UNIFORM COMMERCIAL CODE

2010-2011 Edition
Issued in December 2010

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

OFFICIAL TEXT AND COMMENTS

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

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

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

INDEX COPYRIGHT 2010 By Thomson Reuters

TEXT OF UNIFORM COMMERCIAL CODE AND OFFICIAL COMMENTS REPRINTED WITH PERMISSION OF THE AMERICAN LAW INSTITUTE AND THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS.

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

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

Uniform Commercial Code Reporting Series

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

Preface

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

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

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PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE

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

vii

FOREWORD TO OFFICIAL TEXT AND COMMENTS

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

Uniform Commercial Code

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

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

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

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

October 31, 1962

Paul A. Wolking Secretary The American Law Institute 133 South 36th Street Philadelphia 4, Pennsylvania
1

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

Uniform Commercial Code

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

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

These amendments have been omitted because of space limitations. xv

Uniform Commercial Code

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

This materials has been omitted because of space limitations.

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Report No. 2

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

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REPORT NO. 3
OF THE PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE December 15, 1966 To the American Law Institute and the National Conference of Commissioners on Uniform State Laws: The last report of this Board [Report No. 2] was made on October 31,1964, at which time 29 states and one jurisdiction (the District of Columbia) had enacted the Uniform Commercial Code. Since that time up to the date of this report, additional states and jurisdictions have enacted the Code to bring the total enactments up to 49. Only three statesArizona, Idaho and Louisianahave not as yet enacted the Code, and two other American jurisdictionsGuam and Puerto Ricohave its enactment under consideration. Since 1964 our Board has had two meetings, both in Philadelphia. The rst was on January 14 and 15, 1966 and the second on November 11 and 12, 1966. At both 1966 meetings the Board received reports from Subcommittees Nos. 1, 2 and 3 to which had been assigned the task of studying and making recommendations on the many, many non-uniform amendments which had been made to the Code as it was enacted jurisdiction by jurisdiction. Three amendments were approvedamendments to Sections 2702, 3501 and 7209. The rst of these amendments has been adopted by California, Connecticut, Illinois, Maine, New Jersey, New Mexico and New York, the second by Iowa and the third by California. They are published herein with the amendment of the 1962 Ocial Comments which changes in the text require. We also considered an amendment added as a new Section 1209 to the New York Uniform Commercial Code. It was the feeling of the Board that this amendment is not necessary, but that it was completely harmless and that if any states other than New York desired to add it to their Codes, they should have the blessing of the Permanent Editorial Board in doing so. Therefore, it is promulgated as a new optional section with appropriate Ocial Comment. The Board also felt that Section 2318, which has been nonuniformly amended in a number of states and entirely omitted in California and Utah, is a section not requiring uniformity throughout all American jurisdictions. Therefore, the Board is designating the present Section 2318 as an Alternative A and is promulgating two alternativesAlternative B and Alternative Cwhich states desiring warranties to have a broader impact may adopt if they choose. Also, the Board is promulgating optional amendments to Sections 9105 and 9106 which will enable states having nautical contacts to amend their Codes to make it clear that a ship charter is not chattel paper
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but that all rights earned or unearned under a charter or other contract involving the use or hire of a vessel are contract rights and neither accounts nor general intangibles. All of these amendments and optional amendments follow in the ensuing text. A number of suggested amendments to Article 9 were discussed at the January meeting without denite decisions. This was due to some extent to the fact that the various people who wanted to see changes in certain sections of the Article were by no means agreed as to how the sections should be changed. By the time the November meeting was held, 337 nonuniform, non ocial amendments had been made to the various sections of Article 9. Some sections had been amended by as many as 30 jurisdictions, each jurisdiction writing its own amendment without regard to the amendments made by other jurisdictions and, of course, without regard to the Ocial Text. 47 of the 54 Sections of Article 9 had been non-uniformly amended. In view of this distressing situation and in view also of the fact that various practicing lawyers and law teachers have written articles or textbooks pointing out certain respects in which Article 9 might be improved, the Board decided that the time had arrived for a restudy in depth of Article 9 on Secured Transactions. It must be remembered that the Code has been in operation since July 1, 1954, so that a really impressive body of experience has been built up under which to make this restudy in depth. A special Article 9 Review Committee was appointed. It consists of Professor Herbert Wechsler, Director of The American Law Institute as Chairman, Joe C. Barrett, a practicing lawyer, of Jonesboro, Arkansas, Carl W. Funk, a practicing lawyer, of Philadelphia, the Honorable John S. Hastings, Chief Judge of the United States Court of Appeals for the Seventh Circuit, Robert Haydock, Jr., a practicing lawyer, of Boston, Ray D. Henson, a practicing lawyer, of Chicago, Professor Harold Marsh, Jr. of the University of California Law School at Los Angeles, William Curtis Pierce, a practicing lawyer, of New York, Professor Millard H. Ruud of the University of Texas Law School and the Honorable Sterry R. Waterman, Judge of the United States Court of Appeals for the Second Circuit. The Research and Reportorial Sta for the Committee will be Professor Robert Braucher of the Harvard University Law School, Reporter; Professor Homer Kripke of the New York University Law School, Associate Reporter; and Professor Soia Mentschiko of the University of Chicago Law School, Associate Reporter ex ocio. To raise the additional funds which will be required for this work, Mr. Howard C. Petersen of Philadelphia has been appointed Chairman of a Ways and Means Committee. In,view of the appointment of the Article 9 Review Committee, two of the Subcommittees of the Board were relieved of their duties for the presentSubcommittee No. 3 and the Reportorial Committee. For their past services the Board expresses to them its gratitude and appreciation.
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Report No. 3

A large part of this volume [Report No. 3] is devoted to the publication of new, nonuniform amendments1 adopted subsequent to our Report No. 2. In cases where another state has simply copied a non-uniform amendment which the Board has previously rejected, we merely refer to the page of Report No. 2 where the Boards reasons for rejection will be found. However, in cases where new, non-uniform amendments have been inserted in the Code, we are quoting the non-uniform amendment and giving our reasons for rejection. Finally, the Board received from certain individuals and organizations suggestions for amendment of certain sections of the Code. Its Subcommittees considered these suggestions and did not nd any basis for uniform amendment in any of the proposals relating to the rst eight Articles of the Code. The Board approved the Subcommittees recommendations. As to suggestions coming to the Board for the amendment of provisions of Article 9 of the Code, all of these recommendations were referred to the special Article 9 Review Committee for study and report. December 15, 1966 Paul A. Wolkin, Respectfully submitted, Secretary Wm. A. Schnader, 101 North 33rd Street Pennsylvania, Philadelphia, Pa. 19104 Chairman Consultant Joe C. Barrett, Soia Mentschiko Arkansas Illinois F. M. Bird, Georgia James C. Dezendorf, Oregon Albert E. Jenner, Jr., Illinois John W. MacDonald, New York Walter D. Malcolm, Massachusetts Maurice H. Merrill, Oklahoma Alfred M. Pence, Wyoming George R. Richter, Jr., California Herbert Wechsler, New York Alternates J. Francis Ireton, Maryland William J. Pierce, Michigan
1

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

ACKNOWLEDGMENT UNIFORM COMMERCIAL CODE OFFICIAL TEXT AND COMMENTS

Acknowledgment is gratefully made to The American Law Institute and to the National Conference of Commissioners on Uniform State Laws for permission to reproduce the Ocial Text and Comments for the Uniform Commercial Code. The Publisher December 2010

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

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

1141

1144

APPENDIX B 1972 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 9, SECURED TRANSACTIONS, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1249 APPENDIX C 1977 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 8, INVESTMENT SECURITIES, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1338 APPENDIX D ARTICLE 1 AND ARTICLE 9: 1987 CONFORMING AMENDMENTS [CONFORMING TO ARTICLE 2A] ............. 1398
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APPENDIX E PRE-REVISION ARTICLE 6 ........................ APPENDIX F 1990 AMENDMENTS TO ARTICLE 2A .......... APPENDIX G PRE-REVISION ARTICLE 3 ........................

1403 1414 1475

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

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

1889 1924 1966 1967 2049

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

xxvi

Summary of Contents

APPENDIX X 2008 AMENDMENT TO UNIFORM COMMERCIAL CODE REVISED ARTICLE 1 AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .................. 2112 APPENDIX Y ARTICLE 2 SALES [1995] ............................ Index
2119

xxvii

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

2 9

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

PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION .........................................................

1-201 1-202 1-203 1-204 1-205 1-206 General Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice; Knowledge.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Distinguished From Security Interest. . . . . . . . . . . . . . . . . . . . . . . Value.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reasonable Time; Seasonableness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 14 22 23 26 27 27

PART 3. TERRITORIAL APPLICABILITY AND GENERAL RULES ..........................................................................

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

28 28 29 30 32 33 33 34 34
xxix

 1-309 1-310

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

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

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

PART 2. FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING...................... 65

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

2-212 2-213

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT....................................................................

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

82 82 82 83 83 84 86

xxx

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

PART 4. TITLE, CREDITORS, AND GOOD-FAITH PURCHASERS................................................................

2-401 2-402 2-403 Passing of Title; Reservation for Security; Limited Application of this Section.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Seller's Creditors Against Sold Goods. . . . . . . . . . . . . . . . . . . Power to Transfer; Good Faith Purchase of Goods; Entrusting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

PART 5. PERFORMANCE ...............................................

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

xxxi

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

2-515

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

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

PART 6. BREACH, REPUDIATION, AND EXCUSE .............

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

PART 7. REMEDIES .......................................................

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

xxxii

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

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

PART 8. TRANSITIONAL PROVISIONS ...........................

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

ARTICLE 2A LEASES .................................................... PART 1. GENERAL PROVISIONS ....................................

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

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

PART 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT; ELECTRONIC CONTRACTING......................

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

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

xxxiii

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

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

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

PART 3. EFFECT OF LEASE CONTRACT .........................

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

PART 4. PERFORMANCE OF LEASE CONTRACT: REPUDIATED, SUBSTITUTED AND EXCUSED........................................ 263

2A-401 2A-402 2A-403 2A-404 2A-405 2A-406 2A-407 Insecurity: Adequate Assurance of Performance. . . . . . . . . . . . . . . . . . . Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retraction of Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substituted Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure on Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrevocable Promises: Finance Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 263 264 265 265 266 267 269 269 269 270 271 272 274 274 275 276

PART 5. DEFAULT......................................................... A IN GENERAL ..............................................................

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

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

xxxiv

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

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

C DEFAULT BY LESSEE .................................................

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

PART 6. TRANSITIONAL PROVISIONS ...........................

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

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

311 312

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

xxxv

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

PART 2. NEGOTIATION, TRANSFER, AND INDORSEMENT .............................................................

3-201 3-202 3-203 3-204 3-205 Negotiation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiation Subject to Rescission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of Instrument; Rights Acquired by Transfer. . . . . . . . . . . . Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Indorsement; Blank Indorsement; Anomalous Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictive Indorsement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reacquisition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

3-206 3-207

PART 3. ENFORCEMENT OF INSTRUMENTS ..................

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

PART 4. LIABILITY OF PARTIES ....................................

3-401 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xxxvi

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

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

PART 5. DISHONOR ......................................................

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

PART 6. DISCHARGE AND PAYMENT .............................

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

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

xxxvii

 4-109 4-110 4-111

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

445 445 446

PART 2. COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS .....................................................

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

447

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

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

PART 3. COLLECTION OF ITEMS: PAYOR BANKS ...........

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

PART 4. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER ...................................................................

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

471 471 472 473 475 475

xxxviii

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

4-407

PART 5. COLLECTION OF DOCUMENTARY DRAFTS .......

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

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

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

PART 2. ISSUE AND ACCEPTANCE OF PAYMENT ORDER ..........................................................................

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

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

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

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

526

xxxix

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

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

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

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

Payment Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Sender to Pay Receiving Bank. . . . . . . . . . . . . . . . . . . . . . . Payment by Sender to Receiving Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Beneciary's Bank to Pay and Give Notice to Beneciary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-405 Payment by Beneciary's Bank to Beneciary. . . . . . . . . . . . . . . . . . . . . 4A-406 Payment by Originator to Beneciary; Discharge of Underlying Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-401 4A-402 4A-403 4A-404

PART 5. MISCELLANEOUS PROVISIONS ........................

4A-501 Variation by Agreement and Eect of Funds-Transfer System Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-502 Creditor Process Served on Receiving Bank; Seto by Beneciary's Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-503 Injunction or Restraining Order With Respect to Funds Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-504 Order in Which Items and Payment Orders May Be Charged to Account; Order of Withdrawals From Account. . . . . . . . . . . . . . . . . . . 4A-505 Preclusion of Objection to Debit of Customer's Account. . . . . . . . . . . 4A-506 Rate of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A-507 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 5 LETTERS OF CREDIT ...................................

National Conference of Commissioners on Uniform State Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table of Disposition of Sections in Former Article 5 . . . . . . . . . . . . Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formal Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance, Amendment, Cancellation, and Duration. . . . . . . . . . . . . . . Conrmer, Nominated Person, and Adviser.. . . . . . . . . . . . . . . . . . . . . . . Issuer's Rights and Obligations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fraud and Forgery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer by Operation of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assignment of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5-101 5-102 5-103 5-104 5-105 5-106 5-107 5-108 5-109 5-110 5-111 5-112 5-113 5-114 5-115

xl

Table of Contents 5-116 5-117 5-118 Choice of Law and Forum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subrogation of Issuer, Applicant, and Nominated Person. . . . . . . . Security Interest of Issuer or Nominated Person. . . . . . . . . . . . . . . . . . 584 585 587 589

TRANSITION PROVISIONS .............................................

REPEALER OF ARTICLE 6 BULK TRANSFERS AND [REVISED] ARTICLE 6 BULK SALES(STATES TO SELECT ONE ALTERNATIVE).............................................................. 590 NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ................................................................ 591 ALTERNATIVE A ............................................................
[ 1 2 3 4 Repeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligations of Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice to Claimants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liability for Noncompliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bulk Sales by Auction; Bulk Sales Conducted by Liquidator. . . . What Constitutes Filing; Duties of Filing Ocer; Information From Filing Ocer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitation of Actions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 593 593 593 593 594 594 595 600 604 605 608 611 616 618 619 621

ALTERNATIVE B............................................................
[ 6-101 6-102 6-103 6-104 6-105 6-106 6-107 6-108 6-109 6-110

ARTICLE 7 DOCUMENTS OF TITLE ................................

DRAFTING COMMITTEE TO REVISE UNIFORM COMMERCIAL CODE ARTICLE 7, DOCUMENTS OF TITLE ...................... 623 PART 1. GENERAL ........................................................
7-101 7-102 7-103 7-104 7-105 7-106 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relation of Article to Treaty or Statute.. . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiable and Nonnegotiable Document of Title. . . . . . . . . . . . . . . . . Reissuance in Alternative Medium.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control of Electronic Document of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 624 625 627 628 629 630

PART 2. WAREHOUSE RECEIPTS: SPECIAL PROVISIONS .................................................................

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

632 632

xli

7-202 7-203 7-204 7-205 7-206 7-207 7-208 7-209 7-210

Form of Warehouse Receipt; Eect of Omission. . . . . . . . . . . . . . . . . . . Liability for Nonreceipt or Misdescription.. . . . . . . . . . . . . . . . . . . . . . . . . Duty of Care; Contractual Limitation of Warehouse's Liability.. Title Under Warehouse Receipt Defeated in Certain Cases. . . . . . Termination of Storage at Warehouse's Option. . . . . . . . . . . . . . . . . . . . Goods Must Be Kept Separate; Fungible Goods. . . . . . . . . . . . . . . . . . . Altered Warehouse Receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lien of Warehouse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enforcement of Warehouse's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

633 634 635 636 637 638 639 639 643 646 646 647 649 650 651 652 652 653 654

PART 3. BILLS OF LADING: SPECIAL PROVISIONS ........

7-301 7-302 7-303 7-304 7-305 7-306 7-307 7-308 7-309 Liability for Nonreceipt or Misdescription; Said to Contain; Shipper's Weight, Load, and Count; Improper Handling. . . . . . . Through Bills of Lading and Similar Documents of Title.. . . . . . . . Diversion; Reconsignment; Change of Instructions.. . . . . . . . . . . . . . . Tangible Bills of Lading in a Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Destination Bills.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Altered Bills of Lading.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lien of Carrier.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enforcement of Carrier's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Care; Contractual Limitation of Carrier's Liability. . . . . .

PART 4. WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS ...............................................

7-401 7-402 7-403 7-404 Irregularities in Issue of Receipt or Bill or Conduct of Issuer. . . Duplicate Document of Title; Overissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Bailee to Deliver; Excuse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Liability for Good-Faith Delivery Pursuant to Document of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

656 656 656 657 659

PART 5. WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER .....................................
7-501 7-502 7-503 7-504 7-505 7-506 7-507 7-508 7-509 Form of Negotiation and Requirements of Due Negotiation.. . . . . Rights Acquired by Due Negotiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Document of Title to Goods Defeated in Certain Cases.. . . . . . . . . . Rights Acquired in Absence of Due Negotiation; Eect of Diversion; Stoppage of Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indorser not Guarantor for Other Parties. . . . . . . . . . . . . . . . . . . . . . . . . . Delivery Without Indorsement: Right to Compel Indorsement. . Warranties on Negotiation or Delivery of Document of Title. . . . Warranties of Collecting Bank as to Documents of Title. . . . . . . . . Adequate Compliance with Commercial Contract. . . . . . . . . . . . . . . . .

660 660 662 663 665 667 668 669 669 670

PART 6. WAREHOUSE RECEIPTS AND BILLS OF LADING: MISCELLANEOUS PROVISIONS ......................................

7-601 7-602 Lost, Stolen, or Destroyed Documents of Title. . . . . . . . . . . . . . . . . . . . . Judicial Process Against Goods Covered by Negotiable Document of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

670 670 671

xlii

Table of Contents 7-603 Conicting Claims; Interpleader.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672 673 673 673 673 673 674

PART 7. MISCELLANEOUS PROVISIONS ........................

7-701 7-702 7-703 7-704 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX I. CONFORMING AMENDMENTS TO OTHER ARTICLES .....................................................................

AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 674 1 ................................................................................... ALTERNATIVE A ............................................................ ALTERNATIVE B............................................................
674 678

AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 2 ................................................................................... 681 AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 2A ................................................................................. 689 AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 4 ................................................................................... 690 AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 5 ................................................................................... 692 AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 8 ................................................................................... 693 AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 9 ................................................................................... 694 ARTICLE 8 INVESTMENT SECURITIES ...........................
707

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ................................................................. 709 PART 1. SHORT TITLE AND GENERAL MATTERS ...........
8-101 8-102 8-103 8-104 8-105 8-106 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rules for Determining Whether Certain Obligations and Interests are Securities or Financial Assets.. . . . . . . . . . . . . . . . . . . . . . . Acquisition of Security or Financial Asset or Interest Therein. . Notice of Adverse Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734 734 734 741 743 744 747

xliii

 8-107 8-108 8-109 8-110 8-111 8-112 8-113 8-114 8-115

8-116

Whether Indorsement, Instruction, or Entitlement Order is Eective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties in Direct Holding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties in Indirect Holding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability; Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clearing Corporation Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Creditor's Legal Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Frauds Inapplicable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evidentiary Rules Concerning Certicated Securities. . . . . . . . . . . . Securities Intermediary and Others Not Liable to Adverse Claimant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities Intermediary as Purchaser For Value. . . . . . . . . . . . . . . . . .

751 754 757 757 761 762 763 763 764 767 768 768 768 771 772 773 774 775 776 777 777

PART 2. ISSUE AND ISSUER ..........................................

8-201 8-202 8-203 8-204 8-205 8-206 8-207 Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Responsibility and Defenses; Notice of Defect or Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staleness as Notice of Defect or Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Issuer's Restriction on Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Unauthorized Signature on Security Certicate. . . . . . . . Completion of Alteration of Security Certicate. . . . . . . . . . . . . . . . . . . Rights and Duties of Issuer with Respect to Registered Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Signature of Authenticating Trustee, Registrar, or Transfer Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overissue.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8-208 8-209 8-210

PART 3. TRANSFER OF CERTIFICATED AND UNCERTIFICATED SECURITIES .....................................

8-301 8-302 8-303 8-304 8-305 8-306 8-307 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protected Purchaser.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Guaranteeing Signature, Indorsement, or Instruction.. Purchaser's Right to Requisites for Registration of Transfer.. . . .

778 778 780 781 782 783 784 786 787 787 788 789 791 793 793 794

PART 4. REGISTRATION ...............................................

8-401 8-402 8-403 8-404 8-405 Duty of Issuer to Register Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assurance that Indorsement or Instruction is Eective. . . . . . . . . . Demand that Issuer Not Register Transfer. . . . . . . . . . . . . . . . . . . . . . . . Wrongful Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Replacement of Lost, Destroyed, or Wrongfully Taken Security Certicate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation to Notify Issuer of Lost, Destroyed, or Wrongfully Taken Security Certicate.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authenticating Trustee, Transfer Agent, and Registrar. . . . . . . . . .

8-406 8-407

PART 5. SECURITY ENTITLEMENTS ..............................

xliv

Table of Contents 794 8-501 8-502 8-503 8-504 8-505 8-506 8-507 8-508 8-509 Securities Account; Acquisition of Security Entitlement from Securities Intermediary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assertion of Adverse Claim Against Entitlement Holder. . . . . . . . . Property Interest of Entitlement Holder in Financial Asset Held By Securities Intermediary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Securities Intermediary to Maintain Financial Asset. . . Duty of Securities Intermediary with Respect to Payments and Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Securities Intermediary to Exercise Rights as Directed by Entitlement Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Securities Intermediary to Comply With Entitlement Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Securities Intermediary to Change Entitlement Holder's Position to Other Form of Security Holding. . . . . . . . . . . . . Specication of Duties of Securities Intermediary by Other Statute or Regulation; Manner of Performance of Duties of Securities Intermediary and Exercise of Rights of Entitlement Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Purchaser of Security Entitlement from Entitlement Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority Among Security Interests and Entitlement Holders.. . . . 794 798 800 804 807 808 809 811

811 812 815

8-510 8-511

PART 6. TRANSITION PROVISIONS FOR REVISED ARTICLE 8 ................................................................................... 817

8-601 8-602 8-603 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 817 817 819

ARTICLE 9 SECURED TRANSACTIONS ...........................

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ................................................................. 824 TABLE OF DISPOSITION OF SECTIONS IN FORMER ARTICLE 9 AND OTHER CODE SECTIONS ........................................ 825 TABLE INDICATING SOURCES OR DERIVATIONS OF NEW ARTICLE 9 SECTIONS AND CONFORMING AMENDMENTS .............................................................. PART 1. GENERAL PROVISIONS .................................... [SUBPART 1 SHORT TITLE, DEFINITIONS, AND GENERAL CONCEPTS] ...................................................................
9-101 9-102 9-103 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase-Money Security Interest; Application of Payments; Burden of Establishing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

827 831

831 831 840 862

xlv

9-104 9-105 9-106 9-107 9-108

Control of Deposit Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control of Electronic Chattel Paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control of Investment Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control of Letter-of-Credit Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suciency of Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interests Arising Under Article 2 or 2A.. . . . . . . . . . . . . . . . .

865 866 868 868 869 871 871 877

[SUBPART 2 APPLICABILITY OF ARTICLE] ....................

9-109 9-110

PART 2. EFFECTIVENESS OF SECURITY AGREEMENT; ATTACHMENT OF SECURITY INTEREST; RIGHTS OF PARTIES 878 TO SECURITY AGREEMENT ........................................... [SUBPART 1 EFFECTIVENESS AND ATTACHMENT] ........
9-201 9-202 9-203 9-204 9-205 9-206 General Eectiveness of Security Agreement. . . . . . . . . . . . . . . . . . . . . . Title to Collateral Immaterial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites. . . . . . . . . . . . . . . . . . . . . . . . After-Acquired Property; Future Advances.. . . . . . . . . . . . . . . . . . . . . . . . Use or Disposition of Collateral Permissible. . . . . . . . . . . . . . . . . . . . . . . Security Interest Arising in Purchase or Delivery of Financial Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Duties of Secured Party Having Possession or Control of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Duties of Secured Party Having Control of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duties of Secured Party if Account Debtor Has Been Notied of Assignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Request for Accounting; Request Regarding List of Collateral or Statement of Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878 878 879 879 883 884 885 886 886 889 891 891 894

[SUBPART 2 RIGHTS AND DUTIES] ................................

9-207 9-208 9-209 9-210

PART 3. PERFECTION AND PRIORITY ........................... [SUBPART 1 LAW GOVERNING PERFECTION AND PRIORITY] ....................................................................
9-301 9-302 9-303 9-304 9-305 9-306 9-307 Law Governing Perfection and Priority of Security Interests. . . . Law Governing Perfection and Priority of Agricultural Liens. . . Law Governing Perfection and Priority of Security Interests in Goods Covered by a Certicate of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Law Governing Perfection and Priority of Security Interests in Deposit Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Law Governing Perfection and Priority of Security Interests in Investment Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Law Governing Perfection and Priority of Security Interests in Letter-of-Credit Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Location of Debtor.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

894 894 897 897 899 900 902 903

[SUBPART 2 PERFECTION] ............................................

xlvi

Table of Contents 907 9-308 9-309 9-310 9-311 9-312 When Security Interest or Agricultural Lien Is Perfected; Continuity of Perfection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interest Perfected Upon Attachment. . . . . . . . . . . . . . . . . . . . . When Filing Required to Perfect Security Interest or Agricultural Lien; Security Interests and Agricultural Liens to Which Filing Provisions Do Not Apply.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perfection of Security Interests in Property Subject to Certain Statutes, Regulations, and Treaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perfection of Security Interests in Chattel Paper, Deposit Accounts, Documents, Goods Covered by Documents, Instruments, Investment Property, Letter-of-Credit Rights, and Money; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession. . . . . . . . . . . . . . When Possession by or Delivery to Secured Party Perfects Security Interest Without Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perfection by Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party's Rights on Disposition of Collateral and in Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Continued Perfection of Security Interest Following Change in Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interests That Take Priority Over or Take Free of Security Interest or Agricultural Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Interest Retained in Right to Payment That Is Sold; Rights and Title of Seller of Account or Chattel Paper With Respect to Creditors and Purchasers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Title of Consignee With Respect to Creditors and Purchasers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Licensee of General Intangible and Lessee of Goods in Ordinary Course of Business.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priorities Among Conicting Security Interests in and Agricultural Liens on Same Collateral.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Purchase-Money Security Interests. . . . . . . . . . . . . . . . . . . . Priority of Security Interests in Transferred Collateral. . . . . . . . . . Priority of Security Interests Created by New Debtor. . . . . . . . . . . . Priority of Security Interests in Deposit Account.. . . . . . . . . . . . . . . . . Priority of Security Interests in Investment Property. . . . . . . . . . . . Priority of Security Interests in Letter-of-Credit Right. . . . . . . . . . . Priority of Purchaser of Chattel Paper or Instrument. . . . . . . . . . . . Priority of Rights of Purchasers of Instruments, Documents, and Securities Under Other Articles; Priority of Interests in Financial Assets and Security Entitlements Under Article 8. . . . Transfer of Money; Transfer of Funds From Deposit Account. . . Priority of Certain Liens Arising by Operation of Law. . . . . . . . . . . Priority of Security Interests in Fixtures and Crops. . . . . . . . . . . . . . Accessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commingled Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Security Interests in Goods Covered by Certicate 907 909 911 913

916 919 923 924 927 931 931 934 935 936 939 939 945 948 953 954 956 957 963 964 969 971 972 973 977 979

9-313 9-314 9-315 9-316

[SUBPART 3 PRIORITY] .................................................

9-317 9-318 9-319 9-320 9-321 9-322 9-323 9-324 9-325 9-326 9-327 9-328 9-329 9-330 9-331 9-332 9-333 9-334 9-335 9-336 9-337

xlvii

 9-338 9-339 9-340 9-341 9-342

of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Security Interest or Agricultural Lien Perfected by Filed Financing Statement Providing Certain Incorrect Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority Subject to Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eectiveness of Right of Recoupment or Set-O Against Deposit Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank's Rights and Duties With Respect to Deposit Account. . . . . Bank's Right to Refuse to Enter Into or Disclose Existence of Control Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

981 981 982 982 982 983 984 984 984 985 985 987 989

[SUBPART 4 RIGHTS OF BANK] .....................................

PART 4. RIGHTS OF THIRD PARTIES.............................

9-401 9-402 9-403 9-404 Alienability of Debtor's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party Not Obligated on Contract of Debtor or in Tort. . Agreement Not to Assert Defenses Against Assignee. . . . . . . . . . . . . Rights Acquired by Assignee; Claims and Defenses Against Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Modication of Assigned Contract.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discharge of Account Debtor; Notication of Assignment; Identication and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineective.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictions on Creation or Enforcement of Security Interest in Leasehold Interest or in Lessor's Residual Interest. . . . . . . . . . . . . . . Restrictions on Assignment of Promissory Notes, Health-CareInsurance Receivables, and Certain General Intangibles Ineective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictions on Assignment of Letter-of-Credit Rights Ineective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9-405 9-406

990 994 995 999 1001

9-407 9-408 9-409

PART 5. FILING ............................................................ [SUBPART 1 FILING OFFICE; CONTENTS AND EFFECTIVENESS OF FINANCING STATEMENT] ..............
9-501 9-502 9-503 9-504 9-505 9-506 9-507 9-508 9-509 Filing Oce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents of Financing Statement; Record of Mortgage as Financing Statement; Time of Filing Financing Statement. . . . . . Name of Debtor and Secured Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indication of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Filing and Compliance With Other Statutes and Treaties for Consignments, Leases, Other Bailments, and Other Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Errors or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Certain Events on Eectiveness of Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eectiveness of Financing Statement if New Debtor Becomes Bound by Security Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Persons Entitled to File a Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1001 1001 1002 1004 1006 1007 1008 1009 1010 1012

xlviii

Table of Contents 9-510 9-511 9-512 9-513 9-514 9-515 Eectiveness of Filed Record.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party of Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment of Financing Statement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assignment of Powers of Secured Party of Record. . . . . . . . . . . . . . . . Duration and Eectiveness of Financing Statement; Eect of Lapsed Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Constitutes Filing; Eectiveness of Filing.. . . . . . . . . . . . . . . . . . Eect of Indexing Errors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claim Concerning Inaccurate or Wrongfully Filed Record. . . . . . . 1014 1015 1016 1017 1019 1020 1022 1025 1025

9-516 9-517 9-518

[SUBPART 2 DUTIES AND OPERATION OF FILING OFFICE] ........................................................................

9-519 9-520 9-521 9-522 9-523 9-524 9-525 9-526 9-527 Numbering, Maintaining, and Indexing Records; Communicating Information Provided in Records. . . . . . . . . . . . . . . . . Acceptance and Refusal to Accept Record. . . . . . . . . . . . . . . . . . . . . . . . . . Uniform Form of Written Financing Statement and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maintenance and Destruction of Records.. . . . . . . . . . . . . . . . . . . . . . . . . . Information From Filing Oce; Sale or License of Records. . . . . . Delay by Filing Oce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Filng-Oce Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty to Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1026 1026 1029 1030 1035 1036 1038 1038 1040 1041 1041

PART 6. DEFAULT.........................................................

[SUBPART 1 DEFAULT AND ENFORCEMENT OF SECURITY INTEREST] .................................................................... 1041

9-601 9-602 9-603 9-604 9-605 9-606 9-607 9-608 9-609 9-610 9-611 9-612 9-613 Rights After Default; Judicial Enforcement; Consignor or Buyer of Accounts, Chattel Paper, Payment Intangibles, or Promissory Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver and Variance of Rights and Duties.. . . . . . . . . . . . . . . . . . . . . . . . Agreement on Standards Concerning Rights and Duties. . . . . . . . . Procedure if Security Agreement Covers Real Property or Fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unknown Debtor or Secondary Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time of Default for Agricultural Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection and Enforcement by Secured Party. . . . . . . . . . . . . . . . . . . . . Application of Proceeds of Collection or Enforcement; Liability for Deciency and Right to Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party's Right to Take Possession After Default.. . . . . . . . . Disposition of Collateral After Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notication Before Disposition of Collateral. . . . . . . . . . . . . . . . . . . . . . . Timeliness of Notication Before Disposition of Collateral. . . . . . . Contents and Form of Notication Before Disposition of Collateral: General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents and Form of Notication Before Disposition of Collateral: Consumer-Goods Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . Application of Proceeds of Disposition; Liability for Deciency and Right to Surplus.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041 1043 1045 1045 1046 1047 1047 1050 1052 1053 1056 1058 1059 1060 1062

9-614 9-615

xlix

9-616 9-617 9-618 9-619 9-620 9-621 9-622 9-623 9-624

Explanation of Calculation of Surplus or Deciency. . . . . . . . . . . . . . Rights of Transferee of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Duties of Certain Secondary Obligors. . . . . . . . . . . . . . . . . Transfer of Record or Legal Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptance of Collateral in Full or Partial Satisfaction of Obligation; Compulsory Disposition of Collateral.. . . . . . . . . . . . . . . . . Notication of Proposal to Accept Collateral. . . . . . . . . . . . . . . . . . . . . . . Eect of Acceptance of Collateral.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Right to Redeem Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1065 1067 1068 1069 1070 1074 1075 1076 1076 1077 1077 1079 1081 1083 1084 1084 1084 1085 1086 1087 1090 1092 1094 1095

[SUBPART 2 NONCOMPLIANCE WITH ARTICLE] ............

9-625 9-626 9-627 9-628 Remedies for Secured Party's Failure to Comply With Article.. . Action in Which Deciency or Surplus Is in Issue.. . . . . . . . . . . . . . . . Determination of Whether Conduct Was Commercially Reasonable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonliability and Limitation on Liability of Secured Party; Liability of Secondary Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 7. TRANSITION ....................................................

9-701 9-702 9-703 9-704 9-705 9-706 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interest Perfected Before Eective Date. . . . . . . . . . . . . . . . . Security Interest Unperfected Before Eective Date. . . . . . . . . . . . . . Eectiveness of Action Taken Before Eective Date. . . . . . . . . . . . . . When Initial Financing Statement Suces to Continue Eectiveness of Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendment of Pre-Eective-Date Financing Statement.. . . . . . . . . Persons Entitled to File Initial Financing Statement or Continuation Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9-707 9-708 9-709

APPENDIX I. CONFORMING AMENDMENTS TO OTHER ARTICLES .....................................................................

1097

APPENDIX II. MODEL PROVISIONS FOR PRODUCTION-MONEY PRIORITY ..................................................................... 1121 APPENDIX III. PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE ..................................... 1124 APPENDIX IV. PERMANENT EDITORIAL BOARD FOR THE UNIFORM COMMERCIAL CODE ..................................... 1131 ARTICLE 10 EFFECTIVE DATE AND REPEALER .............
10-101 10-102 10-103 10-104 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specic Repealer; Provision for Transition. . . . . . . . . . . . . . . . . . . . . . . . . . General Repealer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Laws Not Repealed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1139 1139 1139 1140 1140

Table of Contents

ARTICLE 11 EFFECTIVE DATE AND TRANSITION PROVISIONS .................................................................

11-101 11-102 11-103 11-104 11-105 11-106 11-107 11-108 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preservation of Old Transition Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition to [New Code]General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition Provision on Change of Requirement of Filing.. . . . . . . . Transition Provision on Change of Place of Filing.. . . . . . . . . . . . . . . . . Required Relings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition Provisions as to Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption That Rule of Law Continues Unchanged. . . . . . . . . . . .

1141 1141 1141 1141 1142 1142 1142 1143 1143

APPENDIX A PEB COMMENTARIES ON THE UNIFORM COMMERCIAL CODE ..................................................... COMMENTARIES 17 FINAL DRAFT ................................ PEB RESOLUTION ON PURPOSES, STANDARDS AND PROCEDURES FOR PEB COMMENTARY TO THE UCC ..... PEB COMMENTARY NO. 1 SECTION 2-507(2) .................... PEB COMMENTARY NO. 2 SECTION 9-301(4) .................... PEB COMMENTARY NO. 3 SECTIONS 9-306(2) AND 9-402(7) .......................................................................... PEB COMMENTARY NO. 4 SECTION 8-207(1) .................... PEB COMMENTARY NO. 5 SECTION 9-306(5) .................... PEB COMMENTARY NO. 6 SECTION 9-301(1) .................... PEB COMMENTARY NO. 7 THE RELATIVE PRIORITIES OF SECURITY INTERESTS IN THE CASH PROCEEDS OF ACCOUNTS, CHATTEL PAPER, AND GENERAL INTANGIBLES ............................................................... COMMENTARY NO. 8 FINAL DRAFT ............................... PEB COMMENTARY NO. 8 (AS AMENDED TO APPLY TO REVISED ARTICLE 9) SECTION 9-330 .............................. COMMENTARY NO. 9 FINAL DRAFT ............................... PEB COMMENTARY NO. 9 SECTION 9-306(1) .................... COMMENTARY NO. 10 (SECTION 1-203) FINAL DRAFT ..... PEB COMMENTARY NO. 10 SECTION 1-203 ......................

1144 1146

1147 1149 1152

1154 1158 1163 1168

1171 1174

1176 1181 1183 1187 1189

li

COMMENTARY NO. 11 (SURETYSHIP ISSUES UNDER SECTIONS 3-116, 3-305, 3-415, 3-419, AND 3-605) FINAL DRAFT ........... 1195 PEB COMMENTARY NO. 11 (AS AMENDED TO APPLY TO REVISED ARTICLE 9) SURETYSHIP ISSUES UNDER SECTIONS 3-116, 3-305, 3-415, 3-419, AND 3-605 .................................. 1197 COMMENTARY NO. 12 (SECTION 9-302) FINAL DRAFT ..... PEB COMMENTARY NO. 12 SECTION 9-302 ...................... COMMENTARY NO. 13 (THE PLACE OF ARTICLE 4A IN A WORLD OF ELECTRONIC FUNDS TRANSFERS) FINAL DRAFT ..........................................................................
1212 1214

1220

PEB COMMENTARY NO. 13 THE PLACE OF ARTICLE 4A IN A WORLD OF ELECTRONIC FUNDS TRANSFERS................ 1222 COMMENTARY NO. 14 (SECTION 9-102(1)(B)) FINAL DRAFT .......................................................................... PEB COMMENTARY NO. 14 SECTION 9-102(1)(B) .............. PEB COMMENTARY NO. 15 ELECTRONIC FILING UNDER ARTICLE 9 .................................................................... PEB COMMENTARY NO 16 SECTIONS 4A-502(D) AND 4A-503 ........................................................................... PEB COMMENTARY NO 16 SECTIONS 4A-502(D) AND 4A-503 ...........................................................................
1231 1233

1237

1242

1243

APPENDIX B 1972 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 9, SECURED TRANSACTIONS, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1249 GENERAL COMMENT ON THE APPROACH OF THE REVIEW COMMITTEE FOR ARTICLE 9 ......................................... 1249 AMENDMENTS TO ARTICLE 1 ........................................ AMENDMENT TO ARTICLE 2 .......................................... AMENDMENT TO ARTICLE 5 ..........................................
1285 1287 1287

ARTICLE 9 SECURED TRANSACTIONS; SALES OF ACCOUNTS [, CONTRACT RIGHTS] AND CHATTEL PAPER ................... 1289

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Table of Contents

PART 1. SHORT TITLE, APPLICABILITY AND DEFINITIONS ................................................................

9-102 Policy and [Scope] Subject Matter of Article. . . . . . . . . . . . . . . . . . . . . . . . [ 9-103 Accounts, Contract Rights, General Intangibles and Equipment Relating to Another Jurisdiction; and Incoming Goods Already Subject to a Security Interest]. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-103 Perfection of Security Interests in Multiple State Transactions. . 9-104 Transactions Excluded From Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-105 Denitions and Index of Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-106 Denitions: Account; [Contract Right;] General Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-114 Consignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1289 1289 1290 1291 1294 1295 1297 1298

PART 2. VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO .................................................. 1299
9-203 9-204 9-205 Attachment and Enforceability of Security Interest; Proceeds; Formal Requisites. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [When Security Interest Attaches;] After-Acquired Property; Future Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use or Disposition of Collateral Without Accounting Permissible.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1299 1300 1301

PART 3. RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY .....................................................................
9-301 9-302 9-304 Persons Who Take Priority Over Unperfected Security Interests; Right of Lien Creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Filing Is Required to Perfect Security Interest; Security Interests to Which Filing Provisions of This Article Do Not Apply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perfection of Security Interest in Instruments, Documents, and Goods Covered by Documents; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Possession by Secured Party Perfects Security Interest Without Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds; Secured Party's Rights on Disposition of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protection of Buyers of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of Chattel Paper and [Non-Negotiable] Instruments. . Priorities Among Conicting Security Interests in the Same Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Security Interests in Fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . Defenses Against Assignee; Modication of Contract After Notication of Assignment; Term Prohibiting Assignment Ineective; Identication and Proof of Assignment.. . . . . . . . . . . . . . .

1302 1302 1303

1305 1306 1306 1309 1309 1310 1314 1316 1317

9-305 9-306 9-307 9-308 9-312 9-313 9-318

PART 4. FILING ............................................................

liii

 9-401 9-402 9-403 9-404 9-405 9-406 [[ 9-407 9-408

Place of Filing; Erroneous Filing; Removal of Collateral. . . . . . . . Formal Requisites of Financing Statement; Amendments; Mortgage as Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Constitutes Filing; Duration of Filing; Eect of Lapsed Filing; Duties of Filing Ocer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assignment of Security Interest; Duties of Filing Ocer; Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Release of Collateral; Duties of Filing Ocer; Fees. . . . . . . . . . . . . . Information From Filing Ocer]].. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing Statements Covering Consigned or Leased Goods. . .

1317 1320 1323 1325 1327 1328 1328 1329 1329 1329 1330 1330 1332

PART 5. DEFAULT.........................................................
9-501 9-502 9-504 9-505 Default; Procedure When Security Agreement Covers Both Real and Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection Rights of Secured Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party's Right to Dispose of Collateral After Default; Eect of Disposition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compulsory Disposition of Collateral; Acceptance of the Collateral as Discharge of Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ARTICLE 11 EFFECTIVE DATE AND TRANSITION PROVISIONS .................................................................

11-101 11-102 11-103 11-104 11-105 11-106 11-107 11-108 Eective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preservation of Old Transition Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition to [New Code]General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition Provision on Change of Requirement of Filing.. . . . . . . . Transition Provision on Change of Place of Filing.. . . . . . . . . . . . . . . . . Required Relings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition Provisions as to Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption that Rule of Law Continues Unchanged. . . . . . . . . . . . .

1334 1334 1334 1334 1335 1335 1336 1337 1337

APPENDIX C 1977 OFFICIAL TEXT SHOWING CHANGES MADE IN FORMER TEXT OF ARTICLE 8, INVESTMENT SECURITIES, AND OF RELATED SECTIONS AND REASONS FOR CHANGES ...................................................................... 1338 REPORTER'S INTRODUCTORY COMMENT ...................... ARTICLE 8 INVESTMENT SECURITIES ........................... PART 1. SHORT TITLE AND GENERAL MATTERS ...........
8-101 8-102 8-103 8-104 8-105 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Overissue; Overissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certicated Securities Negotiable; Statements and Instructions Not Negotiable; Presumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities [Deliverable] Transferable; Action for Price. . . . . . . . . . . 1338 1349 1349 1349 1349 1352 1352 1353 1354 1354

8-106 8-107

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Table of Contents 8-108 Registration of Pledge and Release of Uncerticated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1355 1355 1355 1356 1358 1358 1359 1359 1360 1361 1362 1362 1363 1363 1364 1364 1365 1367 1367 1369 1369 1370 1370 1372 1375 1376 1377 1377 1379 1379 1380 1381

PART 2. ISSUEISSUER ................................................

8-201 8-202 8-203 8-204 8-205 8-206 8-207 8-208 Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Responsibility and Defenses; Notice of Defect or Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staleness as Notice of Defects or Defenses. . . . . . . . . . . . . . . . . . . . . . . . . Eect of Issuer's Restrictions on Transfer.. . . . . . . . . . . . . . . . . . . . . . . . . Eect of Unauthorized Signature on [Issue] Certicated Security or Initial Transaction Statement.. . . . . . . . . . . . . . . . . . . . . . . . . Completion or Alteration of [Instrument] Certicated Security or Initial Transaction Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Duties of Issuer With Respect to Registered Owners and Registered Pledgees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Signature of Authenticating Trustee, Registrar, or Transfer Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 3. [PURCHASE] TRANSFER ..................................

8-301 8-302 8-303 8-304 8-305 8-306 Rights Acquired by Purchaser [; Adverse Claim; Title Acquired by Bona Fide Purchaser]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bona Fide Purchaser; Adverse Claim; Title Acquired by Bona Fide Purchaser.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice to Purchaser of Adverse Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staleness as Notice of Adverse Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties on Presentment and Transfer of Certicated Securities; Warranties of Originators of Instructions. . . . . . . . . . . . . Eect of Delivery Without Indorsement; Right to Compel Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [Indorsement, How Made; Special Indorsement; Indorser Not a Guarantor; Partial Assignment] Indorsements; Instructions.. . . . Eect of Indorsement Without Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . Indorsement of Certicated Security in Bearer Form.. . . . . . . . . . . . Eect of Unauthorized Indorsement or Instruction. . . . . . . . . . . . . . . Eect of Guaranteeing Signature, [or] Indorsement or Instruction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When [Delivery] Transfer to [the] Purchaser Occurs: [; Purchaser's Broker] Financial Intermediary as [Holder] Bona Fide Purchaser; Financial Intermediary. . . . . . . . . . . . . . . . . . . . . . . . . . Duty to [Deliver] Transfer, When Completed. . . . . . . . . . . . . . . . . . . . . . Action Against [Purchaser] Transferee Based Upon Wrongful Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchaser's Right to Requisites for Registration of Transfer, Pledge, or Release on Books.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [Attachment or Levy Upon Security] Creditors' Rights. . . . . . . . . . . No Conversion by Good Faith [Delivery] Conduct. . . . . . . . . . . . . . . . . Statute of Frauds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer or Pledge Within [a] Central Depository System. . . . . . . Enforceability, Attachment, Perfection and Termination of Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8-307 8-308 8-309 8-310 8-311 8-312

8-313 8-314 8-315 8-316 8-317 8-318 8-319 8-320 8-321

lv

PART 4. REGISTRATION ...............................................

8-401 8-402 8-403 8-404 8-405 8-406 8-407 8-408 Duty of Issuer to Register Transfer, Pledge, or Release. . . . . . . . . . Assurance that Indorsements and Instructions Are Eective. . . . [Limited Duty of Inquiry] Issuer's Duty as to Adverse Claims. . Liability and Non-Liability for Registration.. . . . . . . . . . . . . . . . . . . . . . . Lost, Destroyed, and Stolen Certicated Securities. . . . . . . . . . . . . . . Duty of Authenticating Trustee, Transfer Agent, or Registrar.. . Exchangeability of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Uncerticated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .

1383 1383 1383 1384 1387 1388 1389 1389 1390 1393 1397

AMENDMENTS TO ARTICLE 9 (1972 OFFICIAL TEXT) ...... CHANGES IN ARTICLES 1 AND 5 ....................................

APPENDIX D ARTICLE 1 AND ARTICLE 9: 1987 CONFORMING AMENDMENTS [CONFORMING TO ARTICLE 2A] ............. 1398
Territorial Application of the Act; Parties' Power to Choose Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-201(37) General Denitions: Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . 9-113 Security Interests Arising Under Article on Sales or Under Article on Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-105 1398 1398 1401 1403 1404 1404 1405 1405 1407 1408 1408 1410 1411 1412 1412 1413 1414 1414 1421 1423 1425 1430

APPENDIX E PRE-REVISION ARTICLE 6 ........................ ARTICLE 6 BULK TRANSFERS .......................................

6-101 6-102 [ Short Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bulk Transfers; Transfers of Equipment; Enterprises Subject to This Article; Bulk Transfers Subject to This Article. . . . . . . . . 6-103 Transfers Excepted From This Article.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-104 Schedule of Property, List of Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-105 Notice to Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-106 Application of the Proceeds]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-107 The Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-108 Auction Sales; Auctioneer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-109 What Creditors Protected; [Credit for Payment to Particular Creditors]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-110 Subsequent Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-111 Limitation of Actions and Levies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX F 1990 AMENDMENTS TO ARTICLE 2A .......... AMENDMENT 1 .............................................................. AMENDMENT 2 .............................................................. AMENDMENT 3 .............................................................. AMENDMENT 4 .............................................................. AMENDMENT 5 ..............................................................

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Table of Contents

AMENDMENT 6 .............................................................. AMENDMENT 7 .............................................................. AMENDMENT 8 .............................................................. AMENDMENT 9 .............................................................. AMENDMENT 10 ............................................................ AMENDMENT 11 ............................................................ AMENDMENT 12 ............................................................ AMENDMENT 13 ............................................................ AMENDMENT 14 ............................................................ AMENDMENT 15 ............................................................ AMENDMENT 16 ............................................................ AMENDMENT 17 ............................................................ AMENDMENT 18 ............................................................ AMENDMENT 19 ............................................................ AMENDMENT 20 ............................................................ AMENDMENT 21 ............................................................ AMENDMENT 22 ............................................................ AMENDMENT 23 ............................................................ AMENDMENT 24 ............................................................ APPENDIX TO 1990 ARTICLE 2A AMENDMENTS .............. APPENDIX G PRE-REVISION ARTICLE 3 ........................ ARTICLE 3 COMMERCIAL PAPER .................................. PART 1. SHORT TITLE, FORM AND INTERPRETATION ...
3-101 3-102 3-103 3-104 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitations on Scope of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Negotiable Instruments; Draft; Check; Certicate of Deposit; Note.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1432 1435 1438 1438 1440 1441 1442 1443 1446 1448 1449 1451 1453 1457 1458 1459 1462 1464 1467 1468 1475 1476 1478 1478 1478 1480 1481

lvii

3-105 3-106 3-107 3-108 3-109 3-110 3-111 3-112 3-113 3-114 3-115 3-116 3-117 3-118 3-119 3-120 3-121 3-122

When Promise or Order Unconditional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum Certain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable on Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denite Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable to Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable to Bearer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terms and Omissions Not Aecting Negotiability.. . . . . . . . . . . . . . . . Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date, Antedating, Postdating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incomplete Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruments Payable to Two or More Persons. . . . . . . . . . . . . . . . . . . . . Instruments Payable With Words of Description. . . . . . . . . . . . . . . . . . Ambiguous Terms and Rules of Construction.. . . . . . . . . . . . . . . . . . . . . Other Writings Aecting Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruments Payable Through Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruments Payable at Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrual of Cause of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1482 1484 1485 1486 1487 1488 1489 1490 1492 1492 1493 1494 1495 1496 1497 1498 1499 1500 1501 1501 1502 1504 1504 1505 1505 1507 1508 1509 1509 1509 1511 1512 1515 1517 1518 1520 1520 1521 1521 1523 1524 1525 1527 1529 1529 1530

PART 2. TRANSFER AND NEGOTIATION ........................

3-201 3-202 3-203 3-204 3-205 3-206 3-207 3-208 Transfer: Right to Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wrong or Misspelled Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Indorsement; Blank Indorsement. . . . . . . . . . . . . . . . . . . . . . . . . . Restrictive Indorsements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Restrictive Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiation Eective Although It May Be Rescinded. . . . . . . . . . . . . Reacquisition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 3. RIGHTS OF A HOLDER .....................................

3-301 3-302 3-303 3-304 3-305 3-306 3-307 Rights of a Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holder in Due Course.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taking for Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice to Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of a Holder in Due Course. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of One Not Holder in Due Course.. . . . . . . . . . . . . . . . . . . . . . . . . . Burden of Establishing Signatures, Defenses and Due Course. .

PART 4. LIABILITY OF PARTIES ....................................

3-401 3-402 3-403 3-404 3-405 3-406 3-407 3-408 3-409 3-410 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signature in Ambiguous Capacity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signature by Authorized Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . Unauthorized Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impostors; Signature in Name of Payee. . . . . . . . . . . . . . . . . . . . . . . . . . . . Negligence Contributing to Alteration or Unauthorized Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alteration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Draft Not an Assignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denition and Operation of Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . .

lviii

Table of Contents 3-411 3-412 3-413 3-414 3-415 3-416 3-417 3-418 3-419 Certication of a Check.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptance Varying Draft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contract of Maker, Drawer and Acceptor. . . . . . . . . . . . . . . . . . . . . . . . . . Contract of Indorser; Order of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . Contract of Accommodation Party.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contract of Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties on Presentment and Transfer.. . . . . . . . . . . . . . . . . . . . . . . . . Finality of Payment or Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of Instrument; Innocent Representative. . . . . . . . . . . . . . 1532 1532 1533 1534 1535 1536 1537 1541 1542 1544 1544 1547 1548 1549 1551 1551 1552 1553 1554 1556 1557 1559 1559 1561 1561 1563 1564 1564 1565 1565 1566 1566 1567 1568 1569 1570

PART 5. PRESENTMENT, NOTICE OF DISHONOR AND PROTEST ......................................................................

3-501 3-502 3-503 3-504 3-505 3-506 3-507 3-508 3-509 3-510 3-511 When Presentment, Notice of Dishonor, and Protest Necessary or Permissible.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unexcused Delay; Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time of Presentment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Presentment Made. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Party to Whom Presentment Is Made. . . . . . . . . . . . . . . . . . . Time Allowed for Acceptance or Payment. . . . . . . . . . . . . . . . . . . . . . . . . . Dishonor; Holder's Right of Recourse; Term Allowing Re-presentment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice of Dishonor.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protest; Noting for Protest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evidence of Dishonor and Notice of Dishonor.. . . . . . . . . . . . . . . . . . . . . Waived or Excused Presentment, Protest or Notice of Dishonor or Delay Therein. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 6. DISCHARGE .....................................................

3-601 3-602 3-603 3-604 3-605 3-606 Discharge of Parties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Discharge Against Holder in Due Course. . . . . . . . . . . . . . . . Payment or Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tender of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation and Renunciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of Recourse or of Collateral.. . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 7. ADVICE OF INTERNATIONAL SIGHT DRAFT .....

3-701 Letter of Advice of International Sight Draft. . . . . . . . . . . . . . . . . . . . . .

PART 8. MISCELLANEOUS ............................................

3-801 3-802 3-803 3-804 3-805 Drafts in a Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Instrument on Obligation for Which It Is Given. . . . . . . . Notice to Third Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lost, Destroyed or Stolen Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instruments Not Payable to Order or to Bearer. . . . . . . . . . . . . . . . . . .

APPENDIX H 1990 ARTICLE 1 AMENDMENTS CONFORMING TO REVISED ARTICLE 3 ...................................................... 1571 ARTICLE 1 GENERAL PROVISIONS ................................

lix

 1-201 1-207

General Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance or Acceptance Under Reservation of Rights. . . . . . . .

1572 1572 1572

APPENDIX I 1990 CONFORMING [TO REVISED ARTICLE 3] AND MISCELLANEOUS AMENDMENTS TO ARTICLE 4 ............ 1574 ARTICLE 4 BANK DEPOSITS AND COLLECTIONS ...........
4-101 4-102 4-103 4-104 4-105 4-106 4-106 4-107 4-107 4-108 4-108 4-109 4-109 4-110 4-111 4-201 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variation by Agreement; Measure of Damages; Certain Action Constituting Ordinary Care. . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . Bank; Depositary Bank; Payor Bank; Intermediary Bank; Collecting Bank; Presenting Bank; Remitting Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable Through or Payable at Bank; Collecting Bank.. . . . . Separate Oce of Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time of Receipt of Items.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delays.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Process of Posting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Electronic Presentment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption and Duration of Agency Status of Collecting Banks as Agent and Provisional Status of Credits; Applicability of Article; Item Indorsed Pay Any Bank. . . Responsibility for Collection or Return; When Action Seasonable Timely. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Methods of Sending and Presenting; Sending Direct Directly to Payor Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplying Missing Indorsement; No Notice from Prior Indorsement Depositary Bank Holder of Unindorsed Item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer Between Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties of Customer and Collecting Bank on Transfer or Presentment of Items; Time for Claims. . . . . . . . . . . . . . . . . . Transfer Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presentment Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Encoding and Retention Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interest of Collecting Bank in Items, Accompanying Documents and Proceeds. . . . . . . . . . . . . . . . . . . . When Bank Gives Value for Purposes of Holder in Due Course. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presentment by Notice of Item Not Payable By, Through, or at Bank; Liability of Secondary Parties Drawer or Indorser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Media of Remittance; Provisional and Final Settlement in Remittance Cases Medium and Time of Settlement by Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Right of Charge-Back or Refund; Liability of Collecting Bank; Return of Item.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1575 1575 1575 1575 1576 1578 1579 1579 1579 1580 1580 1580 1581 1581 1582 1582 1583 1583 1584 1584 1585 1586 1587 1587 1588 1588 1589 1590

4-202 4-203 4-204 4-205 4-206 4-207 4-207 4-208 4-209 4-208 4-210

4-209 4-211 4-210 4-212 4-211 4-213 4-212 4-214

lx

Table of Contents 4-213 4-215 Final Payment of Item by Payor Bank; When Provisional Debits and Credits Become Final; When Certain Credits Become Available For Withdrawal.. . . . . . . . . . . . . . . . . . . . . . . . . . 4-214 4-216 Insolvency and Preference.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-301 Deferred Posting; Recovery of Payment by Return of Items; Time of Dishonor; Return of Items by Payor Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-302 Payor Bank's Responsibility for Late Return of Item. . . . . . . . 4-303 When Items Subject to Notice, Stop Order Stop-Payment Order, Legal Process, or Seto; Order in Which Items May be Charged or Certied.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-401 When Bank May Charge Customer's Account. . . . . . . . . . . . . . . . 4-402 Bank's Liability to Customer for Wrongful Dishonor; Time of Determining Insuciency of Account. . . . . . . . . . . . . . . . . . . . . 4-403 Customer's Right to Stop Payment; Burden of Proof of Loss.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-405 Death or Incompetence of Customer. . . . . . . . . . . . . . . . . . . . . . . . . . . 4-406 Customer's Duty to Discover and Report Unauthorized Signature or Alteration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-407 Payor Bank's Right to Subrogation on Improper Payment. . 4-501 Handling of Documentary Drafts; Duty to Send for Presentment and to Notify Customer of Dishonor. . . . . . . . . 4-502 Presentment of On Arrival Drafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-503 Responsibility of Presenting Bank for Documents and Goods; Report of Reasons for Dishonor; Referee in Case of Need. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-504 Privilege of Presenting Bank to Deal with Goods; Security Interest for Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1591 1593 1594 1594 1595 1596 1597 1598 1599 1599 1602 1602 1602 1602 1603

APPENDIX J 1994 AMENDMENTS TO UNIFORM COMMERCIAL CODE ............................................................................ 1604 AMENDMENT 1 .............................................................. AMENDMENT 2 .............................................................. AMENDMENT 3 .............................................................. AMENDMENT 4 .............................................................. AMENDMENT 5 .............................................................. AMENDMENT 6 .............................................................. AMENDMENT 7 .............................................................. AMENDMENT 8 ..............................................................
1604 1609 1610 1610 1611 1612 1613 1614

APPENDIX K 1994 AND 1995 AMENDMENTS TO ARTICLES 1, 3, 4, 5, 9, AND 10 CONFORMING TO 1994 REVISION OF ARTICLE 8 ...................................................................................

lxi

1616

CONFORMING AMENDMENTS TO ARTICLE 9 ................. CONFORMING AMENDMENTS TO ARTICLES 1, 3, 4, 5, AND 10.................................................................................. APPENDIX L PRE-REVISION ARTICLE 8......................... ARTICLE 8 INVESTMENT SECURITIES ........................... PART 1. SHORT TITLE AND GENERAL MATTERS ...........
8-101 8-102 8-103 8-104 8-105 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Overissue; Overissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certicated Securities Negotiable; Statements and Instructions Not Negotiable; Presumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities Transferable; Action for Price. . . . . . . . . . . . . . . . . . . . . . . . . . . Registration of Pledge and Release of Uncerticated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1616 1637 1641 1642 1643 1643 1643 1646 1647 1648 1649 1650 1651 1652 1652 1653 1657 1658 1659 1661 1662 1664 1666 1666 1666 1668 1668 1670 1671 1674

8-106 8-107 8-108

PART 2. ISSUEISSUER ................................................

8-201 8-202 8-203 8-204 8-205 8-206 8-207 8-208 Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Responsibility and Defenses; Notice of Defect or Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staleness as Notice of Defects or Defenses. . . . . . . . . . . . . . . . . . . . . . . . . Eect of Issuer's Restrictions on Transfer.. . . . . . . . . . . . . . . . . . . . . . . . . Eect of Unauthorized Signature on Certicated Security or Initial Transaction Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Completion or Alteration of Certicated Security or Initial Transaction Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Duties of Issuer With Respect to Registered Owners and Registered Pledgees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Signature of Authenticating Trustee, Registrar, or Transfer Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 3. TRANSFER ......................................................

8-301 8-302 8-303 8-304 8-305 8-306 Rights Acquired by Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bona Fide Purchaser; Adverse Claim; Title Acquired by Bona Fide Purchaser.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice to Purchaser of Adverse Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staleness as Notice of Adverse Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties on Presentment and Transfer of Certicated Securities; Warranties of Originators of Instructions. . . . . . . . . . . . . Eect of Delivery Without Indorsement; Right to Compel Indorsement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8-307

lxii

Table of Contents 8-308 8-309 8-310 8-311 8-312 8-313 Indorsements; Instructions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Indorsement Without Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . Indorsement of Certicated Security in Bearer Form.. . . . . . . . . . . . Eect of Unauthorized Indorsement or Instruction. . . . . . . . . . . . . . . Eect of Guaranteeing Signature, Indorsement or Instruction. . When Transfer to Purchaser Occurs; Financial Intermediary as Bona Fide Purchaser; Financial Intermediary.. . . . . . . . . . . . . . . Duty to Transfer, When Completed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Action Against Transferee Based Upon Wrongful Transfer. . . . . . Purchaser's Right to Requisites for Registration of Transfer, Pledge, or Release on Books.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Creditors' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Conversion by Good Faith Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Frauds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer or Pledge Within Central Depository System. . . . . . . . . . . Enforceability, Attachment, Perfection and Termination of Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1675 1677 1678 1678 1679 1682 1686 1688 1689 1689 1691 1692 1693 1695 1697 1697 1698 1701 1704 1706 1707 1708 1710

8-314 8-315 8-316 8-317 8-318 8-319 8-320 8-321

PART 4. REGISTRATION ...............................................

8-401 8-402 8-403 8-404 8-405 8-406 8-407 8-408 Duty of Issuer to Register Transfer, Pledge, or Release. . . . . . . . . . Assurance That Indorsements and Instructions Are Eective. . . Issuer's Duty as to Adverse Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liability and Non-liability for Registration. . . . . . . . . . . . . . . . . . . . . . . . Lost, Destroyed, and Stolen Certicated Securities. . . . . . . . . . . . . . . Duty of Authenticating Trustee, Transfer Agent, or Registrar.. . Exchangeability of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Uncerticated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX M 1995 AMENDMENTS TO ARTICLES 1, 2, AND 9 CONFORMING TO REVISED ARTICLE 5 .......................... 1714 CONFORMING AND MISCELLANEOUS AMENDMENTS TO ARTICLE 1 .................................................................... CONFORMING AND MISCELLANEOUS AMENDMENTS TO ARTICLE 2 .................................................................... COMPLEMENTARY AMENDMENTS TO ARTICLE 9 .......... APPENDIX N PRE-REVISION ARTICLE 5 ........................ ARTICLE 5 LETTERS OF CREDIT ...................................
5-101 5-102 5-103 5-104 5-105 5-106 5-107 5-108 5-109 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formal Requirements; Signing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time and Eect of Establishment of Credit. . . . . . . . . . . . . . . . . . . . . . . . Advice of Credit; Conrmation; Error in Statement of Terms. . . Notation Credit; Exhaustion of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Obligation to Its Customer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1714

1714 1714 1718 1719 1719 1719 1721 1723 1723 1724 1725 1726 1727

lxiii

 5-110 5-111 5-112 5-113 5-114 5-115 5-116 5-117

Availability of Credit in Portions; Presenter's Reservation of Lien or Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties on Transfer and Presentment.. . . . . . . . . . . . . . . . . . . . . . . . . Time Allowed for Honor or Rejection; Withholding Honor or Rejection by Consent; Presenter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuer's Duty and Privilege to Honor; Right to Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedy for Improper Dishonor or Anticipatory Repudiation. . . . Transfer and Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insolvency of Bank Holding Funds for Documentary Credit. . . . .

1729 1729 1730 1731 1732 1734 1735 1737 1739

APPENDIX O PRE-REVISION ARTICLE 9 ........................

ARTICLE 9 SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL PAPER ................................................... 1740 PART 1. SHORT TITLE, APPLICABILITY AND DEFINITIONS ................................................................
9-101 9-102 9-103 9-104 9-105 9-106 9-107 9-108 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy and Subject Matter of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Perfection of Security Interest in Multiple State Transactions. . Transactions Excluded From Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Account; General Intangibles. . . . . . . . . . . . . . . . . . . . . . Denitions: Purchase Money Security Interest. . . . . . . . . . . . . . . . . . When After-Acquired Collateral Not Security for Antecedent Debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Classication of Goods: Consumer Goods; Equipment; Farm Products; Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Suciency of Description.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applicability of Bulk Transfer Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Where Collateral Is Not Owned by Debtor. . . . . . . . . . . . . . . . . . . . . . . . . Security Interests Arising Under Article on Sales or Under Article on Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Interest Arising in Purchase or Delivery of Financial Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1741 1741 1743 1749 1758 1760 1765 1767 1767 1768 1770 1770 1771 1772 1773 1774 1786

9-109 9-110 9-111 9-112 9-113

9-114 9-115 9-116

PART 2. VALIDITY OF SECURITY AGREEMENT AND RIGHTS OF PARTIES THERETO .................................................. 1787
9-201 9-202 9-203 9-204 9-205 9-206 General Validity of Security Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . Title to Collateral Immaterial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attachment and Enforceability of Security Interest; Proceeds; Formal Requisites. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . After-Acquired Property; Future Advances.. . . . . . . . . . . . . . . . . . . . . . . . Use or Disposition of Collateral Without Accounting Permissible.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agreement Not to Assert Defenses Against Assignee; 1787 1788 1789 1791 1793

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Table of Contents Modication of Sales Warranties Where Security Agreement Exists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights and Duties When Collateral Is in Secured Party's Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Request for Statement of Account or List of Collateral. . . . . . . . . . .

1794 1795 1797

9-207 9-208

PART 3. RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY .....................................................................
9-301 9-302 9-303 9-304 Persons Who Take Priority Over Unperfected Security Interests; Rights of Lien Creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Filing Is Required to Perfect Security Interest; Security Interests to Which Filing Provisions of This Article Do Not Apply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Security Interest Is Perfected; Continuity of Perfection.. . Perfection of Security Interest in Instruments, Documents, Proceeds of a Written Letter of Credit, and Goods Covered by Documents; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession. . . . . . . . . . . . . . When Possession by Secured Party Perfects Security Interest Without Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds; Secured Party's Rights on Disposition of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protection of Buyers of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of Chattel Paper and Instruments. . . . . . . . . . . . . . . . . . . . . . . Protection of Purchasers of Instruments, Documents, and Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Certain Liens Arising by Operation of Law. . . . . . . . . . . Alienability of Debtor's Rights: Judicial Process.. . . . . . . . . . . . . . . . . . Priorities Among Conicting Security Interests in the Same Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority of Security Interests in Fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . Accessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Priority When Goods Are Commingled or Processed. . . . . . . . . . . . . . Priority Subject to Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party Not Obligated on Contract of Debtor. . . . . . . . . . . . . . Defenses Against Assignee; Modication of Contract After Notication of Assignment; Term Prohibiting Assignment Ineective; Identication and Proof of Assignment.. . . . . . . . . . . . . . .

1798 1798 1801 1804

1805 1808 1810 1814 1815 1817 1818 1818 1819 1824 1830 1831 1832 1832 1832 1835 1835 1839 1844 1846 1848 1849 1850

9-305 9-306 9-307 9-308 9-309 9-310 9-311 9-312 9-313 9-314 9-315 9-316 9-317 9-318

PART 4. FILING ............................................................

9-401 9-402 9-403 9-404 9-405 9-406 9-407 Place of Filing; Erroneous Filing; Removal of Collateral. . . . . . . . . Formal Requisites of Financing Statement; Amendments; Mortgage as Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Constitutes Filing; Duration of Filing; Eect of Lapsed Filing; Duties of Filing Ocer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assignment of Security Interest; Duties of Filing Ocer; Fees. . Release of Collateral; Duties of Filing Ocer; Fees. . . . . . . . . . . . . . . Information From Filing Ocer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 9-408

Financing Statements Covering Consigned or Leased Goods. . . .

1851 1852 1852 1854 1855 1856 1859 1860 1861 1864 1865

PART 5. DEFAULT.........................................................
9-501 9-502 9-503 9-504 9-505 9-506 9-507 Default; Procedure When Security Agreement Covers Both Real and Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection Rights of Secured Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party's Right to Take Possession After Default.. . . . . . . . . Secured Party's Right to Dispose of Collateral After Default; Eect of Disposition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compulsory Disposition of Collateral; Acceptance of the Collateral as Discharge of Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debtor's Right to Redeem Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Party's Liability for Failure to Comply With This Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX P PRE-REVISION ARTICLE 1 ........................ ARTICLE 1 GENERAL PROVISIONS ................................

PART 1. SHORT TITLE, CONSTRUCTION, APPLICATION AND SUBJECT MATTER OF THE ACT ..................................... 1865
1-101 1-102 1-103 1-104 1-105 1-106 1-107 1-108 1-109 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purposes; Rules of Construction; Variation by Agreement. . . . . . . Supplementary General Principles of Law Applicable. . . . . . . . . . . . Construction Against Implicit Repeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Territorial Application of the Act; Parties' Power to Choose Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies to Be Liberally Administered. . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver or Renunciation of Claim or Right After Breach. . . . . . . . . Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section Captions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1865 1865 1867 1868 1868 1870 1870 1871 1871

PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION .........................................................

1-201 1-202 1-203 1-204 1-205 1-206 General Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prima Facie Evidence by Third Party Documents.. . . . . . . . . . . . . . . . Obligation of Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time; Reasonable Time; Seasonably. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Course of Dealing and Usage of Trade.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Frauds for Kinds of Personal Property Not Otherwise Covered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance or Acceptance Under Reservation of Rights. . . . . . . . Option to Accelerate at Will.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subordinated Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1871 1871 1882 1882 1883 1883 1885 1886 1887 1887

1-207 1-208 1-209

APPENDIX Q 2002 AMENDMENTS TO ARTICLES 3 AND 4 ...................................................................................

1889

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Table of Contents

AMENDMENTS TO ARTICLE 3 NEGOTIABLE INSTRUMENTS .............................................................. AMENDMENTS TO ARTICLE 4 BANK DEPOSITS AND COLLECTIONS .............................................................. APPENDIX R PRE-REVISION ARTICLE 7 ........................

1890

1919 1924

ARTICLE 7 WAREHOUSE RECEIPTS, BILLS OF LADING AND OTHER DOCUMENTS OF TITLE...................................... 1925 PART 1. GENERAL ........................................................
7-101 7-102 7-103 7-104 7-105 Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relation of Article to Treaty, Statute, Tari, Classication or Regulation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Negotiable and Non-negotiable Warehouse Receipt, Bill of Lading or Other Document of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction Against Negative Implication. . . . . . . . . . . . . . . . . . . . . . . . 1926 1926 1926 1928 1928 1929

PART 2. WAREHOUSE RECEIPTS: SPECIAL PROVISIONS .................................................................

7-201 7-202 7-203 7-204 7-205 7-206 7-207 7-208 7-209 7-210 Who May Issue a Warehouse Receipt; Storage Under Government Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Warehouse Receipt; Essential Terms; Optional Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liability for Non-receipt or Misdescription. . . . . . . . . . . . . . . . . . . . . . . . . Duty of Care; Contractual Limitation of Warehouseman's Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title Under Warehouse Receipt Defeated in Certain Cases. . . . . . Termination of Storage at Warehouseman's Option.. . . . . . . . . . . . . . Goods Must Be Kept Separate; Fungible Goods. . . . . . . . . . . . . . . . . . . Altered Warehouse Receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lien of Warehouseman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enforcement of Warehouseman's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1930 1930 1930 1931 1932 1933 1933 1935 1935 1936 1938 1940 1940 1941 1943 1944 1944 1945 1946 1946 1948

PART 3. BILLS OF LADING: SPECIAL PROVISIONS ........

7-301 7-302 7-303 7-304 7-305 7-306 7-307 7-308 7-309 Liability for Non-receipt or Misdescription; Said to Contain; Shipper's Load and Count; Improper Handling. . . . . . . . . . . . . . . . . . Through Bills of Lading and Similar Documents. . . . . . . . . . . . . . . . . . Diversion; Reconsignment; Change of Instructions.. . . . . . . . . . . . . . . Bills of Lading in a Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Destination Bills.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Altered Bills of Lading.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lien of Carrier.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enforcement of Carrier's Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duty of Care; Contractual Limitation of Carrier's Liability. . . . . .

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PART 4. WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS ...............................................

7-401 7-402 7-403 7-404 Irregularities in Issue of Receipt or Bill or Conduct of Issuer. . . Duplicate Receipt or Bill; Overissue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation of Warehouseman or Carrier to Deliver; Excuse.. . . . . No Liability for Good Faith Delivery Pursuant to Receipt or Bill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1949 1949 1949 1950 1952 1953 1953 1955 1956 1958 1960 1960 1961 1961 1962

PART 5. WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER .....................................
7-501 7-502 7-503 7-504 7-505 7-506 7-507 7-508 7-509 Form of Negotiation and Requirements of Due Negotiation.. . . Rights Acquired by Due Negotiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Document of Title to Goods Defeated in Certain Cases.. . . . . . . . . . Rights Acquired in the Absence of Due Negotiation; Eect of Diversion; Seller's Stoppage of Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . Indorser Not a Guarantor for Other Parties. . . . . . . . . . . . . . . . . . . . . . . Delivery Without Indorsement: Right to Compel Indorsement. . Warranties on Negotiation or Transfer of Receipt or Bill. . . . . . . . Warranties of Collecting Bank as to Documents. . . . . . . . . . . . . . . . . . Receipt or Bill: When Adequate Compliance With Commercial Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 6. WAREHOUSE RECEIPTS AND BILLS OF LADING: MISCELLANEOUS PROVISIONS ......................................

7-601 7-602 7-603 Lost and Missing Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attachment of Goods Covered by a Negotiable Document.. . . . . . . Conicting Claims; Interpleader.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1962 1962 1964 1964 1966 1967 1972

APPENDIX S [RESERVED] ............................................. APPENDIX T 2003 AMENDMENTS TO ARTICLE 2 ............ AMENDMENTS TO ARTICLE 2SALES ........................... PART 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER ........................................................
2-103 2-104 2-105 Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Merchant; Between Merchants; Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Transferability; Goods; Future Goods; Lot; Commercial Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1972 1972 1975 1975

PART 2. FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING...................... 1976
2-201 2-202 Formal Requirements; Statute of Frauds.. . . . . . . . . . . . . . . . . . . . . . . . . . Final Written Expression in a Record: Parol or Extrinsic Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976 1978

lxviii

Table of Contents 2-203 2-204 2-205 2-206 2-207 Seals Inoperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formation in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Firm Oers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oer and Acceptance in Formation of Contract. . . . . . . . . . . . . . . . . . . Additional Terms in Acceptance or Terms of Contract; Eect of Conrmation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Course of Performance on Practical Construction Reserved.. . . . . Modication; Rescission and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delegation of Performance; Assignment of Rights.. . . . . . . . . . . . . . . . 1978 1979 1980 1980 1981 1983 1983 1983

2-208 2-209 2-210

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF 1986 CONTRACT....................................................................

2-302 2-304 2-305 2-308 2-309 2-310 Unconscionable Contract or Clause Term. . . . . . . . . . . . . . . . . . . . . . . . . . Price Payable in Money, Goods, Realty, or Otherwise. . . . . . . . . . . . Open Price Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specied Place for Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specic Time Provisions; Notice of Termination. . . . . Open Time for Payment or Running of Credit; Authority to Ship under Reservation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options and Cooperation Respecting Performance. . . . . . . . . . . . . . . . Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Express Warranties by Armation, Promise, Description, Sample; Remedial Promise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implied Warranty: Merchantability; Usage of Trade.. . . . . . . . . . . . . Exclusion or Modication of Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . Third Party Third-party Beneciaries of Warranties Express or Implied and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F.O.B. and F.A.S. Terms Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.I.F. AND C. & F. Terms Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.I.F. OR C. & F.: Net Landed Weights; Payment on Arrival; Warranty of Condition on Arrival Reserved. . . . . . . . . . . . . Delivery Ex-ship Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Bill of Lading Required in Overseas Shipment; Overseas Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Arrival, No Sale Term Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Letter of Credit Term; Conrmed Credit Failure to Pay by Agreed Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale on Approval and Sale or Return; Consignment Sales and Rights of Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale by Auction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1986 1987 1987 1988 1988 1989 1990 1990 1992 1994 1996 1998 1999 2000 2001 2001 2002 2002 2002 2003 2004

2-311 2-312 2-313 2-314 2-316 2-318 2-319 2-320 2-321 2-322 2-323 2-324 2-325 2-326 2-328

PART 4. TITLE, CREDITORS, AND GOOD-FAITH PURCHASERS................................................................

2-401 2-402 2-403 Passing of Title; Reservation for Security; Limited Application of this Section.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Seller's Creditors Against Sold Goods. . . . . . . . . . . . . . . . . . . Power to Transfer; Good Faith Purchase of Goods; Entrusting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005 2005 2007 2007

PART 5. PERFORMANCE ...............................................

lxix

2009 2-501 2-502 2-503 2-504 2-505 2-506 2-507 2-508 2-509 2-510 2-512 2-513 2-514 Insurable Interest in Goods; Manner of Identication of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Goods on Seller's Insolvency, Repudiation, or Failure to Deliver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manner of Seller's Tender of Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipment by Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Shipment under Reservation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Seller's Tender; Delivery on Condition. . . . . . . . . . . . . . . . . . . Cure by Seller of Improper Tender or Delivery; Replacement. . . Risk of Loss in the Absence of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Breach on Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment by Buyer Before Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Inspection of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Documents Deliverable on Acceptance; When on Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 2009 2010 2012 2012 2014 2014 2015 2016 2017 2018 2018 2019 2020 2020 2020 2021 2021 2022 2023 2023 2025 2026 2026 2027 2027 2028 2029 2030 2030 2031 2031 2032 2033 2033 2035 2037 2038 2039 2039

PART 6. BREACH, REPUDIATION, AND EXCUSE .............

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

PART 7. REMEDIES .......................................................

2-702 2-703 2-704 2-705 2-706 2-707 2-708 Seller's Remedies on Discovery of Buyer's Insolvency.. . . . . . . . . . . . Seller's Remedies in General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unnished Goods. . . . . . . . Seller's Stoppage of Delivery in Transit or Otherwise. . . . . . . . . . . . Seller's Resale Including Contract for Resale. . . . . . . . . . . . . . . . . . . . . . Person in the Position of a Seller.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Damages for Non-acceptance Nonacceptance or Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Action for the Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . .

2-709 2-710

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Table of Contents 2-711 2-712 2-713 2-714 2-716 2-717 2-718 2-722 2-723 2-724 2-725 Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover; Buyer's Procurement of Substitute Goods.. . . . . . . . . . . . . . . Buyer's Damages for Non-delivery Nondelivery or Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Damages for Breach in Regard to Accepted Goods.. . . . . . Buyer's Right to Specic Performance Or; Buyer's Right to Replevin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deduction of Damages from the Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidation or Limitation of Damages; Deposits. . . . . . . . . . . . . . . . . . Who Can May Sue Third Parties for Injury to Goods. . . . . . . . . . . . . Proof of Market: Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Admissibility of Market Quotations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations in Contracts for Sale. . . . . . . . . . . . . . . . . . . . . . .

2040 2041 2042 2043 2043 2044 2044 2045 2046 2046 2046 2049 2049 2049 2049 2050 2059 2060 2060 2061 2061 2061

APPENDIX U 2003 AMENDMENTS TO ARTICLE 2A .......... AMENDMENTS TO ARTICLE 2ALEASES ....................... PART 1. GENERAL PROVISIONS ....................................
2A-101 2A-103 2A-104 2A-105 Short Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leases Subject to Other Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Territorial Application of Article to Goods Covered by Certicate of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitation on Power of Parties to Consumer Lease to Choose Applicable Law and Judicial Forum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiver or Renunciation of Claim or Right after Default. . . . . . . . . . Unconscionability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option to Accelerate at Will. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

PART 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT; ELECTRONIC CONTRACTING......................

2A-201 Statute of Frauds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-202 Final Written Expression in a Record: Parol or Extrinsic Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-203 Seals Inoperative.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-204 Formation in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-205 Firm Oers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-208 Modication, Rescission and Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-211 Warranties Against Interference and Against Infringement; Lessee's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . . . 2A-212 Implied Warranty of Merchantability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-214 Exclusion or Modication of Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-219 Risk of Loss.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-220 Eect of Default on Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-221 Casualty to Identied Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2062 2062 2063 2063 2064 2064 2064 2065 2067 2067 2069 2069 2069 2070

PART 3. EFFECT OF LEASE CONTRACT .........................

lxxi

 2A-303 Alienability of Party's Interest under Lease Contract or of Lessor's Residual Interest in Goods; Delegation of Performance; Transfer of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-304 Subsequent Lease of Goods by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-305 Sale or Sublease of Goods by Lessee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-306 Priority of Certain Liens Arising by Operation of Law. . . . . . . . . . . . 2A-307 Priority of Liens Arising by Attachment or Levy On, Security Interests In, and Other Claims to Goods. . . . . . . . . . . . . . . . . . . . . . . . . 2A-309 Lessor's and Lessee's Rights When Goods Become Fixtures. . . . . . 2A-310 Lessor's and Lessee's Rights When Goods Become Accessions. . .

2070 2072 2072 2073 2073 2075 2077

PART 4. PERFORMANCE OF LEASE CONTRACT: REPUDIATED, SUBSTITUTED AND EXCUSED........................................ 2078

2A-401 2A-402 2A-404 2A-405 2A-406 Insecurity: Adequate Assurance of Performance. . . . . . . . . . . . . . . . . . . Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substituted Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure on Excused Performance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2078 2078 2079 2079 2080 2080 2080 2080 2082 2082 2082 2085 2086 2086 2087 2088 2088 2089 2090 2091 2092 2093 2093 2097 2097 2098 2099 2100 2100

PART 5. DEFAULT......................................................... A IN GENERAL ..............................................................

2A-504 Liquidation of Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-506 Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

2A-508 Lessee's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-509 Lessee's Rights on Improper Delivery; Rightful Manner and Eect of Rejection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-510 Installment Lease Contracts: Rejection and Default.. . . . . . . . . . . . . . 2A-511 Merchant Lessee's Duties as to Rightfully Rejected Goods. . . . . . . 2A-512 Lessee's Duties as to Rightfully Rejected Goods.. . . . . . . . . . . . . . . . . . . 2A-513 Cure by Lessor of Improper Tender or Delivery; Replacement. . . 2A-514 Waiver of Lessee's Objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-515 Acceptance of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-516 Eect of Acceptance of Goods; Notice of Default; Burden of Establishing Default after Acceptance; Notice of Claim or Litigation to Person Answerable over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-517 Revocation of Acceptance of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-522 Lessee's Right to Goods on Lessor's Insolvency. . . . . . . . . . . . . . . . . . . .

C DEFAULT BY LESSEE .................................................

Lessor's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Stoppage of Delivery in Transit or Otherwise. . . . . . . . . . . . Lessor's Rights to Dispose of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lessor's Damages for Non-acceptance, Failure to Pay, Repudiation, or Other Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-529 Lessor's Action for the Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-530 Lessor's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . . 2A-531 Standing to Sue Third Parties for Injury to Goods.. . . . . . . . . . . . . . . . 2A-523 2A-526 2A-527 2A-528

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Table of Contents

APPENDIX V 2005 AMENDMENTS TO UNIFORM COMMERCIAL CODE AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .......................................... 2102
General Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Remedies in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-101 Short Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-103 Denitions and Index of Denitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-211 Warranties Against Interference and Against Infringement; Lessee's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . 2A-501 Default: Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-507A Right to Specic Performance or Replevin or the Like. . . . . . . . . . 2A-508 Lessee's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-509 Lessee's Rights on Improper Delivery; Manner and Eect of Rejection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-514 Waiver of Lessee's Objections.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-517 Revocation of Acceptance of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-523 Lessor's Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-524 Lessor's Right to Identify Goods to Lease Contract. . . . . . . . . . . . . . 2A-525 Lessor's Right to Possession of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-405 Employer's Responsibility for Fraudulent Indorsement by Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-325 Priority of Security Interests in Transferred Collateral. . . . . . . . . 1-201 2-103 2-703 2-711 2102 2103 2103 2104 2104 2104 2106 2106 2106 2106 2107 2107 2107 2107 2108 2108 2108 2109

APPENDIX W 2006 OFFICIAL COMMENT CORRECTIONS TO UNIFORM COMMERCIAL CODE AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE ....... 2110
2A-222 Legal Recognition of Electronic Contacts, Records and Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A-510 Installment Lease Contracts: Rejection and Default.. . . . . . . . . . . . . . 9-406 Discharge of Account Debtor; Notication of Assignment; Identication and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineective. . . . . . . . . . . . . . . . . . . 2110 2110

2110

APPENDIX X 2008 AMENDMENT TO UNIFORM COMMERCIAL CODE REVISED ARTICLE 1 AS APPROVED BY THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE .................. 2112
1-301 Territorial Applicability; Parties' Power to Choose Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2112 2119

APPENDIX Y ARTICLE 2 SALES [1995] ............................ PART 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER ........................................................

2122

lxxiii

 2-101 2-102 2-103 2-104 2-105 2-106 2-107

Short Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope; Certain Security and Other Transactions Excluded From This Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions and Index of Denitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Merchant; Between Merchants; Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Transferability; Goods; Future Goods; Lot; Commercial Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denitions: Contract; Agreement; Contract for Sale; Sale; Present Sale; Conforming to Contract; Termination; Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goods to Be Severed From Realty: Recording.. . . . . . . . . . . . . . . . . . . . .

2122 2122 2122 2124 2125 2127 2128

PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT....................................................................

2-201 2-202 2-203 2-204 2-205 2-206 2-207 2-208 2-209 2-210 Formal Requirements; Statute of Frauds.. . . . . . . . . . . . . . . . . . . . . . . . . . Final Written Expression: Parol or Extrinsic Evidence. . . . . . . . . . . Seals Inoperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Formation in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Firm Oers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oer and Acceptance in Formation of Contract. . . . . . . . . . . . . . . . . . . Additional Terms in Acceptance or Conrmation.. . . . . . . . . . . . . . . . . Course of Performance or Practical Construction.. . . . . . . . . . . . . . . . . Modication, Rescission and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delegation of Performance; Assignment of Rights.. . . . . . . . . . . . . . . .

2129 2129 2131 2132 2132 2133 2134 2135 2137 2138 2139

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT.................................................................... 2140

2-301 2-302 2-303 2-304 2-305 2-306 2-307 2-308 2-309 2-310 General Obligations of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconscionable Contract or Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocation or Division of Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price Payable in Money, Goods, Realty, or Otherwise. . . . . . . . . . . . Open Price Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Output, Requirements and Exclusive Dealings. . . . . . . . . . . . . . . . . . . . Delivery in Single Lot or Several Lots. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specied Place for Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Specic Time Provisions; Notice of Termination. . . . . Open Time for Payment or Running of Credit; Authority to Ship Under Reservation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options and Cooperation Respecting Performance. . . . . . . . . . . . . . . . Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Express Warranties by Armation, Promise, Description, Sample.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implied Warranty: Merchantability; Usage of Trade.. . . . . . . . . . . . . Implied Warranty: Fitness for Particular Purpose. . . . . . . . . . . . . . . . Exclusion or Modication of Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulation and Conict of Warranties Express or Implied.. . . . . Third Party Beneciaries of Warranties Express or Implied.. . . . F.O.B. and F.A.S. Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2140 2141 2142 2142 2143 2144 2146 2147 2148 2149 2150 2151 2153 2155 2157 2158 2160 2161 2162

2-311 2-312 2-313 2-314 2-315 2-316 2-317 2-318 2-319

lxxiv

Table of Contents 2-320 2-321 2-322 2-323 2-324 2-325 2-326 2-327 2-328 C.I.F. and C. & F. Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.I.F. or C. & F.: Net Landed Weights; Payment on Arrival; Warranty of Condition on Arrival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delivery Ex-Ship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Bill of Lading Required in Overseas Shipment; Overseas.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Arrival, No Sale Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Letter of Credit Term; Conrmed Credit. . . . . . . . . . . . . . . . . . . . . . . Sale on Approval and Sale or Return; Consignment Sales and Rights of Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Incidents of Sale on Approval and Sale or Return. . . . . . . Sale by Auction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2163 2167 2168 2169 2170 2171 2172 2173 2174

PART 4. TITLE, CREDITORS AND GOOD FAITH PURCHASERS................................................................

2-401 2-402 2-403 Passing of Title; Reservation for Security; Limited Application of This Section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Seller's Creditors Against Sold Goods. . . . . . . . . . . . . . . . . . . Power to Transfer; Good Faith Purchase of Goods; Entrusting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2175 2175 2177 2178 2180 2180 2181 2182 2184 2186 2187 2188 2189 2190 2192 2193 2194 2195 2197 2197 2199 2199 2199 2201 2202 2202 2203

PART 5. PERFORMANCE ...............................................

2-501 2-502 2-503 2-504 2-505 2-506 2-507 2-508 2-509 2-510 2-511 2-512 2-513 2-514 Insurable Interest in Goods; Manner of Identication of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Goods on Seller's Insolvency. . . . . . . . . . . . . . . . . . . . . Manner of Seller's Tender of Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipment by Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Shipment Under Reservation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rights of Financing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Seller's Tender; Delivery on Condition. . . . . . . . . . . . . . . . . . . Cure by Seller of Improper Tender or Delivery; Replacement. . . Risk of Loss in the Absence of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Breach on Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tender of Payment by Buyer; Payment by Check. . . . . . . . . . . . . . . . . Payment by Buyer Before Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Right to Inspection of Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Documents Deliverable on Acceptance; When on Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preserving Evidence of Goods in Dispute.. . . . . . . . . . . . . . . . . . . . . . . . . .

2-515

PART 6. BREACH, REPUDIATION AND EXCUSE .............

2-601 2-602 2-603 2-604 2-605 2-606 2-607 Buyer's Rights on Improper Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manner and Eect of Rightful Rejection.. . . . . . . . . . . . . . . . . . . . . . . . . . . Merchant Buyer's Duties as to Rightfully Rejected Goods.. . . . . . . Buyer's Options as to Salvage of Rightfully Rejected Goods. . . . . Waiver of Buyer's Objections by Failure to Particularize.. . . . . . . . What Constitutes Acceptance of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to

lxxv

2-608 2-609 2-610 2-611 2-612 2-613 2-614 2-615 2-616

Person Answerable Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revocation of Acceptance in Whole or in Part. . . . . . . . . . . . . . . . . . . . . Right to Adequate Assurance of Performance.. . . . . . . . . . . . . . . . . . . . . Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retraction of Anticipatory Repudiation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Installment Contract; Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Casualty to Identied Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substituted Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excuse by Failure of Presupposed Conditions. . . . . . . . . . . . . . . . . . . . . Procedure on Notice Claiming Excuse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2204 2206 2208 2210 2211 2212 2214 2215 2216 2218 2219 2219 2219 2220 2221 2222 2223 2226 2227 2228 2229 2229 2230 2231 2232 2233 2234 2235 2235 2236 2237 2238 2238 2239 2239 2240

PART 7. REMEDIES .......................................................

2-701 2-702 2-703 2-704 2-705 2-706 2-707 2-708 2-709 2-710 2-711 2-712 2-713 2-714 2-715 2-716 2-717 2-718 2-719 2-720 2-721 2-722 2-723 2-724 2-725 Remedies for Breach of Collateral Contracts Not Impaired. . . . . . Seller's Remedies on Discovery of Buyer's Insolvency.. . . . . . . . . . . . Seller's Remedies in General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unnished Goods. . . . . . . . Seller's Stoppage of Delivery in Transit or Otherwise. . . . . . . . . . . . Seller's Resale Including Contract for Resale. . . . . . . . . . . . . . . . . . . . . . Person in the Position of a Seller.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Damages for Non-acceptance or Repudiation. . . . . . . . . . . . . Action for the Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seller's Incidental Damages.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover; Buyer's Procurement of Substitute Goods.. . . . . . . . . . . . . . . Buyer's Damages for Non-delivery or Repudiation. . . . . . . . . . . . . . . . Buyer's Damages for Breach in Regard to Accepted Goods.. . . . . . Buyer's Incidental and Consequential Damages. . . . . . . . . . . . . . . . . . . Buyer's Right to Specic Performance or Replevin. . . . . . . . . . . . . . . . Deduction of Damages From the Price.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidation or Limitation of Damages; Deposits. . . . . . . . . . . . . . . . . . Contractual Modication or Limitation of Remedy. . . . . . . . . . . . . . . . Eect of Cancellation or Rescission on Claims for Antecedent Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies for Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Who Can Sue Third Parties for Injury to Goods.. . . . . . . . . . . . . . . . . . Proof of Market Price: Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Admissibility of Market Quotations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statute of Limitations in Contracts for Sale. . . . . . . . . . . . . . . . . . . . . . .

Index

lxxvi

UNIFORM COMMERCIAL CODE

TITLE An Act To be known as the Uniform Commercial Code, Relating to Certain Commercial Transactions in or regarding Personal Property and Contracts and other Documents concerning them, including Sales, Commercial Paper, Bank Deposits and Collections, Letters of Credit, Bulk Transfers, Warehouse Receipts, Bills of Lading, other Documents of Title, Investment Securities, and Secured Transactions, including certain Sales of Accounts, Chattel Paper, and Contract Rights; Providing for Public Notice to Third Parties in Certain Circumstances; Regulating Procedure, Evidence and Damages in Certain Court Actions Involving such Transactions, Contracts or Documents; to Make Uniform the Law with Respect Thereto; and Repealing Inconsistent Legislation.

GENERAL COMMENT OF NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS AND THE AMERICAN LAW INSTITUTE
This Comment covers the development of the Code prior to 1962. Its subsequent history leading to the 1962, 1966, 1972, 1977 and 1987 Ocial Text and Comment changes is contained in Reports and Forewords of the Permanent Editorial Board for the Uniform Commercial Code, which are set out, supra, this pamphlet.

Uniformity throughout American jurisdictions is one of the main objectives of this Code; and that objective cannot be obtained without substantial uniformity of construction. To aid in uniform construction of this Comment and those which follow the text of each section set forth the purpose of various provisions of this Act to promote uniformity, to aid in viewing the Act as an integrated whole, and to safeguard against misconstruction. This Act is a revision of the original Uniform Commercial Code promulgated in 1951 and enacted in Pennsylvania in 1953, eective July 1, 1954; and these Comments are a revision of the original comments, which were before the Pennsylvania legislature at the time of its adoption of the Code. Changes from the text enacted in Pennsylvania in 1953 are clearly legitimate legislative history, but without explanation such changes may be misleading, since frequently matters have been omitted as being implicit without statement and language has been changed or added solely for clarity. Accordingly, the changes from the original text were published, under the title 1956 Recommendations of the Editorial Board for the Uniform Commercial Code, early in 1957, with reasons, and revised Comments were then prepared to restate the statutory purpose in the light of the revision of text. The subsequent history leading to the 1962 Ocial Text with Comments is set out in detail in Report No. 1 of the Permanent Editorial Board for the Uniform Commercial Code. * * * [See Report, supra, this pamphlet.] Hitherto most commercial transactions have been regulated by a number of Uniform Laws prepared and promulgated by the National Conference of Commissioners on Uniform State Laws. These acts, with the dates of their promulgation by the Conference, are: Uniform Uniform Uniform Uniform Uniform
2

Negotiable Instruments Law ......................... Warehouse Receipts Act ............................... Sales Act .................................................. Bills of Lading Act ...................................... Stock Transfer Act ......................................

1896 1906 1906 1909 1909

General Comment

Uniform Conditional Sales Act .................................. Uniform Trust Receipts Act ......................................

1918 1933

Two of these acts were adopted in every American State and the remaining acts have had wide acceptance. Each of them has become a segment of the statutory law relating to commercial transactions. It has been recognized for some years that these acts needed substantial revision to keep them in step with modern commercial practices and to integrate each of them with the others. The concept of the present Act is that commercial transactions is a single subject of the law, notwithstanding its many facets. A single transaction may very well involve a contract for sale, followed by a sale, the giving of a check or draft for a part of the purchase price, and the acceptance of some form of security for the balance. The check or draft may be negotiated and will ultimately pass through one or more banks for collection. If the goods are shipped or stored the subject matter of the sale may be covered by a bill of lading or warehouse receipt or both. Or it may be that the entire transaction was made pursuant to a letter of credit either domestic or foreign. Obviously, every phase of commerce involved is but a part of one transaction, namely, the sale of and payment for goods. If, instead of goods in the ordinary sense, the transaction involved stocks or bonds, some of the phases of the transaction would obviously be dierent. Others would be the same. In addition, there are certain additional formalities incident to the transfer of stocks and bonds from one owner to another. This Act purports to deal with all the phases which may ordinarily arise in the handling of a commercial transaction, from start to nish. Because of the close relationship of each phase of a complete transaction to every other phase, it is believed that each Article of this Act is cognate to the single broad subject Commercial Transactions, and that this Act is valid under any constitutional provision requiring an act to deal with only one subject. See, for excellent discussions of the meaning of single subject: House v. Creveling, 147 Tenn. 589, 250 S.W. 357 (1923) and Commonwealth v. Snyder, 279 Pa. 234, 123 A. 792 (1924). The preparation of the Act (which Section 1-101 denominates the Uniform Commercial Code) was begun as a joint project of The American Law Institute and the National Conference of Commissioners on Uniform State Laws in 1942. Various drafts were considered by joint committees of both bodies and debated by the full membership of each organization at annual meetings. In the main, the project was made possible, nancially, through a large grant by The Maurice and Laura Falk Foundation of Pittsburgh,
3

Uniform Commercial Code

Pennsylvania, supplemented by contributions from the Beaumont Foundation of Cleveland, Ohio, and from 98 business and nancial concerns and law rms. Additional funds for nal revisions and study were received from the Falk Foundation and others. The original drafting and editorial work which led to the 1952 edition of the Code was in charge of an Editorial Board of which United States Circuit Judge Herbert F. Goodrich of Philadelphia was Chairman. The other members at various times were Professor Karl N. Llewellyn of the University of Chicago Law School, Walter D. Malcolm, Esquire, of Boston, John C. Pryor, Esquire, of Burlington, Iowa, Wm. A. Schnader, Esquire, of Philadelphia, and Harrison Tweed, Esquire, of New York City. In the nal stages of work on the Code, certain questions of policy were submitted for consideration to an Enlarged Editorial Board consisting at various times of the foregoing members and Howard L. Barkdull, Esquire, of Cleveland, Joe C. Barrett, Esquire, of Jonesboro, Arkansas, Robert K. Bell, Esquire, of Ocean City, N.J., Robert P. Goldman, Esquire, of Cincinnati, Dean Albert J. Harno of the University of Illinois Law School, Ben W. Heineman, Esquire, of Chicago, Carlos Israels, Esquire, of New York City, Albert E. Jenner, Esquire, of Chicago, Arthur Littleton, Esquire, of Philadelphia, Willard B. Luther, Esquire, of Boston, Kurt F. Pantzer, Esquire, of Indianapolis, Indiana, George Richter, Jr., Esquire, of Los Angeles, R. Jasper Smith, Esquire, of Springeld, Missouri, United States Circuit Judge Sterry Waterman of St. Johnsbury, Vermont, and Charles H. Willard, Esquire, of New York City. The Chief Reporter of the Code was Professor Llewellyn, and the Associate Chief Reporter was Professor Soia Mentschiko. Final editorial preparation of the 1952 edition was in the hands of Professor Charles Bunn of the University of Wisconsin Law School. The Coordinators for the revisions leading to this 1962 edition were Professors Robert Braucher and A.E. Sutherland of the Law School of Harvard University, Professor Braucher doing the nal editorial preparation for this edition. The actual drafting was done in some cases by practicing lawyers and in others by teachers of various law schools. The customary procedure required that before a draft was submitted for discussion to the general memberships of The American Law Institute and of the National Conference of Commissioners, it was successively approved by three groups. The rst group were the so-called advisers, consisting of specially selected judges, practicing lawyers and law teachers. The advisers met with the draftsmen on frequent occasions to debate and iron out, not only the substance but the form and phraseology of the proposed draft. After the draft was cleared by the advisers, it was meticulously examined by the next two groupsthe Council of The American Law Institute and either the Commercial Acts Section or the Property Acts Section of the Conference of Commissioners. When these bodies had given their approval to the draft, it came before the general membership both of the Institute and of the Conference for consideration. In addition in the nal stages leading to this 1962 edition each article
4

General Comment

was reviewed and discussed by a special Subcommittee for that article. Recommendations of the Subcommittee were reviewed and acted upon by the Enlarged Editorial Board, pursuant to authority from the sponsoring bodies. The judges, practicing lawyers and law teachers who originally acted either as advisers or as draftsmen were: Judges: John T. Loughran, of the New York Court of Appeals; Thomas W. Swan, United States Circuit Judge for the Second Circuit; and the late John D. Wickhem, of the Supreme Court of Wisconsin. Practicing lawyers: Dana C. Backus, of New York, N.Y.; Howard L. Barkdull, of Cleveland, Ohio; Lawrence G. Bennett, of New York, N.Y.; Harold F. Birnbaum, of Los Angeles, California; William L. Eagleton, of Washington, D.C.; H. Vernon Eney, of Baltimore, Maryland; Fairfax Leary, Jr., of Philadelphia, Pennsylvania; Willard B. Luther, of Boston, Massachusetts; Walter D. Malcolm, of Boston, Massachusetts; Frederic M. Miller, of Des Moines, Iowa; Hiram Thomas, of New York, N.Y.; Sterry R. Waterman, of St. Johnsbury, Vermont; and Cornelius W. Wickersham, of New York, N.Y. The law teachers were: Ralph J. Baker, of the Harvard Law School; William E. Britton, of the University of Illinois Law School; Charles Bunn, of the University of Wisconsin Law School; Arthur L. Corbin, of Yale University Law School; Allison Dunham, of Columbia University Law School; Grant Gilmore, of Yale University Law School; Albert J. Harno, of the University of Illinois Law School; Friedrich Kessler, of the Yale University Law School; Maurice H. Merrill, of the University of Oklahoma Law School; William L. Prosser, of the University of California School of Law; Louis B. Schwartz, of the University of Pennsylvania Law School; and Bruce Townsend, of the University of Indiana Law School. The members of the Council of the Institute during the period when the Commercial Code was under consideration were: Dillon Anderson, of Houston, Texas; Fletcher R. Andrews of Cleveland Heights, Ohio; the late Walter P. Armstrong of Memphis, Tennessee; Francis M. Bird, of Atlanta, Georgia; John G. Buchanan, of Pittsburgh, Pennsylvania; Charles Bunn, of Madison, Wisconsin; Howard F. Burns, of Cleveland, Ohio; Herbert W. Clark, of San Francisco, California; R. Ammi Cutter, of Boston, Massachusetts; Norris Darrell, of New York, N.Y.; the late John W. Davis, of New York, N.Y.; Edwin D. Dickinson, of Berkeley, California; Edward J. Dimock, of New York, N.Y.; Arthur Dixon, of Chicago, Illinois; Robert G. Dodge, of Boston, Massachusetts; the late George Donworth, of Seattle, Washington; Charles E. Dunbar, Jr., of New Orleans, Louisiana; William Dean Embree, of New York, N.Y.; Frederick F. Faville, of Des Moines, Iowa; James Alger Fee, of Portland, Oregon; Gerald F. Flood, of Philadelphia, Pennsylvania; H. Eastman Hackney, of Pittsburgh, Pennsylvania; the late Augustus N. Hand, of New York, N.Y.; Learned Hand, of New York, N.Y.; Albert J. Harno, of Urbana, Illinois; the late Earl G. Harrison, of Philadelphia, Pennsylvania; William V. Hodges, of New York, N.Y.; Joseph C. Hutcheson, Jr., of Houston, Texas; Laurence M. Hyde, of Jefferson City, Missouri; William J. Jameson, of Billings, Montana; Joseph F. Johnston, of Birmingham, Alabama; the late William H. Keller, of Lancas5

Uniform Commercial Code

ter, Pennsylvania; the late Daniel N. Kirby, of St. Louis, Missouri; Monte M. Lemann, of New Orleans, Louisiana; the late William Draper Lewis, of Philadelphia, Pennsylvania; the late Henry T. Lummus, of Swampscott, Massachusetts; William L. Marbury, of Baltimore, Maryland; Robert N. Miller, of Washington, D.C.; the late William D. Mitchell, of New York, N.Y.; John J. Parker, of Charlotte, North Carolina; Thomas I. Parkinson, of New York, N.Y.; George Wharton Pepper, of Philadelphia, Pennsylvania; Timothy N. Pfeier, of New York, N.Y.; Orie L. Phillips, of Denver, Colorado; Frederick D.G. Ribble, of Charlottesville, Virginia; William A. Schnader, of Philadelphia, Pennsylvania; Bernard G. Segal, of Philadelphia, Pennsylvania; Austin W. Scott, of Cambridge, Massachusetts; the late Harry Shulman, of New Haven, Connecticut; Henry Upson Sims, of Birmingham, Alabama; the late Sydney Smith, of Jackson, Mississippi; Eugene B. Strassburger, of Pittsburgh, Pennsylvania; Thomas W. Swan, of Guilford, Connecticut; the late Thomas Day Thacher, of New York, N.Y.; Floyd E. Thompson, of Chicago, Illinois; the late Edgar Bronson Tolman, of Chicago, Illinois; the late Robert B. Tunstall, of Norfolk, Virginia; the late Arthur J. Tuttle, of Detroit, Michigan; Harrison Tweed, of New York, N.Y.; Cornelius W. Wickersham, of New York, N.Y.; the late John D. Wickhem, of Madison, Wisconsin; Raymond S. Wilkins, of Boston, Massachusetts; Charles H. Willard, of New York, N.Y.; Laurens Williams, of Washington, D.C.; Edward L. Wright, of Little Rock, Arkansas, and Charles E. Wyzanski, Jr., of Boston, Massachusetts. The members of the Conference's Commercial Acts Section during the same period were: Howard L. Barkdull, of Cleveland, Ohio; the late William L. Beers, of New Haven, Connecticut; Charles R. Hardin, of Newark, New Jersey; Frank E. Horack, Jr., of Bloomington, Indiana; L. Barrett Jones, of Jackson, Mississippi; Karl N. Llewellyn, now of Chicago, Illinois; Willard B. Luther, of Boston, Massachusetts; William G. McLaren, of Seattle, Washington; Frederic M. Miller, of Des Moines, Iowa; William L. Prosser, of Berkeley, California; Arthur E. Sutherland, Jr., now of Cambridge, Massachusetts; O.H. Thormodsgard, of University, North Dakota; Sterry R. Waterman, of St. Johnsbury, Vermont; and Edward L. Wright, of Little Rock, Arkansas. The members of the Conference's Property Acts Section during the period when it cooperated in the consideration of the Code were: Joe C. Barrett, of Jonesboro, Arkansas; the late William L. Beers, of New Haven, Connecticut; Boyd M. Benson, of Huron, South Dakota; George G. Bogert, now of San Francisco, California; C. Walter Cole, of Towson, Maryland; John A. Daly, of Boston, Massachusetts; William L. Eagleton, of Washington, D.C.; H. Vernon Eney, of Baltimore, Maryland; Spencer A. Gard, of Iola, Kansas; Homer B. Harris, of Lincoln, Illinois; W.J. Jameson, of Billings, Montana; the late Sherman R. Moulton, of Burlington, Vermont; J.C. Pryor, of Burlington, Iowa; the late C.M.A. Rogers, of Mobile, Alabama; Murray M. Shoemaker, of Cincinnati, Ohio; and Greenberry Simmons, of Louisville, Kentucky. The members of the Subcommittees which considered the various articles of the Code in the work leading to the 1958 Edition were: Article 1: Charles H. Willard, Esquire, Chairman, of New York, New
6

General Comment

York; Professor Charles Bunn of the University of Wisconsin Law School, Madison, Wisconsin; Mahlon E. Lewis, Esquire, of Pittsburgh, Pennsylvania. Article 2: Professor Robert Braucher, Chairman, of the Law School of Harvard University, Cambridge, Massachusetts; Professor Karl N. Llewellyn, of the Law School of the University of Chicago, Chicago, Illinois; Bernard D. Broeker, Esquire, of Bethlehem, Pennsylvania; Frank T. Dierson, Esquire, of New York, New York. Article 3: Professor A.E. Sutherland, Chairman, of the Law School of Harvard University, Cambridge, Massachusetts; William R. Emblidge, Esquire, of Bualo, New York; John J. Clarke, Esquire, of the Federal Reserve Bank of New York, New York; James V. Vergari, Esquire, of Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania. Article 4: Walter D. Malcolm, Esquire, Chairman, of Boston, Massachusetts; James V. Vergari, Esquire; John J. Clarke, Esquire; Henry J. Bailey, III, Esquire, of the Federal Reserve Bank of New York, New York; Rollin C. Huggins, Esquire, of Chicago, Illinois; Carl W. Funk, Esquire, of Philadelphia, Pennsylvania. Article 5: Arthur Littleton, Esquire, Chairman, Philadelphia, Pennsylvania; Mr. Horace M. Chadsey, Vice-President of the First National Bank of Boston; Arthur F. McCarthy, Esquire, of Philadelphia, Pennsylvania; Professor Soia Mentschiko, of the University of Chicago Law School, Chicago, Illinois. In addition, the following acted as an Advisory Committee to the Article 5 Subcommittee: Ernest A. Carlson, of the Continental Illinois National Bank and Trust Company, Chicago, Illinois; John E. Corrigan, Jr., of the First National Bank of Chicago; Guy A. Crum, of the First National Bank of Chicago; Louis F. Dempsey, of the Northern Trust Company, Chicago, Illinois; Gerard E. Keidel, of the American National Bank and Trust Company of Chicago; Robert W. Maynard, of the Harris Trust and Savings Bank, Chicago, Illinois. Article 6: Professor Charles Bunn, Chairman; Eugene B. Strassburger, Esquire, of Pittsburgh, Pennsylvania. Article 7: Professor Robert Braucher, Chairman; John C. Pryor, Esquire, of Burlington, Iowa. Article 8: Carlos Israels, Esquire, Chairman, of New York, New York; Professor Soia Mentschiko; Eliot B. Thomas, Esquire, of Philadelphia, Pennsylvania; Fred B. Lund, Esquire, of Boston, Massachusetts. Article 9: J. Francis Ireton, Esquire, Chairman, of Baltimore, Maryland; Homer L. Kripke, Esquire, of New York, New York; Anthony G. Felix, Jr., Esquire, of Philadelphia, Pennsylvania; Peter F. Coogan, Esquire, of Boston, Massachusetts; Professor Grant Gilmore, of Yale University Law School, New Haven, Connecticut; Harold F. Birnbaum, Esquire, of Los Angeles, California; Richard R. Winters, Esquire, of Pittsburgh, Pennsylvania; Professor John Hanna, of the Law School of Columbia University, New York, New York. In addition there were informal consultants much too numerous to mention who frequently advised those working on the Code to insure a work7

Uniform Commercial Code

able set of laws. In this latter class were included practicing lawyers, hard-headed businessmen and operating bankers, who contributed generously of their time and knowledge so that, not only current business practice, but foreseeable future developments would be covered. Committees of several Bar Associations, and in particular a committee of the Section of Corporation, Banking and Business Law of the American Bar Association, of which Mr. Walter D. Malcolm of Boston was chairman, considered the various drafts of the Code and made valuable suggestions. After nal approval of the Code by the Institute and the Conference, and in accordance with the practice of the Conference, the completed Code was submitted to the American Bar Association and was approved by the House of Delegates of that Association. * * *

ARTICLE 1. GENERAL PROVISIONS

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

PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION

1-201. 1-202. 1-203. 1-204. 1-205. 1-206. General Denitions. Notice; Knowledge. Lease Distinguished From Security Interest. Value. Reasonable Time; Seasonableness. Presumptions.

PART 3. TERRITORIAL APPLICABILITY AND GENERAL RULES

1-301. 1-302. 1-303. 1-304. 1-305. 1-306. 1-307. 1-308. 1-309. 1-310. Territorial Applicability; Parties' Power to Choose Applicable Law. Variation by Agreement. Course of Performance, Course of Dealing, and Usage of Trade. Obligation of Good Faith. Remedies to Be Liberally Administered. Waiver or Renunciation of Claim or Right After Breach. Prima Facie Evidence by Third-Party Documents. Performance or Acceptance Under Reservation of Rights. Option to Accelerate at Will. Subordinated Obligations.

APPENDIX I. CONFORMING AMENDMENTS TO OTHER ARTICLES

DRAFTING COMMITTEE TO REVISE UNIFORM COMMERCIAL CODE ARTICLE 1GENERAL PROVISIONS

BORIS AUERBACH, 332 Ardon Lane, Wyoming, OH 45215, Chair MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132 AMELIA H. BOSS, Temple University, School of Law, 1719 N. Broad Street, Philadelphia, PA 19122, The American Law Institute Representative JAMES C. McKAY, JR., Oce of Corporation Counsel, 6th Floor South, 441 4th Street, NW, Washington, DC 20001, Committee on Style Liaison H. KATHLEEN PATCHEL, Indiana University-Indianapolis, School of Law, 530 W. New York Street, Indianapolis, IN 46202-5194, National Conference Associate Reporter CURTIS R. REITZ, University of Pennsylvania, School of Law, 3400 Chestnut Street, Philadelphia, PA 19104 CARLYLE C. RING, JR., 1401 H Street NW, Suite 500, Washington, DC 20005, Enactment Plan Coordinator JAMES J. WHITE, University of Michigan Law School, Hutchins Hall, Room 300, 625 S. State Street, Ann Arbor, MI 48109-1215 NEIL B. COHEN, Brooklyn Law School, Room 904A, 250 Joralemon Street, Brooklyn, NY 11201, Reporter EX OFFICIO JOHN L. McCLAUGHERTY, P.O. Box 553, Charleston, WV 25322, President ROBERT J. TENNESSEN, 3400 City Center, 33 S. 6th Street, Minneapolis, MN 554023796, Division Chair AMERICAN BAR ASSOCIATION ADVISORS HARRY C. SIGMAN, 9717 Cashio Street, Los Angeles, CA 90035, Advisor RICHARD R. GOLDBERG, 51st Floor, 1735 Market Street, Philadelphia, PA 19103, Real Property, Probate & Trust Law Section Advisor WILLIAM J. WOODWARD, JR., Temple University School of Law, 1719 N. Broad Street, Philadelphia, PA 19122, Business Law Section Advisor EXECUTIVE DIRECTOR FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Rd., Norman, OK 73019, Executive Director WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus [Revised Article 1 was approved in 2001. Pre-revision Article 1 may be found in Appendix P.]

PART 1. GENERAL PROVISIONS

1-101. Short Titles. (a) This [Act] may be cited as the Uniform Commercial Code. (b) This article may be cited as Uniform Commercial Code-General Provisions. Ocial Comment
Source: Former Section 1-101. Changes from former law: Subsection (b) is new. It is added in order to make the structure of Article 1 parallel with that of the other articles of the Uniform Commercial 10

Art. 1

General Provisions

1-103

Code. 1. Each other article of the Uniform Commercial Code (except Articles 10 and 11) may also be cited by its own short title. See Sections 2-101, 2A-101, 3-101, 4-101, 4A-101, 5-101, 6-101, 7-101, 8-101, and 9-101.

1-102. Scope of Article. This article applies to a transaction to the extent that it is governed by another article of [the Uniform Commercial Code]. Ocial Comment
Source: New. 1. This section is intended to resolve confusion that has occasionally arisen as to the applicability of the substantive rules in this article. This section makes clear what has always been the case-the rules in Article 1 apply to transactions to the extent that those transactions are governed by one of the other articles of the Uniform Commercial Code. See also Comment 1 to Section 1-301.

1-103. Construction of [Uniform Commercial Code] to Promote Its Purposes and Policies; Applicability of Supplemental Principles of Law. (a) [The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are: (1) to simplify, clarify, and modernize the law governing commercial transactions; (2) to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and (3) to make uniform the law among the various jurisdictions. (b) Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions. Ocial Comment
Source: Former Section 1-102 (1)(2); Former Section 1-103. Changes from former law: This section is derived from subsections (1) and (2) of former Section 1-102 and from former Section 1-103. Subsection (a) of this section combines subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, its language is the same as subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, subsection (b) of this section is identical to former Section 1-103. The provisions have been combined in this section to reect the interrelationship between them. 1. The Uniform Commercial Code is drawn to provide exibility so that, since it is intended to be a semi-permanent and infrequently-amended piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in the Uniform Commercial Code to be applied by the courts in the light of unforeseen and new circumstances and practices. The proper construction of the Uniform Commercial Code requires, of course, that its interpretation and application be limited to its reason. Even prior to the enactment of the Uniform Commercial Code, courts were careful to keep broad acts from being hampered in their eects by later acts of limited scope. See Pacic Wool Growers v. Draper & Co., 158 Or. 1, 73 P.2d 1391 (1937), and compare Section 1-104. The courts have often recognized that the policies embodied in an act are applicable in reason to subject-matter that was not expressly included in the language of the act, 11

 1-103

Uniform Commercial Code

Art. 1

Commercial Nat. Bank of New Orleans v. Canal-Louisiana Bank & Trust Co., 239 U.S. 520, 36 S.Ct. 194, 60 L.Ed. 417 (1916) (bona de purchase policy of Uniform Warehouse Receipts Act extended to case not covered but of equivalent nature), and did the same where reason and policy so required, even where the subject-matter had been intentionally excluded from the act in general. Agar v. Orda, 264 N.Y. 248, 190 N.E. 479 (1934) (Uniform Sales Act change in seller's remedies applied to contract for sale of choses in action even though the general coverage of that Act was intentionally limited to goods other than things in action.) They implemented a statutory policy with liberal and useful remedies not provided in the statutory text. They disregarded a statutory limitation of remedy where the reason of the limitation did not apply. Fiterman v. J. N. Johnson & Co., 156 Minn. 201, 194 N.W. 399 (1923) (requirement of return of the goods as a condition to rescission for breach of warranty; also, partial rescission allowed). Nothing in the Uniform Commercial Code stands in the way of the continuance of such action by the courts. The Uniform Commercial Code should be construed in accordance with its underlying purposes and policies. The text of each section should be read in the light of the purpose and policy of the rule or principle in question, as also of the Uniform Commercial Code as a whole, and the application of the language should be construed narrowly or broadly, as the case may be, in conformity with the purposes and policies involved. 2. Applicability of supplemental principles of law. Subsection (b) states the basic relationship of the Uniform Commercial Code to supplemental bodies of law. The Uniform Commercial Code was drafted against the backdrop of existing bodies of law, including the common law and equity, and relies on those bodies of law to supplement it provisions in many important ways. At the same time, the Uniform Commercial Code is the primary source of commercial law rules in areas that it governs, and its rules represent choices made by its drafters and the enacting legislatures about the appropriate policies to be furthered in the transactions it covers. Therefore, while principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or the purposes and policies those provisions reect, unless a specic provision of the Uniform Commercial Code provides otherwise. In the absence of such a provision, the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies. The language of subsection (b) is intended to reect both the concept of supplementation and the concept of preemption. Some courts, however, had diculty in applying the identical language of former Section 1-103 to determine when other law appropriately may be applied to supplement the Uniform Commercial Code, and when that law has been displaced by the Code. Some decisions applied other law in situations in which that application, while not inconsistent with the text of any particular provision of the Uniform Commercial Code, clearly was inconsistent with the underlying purposes and policies reected in the relevant provisions of the Code. See, e.g., Sheerbonnet, Ltd. v. American Express Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. 1995). In part, this diculty arose from Comment 1 to former Section 1-103, which stated that this section indicates the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are explicitly displaced by this Act. The explicitly displaced language of that Comment did not accurately reect the proper scope of Uniform Commercial Code preemption, which extends to displacement of other law that is inconsistent with the purposes and policies of the Uniform Commercial Code, as well as with its text. 3. Application of subsection (b) to statutes. The primary focus of Section 1-103 is on the relationship between the Uniform Commercial Code and principles of common law and equity as developed by the courts. State law, however, increasingly is statutory. Not only are there a growing number of state statutes addressing specic issues that come within the scope of the Uniform Commercial Code, but in some States many general principles of common law and equity have been codied. When the other law relating to a matter within the scope of the Uniform Commercial Code is a statute, the principles of subsection (b) remain relevant to the court's analysis of the relationship between that statute and the Uniform Commercial Code, but other principles of statutory interpretation that specically address the interrelationship between statutes will be relevant as well. In some situations, the principles of subsection (b) still will be determinative. For example, the mere fact that an equitable principle is stated in statutory form rather than in judicial decisions should not change the court's analysis of whether the principle can be used to supplement the Uniform Commercial Code-under subsection (b), equitable principles may supplement pro12

Art. 1

General Provisions

1-106

visions of the Uniform Commercial Code only if they are consistent with the purposes and policies of the Uniform Commercial Code as well as its text. In other situations, however, other interpretive principles addressing the interrelationship between statutes may lead the court to conclude that the other statute is controlling, even though it conicts with the Uniform Commercial Code. This, for example, would be the result in a situation where the other statute was specically intended to provide additional protection to a class of individuals engaging in transactions covered by the Uniform Commercial Code. 4. Listing not exclusive. The list of sources of supplemental law in subsection (b) is intended to be merely illustrative of the other law that may supplement the Uniform Commercial Code, and is not exclusive. No listing could be exhaustive. Further, the fact that a particular section of the Uniform Commercial Code makes express reference to other law is not intended to suggest the negation of the general application of the principles of subsection (b). Note also that the word bankruptcy in subsection (b), continuing the use of that word from former Section 1-103, should be understood not as a specic reference to federal bankruptcy law but, rather as a reference to general principles of insolvency, whether under federal or state law.

1-104. Construction Against Implied Repeal. [The Uniform Commercial Code] being a general act intended as a unied coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided. Ocial Comment
Source: Former Section 1-104. Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-104. 1. This section embodies the policy that an act that bears evidence of carefully considered permanent regulative intention should not lightly be regarded as impliedly repealed by subsequent legislation. The Uniform Commercial Code, carefully integrated and intended as a uniform codication of permanent character covering an entire eld of law, is to be regarded as particularly resistant to implied repeal.

1-105. Severability. If any provision or clause of [the Uniform Commercial Code] or its application to any person or circumstance is held invalid, the invalidity does not aect other provisions or applications of [the Uniform Commercial Code] which can be given eect without the invalid provision or application, and to this end the provisions of [the Uniform Commercial Code] are severable. Ocial Comment
Source: Former Section 1-108. Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-108. 1. This is the model severability section recommended by the National Conference of Commissioners on Uniform State Laws for inclusion in all acts of extensive scope.

1-106. Use of Singular and Plural; Gender. In [the Uniform Commercial Code], unless the statutory context otherwise requires: (1) words in the singular number include the plural, and those in the plural include the singular; and (2) words of any gender also refer to any other gender.
13

 1-106

Uniform Commercial Code

Art. 1

Ocial Comment
Source: Former Section 1-102(5). See also 1 U.S.C. Section 1. Changes from former law: Other than minor stylistic changes, this section is identical to former Section 1-102(5). 1. This section makes it clear that the use of singular or plural in the text of the Uniform Commercial Code is generally only a matter of drafting style-singular words may be applied in the plural, and plural words may be applied in the singular. Only when it is clear from the statutory context that the use of the singular or plural does not include the other is this rule inapplicable. See, e.g., Section 9-322.

1-107. Section Captions. Section captions are part of [the Uniform Commercial Code]. Ocial Comment
Source: Former Section 1-109. Changes from former law: None. 1. Section captions are a part of the text of the Uniform Commercial Code, and not mere surplusage. This is not the case, however, with respect to subsection headings appearing in Article 9. See Comment 3 to Section 9-101 (subsection headings are not a part of the ofcial text itself and have not been approved by the sponsors.).

1-108. Relation to Electronic Signatures in Global and National Commerce Act. This article modies, limits, and supersedes the Federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq., except that nothing in this article modies, limits, or supersedes section 7001(c) of that act or authorizes electronic delivery of any of the notices described in section 7003(b) of that Act. Ocial Comment
Source: New 1. The federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq. became eective in 2000. Section 102(a) of that Act provides that a State statute may modify, limit, or supersede the provisions of section 101 of that Act with respect to state law if such statute, inter alia, species the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal eect, validity, or enforceability of contracts or other records, and (i) such alternative procedures or requirements are consistent with Titles I and II of that Act, (ii) such alternative procedures or requirements do not require, or accord greater legal status or eect to, the implementation or application of a specic technology or technical specication for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures; and (iii) if enacted or adopted after the date of the enactment of that Act, makes specic reference to that Act. Article 1 fullls the rst two of those three criteria; this Section fullls the third criterion listed above. 2. As stated in this section, however, Article 1 does not modify, limit, or supersede Section 101(c) of the Electronic Signatures in Global and National Commerce Act (requiring afrmative consent from a consumer to electronic delivery of transactional disclosures that are required by state law to be in writing); nor does it authorize electronic delivery of any of the notices described in Section 103(b) of that Act.

PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION

1-201. General Denitions. (a) Unless the context otherwise requires, words or phrases dened in
14

Art. 1

General Provisions

1-201

this section, or in the additional denitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof, have the meanings stated. (b) Subject to denitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof: (1) Action, in the sense of a judicial proceeding, includes recoupment, counterclaim, set-o, suit in equity, and any other proceeding in which rights are determined. (2) Aggrieved party means a party entitled to pursue a remedy. (3) Agreement, as distinguished from contract, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303. (4) Bank means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company. (5) Bearer means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title, or certicated security that is payable to bearer or indorsed in blank. (6) Bill of lading means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt. (7) Branch includes a separately incorporated foreign branch of a bank. (8) Burden of establishing a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence. (9) Buyer in ordinary course of business means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices. A person that sells oil, gas, or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property, or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2 may be a buyer in ordinary course of business. Buyer in ordinary course of business does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt. (10) Conspicuous, with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to
15

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operate ought to have noticed it. Whether a term is conspicuous or not is a decision for the court. Conspicuous terms include the following: (A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and (B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set o from surrounding text of the same size by symbols or other marks that call attention to the language. (11) Consumer means an individual who enters into a transaction primarily for personal, family, or household purposes. (12) Contract, as distinguished from agreement, means the total legal obligation that results from the parties' agreement as determined by [the Uniform Commercial Code] as supplemented by any other applicable laws. (13) Creditor includes a general creditor, a secured creditor, a lien creditor, and any representative of creditors, including an assignee for the benet of creditors, a trustee in bankruptcy, a receiver in equity, and an executor or administrator of an insolvent debtor's or assignor's estate. (14) Defendant includes a person in the position of defendant in a counterclaim, cross-claim, or third-party claim. (15) Delivery, with respect to an electronic document of title means voluntary transfer of control and with respect to an instrument, a tangible document of title, or chattel paper, means voluntary transfer of possession. (16) Document of title means a record (i) that in the regular course of business or nancing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold, and dispose of the record and the goods the record covers and (ii) that purports to be issued by or addressed to a bailee and to cover goods in the bailee's possession which are either identied or are fungible portions of an identied mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt, and order for delivery of goods. An electronic document of title means a document of title evidenced by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced by a record consisting of information that is inscribed on a tangible medium. (17) Fault means a default, breach, or wrongful act or omission. (18) Fungible goods means: (A) goods of which any unit, by nature or usage of trade, is the equivalent of any other like unit; or (B) goods that by agreement are treated as equivalent. (19) Genuine means free of forgery or counterfeiting. (20) Good faith, except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
16

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(21) Holder means: (A) the person in possession of a negotiable instrument that is payable either to bearer or to an identied person that is the person in possession; (B) the person in possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or (C) the person in control of a negotiable electronic document of title. (22) Insolvency proceeding includes an assignment for the benet of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved. (23) Insolvent means: (A) having generally ceased to pay debts in the ordinary course of business other than as a result of bona de dispute; (B) being unable to pay debts as they become due; or (C) being insolvent within the meaning of federal bankruptcy law. (24) Money means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries. (25) Organization means a person other than an individual. (26) Party, as distinguished from third party, means a person that has engaged in a transaction or made an agreement subject to [the Uniform Commercial Code]. (27) Person means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, public corporation, or any other legal or commercial entity. (28) Present value means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain by use of either an interest rate specied by the parties if that rate is not manifestly unreasonable at the time the transaction is entered into or, if an interest rate is not so specied, a commercially reasonable rate that takes into account the facts and circumstances at the time the transaction is entered into. (29) Purchase means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or any other voluntary transaction creating an interest in property. (30) Purchaser means a person that takes by purchase. (31) Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. (32) Remedy means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal. (33) Representative means a person empowered to act for another, including an agent, an ocer of a corporation or association, and a trustee, executor, or administrator of an estate.
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(34) Right includes remedy. (35) Security interest means an interest in personal property or xtures which secures payment or performance of an obligation. Security interest includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Article 9. Security interest does not include the special property interest of a buyer of goods on identication of those goods to a contract for sale under Section 2-401, but a buyer may also acquire a security interest by complying with Article 9. Except as otherwise provided in Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A to retain or acquire possession of the goods is not a security interest, but a seller or lessor may also acquire a security interest by complying with Article 9. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under Section 2-401 is limited in eect to a reservation of a security interest. Whether a transaction in the form of a lease creates a security interest is determined pursuant to Section 1-203. (36) Send in connection with a writing, record, or notice means: (A) to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specied thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or (B) in any other way to cause to be received any record or notice within the time it would have arrived if properly sent. (37) Signed includes using any symbol executed or adopted with present intention to adopt or accept a writing. (38) State means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. (39) Surety includes a guarantor or other secondary obligor. (40) Term means a portion of an agreement that relates to a particular matter. (41) Unauthorized signature means a signature made without actual, implied, or apparent authority. The term includes a forgery. (42) Warehouse receipt means a document of title issued by a person engaged in the business of storing goods for hire. (43) Writing includes printing, typewriting, or any other intentional reduction to tangible form. Written has a corresponding meaning. As amended in 2003.
See Appendix I contained within revised Article 7 for material relating to changes made in text in 2003.

Ocial Comment
Source: Former Section 1-201. Changes from former law: In order to make it clear that all denitions in the Uniform Commercial Code (not just those appearing in Article 1, as stated in former Section 1-201, but also those appearing in other Articles) do not apply if the context otherwise requires, a new subsection (a) to that eect has been added, and the denitions now appear in subsec18

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tion (b). The reference in subsection (a) to the context is intended to refer to the context in which the dened term is used in the Uniform Commercial Code. In other words, the denition applies whenever the dened term is used unless the context in which the dened term is used in the statute indicates that the term was not used in its dened sense. Consider, for example, Sections 3-103(a)(9) (dening promise, in relevant part, as a written undertaking to pay money signed by the person undertaking to pay) and 3-303(a)(1) (indicating that an instrument is issued or transferred for value if the instrument is issued or transferred for a promise of performance, to the extent that the promise has been performed). It is clear from the statutory context of the use of the word promise in Section 3-303(a)(1) that the term was not used in the sense of its denition in Section 3-103(a)(9). Thus, the Section 3-103(a)(9) denition should not be used to give meaning to the word promise in Section 3-303(a). Some denitions in former Section 1-201 have been reformulated as substantive provisions and have been moved to other sections. See Sections 1-202 (explicating concepts of notice and knowledge formerly addressed in Sections 1-201(25)(27)), 1-204 (determining when a person gives value for rights, replacing the denition of value in former Section 1-201(44)), and 1-206 (addressing the meaning of presumptions, replacing the denitions of presumption and presumed in former Section 1-201(31)). Similarly, the portion of the denition of security interest in former Section 1-201(37) which explained the dierence between a security interest and a lease has been relocated to Section 1-203. Two denitions in former Section 1-201 have been deleted. The denition of honor in former Section 1-201(21) has been moved to Section 2-103(1)(b), inasmuch as the denition only applies to the use of the word in Article 2. The denition of telegram in former Section 1-201(41) has been deleted because that word no longer appears in the denition of conspicuous. Other than minor stylistic changes and renumbering, the remaining denitions in this section are as in former Article 1 except as noted below. 1. Action. Unchanged from former Section 1-201, which was derived from similar denitions in Section 191, Uniform Negotiable Instruments Law; Section 76, Uniform Sales Act; Section 58, Uniform Warehouse Receipts Act; Section 53, Uniform Bills of Lading Act. 2. Aggrieved party. Unchanged from former Section 1-201. 3. Agreement. Derived from former Section 1-201. As used in the Uniform Commercial Code the word is intended to include full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as eective parts thereof, and of any agreement permitted under the provisions of the Uniform Commercial Code to displace a stated rule of law. Whether an agreement has legal consequences is determined by applicable provisions of the Uniform Commercial Code and, to the extent provided in Section 1-103, by the law of contracts. 4. Bank. Derived from Section 4A-104. 5. Bearer. Unchanged, except in one respect, from former section 1-201, which was derived from Section 191, Uniform Negotiable Instruments Law. The term bearer applies to negotiable documents of title and has been broadened to include a person in control of an electronic negotiable document of title. Control of an electronic document of title is dened in Article 7 (Section 7-106). 6. Bill of Lading. Derived from former Section 1-201. The reference to, and denition of, an airbill has been deleted as no longer necessary. A bill of lading is one type of document of title as dened in subsection (16). This denition should be read in conjunction with the denition of carrier in Article 7 (Section 7-102). 7. Branch. Unchanged from former Section 1-201. 8. Burden of establishing a fact. Unchanged from former Section 1-201. 9. Buyer in ordinary course of business. Except for minor stylistic changes, identical to former Section 1-201 (as amended in conjunction with the 1999 revisions to Article 9). The major signicance of the phrase lies in Section 2-403 and in the Article on Secured Transactions (Article 9). The rst sentence of paragraph (9) makes clear that a buyer from a pawnbroker cannot be a buyer in ordinary course of business. The second sentence explains what it means to buy in the ordinary course. The penultimate sentence prevents a buyer that does not have the right to possession as against the seller from being a buyer in ordinary course of business. Concerning when a buyer obtains possessory rights, see Sections 2-502 and 2-716. 19

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However, the penultimate sentence is not intended to aect a buyer's status as a buyer in ordinary course of business in cases (such as a drop shipment) involving delivery by the seller to a person buying from the buyer or a donee from the buyer. The requirement relates to whether as against the seller the buyer or one taking through the buyer has possessory rights. 10. Conspicuous. Derived from former Section 1-201(10). This denition states the general standard that to be conspicuous a term ought to be noticed by a reasonable person. Whether a term is conspicuous is an issue for the court. Subparagraphs (A) and (B) set out several methods for making a term conspicuous. Requiring that a term be conspicuous blends a notice function (the term ought to be noticed) and a planning function (giving guidance to the party relying on the term regarding how that result can be achieved). Although these paragraphs indicate some of the methods for making a term attention-calling, the test is whether attention can reasonably be expected to be called to it. The statutory language should not be construed to permit a result that is inconsistent with that test. 11. Consumer. Derived from Section 9-102(a)(25). 12. Contract. Except for minor stylistic changes, identical to former Section 1-201. 13. Creditor. Unchanged from former Section 1-201. 14. Defendant. Except for minor stylistic changes, identical to former Section 1-201, which was derived from Section 76, Uniform Sales Act. 15. Delivery. Derived from former Section 1-201. The reference to certicated securities has been deleted in light of the more specic treatment of the matter in Section 8-301. The denition has been revised to accommodate electronic documents of title. Control of an electronic document of title is dened in Article 7 (Section 7-106). 16.Document of title. Derived from former Section 1-201, which was derived from Section 76, Uniform Sales Act. This denition makes explicit that the obligation or designation of a third party as bailee is essential to a document of title and clearly rejects any such result as obtained in Hixson v. Ward, 254 Ill.App. 505 (1929), which treated a conditional sales contract as a document of title. Also the denition is left open so that new types of documents may be included, including documents which gain commercial recognition in the international arena. See UNCITRAL Draft Instrument on the Carriage of Goods By Sea. It is unforeseeable what documents may one day serve the essential purpose now lled by warehouse receipts and bills of lading. The denition is stated in terms of the function of the documents with the intention that any document which gains commercial recognition as accomplishing the desired result shall be included within its scope. Fungible goods are adequately identied within the language of the denition by identication of the mass of which they are a part. Dock warrants were within the Sales Act denition of document of title apparently for the purpose of recognizing a valid tender by means of such paper. In current commercial practice a dock warrant or receipt is a kind of interim certicate issued by shipping companies upon delivery of the goods at the dock, entitling a designated person to be issued a bill of lading. The receipt itself is invariably nonnegotiable in form although it may indicate that a negotiable bill is to be forthcoming. Such a document is not within the general compass of the denition, although trade usage may in some cases entitle such paper to be treated as a document of title. If the dock receipt actually represents a storage obligation undertaken by the shipping company, then it is a warehouse receipt within this Section regardless of the name given to the instrument. The goods must be described, but the description may be by marks or labels and may be qualied in such a way as to disclaim personal knowledge of the issuer regarding contents or condition. However, baggage and parcel checks and similar tokens of storage which identify stored goods only as those received in exchange for the token are not covered by this Article. The denition is broad enough to include an airway bill. A document of title may be either tangible or electronic. Tangible documents of title should be construed to mean traditional paper documents. Electronic documents of title are documents that are stored in an electronic medium instead of in tangible form. The concept of an electronic medium should be construed liberally to include electronic, digital, magnetic, optical, electromagnetic, or any other current or similar emerging technologies. As to reissuing a document of title in an alternative medium, see Article 7, Section 7-105. Control for electronic documents of title is dened in Article 7 (Section 7-106). 17. Fault. Derived from former Section 1-201. Default has been added to the list of 20

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events constituting fault. 18. Fungible goods. Derived from former Section 1-201. References to securities have been deleted because Article 8 no longer uses the term fungible to describe securities. Accordingly, this provision now denes the concept only in the context of goods. 19. Genuine. Unchanged from former Section 1-201. 20. Good faith. Former Section 1-201(19) dened good faith simply as honesty in fact; the denition contained no element of commercial reasonableness. Initially, that denition applied throughout the Code with only one exception. Former Section 2-103(1)(b) provided that, in that Article, good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. This alternative denition was limited in applicability, though, because it applied only to transactions within the scope of Article 2 and it applied only to merchants. Over time, however, amendments to the Uniform Commercial Code brought the Article 2 merchant concept of good faith (subjective honesty and objective commercial reasonableness) into other Articles. First, Article 2A explicitly incorporated the Article 2 standard. See Section 2A-103(7). Then, other Articles broadened the applicability of that standard by adopting it for all parties rather than just for merchants. See, e.g., Sections 3-103(a)(4), 4A105(a)(6), 7-102(a)(6), 8-102(a)(10), and 9-102(a)(43). Finally, Articles 2 and 2A were amended so as to apply the standard to non-merchants as well as merchants. See Sections 2-103(1)(j), 2A-103(1)(m). All of these denitions are comprised of two elements-honesty in fact and the observance of reasonable commercial standards of fair dealing. Only revised Article 5 denes good faith solely in terms of subjective honesty, and only Article 6 (in the few states that have not chosen to delete the Article) is without a denition of good faith. (It should be noted that, while revised Article 6 did not dene good faith, Comment 2 to revised Section 6-102 states that this Article adopts the denition of good faith in Article 1 in all cases, even when the buyer is a merchant.) Thus, the denition of good faith in this section merely conrms what has been the case for a number of years as Articles of the UCC have been amended or revised-the obligation of good faith, applicable in each Article, is to be interpreted in the context of all Articles except for Article 5 as including both the subjective element of honesty in fact and the objective element of the observance of reasonable commercial standards of fair dealing. As a result, both the subjective and objective elements are part of the standard of good faith, whether that obligation is specically referenced in another Article of the Code (other than Article 5) or is provided by this Article. Of course, as noted in the statutory text, the denition of good faith in this section does not apply when the narrower denition of good faith in revised Article 5 is applicable. As noted above, the denition of good faith in this section requires not only honesty in fact but also observance of reasonable commercial standards of fair dealing. Although fair dealing is a broad term that must be dened in context, it is clear that it is concerned with the fairness of conduct rather than the care with which an act is performed. This is an entirely dierent concept than whether a party exercised ordinary care in conducting a transaction. Both concepts are to be determined in the light of reasonable commercial standards, but those standards in each case are directed to dierent aspects of commercial conduct. See e.g., Sections 3-103(a)(9) and 4-104(c) and Comment 4 to Section 3-103. 21. Holder. Derived from former Section 1-201. The denition has been reorganized for clarity and amended to provide for electronic negotiable documents of title. 22. Insolvency proceedings. Unchanged from former Section 1-201. 23. Insolvent. Derived from former Section 1-201. The three tests of insolvencygenerally ceased to pay debts in the ordinary course of business other than as a result of a bona de dispute as to them, unable to pay debts as they become due, and insolvent within the meaning of the federal bankruptcy law-are expressly set up as alternative tests and must be approached from a commercial standpoint. 24. Money. Substantively identical to former Section 1-201. The test is that of sanction of government, whether by authorization before issue or adoption afterward, which recognizes the circulating medium as a part of the ocial currency of that government. The narrow view that money is limited to legal tender is rejected. 25. Organization. The former denition of this word has been replaced with the standard denition used in acts prepared by the National Conference of Commissioners on Uniform State Laws. 21

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26. Party. Substantively identical to former Section 1-201. Mention of a party includes, of course, a person acting through an agent. However, where an agent comes into opposition or contrast to the principal, particular account is taken of that situation. 27. Person. The former denition of this word has been replaced with the standard definition used in acts prepared by the National Conference of Commissioners on Uniform State Laws. 28. Present value. This denition was formerly contained within the denition of security interest in former Section 1-201(37). 29. Purchase. Derived from former Section 1-201. The form of denition has been changed from includes to means. 30. Purchaser. Unchanged from former Section 1-201. 31. Record. Derived from Section 9-102(a)(69). 32. Remedy. Unchanged from former Section 1-201. The purpose is to make it clear that both remedy and right (as dened) include those remedial rights of self help which are among the most important bodies of rights under the Uniform Commercial Code, remedial rights being those to which an aggrieved party may resort on its own. 33. Representative. Derived from former Section 1-201. Reorganized, and form changed from includes to means. 34. Right. Except for minor stylistic changes, identical to former Section 1-201. 35. Security Interest. The denition is the rst paragraph of the denition of security interest in former Section 1-201, with minor stylistic changes. The remaining portion of that denition has been moved to Section 1-203. Note that, because of the scope of Article 9, the term includes the interest of certain outright buyers of certain kinds of property. 36. Send. Derived from former Section 1-201. Compare noties. 37. Signed. Derived from former Section 1-201. Former Section 1-201 referred to intention to authenticate; because other articles now use the term authenticate, the language has been changed to intention to adopt or accept. The latter formulation is derived from the denition of authenticate in Section 9-102(a)(7). This provision refers only to writings, because the term signed, as used in some articles, refers only to writings. This provision also makes it clear that, as the term signed is used in the Uniform Commercial Code, a complete signature is not necessary. The symbol may be printed, stamped or written; it may be by initials or by thumbprint. It may be on any part of the document and in appropriate cases may be found in a billhead or letterhead. No catalog of possible situations can be complete and the court must use common sense and commercial experience in passing upon these matters. The question always is whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing. 38. State. This is the standard denition of the term used in acts prepared by the National Conference of Commissioners on Uniform State Laws. 39. Surety. This denition makes it clear that surety includes all secondary obligors, not just those whose obligation refers to the person obligated as a surety. As to the nature of secondary obligations generally, see Restatement (Third), Suretyship and Guaranty Section 1 (1996). 40. Term. Unchanged from former Section 1-201. 41. Unauthorized signature. Unchanged from former Section 1-201. 42. Warehouse receipt. Derived from former Section 1-201, which was derived from Section 76(1), Uniform Sales Act; Section 1, Uniform Warehouse Receipts Act. Receipts issued by a eld warehouse are included, provided the warehouseman and the depositor of the goods are dierent persons. The denition makes clear that the receipt must qualify as a document of title under subsection (16). 43. Written or writing. Unchanged from former Section 1-201.

As amended in 2003 and 2005.

See Appendix I contained within revised Article 7 for material relating to changes made in Ocial Comment in 2003. See Appendix V for material relating to changes made in Ocial Comment in 2005.

1-202. Notice; Knowledge. (a) Subject to subsection (f), a person has notice of a fact if the person:
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(1) has actual knowledge of it; (2) has received a notice or notication of it; or (3) from all the facts and circumstances known to the person at the time in question, has reason to know that it exists. (b) Knowledge means actual knowledge. Knows has a corresponding meaning. (c) Discover, learn, or words of similar import refer to knowledge rather than to reason to know. (d) A person noties or gives a notice or notication to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it. (e) Subject to subsection (f), a person receives a notice or notication when: (1) it comes to that person's attention; or (2) it is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications. (f) Notice, knowledge, or a notice or notication received by an organization is eective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual's attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating signicant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially aected by the information. Ocial Comment
Source: Derived from former Section 1-201(25)-(27). Changes from former law: These provisions are substantive rather than purely denitional. Accordingly, they have been relocated from Section 1-201 to this section. The reference to the forgotten notice doctrine has been deleted. 1. Under subsection (a), a person has notice of a fact when, inter alia, the person has received a notication of the fact in question. 2. As provided in subsection (d), the word noties is used when the essential fact is the proper dispatch of the notice, not its receipt. Compare Send. When the essential fact is the other party's receipt of the notice, that is stated. Subsection (e) states when a notication is received. 3. Subsection (f) makes clear that notice, knowledge, or a notication, although received, for instance, by a clerk in Department A of an organization, is eective for a transaction conducted in Department B only from the time when it was or should have been communicated to the individual conducting that transaction.

1-203. Lease Distinguished From Security Interest. (a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
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(b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and: (1) the original term of the lease is equal to or greater than the remaining economic life of the goods; (2) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods; (3) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or (4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement. (c) A transaction in the form of a lease does not create a security interest merely because: (1) the present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into; (2) the lessee assumes risk of loss of the goods; (3) the lessee agrees to pay, with respect to the goods, taxes, insurance, ling, recording, or registration fees, or service or maintenance costs; (4) the lessee has an option to renew the lease or to become the owner of the goods; (5) the lessee has an option to renew the lease for a xed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or (6) the lessee has an option to become the owner of the goods for a xed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed. (d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if: (1) when the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or (2) when the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed. (e) The remaining economic life of the goods and reasonably predictable fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.
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Ocial Comment
Source: Former Section 1-201(37). Changes from former law: This section is substantively identical to those portions of former Section 1-201(37) that distinguished true leases from security interests, except that the denition of present value formerly embedded in Section 1-201(37) has been placed in Section 1-201(28). 1. An interest in personal property or xtures which secures payment or performance of an obligation is a security interest. See Section 1-201(37). Security interests are sometimes created by transactions in the form of leases. Because it can be dicult to distinguish leases that create security interests from those that do not, this section provides rules that govern the determination of whether a transaction in the form of a lease creates a security interest. 2. One of the reasons it was decided to codify the law with respect to leases was to resolve an issue that created considerable confusion in the courts: what is a lease? The confusion existed, in part, due to the last two sentences of the denition of security interest in the 1978 Ocial Text of the Act, Section 1-201(37). The confusion was compounded by the rather considerable change in the federal, state and local tax laws and accounting rules as they relate to leases of goods. The answer is important because the denition of lease determines not only the rights and remedies of the parties to the lease but also those of third parties. If a transaction creates a lease and not a security interest, the lessee's interest in the goods is limited to its leasehold estate; the residual interest in the goods belongs to the lessor. This has signicant implications to the lessee's creditors. On common law theory, the lessor, since he has not parted with title, is entitled to full protection against the lessee's creditors and trustee in bankruptcy . . .. 1 G. Gilmore, Security Interests in Personal Property Section 3.6, at 76 (1965). Under pre-UCC chattel security law there was generally no requirement that the lessor le the lease, a nancing statement, or the like, to enforce the lease agreement against the lessee or any third party; the Article on Secured Transactions (Article 9) did not change the common law in that respect. Coogan, Leasing and the Uniform Commercial Code, in Equipment LeasingLeveraged Leasing 681, 700 n.25, 729 n.80 (2d ed.1980). The Article on Leases (Article 2A) did not change the law in that respect, except for leases of xtures. Section 2A-309. An examination of the common law will not provide an adequate answer to the question of what is a lease. The denition of security interest in Section 1-201(37) of the 1978 Ocial Text of the Act provided that the Article on Secured Transactions (Article 9) governs security interests disguised as leases, i.e., leases intended as security; however, the denition became vague and outmoded. Lease is dened in Article 2A as a transfer of the right to possession and use of goods for a term, in return for consideration. Section 2A-103(1)(j). The denition continues by stating that the retention or creation of a security interest is not a lease. Thus, the task of sharpening the line between true leases and security interests disguised as leases continues to be a function of this Article. This section begins where Section 1-201(35) leaves o. It draws a sharper line between leases and security interests disguised as leases to create greater certainty in commercial transactions. Prior to enactment of the rules now codied in this section, the 1978 Ocial Text of Section 1-201(37) provided that whether a lease was intended as security (i.e., a security interest disguised as a lease) was to be determined from the facts of each case; however, (a) the inclusion of an option to purchase did not itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee would become, or had the option to become, the owner of the property for no additional consideration, or for a nominal consideration, did make the lease one intended for security. Reference to the intent of the parties to create a lease or security interest led to unfortunate results. In discovering intent, courts relied upon factors that were thought to be more consistent with sales or loans than leases. Most of these criteria, however, were as applicable to true leases as to security interests. Examples include the typical net lease provisions, a purported lessor's lack of storage facilities or its character as a nancing party rather than a dealer in goods. Accordingly, this section contains no reference to the parties' intent. Subsections (a) and (b) were originally taken from Section 1(2) of the Uniform Conditional 25

 1-203

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Sales Act (act withdrawn 1943), modied to reect current leasing practice. Thus, reference to the case law prior to the incorporation of those concepts in this article will provide a useful source of precedent. Gilmore, Security Law, Formalism and Article 9, 47 Neb.L.Rev. 659, 671 (1968). Whether a transaction creates a lease or a security interest continues to be determined by the facts of each case. Subsection (b) further provides that a transaction creates a security interest if the lessee has an obligation to continue paying consideration for the term of the lease, if the obligation is not terminable by the lessee (thus correcting early statutory gloss, e.g., In re Royer's Bakery, Inc., 1 U.C.C. Rep.Serv. (Callaghan) 342 (Bankr.E.D.Pa.1963)) and if one of four additional tests is met. The rst of these four tests, subparagraph (1), is that the original lease term is equal to or greater than the remaining economic life of the goods. The second of these tests, subparagraph (2), is that the lessee is either bound to renew the lease for the remaining economic life of the goods or to become the owner of the goods. In re Gehrke Enters., 1 Bankr. 647, 65152 (Bankr.W.D.Wis.1979). The third of these tests, subparagraph (3), is whether the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration, which is dened later in this section. In re Celeryvale Transp., 44 Bankr. 1007, 101415 (Bankr.E.D.Tenn.1984). The fourth of these tests, subparagraph (4), is whether the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration. All of these tests focus on economics, not the intent of the parties. In re Berge , 32 Bankr. 370, 37173 (Bankr.W.D.Wis.1983). The focus on economics is reinforced by subsection (c). It states that a transaction does not create a security interest merely because the transaction has certain characteristics listed therein. Subparagraph (1) has no statutory derivative; it states that a full payout lease does not per se create a security interest. Rushton v. Shea, 419 F.Supp. 1349, 1365 (D.Del.1976). Subparagraphs (2) and (3) provide the same regarding the provisions of the typical net lease. Compare All-States Leasing Co. v. Ochs, 42 Or.App. 319, 600 P.2d 899 (Ct.App.1979), with In re Tillery, 571 F.2d 1361 (5th Cir.1978). Subparagraph (4) restates and expands the provisions of the 1978 Ocial Text of Section 1-201(37) to make clear that the option can be to buy or renew. Subparagraphs (5) and (6) treat xed price options and provide that fair market value must be determined at the time the transaction is entered into. Compare Arnold Mach. Co. v. Balls, 624 P.2d 678 (Utah 1981), with Aoki v. Shepherd Mach. Co., 665 F.2d 941 (9th Cir.1982). The relationship of subsection (b) to subsection (c) deserves to be explored. The xed price purchase option provides a useful example. A xed price purchase option in a lease does not of itself create a security interest. This is particularly true if the xed price is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed. A security interest is created only if the option price is nominal and the conditions stated in the introduction to the second paragraph of this subsection are met. There is a set of purchase options whose xed price is less than fair market value but greater than nominal that must be determined on the facts of each case to ascertain whether the transaction in which the option is included creates a lease or a security interest. It was possible to provide for various other permutations and combinations with respect to options to purchase and renew. For example, this section could have stated a rule to govern the facts of In re Marhoefer Packing Co., 674 F.2d 1139 (7th Cir.1982). This was not done because it would unnecessarily complicate the denition. Further development of this rule is left to the courts. Subsections (d) and (e) provide denitions and rules of construction.

1-204. Value. Except as otherwise provided in Articles 3, 4, [and] 5, [and 6], a person gives value for rights if the person acquires them: (1) in return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of diculties in collection; (2) as security for, or in total or partial satisfaction of, a preexisting claim;
26

Art. 1

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(3) by accepting delivery under a preexisting contract for purchase; or (4) in return for any consideration sucient to support a simple contract. Ocial Comment
Source: Former Section 1-201(44). Changes from former law: Unchanged from former Section 1-201, which was derived from Sections 25, 26, 27, 191, Uniform Negotiable Instruments Law; Section 76, Uniform Sales Act; Section 53, Uniform Bills of Lading Act; Section 58, Uniform Warehouse Receipts Act; Section 22(1), Uniform Stock Transfer Act; Section 1, Uniform Trust Receipts Act. These provisions are substantive rather than purely denitional. Accordingly, they have been relocated from former Section 1-201 to this section. 1. All the Uniform Acts in the commercial law eld (except the Uniform Conditional Sales Act) have carried denitions of value. All those denitions provided that value was any consideration sucient to support a simple contract, including the taking of property in satisfaction of or as security for a pre-existing claim. Subsections (1), (2), and (4) in substance continue the denitions of value in the earlier acts. Subsection (3) makes explicit that value is also given in a third situation: where a buyer by taking delivery under a pre-existing contract converts a contingent into a xed obligation. This denition is not applicable to Articles 3 and 4, but the express inclusion of immediately available credit as value follows the separate denitions in those Articles. See Sections 4-208, 4-209, 3-303. A bank or other nancing agency which in good faith makes advances against property held as collateral becomes a bona de purchaser of that property even though provision may be made for charge-back in case of trouble. Checking credit is immediately available within the meaning of this section if the bank would be subject to an action for slander of credit in case checks drawn against the credit were dishonored, and when a charge-back is not discretionary with the bank, but may only be made when difculties in collection arise in connection with the specic transaction involved.

1-205. Reasonable Time; Seasonableness. (a) Whether a time for taking an action required by [the Uniform Commercial Code] is reasonable depends on the nature, purpose, and circumstances of the action. (b) An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time. Ocial Comment
Source: Former Section 1-204(2)(3). Changes from former law: This section is derived from subsections (2) and (3) of former Section 1-204. Subsection (1) of that section is now incorporated in Section 1-302(b). 1. Subsection (a) makes it clear that requirements that actions be taken within a reasonable time are to be applied in the transactional context of the particular action. 2. Under subsection (b), the agreement that xes the time need not be part of the main agreement, but may occur separately. Notice also that under the denition of agreement (Section 1-201) the circumstances of the transaction, including course of dealing or usages of trade or course of performance may be material. On the question what is a reasonable time these matters will often be important.

1-206. Presumptions. Whenever [the Uniform Commercial Code] creates a presumption with respect to a fact, or provides that a fact is presumed, the trier of fact must nd the existence of the fact unless and until evidence is introduced that supports a nding of its nonexistence.
Legislative Note: Former Section 1-206, a Statute of Frauds for sales of kinds of personal property not otherwise covered, has been deleted. The other articles of the Uniform Commercial Code make individual determinations as to requirements for memorializing transac27

 1-206

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tions within their scope, so that the primary eect of former Section 1-206 was to impose a writing requirement on sales transactions not otherwise governed by the UCC. Deletion of former Section 1-206 does not constitute a recommendation to legislatures as to whether such sales transactions should be covered by a Statute of Frauds; rather, it reects a determination that there is no need for uniform commercial law to resolve that issue.

Ocial Comment
Source: Former Section 1-201(31). Changes from former law. None, other than stylistic changes. 1. Several sections of the Uniform Commercial Code state that there is a presumption as to a certain fact, or that the fact is presumed. This section, derived from the denition appearing in former Section 1-201(31), indicates the eect of those provisions on the proof process.

PART 3. TERRITORIAL APPLICABILITY AND GENERAL RULES

1-301. Territorial Applicability; Parties' Power to Choose Applicable Law. (a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. (b) In the absence of an agreement eective under subsection (a), and except as provided in subsection (c), [the Uniform Commercial Code] applies to transactions bearing an appropriate relation to this state. (c) If one of the following provisions of [the Uniform Commercial Code] species the applicable law, that provision governs and a contrary agreement is eective only to the extent permitted by the law so specied: (1) Section 2-402; (2) Sections 2A-105 and 2A-106; (3) Section 4-102; (4) Section 4A-507; (5) Section 5-116; [(6) Section 6-103;] (7) Section 8-110; (8) Sections 9-301 through 9-307. Ocial Comment
Source: Former Section 1-105. Changes from former law: This section is substantively identical to former Section 1-105. Changes in language are stylistic only. 1. Subsection (a) states armatively the right of the parties to a multi state transaction or a transaction involving foreign trade to choose their own law. That right is subject to the rm rules stated in the sections listed in subsection (c), and is limited to jurisdictions to which the transaction bears a reasonable relation. In general, the test of reasonable relation is similar to that laid down by the Supreme Court in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123 (1927). Ordinarily the law chosen must be that of a jurisdiction where a signicant enough portion of the making or performance of the contract is to occur or occurs. But an agreement as to choice of law may sometimes take eect as a shorthand expression of the intent of the parties as to matters governed by their agreement, even though the transaction has no signicant contact with the jurisdiction chosen. 28

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2. Where there is no agreement as to the governing law, the Act is applicable to any transaction having an appropriate relation to any state which enacts it. Of course, the Act applies to any transaction which takes place in its entirety in a state which has enacted the Act. But the mere fact that suit is brought in a state does not make it appropriate to apply the substantive law of that state. Cases where a relation to the enacting state is not appropriate include, for example, those where the parties have clearly contracted on the basis of some other law, as where the law of the place of contracting and the law of the place of contemplated performance are the same and are contrary to the law under the Code. 3. Where a transaction has signicant contacts with a state which has enacted the Act and also with other jurisdictions, the question what relation is appropriate is left to judicial decision. In deciding that question, the court is not strictly bound by precedents established in other contexts. Thus a conict of laws decision refusing to apply a purely local statute or rule of law to a particular multi state transaction may not be valid precedent for refusal to apply the Code in an analogous situation. Application of the Code in such circumstances may be justied by its comprehensiveness, by the policy of uniformity, and by the fact that it is in large part a reformulation and restatement of the law merchant and of the understanding of a business community which transcends state and even national boundaries. Compare Global Commerce Corp. v. Clark Babbitt Industries, Inc., 239 F.2d 716, 719 (2d Cir. 1956). In particular, where a transaction is governed in large part by the Code, application of another law to some detail of performance because of an accident of geography may violate the commercial understanding of the parties. 4. Subsection (c) spells out essential limitations on the parties right to choose the applicable law. Especially in Article 9 parties taking a security interest or asked to extend credit which may be subject to a security interest must have sure ways to nd out whether and where to le and where to look for possible existing lings. 5. Sections 9-301 through 9-307 should be consulted as to the rules for perfection of security interests and agricultural liens and the eect of perfection and nonperfection and priority. 6. This section is subject to Section 1-102, which states the scope of Article 1. As that section indicates, the rules of Article 1, including this section, apply to a transaction to the extent that transaction is governed by one of the other Articles of the Uniform Commercial Code.

1-302. Variation by Agreement. (a) Except as otherwise provided in subsection (b) or elsewhere in [the Uniform Commercial Code], the eect of provisions of [the Uniform Commercial Code] may be varied by agreement. (b) The obligations of good faith, diligence, reasonableness, and care prescribed by [the Uniform Commercial Code] may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever [the Uniform Commercial Code] requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be xed by agreement. (c) The presence in certain provisions of [the Uniform Commercial Code] of the phrase unless otherwise agreed, or words of similar import, does not imply that the eect of other provisions may not be varied by agreement under this section. Ocial Comment
Source: Former Sections 1-102(3)-(4) and 1-204(1). Changes: This section combines the rules from subsections (3) and (4) of former Section 1-102 and subsection (1) of former Section 1-204. No substantive changes are made. 1. Subsection (a) states armatively at the outset that freedom of contract is a principle of the Uniform Commercial Code: the eect of its provisions may be varied by agreement. 29

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The meaning of the statute itself must be found in its text, including its denitions, and in appropriate extrinsic aids; it cannot be varied by agreement. But the Uniform Commercial Code seeks to avoid the type of interference with evolutionary growth found in pre-Code cases such as Manhattan Co. v. Morgan, 242 N.Y. 38, 150 N.E. 594 (1926). Thus, private parties cannot make an instrument negotiable within the meaning of Article 3 except as provided in Section 3-104; nor can they change the meaning of such terms as bona de purchaser, holder in due course, or due negotiation, as used in the Uniform Commercial Code. But an agreement can change the legal consequences that would otherwise ow from the provisions of the Uniform Commercial Code. Agreement here includes the eect given to course of dealing, usage of trade and course of performance by Sections 1-201 and 1-303; the eect of an agreement on the rights of third parties is left to specic provisions of the Uniform Commercial Code and to supplementary principles applicable under Section 1-103. The rights of third parties under Section 9-317 when a security interest is unperfected, for example, cannot be destroyed by a clause in the security agreement. This principle of freedom of contract is subject to specic exceptions found elsewhere in the Uniform Commercial Code and to the general exception stated here. The specic exceptions vary in explicitness: the statute of frauds found in Section 2-201, for example, does not explicitly preclude oral waiver of the requirement of a writing, but a fair reading denies enforcement to such a waiver as part of the contract made unenforceable; Section 9-602, on the other hand, is a quite explicit limitation on freedom of contract. Under the exception for the obligations of good faith, diligence, reasonableness and care prescribed by [the Uniform Commercial Code], provisions of the Uniform Commercial Code prescribing such obligations are not to be disclaimed. However, the section also recognizes the prevailing practice of having agreements set forth standards by which due diligence is measured and explicitly provides that, in the absence of a showing that the standards manifestly are unreasonable, the agreement controls. In this connection, Section 1-303 incorporating into the agreement prior course of dealing and usages of trade is of particular importance. Subsection (b) also recognizes that nothing is stronger evidence of a reasonable time than the xing of such time by a fair agreement between the parties. However, provision is made for disregarding a clause which whether by inadvertence or overreaching xes a time so unreasonable that it amounts to eliminating all remedy under the contract. The parties are not required to x the most reasonable time but may x any time which is not obviously unfair as judged by the time of contracting. 2. An agreement that varies the eect of provisions of the Uniform Commercial Code may do so by stating the rules that will govern in lieu of the provisions varied. Alternatively, the parties may vary the eect of such provisions by stating that their relationship will be governed by recognized bodies of rules or principles applicable to commercial transactions. Such bodies of rules or principles may include, for example, those that are promulgated by intergovernmental authorities such as UNCITRAL or Unidroit (see, e.g., Unidroit Principles of International Commercial Contracts), or non-legal codes such as trade codes. 3. Subsection (c) is intended to make it clear that, as a matter of drafting, phrases such as unless otherwise agreed have been used to avoid controversy as to whether the subject matter of a particular section does or does not fall within the exceptions to subsection (b), but absence of such words contains no negative implication since under subsection (b) the general and residual rule is that the eect of all provisions of the Uniform Commercial Code may be varied by agreement.

1-303. Course of Performance, Course of Dealing, and Usage of Trade. (a) A course of performance is a sequence of conduct between the parties to a particular transaction that exists if: (1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and (2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. (b) A course of dealing is a sequence of conduct concerning previous
30

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transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (c) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. (d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specic terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance. (e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable: (1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade. (f) Subject to Section 2-209 and Section 2A-208, a course of performance is relevant to show a waiver or modication of any term inconsistent with the course of performance. (g) Evidence of a relevant usage of trade oered by one party is not admissible unless that party has given the other party notice that the court nds sucient to prevent unfair surprise to the other party. Ocial Comment
Source: Former Sections 1-205, 2-208, and Section 2A-207. Changes from former law: This section integrates the course of performance concept from Articles 2 and 2A into the principles of former Section 1-205, which deals with course of dealing and usage of trade. In so doing, the section slightly modies the articulation of the course of performance rules to t more comfortably with the approach and structure of former Section 1-205. There are also slight modications to be more consistent with the definition of agreement in former Section 1-201(3). It should be noted that a course of performance that might otherwise establish a defense to the obligation of a party to a negotiable instrument is not available as a defense against a holder in due course who took the instrument without notice of that course of performance. 1. The Uniform Commercial Code rejects both the lay-dictionary and the conveyancer's reading of a commercial agreement. Instead the meaning of the agreement of the parties is to be determined by the language used by them and by their action, read and interpreted in the light of commercial practices and other surrounding circumstances. The measure and background for interpretation are set by the commercial context, which may explain and supplement even the language of a formal or nal writing. 2. Course of dealing, as dened in subsection (b), is restricted, literally, to a sequence of conduct between the parties previous to the agreement. A sequence of conduct after or 31

 1-303

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under the agreement, however, is a course of performance. Course of dealing may enter the agreement either by explicit provisions of the agreement or by tacit recognition. 3. The Uniform Commercial Code deals with usage of trade as a factor in reaching the commercial meaning of the agreement that the parties have made. The language used is to be interpreted as meaning what it may fairly be expected to mean to parties involved in the particular commercial transaction in a given locality or in a given vocation or trade. By adopting in this context the term usage of trade, the Uniform Commercial Code expresses its intent to reject those cases which see evidence of custom as representing an eort to displace or negate established rules of law. A distinction is to be drawn between mandatory rules of law such as the Statute of Frauds provisions of Article 2 on Sales whose very oce is to control and restrict the actions of the parties, and which cannot be abrogated by agreement, or by a usage of trade, and those rules of law (such as those in Part 3 of Article 2 on Sales) which ll in points which the parties have not considered and in fact agreed upon. The latter rules hold unless otherwise agreed but yield to the contrary agreement of the parties. Part of the agreement of the parties to which such rules yield is to be sought for in the usages of trade which furnish the background and give particular meaning to the language used, and are the framework of common understanding controlling any general rules of law which hold only when there is no such understanding. 4. A usage of trade under subsection (c) must have the regularity of observance specied. The ancient English tests for custom are abandoned in this connection. Therefore, it is not required that a usage of trade be ancient or immemorial, universal, or the like. Under the requirement of subsection (c) full recognition is thus available for new usages and for usages currently observed by the great majority of decent dealers, even though dissidents ready to cut corners do not agree. There is room also for proper recognition of usage agreed upon by merchants in trade codes. 5. The policies of the Uniform Commercial Code controlling explicit unconscionable contracts and clauses (Sections 1-304, 2-302) apply to implicit clauses that rest on usage of trade and carry forward the policy underlying the ancient requirement that a custom or usage must be reasonable. However, the emphasis is shifted. The very fact of commercial acceptance makes out a prima facie case that the usage is reasonable, and the burden is no longer on the usage to establish itself as being reasonable. But the anciently established policing of usage by the courts is continued to the extent necessary to cope with the situation arising if an unconscionable or dishonest practice should become standard. 6. Subsection (d), giving the prescribed eect to usages of which the parties are or should be aware, reinforces the provision of subsection (c) requiring not universality but only the described regularity of observance of the practice or method. This subsection also reinforces the point of subsection (c) that such usages may be either general to trade or particular to a special branch of trade. 7. Although the denition of agreement in Section 1-201 includes the elements of course of performance, course of dealing, and usage of trade, the fact that express reference is made in some sections to those elements is not to be construed as carrying a contrary intent or implication elsewhere. Compare Section 1-302(c). 8. In cases of a well established line of usage varying from the general rules of the Uniform Commercial Code where the precise amount of the variation has not been worked out into a single standard, the party relying on the usage is entitled, in any event, to the minimum variation demonstrated. The whole is not to be disregarded because no particular line of detail has been established. In case a dominant pattern has been fairly evidenced, the party relying on the usage is entitled under this section to go to the trier of fact on the question of whether such dominant pattern has been incorporated into the agreement. 9. Subsection (g) is intended to insure that this Act's liberal recognition of the needs of commerce in regard to usage of trade shall not be made into an instrument of abuse.

1-304. Obligation of Good Faith. Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement. Ocial Comment
Source: Former Section 1-203. Changes from former law: Except for changing the form of reference to the Uniform 32

Art. 1

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1-306

Commercial Code, this section is identical to former Section 1-203. 1. This section sets forth a basic principle running throughout the Uniform Commercial Code. The principle is that in commercial transactions good faith is required in the performance and enforcement of all agreements or duties. While this duty is explicitly stated in some provisions of the Uniform Commercial Code, the applicability of the duty is broader than merely these situations and applies generally, as stated in this section, to the performance or enforcement of every contract or duty within this Act. It is further implemented by Section 1-303 on course of dealing, course of performance, and usage of trade. This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, this section means that a failure to perform or enforce, in good faith, a specic duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power. This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached. 2. Performance and enforcement of contracts and duties within the Uniform Commercial Code include the exercise of rights created by the Uniform Commercial Code.

1-305. Remedies to Be Liberally Administered. (a) The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specically provided in [the Uniform Commercial Code] or by other rule of law. (b) Any right or obligation declared by [the Uniform Commercial Code] is enforceable by action unless the provision declaring it species a dierent and limited eect. Ocial Comment
Source: Former Section 1-106. Changes from former law: Other than changes in the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-106. 1. Subsection (a) is intended to eect three propositions. The rst is to negate the possibility of unduly narrow or technical interpretation of remedial provisions by providing that the remedies in the Uniform Commercial Code are to be liberally administered to the end stated in this section. The second is to make it clear that compensatory damages are limited to compensation. They do not include consequential or special damages, or penal damages; and the Uniform Commercial Code elsewhere makes it clear that damages must be minimized. Cf. Sections 1-304, 2-706(1), and 2-712(2). The third purpose of subsection (a) is to reject any doctrine that damages must be calculable with mathematical accuracy. Compensatory damages are often at best approximate: they have to be proved with whatever deniteness and accuracy the facts permit, but no more. Cf. Section 2-204(3). 2. Under subsection (b), any right or obligation described in the Uniform Commercial Code is enforceable by action, even though no remedy may be expressly provided, unless a particular provision species a dierent and limited eect. Whether specic performance or other equitable relief is available is determined not by this section but by specic provisions and by supplementary principles. Cf. Sections 1-103, 2-716. 3. Consequential or special damages and penal damages are not dened in the Uniform Commercial Code; rather, these terms are used in the sense in which they are used outside the Uniform Commercial Code.

1-306. Waiver or Renunciation of Claim or Right After Breach. A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.
33

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Ocial Comment
Source: Former Section 1-107. Changes from former law: This section changes former law in two respects. First, former Section 1-107, requiring the delivery of a written waiver or renunciation merges the separate concepts of the aggrieved party's agreement to forego rights and the manifestation of that agreement. This section separates those concepts, and explicitly requires agreement of the aggrieved party. Second, the revised section reects developments in electronic commerce by providing for memorialization in an authenticated record. In this context, a party may authenticate a record by (i) signing a record that is a writing or (ii) attaching to or logically associating with a record that is not a writing an electronic sound, symbol or process with the present intent to adopt or accept the record. See Sections 1-201(b)(37) and 9-102(a)(7). 1. This section makes consideration unnecessary to the eective renunciation or waiver of rights or claims arising out of an alleged breach of a commercial contract where the agreement eecting such renunciation is memorialized in a record authenticated by the aggrieved party. Its provisions, however, must be read in conjunction with the section imposing an obligation of good faith. (Section 1-304).

1-307. Prima Facie Evidence by Third-Party Documents. A document in due form purporting to be a bill of lading, policy or certificate of insurance, ocial weigher's or inspector's certicate, consular invoice, or any other document authorized or required by the contract to be issued by a third party is prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party. Ocial Comment
Source: Former Section 1-202. Changes from former law: Except for minor stylistic changes, this Section is identical to former Section 1-202. 1. This section supplies judicial recognition for documents that are relied upon as trustworthy by commercial parties. 2. This section is concerned only with documents that have been given a preferred status by the parties themselves who have required their procurement in the agreement, and for this reason the applicability of the section is limited to actions arising out of the contract that authorized or required the document. The list of documents is intended to be illustrative and not exclusive. 3. The provisions of this section go no further than establishing the documents in question as prima facie evidence and leave to the court the ultimate determination of the facts where the accuracy or authenticity of the documents is questioned. In this connection the section calls for a commercially reasonable interpretation. 4. Documents governed by this section need not be writings if records in another medium are generally relied upon in the context.

1-308. Performance or Acceptance Under Reservation of Rights. (a) A party that with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or oered by the other party does not thereby prejudice the rights reserved. Such words as without prejudice, under protest, or the like are sucient. (b) Subsection (a) does not apply to an accord and satisfaction. Ocial Comment
Source: Former Section 1-207. Changes from former law: This section is identical to former Section 1-207. 1. This section provides machinery for the continuation of performance along the lines contemplated by the contract despite a pending dispute, by adopting the mercantile device of going ahead with delivery, acceptance, or payment without prejudice, under protest, 34

Art. 1

General Provisions

1-310

under reserve, with reservation of all our rights, and the like. All of these phrases completely reserve all rights within the meaning of this section. The section therefore contemplates that limited as well as general reservations and acceptance by a party may be made subject to satisfaction of our purchaser, subject to acceptance by our customers, or the like. 2. This section does not add any new requirement of language of reservation where not already required by law, but merely provides a specic measure on which a party can rely as that party makes or concurs in any interim adjustment in the course of performance. It does not aect or impair the provisions of this Act such as those under which the buyer's remedies for defect survive acceptance without being expressly claimed if notice of the defects is given within a reasonable time. Nor does it disturb the policy of those cases which restrict the eect of a waiver of a defect to reasonable limits under the circumstances, even though no such reservation is expressed. The section is not addressed to the creation or loss of remedies in the ordinary course of performance but rather to a method of procedure where one party is claiming as of right something which the other believes to be unwarranted. 3. Subsection (b) states that this section does not apply to an accord and satisfaction. Section 3-311 governs if an accord and satisfaction is attempted by tender of a negotiable instrument as stated in that section. If Section 3-311 does not apply, the issue of whether an accord and satisfaction has been eected is determined by the law of contract. Whether or not Section 3-311 applies, this section has no application to an accord and satisfaction.

1-309. Option to Accelerate at Will. A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral at will or when the party deems itself insecure, or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised. Ocial Comment
Source: Former Section 1-208. Changes from former law: Except for minor stylistic changes, this section is identical to former Section 1-208. 1. The common use of acceleration clauses in many transactions governed by the Uniform Commercial Code, including sales of goods on credit, notes payable at a denite time, and secured transactions, raises an issue as to the eect to be given to a clause that seemingly grants the power to accelerate at the whim and caprice of one party. This section is intended to make clear that despite language that might be so construed and which further might be held to make the agreement void as against public policy or to make the contract illusory or too indenite for enforcement, the option is to be exercised only in the good faith belief that the prospect of payment or performance is impaired. Obviously this section has no application to demand instruments or obligations whose very nature permits call at any time with or without reason. This section applies only to an obligation of payment or performance which in the rst instance is due at a future date.

1-310. Subordinated Obligations. An obligation may be issued as subordinated to performance of another obligation of the person obligated, or a creditor may subordinate its right to performance of an obligation by agreement with either the person obligated or another creditor of the person obligated. Subordination does not create a security interest as against either the common debtor or a subordinated creditor. Ocial Comment
Source: Former Section 1-209. Changes from former law: This section is substantively identical to former Section 35

 1-310

Uniform Commercial Code

Art. 1

1-209. The language in that section stating that it shall be construed as declaring the law as it existed prior to the enactment of this section and not as modifying it has been deleted. 1. Billions of dollars of subordinated debt are held by the public and by institutional investors. Commonly, the subordinated debt is subordinated on issue or acquisition and is evidenced by an investment security or by a negotiable or non-negotiable note. Debt is also sometimes subordinated after it arises, either by agreement between the subordinating creditor and the debtor, by agreement between two creditors of the same debtor, or by agreement of all three parties. The subordinated creditor may be a stockholder or other insider interested in the common debtor; the subordinated debt may consist of accounts or other rights to payment not evidenced by any instrument. All such cases are included in the terms subordinated obligation, subordination, and subordinated creditor. 2. Subordination agreements are enforceable between the parties as contracts; and in the bankruptcy of the common debtor dividends otherwise payable to the subordinated creditor are turned over to the superior creditor. This turn-over practice has on occasion been explained in terms of equitable lien, equitable assignment, or constructive trust, but whatever the label the practice is essentially an equitable remedy and does not mean that there is a transaction that creates a security interest in personal property . . . by contract or a sale of accounts, chattel paper, payment intangibles, or promissory notes within the meaning of Section 9-109. On the other hand, nothing in this section prevents one creditor from assigning his rights to another creditor of the same debtor in such a way as to create a security interest within Article 9, where the parties so intend. 3. The enforcement of subordination agreements is largely left to supplementary principles under Section 1-103. If the subordinated debt is evidenced by a certicated security, Section 8-202(a) authorizes enforcement against purchasers on terms stated or referred to on the security certicate. If the fact of subordination is noted on a negotiable instrument, a holder under Sections 3-302 and 3-306 is subject to the term because notice precludes him from taking free of the subordination. Sections 3-302(3)(a), 3-306, and 8-317 severely limit the rights of levying creditors of a subordinated creditor in such cases.

APPENDIX I. CONFORMING AMENDMENTS TO OTHER ARTICLES

36

2-103. Denitions and Index of Denitions. 2-202. Final Written Expression: Parol or Extrinsic Evidence. 2-208. Course of Performance or Practical Construction. 2A-103. Denitions and Index of Denitions. 2A-207. Course of Performance or Practical Construction. 2A-501. Default: Procedure. 2A-518. Cover; Substitute Goods. 2A-519. Lessee's Damages for Non-Delivery, Repudiation, Default, and Breach of Warranty in Regard to Accepted Goods. 2A-527. Lessor's Rights to Dispose of Goods. 2A-528. Lessor's Damages for Non-Acceptance, Failure to Pay, Repudiation, or Other Default. 3-103. Denitions. 4-104. Denitions and Index of Denitions. 4A-105. Other Denitions. 4A-106. Time Payment Order is Received. 4A-204. Refund of Payment and Duty of Customer to Report with Respect to Unauthorized Payment Order. 5-103. Scope. 8-102. Denitions. 9-102. Denitions and Index of Denitions.

Art. 1

General Provisions

App. I
2-208

2-103. Denitions and Index of Denitions. (1) In this Article unless the context otherwise requires (a) Buyer means a person who buys or contracts to buy goods. (b) [Reserved.] Good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. (c) Receipt of goods means taking physical possession of them. (d) Seller means a person who sells or contracts to sell goods. * * * 2-202. Final Written Expression: Parol or Extrinsic Evidence. Terms with respect to which the conrmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a nal 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 (a) by course of performance, course of dealing, or usage of trade (Section 1-205 1-303) or by course of performance (Section 2-208); and (b) by evidence of consistent additional terms unless the court nds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. Ocial Comment * * *
Cross References: Point 3: Sections 1-205 1-303, 2-207, 2-302 and 2-316. Denitional Cross References: Agreed and agreement. Section 1-201. Course of dealing. Section 1-205 1-303. Course of performance. Section 1-303. Partyies. Section 1-201. Term. Section 1-201. Usage of trade. Section 1-205 1-303. Written and writing. Section 1-201.

2-208. Course of Performance or Practical Construction. (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205). (3) Subject to the provisions of the next section on modication and waiver, such course of performance shall be relevant to show a waiver or modication of any term inconsistent with such course of performance.
37

App. I
2-208

Uniform Commercial Code

Art. 1

Ocial Comment
Prior Uniform Statutory Provision: No such general provision but concept of this section recognized by terms such as course of dealing, the circumstances of the case, the conduct of the parties, etc., in Uniform Sales Act. Purposes: 1. The parties themselves know best what they have meant by their words of agreement and their action under that agreement is the best indication of what that meaning was. This section thus rounds out the set of factors which determines the meaning of the agreement and therefore also of the unless otherwise agreed qualication to various provisions of this Article. 2. Under this section a course of performance is always relevant to determine the meaning of the agreement. Express mention of course of performance elsewhere in this Article carries no contrary implication when there is a failure to refer to it in other sections. 3. Where it is dicult to determine whether a particular act merely sheds light on the meaning of the agreement or represents a waiver of a term of the agreement, the preference is in favor of waiver whenever such construction, plus the application of the provisions on the reinstatement of rights waived (see Section 2-209), is needed to preserve the exible character of commercial contracts and to prevent surprise or other hardship. 4. A single occasion of conduct does not fall within the language of this section but other sections such as the ones on silence after acceptance and failure to specify particular defects can aect the parties' rights on a single occasion (see Sections 2-605 and 2-607). Cross References: Point 1: Section 1-201. Point 2: Section 2-202. Point 3: Sections 2-209, 2-601 and 2-607. Point 4: Sections 2-605 and 2-607.

2A-103. Denitions and Index of Denitions. * * * (3) The following denitions in other Articles apply to this Article: Account. Section 9-102(a)(2). Between merchants. Section 2-104(3). Buyer. Section 2-103(1)(a). Chattel paper. Section 9-102(a)(11). Consumer goods. Section 9-102(a)(23). Document. Section 9-102(a)(30). Entrusting. Section 2-403(3). General intangible. Section 9-102(a)(42). Good faith. Section 2-103(1)(b). Instrument. Section 9-102(a)(47). Merchant. Section 2-104(1). Mortgage. Section 9-102(a)(55). Pursuant to commitment. Section 9-102(a)(68). Receipt. Section 2-103(1)(c). Sale. Section 2-106(1). Sale on approval. Section 2-326. Sale or return. Section 2-326. Seller. Section 2-103(1)(d). * * *
38

Art. 1

General Provisions

App. I
2A-103

Ocial Comment
(a) Buyer in ordinary course of business. Section 1-201(b)(9).

* * *
(h) Goods. Section 9-105(1)(h) 9-102(a)(44). See Section 2A-103(3) for reference to the denition of Account, Chattel paper, Document, General intangibles and Instrument. See Section 2A-217 for determination of the time and manner of identication.

* * *
(j) Lease. New. There are several reasons to codify the law with respect to leases of goods. An analysis of the case law as it applies to leases of goods suggests at least several signicant issues to be resolved by codication. First and foremost is the denition of a lease. It is necessary to dene lease to determine whether a transaction creates a lease or a security interest disguised as a lease. If the transaction creates a security interest disguised as a lease, the transaction will be governed by the Article on Secured Transactions (Article 9) and the lessor will be required to le a nancing statement or take other action to perfect its interest in the goods against third parties. There is no such requirement with respect to leases under the common law and, except with respect to leases of xtures (Section 2A-309), this Article imposes no such requirement. Yet the distinction between a lease and a security interest disguised as a lease is not clear from the case law at the time of the promulgation of this Article. DeKoven, Leases of Equipment: Puritan Leasing Company v. August, A Dangerous Decision, 12 U.S.F. L.Rev. 257 (1978). At common law a lease of personal property is a bailment for hire. While there are several denitions of bailment for hire, all require a thing to be let and a price for the letting. Thus, in modern terms and as provided in this denition, a lease is created when the lessee agrees to furnish consideration for the right to the possession and use of goods over a specied period of time. Mooney, Personal Property Leasing: A Challenge, 36 Bus.Law. 1605, 1607 (1981). Further, a lease is neither a sale (Section 2-106(1)) nor a retention or creation of a security interest (Sections 1-201(37)(b)(35) and 1-203). Due to extensive litigation to distinguish true leases from security interests, an amendment to former Section 1-201(37) (now codied as Section 1-203) was has been promulgated with this Article to create a sharper distinction. This section as well as Section 1-201(37) 1-203 must be examined to determine whether the transaction in question creates a lease or a security interest. The following hypotheticals indicate the perimeters of the issue. Assume that A has purchased a number of copying machines, new, for $1,000 each; the machines have an estimated useful economic life of three years. A advertises that the machines are available to rent for a minimum of one month and that the monthly rental is $100.00. A intends to enter into leases where A provides all maintenance, without charge to the lessee. Further, the lessee will rent the machine, month to month, with no obligation to renew. At the end of the lease term the lessee will be obligated to return the machine to A's place of business. This transaction qualies as a lease under the rst half of the denition, for the transaction includes a transfer by A to a prospective lessee of possession and use of the machine for a stated term, month to month. The machines are goods (Section 2A-103(1)(h)). The lessee is obligated to pay consideration in return, $100.00 for each month of the term. However, the second half of the denition provides that a sale or a security interest is not a lease. Since there is no passing of title, there is no sale. Sections 2A-103(3) and 2-106(1). Under pre-Act security law this transaction would have created a bailment for hire or a true lease and not a conditional sale. Da Rocha v. Macomber, 330 Mass. 611, 61415, 116 N.E.2d 139, 142 (1953). Under Section 1-201(37) 1-203, as amended with the promulgation of this Article, the same result would follow. While the lessee is obligated to pay rent for the one month term of the lease, one of the other four conditions of the second paragraph of Section 1-201(37) Section 1-203(b) must be met and none is. The term of the lease is one month and the economic life of the machine is 36 months; thus, subparagraph (a) of Section 1-201(37) Section 1-203(b)(1) is not now satised. Considering the amount of the monthly rent, absent economic duress or coercion, the lessee is not bound either to renew the lease for the remaining economic life of the goods or to become the owner. If the lessee did lease the machine for 36 months, the lessee would have paid the lessor $3,600 for a machine that could have been purchased for $1,000; thus, subparagraph (b) of Section 1-201(37) Section 1-203(b)(2) is not satised. Finally, there are no options; thus, subparagraphs (c3) and (d4) of Section 1-201(37) 1-203(b) are not satised. This transaction creates a lease, not a secu39

App. I
2A-103

Uniform Commercial Code

Art. 1

rity interest. However, with each renewal of the lease the facts and circumstances at the time of each renewal must be examined to determine if that conclusion remains accurate, as it is possible that a transaction that rst creates a lease, later creates a security interest. Assume that the facts are changed and that A requires each lessee to lease the goods for 36 months, with no right to terminate. Under pre-Act security law this transaction would have created a conditional sale, and not a bailment for hire or true lease. Hervey v. Rhode Island Locomotive Works, 93 U.S. 664, 67273 (1876). Under this subsection, and Section 1-203 1-201(37), as amended with the inclusion of this Article in the Act, the same result would follow. The lessee's obligation for the term is not subject to termination by the lessee and the term is equal to the economic life of the machine. Between these extremes there are many transactions that can be created. Some of the transactions have were not been properly categorized by the courts in applying the 1978 and earlier Ocial Texts of former Section 1-201(37). This subsection, together with Section 1-203 1-201(37), as amended with the promulgation of this Article, draws a brighter line, which should create a clearer signal to the professional lessor and lessee. (k) Lease agreement. This denition is derived from the rst sentence of Section 1-201(b)(3). Because the denition of lease is broad enough to cover future transfers, lease agreement includes an agreement contemplating a current or subsequent transfer. Thus it was not necessary to make an express reference to an agreement for the future lease of goods (Section 2-106(1)). This concept is also incorporated in the denition of lease contract. Note that the denition of lease does not include transactions in ordinary building materials that are incorporated into an improvement on land. Section 2A-309(2). The provisions of this Article, if applicable, determine whether a lease agreement has legal consequences; otherwise the law of bailments and other applicable law determine the same. Sections 2A-103(4) and 1-103. (l) Lease contract. This denition is derived from the denition of contract in Section 1-201(11)(b)(12). Note that a lease contract may be for the future lease of goods, since this notion is included in the denition of lease.

* * *
(o) Lessee in ordinary course of business. Section 1-201(b)(9).

* * *
(u) Present value. New. Authorities agree that present value should be used to determine fairly the damages payable by the lessor or the lessee on default. E.g., Taylor v. Commercial Credit Equip. Corp., 170 Ga.App. 322, 316 S.E.2d 788 (1984). Present value is dened to mean an amount that represents the discounted value as of a date certain of one or more sums payable in the future. This is a function of the economic principle that a dollar today is more valuable to the holder than a dollar payable in two years. While there is no question as to the principle, reasonable people would dier as to the rate of discount to apply in determining the value of that future dollar today. To minimize litigation, this Article allows the parties to specify the discount or interest rate, if the rate was not manifestly unreasonable at the time the transaction was entered into. In all other cases, the interest rate will be a commercially reasonable rate that takes into account the facts and circumstances of each case, as of the time the transaction was entered into. (v) Purchase. Section 1-201(32)(b)(29). This denition omits the reference to lien contained in the denition of purchase in Article 1 (Section 1-201(32)(b)(29)). This should not be construed to exclude consensual liens from the denition of purchase in this Article; the exclusion was mandated by the scope of the denition of lien in Section 2A-103(1)(r). Further, the denition of purchaser in this Article adds a reference to lease; as purchase is dened in Section 1-201(32)(b)(29) to include any other voluntary transaction creating an interest in property, this addition is not substantive.

* * * 2A-207. Course of Performance or Practical Construction. (1) If a lease contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is relevant to determine the meaning of the lease agreement.
40

Art. 1

General Provisions

App. I
2A-501

(2) 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. (3) Subject to the provisions of Section 2A-208 on modication and waiver, course of performance is relevant to show a waiver or modication of any term inconsistent with the course of performance. Ocial Comment
Uniform Statutory Source: Sections 2-208 and 1-205(4). Changes: Revised to reect leasing practices and terminology, except that subsection (2) was further revised to make the subsection parallel the provisions of Section 1-205(4) by adding that course of dealing controls usage of trade. Purposes: The section should be read in conjunction with Section 2A-208. In particular, although a specic term may control over course of performance as a matter of lease construction under subsection (2), subsection (3) allows the same course of dealing to show a waiver or modication, if Section 2A-208 is satised. Cross References: Sections 1-205(4), 2-208 and 2A-208. Denitional Cross References: Course of dealing. Section 1-205. Knowledge. Section 1-201(25). Lease agreement. Section 2A-103(1)(k). Lease contract. Section 2A-103(1)(l). Party. Section 1-201(29). Term. Section 1-201(42). Usage of trade. Section 1-205.

2A-501. Default: Procedure. * * * (4) Except as otherwise provided in Section 1-106(1) 1-305(a) or this Article or the lease agreement, the rights and remedies referred to in subsections (2) and (3) are cumulative. * * * Ocial Comment
Uniform Statutory Source: Former Section 9-501 (now codied as Sections 9-601 through 9-604).

* * *
2. Subsection (2) is a version of the rst sentence of Section 9-501(1) 9-601(a), revised to reect leasing terminology. 3. Subsection (3), an expansive version of the second sentence of Section 9-501(1) 9-601(a), lists the procedures that may be followed by the party seeking enforcement; in eect, the scope of the procedures listed in subsection (3) is consistent with the scope of the procedures available to the foreclosing secured party. 4. Subsection (4) establishes that the parties' rights and remedies are cumulative. DeKoven, Leases of Equipment: Puritan Leasing Company v. August, A Dangerous Decision, 12 U.S.F.L.Rev. 257, 27680 (1978). Cumulation, and largely unrestricted selection, of remedies is allowed in furtherance of the general policy of the Commercial Code, stated in Section 1-106 1-305, that remedies be liberally administered to put the aggrieved party in as good a position as if the other party had fully performed. Therefore, cumulation of, or selection among, remedies is available to the extent necessary to put the aggrieved party in as good a position as it would have been in had there been full performance. However, cumula41

App. I
2A-501

Uniform Commercial Code

Art. 1

tion of, or selection among, remedies is not available to the extent that the cumulation or selection would put the aggrieved party in a better position than it would have been in had there been full performance by the other party. 5. Section 9-501(3) 9-602, which, among other things, states that certain rules, to the extent they give rights to the debtor and impose duties on the secured party, may not be waived or varied, was is not incorporated in this Article. Given the signicance of freedom of contract in the development of the common law as it applies to bailments for hire and the lessee's lack of an equity of redemption, there was is no reason to impose that restraint. Cross References: Sections 1-106 1-305, 2A-508, 2A-523, Article 9, especially Sections 9-501(1) 9-601 and 9-501(3) 9-602. Denitional Cross References:

* * *
Party. Section 1-201(29)(b)(26). Remedy. Section 1-201(34)(b)(32). Rights. Section 1-201(36)(b)(34).

2A-518. Cover; Substitute Goods. * * * (2) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined pursuant to agreement of the parties (Sections 1-102(3) 1-302 and 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 agreement, 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 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. * * * Ocial Comment * * *
1. Subsection (1) allows the lessee to take action to x its damages after default by the lessor. Such action may consist of the lease of goods. The decision to cover is a function of commercial judgment, not a statutory mandate replete with sanctions for failure to comply. Cf. Section 9-507 9-625. Cross References: Sections 2-712(1), 2A-519 and 9-507 9-625. Denitional Cross References: Agreement. Section 1-201(b)(3). Contract. Section 1-201(11)(b)(12). Good faith. Sections 1-201(b)(20) 1-201(19) and 2-103(1)(b). Goods. Section 2A-103(1)(h). Lease. Section 2A-103(1)(j). Lease agreement. Section 2A-103(1)(k). Lease contract. Section 2A-103(1)(l). Lessee. Section 2A-103(1)(n). Lessor. Section 2A-103(1)(p). Party. Section 1-201(29)(b)(26). 42

Art. 1

General Provisions

App. I
2A-527

Present value. Section 2A-103(1)(u) 1-201(b)(28). Purchase. Section 2A-103(1)(v).

2A-519. Lessee's Damages for Non-Delivery, Repudiation, Default, and Breach of Warranty in Regard to Accepted Goods. (1) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined pursuant to agreement of the parties (Sections 1-102(3) 1-302 and 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 Section 2A-518(2), 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. * * * Ocial Comment * * *
Denitional Cross References: Conforming. Section 2A-103(1)(d). Delivery. Section 1-201(14)(b)(15). Goods. Section 2A-103(1)(h). Lease. Section 2A-103(1)(j). Lease agreement. Section 2A-103(1)(k). Lessee. Section 2A-103(1)(n). Lessor. Section 2A-103(1)(p). Notication. Section 1-201(26) 1-202. Present value. Section 2A-103(1)(u) 1-201(b)(28). Value. Section 1-201(44) 1-204.

2A-527. Lessor's Rights to Dispose of Goods. * * * (2) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined pursuant to agreement of the parties (Sections 1-102(3) 1-302 and 2A-503), if the disposition is by 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 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 Section 2A-530, less expenses saved in consequence of the lessee's default. * * *
43

App. I
2A-527

Uniform Commercial Code

Art. 1

Ocial Comment * * *
1. Subsection (1), a revised version of the rst sentence of subsection 2-706(1), allows the lessor the right to dispose of goods after a statutory or other material default by the lessee (even if the goods remain in the lessee's possessionSection 2A-525(2)), after the lessor refuses to deliver or takes possession of the goods, or, if agreed, after other contractual default. The lessor's decision to exercise this right is a function of a commercial judgment, not a statutory mandate replete with sanctions for failure to comply. Cf. Section 9-507 9-625. As the owner of the goods, in the case of a lessor, or as the prime lessee of the goods, in the case of a sublessor, compulsory disposition of the goods is inconsistent with the nature of the interest held by the lessor or the sublessor and is not necessary because the interest held by the lessee or the sublessee is not protected by a right of redemption under the common law or this Article. Subsection 2A-527(5). 2. The rule for determining the measure of damages recoverable by the lessor against the lessee is a function of several variables. If the lessor has elected to eect disposition under subsection (1) and such disposition is by lease that qualies under subsection (2), the measure of damages set forth in subsection (2) will apply, absent agreement to the contrary. Sections 2A-504, 2A-103(4) and 1-102(3) 1-302.

* * *
Cross References: Sections 1-102(3) 1-302, 2-706(1), 2-706(5), 2-706(6), 2A-103(4), 2A-304(1), 2A-504, 2A507(2), 2A-523(1)(e), 2A-525(2), 2A-527(5), 2A-528 and 9-507 9-625. Denitional Cross References: Buyer and Buying. Section 2-103(1)(a). Delivery. Section 1-201(14)(b)(15). Good faith. Sections 1-201(b)(20)1-201(19) and 2-103(1)(b). Goods. Section 2A-103(1)(h). Lease. Section 2A-103(1)(j). Lease contract. Section 2A-103(1)(l). Lessee. Section 2A-103(1)(n). Lessor. Section 2A-103(1)(p). Present value. Section 2A-103(1)(u) 1-201(b)(28). Rights. Section 1-201(36)(b)(34). Sale. Section 2-106(1). Security interest. Sections 1-201(37)(b)(35) and 1-203. Value. Section 1-201(44) 1-204.

2A-528. Lessor's Damages for Non-Acceptance, Failure to Pay, Repudiation, or Other Default. (1) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A-504) or otherwise determined pursuant to agreement of the parties (Sections 1-102(3) 1-302 and 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 Section 2A-527(2), or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in Section 2A-523(1) or 2A-523(3)(a), 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 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 market rent at the
44

Art. 1

General Provisions

App. I
3-103

place where the goods are located computed for the same lease term, and (iii) any incidental damages allowed under Section 2A-530, less expenses saved in consequence of the lessee's default. * * * Ocial Comment * * *
1. Subsection (1), a substantially revised version of Section 2-708(1), states the basic rule governing the measure of lessor's damages for a default described in Section 2A-523(1) or (3)(a), and, if agreed, for a contractual default. This measure will apply if the lessor elects to retain the goods (whether undelivered, returned by the lessee, or repossessed by the lessor after acceptance and default by the lessee) or if the lessor's disposition does not qualify under subsection 2A-527(2). Section 2A-527(3). Note that under some of these conditions, the lessor may recover damages from the lessee pursuant to the rule set forth in Section 2A-529. There is no sanction for disposition that does not qualify under subsection 2A527(2). Application of the rule set forth in this section is subject to agreement to the contrary. Sections 2A-504, 2A-103(4) and 1-102(3) 1-302.

* * *
Cross References: Sections 1-102(3) 1-302, 2-708, 2A-103(1)(u), 2A-402, 2A-504, 2A-507, 2A-527(2) and 2A529. Denitional Cross References: Agreement. Section 1-201(b)(3). Goods. Section 2A-103(1)(h). Lease. Section 2A-103(1)(j). Lease agreement. Section 2A-103(1)(k). Lessee. Section 2A-103(1)(n). Lessor. Section 2A-103(1)(p). Party. Section 1-201(29)(b)(26). Present value. Section 2A-103(1)(u) 1-201(b)(28). Sale. Section 2-106(1).

3-103. Denitions. (a) In this Article: * * * (4) Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. [reserved] * * * (10) Prove with respect to a fact means to meet the burden of establishing the fact (Section 1-201(b)(8)). * * * Ocial Comment * * *
4. Subsection (a)(4) introduces a denition of good faith to apply to Articles 3 and 4. Former Articles 3 and 4 used the denition in Section 1-201(19). The denition in subsection (a)(4) is consistent with the denitions of good faith applicable to Articles 2, 2A, 4, and 4A. The denition requires not only honesty in fact but also observance of reasonable commercial standards of fair dealing. Although fair dealing is a broad term that must be dened in context, it is clear that it is concerned with the fairness of conduct rather than the care with which an act is performed. Failure to exercise ordinary care in conducting a transaction is an entirely dierent concept than failure to deal fairly in conducting the transaction. Both fair dealing and ordinary care, which is dened in Section 3-103(a)(7), are to be judged in the light of reasonable commercial standards, but those standards in each case are directed to dierent aspects of commercial conduct. 45

App. I
3-103

Uniform Commercial Code

Art. 1

54. Subsection (a)(7) is a denition of ordinary care which is applicable not only to Article 3 but to Article 4 as well. See Section 4-104(c). The general rule is stated in the rst sentence of subsection (a)(7) and it applies both to banks and to persons engaged in businesses other than banking. Ordinary care means observance of reasonable commercial standards of the relevant businesses prevailing in the area in which the person is located. The second sentence of subsection (a)(7) is a particular rule limited to the duty of a bank to examine an instrument taken by a bank for processing for collection or payment by automated means. This particular rule applies primarily to Section 4-406 and it is discussed in Comment 4 to that section. Nothing in Section 3-103(a)(7) is intended to prevent a customer from proving that the procedures followed by a bank are unreasonable, arbitrary, or unfair. 65. In subsection (c) reference is made to a new denition of bank in amended Article 4.

4-104. Denitions and Index of Denitions. * * * (c) The following denitions in other Articles apply to this Article: * * * Good faith Section 3-103. * * * 4A-105. Other Denitions. (a) In this Article: * * * (6) Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. [reserved] (7) Prove with respect to a fact means to meet the burden of establishing the fact (Section 1-201(b)(8)). * * * 4A-106. Time Payment Order is Received. (a) The time of receipt of a payment order or communication cancelling or amending a payment order is determined by the rules applicable to receipt of a notice stated in Section 1-201(27) 1-202. A receiving bank may x a cut-o time or times on a funds-transfer business day for the receipt and processing of payment orders and communications cancelling or amending payment orders. Dierent cut-o times may apply to payment orders, cancellations, or amendments, or to dierent categories of payment orders, cancellations, or amendments. A cut-o time may apply to senders generally or dierent cut-o times may apply to dierent senders or categories of payment orders. If a payment order or communication cancelling or amending a payment order is received after the close of a funds-transfer business day or after the appropriate cut-o time on a funds-transfer business day, the receiving bank may treat the payment order or communication as received at the opening of the next funds-transfer business day. * * * Ocial Comment
The time that a payment order is received by a receiving bank usually denes the payment date or the execution date of a payment order. Section 4A-401 and Section 4A-301. The time of receipt of a payment order, or communication cancelling or amending a payment order is dened in subsection (a) by reference to the rules stated in Section 1-201(27) 1-202. Thus, time of receipt is determined by the same rules that determine when a notice 46

Art. 1

General Provisions

App. I
8-102

is received. Time of receipt, however, may be altered by a cut-o time.

4A-204. Refund of Payment and Duty of Customer to Report with Respect to Unauthorized Payment Order. * * * (b) Reasonable time under subsection (a) may be xed by agreement as stated in Section 1-204(1) 1-302(b), but the obligation of a receiving bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement. 5-103. Scope. * * * (c) With the exception of this subsection, subsections (a) and (d), Sections 5-102(a)(9) and (10), 5-106(d), and 5-114(d), and except to the extent prohibited in Sections 1-102(3) 1-302 and 5-117(d), the eect of this article may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sucient to vary obligations prescribed by this article. * * * Ocial Comment * * *
2. Like all of the provisions of the Uniform Commercial Code, Article 5 is supplemented by Section 1-103 and, through it, by many rules of statutory and common law. Because this article is quite short and has no rules on many issues that will aect liability with respect to a letter of credit transaction, law beyond Article 5 will often determine rights and liabilities in letter of credit transactions. Even within letter of credit law, the article is far from comprehensive; it deals only with certain rights of the parties. Particularly with respect to the standards of performance that are set out in Section 5-108, it is appropriate for the parties and the courts to turn to customs and practice such as the Uniform Customs and Practice for Documentary Credits, currently published by the International Chamber of Commerce as I.C.C. Pub. No. 500 (hereafter UCP). Many letters of credit specically adopt the UCP as applicable to the particular transaction. Where the UCP are adopted but conict with Article 5 and except where variation is prohibited, the UCP terms are permissible contractual modications under Sections 1-102(3) 1-302 and 5-103(c). See Section 5-116(c). Normally Article 5 should not be considered to conict with practice except when a rule explicitly stated in the UCP or other practice is dierent from a rule explicitly stated in Article 5. [remainder of comment 2 is unchanged]

* * * 8-102. Denitions. (a) In this Article: * * * (10) [reserved] Good faith, for purposes of the obligation of good faith in the performance or enforcement of contracts or duties within this Article, means honesty in fact and the observance of reasonable commercial standards of fair dealing. * * *
47

App. I
8-102

Uniform Commercial Code

Art. 1

Ocial Comment * * *
10. Good faith. Good faith is dened in Article 8 for purposes of the application to Article 8 of Section 1-203, which provides that Every contract or duty within this Act [the Uniform Commercial Code] imposes an obligation of good faith in its performance or enforcement. Section 1-201(b)(20) denes good faith as honesty in fact and the observance of reasonable commercial standards of fair dealing. The sole function of the good faith denition in Revised Article 8 is to give content to the Section 1-203 obligation as it applies to contracts and duties that are governed by Article 8. The standard is one of reasonable commercial standards of fair dealing. The reference to commercial standards makes clear that assessments of conduct are to be made in light of the commercial setting. The substantive rules of Article 8 have been drafted to take account of the commercial circumstances of the securities holding and processing system. For example, Section 8-115 provides that a securities intermediary acting on an eective entitlement order, or a broker or other agent acting as a conduit in a securities transaction, is not liable to an adverse claimant, unless the claimant obtained legal process or the intermediary acted in collusion with the wrongdoer. This, and other similar provisions, see Sections 8-404 and 8-503(e), do not depend on notice of adverse claims, because it would impair rather than advance the interest of investors in having a sound and ecient securities clearance and settlement system to require intermediaries to investigate the propriety of the transactions they are processing. The good faith obligation does not supplant the standards of conduct established in provisions of this kind. In Revised Article 8, the denition of good faith is not germane to the question whether a purchaser takes free from adverse claims. The rules on such questions as whether a purchaser who takes in suspicious circumstances is disqualied from protected purchaser status are treated not as an aspect of good faith but directly in the rules of Section 8-105 on notice of adverse claims.

* * *
Denitional Cross References: Agreement. Section 1-201(b)(3). Bank. Section 1-201(b)(4). Person. Section 1-201(30)(b)(27). Send. Section 1-201(38)(b)(36). Signed. Section 1-201(39)(b)(37). Writing. Section 1-201(46)(b)(43).

9-102. Denitions and Index of Denitions. (a) [Article 9 denitions.] In this article: * * * (43) [reserved] Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. * * * Ocial Comment * * *
3. Denitions Relating to Creation of a Security Interest.

* * *
b. Security Agreement. The denition of security agreement is substantially the same as under former Section 9-105-an agreement that creates or provides for a security interest. However, the term frequently was used colloquially in former Article 9 to refer to the document or writing that contained a debtor's security agreement. This Article eliminates that usage, reserving the term for the more precise meaning specied in the denition. Whether an agreement creates a security interest depends not on whether the parties intend that the law characterize the transaction as a security interest but rather on whether the transaction falls within the denition of security interest in Section 1-201. Thus, an 48

Art. 1

General Provisions

App. I
9-102

agreement that the parties characterize as a lease of goods may be a security agreement, notwithstanding the parties' stated intention that the law treat the transaction as a lease and not as a secured transaction. See Section 1-203.

* * *
14. Consignment-Related Denitions: Consignee; Consignment; Consignor. The denition of consignment excludes, in subparagraphs (B) and (C), transactions for which ling would be inappropriate or of insucient benet to justify the costs. A consignment excluded from the application of this Article by one of those subparagraphs may still be a true consignment; however, it is governed by non-Article 9 law. The denition also excludes, in subparagraph (D), what have been called consignments intended for security. These consignments are not bailments but secured transactions. Accordingly, all of Article 9 applies to them. See Sections 1-201(37)(b)(35), 9-109(a)(1). The consignor is the person who delivers goods to the consignee in a consignment. The denition of consignment requires that the goods be delivered to a merchant for the purpose of sale. If the goods are delivered for another purpose as well, such as milling or processing, the transaction is a consignment nonetheless because a purpose of the delivery is sale. On the other hand, if a merchant-processor-bailee will not be selling the goods itself but will be delivering to buyers to which the owner-bailor agreed to sell the goods, the transaction would not be a consignment.

* * *
16. Document. The denition of document is unchanged in substance from the corresponding denitions in former Section 9-105. See Section 1-201(15)(b)(16) and Comment 1516.

* * *
19. Good Faith. This Article expands the denition of good faith to include the observance of reasonable commercial standards of fair dealing. The denition in this section applies when the term is used in this Article, and the same concept applies in the context of this Article for purposes of the obligation of good faith imposed by Section 1-203. See subsection (c).

49

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

PART 2. FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING

2-201. 2-202. 2-203. 2-204. 2-205. 2-206. 2-207. 2-208. 2-209. 2-210. 2-211. 2-212. 2-213. Formal Requirements; Statute of Frauds. Final Expression in a Record: Parol or Extrinsic Evidence. Seals Inoperative. Formation in General. Firm Oers. Oer and Acceptance in Formation of Contract. Terms of Contract; Eect of Conrmation. Reserved. Modication; Rescission and Waiver. Delegation of Performance; Assignment of Rights. Legal Recognition of Electronic Contracts, Records, and Signatures. Attribution. Electronic Communication.

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

2-301. 2-302. 2-303. 2-304. 2-305. 2-306. General Obligations of Parties. Unconscionable Contract or Term. Allocation or Division of Risks. Price Payable in Money, Goods, Realty, or Otherwise. Open Price Term. Output, Requirements and Exclusive Dealings.
Note and list of drafting committee members, see Appendix T.

*Article 2 was amended in 2003. For the 2003 Amendments, along with Prefatory 50

Art. 2 2-307. 2-308. 2-309. 2-310.

Sales

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

PART 4. TITLE, CREDITORS, AND GOOD-FAITH PURCHASERS

2-401. Passing of Title; Reservation for Security; Limited Application of this Section. 2-402. Rights of Seller's Creditors Against Sold Goods. 2-403. Power to Transfer; Good Faith Purchase of Goods; Entrusting.

PART 5. PERFORMANCE
2-501. Insurable Interest in Goods; Manner of Identication of Goods. 2-502. Buyer's Right to Goods on Seller's Insolvency, Repudiation, or Failure to Deliver. 2-503. Manner of Seller's Tender of Delivery. 2-504. Shipment by Seller. 2-505. Seller's Shipment under Reservation. 2-506. Rights of Financing Agency. 2-507. Eect of Seller's Tender; Delivery on Condition. 2-508. Cure by Seller of Improper Tender or Delivery; Replacement. 2-509. Risk of Loss in the Absence of Breach. 2-510. Eect of Breach on Risk of Loss. 2-511. Tender of Payment by Buyer; Payment by Check.
51

Uniform Commercial Code 2-512. 2-513. 2-514. 2-515. Payment by Buyer Before Inspection. Buyer's Right to Inspection of Goods. When Documents Deliverable on Acceptance; When on Payment. Preserving Evidence of Goods in Dispute.

Art. 2

PART 6. BREACH, REPUDIATION, AND EXCUSE

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

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

2-721.
52

Art. 2 2-722. 2-723. 2-724. 2-725.

Sales Who May Sue Third Parties for Injury to Goods. Proof of Market: Time and Place. Admissibility of Market Quotations. Statute of Limitations in Contracts for Sale.

2-102

PART 8. TRANSITIONAL PROVISIONS

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

PART 1. SHORT TITLE, GENERAL CONSTRUCTION AND SUBJECT MATTER

2-101. Short Title. This Article shall be known and may be cited as Uniform Commercial CodeSales. Ocial Comment
This Article is a complete revision and modernization of the Uniform Sales Act which was promulgated by the National Conference of Commissioners on Uniform State Laws in 1906 and has been adopted in 34 states and Alaska, the District of Columbia and Hawaii. The coverage of the present Article is much more extensive than that of the old Sales Act and extends to the various bodies of case law which have been developed both outside of and under the latter. The arrangement of the present Article is in terms of contract for sale and the various steps of its performance. The legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passed or was to pass as being the determining factor. The purpose is to avoid making practical issues between practical men turn upon the location of an intangible something, the passing of which no man can prove by evidence and to substitute for such abstractions proof of words and actions of a tangible character.

2-102. Scope; Certain Security and Other Transactions Excluded from this Article. Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specied classes of buyers. Ocial Comment
Prior Uniform Statutory Provision: Section 75, Uniform Sales Act. Changes: Section 75 has been rephrased. Purposes of Changes and New Matter: To make it clear that: The Article leaves substantially unaected the law relating to purchase money security such as conditional sale or chattel mortgage though it regulates the general sales aspects of such transactions. Security transaction is used in the same sense as in the Article on Secured Transactions (Article 9). Cross Reference: Article 9. 53

 2-102

Uniform Commercial Code

Art. 2

Denitional Cross References: Contract. Section 1-201. Contract for sale. Section 2-106. Goods. Section 2-103. Present sale. Section 2-106. Sale. Section 2-106.

2-103. Denitions and Index of Denitions. (1) In this article unless the context otherwise requires: (a) Buyer means a person that buys or contracts to buy goods. (b) Conspicuous, with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably congured electronic agent to take it into account or react to it without review of the record by an individual. Whether a term is conspicuous or not is a decision for the court. Conspicuous terms include the following: (i) for a person: (A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and (B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set o from surrounding text of the same size by symbols or other marks that call attention to the language; and (ii) for a person or an electronic agent, a term that is so placed in a record or display that the person or electronic agent may not proceed without taking action with respect to the particular term. (c) Consumer means an individual who buys or contracts to buy goods that, at the time of contracting, are intended by the individual to be used primarily for personal, family, or household purposes. (d) Consumer contract means a contract between a merchant seller and a consumer. (e) Delivery means, with respect to goods, the voluntary transfer of physical possession or control of goods. (f) Electronic means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. (g) Electronic agent means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual. (h) Electronic record means a record created, generated, sent, communicated, received, or stored by electronic means. (i) Foreign exchange transaction means a transaction in which one party agrees to deliver a quantity of a specied money or unit of account in consideration of the other party's agreement to deliver another quantity of a dierent money or unit of account either currently or at a
54

Art. 2

Sales

2-103

future date, and in which delivery is to be through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance. The term includes a transaction of this type involving two or more moneys and spot, forward, option, or other products derived from underlying moneys and any combination of these transactions. The term does not include a transaction involving two or more moneys in which one or both of the parties is obligated to make physical delivery, at the time of contracting or in the future, of banknotes, coins, or other form of legal tender or specie. [(j) Reserved] [(j) Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.]
Legislative Note: The denition of good faith should not be adopted if the jurisdiction has enacted this denition as part of Article 1.

(k) Goods means all things that are movable at the time of identication to a contract for sale. The term includes future goods, specially manufactured goods, the unborn young of animals, growing crops, and other identied things attached to realty as described in Section 2-107. The term does not include information, the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign exchange transactions, or choses in action. (l) Receipt of goods means taking physical possession of goods. (m) Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
Legislative Note: The denition of record should not be adopted if the jurisdiction has enacted revised Article 1.

(n) Remedial promise means a promise by the seller to repair or replace goods or to refund all or part of the price of goods upon the happening of a specied event. (o) Seller means a person that sells or contracts to sell goods. (p) Sign means, with present intent to authenticate or adopt a record: (i) to execute or adopt a tangible symbol; or (ii) to attach to or logically associate with the record an electronic sound, symbol, or process. (2) Other denitions applying to this Article or to specied Parts thereof, and the sections in which they appear are: Acceptance. Section 2-606. Between merchants. Section 2-104. Cancellation. Section 2-106(4). Commercial unit. Section 2-105. Conforming to contract. Section 2-106. Contract for sale. Section 2-106. Cover. Section 2-712. Entrusting. Section 2-403. Financing agency. Section 2-104. Future goods. Section 2-105.
55

 2-103

Uniform Commercial Code

Art. 2

Identication. Section 2-501. Installment contract. Section 2-612. Lot. Section 2-105. Merchant. Section 2-104. Person in position of seller. Section 2-707. Present sale. Section 2-106. Sale. Section 2-106. Sale on approval. Section 2-326. Sale or return. Section 2-326. Termination. Section 2-106. (3) Control as provided in Section 7-106 and the following denitions in other Articles apply to this Article: Check. Section 3-104(f). Consignee. Section 7-102(3) Consignor. Section 7-102(4) Consumer goods. Section 9-102(a)(23). Dishonor. Section 3-502. Draft. Section 3-104(e). Honor. Section 5-102(a)(8). Injunction against honor. Section 5-109(b). Letter of credit. Section 5-102(a)(10). (4) In addition Article 1 contains general denitions and principles of construction and interpretation applicable throughout this Article. As amended in 1994, 1999, 2001, 2003 and 2005.
See Appendix J for material relating to changes made in text in 1994. See Appendix I contained within revised Article 9 for material relating to changes made in text in 1999. See Appendix I contained within revised Article 1 for material relating to changes made in text in 2001. See Appendix T for material relating to changes made in text in 2003. See Appendix V for material relating to changes made in text in 2005.

Ocial Comment
1. The rst sentence of the denition of conspicuous is based on Section 1-201(10) but the concept is expanded to include terms in electronic records. The general standard is, that to be conspicuous, a term ought to be noticed by a reasonable person. The second sentence states a special rule for situations where the sender of an electronic record intends to evoke a response from an electronic agent. In that case, the presentation of the term must be capable of evoking a response from a reasonably congured electronic agent. Whether a term is conspicuous is an issue for the court. Paragraphs (i) and (ii) set out several methods for making a term conspicuous. The requirement that a term be conspicuous functions both as notice (the term ought to be noticed) and as a basis for planning (giving guidance to the party that relies on the term about how that result can be achieved). Paragraph (i), which relates to the general standard for conspicuousness, is based on original Section 1-201(10) but it is intended to give more guidance than was given in the prior version of this denition. Paragraph (ii) is new and it relates to the special standard for electronic records that are intended to evoke a response from an electronic agent. Although these paragraphs indicate some of the methods for calling attention to a term, the 56

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test is whether notice of the term can reasonably be expected. The statutory language should not be construed to permit a result that is inconsistent with that test. 2. A consumer is a natural person (cf. Section 1-201(27)) who enters into a transaction for a purpose typically associated with consumers-i.e., a personal, family or household purpose. The requirement that the buyer intend that the goods be used primarily for personal, family or household purposes is generally consistent with the denition of consumer goods in revised Article 9. See Section 9-102(a)(23). 3. The term consumer contract is limited to a contract for sale between a seller that is a merchant and a buyer that is a consumer. Thus, neither a sale by a consumer to a consumer nor a sale by a merchant to an individual who intends that the goods be used primarily in a home business qualify as a consumer contract. 4. Delivery with respect to documents of title is dened in Section 1-201(15) as the voluntary transfer of possession of the document. This Article denes delivery with respect to goods to mean the voluntary transfer of physical possession or control of the goods. 5. The electronic contracting provisions, including the denitions of electronic, electronic agent, electronic record, and record are based on the provisions of the Uniform Electronic Transactions Act and are consistent with the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001 et seq.). 6. The term foreign exchange transaction is used in the denition of goods in Section 2-103(1)(k). That denition excludes the subject matter of foreign exchange transactions. 7. The denition of goods in this article has been amended to exclude information not associated with goods. Thus, this article does not directly apply to an electronic transfer of information, such as the transaction involved in Specht v. Netscape, 150 F. Supp. 2d 585 (S.D.N.Y. 2001), a'd, 306 F.3d 17 (2d. Cir. 2002). However, transactions often include both goods and information: some are transactions in goods as that term is used in Section 2-102, and some are not. For example, the sale of smart goods such as an automobile is a transaction in goods fully within this article even though the automobile contains many computer programs. On the other hand, an architect's provision of architectural plans on a computer disk would not be a transaction in goods. When a transaction includes both the sale of goods and the transfer of rights in information, it is up to the courts to determine whether the transaction is entirely within or outside of this article, or whether or to what extent this article should be applied to a portion of the transaction. While this article may apply to a transaction including information, nothing in this Article alters, creates, or diminishes intellectual property rights. The denition has also been amended to exclude the subject matter of foreign exchange transactions. See Section 2-103(1)(i). Although a contract in which currency in the commodity exchanged is a sale of goods, an exchange in which delivery is through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance is not a sale of goods and is not governed by this article. In the latter case, Article 4A or other law applies. On the other hand, if the parties agree to a forward transaction where dollars are to be physically delivered in exchange for the delivery of another currency, the transaction is not within the foreign exchange exclusion and this article applies. 8. Section 1-202(e) provides rules for determining whether a notice or notication has been received. This Article by contrast denes receipt of goods to mean the taking of physical possession of the goods. 9. A remedial promise is a promise by the seller to take a certain remedial action upon the happening of a specied event. The types of remedies contemplated by this term as used in this Article are specied in the denition-repair or replacement of the goods, or refund of all or part of the price. No other promise by a seller qualies as a remedial promise. Furthermore, the seller is entitled to specify precisely the event that will precipitate the obligation. Typical examples include a commitment to repair any parts of the goods that are defective, or a commitment to refund the purchase price if the goods fail to perform in a certain manner. A post-sale promise to correct a problem with the goods that the seller is not obligated to correct that is made to placate a dissatised customer is not within the denition of remedial promise. Whether the promised remedy is exclusive, and if so whether it has failed its essential purpose, is determined under Section 2-719. The distinction between a remedial promise and a warranty that is made in this Article resolves a statute-of-limitations problem. Under original Section 2-725, a right of action for 57

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breach of an express warranty accrued at the time the goods were tendered unless the warranty explicitly extended to the future performance of the goods. In that case, the statute of limitations began to run at the time of the discovery of the breach. By contrast, a right of action for breach of an ordinary (non-warranty) promise accrued when the promise was breached. A number of courts held that commitments by sellers to take remedial action in the event the goods proved to be defective during a specied period of time constituted a warranty, and in theses cases the courts determined that the statute of limitations began to run at the time that the goods were tendered. Other courts used strained reasoning that allowed them to apply the discovery rule even though the promise referred to the future performance of the seller and not the future performance of the goods. Under this Article, a promise by the seller to take remedial action is not a warranty at all and therefore the statute of limitations for a breach of a remedial promise does not begin to run at either the time the goods are tendered or at the time the breach is discovered. Section 2-725(2)(c) separately addresses the accrual of a right of action for a remedial promise. See Ocial Comment 3 to Section 2-725. 10. The denition of sign is broad enough to cover any record that is signed within the meaning of Article 1 or that contains an electronic signature within the meaning of the Uniform Electronic Transactions Act. It is consistent with the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001 et seq.).

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-104. Denitions: Merchant; Between Merchants; Financing Agency. (1) Merchant means a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person's employment of an agent or broker or other intermediary that holds itself out by occupation as having the knowledge or skill. (2) Financing agency means a bank, nance company, or other person that in the ordinary course of business makes advances against goods or documents of title or that by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany or are associated with the draft. The term includes also a bank or other person that similarly intervenes between persons that are in the position of seller and buyer in respect to the goods (Section 2-707). (3) Between merchants means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: None. But see Sections 15(2), (5), 16(c), 45(2) and 71, Uniform Sales Act, and Sections 35 and 37, Uniform Bills of Lading Act for examples of the policy expressly provided for in this Article. Purposes: 1. This Article assumes that transactions between professionals in a given eld require special and clear rules which may not apply to a casual or inexperienced seller or buyer. It thus adopts a policy of expressly stating rules applicable between merchants and as 58

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against a merchant, wherever they are needed instead of making them depend upon the circumstances of each case as in the statutes cited above. This section lays the foundation of this policy by dening those who are to be regarded as professionals or merchants and by stating when a transaction is deemed to be between merchants. 2. The term merchant as dened here roots in the law merchant concept of a professional in business. The professional status under the denition may be based upon specialized knowledge as to the goods, specialized knowledge as to business practices, or specialized knowledge as to both and which kind of specialized knowledge may be sucient to establish the merchant status is indicated by the nature of the provisions. The special provisions as to merchants appear only in this Article and they are of three kinds. Sections 2-201(2), 2-205, 2-207 and 2-209 dealing with the statute of frauds, rm offers, conrmatory memoranda and modication rest on normal business practices which are or ought to be typical of and familiar to any person in business. For purposes of these sections almost every person in business would, therefore, be deemed to be a merchant under the language who . . . by his occupation holds himself out as having knowledge or skill peculiar to the practices . . . involved in the transaction . . . since the practices involved in the transaction are non-specialized business practices such as answering mail. In this type of provision, banks or even universities, for example, well may be merchants. But even these sections only apply to a merchant in his mercantile capacity; a lawyer or bank president buying shing tackle for his own use is not a merchant. On the other hand, in Section 2-314 on the warranty of merchantability, such warranty is implied only if the seller is a merchant with respect to goods of that kind. Obviously this qualication restricts the implied warranty to a much smaller group than everyone who is engaged in business and requires a professional status as to particular kinds of goods. The exception in Section 2-402(2) for retention of possession by a merchant-seller falls in the same class; as does Section 2-403(2) on entrusting of possession to a merchant who deals in goods of that kind. A third group of sections includes 2-103(1)(b), which provides that in the case of a merchant good faith includes observance of reasonable commercial standards of fair dealing in the trade; 2-327(1)(c), 2-603 and 2-605, dealing with responsibilities of merchant buyers to follow seller's instructions, etc.; 2-509 on risk of loss, and 2-609 on adequate assurance of performance. This group of sections applies to persons who are merchants under either the practices or the goods aspect of the denition of merchant. 3. The or to whom such knowledge or skill may be attributed by his employment of an agent or broker . . . clause of the denition of merchant means that even persons such as universities, for example, can come within the denition of merchant if they have regular purchasing departments or business personnel who are familiar with business practices and who are equipped to take any action required. Cross References: Point 1: Sections 1-102 and 1-203. Point 2: Sections 2-314, 2-315, and Article 9. Denitional Cross References: Bank. Section 1-201. Buyer. Section 2-103. Contract for sale. Section 2-106. Document of title. Section 1-201. Draft. Section 3-104(e). Goods. Section 2-103. Person. Section 1-201. Purchase. Section 1-201. Seller. Section 2-103.

2-105. Denitions: Transferability; Future Goods; Lot; Commercial Unit. (1) Goods must be both existing and identied before any interest in them may pass. Goods that are not both existing and identied are future goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
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(2) There may be a sale of a part interest in existing identied goods. (3) An undivided share in an identied bulk of fungible goods is sufciently identied to be sold although the quantity of the bulk is not determined. Any agreed proportion of the bulk or any quantity thereof agreed upon by number, weight, or other measure may to the extent of the seller's interest in the bulk be sold to the buyer that then becomes an owner in common. (4) Lot means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sucient to perform the contract. (5) Commercial unit means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Subsections (1), (2), (3) and (4)Sections 5, 6 and 76, Uniform Sales Act; Subsections (5) and (6)none. Changes: Rewritten. Purposes of Changes and New Matter: 1. Subsection (1) on goods: The phraseology of the prior uniform statutory provision has been changed so that: The denition of goods is based on the concept of movability and the term chattels personal is not used. It is not intended to deal with things which are not fairly identiable as movables before the contract is performed. Growing crops are included within the denition of goods since they are frequently intended for sale. The concept of industrial growing crops has been abandoned, for under modern practices fruit, perennial hay, nursery stock and the like must be brought within the scope of this Article. The young of animals are also included expressly in this denition since they, too, are frequently intended for sale and may be contracted for before birth. The period of gestation of domestic animals is such that the provisions of the section on identication can apply as in the case of crops to be planted. The reason of this denition also leads to the inclusion of a wool crop or the like as goods subject to identication under this Article. The exclusion of money in which the price is to be paid from the denition of goods does not mean that foreign currency which is included in the denition of money may not be the subject matter of a sales transaction. Goods is intended to cover the sale of money when money is being treated as a commodity but not to include it when money is the medium of payment. As to contracts to sell timber, minerals, or structures to be removed from the land Section 2-107(1) (Goods to be severed from Realty: recording) controls. The use of the word xtures is avoided in view of the diversity of denitions of that term. This Article in including within its scope things attached to realty adds the further test that they must be capable of severance without material harm thereto. As between the parties any identied things which fall within that denition become goods upon the making of the contract for sale. Investment securities are expressly excluded from the coverage of this Article. It is not intended by this exclusion, however, to prevent the application of a particular section of this Article by analogy to securities (as was done with the Original Sales Act in Agar v. Orda, 264 N.Y. 248, 190 N.E. 479, 99 A.L.R. 269 (1934)) when the reason of that section 60

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makes such application sensible and the situation involved is not covered by the Article of this Act dealing specically with such securities (Article 8). 2. References to the fact that a contract for sale can extend to future or contingent goods and that ownership in common follows the sale of a part interest have been omitted here as obvious without need for expression; hence no inference to negate these principles should be drawn from their omission. 3. Subsection (4) does not touch the question of how far an appropriation of a bulk of fungible goods may or may not satisfy the contract for sale. 4. Subsections (5) and (6) on lot and commercial unit are introduced to aid in the phrasing of later sections. 5. The question of when an identication of goods takes place is determined by the provisions of Section 2-501 and all that this section says is what kinds of goods may be the subject of a sale. Cross References: Point 1: Sections 2-107, 2-201, 2-501 and Article 8. Point 5: Section 2-501. See also Section 1-201. Denitional Cross References: Buyer. Section 2-103. Contract. Section 1-201. Contract for sale. Section 2-106. Fungible. Section 1-201. Money. Section 1-201. Present sale. Section 2-106. Sale. Section 2-106. Seller. Section 2-103.

2-106. Denitions: 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 sale of goods. Contract for sale includes both a present sale of goods and a contract to sell goods at a future time. A sale consists in the passing of title from the seller to the buyer for a price (Section 2-401). A present sale means a sale which is accomplished by the making of the contract. (2) Goods or conduct including any part of a performance are conforming or conform to the contract when they are in accordance with the obligations under the contract. (3) Termination occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On termination all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives. (4) Cancellation occurs when either party puts an end to the contract for breach by the other and its eect is the same as that of termination except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance. Ocial Comment
Prior Uniform Statutory Provision: Subsection (1)Section 1(1) and (2), Uniform Sales Act; Subsection (2)none, but subsection generally continues policy of Sections 11, 44 and 69, Uniform Sales Act; Subsections (3) and (4)none. Changes: Completely rewritten. 61

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Purposes of Changes and New Matter: 1. Subsection (1): Contract for sale is used as a general concept throughout this Article, but the rights of the parties do not vary according to whether the transaction is a present sale or a contract to sell unless the Article expressly so provides. 2. Subsection (2): It is in general intended to continue the policy of requiring exact performance by the seller of his obligations as a condition to his right to require acceptance. However, the seller is in part safeguarded against surprise as a result of sudden technicality on the buyer's part by the provisions of Section 2-508 on seller's cure of improper tender or delivery. Moreover usage of trade frequently permits commercial leeways in performance and the language of the agreement itself must be read in the light of such custom or usage and also, prior course of dealing, and in a long term contract, the course of performance. 3. Subsections (3) and (4): These subsections are intended to make clear the distinction carried forward throughout this Article between termination and cancellation. Cross References: Point 2: Sections 1-203, 1-205,and 2-508. Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Contract. Section 1-201. Goods. Section 2-103. Party. Section 1-201. Remedy. Section 1-201. Rights. Section 1-201. Seller. Section 2-103.

2-107. Goods to Be Severed from Realty: Recording. (1) A contract for the sale of minerals or the like (including oil and gas) 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 severance a purported present sale thereof which is not eective as a transfer of an interest in land is eective 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) or of timber to be cut 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 identication eect a present sale before severance. (3) The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale. As amended in 1972.
See Appendix B for material relating to changes made in text in 1972.

Ocial Comment
Prior Uniform Statutory Provision: See Section 76, Uniform Sales Act on prior policy; Section 7, Uniform Conditional Sales Act. Purposes: 1. Subsection (1). Notice that this subsection applies only if the minerals or structures are to be severed by the seller. If the buyer is to sever, such transactions are considered contracts aecting land and all problems of the Statute of Frauds and of the recording of land rights apply to them. Therefore, the Statute of Frauds section of this Article does not 62

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apply to such contracts though they must conform to the Statute of Frauds aecting the transfer of interests in land. 2. Subsection (2). Things attached to the realty which can be severed without material harm are goods within this Article regardless of who is to eect the severance. The word xtures has been avoided because of the diverse denitions of this term, the test of severance without material harm being substituted. The provision in subsection (3) for recording such contracts is within the purview of this Article since it is a means of preserving the buyer's rights under the contract of sale. 3. The security phases of things attached to or to become attached to realty are dealt with in the Article on Secured Transactions (Article 9) and it is to be noted that the denition of goods in that Article diers from the denition of goods in this Article. However, both Articles treat as goods growing crops and also timber to be cut under a contract of severance. Cross References: Point 1: Section 2-201. Point 2: Sections 2-103 and 2-105. Point 3: Articles 9 and 9-105. Denitional Cross References: Buyer. Section 2-103. Contract. Section 1-201. Contract for sale. Section 2-106. Goods. Section 2-103. Party. Section 1-201. Present sale. Section 2-106. Rights. Section 1-201. Seller. Section 2-103.

2-108. Transactions Subject to Other Law. (1) A transaction subject to this article is also subject to any applicable: (a) [list any certicate of title statutes of this State covering automobiles, trailers, mobile homes, boats, farm tractors, or the like], except with respect to the rights of a buyer in ordinary course of business under Section 2-403(2) which arise before a certicate of title covering the goods is eective in the name of any other buyer; (b) rule of law that establishes a dierent rule for consumers; or (c) statute of this state applicable to the transaction, such as a statute dealing with: (i) the sale or lease of agricultural products; (ii) the transfer of human blood, blood products, tissues, or parts; (iii) the consignment or transfer by artists of works of art or ne prints; (iv) distribution agreements, franchises, and other relationships through which goods are sold; (v) the misbranding or adulteration of food products or drugs; and (vi) dealers in particular products, such as automobiles, motorized wheelchairs, agricultural equipment, and hearing aids. (2) Except for the rights of a buyer in ordinary course of business under subsection (1)(a), in the event of a conict between this article and a law referred to in subsection (1), that law governs. (3) For purposes of this article, failure to comply with a law referred to in subsection (1) has only the eect specied in that law.
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(4) This article modies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., except that nothing in this article modies, limits, or supersedes Section 7001(c) of that Act or authorizes electronic delivery of any of the notices described in Section 7003(b) of that Act. As added in 2003. Ocial Comment
1. Section 2-108, which was not in the prior version of this Article, follows the form of Section 2A-104(1). 2. In subsection (1), it is assumed that this article is subject to any applicable federal law, such as the United Nations Convention on Contracts for the International Sale of Goods, 15 U.S.C. App., or the Magnuson-Moss Warranty Act, 15 U.S.C. Sections 2301 2312. 3. Subsection (1)(a) permits the states to list any applicable certicate-of-title statutes. It also provides that Article 2 is subject to their provisions on the transfer and eect of title except for the rights of a buyer in ordinary course of business in certain limited situations. In entrustment situations, the exception in subsection (1)(a) overrides those certicate-oftitle statutes that provide that a person cannot qualify as an owner unless a certicate has been issued in the person's name. In those cases where an owner in whose name a certicate has been issued entrusts a titled asset to a dealer that then sells it to a buyer in ordinary course of business, this section provides that the priority issue between the owner and the buyer is to be resolved by reference to the certicate-of-title statute. Illustration #1. A used car is stolen from the owner by a thief and the thief, by fraud, is able to obtain a clean certicate of title from State X. The thief sells the car to the buyer, a good faith purchaser for value but not a buyer in ordinary course of business, and the thief transfers the certicate of title to the buyer. The exception in subsection (1)(a) does not apply to protect the buyer. Furthermore, under Section 2-403(1), the buyer does not get good title from the thief, regardless of the certicate. The same result follows if the applicable state certicate of title law makes the certicate prima facie evidence of ownership. The buyer will prevail, however, if the applicable certicate of title law conicts with the result obtained under this Article by making issuance of the certificate conclusive on title. Illustration #2. The dealer sells a new car to buyer #1 and the dealer signs a form permitting buyer #1 to apply for a certicate of title. Buyer #1 leaves the car with the dealer so that the dealer can nish the preparation work on the car. While the car remains in the dealer's possession and before the state issues a certicate of title in buyer #1's name, buyer #2 makes the dealer a better oer on the car, which the dealer accepts. Buyer #1 entrusted the car to the dealer, and if buyer #2 qualies as a buyer in ordinary course of business, buyer #2's title to the car will be superior to that of buyer #1. Illustration #3. An owner in whose name a certicate of title has been issued leaves a car with a dealer for repair. The dealer sells the car to a buyer, who qualies as a buyer in ordinary course of business. If the certicate-of-title law in the state resolves the priority contest between the owner and the buyer, that solution should be implemented. Otherwise, the buyer prevails under Section 2-403(2). 4. This section also deals with the eect of a conict or failure to comply with any other state law that might apply to a transaction governed by this Article. Subsection (1) provides that a transaction subject to this Article is also subject to other applicable law, and subsection (2) provides that in the event of a conict the other law governs (except for the rights of a buyer in ordinary course of business under subsection (1)(a)). Subsection (1)(b) provides that this Article is also subject to any rule of law that establishes a dierent rule for consumers. Rule of law includes a statute, an administrative rule properly promulgated under the statute, and a nal court decision. The relationship between Article 2 and federal and state consumer laws will vary from transaction to transaction and from State to State. For example, the Magnuson-Moss Warranty Act, 15 U.S.C.A. 2301 et. seq., may or may not apply to the consumer dispute in question and the applicable state lemon law may provide more or less protection than Magnuson-Moss. To the extent that the other law applies and there is a conict with this 64

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Article, that law controls. Subsection (1)(c) provides an illustrative but not exhaustive list of other applicable state statutes that may preempt all or part of Article 2. For example, franchise contracts may be regulated by state franchise acts, the seller of unmerchantable blood or human tissue may be insulated from warranty liability and disclaimers of the implied warranty of merchantability may be invalidated by non-uniform amendments to Article 2. The existence, scope, and eect of these statutes must be assessed from State to State. Assuming that there is a conict, subsection (3) deals with the failure of parties to the contract to comply with the applicable law. The failure has the eect specied in the law. Thus, the failure to obtain a required license may make the contract illegal, and therefore unenforceable, while the nonnegligent supply of unmerchantable blood under a blood shield statute may mean only that the supplier is insulated from liability for injury to person or property. 5. Subsection (4) takes advantage of a provision of the federal Electronic Signatures in Global and National Commerce Act (E-Sign). E-Sign permits state law to modify, limit or supersede its provisions if the state law is consistent with Titles I and II of E-Sign, gives no special legal eect or validity to and does not require the implementation or application of specic technologies or technical specications, and if enacted subsequent to E-Sign makes specic reference to E-Sign. Subsection (4) does not apply to section 101(c) of E-Sign, nor does it authorize electronic delivery of the notices described in section 103(b) of E-Sign. Cross References: Point 3: Section 2-403. Denitional Cross References: Lease. Section 2A-103.

PART 2. FORM, FORMATION, TERMS AND READJUSTMENT OF CONTRACT; ELECTRONIC CONTRACTING

2-201. Formal Requirements; Statute of Frauds. (1) A contract for the sale of goods for the price of $5,000 or more is not enforceable by way of action or defense unless there is some record sufcient to indicate that a contract for sale has been made between the parties and signed by the party against which enforcement is sought or by the party's authorized agent or broker. A record is not insucient because it omits or incorrectly states a term agreed upon, but the contract is not enforceable under this subsection beyond the quantity of goods shown in the record. (2) Between merchants if within a reasonable time a record in conrmation of the contract and sucient against the sender is received and the party receiving it has reason to know its contents, it satises the requirements of subsection (1) against the recipient unless notice of objection to its contents is given in a record within 10 days after it is received. (3) A contract that does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable: (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; (b) if the party against which enforcement is sought admits in the
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party's pleading, or in the party's testimony or otherwise under oath that a contract for sale was made, but the contract is not enforceable under this paragraph 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 (Sec. 2-606). (4) A contract that is enforceable under this section is not unenforceable merely because it is not capable of being performed within one year or any other period after its making. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. The record required by subsection (1) need not contain all of the material terms of the contract, and the material terms that are stated need not be precise or accurate. All that is required is that the record aord a reasonable basis to determine that the oered oral evidence rests on a real transaction. The record may be written on a piece of paper or entered into a computer. It need not indicate which party is the buyer and which party is the seller. The only term which must appear is the quantity term. A term indicating the manner by which the quantity is determined is sucient. Thus, for example, a term indicating that the quantity is based on the output of the seller or the requirements of the buyer satises the requirement. See e.g., Advent Systems v. Unisys, 925 F.2d 670 (3rd Cir. 1991); Gestetner Corp. v. Case Equip. Co., 815 F.2d 806 (1st Cir. 1987). The same reasoning can be extended to a term that indicates that the contract is similar to, but does not qualify as, an output or requirement contract. See e.g., PMC Corp. v. Houston Wire and Cable Co. 797 A.2d 125 (N.H. 2002). Similarly, a term that refers to a master contract that provides a basis for determining a quantity satises this requirement. See e.g., Reigel Fiber Corp. v. Anderson Gin Co., 512 F.2d 784 (5th Cir.1975). If a specic amount is stated in the record, even if not accurately stated, recovery is limited to the stated amount. However, the price, time and place of payment or delivery, the general quality of the goods, or any particular warranties need not be included. Special emphasis must be placed on the permissibility of omitting the price term. In many valid contracts for sale the parties do not mention the price in express terms. The buyer is bound to pay and the seller to accept a reasonable price, which the trier of the fact will determine. Frequently the price is not mentioned at all since the parties have based their agreement on a price list or catalogue known to both of them, and the list or catalogue serves as an ecient safeguard against perjury. Also, market prices and valuations that are current in the vicinity constitute a similar check. Of course, if the price consists of goods rather than money, the quantity of goods must be stated. There are only three denite and invariable requirements for the memorandum made by subsection (1). First, the memorandum must evidence a contract for the sale of goods; second, the memorandum must be signed; and third, the memorandum must have a quantity term or a method to determine the quantity. 2. The prior version of subsection (1) began with the phrase Except as otherwise provided in this section. This language has been deleted. This change was made to provide that the statement of the three statutory exceptions in subsection (3) should not be read as limiting under subsection (1) the possibility that a promisor will be estopped to raise the statute-offrauds defense in appropriate cases. 3. Partial performance as a substitute for the required record can validate the contract only for the goods which have been accepted or for which payment has been made and accepted. Receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that a contract exists. If the court can make a just apportionment, therefore, the agreed price of any goods actually delivered can be recovered without a writing or, if the price has been paid, the seller can be forced to deliver an apportionable part of the goods. The overt actions of the parties make admissible evidence of the other terms of the contract necessary to a just apportionment. This is true even though the actions of the parties are not in themselves inconsistent with a dierent transaction such as a 66

Art. 2

Sales

2-201

consignment for resale or a mere loan of money. Part performance by the buyer requires that the buyer deliver something that is accepted by the seller as the performance. Thus, part payment may be made by money or check accepted by the seller. If the agreed price consists of goods or services, then they must also have been delivered and accepted. When the seller accepts partial payment for a single item the statute is satised as to that item. See Lockwood v. Smigel, 18 Cal App.3d 800, 99 Cal Rept. 289 (1971). 4. Between merchants, failure to answer a conrmation of a contract in a record that satises the requirements of subsection (1) against the sender within ten days of receipt renders the record sucient against the recipient. The only eect, however, is to take away from the party that fails to answer the defense of the Statute of Frauds. The burden of persuading the trier of fact that a contract was in fact made orally prior to the record conrmation is unaected. A merchant includes a person that by occupation purports to have knowledge or skill peculiar to the practices or goods involved in the transaction. Section 2-104(1) (emphasis supplied). Thus, a professional or a farmer should be considered a merchant because the practice of objecting to an improper conrmation ought to be familiar to any person in business. 5. Failure to satisfy the requirements of this section does not render the contract void for all purposes, but merely prevents it from being judicially enforced in favor of a party to the contract. For example, a buyer that takes possession of goods provided for in an oral contract which the seller has not meanwhile repudiated is not a trespasser. Nor would the statute-of-frauds provisions of this section be a defense to a third person that wrongfully induces a party to refuse to perform an oral contract, even though the injured party cannot maintain an action for damages against the party that refuses to perform. 6. It is not necessary that the record be delivered to anybody, nor is this section intended to displace decisions that have given eect to lost records. It need not be signed by both parties, but except as stated in subsection (2), it is not sucient against a party that has not signed it. Prior to a dispute, no one can determine which party's signature may be necessary, but from the time of contracting each party should be aware that it is the signature of the other which is important. 7. If the making of a contract is admitted in court, either in a written pleading, by stipulation or by oral statement before the court, or is admitted under oath but not in court, as by testimony in a deposition or an adavit led with a motion, no additional record is necessary. Subsection (3)(b) makes it impossible to admit the contract in these contexts, and assert that the Statute of Frauds is still a defense. However, in these circumstances, the contract is not conclusively established. The admission is evidential only against the maker and only for the facts admitted. As against the other party, it is not evidential at all. 8. Subsection (4), which was not in prior versions of this Article, repeals the one year provision of the Statute of Frauds for contracts for the sale of goods. The phrase any other applicable period recognizes that some state statutes apply to periods longer than one year. The confused and contradictory interpretations under the so-called one year clause are illustrated by C.R. Klewin, Inc. v. Flagship Properties, Inc., 600 A.2d 772 (Conn. 1991). Cross References: See Sections 1-201, 2-202, 2-207, 2-209 and 2-304. Point 1: Sections 2-211 thru 2-213. Point 4: Section 2-104 Denitional Cross References: Action. Section 1-201. Between merchants. Section 2-104. Buyer. Section 2-103. Contract. Section 1-201. Contract for sale. Section 2-106. Goods. Section 2-103. Notice. Section 1-202. Party. Section 1-201. Reasonable time. Section 1-205. Record. Section 2-103. 67

 2-201
Sale. Section 2-106. Seller. Section 2-103. Sign. Section 2-103.

Uniform Commercial Code

Art. 2

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-202. Final Expression in a Record: Parol or Extrinsic Evidence. (1) Terms with respect to which the conrmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a nal 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 supplemented by evidence of: (a) course of performance, course of dealing, or usage of trade (Section 1-303); and (b) consistent additional terms unless the court nds the record to have been intended also as a complete and exclusive statement of the terms of the agreement. (2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous.
Legislative Note: The cross-references in subsection (1)(a) should not be changed if the jurisdiction has not adopted revised Article 1.

As amended in 2001 and 2003.

See Appendix I contained within revised Article 1 for material relating to changes made in text in 2001. See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. Subsection (1) codies the parol evidence rule. The operation of this rule depends on the intention of both parties that the terms in a record are the nal expression of their agreement with respect to the included terms. Without this mutual intention to integrate the record, the parol evidence rule does not apply to exclude evidence of other terms allegedly agreed to prior to or contemporaneously with the record. Unless there is a nal record, these alleged terms are provable as part of the agreement by relevant evidence from any credible source. When each party sends a conrmatory record, mutual intention to integrate the agreement is presumed for terms with respect to which the conrmatory records of the parties agree. 2. Because a record is nal for the included terms (an integration), this does not mean that the parties intended that the record contain all the terms of their agreement (a total integration). If a record is nal but not complete and exclusive, it cannot be contradicted by evidence of prior agreements reected in a record or prior or contemporaneous oral agreements, but it can be supplemented by other evidence, drawn from any source, of consistent additional terms. Even if the record is nal, complete and exclusive, it can be supplemented by evidence of noncontradictory terms drawn from an applicable course of performance, course of dealing, or usage of trade unless those sources are carefully negated by a term in the record. If the record is nal, complete and exclusive it cannot be supplemented by evidence of terms drawn from other sources, even terms that are consistent with the record. 3. Whether a writing is nal, and whether a nal writing is also complete, are issues for the court. This section rejects any assumption that because a record has been worked out which is nal on some matters, it is to be taken as including all the matters agreed upon. If the additional terms are those that, if agreed upon, would certainly have been included in 68

Art. 2

Sales

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the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact. This section is not intended to suggest what should be the evidentiary strength of a merger clause as evidence of the mutual intent that the record be nal and complete. That determination depends upon the particular circumstances of each case. 4. This section does not exclude evidence introduced to show that the contract is avoidable for misrepresentation, mistake, or duress, or that the contract or a term is unenforceable because of unconscionability. This section also does not operate to exclude evidence of a subsequent modication or evidence that, for the purpose of claiming excuse, both parties assumed that a certain event would not occur. 5. Issues of interpretation are generally left to the courts. In interpreting terms in a record, subsection (2) permits either party to introduce evidence drawn from a course of performance, a course of dealing, or a usage of trade without any preliminary determination by the court that the term at issue is ambiguous. This article takes no position on whether a preliminary determination of ambiguity is a condition to the admissibility of evidence drawn from any other source or on whether a contract clause can exclude an otherwise applicable implied-in-fact source. Cross References: Point 2: Sections 2-206 and 2-207. Point 3: Section 2-207. Point 4: Section 2-302 Denitional Cross References: Agreement. Section 1-201. Course of dealing. Section 1-303. Course of performance. Section 1-303. Parties. Section 1-201. Record. Section 2-103. Term. Section 1-201. Usage of trade. Section 1-303.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-203. Seals Inoperative. The axing of a seal to a record evidencing a contract for sale or an oer to buy or sell goods does not constitute the record a sealed instrument. The law with respect to sealed instruments does not apply to such a contract or oer. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Section 3, Uniform Sales Act. Changes: Portion pertaining to seals rewritten. Purposes of Changes: 1. This section makes it clear that every eect of the seal which relates to sealed instruments as such is wiped out insofar as contracts for sale are concerned. However, the substantial eects of a seal, except extension of the period of limitations, may be had by appropriate drafting as in the case of rm oers (see Section 2-205). 2. This section leaves untouched any aspects of a seal which relate merely to signatures or to authentication of execution and the like. Thus, a statute providing that a purported signature gives prima facie evidence of its own authenticity or that a signature gives prima facie evidence of consideration is still applicable to sales transactions even though a seal may be held to be a signature within the meaning of such a statute. Similarly, the authorized axing of a corporate seal bearing the corporate name to a contractual writing purporting to be made by the corporation may have eect as a signature without any reference to the law of sealed instruments. 69

 2-203

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Art. 2

Cross Reference: Point 1: Section 2-205. Denitional Cross References: Contract for sale. Section 2-106. Goods. Section 2-103. Record. Section 2-103.

2-204. Formation in General. (1) A contract for sale of goods may be made in any manner sucient to show agreement, including oer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual. (2) An agreement sucient to constitute a contract for sale may be found even if the moment of its making is undetermined. (3) Even if one or more terms are left open, a contract for sale does not fail for indeniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. (4) Except as otherwise provided in Sections 2-211 through 2-213, the following rules apply: (a) A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements. (b) A contract may be formed by the interaction of an electronic agent and an individual acting on the individual's own behalf or for another person. A contract is formed if the individual takes actions that the individual is free to refuse to take or makes a statement, and the individual has reason to know that the actions or statement will: (i) cause the electronic agent to complete the transaction or performance; or (ii) indicate acceptance of an oer, regardless of other expressions or actions by the individual to which the electronic agent cannot react. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. Subsection (1) sets forth the basic policy to recognize any manner of expression of agreement. In addition to traditional contract formation by oral or written agreement, or by performance, subsection (1) provides that an agreement may be made by electronic means. Regardless of how the agreement is formed under this section, the legal eect of the agreement is subject to the other provisions of this Article. 2. Under subsection (1), appropriate conduct by the parties may be sucient to establish an agreement. Subsection (2) is directed primarily when the correspondence does not disclose the exact point at which the agreement was formed, but the conduct of the parties indicate that a binding obligation has been undertaken. 3. Subsection (3) states the principle for open terms which underlies later sections of this Article. If the parties intend to enter into a binding agreement, this subsection recognizes the agreement as valid in law, despite missing terms, if there is any reasonably certain basis for granting a remedy based on commercial standards of indeniteness. Neither certainty for what the parties were to do nor a nding of the exact amount of damages is required. Neither is the fact that one or more terms are left to be agreed upon enough by itself to defeat an otherwise adequate agreement. This Act makes provision elsewhere for missing terms needed for performance, open price, remedies and the like. 70

Art. 2

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2-205

The more terms the parties leave open, the less likely it is that the parties have intended to conclude a binding agreement, but their actions may be conclusive on the matter despite the omissions. 4. Subsections (4)(a) and (b) are derived from Sections 14(a) and (b) of the Uniform Electronic Transactions Act. Subsection (4)(a) conrms that contracts may be formed by machines functioning as electronic agents for the parties to a transaction. This subsection is intended to negate any claim that lack of human intent, at the time of contract formation, prevents contract formation. When machines are involved, the requisite intention to contract ows from the programing and use of the machine. This provision, along with sections 2-211, 2-212, and 2-213, is intended to remove barriers to electronic contract formation. 5. When the requisite intent to enter into a contract exists, subsection (4)(b) validates contracts formed by an individual and an electronic agent. This subsection validates an anonymous click-through transaction. As with subsection (4)(a), the intent to contract by means of an electronic agent comes from the programing and use of the machine. The requisite intent to contract by the individual is found by the acts of the individual that the individual has reason to know will be interpreted by the machine as allowing the machine to complete the transaction or performance, or that will be interpreted by the machine as signifying acceptance on the part of the individual. This intent is only found, though, when the individual is free to refuse to take the actions that the machine will interpret as acceptance or allowance to complete the transaction. For example, if A goes to a website that provides for purchasing goods over the Internet, and after choosing items to be purchased is confronted by a screen which advises her that the transaction will be completed if A clicks I agree, then A will be bound by the click if A knew or had reason to know that the click would be interpreted as signifying acceptance and A was also free to refuse to take the nal action. This provision does not, however, provide for a determination of what terms exist in the agreement. That question is governed by Section 2-207. 6. Nothing in this section is intended to restrict equitable defenses, such as fraud or mistake, in electronic contract formation. However, because the law of electronic mistake is not well developed, and because factual issues may arise that are not easily resolved by legal standards developed for nonelectronic transactions, courts should not automatically apply standards developed in other contexts. The specic dierences between electronic and nonelectronic transactions should also be factored in to resolve equitable claims in electronic contracts. Cross References: Point 1: Sections 1-103, 2-201, 2-211 thru 2-213. and 2-302. Point 2: Sections 2-205 through 2-209. Point 3: See Part 3. Point 4: Sections 2-211 thru 2-213. Point 5: Sections 2-211 thru 2-213. Denitional Cross References: Agreement. Section 1-201. Contract. Section 1-201. Contract for sale. Section 2-106. Electronic. Section 2-103. Electronic agent. Section 2-103. Goods. Section 2-103. Party. Section 1-201. Remedy. Section 1-201. Term. Section 1-201.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-205. Firm Oers. An oer by a merchant to buy or sell goods in a signed record that by its terms gives assurance that it will be held open is not revocable, for lack of
71

 2-205

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Art. 2

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 three months. Any such term of assurance in a form supplied by the oeree must be separately signed by the oeror. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Sections 1 and 3, Uniform Sales Act. Changes: Completely rewritten by this and other sections of this Article. Purposes of Changes: 1. This section is intended to modify the former rule which required that rm oers be sustained by consideration in order to bind, and to require instead that they must merely be characterized as such and expressed in signed writings. 2. The primary purpose of this section is to give eect to the deliberate intention of a merchant to make a current rm oer binding. The deliberation is shown in the case of an individualized document by the merchant's signature to the oer, and in the case of an oer included on a form supplied by the other party to the transaction by the separate signing of the particular clause which contains the oer. Signed here also includes authentication but the reasonableness of the authentication herein allowed must be determined in the light of the purpose of the section. The circumstances surrounding the signing may justify something less than a formal signature or initialing but typically the kind of authentication involved here would consist of a minimum of initialing of the clause involved. A handwritten memorandum on the writer's letterhead purporting in its terms to conrm a rm oer already made would be enough to satisfy this section, although not subscribed, since under the circumstances it could not be considered a memorandum of mere negotiation and it would adequately show its own authenticity. Similarly, an authorized telegram will suce, and this is true even though the original draft contained only a typewritten signature. However, despite settled courses of dealing or usages of the trade whereby rm oers are made by oral communication and relied upon without more evidence, such oers remain revocable under this Article since authentication by a writing is the essence of this section. 3. This section is intended to apply to current rm oers and not to long term options, and an outside time limit of three months during which such oers remain irrevocable has been set. The three month period during which rm oers remain irrevocable under this section need not be stated by days or by date. If the oer states that it is guaranteed or rm until the happening of a contingency which will occur within the three month period, it will remain irrevocable until that event. A promise made for a longer period will operate under this section to bind the oeror only for the rst three months of the period but may of course be renewed. If supported by consideration it may continue for as long as the parties specify. This section deals only with the oer which is not supported by consideration. 4. Protection is aorded against the inadvertent signing of a rm oer when contained in a form prepared by the oeree by requiring that such a clause be separately authenticated. If the oer clause is called to the oeror's attention and he separately authenticates it, he will be bound; Section 2-302 may operate, however, to prevent an unconscionable result which otherwise would ow from other terms appearing in the form. 5. Safeguards are provided to oer relief in the case of material mistake by virtue of the requirement of good faith and the general law of mistake. Cross References: Point 1: Section 1-102. Point 2: Section 1-102. Point 3: Section 2-201. Point 5: Section 2-302. Denitional Cross References: Goods. Section 2-103. Merchant. Section 2-104. Record. Section 2-103. Signed. Section 2-103. 72

Art. 2

Sales

2-206

2-206. Oer and Acceptance in Formation of Contract. (1) Unless otherwise unambiguously indicated by the language or circumstances: (a) an oer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; (b) an order or other oer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but the shipment of nonconforming goods is not an acceptance if the seller seasonably noties the buyer that the shipment is oered only as an accommodation to the buyer. (2) If the beginning of a requested performance is a reasonable mode of acceptance, an oeror that is not notied of acceptance within a reasonable time may treat the oer as having lapsed before acceptance. (3) A denite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or dierent from the oer. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. Subsection (1)(b) deals with a shipment that contains defective goods which is made following an order for the goods. The nonconforming shipment is normally understood as intended to close the bargain even though it constitutes a breach. However, the seller by stating that the shipment is nonconforming and is oered only as an accommodation to the buyer keeps the shipment of from operating as an acceptance. 2. The mirror image rule is rejected in subsection (3), but any responsive record must still be reasonably understood as an acceptance and not as a proposal for a dierent transaction. See Ocial Comment 2 to Section 2-207. 3. Subsection (3) makes it clear that an expression of acceptance can operate as an acceptance (i.e., create a contract) even though it contains terms that are not identical to those in the oer. This rule applies, however, only to an expression of acceptance that is not only seasonable but also denite. A purported expression of acceptance containing additional or dierent terms would not be a denite acceptance when the oeree's expression clearly communicates to the oeror the oeree's unwillingness to do business unless the oeror assents to those additional or dierent terms. This is not a denite acceptance since the offeree's expression makes it clear that the oeree is not accepting anything; but rather that the oeree is indicating a willingness to do business only on the oeree's terms and that the oeree is awaiting the oeror's assent to those terms. (This result is consistent with the nal clause of former Section 2-207(1).) In a situation in which the oer clearly indicates that the oeror is unwilling to do business on any terms other than those contained in the oer, and the oeree responds with an expression of acceptance that contains additional or dierent terms, a court could also conclude that the oeree's response does not constitute a denite expression of acceptance. Denitional Cross References: Buyer. Section 2-103. Conforming. Section 2-106. Contract. Section 1-201. Goods. Section 2-103. Noties. Section 1-202. Reasonable time. Section 1-205.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.
73

 2-207

Uniform Commercial Code

Art. 2

2-207. Terms of Contract; Eect of Conrmation. Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an oer and acceptance, or (iii) a contract formed in any manner is conrmed by a record that contains terms additional to or dierent from those in the contract being conrmed, the terms of the contract are: (a) terms that appear in the records of both parties; (b) terms, whether in a record or not, to which both parties agree; and (c) terms supplied or incorporated under any provision of this Act. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. This section applies to all contracts for the sale of goods, and it is not limited only to those contracts where there has been a battle of the forms. 2. This section applies only when a contract has been created under another section of this Article. The purpose of this section is solely to determine the terms of the contract. When forms are exchanged before or during performance, the result from the application of this section diers from the prior Section 2-207 of this Article and the common law in that this section gives no preference to either the rst or the last form; the same test is applied to the terms in each. Terms in a record that insist on all of that record's terms and no other terms as a condition of contract formation have no eect on the operation of this section. When one party insists in that party's record that its own terms are a condition to contract formation, if that party does not subsequently perform or otherwise acknowledge the existence of a contract, if the other party does not agree to those terms, the record's insistence on its own terms will keep a contract from being formed under Sections 2-204 or 2-206, and this section is not applicable. As with original Section 2-207, the courts will have to distinguish between conrmations that are addressed in this section and modications that are addressed in Section 2-209. 3. Terms of a contract may be found not only in the consistent terms of records of the parties but also from a straightforward acceptance of an oer, and an expression of acceptance accompanied by one or more additional terms might demonstrate the oeree's agreement to the terms of the oer. If, for example, a buyer sent a purchase order with technical specications and the seller responded with a record stating Thank you for your order. We will ll it promptly. Note that we do not make deliveries after 3:00 p.m. on Fridays. it might be reasonable to conclude that both parties agreed to the technical specications. Similarly, an oeree's performance is sometimes the acceptance of an oer. If, for example, a buyer sends a purchase order, there is no oral or other agreement, and the seller delivers the goods in response to the purchase order-but the seller does not send the seller's own acknowledgment or acceptance-the seller should normally be treated as having agreed to the terms of the purchase order. If, however, parties exchange records with conicting or inconsistent terms, but conduct by both parties recognizes the existence of a contract, subsection (a) provides that the terms of the contract are terms that appear in the records of both parties. But even when both parties send records, there could be nonverbal agreement to additional or dierent terms that appear in only one of two records. If, for example, both parties' forms called for the sale of 700,000 nuts and bolts but the purchase order or another record of the buyer conditioned the sale on a test of a sample to see if the nuts and bolts would perform properly, the seller's sending a small sample to the buyer might be construed to be an agreement to the buyer's condition. It might also be found that the contract called for arbitration when both forms provided for arbitration but each contained immaterially different arbitration provisions. In a rare case the terms in the records of both parties might not become part of the contract. This could be the case, for example, when the parties contemplated an agreement to a single negotiated record, and each party submitted to the other party similar proposals 74

Art. 2

Sales

2-209

and then commenced performance, but the parties never reached a negotiated agreement because of the dierences over crucial terms. There is a variety of verbal and nonverbal behavior that may be suggest agreement to another's record. This section leaves the interpretation of that behavior to the discretion of the courts. 4. An agreement may include terms derived from a course of performance, a course of dealing, and usage of trade. See Sections 1-201(a)(2) and 1-303. If the members of a trade, or if the contracting parties, expect to be bound by a term that appears in the record of only one of the contracting parties, that term is part of the agreement. However, repeated use of a particular term or repeated failure to object to a term on another's record is not normally sucient in itself to establish a course of performance, a course of dealing or a trade usage. 5. The section omits any specic treatment of terms attached to the goods, or in or on the container in which the goods are delivered. This article takes no position on whether a court should follow the reasoning in Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991) and Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000) (original 2-207 governs) or the contrary reasoning in Hill v. Gateway 2000, 105 F. 3d 1147(7th Cir. 1997) (original 2-207 inapplicable). Cross References: Point 1: Sections 2-204 and 2-206. Point 2: Sections 2-204, 2-206, and 2-209. Point 3: Sections 1-303, 2-204, 2-206, and 2-209. Point 4: Sections 1-201, and 1-303. Denitional Cross References: Acceptance. Section 2-206. Agree. Section 1-201. Contract. Section 1-201. Oer. Section 2-204. Parties. Section 1-201. Records. Section 2-103. Terms. Section 1-201.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-208. Reserved.
Legislative Note: This section should not be repealed if the jurisdiction has not adopted revised Article 1.

2-209. Modication; Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) An agreement in a signed record which excludes modication or rescission except by a signed record may not be otherwise modied or rescinded, but except as between merchants such a requirement in a form supplied by the merchant must be separately signed by the other party. (3) The requirements of Section 2-201 must be satised if the contract as modied is within its provisions. (4) Although an attempt at modication or rescission does not satisfy the requirements of subsection (2) or (3), it may operate as a waiver. (5) A party that has made a waiver aecting an executory portion of a contract may retract the waiver by reasonable notication 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.
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 2-209

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Art. 2

As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Subsection (1)Compare Section 1, Uniform Written Obligations Act; Subsections (2) to (5)none. Purposes of Changes and New Matter: 1. This section seeks to protect and make eective all necessary and desirable modications of sales contracts without regard to the technicalities which at present hamper such adjustments. 2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding. However, modications made thereunder must meet the test of good faith imposed by this Act. The eective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a modication without legitimate commercial reason is ineective as a violation of the duty of good faith. Nor can a mere technical consideration support a modication made in bad faith. The test of good faith between merchants or as against merchants includes observance of reasonable commercial standards of fair dealing in the trade (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modication. But such matters as a market shift which makes performance come to involve a loss may provide such a reason even though there is no such unforeseen diculty as would make out a legal excuse from performance under Sections 2-615 and 2-616. 3. Subsections (2) and (3) are intended to protect against false allegations of oral modications. Modication or rescission includes abandonment or other change by mutual consent, contrary to the decision in Green v. Doniger, 300 N.Y. 238, 90 N.E.2d 56 (1949); it does not include unilateral termination or cancellation as dened in Section 2-106. The Statute of Frauds provisions of this Article are expressly applied to modications by subsection (3). Under those provisions the delivery and acceptance test is limited to the goods which have been accepted, that is, to the past. Modication for the future cannot therefore be conjured up by oral testimony if the price involved is $500.00 or more since such modication must be shown at least by an authenticated memo. And since a memo is limited in its eect to the quantity of goods set forth in it there is safeguard against oral evidence. Subsection (2) permits the parties in eect to make their own Statute of Frauds as regards any future modication of the contract by giving eect to a clause in a signed agreement which expressly requires any modication to be by signed writing. But note that if a consumer is to be held to such a clause on a form supplied by a merchant it must be separately signed. 4. Subsection (4) is intended, despite the provisions of subsections (2) and (3), to prevent contractual provisions excluding modication except by a signed writing from limiting in other respects the legal eect of the parties' actual later conduct. The eect of such conduct as a waiver is further regulated in subsection (5). Cross References: Point 1: Section 1-203. Point 2: Sections 1-201, 1-203, 2-615 and 2-616. Point 3: Sections 2-106, 2-201 and 2-202. Point 4: Sections 2-202. Denitional Cross References: Agreement. Section 1-201. Between merchants. Section 2-104. Contract. Section 1-201. Merchant. Section 2-104. Notication. Section 1-202. Signed. Section 1-201. Term. Section 1-201. 76

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2-210. Delegation of Performance; Assignment of Rights. (1) If the seller or buyer assigns rights under a contract, the following rules apply: (a) Subject to paragraph (b) and except as otherwise provided in Section 9-406 or as otherwise agreed, all rights of the seller or the buyer may be assigned unless the assignment would materially change the duty of the other party, increase materially the burden or risk imposed on that party by the contract, or impair materially that party's chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of its entire obligation may be assigned despite an agreement otherwise. (b) The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not an assignment that materially changes the duty of or materially increases the burden or risk imposed on the buyer or materially impairs the buyer's chance of obtaining return performance under paragraph (a) unless, and only to the extent that, enforcement of the security interest results in a delegation of a material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain eective. However, the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer, and a court may grant other appropriate relief, including cancellation of the contract or an injunction against enforcement of the security interest or consummation of the enforcement. (2) If the seller or buyer delegates performance of its duties under a contract, the following rules apply: (a) A party may perform its duties through a delegate unless otherwise agreed or unless the other party has a substantial interest in having the original promisor perform or control the acts required by the contract. Delegation of performance does not relieve the delegating party of any duty to perform or liability for breach. (b) Acceptance of a delegation of duties by the assignee constitutes a promise to perform those duties. The promise is enforceable by either the assignor or the other party to the original contract. (c) The other party may treat any delegation of duties as creating reasonable grounds for insecurity and may without prejudice to its rights against the assignor demand assurances from the assignee under Section 2-609. (d) A contractual term prohibiting the delegation of duties otherwise delegable under paragraph (a) is enforceable, and an attempted delegation is not eective. (3) An assignment of the contract or of all my rights under the contract or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances, as in an assignment for security, indicate the contrary, it is also a delegation of performance of the duties of the assignor. (4) Unless the circumstances indicate the contrary, a prohibition of assignment of the contract is to be construed as barring only the delegation to the assignee of the assignor's performance.
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As amended in 1999 and 2003.

See Appendix I contained within revised Article 9 for material relating to changes made in text in 1999. See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. This section conforms with revised Article 9. 2. The principles in this section are consistent with the recognition that both the assignment of rights and the delegation of duties are generally normal and permissible incidents of a contract for the sale of goods. 3. Subsection (1)(a) sets out the eect of an assignment by either the seller or the buyer of the rights but not the duties arising under the contract for sale. These rights may effectively be assigned to a third party unless the assignment materially increases the duty, burden or risk, or materially impairs expected performance to the other party, or, subject to subsection (1)(b) and Section 9-406, unless the parties have agreed otherwise. Even then, a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of the assignor's entire obligation can be assigned despite contrary agreement. An assignment, however, is not eective if it would materially change the duty of the other party, increase materially the burden or risk imposed on that party by the contract, or increase materially that party's likelihood of obtaining return performance. Subsection (1)(a). The cases where these limitations apply are rare. For example, a seller that has fully performed the contract should always be able to assign the right to payment. This is the basis for most accounts receivable nancing. If, however, the contract is still executory, the assignment of the right to payment to a third person might decrease the seller's incentive to perform and, thus, increase the buyer's risk. Similarly, the buyer's assignment of the right to receive a xed quantity of goods should not usually be objectionable but if the parties have a requirements contract, the assignment could increase materially the seller's risk. Subsection (1)(a) is subject to Section 9-406 of revised Article 9. That provision makes rights to payment for goods sold (accounts), whether or not earned, freely alienable notwithstanding a contrary agreement or rule of law. 4. Subsection (1)(a) is subject to subsection (1)(b), which conforms with revised Article 9. If an assignment of rights creates a security interest in the seller's interest under the contract, including a right to future payments, subsection (1)(b) states that there is no material impairment under subsection (1)(a) unless the creation, attachment, perfection and enforcement results in a delegation of material performance of the seller. This is unlikely in most assignments, and the buyer's basic protection is to demand adequate assurance of due performance from the seller if the assignment creates reasonable grounds for insecurity. 5. Occasionally a seller or buyer will delegate duties under the contract without also assigning rights. For example, a dealer might delegate its duty to procure and deliver a xed quantity of goods to the buyer to a third party. In these cases, subsection (2) sets the limitations on that power. A contract term prohibiting the delegation of duties renders an attempted delegation ineective. Subsection (2)(d). If the third person accepts the delegation, an enforceable promise is made both to the delegator and the person entitled under the contract to perform those duties. Subsection (2)(b). In short, as to the person entitled under the contract a third party beneciary contract is created. However, the delegator's duty to perform under the contract is not discharged unless the person entitled to performance agrees to substitute the delegatee for the delegator (a novation). See subsection (2)(a), last sentence. The person entitled under the contract may treat any delegation of duties as reasonable grounds for insecurity and may demand adequate assurance of due performance for the assignee-delegatee. Subsection (2)(c). In any event, a delegation of duties is not eective if the person entitled under the contract has a substantial interest in having the original promisor perform or control the performance required by the contract. Subsection (2)(a). 6. In the case of ambiguity, subsection (3) provides a rule of interpretation to determine when an assignment of rights should also be considered a delegation of duties. The preference is to construe the language as both a delegation of duties as well as an assignment of 78

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rights. 7. This section is not intended as a complete statement of the law of delegation and assignment but is limited to clarifying a few points doubtful under the case law. In particular, neither this section nor this Article touches directly on the questions as the need or effect of notice of the assignment, the rights of successive assignees, or any question of the form of an assignment, either as between the parties or as against any third parties. Some of these questions are dealt with in Article 9. Cross References: Point 1: Article 9. Point 3: Articles 5 and 9. Point 4: Article 9. Point 5: Sections 2-318, 2-609 Point 7: Article 9. Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Contract. Section 1-201. Party. Section 1-201. Rights. Section 1-201. Seller. Section 2-103. Term. Section 1-201.

2-211. Legal Recognition of Electronic Contracts, Records, and Signatures. (1) A record or signature may not be denied legal eect or enforceability solely because it is in electronic form. (2) A contract may not be denied legal eect or enforceability solely because an electronic record was used in its formation. (3) This article does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed by electronic means or in electronic form. (4) A contract formed by the interaction of an individual and an electronic agent under Section 2-204(4)(b) does not include terms provided by the individual if the individual had reason to know that the agent could not react to the terms as provided. As added in 2003. Ocial Comment
1. Subsections (1) and (2) are derived from Section 7(a) and (b) of the Uniform Electronic Transactions Act (UETA), and subsection (3) is derived from Section 5(b) of UETA. Subsection (4) is based on Section 206(c) of the Uniform Computer Information Transactions Act (UCITA). Each subsection conforms to the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001 et seq.). 2. This section sets forth the premise that the medium in which a record, signature, or contract is created, presented or retained does not aect its legal signicance. Subsections (1) and (2) are designed to eliminate the single element of medium as a reason to deny effect or enforceability to a record, signature, or contract. The fact that the information is set forth in an electronic, as opposed to paper, medium is irrelevant. 3. A contract may have legal eect and yet be unenforceable. See Restatement 2d Contracts Section 8. To the extent that a contract in electronic form may have legal eect but be unenforceable, because it is in electronic form, subsection (2) validates its legality. Likewise, to the extent that a record or signature in electronic form may have legal eect but be unenforceable, because it is in electronic form, subsection (1) validates the legality of the record or signature. For example, though a contract may be unenforceable, the parties' electronic records may 79

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have collateral eects, as in the case of a buyer that insures goods purchased under a contract that is unenforceable under Section 2-201. The insurance company may not deny a claim on the ground that the buyer is not the owner, though the buyer may have no direct remedy against the seller for failure to deliver. See Restatement 2d Contracts, Section 8, Illustration 4. Whether an electronic record or signature is valid under other law is not addressed by this Act. 4. While subsection (2) validates the legality of an electronic contract, it does not in any way diminish the requirements for the formation of contracts under Sections 2-204 and 2-206. Cross References: Point 3: Section 2-201 Point 4: Section 2-204 and 2-206. Denitional Cross References: Contract. Section 1-201. Electronic. Section 2-103. Electronic agent. Section 2-103. Electronic record. Section 2-103. Record. Section 2-103. Signature. Section 2-103.

2-212. Attribution. An electronic record or electronic signature is attributable to a person if it was the act of the person or the person's electronic agent or the person is otherwise legally bound by the act. As added in 2003. Ocial Comment
1. This section is based on Section 9 of the Uniform Electronic Transactions Act (UETA). 2. As long as an electronic record is created by a person or the electronic signature results from a person's action it is attributed to that person. The legal eect of the attribution is derived from other provisions of this Act or from other law. This section simply assures that these rules will be applied in the electronic environment. A person's actions include actions taken by a human agent of the person as well as actions taken by an electronic agent, of the person. Although this section may appear to state the obvious, it assures that the record or signature is not ascribed to a machine, as opposed to the person operating or programming the machine. 3. In each of the following cases, both the electronic record and electronic signature would be attributable to a person under this section: A. The person types his or her name as part of an e-mail purchase order; B. The person's employee, pursuant to authority, types the person's name as part of an e-mail purchase order; C. The person's computer, programmed to order goods upon receipt of inventory information within particular parameters, issues a purchase order which includes the person's name, or other identifying information, as part of the order. In each of these cases, law other than this Act would ascribe both the signature and the action to the person if done in a paper medium. This section provides that the same result will occur when an electronic medium is used. 4. Nothing in this section aects the use of an electronic signature as a means of attributing a record to a person. Once an electronic signature is attributed to the person, the electronic record with which it is associated would also be attributed to the person unless the person established fraud, forgery, or other invalidating cause. However, an electronic signature is not the only method for attribution of a record. 5. In the context of attribution of records, normally the content of the record will provide the necessary information for a nding of attribution. It is also possible that an established course of dealing between parties may result in a nding of attribution. Just as with a paper record, evidence of forgery or counterfeiting may be introduced to rebut the evidence of attribution. The use of facsimile transmissions provides a number of examples of attribu80

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tion using information other than a signature. A facsimile may be attributed to a person because of the information printed across the top of the page that indicates the machine from which it was sent. Similarly, the transmission may contain a letterhead which identies the sender. Some cases have held that the letterhead actually constituted a signature because it was a symbol adopted by the sender with intent to sign the record. See Cox Engineering v. Funston Mach. & Supply, 749 S.W.2d 508, 511 (Tex. App.1988) (plainti's letterhead, including address, appearing at top of invoice, provides authentication that identies the party to be charged and thus satises the statute of frauds' signature requirement); Owen v. Kroger Co., 936 F. Supp. 579 (S.D. Ind. 1996) (determining that a letterhead satises the signature requirement of the UCC). However, the signature determination resulted from the necessary nding of intention in that case. Other cases have found letterheads not to be signatures because the requisite intention was not present. See First National Bank in Alamosa v. Ford Motor Credit Co., 748 F. Supp 1464 (D. Colo, 1990) (determining that a pre-printed name on a draft was not a signature for the purpose of accepting a draft). The critical point is that with or without a signature, information within the electronic record may well suce to provide the facts resulting in attribution of an electronic record to a particular party. 6. Certain information may be present in an electronic environment that does not appear to attribute but which clearly links a person to a particular record. Numerical codes, personal identication numbers, public and private key combinations, all serve to establish the party to which an electronic record should be attributed. Security procedures will be another piece of evidence available to establish attribution. 7. Once it is established that a record or signature is attributable to a particular person, the legal signicance of the record or signature is determined by the context and surrounding circumstances in which the recorder signature is created, including the parties' agreement, if any. This will primarily be governed by other sections of this article. See, e.g., Sections 2-201, 2-202, 2-204, 2-206, 2-207, and 2-209. Cross References: Point 3: Section 2-201. Point 5: Section 1-303. Point 7: Sections 2-201, 2-202, 2-204, 2-206, and 2-209. Denitional Cross References: Electronic. Section 2-103. Electronic agent. Section 2-103. Electronic record. Section 2-103. Record. Section 2-103. Signature. Section 2-103.

2-213. Electronic Communication. (1) If the receipt of an electronic communication has a legal eect, it has that eect even if no individual is aware of its receipt. (2) Receipt of an electronic acknowledgment of an electronic communication establishes that the communication was received but, in itself, does not establish that the content sent corresponds to the content received. As added in 2003. Ocial Comment
1. This section is adapted from Sections 15(e) and (f) of the Uniform Electronic Transactions Act (UETA). 2. This section deals with electronic communications generally, and it is not limited to electronic records which must be retrievable in perceivable form. The section does not resolve the questions of when or where electronic communications are determined to be sent or received, nor does it indicate that a communication has any particular substantive legal eect. 3. Under subsection (1), receipt is not dependent on a person having notice of the communication. An analogy in a paper based transaction is the recipient that does not read a notice received in the mail. Although receipt as dened in Article 1 applies by its terms 81

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only to notices, the same concept would apply equally to a communication that is not a notice. 4. Subsection (2) provides legal certainty about the eect of an electronic acknowledgment. This subsection only addresses the fact of the receipt, and it does not set forth the legal signicance of the quality of the content, nor whether the electronic communication was read or opened. 5. This section does not address the question of whether the exchange of electronic communications constitutes the formation of a contract. Those questions are addressed by Sections 2-204 and 2-206. Cross References: Point 5: Section 2-204 and 2-206. Denitional Cross References: Electronic. Section 2-103. Sent. Section 1-201.

PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

2-301. General Obligations of Parties. The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract. Ocial Comment
Prior Uniform Statutory Provision: Sections 11 and 41, Uniform Sales Act. Changes: Rewritten. Purposes of Changes: This section uses the term obligation in contrast to the term duty in order to provide for the condition aspects of delivery and payment insofar as they are not modied by other sections of this Article such as those on cure of tender. It thus replaces not only the general provisions of the Uniform Sales Act on the parties' duties, but also the general provisions of that Act on the eect of conditions. In order to determine what is in accordance with the contract under this Article usage of trade, course of dealing and performance, and the general background of circumstances must be given due consideration in conjunction with the lay meaning of the words used to dene the scope of the conditions and duties. Cross References: Section 1-106, 1-205, 2-209, 2-508 and 2-612. Denitional Cross References: Buyer. Section 2-103. Contract. Section 1-201. Party. Section 1-201. Seller. Section 2-103.

2-302. Unconscionable Contract or Term. (1) If the court as a matter of law nds the contract or any term of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result. (2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable, the parties shall be aorded a reasonable opportunity to present evidence as to its commercial setting, purpose, and eect to aid the court in making the determination. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.
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Ocial Comment
1. This section makes it possible for a court to police explicitly against the contracts or terms which the court nds to be unconscionable instead of attempting to achieve the result by an adverse construction of language, by manipulation of the rules of oer and acceptance, or by a determination that the term is contrary to public policy or to the dominant purpose of the contract. The section allows a court to pass directly on the unconscionability of the contract or a particular term of the contract and to make a conclusion of law as to its unconscionability. Courts have been particularly vigilant when the contract at issue is set forth in a standard form. The principle is one of prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power. The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the term or contract involved is so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. 2. Under this section, the court, in its discretion, may refuse to enforce the contract as a whole if the whole contract is determined to be unconscionable, or the court may strike any single term or group of terms which are unconscionable or which are contrary to the essential purpose of the agreement or to material terms to which the parties have expressly agreed, or the court may simply limits the unconscionable results. 3. This section is addressed to the court, and the decision is to be made by the court. The evidence referred to in subsection (2) is for the court's consideration, not the trier of fact. Only the agreement which results from the court's action on these matters is to be submitted to the general trier of the facts. Denitional Cross Reference: Contract. Section 1-201. Term. Section 1-201.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-303. Allocation or Division of Risks. Where this Article allocates a risk or a burden as between the parties unless otherwise agreed, the agreement may not only shift the allocation but may also divide the risk or burden. Ocial Comment
Prior Uniform Statutory Provision: None. Purposes: 1. This section is intended to make it clear that the parties may modify or allocate unless otherwise agreed risks or burdens imposed by this Article as they desire, always subject, of course, to the provisions on unconscionability. Compare Section 1-102(4). 2. The risk or burden may be divided by the express terms of the agreement or by the attending circumstances, since under the denition of agreement in this Act the circumstances surrounding the transaction as well as the express language used by the parties enter into the meaning and substance of the agreement. Cross References: Point 1: Sections 1-102, 2-302. Point 2: Section 1-201. Denitional Cross References: Party. Section 1-201. Agreement. Section 1-201.

2-304. Price Payable in Money, Goods, Realty, or Otherwise. (1) The price may be made payable in money or otherwise. If it is payable in whole or in part in goods, each party is a seller of the goods that the party is to transfer.
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(2) Even if all or part of the price is payable in an interest in real property the transfer of the goods, and the seller's obligations with reference to them are subject to this Article, but not the transfer of the interest in real property or the transferor's obligations in connection therewith. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Subsections (2) and (3) of Section 9, Uniform Sales Act. Changes: Rewritten. Purposes of Changes: 1. This section corrects the phrasing of the Uniform Sales Act so as to avoid misconstruction and produce greater accuracy in commercial result. While it continues the essential intent and purpose of the Uniform Sales Act it rejects any purely verbalistic construction in disregard of the underlying reason of the provisions. 2. Under subsection (1) the provisions of this Article are applicable to transactions where the price of goods is payable in something other than money. This does not mean, however, that this whole Article applies automatically and in its entirety simply because an agreed transfer of title to goods is not a gift. The basic purposes and reasons of the Article must always be considered in determining the applicability of any of its provisions. 3. Subsection (2) lays down the general principle that when goods are to be exchanged for realty, the provisions of this Article apply only to those aspects of the transaction which concern the transfer of title to goods but do not aect the transfer of the realty since the detailed regulation of various particular contracts which fall outside the scope of this Article is left to the courts and other legislation. However, the complexities of these situations may be such that each must be analyzed in the light of the underlying reasons in order to determine the applicable principles. Local statutes dealing with realty are not to be lightly disregarded or altered by language of this Article. In contrast, this Article declares denite policies in regard to certain matters legitimately within its scope though concerned with real property situations, and in those instances the provisions of this Article control. Cross References: Point 1: Section 1-102. Point 3: Sections 1-102, 1-103, 1-104 and 2-107. Denitional Cross References: Goods. Section 2-103. Money. Section 1-201. Party. Section 1-201. Seller. Section 2-103.

2-305. Open Price Term. (1) The parties if they so intend may conclude a contract for sale even if the price is not settled. In such a case the price is a reasonable price at the time for delivery if: (a) nothing is said as to price; (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be xed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be xed by the seller or by the buyer means a price to be xed in good faith. (3) If a price left to be xed otherwise than by agreement of the parties fails to be xed through fault of one party, the other may at the party's option treat the contract as canceled or the party may x a reasonable price.
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(4) If, however, the parties intend not to be bound unless the price is xed or agreed and it is not xed or agreed, there is no contract. In such a case the buyer must return any goods already received or if unable to do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Sections 9 and 10, Uniform Sales Act. Changes: Completely rewritten. Purposes of Changes: 1. This section applies when the price term is left open on the making of an agreement which is nevertheless intended by the parties to be a binding agreement. This Article rejects in these instances the formula that an agreement to agree is unenforceable if the case falls within subsection (1) of this section, and rejects also defeating such agreements on the ground of indeniteness. Instead this Article recognizes the dominant intention of the parties to have the deal continue to be binding upon both. As to future performance, since this Article recognizes remedies such as cover (Section 2-712), resale (Section 2-706) and specic performance (Section 2-716) which go beyond any mere arithmetic as between contract price and market price, there is usually a reasonably certain basis for granting an appropriate remedy for breach so that the contract need not fail for indeniteness. 2. Under some circumstances the postponement of agreement on price will mean that no deal has really been concluded, and this is made express in the preamble of subsection (1) (The parties if they so intend) and in subsection (4). Whether or not this is so is, in most cases, a question to be determined by the trier of fact. 3. Subsection (2), dealing with the situation where the price is to be xed by one party rejects the uncommercial idea that an agreement that the seller may x the price means that he may x any price he may wish by the express qualication that the price so xed must be xed in good faith. Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. (Section 2-103). But in the normal case a posted price or a future seller's or buyer's given price, price in eect, market price, or the like satises the good faith requirement. 4. The section recognizes that there may be cases in which a particular person's judgment is not chosen merely as a barometer or index of a fair price but is an essential condition to the parties' intent to make any contract at all. For example, the case where a known and trusted expert is to value a particular painting for which there is no market standard diers sharply from the situation where a named expert is to determine the grade of cotton, and the dierence would support a nding that in the one the parties did not intend to make a binding agreement if that expert were unavailable whereas in the other they did so intend. Other circumstances would of course aect the validity of such a nding. 5. Under subsection (3), wrongful interference by one party with any agreed machinery for price xing in the contract may be treated by the other party as a repudiation justifying cancellation, or merely as a failure to take cooperative action thus shifting to the aggrieved party the reasonable leeway in xing the price. 6. Throughout the entire section, the purpose is to give eect to the agreement which has been made. That eect, however, is always conditioned by the requirement of good faith action which is made an inherent part of all contracts within this Act. (Section 1-203). Cross References: Point 1: Sections 2-204(3), 2-706, 2-712 and 2-716. Point 3: Section 2-103. Point 5: Sections 2-311 and 2-610. Point 6: Section 1-203. Denitional Cross References: Agreement. Section 1-201. Burden of establishing. Section 1-201. Buyer. Section 2-103. 85

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Cancellation. Section 2-106. Contract. Section 1-201. Contract for sale. Section 2-106. Fault. Section 1-201. Goods. Section 2-103. Party. Section 1-201. Receipt of goods. Section 2-103. Seller. Section 2-103. Term. Section 1-201.

2-306. Output, Requirements and Exclusive Dealings. (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best eorts to supply the goods and by the buyer to use best eorts to promote their sale. Ocial Comment
Prior Uniform Statutory Provision: None. Purposes: 1. Subsection (1) of this section, in regard to output and requirements, applies to this specic problem the general approach of this Act which requires the reading of commercial background and intent into the language of any agreement and demands good faith in the performance of that agreement. It applies to such contracts of nonproducing establishments such as dealers or distributors as well as to manufacturing concerns. 2. Under this Article, a contract for output or requirements is not too indenite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable gure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A shut-down by a requirements buyer for lack of orders might be permissible when a shut-down merely to curtail losses would not. The essential test is whether the party is acting in good faith. Similarly, a sudden expansion of the plant by which requirements are to be measured would not be included within the scope of the contract as made but normal expansion undertaken in good faith would be within the scope of this section. One of the factors in an expansion situation would be whether the market price had risen greatly in a case in which the requirements contract contained a xed price. Reasonable variation of an extreme sort is exemplied in Southwest Natural Gas Co. v. Oklahoma Portland Cement Co., 102 F.2d 630 (C.C.A.10, 1939). This Article takes no position as to whether a requirements contract is a provable claim in bankruptcy. 3. If an estimate of output or requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur. 4. When an enterprise is sold, the question may arise whether the buyer is bound by an existing output or requirements contract. That question is outside the scope of this Article, and is to be determined on other principles of law. Assuming that the contract continues, 86

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the output or requirements in the hands of the new owner continue to be measured by the actual good faith output or requirements under the normal operation of the enterprise prior to sale. The sale itself is not grounds for sudden expansion or decrease. 5. Subsection (2), on exclusive dealing, makes explicit the commercial rule embodied in this Act under which the parties to such contracts are held to have impliedly, even when not expressly, bound themselves to use reasonable diligence as well as good faith in their performance of the contract. Under such contracts the exclusive agent is required, although no express commitment has been made, to use reasonable eort and due diligence in the expansion of the market or the promotion of the product, as the case may be. The principal is expected under such a contract to refrain from supplying any other dealer or agent within the exclusive territory. An exclusive dealing agreement brings into play all of the good faith aspects of the output and requirement problems of subsection (1). It also raises questions of insecurity and right to adequate assurance under this Article. Cross References: Point 4: Section 2-210. Point 5: Sections 1-203 and 2-609. Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Contract for sale. Section 2-106. Good faith. Section 2-103. Goods. Section 2-103. Party. Section 1-201. Term. Section 1-201. Seller. Section 2-103.

2-307. Delivery in Single Lot or Several Lots. Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. Ocial Comment
Prior Uniform Statutory Provision: Section 45(1), Uniform Sales Act. Changes: Rewritten and expanded. Purposes of Changes: 1. This section applies where the parties have not specically agreed whether delivery and payment are to be by lots and generally continues the essential intent of original Act, Section 45(1) by assuming that the parties intended delivery to be in a single lot. 2. Where the actual agreement or the circumstances do not indicate otherwise, delivery in lots is not permitted under this section and the buyer is properly entitled to reject for a deciency in the tender, subject to any privilege in the seller to cure the tender. 3. The but clause of this section goes to the case in which it is not commercially feasible to deliver or to receive the goods in a single lot as for example, where a contract calls for the shipment of ten carloads of coal and only three cars are available at a given time. Similarly, in a contract involving brick necessary to build a building the buyer's storage space may be limited so that it would be impossible to receive the entire amount of brick at once, or it may be necessary to assemble the goods as in the case of cattle on the range, or to mine them. In such cases, a partial delivery is not subject to rejection for the defect in quantity alone, if the circumstances do not indicate a repudiation or default by the seller as to the expected balance or do not give the buyer ground for suspending his performance because of insecurity under the provisions of Section 2-609. However, in such cases the undelivered balance of goods under the contract must be forthcoming within a reasonable time and in a reasonable manner according to the policy of Section 2-503 on manner of tender of delivery. This is reinforced by the express provisions of Section 2-608 that if a lot has been accepted on 87

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the reasonable assumption that its nonconformity will be cured, the acceptance may be revoked if the cure does not seasonably occur. The section rejects the rule of Kelly Construction Co. v. Hackensack Brick Co., 91 N.J.L. 585, 103 A. 417, 2 A.L.R. 685 (1918) and approves the result in Lynn M. Ranger, Inc. v. Gildersleeve, 106 Conn. 372, 138 A. 142 (1927) in which a contract was made for six carloads of coal then rolling from the mines and consigned to the seller but the seller agreed to divert the carloads to the buyer as soon as the car numbers became known to him. He arranged a diversion of two cars and then notied the buyer who then repudiated the contract. The seller was held to be entitled to his full remedy for the two cars diverted because simultaneous delivery of all of the cars was not contemplated by either party. 4. Where the circumstances indicate that a party has a right to delivery in lots, the price may be demanded for each lot if it is apportionable. Cross References: Point 1: Section 1-201. Point 2: Sections 2-508 and 2-601. Point 3: Sections 2-503, 2-608 and 2-609. Denitional Cross References: Contract for sale. Section 2-106. Goods. Section 2-103. Lot. Section 2-105. Party. Section 1-201. Rights. Section 1-201.

2-308. Absence of Specied Place for Delivery. Unless otherwise agreed: (a) the place for delivery of goods is the seller's place of business or if none, the seller's residence; but (b) in a contract for sale of identied goods that to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and (c) documents of title may be delivered through customary banking channels. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Paragraphs (a) and (b)Section 43(1), Uniform Sales Act; Paragraph (c)none. Changes: Slight modication in language. Purposes of Changes and New Matter: 1. Paragraphs (a) and (b) provide for those noncommercial sales and for those occasional commercial sales where no place or means of delivery has been agreed upon by the parties. Where delivery by carrier is required or authorized by the agreement, the seller's duties as to delivery of the goods are governed not by this section but by Section 2-504. 2. Under paragraph (b) when the identied goods contracted for are known to both parties to be in some location other than the seller's place of business or residence, the parties are presumed to have intended that place to be the place of delivery. This paragraph also applies (unless, as would be normal, the circumstances show that delivery by way of documents is intended) to a bulk of goods in the possession of a bailee. In such a case, however, the seller has the additional obligation to procure the acknowledgment by the bailee of the buyer's right to possession. 3. Where customary banking channels call only for due notication by the banker that the documents are available, leaving the buyer himself to see to the physical receipt of the goods, tender at the buyer's address is not required under paragraph (c). But that paragraph merely eliminates the possibility of a default by the seller if customary banking channels 88

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have been properly used in giving notice to the buyer. Where the bank has purchased a draft accompanied by or associated with documents or has undertaken its collection on behalf of the seller, Part 5 of Article 4 spells out its duties and relations to its customer. Where the documents move forward under a letter of credit the Article on Letters of Credit spells out the duties and relations between the bank, the seller and the buyer. Delivery in relationship to either tangible or electronic documents of title is dened in Article 1, Section 1-201. 4. The rules of this section apply only unless otherwise agreed. The surrounding circumstances, usage of trade, course of dealing and course of performance, as well as the express language of the parties, may constitute an otherwise agreement. Cross References: Point 1: Sections 2-504 and 2-505. Point 2: Section 2-503. Point 3: Section 2-512, Articles 4, Part 5, and 5. Denitional Cross References: Contract for sale. Section 2-106. Delivery. Section 2-103. Document of title. Section 1-201. Goods. Section 2-103. Party. Section 1-201. Seller. Section 2-103.

As amended in 2003.
See Appendix I contained within revised Article 7 for material relating to changes made in Ocial Comment in 2003.

2-309. Absence of Specic Time Provisions; Notice of Termination. (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time. (2) If the contract provides for successive performances but is indenite in duration, it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notication be received by the other party and an agreement dispensing with notication is invalid if its operation would be unconscionable. A term specifying standards for the nature and timing of notice is enforceable if the standards are not manifestly unreasonable. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Subsection (1)see Sections 43(2), 45(2), 47(1) and 48, Uniform Sales Act, for policy continued under this Article; Subsection (2)none; Subsection (3)none. Changes: Completely dierent in scope. Purposes of Changes and New Matter: 1. Subsection (1) requires that all actions taken under a sales contract must be taken within a reasonable time where no time has been agreed upon. The reasonable time under this provision turns on the criteria as to reasonable time and on good faith and commercial standards set forth in Sections 1-203, 1-204 and 2-103. It thus depends upon what constitutes acceptable commercial conduct in view of the nature, purpose and circumstances of the action to be taken. Agreement as to a denite time, however, may be found in a term implied from the contractual circumstances, usage of trade or course of dealing or 89

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performance as well as in an express term. Such cases fall outside of this subsection since in them the time for action is agreed by usage. 2. The time for payment, where not agreed upon, is related to the time for delivery; the particular problems which arise in connection with determining the appropriate time of payment and the time for any inspection before payment which is both allowed by law and demanded by the buyer are covered in Section 2-513. 3. The facts in regard to shipment and delivery dier so widely as to make detailed provision for them in the text of this Article impracticable. The applicable principles, however, make it clear that surprise is to be avoided, good faith judgment is to be protected, and notice or negotiation to reduce the uncertainty to certainty is to be favored. 4. When the time for delivery is left open, unreasonably early oers of or demands for delivery are intended to be read under this Article as expressions of desire or intention, requesting the assent or acquiescence of the other party, not as nal positions which may amount without more to breach or to create breach by the other side. See Sections 2-207 and 2-609. 5. The obligation of good faith under this Act requires reasonable notication before a contract may be treated as breached because a reasonable time for delivery or demand has expired. This operates both in the case of a contract originally indenite as to time and of one subsequently made indenite by waiver. When both parties let an originally reasonable time go by in silence, the course of conduct under the contract may be viewed as enlarging the reasonable time for tender or demand of performance. The contract may be terminated by abandonment. 6. Parties to a contract are not required in giving reasonable notication to x, at peril of breach, a time which is in fact reasonable in the unforeseeable judgment of a later trier of fact. Eective communication of a proposed time limit calls for a response, so that failure to reply will make out acquiescence. Where objection is made, however, or if the demand is merely for information as to when goods will be delivered or will be ordered out, demand for assurances on the ground of insecurity may be made under this Article pending further negotiations. Only when a party insists on undue delay or on rejection of the other party's reasonable proposal is there a question of at breach under the present section. 7. Subsection (2) applies a commercially reasonable view to resolve the conict which has arisen in the cases as to contracts of indenite duration. The reasonable time of duration appropriate to a given arrangement is limited by the circumstances. When the arrangement has been carried on by the parties over the years, the reasonable time can continue indenitely and the contract will not terminate until notice. 8. Subsection (3) recognizes that the application of principles of good faith and sound commercial practice normally call for such notication of the termination of a going contract relationship as will give the other party reasonable time to seek a substitute arrangement. An agreement dispensing with notication or limiting the time for the seeking of a substitute arrangement is, of course, valid under this subsection unless the results of putting it into operation would be the creation of an unconscionable state of aairs. 9. Justiable cancellation for breach is a remedy for breach and is not the kind of termination covered by the present subsection. 10. The requirement of notication is dispensed with where the contract provides for termination on the happening of an agreed event. Event is a term chosen here to contrast with option or the like. 11. The last sentence of subsection (3) is new and is based on Section 1-302(b). It provides for greater party autonomy. In an appropriate circumstance, the parties may agree that the standard for notice is no notice at all. Cross References: Point 1: Sections 1-102, 1-203, 1-204 and 2-103. Point 2: Sections 2-504, and 2-511 through 2-514. Point 5: Section 1-203. Point 6: Section 2-609. Point 7: Section 2-204. Point 9: Sections 2-106, 2-318, 2-610 and 2-703. Point 11: Section 1-102(3). Denitional Cross References: 90

Art. 2
Agreement. Section 1-201. Contract. Section 1-201. Notication. Section 1-202. Party. Section 1-201. Reasonable time. Section 1-205. Termination. Section 2-106.

Sales

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As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-310. Open Time for Payment or Running of Credit; Authority to Ship under Reservation. Unless otherwise agreed: (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; (b) if the seller is required or authorized to send the goods, the seller may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless the inspection is inconsistent with the terms of the contract (Section 2-513); (c) if tender of delivery is agreed to be made by way of documents of title otherwise than by paragraph (b), then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents, or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence; and (d) if the seller is required or authorized to ship the goods on credit, the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: Sections 42 and 47(2), Uniform Sales Act. Changes: Completely rewritten in this and other sections. Purposes of Changes: This section is drawn to reect modern business methods of dealing at a distance rather than face to face. Thus: 1. Paragraph (a) provides that payment is due at the time and place the buyer is to receive the goods rather than at the point of delivery except in documentary shipment cases (paragraph (c)). This grants an opportunity for the exercise by the buyer of his preliminary right to inspection before paying even though under the delivery term the risk of loss may have previously passed to him or the running of the credit period has already started. 2. Paragraph (b) while providing for inspection by the buyer before he pays, protects the seller. He is not required to give up possession of the goods until he has received payment, where no credit has been contemplated by the parties. The seller may collect through a bank by a sight draft against an order bill of lading hold until arrival; inspection allowed. The obligations of the bank under such a provision are set forth in Part 5 of Article 4. Under subsection (c), in the absence of a credit term, the seller is permitted to ship under reservation and if he does payment is then due where and when the buyer is to receive 91

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delivery of the tangible documents of title. In the case of an electronic document of title, payment is due when the buyer is to receive delivery of the electronic document and at the seller's place of business, or if none, the seller's residence. Delivery as to documents of title is stated in Article 1, Section 1-201. 3. Unless otherwise agreed, the place for the delivery of the documents and payment is the buyer's city but the time for payment is only after arrival of the goods, since under paragraph (b), and Sections 2-512 and 2-513 the buyer is under no duty to pay prior to inspection. Tender of a document of title requires that the seller be ready, willing and able to transfer possession of a tangible document of title or control of an electronic document of title to the buyer. 4. Where the mode of shipment is such that goods must be unloaded immediately upon arrival, too rapidly to permit adequate inspection before receipt, the seller must be guided by the provisions of this Article on inspection which provide that if the seller wishes to demand payment before inspection, he must put an appropriate term into the contract. Even requiring payment against documents will not of itself have this desired result if the documents are to be held until the arrival of the goods. But under (b) and (c) if the terms are C.I.F., C.O.D., or cash against documents payment may be due before inspection. 5. Paragraph (d) states the common commercial understanding that an agreed credit period runs from the time of shipment or from that dating of the invoice which is commonly recognized as a representation of the time of shipment. The provision concerning any delay in sending forth the invoice is included because such conduct results in depriving the buyer of his full notice and warning as to when he must be prepared to pay. Cross References: Generally: Part 5. Point 1: Sections 2-504 and 2-509. Point 2: Sections 2-505, 2-511, 2-512, 2-513 and Article 4. Point 3: Sections 2-308(b), 2-512 and 2-513. Point 4: Section 2-513(3)(b). Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Delivery. Section 2-103. Document of title. Section 1-201. Goods. Section 2-103. Receipt of goods. Section 2-103. Seller. Section 2-103. Send. Section 1-201. Tender of delivery. Sections 2-503 and 2-507. Term. Section 1-201.

As amended in 2003.
See Appendix I contained within revised Article 7 for material relating to changes made in Ocial Comment in 2003.

2-311. Options and Cooperation Respecting Performance. (1) An agreement for sale which is otherwise suciently denite (Section 2-204(3)) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specied by one of the parties. Any such specication must be made in good faith and within limits set by commercial reasonableness. (2) Unless otherwise agreed, specications relating to assortment of the goods are at the buyer's option and specications or arrangements relating to shipment are at the seller's option. (3) If the specication would materially aect the other party's performance but is not seasonably made or if one party's cooperation is neces92

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sary 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 that party's performance; and (b) may also either proceed to perform in any reasonable manner or after the time for a material part of that party's performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
Prior Uniform Statutory Provision: None. Purposes: 1. Subsection (1) permits the parties to leave certain detailed particulars of performance to be lled in by either of them without running the risk of having the contract invalidated for indeniteness. The party to whom the agreement gives power to specify the missing details is required to exercise good faith and to act in accordance with commercial standards so that there is no surprise and the range of permissible variation is limited by what is commercially reasonable. The agreement which permits one party so to specify may be found as well in a course of dealing, usage of trade, or implication from circumstances as in explicit language used by the parties. 2. Options as to assortment of goods or shipping arrangements are specically reserved to the buyer and seller respectively under subsection (2) where no other arrangement has been made. This section rejects the test which mechanically and without regard to usage or the purpose of the option gave the option to the party rst under a duty to move and applies instead a standard commercial interpretation to these circumstances. The unless otherwise agreed provision of this subsection covers not only express terms but the background and circumstances which enter into the agreement. 3. Subsection (3) applies when the exercise of an option or cooperation by one party is necessary to or materially aects the other party's performance, but it is not seasonably forthcoming; the subsection relieves the other party from the necessity for performance or excuses his delay in performance as the case may be. The contract-keeping party may at his option under this subsection proceed to perform in any commercially reasonable manner rather than wait. In addition to the special remedies provided, this subsection also reserves all other remedies. The remedy of particular importance in this connection is that provided for insecurity. Request may also be made pursuant to the obligation of good faith for a reasonable indication of the time and manner of performance for which a party is to hold himself ready. 4. The remedy provided in subsection (3) is one which does not operate in the situation which falls within the scope of Section 2-614 on substituted performance. Where the failure to cooperate results from circumstances set forth in that Section, the other party is under a duty to proer or demand (as the case may be) substitute performance as a condition to claiming rights against the noncooperating party. Cross References: Point 1: Sections 1-201, 1-203, 2-204 and 2-708. Point 3: Sections 1-203 and 2-609. Point 4: Section 2-614. Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Contract for sale. Section 2-106. Goods. Section 2-103. Party. Section 1-201. Remedy. Section 1-201. Seasonably. Section 1-205. Seller. Section 2-103. 93

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2-312. Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement. (1) Subject to subsection (3), 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 shall not unreasonably expose the buyer to litigation because of any colorable claim to or interest in the goods; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge. (2) Unless otherwise agreed, a seller that is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer that furnishes specications to the seller must hold the seller harmless against any such claim that arises out of compliance with the specications. (3) A warranty under this section may be disclaimed or modied only by specic language or by circumstances that give the buyer reason to know that the seller does not claim title, that the seller is purporting to sell only the right or title as the seller or a third person may have, or that the seller is selling subject to any claims of infringement or the like. As amended in 1999 and 2003.
See Appendix I contained within revised Article 9 for material relating to changes made in text in 1999. See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. Subsection (1) provides for a buyer's basic needs for a title which the buyer in good faith expects to acquire by the purchase, namely, that the buyer receive a good, clean title transferred also in a rightful manner so that the buyer will not be exposed to a lawsuit to protect the title. Under subsection (1), the seller warrants that (1) the title conveyed is good, (2) the transfer is rightful, and (3) the transfer does not unreasonably expose the buyer to litigation because a third person has or asserts a colorable claim to or interest in the goods. In addition to sales in which there is an actual cloud on the title, a warranty that the title conveyed is good and its transfer rightful also covers cases when the title is good but the transfer is not rightful. For example, a wrongful transfer with good title occurs where a merchant bailee to which goods are entrusted for repair sells them without authority to a buyer in the ordinary course of business. See Section 2-403(2); Sumner v. Fel-Air, Inc., 680 P.2d 1109 (Alaska 1984). The subsection now expressly states what the courts have long recognized; further protection for the buyer is needed when the title is burdened by colorable claims that aect the value of the goods. See Frank Arnold KRS, Inc. v. L.S. Meier Auction Co., Inc., 806 F.2d 462 (3d Cir. 1986) (two lawsuits contest title); Jeanneret v. Vichey, 693 F.2d 259 (2d Cir. 1982) (export restrictions in country from which painting was taken aect value); Colton v. Decker, 540 N.W.2d 172 (S.D. 1995) (conicting vehicle identication numbers). Therefore, not only is the buyer entitled to a good title, but the buyer is also entitled to a marketable title, and until the colorable claim is resolved the market for the goods is impaired. See Wright v. Vickaryous, 611 P.2d 20 (Alaska 1980). The justication for this rule is that the buyer of goods that are warranted for title has a right to rely on the fact that there will be no need later to have to contest ownership. The mere casting of a substantial shadow over the buyer's title, regardless of the ultimate outcome, violates the warranty of good title. See American Container Corp. v. Hanley Trucking Corp., 111 N.J. Super. 322, 268 A.2d 313,318 (1970). It should be noted that not 94

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any assertion of a claim by a third party will constitute a breach of the warranty of title. The claim must be reasonable and colorable. See C.F. Sales, Inc. v. Amfert, 344 N.W.2d 543 (Iowa 1983). The warranty of title extends to a buyer whether or not the seller was in possession of the goods at the time the sale or contract to sell was made. Consistent with original Article 2, this section does not provide for a separate warranty of quiet possession in addition to the warranty of title. Disturbance of quiet possession, although not mentioned specically, is one way, among many, in which the breach of the warranty of title might be established. 2. Knowledge as referred to in subsection (1)(b) is actual knowledge as distinct from notice. 3. The provisions of this Article that require notication to the seller within a reasonable time after the buyer's discovery of a breach (Section 2-607(3)(a)) apply to notice of a breach of the warranty of title when the seller's breach was innocent. However, if the seller's breach were in bad faith, the seller cannot claim prejudice by the delay in giving notice. 4. Subsection (2) provides the warranty against infringement. Unlike the warranty of title, this warranty is limited to sellers that are merchants that regularly dealing in goods of the kind sold. When the goods are part of the seller's normal stock, and are sold in the normal course of business, it is the seller's duty to see that no claim of infringement of a patent or trademark by a third party will impair the buyer's title. A sale by a person other than a dealer, however, raises no implication in its circumstances of the warranty. Nor is there an implication when the buyer orders goods to be assembled, prepared or manufactured on the buyer's own specications. If, in such a case, the resulting product infringes a patent or trademark, the liability will run from buyer to seller. There is, under these circumstances, a tacit representation on the part of the buyer that the seller will be safe in manufacturing according to the specications, and the buyer is under an obligation in good faith to indemnify the seller for any loss suered. 5. Under this section, the cases which recognize the principle that infringements violate the warranty of title but deny the buyer a remedy unless he has been expressly prevented from using the goods are rejected. Under this Article eviction is not a necessary condition to the buyer's remedy since the buyer's remedy arises immediately upon receipt of notice of infringement; it is merely one way of establishing the fact of breach. 6. Subsection (3) is concerned with the disclaimer or modication of the warranties of title or against infringement. This is a self-contained provision that govern the modication or disclaimer of warranties under this section. The warranties in this section are not designated as implied warranties, and hence these warranties are not subject to the modication and disclaimer provisions of Section 2-316(2) and (3). Unlike Section 2-316, subsection (3) of this section does not create any specic requirements that the disclaimer or modication be contained in a record or be conspicuous. Under subsection (3), sales by sheris, executors, certain foreclosing lienors and persons similarly situated are recognized as possibly being so out of the ordinary commercial course that their peculiar character is immediately apparent to the buyer, and therefore no personal obligation is imposed upon the seller that is purporting to sell only an unknown or limited right. This subsection is not intended to touch upon, and it leaves open, all questions of restitution that arise in these cases, such as when a unique article that is sold is reclaimed by a third party as the rightful owner. For a foreclosure sale under Article 9, Section 9-610 of revised Article 9 provides that a disposition of collateral under that section includes warranties such as those imposed by this section on a voluntary disposition of property. Consequently, unless properly excluded under subsection (3) or under the special provisions for exclusion in Section 9-610, a disposition under that section of collateral consisting of goods includes the warranties imposed by subsection (1) and, if applicable, subsection (2). 7. The statute of limitations for a breach of warranty under this section is determined under the provisions set out in Section 2-725(1) and (3)(c). Cross References: Point 1: Section 2-403. Point 3: Sections 2-607 and 2-725. Point 4: Section 1-203. 95

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Point 6: Sections 2-316, 2-609, 2-610 and 2-725. Point 7: Section 2-316 and 2-725. Denitional Cross References: Agreement. Section 1-201. Buyer. Section 2-103. Contract for sale. Section 2-106. Goods. Section 2-103. Merchant. Section 2-104. Person. Section 1-201. Right. Section 1-201. Seller. Section 2-103.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-313. Express Warranties by Armation, Promise, Description, Sample; Remedial Promise. (1) In this section, immediate buyer means a buyer that enters into a contract with the seller. (2) Express warranties by the seller to the immediate buyer are created as follows: (a) Any armation of fact or promise made by the seller 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 armation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (3) It is not necessary to the creation of an express warranty that the seller use formal words such as warrant or guarantee or that the seller have a specic intention to make a warranty, but an armation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. (4) Any remedial promise made by the seller to the immediate buyer creates an obligation that the promise will be performed upon the happening of the specied event. As amended in 2003.
See Appendix T for material relating to changes made in text in 2003.

Ocial Comment
1. In subsections (2) and (4) the term immediate buyer is used to make clear that the section is limited to express warranties and remedial promises made by a seller to a buyer with which the seller has a contractual relationship. Sections 2-313A and 2-313B address obligations that run directly from a seller to a remote purchaser. 2. Subsection (4) uses the term remedial promise, which was not used in original Article 2. This section deals with remedial promises to immediate buyers. Sections 2-313A and 2-313B deal with remedial promises running directly from a seller to a remote purchaser. Remedial promise is dened in Section 2-103(1)(n). 96

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3. Express warranties rest on dickered aspects of the individual bargain, and go so clearly to the essence of that bargain that words of disclaimer in a form are repugnant to the basic dickered terms. Implied warranties rest so clearly on a common factual situation or set of conditions that no particular language or action is necessary to evidence them and they will arise in such a situation unless unmistakably negated. As with original Article 2, warranties of description and sample are designated express rather than implied. 4. This section is limited in its scope and direct purpose to express warranties and remedial promises made by the seller to the immediate buyer as part of a contract for sale. It is not designed in any way to disturb those lines of case law which have recognized that warranties need not be conned to contracts within the scope of this Article. Under Section 2-313B, a seller may incur an obligation to a remote purchaser through a medium for communication to the public such as advertising. An express warranty to an immediate buyer may also arise through a medium for communication to the public if the elements of this section are satised. The fact that a buyer has rights against an immediate seller under this section does not preclude the buyer from also asserting rights against a remote seller under Section 2-313A or 2-313B. 5. The present section deals with armations of fact or promises made by the seller, descriptions of the goods, or exhibitions of samples or models, exactly as it deals with any other part of a negotiation which ends in a contract. No specic intention to make a warranty is necessary if any of these factors is made part of the basis of the bargain. In actual practice armations of fact and promises made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on these statements need be shown in order to weave them into the fabric of the agreement. Rather, any fact which is to take these armations or promises, once made, out of the agreement requires clear armative proof. The issue normally is one of fact. 6. In view of the principle that the whole purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell, the policy is adopted of those cases which refuse except in unusual circumstances to recognize a material deletion of the seller's obligation. Thus, a contract is normally a contract for a sale of something describable and described. A clause generally disclaiming all warranties, express or implied cannot reduce the seller's obligation for the description and therefore cannot be given literal effect under Section 2-316(1). This is not intended to mean that the parties, if they consciously desire, cannot make their own bargain as they wish. But in determining what they have agreed upon good faith is a factor and consideration should be given to the fact that the probability is small that a real price is intended to be exchanged for a pseudo-obligation. 7. Subsection (2)(b) makes specic some of the principles set forth above when a description of the goods is given by the seller. A description need not be by words. Technical specications, blueprints and the like can aord more exact description than mere language and if made part of the basis of the bargain goods must conform with them. Past deliveries may set the description of quality, either expressly or impliedly by course of dealing. Of course, all descriptions by merchants must be read against the applicable trade usages with the general rules as to merchantability resolving any doubts. 8. The basic situation as to statements aecting the true essence of the bargain is no different when a sample or model is involved in the transaction. This section includes both a sample actually drawn from the bulk of goods which is the subject matter of the sale, and a model which is oered for inspection when the subject matter is not at hand and which has not been drawn from the bulk of the goods. Although the underlying principles are unchanged, the facts are often ambiguous when something is shown as illustrative, rather than as a straight sample. In general, the presumption is that any sample or model, just as any armation of fact, is intended to become a basis of the bargain. But there is no escape from the question of fact. When the seller exhibits a sample purporting to be drawn from an existing bulk, good faith of course requires that the sample be fairly drawn. But in mercantile experience the mere exhibition of a sample does not of itself show whether it is merely intended to suggest or to be the character of the subject-matter of the contract. The question is whether the seller has 97

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so acted with reference to the sample as to become responsible that the whole shall have at least the values shown by it. The circumstances aid in answering this question. If the sample has been drawn from an existing bulk, it must be regarded as describing values of the goods contracted for unless it is accompanied by an unmistakable denial of responsibility. If, on the other hand, a model of merchandise not on hand is oered, the mercantile presumption that it has become a literal description of the subject matter is not so strong, and particularly so if modication on the buyer's initiative impairs any feature of the model. 9. The precise time when words of description or armation are made or samples are shown is not material. The sole question is whether the language or samples or models are fairly to be regarded as part of the contract. If language that would otherwise create an obligation under this section is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance), an obligation will arise if the requirements for a modication are satised. See Downie v. Abex Corp., 741 F.2d 1235 (10th Cir. 1984). 10. Concerning armations of value or a seller's opinion or commendation under subsection (3), the basic question remains the same: What statements of the seller have in the circumstances and in objective judgment become part of the basis of the bargain? As indicated above, all of the statements of the seller do so unless good reason is shown to the contrary. The provisions of subsection (3) are included, however, since common experience discloses that some statements or predictions cannot fairly be viewed as entering into the bargain. Even as to false statements of value, however, the possibility is left open that a remedy may be provided by the law relating to fraud or misrepresentation. There are a number of factors relevant to determine whether an expression creates a warranty under this section or is merely pung. For example, the relevant factors may include whether the seller's representations taken in context, (1) were general rather than specic, (2) related to the consequences of buying rather than the goods themselves, (3) were hedged in some way, (4) were related to experimental rather than standard goods, (5) were concerned with some aspects of the goods but not a hidden or unexpected nonconformity, (6) were informal statements made in a formal contracting process, (7) were phrased in terms of opinion rather than fact, or (8) were not capable of objective measurement. 11. The use of the word promise in subsection (2)(a) refers to statements about the quality or performance characteristics of the goods. For example, a seller might make an armation of fact to the buyer that the goods are of a certain quality, or may promise that the goods when delivered will be of a certain quality, or may promise that the goods will perform in a certain manner after delivery. In normal usage, promise refers to a what a person, not goods, will do; that is, a promise is a commitment to act, or refrain from acting, in a certain manner in the future. A promise about the quality or performance characteristics of the goods creates an express warranty if the other elements of a warranty are present whereas a promise by which the seller commits itself to take remedial action upon the happening of a specied event is a remedial promise. The distinction has meaning in the context of the statute of limitations. A right of action for breach of an express warranty accrues when the goods are tendered to the immediate buyer (Section 2-725(3)(a)) unless the warranty consists of a promise that explicitly extends to the future performance of the goods and discovery must await the time for performance, in which case accrual occurs when the immediate buyer discovers or should have discovered the breach (Section 2-725(3) (d)). Section 2-725(2)(c) separately addresses the accrual of a right of action for breach of a remedial promise. The concept of remedial promise is dealt with in a separate subsection to make clear that it is a concept separate and apart from express warranty and that the elements of an express warranty, such as basis of the bargain, are not applicable. Cross References: Point 1: Sections 2-313A and 2-313B. Point 2: Sections 2-103, 2-313A and 2-313B. Point 3: Section 2-316(2)(b). Point 4: Section 2-316. Point 5: Sections 1-205(4) and 2-314. Point 6: Section 2-316. 98

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Point 7: Section 2-209. Point 8: Section 1-103. Point 11: Section 2-313 and 2-725. Denitional Cross References: Buyer. Section 2-103. Conforming. Section 2-106. Goods. Section 2-103. Remedial promise. Section 2-103. Seller. Section 2-103. Tender of delivery. Sections 2-503 and 2-507.

As amended in 2003.
See Appendix T for material relating to changes made in Ocial Comment in 2003.

2-313A. Obligation to Remote Purchaser Created by Record Packaged with or Accompanying Goods. (1) In this section: (a) Immediate buyer means a buyer that enters into a contract with the seller. (b) Remote purchaser means a person that buys or leases goods from an immediate buyer or other person in the normal chain of distribution. (2) This section applies only to new goods and goods sold or leased as new goods in a transaction of purchase in the normal chain of distribution. (3) If in a record packaged with or accompanying the goods the seller makes an armation of fact or promise that relates to the goods, provides a description that relates to the goods, or makes a remedial promise, and the seller reasonably expects the record to be, and the record is, furnished to the remote purchaser, the seller has an obligation to the remote purchaser that: (a) the goods will conform to the armation of fact, promise, or description unless a reasonable person in the position of the remote purchaser would not believe that the armation of fact, promise, or description created an obligation; and (b) the seller will perform the remedial promise. (4) It is not necessary to the creation of an obligation under this section that the seller use formal words such as warrant or guarantee or that the seller have a specic intention to undertake an obligation, but an armation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create an obligation. (5) The following rules apply to the remedies for breach of an obligation created under this section: (a) The seller may modify or limit the remedies available to the remote purchaser if the modication or limitation is furnished to the remote purchaser no later than the time of purchase or if the modication or limitation is contained in the record that contains the armation of fact, promise, or description. (b) Subject to a modication or limitation of remedy, a seller in breach is liable for incidental or consequential damages under Section 2-715, but not for lost prots.
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(c) The remote purchaser may recover as damages for breach of a seller's obligation arising under subsection (3) the loss resulting in the ordinary course of events as determined in any reasonable manner. (6) An obligation that is not a remedial promise is breached if the goods did not conform to the armation of fact, promise, or description creating the obligation when the goods left the seller's control.
Legislative Note: To maintain their relative positions in this Act, Sections 2-313A and 2-313B may have to be renumbered according to the convention used by a particular state. For example, in some states they may be designated as 2-313.1 and 2-313.2.

As added in 2003. Ocial Comment

1. Sections 2-313A and 2-313B are new, and they follow case law and practice in extending a seller's obligations regarding new goods to remote purchasers. Section 2-313A deals with what are commonly called pass-through warranties. The usual transaction in which this obligation arises is when a manufacturer sells goods in a package to a retailer and include in the package a record that sets forth the obligations that the manufacturer is willing to undertake in favor of the nal party in the distributive chain, who is the person that buys or leases the goods from the retailer. If the manufacturer had sold the goods directly to the nal party in the distributive chain, whether the manufacturer would incur liability is determined by Section 2-313 and this section is inapplicable. No direct contract exists between the seller and the remote purchaser, and thus the seller's obligation under this section is not referred to as an express warranty. Use of obligation rather than express warranty avoids any inference that the obligation arises as part of the basis of the bargain as would be required to create an express warranty under section 2-313. The test for whether an obligation other than a remedial promise arises is similar in some respects to the basis of the bargain requirement in section 2-313, but the test set forth in this section is exclusive. Because remedial promise in Section 2-313 is not subject to the requirement that it arise as part of the basis of the bargain, the term is used in this section. 2. The party to which an obligation runs under this section may either buy or lease the goods, and thus the term remote purchaser is used. The term is more limited than purchaser in Article 1, however, and does not include a donee or any voluntary transferee who is not a buyer or lessee. Moreover, the remote purchaser must be part of the normal chain of distribution for the particular product. That chain will, by denition, include at least three parties and may well include more. For example, the manufacturer might sell rst to a wholesaler that would then resell the goods to a retailer for sale or lease to the public. A buyer or lessee from the retailer would qualify as a remote purchaser and could invoke this section against either the manufacturer or the wholesaler (if the wholesaler provided a record to the retailer to be furnished to the nal party in the distribution chain), but no subsequent transferee, such as a used-goods buyer or sublessee, would qualify. The law governing assignment and third-party beneciary, including Section 2-318, should be consulted to determine whether a party other than the remote purchaser can enforce an obligation created under this section. 3. The application of this section is limited to new goods and goods sold or leased as new goods within the normal chain of distribution. It does not apply to goods that are sold outside the normal chain, such as gray goods or salvaged goods, nor does it apply if the goods are unused but sold as seconds. The concept is exible, and to determine whether goods have been sold or leased in the normal chain of distribution requires consideration of the seller's expectations for the manner in which its goods will reach the remote purchaser. For example, a car manufacturer may be aware that certain of its dealers transfer cars among themselves, and under the particular circumstances of the case a court might nd that a new car sold initially to one dealer but leased to the remote purchaser by another dealer was leased in the normal chain of distribution. The concept may also include such practices as door-to-door sales and distribution through a nonprot organization. The phrase goods sold or leased as new goods refers to goods that in the normal course of business would be considered new. There are many instances in which goods might be used for a limited purpose yet be sold or leased in the normal chain of distribution as new 100

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goods. For example, goods that have been returned to a dealer by a purchaser and placed back into the dealer's inventory might be sold or leased as new goods in the normal chain of distribution. Other examples might include goods that have been used for the purpose of inspection (e.g., a car that has been test-driven) and goods that have been returned by a sale-or-return buyer (Section 2-326). 4. This section applies only to obligations set forth in a record that is packaged with the goods or otherwise accompanies them (subsection (2)). Examples include a label axed to the outside of a container, a card inside a container, or a booklet handed to the remote purchaser at the time of purchase. In addition, the seller must be able to anticipate that the remote purchaser will acquire the record, and therefore this section is limited to records that the seller reasonably expects to be furnished, and that are in fact furnished, to the remote purchaser. Neither this section nor Section 2-313B are intended to overrule cases that impose liability on facts outside the direct scope of one of the sections. For example, the sections are not intended to overrule a decision imposing liabilit