeds-Produc·

Signature of Signature of ~

( +) The term "tinancin~ the original financing sta_ :tmendment ndds <'ollutem only from the filin~ date of 1

( 5) A financing stnteme1 ments of this sedion is etfE which nre not seriously mis1

§ 28 :9-403. What constit lapsed fili11

( 1) Presentation for fil the filing fee or accephmce tutes filing under this artic l

(2) A filed fimmcing sb obligation secured of fh-e ~ date and thereafter for a p ing statement is e!f ectire tiling. The etfeetn'~ness ' expiration of such sixty d: the expir!1tion of such .fo· continuat1011 stntement 1s f security interest become? which states that. the obli~ tive for five years from the

(3) A continuation stn1 within six months before of five years or less, an<l the expiration of the five : snch continuation stateme tify the original statemer Htatement is still effect.iv statement., the effeetivene: five years after the last da it lapses in the same m: another continuation stah <'ontinuation statements 1

the effectiveness of the 01 sit.ion of public records , move a lapsed stutement f

~) 77 STAT.] PUBLIC LA v. 08-243-DEC. 30, 1963

~a) :\ form !-uh:;tantially as follow~ is ~ufficient to comply with ;.;ubsechon ( 1) :

Na.me of deutor (or as:;ignor)_____ -----------"\ddress ____________ ------··- ------- -------- ---- -Xame of secured party (or assigHee)----------------------

1.. This linaneing statement co,·ers the following types (or items) of property: ,

(I>escribe)-------------------------------------2. (If collateral is crops) The aboYe described erops

are growing or are to be grown on: (I>escribe Real Estate) ________________________ _

3. (If collateral is goods which nre or are to become fix· tures) The above described goods are affixed or to be affixed to:

(I>escribe Real Estate) 4. (If proceeds or products of eollateml are C'laimed)

Proceeds-Products of the collateral are nlso eo,·ered. Signature of Debtor (or .\ssig110r) Signature of Secured Party (or As."iiil?'nee)

(4) The term "li11anci11g statemenr·· ns used in this artiele means the original fimmriug statement and any ameuclmentH but if any nmendment adds l'ollnteral. it is etfe<'tiYe as to the added <'ollnh'I'al only from the filing date of the ameHdme11t.

(5) A financing statement 8llUsta11tiall,v e0111plyingwith the requirements of this sedion iH etfeeti,·e e\·e11 though it 1·011tnins minor error:; which are not seriously misleading.

§ 28 :9-403. What constitutes filing; duration of filing; effect of lapsed filing; duties of filing officer

( 1) Presentation fol' filing of a fin:uwing statement and tender of the filing fee or acceptnnce of the statement by the filing officer consti· tutes filing under this n1ticle.

(2) A filed financing Htntement "·hich statl:'s a 111at11rit.v date c,f the obligation secured of fin~ years or le8s iH etfeetive until such mnturity date and thereafter fo1· n period of sixty clitys. Any other filed tinan<'· ing statement is effective for a period of live years from the <late of tiling. The etfecti,·eness of :1 tilecl tinm1eing stntf'ment lapses on the expiration of sueh sixty clay period after n Htate<l matnrity elate or 011

the expiration of s11d1 fh-e year period, a8 the ease mny he, unless n continua tio11 statement is filed prior to the la p!<e. 1 • pon such In pse the security interest becomes uuperfec·te<l. .\ tiled tinan('ing statement which states that the obligation secured is pH_Y<thle 011 cleman<l is effective for five yen rs from thednte of filing.

(3) A continnat.iou statement may be tiled by thf' secured party (i) within six months before and sixt\· davs after a st<lted matnritv date of five .Years or less, and (ii) otlierwise within six months prior to the expiration of the fiye year period specified in snhsect ion ( 2). Any such continuation statement must be signed by the secured pnrty, iden· tify the original statement by file number and state that the original statement is still effective. Cpon timely filing of the continuation statement, the effecth·eness of tl1e original statement is continued for five years after the last date to which t11e filing was effective whereupon it lapses in the same manner as prO\·ided in subsection (2) unless another continuation statement is filed prior to such lapse. Succeedingrontinuation statements may be filed in the same manner to continue the effectiveness of the original statement. rnless a statute on disposition of public records pro,·ides otherwise, the filing offi('er nmy remove a hlpsed .~ta tement from the files nnd destroy it.

763


(±) ~\.filing officer shall mark en('h stnteme11t with a ronse('11tive filp number nnd with the elate an<l hour of filing and shnll hold the statement for public inspection. In nddition the filing: offiC'er shall index the statements HC'Cording to the name of the debtor and shall note i11 the index the file nnmber and the address of the debtor giren in tlw statement.

(5) The unifom1 fee for filing, imlexing- and furnishing: filing dnta for a,n original or a conti111rntion stllteme11t slrnll he $2.00.

§ 28 :9-404. Termination statement (1) 'Vhenever there is no outstanding !:'leC'ul'e(l obligation and 110

~commitment to make adnuwes, incur obligations or otherwise gin n1lue, the secured party must on written demand by the debtor send the debtor it statement that he no longer clnims a seeurity int~rest under the financing statement, whi<'h shall he identified by file number. A termination statement signed by a person other than the secured party of record must include or be aeeompunied by the assignment or a statement by the secured partv of rl:'cord that he has assigned the security interest to the signer of tlie termin11tion statement. The uniform fee for filing and indexing such an nssignment or statement thereof shall be $2.00. If the a tferted secured pnrtv fails to send surh a termination statement within ten days after proper demnml therefor he shall be liable tot he debtor for one hundred dollars, nnd in addition for any loss caused to the debtor by such failure.

(2) On presentation to the filing offfrer of surh n termination statement he must note it in the inclex. The filing: officer shall remove from the files, n1ark "terminated~' and send or deliver to the secured parh· the. financing stntement and any co11tin11atio11 statement, stntf'ment o~f nss1gnment or statement of release pertaining thereto.

(3) The uniform fee for filing and indexi11g n terminntion statenre.11t including sending or delivering the finanC'ing statement sha 11 be $2.00. § 28 :9-405. Assignment of security interest; duties of' filing

officer; fees (1) A financing statement may <lisclose an assignment of a security

interest in the eollaternl described in the statement by indi<'ntion i11 the statement of the name and address of the assignee or by an assi~nment itself or a copy thereof on the faC'e or hack of the statement. Either the original secured party or the nssignee may sign this statement as the secured party. On prese11tatio11 to the filing offieer of sud1 a financing statement the filing offieer shn 11 !nark the same as provided in section ~8:9--t.0:5(4). The uniform fee fm· filiug, indexing all<l fur.nishing filing dntn for a limrncing stnternent so i11dicati1ig a11 m1s1g11ment shall he $2.00.

(:2) .A secured party may assign of reeord all or a part of his rights under a financing statement by the filing of a separate written stntement of assignment sig:ne<l by the secured party of record and setting forth the nnme of the secured party of record irnd the debtor, the file number and the date of filing of the financing statement nnd the name and address of the assignee and containing a description of the collateral assi~ned. .A copy of the assignment is sufficient as a separate statement if it complies with the preceding sentence. On presentation to the filing offic~r of such it separate statement, the filing office-r shitll 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 foo for filing~ indexing and fumishing 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 pa,rty of record.

77 STAT.] PUE

§ 28 :9-406. Release of A secured party of

a II or a part of any coll: The statement of relea& collateral being release• name and address of ti financin~ statement. l filing officer he shall att to which it relates nnd the index record thereof statement. of release, an fee for filing and notin

§ 28 :9-407. Informati (1) If the person fili1

ment, statement of assii tiling officer a copy the upon the copy the file 1

original nnd deliYer o (2) '[pon request of

certificnte showmg wh ~tated therein, any pr a particulnr debtor iuH there is, giving the da itnd the names and add1 form fee for such a cert ing statement and for t

Upon request the filing ing, continuation or ter or release for a unifor and $1.00 for each add

§ 28 :9-501. Default; both re

( 1) '\Yhen a debtor secured party has the except. as limited by : n~reement. He may r< wise enforce the securi If the collateral is d<> :ts to the documents o party in possession h: section 28 :9-207. Th tion are cumulative.

(2) After default, 1 in this part, those pro vicled in section 28 :9---'

(3) To the extent t duties on the secured I to below may not be " to compulsory dis:poE 28 :9-505) and with 28 :9-506) but the pa· bv which the fulfillm• if such standards are

(a) subsection section 28 :9-504 proceeds of colla.t

77 STAT.] '~

PUBUC LAW, 243-DEC. 30, 1963

§ 28:9--106. Release of collateral; duties of filing officer; fees A secured party of record may hy lus signed stntement release

all or a part 01 nny collateral descrihe1l in.~ filed tinancing statement. The statement of relense 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. rpon presentation of sm:h a statement to the filing officer he sha II attnc h the sti1tement of i-elense to the instrument to which it rehltes 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 n facsimile of his signature. The uniform fee for filing irnd noting such a statement of 1-elease shall be $2.00. § 28 :9-407. Information from filing officer

( 1) If the person tiling any tinanr.ing statement, terminntion statement, statement of assignment, or statement of release, furnishes the tiling officer a <'opy thereof, the filing officer shall upon request note upon the eopy the file number nnd date and hour of the filing of the original and delh·er or send the copy to such person.

(2) rpon request of any person, the filing officer shall issue his certificate showmg whether there is on file on the date and hour i:-tated therein~ any presently etfectirn tiuancing statement naming a particular debtor and any statement of assi1.r11ment thereof and if there is, gi,·ing the date and hour of filing of each such stntement nnd the names and addresses of each secured party therein. The uniform fee for such a certitiri1te shall be $1.00 plus $0.50 for each financing statement and for eaeh statement of assignment reported therein. lTpon 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 $:too for the. first two pages or less, and $1.00 for each adclitional page. plus $0.50 for certification.

PART 5-DEFAULT

§ 28 :9-501. Def a ult; procedure when security agreement covers both real and personal property

{l) \V11en a debtor is in default under a security agreement, a '7!l secured party has the rights and remedies prO\·ided in this part and ., except as limited by subsection. (3) those prO\•ided in the security ·1',,,~)1 agreement. He may reduce his claim to judgment, foreclose or other- '' wise enforce the security interest by any avnilable judicial proce~ure. 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 cumulath·e.

(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 wairna or varied except as provided with respect to compulsory disposition of collateral (_subsection ( 1) of sect!on 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;

i 765


(b) subsection (a) of section 28:9-ii04 arnl s11h::;edio11 (!)of section 28 :9-505 which deal with dispo::;ition of rnllateml;

(c) subsection (2) of section 28:9-505 which <len18 with acceptance of collateral as discharge of obligation;

( d) section 28 :0-506 which deals with redemption of collateral· and

( ~) 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 cn.se the provisions of this part do not apply.

(5) "!hen n seemed pnrt~' has reduced his 1·laim to judgment the lien of nn~ le\·y whi<'h may he. mnde upon his <'ollaternl by \·irtue of any executwu lmsed upon the 1udgme11t shall rt>late hnek to the date of the perfeetion of the se<'lll'itv interest in sud1 collnteml. .-\.judicial sale, pursuant to su<'h exee11tioi1, is a fore('los111·e of tlw seeurity interest hy jndieial proeedme \\·ithin the meanin~ of this section, and the S(>(•ure<l party may pllr<'lmse at the sale and theren ftt'l' hold the collaternl free of any other requirE:>ments of this nrticle. § 28:9-502. Collection rights of secured party

( 1) 'Yhen so agreed and in any e\·ent 011 default the se<'med party is enftled to notifv an iu·count del)tor or the ohligor on an instrument lo make. pnyment to him whether or not the a::;:-;;ignor Willi theretofore mnking- <'olle\·tions on the collaternl, and also to take control of anv pro<'eecls to whiC'h he is ~>it it led nnder section 28 :9-~06. •

(2) A seemed partv who by agl'eeme11t is entitled to 1·hnrge li:ij~k 1\lll'Olle<·ted co1Jatera] or othel'wise to full 01' limited l'e<"OllrSe ngnif}~r.1. the debtor and who undertakes to collect from the ac<'o1111t ·de o" or ohligors must proct"ed in a commercially reasonable 1rn1n ,nd mav deduct h;s rensonab1e expenses of realization from the col 1~ •

If the security agreement secures an indebtedness, the secm·ed a ·ty nrnst. account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for nny deficieney. But, if the underlying transaction wns a sn le of aceounts, contrnet rights, or chattel paper, the debtor is ent:tled to :my surplus or is I in hie for any defi<'ien<'y only if the security ag1·eement so provides. § 28 :9-503. Secured partyts right to take possession after default

lTnless otherwise agreed n secured party has 011 default the right to bike posses::>ion of the collaternl. In t'nking possession a seenred rrnrty may proceed without judi~ial process if this can be done without breach of the peace or may/roceed by ad i01.1. If the se<'lll'i ty agreement so proY:des the s1:>cure party may require the debtor to assemble the collateral and m:'ke it available to the seeured party at a place to be designated by the secured pnrty which is 1·eas01mbly convenient to both parties. 'Vithout remo,ral a sPcured partv may render equipment unus'.lble, and may dispose of collateral on the debtor's premises under se.ct1on 28 :9-50 t § 28 :9-504. Secured party's right to dispose of collateral after de

fault; eft'ect of disposition (I) A secured party after default may sell. lease or otherwise dis

pose of any or all of the collateral in its then condition or followinl! any comm"ercially reasonnble preparation or processing. Any salP of goods is snbiect to the ,,rfc1e on s'\les (nrticle 2). Tiu~ proceeds of. disposition shall be applied in the order following to

77 STAT.] PUE

(a) the reasonable ' :;a le, selling and the ! ngreement and not p1 fees and legnl expens<

(b) the satisfactioi interest under which 1

( c) the satisfactiot1 security interest in tlu therefor is received l pleted. If reque.sted ordinate security int proof of his interest, t not. comply with his <

(2) If the security in1 pa1ty must acconnt to the aureed, the debtor is liabl t ;;'ansaction wns a. sRle of the debtor is entitled to a1 if the security agreement

( 3) Disposition of the ceedings and may be mad other disposition may be place and on any terms l the method, manner, time sonable. Unless collater: ily in value or is of a ty) reasonable not.ification o reasonable notification of intended disposition is t( to the debtor, and except person who has n securit. filed a financing stateme District or \Yho is kno\1 intere.st in the collateral. sale and if the collateral market or is of a type standard price quotation

( 4) When collateral i~ the disposition transfers ri~hts the1·ein, discharge.; and any secui'ity interes· takes free of all such r party fails to comply \\ judieinl proceedings

(a) in the case of edge of a.ny defects with the secured pi the sn.le; or

( b) in any other ( 5) A person who is

in< lo1'Sement, repurcha84 transfer of collateral f1 rights has thereafter tlu a. hansfer of collnternl nnder this art.icle.


(a) the reasonable expenses of retaking, holding, preparing for sale, selling and the like and, to the extent prO\·ide<.l f01· in thP agreement and not prohibited by law, the reasonable attomeys" fees and legal expenses incu1Ted by the secured party:

(b) the satisfad.ion of indebtedness secured by the security interest under which the disposition is made;

( c) the satisfaction of indehtedness 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, subordina.te security interest must seasonably furnish reasonable proof of his interest, and unless he does so, the secured party need not comply wit.h his demand.

(2) If the security interest secures an indebtedness, the secured p:trty must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency. But if t.he 11nderlyingrt~'l.nsaction was a. sale of accounts, contract ri!!hb;, or chattel paper. the debtor i~ entitled to any surpl~1s or is liable for any deficiency only if the security agreement so provides.

(3) Disposition of the collateral may be by public or prirnte proceedings and may be made by way of one or more contrads. Sale or other disposition may be as a unit or in parcels and at. any time and place and on any terms but eYery aspect of the disposition i11cludin:.r the method, manner, time, place and terms must be commercially rea-80nable. Unless collateral is perishable or threatens to decline speedily in Yalue or is of a type customarily sold 011 a recognized market. reasonable notification of the time and place of any public &'l.le or reasonable notification of the time after which any prinite sale or other intended disposition is to be made shall be sent by the secured party tot.he debtor, and except in the case of consnmer.i.r()(){ls 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 t.he debt.or in the District or who is known by the secured party to have a security interest in the colb.teral. The secured party may buy at ifry public sale and if the collateral is of a type customarily sold i11 a reeoi-.111ize~l mn,rket or is of a type which is the subject of widely distribute<f st11.ndard price quotations he may buy at private sale.

(-J.) 'Vhen collateral is disposed of by a secured party after default, 1

•

the disposition tr:<;1sfers to a purchaser for value all of the debtor~s ri1.d1ts therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto. The purchaser tnkes free of all such rights and interests Hen though the secured party fails to comply with the requirements of this Part or of any judil'ial 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. (i">) A person who is liable to a secured party under a guaranty,

i111lo1-sement, repurchase agreement or the like and who receives a transfer of collateral from the secured pa1ty or is subrogated to hiH rights has thereafter the rights and duties of the secured party. Such a t.ransfer of collateral is not a sale or disposition of the collateral under this a1ticle.

767


§ 28:9-5p5. Compulsory disposition of collateral; acceptance of the collateral as discharge of obligation

(1) If the debtor has paid sixty per cent of the cnsh price in the case of a, pnrdrnse money seenrity interest in consumer goods or.sixty per cent of the loan in the case of another security interest in consumer goods, and has not signed nfter default a stntement renouncing or modify_ing his rights Hnder tl~is pnrt a. secured par.ty who has taken possess10n of collntera l must dispose of 1t under section 28 :!)-504 and if he fails .to do. so within ninety days after he takes possession the dehtor at. !us opt 1011 may reco,·e.r m co11'"ersion or nnder seetion 28 :9-50i (1) on secured pat1y's liability.

(2) In any other case im·oh·ing consumer goods or any other collateral a secured pa11y in possession 111<1v, after default, propose to retnin the collateral in sntisfaetion of the~ obligation. 'Vritten notice of such proposal shall be sent to the debtor and except in the case of consumer goods to nny other secured pnrty who has a security interest in the collateral and who lrns duly tiled n financing stittement indexed in the nnme of the debtor in the District or is known by the secured party in possession to ha Ye n security inte1-est in it. If 'the debtor or other person entitled to re<>eive notification objects in writing within thirty da,vs from the. re<'eipt of the notification or if any other secured pa11y objeets in writing within thiI1y days after the secured party obtains possession the secured party must dispose of the collateral under section 28 :9-504. In the absen<'e of such written objection the secured party may retnin 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 c

entered mto a contract for its disposition under section 2 before the obligation has been discharged under section 28. the debtor or any other secured party may unless otherwi in writin~ after default redeem the collateral by tenderin:r ful ment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the ag-reement and not prohibited by law, his reasonable attorneys' fees and legal e.xpenses. § 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 with the provisions of this Part dispasition may be ordered or restrained on appropriate terms and condit10ns. If the disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this Part. If the collateral is consumer goods, the debtor ha.a a right to reeover 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 conunercially 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

77 STAT. J PUB

he has sold in it eonum ~tated in the two preced: ns may be appropriate I which has been nppro,·e· lide creditors' committe elusively be deemed to b does not indicate thnt 1111 nor does it indicate that mercially reasonable.

ARTICLE 10-0

Sec. :.!~ :l0-101. (Omitt('(l.) :.!IS :10-102. W.mitted.) :.!8 :10-103. Inconsistent la'' :!8 :10-104. Laws not. repea:

§ 28 :10-101. (Omitted. § 28:10-102. (Omitted. § 28:10-103. Inconsist•

Except as provided bJ is inconsistent with this :-ubtitle or the inconsis1 provides otherwise. § 28 :10-104. Laws not

( 1) The a.rticle on d( or modify any laws pre!: title or the services or fn l·egulating bailees' busi1 herein ; but the fact tlu Htatus of a document • definition of a document

(2) This subtitle d0< Columbia Uniform Ac Transfers, approved Ju l'hapter II of chapter 23 1961 edition, and if in a that Act and article 8 of the provisions of that Ac

SEc. 2. Section 1265 • bia, approved March 3, 1961 ed., sec. 12-201), 1902 (chapter 1329, 32 thereof the following p~

"This section does no sale governed by section

SEc. 3. (a) Section 8 lumbia, approved Marc Code, 1961 ed., sec. 22-H .

"(a) A person or an having executed a seci.11 personal property seem party and having under

" ( 1) both the ri~ and the dut:y to ace the disposition, sel

· willfully and wro1 for proCeeds of dis:

-· ';'";~'.;.

·" '.:("

;/

77 STAT.] PUBLIC LA\\ d8-243-0EC. 30, 1963

he h1l:S sohl in a \'Olll111e1Tia lh· 1·t•aso11able 111<11tllt'I'. Tile priiH"iples litnte<l in tlw two pl'e<"edini.r st>i1tt•11t"es with 1·es\H:'1·t to snles itlso apply as may Le app1·opriatp to ot!iPr typp:-; of disposition .. \ disposition which has Ueeu approwd in auy jrnli<·ia] \H'Ol'<'edi11g- 01· hy any lmn:L lide ereditors' conrn1ittet' or reprPsPutatiw of ereditors shall 1·011-dush·ely be deemed to be t·on1111ercia lly reasonable. hut this sente11ee does not. indicate that any snch approval must he obtained i11 any ease nor ~oe.s it indh·nte that any 1lisposition uot so apprm·e1l is not emnmercrn.Jly reasonable.

ARTICLE 10--CONSTRUCTION WITH OTHER LAWS

See. :!S :10-101. ( Olllitft•tl.) :!ti :10-10:!. i O.tnittetl. l :!8 :10-103. Inconsistent li111·,,:; what law gol"l!l'll:<.

:!8 :ll>-104. Laws not rt>1ieu lt>d.

§ 28 :10-101. (Omitted.) §28:10-102. (Omitted.) §28:10-103. Inconsistent laws; what law governs

Except as proYided by section ~8 :10-10-1, if any prm·ision of law is inconsistent with this subtitle, this subtitle shall go,·em~ llnless this i'ubtitle or the inconsistent prm·ision of the other law :ipecilica lly provides otherwise.

§28:10-104. Laws not repealed (1) The article on documents of.title (artide 7) dues not repeal

or modify any laws prescribin~ the form or contents of doemnents of ~ title or the services or facilities to be nfforded bv baileesi.-or otherwise --~ t"egulating bailees' busines!'es i11 respects not -S-pecilica lly dea It "·it h herein; but the fact that such laws are dolated does not affect the status of a document of_title which otherwise complies with the Jefinition of a document oI title -(section 28 :1-201). :.

(2) This subtitle does not supersede or modify the District ~~' w· .wr.:~. Columbia Uniform Act for Simplific.ation of Fiduciary Securitif · ·.·: :a Transfers, approved July 5, 19CO (74 Stat. 322), being all of sub-.'' r • , .

769

chapter.I~ of cha~te: 23 of Title 28 of th~ Distr~ct of ~::olumuin Code, ;l .. "" 1961 ed1t10n, and if many respect there 1s any rncons1stency between · ... Q::.~. colit<:2s- • that Act. a.nd article 8 of this subtitle reht~ing to im·estment securities, 23 :.h to

2B-2~3.o. .

the prov1s1ons of that Act, rather than article 8, control. -· · SEc. 2. Section 1265 of the code of law for the District of ('olum -t ·

bia, approved March 3, 1901 (chapter 85±, 31 Stat. 138!); D.C. Code, 1961 ed., sec. 12-201), as amended by the Act appro,·ed .June :~o_, 1902 (chapter 1329, 32 Stat. 542), is amended by adding at the enct thereof the following paragraph:

"This section does not apply to actions for breach of contracts for 5ale governed by section 28 :2-725 of the District of Columbia Code.~'.

SEc. 3. (a) Section 839 of the code of Jaw for the District of Cambia, approved March 3, 1901 (chapter 854, 31 Stat. 1326; D.C. ode, 1961 ed., sec. 22-1209}, is amended to read as follows: . '(a) A person or any legal successor in interest of such person, security interest

having executed a security agreement creating a security interest in in personal prop

personal/roperty securing a monetary obligation owed to a secured erty.

party an having under the security agreement: /1 ,,-· "(1) both the right of sale or other disposition of the property l "#fl .

and the dut;y to account to the secured party for the proceeds of ~ I J 1 J'J?) ~ the disposit10n, sells or otherwise disposes of the property but at'# 11(,,~ willfully and wrongfully fails to account to the secured part.y

1 L ~ /

for proCeeds of disposition; or · J ~ / ( 'f Y

~~~-~"""~

0 PUBLIC LAW 88-243-DEC. 30, 1963 [77 STAT. 77 STAT.] PU Bl

"'{2) no right of sale or other (li~position of the p1·?perty, which mny he added a clni

~willfully nnd wrongfully see:etes, ':·1thholds, sells, o~· disposes of said notice to the date 0

k of the property, or cotl\"erts 1t to lus 1_>wn use, or, WI! l10~1t the set forth nt a <laily or we consent of the.secured party, 1-e1.110,:es I~ out. of the D1stnet._or charges prevailing at the t

_ maliciously inJures or destroys 1t, m nolat1011 of the security in excess of $3 per day or$ agreement- in no event cover a period

if the lesser of the rnlue of the proceeds not so accounted for or of the "(b) As used in this sec property so secreted, withh~ld. _sold, disposed of, con:·erted, removed, have the same meanings or injured or destroyed. or, m either case, of the unpaid balance of the 28:1-201 and 28:9-105{i monetary obligation so secured, is more than $100, shall be fined not Code." more than $5,000 or imprisoned not more than five years, or both: or, SEC. 6. (a) The definit' if the lesser of anv of the vnlues as herein described is $100 or less, Information'' in seetion 1 ~ shall be fined not i'nore than $1,000 or imprisoned not more than one 527, 54 Stat. 736; D.C. Cc year or both. ' read as follows:

"{h) In a case in which a debtor in possessi?n of rersonal property \

7 "Lien" shall mean 11

subject to a security interest. who would be gu~lty o an off ens~ under j' interest as defined in s this section, is a corporation or a J?nrtnerslup,_ an officer, ?n:ector, bia Code in, or lien o partner or aaent of the debtor who aids or abets m the comm1ss1on of trailer, or the equipme the offehse shall be punished as prO\·ided by subsection (n) of this thereto, in favor of a :;,ection. . . . . snle of such motor vel

" { c) As used in this section, 'security agreement', 'secur1~y mterest , po::;session and on exec and 'secured earty' have the same meanmgs as those gl\"ell to~ t!1e certificate covering it, terms by sections 28.:9-:-105(h), g8t~-201{3.~), and 28:9-100(1), provided by law or an respectively, of the D1str1ct of Colum ia Code.· . < "Instrument" shall :

ertificate rep- SEC. 4. Subsection (b) of section 20 of the .Act apprond .Tune 8, section 28:9-105(h) , mting shares. 1954 (ch. 269, 68 Stat. 18!); D.C. Code, 1001 eel., sec. 2~-l)08g(b) ), such lien.

as amended by section :3 of the Act 1tpprornd .July 2;l, 19a9 (Pub. L. "Lien information'' 86-106, 73 Stat. 240), is amended _t'? read as fo~lows: name and address of I

"(b) Notwithstanding the prov1s101~s of section 28:8-20-1 of the 28:9-105(i) of the J District of Columbia Code, every certificate represent mg shares the record number if any. transferability of which is restri~~ecl or limited sluill .state up~i; tl!e' , (b) The second' sen ten< face thereofthat the transferab1hty of such sh.ares l~ ~est~1c~.·.·~ qr ·•. ·.• ~' 1940 (chapter 527, 54: 8 limited and upon the face or back thereo.f s_hall e1t~1e~ ~~ fo1 th a full£{/"" . is amen~ed to rea~ as fo

, ~/ . or summary statement of any such restr1ct1on or hm1tat1on upon t~1e . ·· · •~,,.ft/ . f/'f Subtitle I of Title 28 /, \ \\ ( transferability of such shares or shall state th~it the corp.oration w111 .. l- . · u1.l' · np~1.;: to liens record~ as

/JV furnish to any sharehol,?er upon request and without duuge such full •1 ;/-./!/ . vuhd1ty oi: effect dui:mg- t ' \ I or summary statement. . tJtif . l motor velucle or trailer c

' V SEC. 5. Section 2 of the Act approved .T'!ne _3, 1!)52 (chapter ~61, . f-:'' the lien has been filed in 66 Stat. 97; D.C. Code, 1!)61 ed., sec. 38-200), 1s amended to read ns /1 / · , .v SEc. 7. The ~r~t ~ent~m follows: . . . . . (/ .d.J , / 1940 (chapter 021, a4 Sh

~otor vehicles, "SEC. 2. (a) All persons storin~, rep~~1rmg~ ?r furmshmg suppl.1es . rJ1' . !, [; as amended by section 1 c •n for storage, of or concernina motor \·ehicles mcludmg trailers shall hav~ a hen If '.1 il65, 66 Stat. 100), is amei pairs, etc. for their aO'reef or reasonable cl:arges for such storage, repa1i:s,. and ry ! folio.wing words: "and a

~upplies wFien such charges are mcu_rred by an owner or cond1t10n:il provided by law for deeds ,·endee or chattel mortgagor ( includi~1g a grantor of d~d of trust m SEc. 8. The first sent en lieu of mortgage) of such motor Yelncle, and may.<letam such motor rn-t:o {chapter 527, 54 Sta \'ehicle at any time they may have lawful possession thereof .. Such amended by section 2 of ( Jien shall have prioritY. over every securi!Y mtere~t !lnd ot !ier lien or ~)6 Stat. 100), is amended 1 right in or to the velucle except as h.eremafter. bm1te~ w1.th re~~ct mg words: "and acknowl to claims for storage. Before enforcing such hen, notice m wr1t~ng law for deeds of real estate shall be ofren to the title holder, every secured party and other hen SEc. 9. (a) Paragraph holder sfi'own by the certificate of title or registry of the vel~icle, a:nd 22, 1960 (Pub. L. 86-431, any other persons known to claimant who ha'lte any interest m or hen (9) ), is amended to read m upon the vehicle. Such notice shall be delivered personally or sent. "(9) 'Retail installmen by registered mail to the last-known address of the person to :'"horn in the District or entered "lven, shall state that a lien is claimed for the charges therem set licensed by the District forth or thereto attached, and shall demand payment thereof. There pursuant to which the tit shall be incorporated in or attached to said notice a statement of mterest in, the motor vehi particulars of the charge or charges for which a lien is claimed, to action, is retained or take

77 STAT.] p,

PUBLIC LA" 3-243-DEC. 30, 1963

which 111a,r lie n<ldPtl a claim for storage of the v~hicle from the date of said notice to the date of payinent 01· sale, wluch amount shall be set forth at a <lail\' or weekly rate which shall not be in exc~ss of charges pren1ili11g'nt the .~ime for similar. stora~~'. and shall not be iu excess of $:3 per dny or ::;21 per week, wluch add1t1onal charge shall in no ewnt covet· :l 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 :fJ-105(i), respectively, of the District of Columbia Code."

SEC. 6. (a) The definitions of "Lien", "lnstrumenf', and "Lien Definitions.

Information"' in se<'tion 1 of the Act approYed .July 2, 1940 (chapter 527, 5-!: Stat. 736; D.C. Code, 1961 ed., sec. -!:0-7-01) are amended to read as follows:

"Lien'' shall mean :my 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, 01· the equipment or accessories nffixed or sold to be itffixed thereto, in favor of n person other than the owner,1 ed~t (1) a. snle oi such motor ,·ehide or trailer aceompanied Uy e lvery of possession and on execution of the assignment on the back of the ce1tificate coYering it, or~ any posses~ory lien now 01· hereafter prodded by law or any l~ acquired in any judicial proceeding.

"Instrmnent'' shall menn any seC'urity a:,creement. as defined in section 28:9-105(h) of the I>istri<'t of Columhin Code, c1·eating such lien.

"Lien inforniation'' shall menn the amount, kind, date of lien, nnme and address of holder 01· !'ecmed pnrty as defined in se<'tion ~8:9-105(i) of the District of Colnmhin Code, nnd recorder's record number, if nnv.

(b) The !'eC'ond sentei1ce of section 2 of the Act apprm·ed .July 2, 1940 ( <'hapter n:l7, 54 Stat. 7:J6; D.C. ('ode, 1H61 eiL see. 40-702), . i:; amended to ren1..i as follows: "The filing provisions of Article U"' of Subtitle I of Title 28 of the District of Columbia Code do not '" np~l): to liens re(•ord~d as hei:in provid~d, an~ a lien has. 110 1£reate\(! tJt: validity or: effect dm:mg the time a certificate 1s outstand. u~.~. fo1· ·d!e ,.:·· i motor nb1cle or trailer coYered thereby by reason of tl~'itltct ti.flit ·~' the 1ien has been filed in accordance with that article.''. ~"'

.SEc. 7. The first sentence of section'! of the Act apprm·ed .July 2, <

1940 (chapter 527, 54 Stat. 737; D.C. Code, 1!)61 ed., se<'. -t.0-70+), ~i as amended by section 1 of the Act ap,PrO\·ed June 4, 1952 (chapter ~ :165, 66 Stat. 100), is amended by strikmg out at the end thereof the \lr'f following words: "and acknowledged by the owner in the manner 1

provided by law for deeds of real estate". SEC. 8. The first sentence of section 8 of the A.ct appro\·ed July 2,

19-!0 (chapter 527, 5-! Stat. 738; D.C. Code, 1961 ed., sec. 40-708), ~is amended by section 2 of the Act appro\'ed 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 la'v for deeds of real estate".

SEc. 9. (a) Paragraph (9) of section 1 of the Act approved Apd 22, 1960 (Pub. L. 86-4~1, 74 Stat. 69; D.C. Code, 1961 ed., sec. 40-901

771

(9) ) , is amended to read as follows: "Retail install-

" (9) 'Retail installment contract' means a contract entered into ment contract."

in the District or entered into by a seller licensed or required to be licensed by the District evidencmg a retail instnllment transaction .Pursuant to which the title to or a lien on, or security or a security mterest in, the motor vehicle, \vhich is the subject matter of the trans-action, is retained or taken to secure, in whole or in part, the retail

772

Recorder of Deeds •.

Financ Ing state .. <# Void instru

ments .. Disposal.


buyer's obligations. The term includl'S a security n~eement, ch11tt~l mortgage, conditional sale contract and a eontract m the form of a bailment or a lease if the bailee or Jessee contracts to pay as compensation for use n sum substantially equirnlent to or in excess of the value of the motor \·ehicJe sold and it is agreed thnt the bailee or Jessee is bound to become, or, for no further or.a merely nominal consideration, hns the option of becoming, the owner of the motor vehicle upon full compliance with the terms of the bailment or lease."

(b) Seetion 1 of the Act appro\·ed April 22, 1960 (Pub. L. 86-!Sl, i4 Stat. 69; D.C. Code, 1961 ed., sec. 40-901), is further amended by adding at the end thereof the following paragraph:

"'(1 f) 'Security interest' and 'secured pnrty' have the same mea~ings ns those given to the terms in sections 28:1-201 and 28:9-105(1) of the District of Columbia Code.~~.

SEc. 10. Section 546-C of the code of law for the District of Columbia, nppro,·ed .March 3, 1901 (chapter 854, 31 Stat. 1275; D.C. Code. 1961 ed., sec. 42-10:!), ns so renumbered and amended by sectio.n 2 of the Act approved .Tune fl, 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 P:irt 4 of Article 9 of Subti!le I of Title 28 of the District of Columbia Code, but they shall be mdexed and, ex~ept as hereinafter provided, shall be kept on file and shall be open to mspec!ion by the public, and shall _have the same ~or~ a1!? legal effect as if they wereact~ally recorde<l m the booksofh1soffice .. -. .

SEC. 11. Section 546-D of the code of law for the D1str1c of Columbia, approved ::\larch 3, 1901 (chapter 85?, 31 Stat. 1189), added by section 3 of the Act approved June 5, 19o2 (chapter 370, ·, tat. 126; D.C. Code 1961 ed., sec. 42-104), and amended by · . of the Act appro~ed June 18, 1953 (chapter 126, 67 St!Y:;:M n"a~lo read as follows: F '

"SEC. 546-D. (a) Unless the Recorder of Jilee'tls . p.o,J!e of nction pending relative thereto, he may remove from tihe'files destroy: . ''· " . ,

" ( 1) an instrument filed in his office pursuant to sectioi'1 and 546-B, as amended, of the code of law for the ff Columbia approved lfarch 3, 1901 frhnpter 854, 31 St . , us so renumbered by the'.Act approved June 5, 1952, chnpter 370, sec. 1, 66 Stat. 126 (D.C. Code, 1!)61 ed., secs. 42-101and42-103) or pursuant to the .Act apprO\'ed July 2, 1940 (chapter 527, 54 Stat. 736; D.C. Code, 1961 ed., secs. 40-701 to 40-712, 40-713 to 40-715), ns amended, whieh has become void or lapsed, anq which has been \'oid or laJ?sed for one year or I?Ore, toget!1er :'1th any atfida vit, release, nss1gnment, or cont muut10n or termmat10n state-ment relating thereto; . . .

"(2) a lapsed financmg statement, a lapsed contmuat1on statement R statement of assignment or release relating to either, filed purs;mnt to Part 4 of .ArticJe 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 <'ontiuuation 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 <?f the termination statement. ·

"(b) Subsection (a) of this section does not apply to a bill of saJe, mortgage deed of trust, conditional sale of, fuiancing statement or security ~greement covering, railroad rolling stock.".

!

77 STAT.]

SEC. 12. Section : lumbin, approved : added by section 3 66 Stat. 126; D.C. ( folJows:

"SF.c. :>46-F. Wh· of Article 9 of Subt has not lapsed, but ment has been relea Recorder of Deeds date of rhe filing of the financing staterr. nssignment, and sta

SEC. 13. Section · lumbia, appro,·ed . added by section ;3 66 Stat. 126; D.C. as follows:

"SEC. 546-G. (a) with respect to a f Recorder of Deeds Title 28 of the Dish in full of the debt : demand bv the deb• as provided by sec!: than $500 or lIDJ?ru

" ( b) Prosecut 10n Corporation Couns• ants; in the nam~ of

"1.c) As used ms ineans the attorney attorney mny be d· District of Columl

SEC. 14. Section i apprm·ed March 3, t•d., sec. 45-701), aE

"'SEC. 548. (a) 'I appointed by the ( :;ha II:

"(1) except all deeds, cont the title or ow have been duly

"{2) accept all instrument his office pm;iu of the District (chapter 527, to 40-712, 40-7

"(3) perfor prescribed in c

"(4) have c property appe1

"(b) A person_: he has been a. res1• vears next precedi • " ( c) Th~ pe~for employees m .J:1s o to the superv1s10n l

77 STAT. ] PUBLIC ....AW 88-243-0EC. 30, 1963

~EC. 1~. Section ;)-1.fi-F of the ('Ode of law for the District of Columbia, u ppro,·e<l :\l:lrl'h ;~. mo 1 ( l'hapter 854, :n :-\tat. 118!)}' ns added by sect ion 3 of the A1·t n ppr<fred .Tune i>, H>M (chapter ;\ii 1,

66 Stat. 126; D.C. Code, J!l61 ed., sec . .J.2-106), is ametHled to rend as folJows:

773

"SF.c. :>46-F. "'hen a financin~ stnternent filed pursuant to Pa rt -~ o.,struction or of Article 9 of Subtitle I of Title :28 of the District of ('olumhia CoilP r.,1.,as.,d instru

has not lapsed, I.mt all the collateral described in the fin1111ein:.r statements.

ment has been released in the mitnner provided by Part 4 theJ"eof, t lw Recorder of Deeds may, after the exp1mtion of three years from t It~· date of rhe filing of the statement releasing all the collateral, destroy the financinµ- statement and ea('h ccmtin1111tion statement, statement 1,f assignment, and statement of release relating thereto.~·

Sw. 13. Section 546-G of the code of law for the Di:->tl'il't of Columbia, apprornd :\lnr<'h :1, 1901 (chapte1· 8M, :n ::'\tat. 118!l), a;; added by section ;~ of the .\ct apprO\·ed .June i>, 1952 { chnl>ter :no. 66 Stat. 126; D.C. Code, HJ61 ed., sec> . .J.2-lOi), is amen<le< to rend as follows:

"SEC. 546-G. (a) "·hoover intent ion ally makes n fil lse stntement Fats" stat..

with respect to a financing stn.tement. or other pllper filed with the ments.

P f ,... p.,nalty.

Recorder of Deeds pursuant to art 4 o A1·itcle !) of ::;uhtitle I of Title 28 of the District of Columbia Code, or, after re<'eipt. of payment in full of the debt secured thereby. neglects .or refuses, after written demand bv the debtor, to send to the debtor a termination statement. as provided by sec~ion 28 :9--J.O-:I: of the Code, shall be fined not more than $500 or unpr1soned not more than one year, or both.

"(b) Prosecutions for Yiolations of this subchapter slu\11 he by tlu• Corporation Counsel of the District of Columbii\ or any of his assistants, in the name of the Distt·ict of Columbia.'·. _

'~(c) As used in subsection (b) of this section ·Corporation Com1::-;el' means the nttorney for the District of Columbia, by wh;tte,·er title rlw at!on:-~Y n:rny be de_si~,nnted by the Board of Commissioners of rri~ D1str1ct of Colmnb1a. . : . ..

SEC. H. Section 548 of the code of law for the District of. Col.tJ~1b'.iA;,l ~., '.· .. npproYed~March :3, HJOl (chap.te1· 854, :)I Stat. 1~75; p.C'f'.';'C'od.e; l!J6! ! ~· NL, sec. 4o-701), as amended, 1s amended to read as fol~·Q:"·s: · ·.. ( · .:t·

"SEC. 548. (a) There shall be 11 Recorde1· of Deeds of the Dist1·kt,' Recorder or appointed by the Commissioners of the Distri<'t of Columbia, ,\lho De.,ds.? • :-hall: ··•. , « Appomtm-;nt.

"(1) except ns provided by elnuse (2) of this subsection, rec@l:cf' ··'~~' , all deeds, contracts, nnd other instruments in w1·iting affecting~~~'.·.,··· · th1;> title or ownershi of re· 1 estate or personal property which ·¥- ~ ~ nave en u y ac nowledged mid certified:

"(2) accept for filing, without acknowledgment or certification. all instruments, fi!lancing stntemen_!.s and other papers filed in hiSOffice pursuant to_5irt 4 of Article 9 of Subtitle I of Title 28 of the D1~trict _of Columbia Code, :;nd the Act of July y~iQ__~ ~~ (chapter 027, <>4 Stat. 7:36; D.C. Code, 1961 ed., secs. 0-701 to 40-712, 40-713 to 40-715).

" ( 3) perform a II requisite serdces connected with the duties prescribed in clauses (1) and (2) of this subsection; and

" ( 4) have charge iind custody of all the records, papers, an<l 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 fh·e vears next preceding his appointment. w " ( c) The performance, by the Recorder of Deeds and officers and employees in ,h,is office, of their duties and tu~1ctions shall be. su~je?~ to the .superv1s1on and control of the Commissioners of the D1str1ct:


Repeals. !°'iEC. 1.-•. (a) Tht> following .\\'t and part.-. of .\ct,.. a;; :tlllt'!Hle<l, are lwrehy repealed:

~ ~ . ( 1) Section ~m:fa of the rode of law for the Distl"iet or Colum-

}.,:J, l lna, nppron<I :\larch a, 1901 (chapter 85-l, :ll Stat. 1189), as u .. ~ added by the Act apprond April 28, 190-l !chapter 1808, aa Stat. /\,, \ X"" 55-1), nnd amended bv the Act apprm·ec~ :\fay 27, 1921 (chapter

.J ~Q 13, -12 Stat. 9; D.('. Code, 1961 ed., ser. 22-1-106). (2) Sections 130-l to 1-19:3, inclusive. of the code of law for the

-~District of Colnmbin, npprm'ed ~larch 3, 1901 (chapter 854:, 31 ~Stat. 13H5-1-l14), llnch seetions bein~ known as the Xegotiable - ......-- I Instruments Law (D.C. Code, 1961 ed., Title 28, chapters 1to10.

inclusive, except sees. 28-1:10, 28-71-ln, ~8-9:.W, 28-1004, 28-1008 to 28-1011, inclusi,·e), except that, with respect to seetion 1389 of such code of laws for the District of Columbia pn Stat. 1404; l>.C. Code, 1961 ed., sec. 28-()16), as amended, this repeal applies oulv to the first three sentences thereof.

(3) Sect ions 1, 3. 6 and 7 of the Aet approved April 5, 1939 (chapter 37, 53 Stat. :S66, 567; D.C. Code, Hlfil ed., sees. 28--100·-t 28-1008 to 28-1010. i11elusive).

< <f) Sections. 1._to .?• ~nelusi,·e, o!}he ·\et approve~ ,July 26, L>4.) ( ehapter .1fin. fi.1 Htnt. .J.Hl, -l~L. J>.(. Code, HHH ed., sec. 28-1011 ).

(5) Sections I to ;1, inclusi,·e. of the Act approved August 7, !!I.')() (chnpte1· 1\0:.!, fi4 Stnt. -llfi, -lli; D.C. C'o<le, l!>fil ed., sec. 28-iUn}.

(6) Sections 1 to ilfa, inelusi,·e, and i!> of the Act approved March 17. rnai (chapter 4:3, 50 Stat. 20--18; D.C. Code, Hl61 ed., Title 28, eha pters 11 to rn. inclusive}, known as the l • niform S Act.

(7) Sections 1 to i'i, inclusi,·e, of the .\ct approved 1904 (clrnpter 1809, :33 Stat. Mil, ."i:16; D.C. Code, 1 28-1701 to 28-llOi'i, inclusive). relating to bulk "

( 8) Sections 1 to -19. inclusive, 5() to 59, i ve, and 62 of . · the Act appro\•ed Apr:il 15, 1910 (chapter 161 ';3,6 Stat. 301-311; D.C. Code, 1961 ed., Title 28, chapters 18, 19 (ex ··· 8--1918 thereof), 20 and 22), constituting part of the ·war 1;1ipts Act.

(9) Section 1621 of the code of law for the District bia, approved llarch 3, 1!)01 (chapter 8fJ4, :n Stat. 1 Code, 1961 ed., sec. 28-1918).

( 10) Sections 1 to 26, inclusive, of the Act approved December 2:3, 1944 (chapter 72!l, 58 Stnt. f>27-!l32: D.C. Coile, HHH ed., sees. 28-2901, 28-2901 notes, 28--200-2 to 28-2923, inclusive) constituting the l"niform Stock Transfer Act.

~ k'i ( 11) Sections 546-A and 546-B, as amended, of the code of

(\

. law for the District of Columbia, apprond :\larch 3, 1901 (chapter

~ Ari' 854, 31 Stat. 1275), as so renumbered by the Act approved .June 5,

Q;I' 1952, chapter 370, sec. 1, 66 Stat. 126 (D.C. Code, 1961 ed., secs. Of 42-101 and 42-103). i . (12) Section 546-E of the code of law for the District of

Columbia, approved March 3, 1901 (chapter 854, :u Stat. 1189), as added by the Act appron•d .June 5, lf>52, chapter HiO, see. 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).

77 STAT • .] PUE

. (b) E~cept as iu·o,,i<le• tions Yahdly entered into 16 of this Act, and the rii remain valid thereafter u mated or enforced as ~ui amended or repealed by tl had not occurred.

( c) The perfection of a 201 of the District of ( in any law repealed by tl takes effect by a filing, re t~is ~ct and requiring a tmue its perfection, conti1 by the law so repealed f< unless in such case, a co1 the Recorder of Deeds o twelve months before th otherwise lapse. Any sw the secured party, id en ti ever denominated, state fl and the filing number, a agreement is still eff ecti sions of section 28 :9-40. tion statement.

( d) The f ollowin#$ Bri 01· effect in the District 01

(1) 9 and 10 Wil Code, 1961 ed., sec. 2:

(2) 3 and 4 Anne 1961 ed., sec. 28--920)

SEc. 16. This . .:\.ct shall P.nacted after the :tppro\": Act, supersede it to the f

Approved December 3

Public Law 88-244 J•

To provide for participation l Confere1we on Prh·ate h Institute for tht> Unittcati• therefor.

Re.<solued by tlie Se1Ulll States of Am.erica, in ('on authorized to accept me1 States in ( 1) the Hagu. •md (2) the Internation Private Law, and to n..p alternates to meetings o and organs thereof.

SEC. 2. There is autlH ~ :i:ecessary, not to exce Umted States of ( 1) it~ Hague Conference on I national (Rome) Instit1 ( 2) all other necessary United States in the acti clause ( 1) of this sectior.

Approved December 3

77 STAT • .] PUBLIC L. ·88-244-DEC. 30, 1963

(b) Except as prodded by subsection ( c) of this section, transactions mlidly entered into before the effecti\·e date specified in section 16 of this .Act, and the rights, duties and interests flowing from them remain nllid thereafter and may be terminated, completed, consummated or enforced as required or permitted by any statute or other law amended or repealed by this Act as though such repeal or amendment had not occurred.

( 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, refiling or recording under a law repealed by this Act and re9uiring a further filing, refiling or recording to continue its perfect10n, continue 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, m 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, however denominated, state t.he date of the last filing, refiling or recording and the filing number, and further state that the original security ngreement is still effective. Except as herein specifiea, the provisions of section 28 :9-403(3) of the Code apply to such a continuation statement.

I ( d) The followin~ Brit.ish statutes shall no longer have any force \ or effect in the District of Columbia:

(1) 9 and 10 'Villiam III (1698), chapter li, sec. 3 (D.C. . Code, 1961 ed., sec. 28-410). 1

• (2) 3 and 4 Anne (li04): chapter 9, secs. 7 and 8 (D.C. Code, '. .. ;,.1961 ed., sec. 28-920).

775

J $Ee. 16. This .\ct shall become effective on January 1, 1965. Laws '"im:il'.cted after tl~t> apprornl of this .\et1 that '.lre inconsistent with th" .. ··~:. 1•

Act, supersede 1t to the extent of the mcons1stency. • . ,,r .. ·: ... •

Approved Decembe< 30, 1963. #-.. ' · ·'

i?ublic Law 88-244 <~;-. JOINT RESOLUTION

To providt' for vartlr-iJ»l.tion by the <.lon~rnment of the United States in th Conferent"E! on Private International Law and the International ( . Institute for tht' Unitkation of Prh·att> Law, and authorizing appro11ria therefor.

Re8ofoed by the Senate 011.d llou.'fe of Repre.~eritative". oft~ Cnited States of A-m.erie(/, in ( 'ongre.'fx u.'f.~embled, That the President 1s hereby Hague c".nfer-

h · d 1. 1 · f 1 · (" f 1 U "te,;i ence on Private aut or1ze to accept memuers up or t ie :r~ve111ment o t; 1e m 11 International Law,

StateR in ( 1) the Hague Conference on. Pnvitte lnter1~a .. ~1ona~ Lt\.'\\: ~~:· participa-

1md (2) the Intemationa.1 (Rome) Institute for the limficat.10~ · Private Law, and_ to appoint the 1;nite~ S!1ttes delegates 11.nd .their :flternates to meetmgs of the two or~an1zat10ns, 1md the committees and organs thereof.

SEC. 2. There is 1tut horized to be appmpri1tted such sums as may Appropriations.

be necessary, not to exceed $25,000 tmnually! for the payment by the United States of (1) its propo11ionate share of the expenses of the H~e Conference on Private International I...aw and of the Inter-national (Rome) Institute for the l!nification of Private Law, and (2) all other necessary expenses incident to participation by tl_ie United States in the activities of the two organizations referred tom clause (1) of this section.

Approved December 30, 1963.

776 PUBLIC LAW 88-245-DEC. 30, 1963

Public Law 88-245

[77 STAT,

December 30, 1963 AN ACT [H. R. 7063]

------ :\(akin~ 11ppropri11tionl! for the Dc>11111·tnw11tx of 8tntl', .Ju,..rit'l', 1111!1 Commerce the J1111ici11ry. a111l rel11tl'd agendei-: for the ti:<!·nl yt-ar !•nrliug J1111P :m, 1064' and for other P1ll'IJ<•,;ei<. '

Departments of State, Justice, and Commerce, the Judiciary, and Related Agencies APpropriation Act, 1964.

Be it enacted by the •''et11tfe and l101ti.<e of Reprexe1datfoe.~ of the Cnited ,_.;,·fate.~ of Amedca in. ('trnqref!x a11.~embled. That. the followi1w l'nms ar~ a pproprinted, out of imy money, in the Tre.asury not ot herwi~ approprrnted, for the Departments of State, ,Justice, and Commerce, the .Tudieiary, and relnted agencie:; for the fiscal year endi11g: .Tunt> 20, W64, namely:

TITLE 1-I>EP.\.RT}f.EXT OF STATE

~ .\.n:\nxisTllA'l'IOX OF FoREIOX .\1''1< • .\lllli

~ SALARIES ANO EXl'ENSF.'>

60 Stat. 999; 74 Stat. 831.

63 Stat. 405.

60 Stat. s 10.

63 Stat. 62; 73 Stat. 471.

7 6 Stat. 263.

62 Stat. 825.

5 USC 170l.

For necessary expenses of the Department of State, not othen'rise provided for, including expenses authorized by the Foreign Service Act of 1946, as amended (22 U.S.C. 801-1158), not otherwise provided for; expenses necessary to meet the responsibilities and obligations of the United States in Germitny (including those arising under the supreme authority 11ssumed by the ~Tnited States on .June 5, 1945, and nnder contractual arr:i1,%ements with the Federal Republic of Germany); salary of the I:;nited Stc'ltes member of t e Board for the Validation of German Bonds in the United at the rate of $17,100 per annum; purclmse (not to e.irceed t which four are for rephtcernent ou]y) or hire of passe1 · les; printing nnd binding outside the continental Un wit. regard to section 11 of the Act of March 1, 1 J.S.C. Ill). rvices as :iuthorized by section 15 of the .\ct .2., 1946 ( 5 .C. 55a); purch:tse of uniforms; pn.yment of .. ~ ';'iii the man author-ized in the first paragraph of section as amended, title 28 of the rnited States Code when such cl rise in forei and ·payment of meritorious claims as at ... secti the Act of August 1, 1956, ns amended librnry membership in orgauizntions which issue publi tions to members only, or to members at a price lower than to others; employment of aliens by contract. for sernces abroad; refund of fees erroneously charged and paid for passports; radio communications; payment in advance for subscriptions to commercial information, telephone and similar services a.brood; care and transportation of prisoners and persons declared insane; expenses, as authorized by law ( 18 U.S.C. 319'2), of bringin~ to the United States from foreign countries persons charged with crime; and procurement by contract or otherwise, of services, supplies, and facilities, as follows: (1) translating, (2) nnalysis and tabulation of technical information, and (a) prepa.ration of special maps, globes, and geographic aids; $153,000,000, of which not less than $12,000,000 shtill be used to purchase foreign currencies or credits owed to or owned by the Treasury of the United States: Prorided. That passenger motor vehicles in possession of the Foreign Service abroad may be rep'laced in ll('cordance with section 7 of the Act of August I, 1956 (70 Stat. 891), and the cost, including the exchange allowance, of each such replacement shall not exceed $3,800 in the case of the chief of mission nutomobile at each diplomatic mission (except that five such vehicles ma.y be purchased at not to exceed $7,800 each) and $1,500 in the ~1se of ull other such Yehicles except station wagons.

77 STAT.1

For repre: Foreign Ser·

A,CQUI.SlTIOl

For neces~ Buildings . .A sonal serv1c1: allowances c Service A~t as authonze 55a) ; $18,1£ purchase fc Treasury of PrO'IJided, 'I tive expense

Forpurc1 Agricultura amended (~ 104(1) of t1 pr~at~on a~· buildm~ ;;. PrO'IJidea, 'I currencies a of such Act ments of th

E'ME

For expe unforeseen ice, to be e1 Revised St:

I

{

For expe obligations pursuant 1 $81,305,000

For exp. internatior pursuantt• mgexpens• ing for su ~rsonnel: of 1946, a! one) and without re 111); and

public law 88 243 and 88 244[1]

Documents

words t

agreement t

subtitle mav

perfonnance j

applicablg j

c i standards

public law

hls subtitle parties