Senate Bill No. 463
(By Senators Grubb, Anderson, Bowman, Schoonover and Deem)
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[Originating in the Committee on Interstate Cooperation;
reported February 19, 1996.]
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A BILL to amend and reenact section one hundred five, article one,
chapter forty-six of the code of West Virginia, one thousand
nine hundred thirty-one, as amended; to amend and reenact
section five hundred twelve, article two of said chapter; to
amend and reenact article five of said chapter; and to amend
and reenact sections one hundred three, one hundred four, one
hundred five, one hundred six, three hundred four and three
hundred five, article nine of said chapter, all relating to
letters of credit generally; general provisions; applicable
law; sales; payment by buyer before inspection; short title;
definitions; scope of provisions; formal requirements;
consideration; issuance, amendment, cancellation and duration
of letters of credit; rights and obligations of confirmer, nominated person and adviser; rights and obligations of
issuer; forged or fraudulent document; warranties; remedies;
transfer of letter of credit; transfer by operation of law;
assignment of proceeds; statute of limitations; choice of law
and forum; subrogation rights of issuer, applicant and
nominated person; effective date; applicability; savings
provisions; secured transactions; perfection of security
interests in multiple state transactions; excluded
transactions; definitions and index of definitions; expanded
definitions; perfecting security interest in written letter of
credit; when possession of collateral perfects security
interest; and conforming amendments.
Be it enacted by the Legislature of West Virginia:
That section one hundred five, article one, chapter forty-six
of the code of West Virginia, one thousand nine hundred thirty-one,
as amended, be amended and reenacted; that section five hundred
twelve, article two of said chapter be amended and reenacted; that
article five of said chapter be amended and reenacted; that
sections one hundred three, one hundred four, one hundred five, one
hundred six, three hundred four and three hundred five, article
nine of said chapter be amended and reenacted, all to read as
follows:
ARTICLE 1. GENERAL PROVISIONS.
§46-1-105. Territorial application of this chapter; parties' power
to choose applicable law.
(1) Except as provided hereafter 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. Failing such agreement this chapter applies to
transactions bearing an appropriate relation to this state.
(2) Where one of the following provisions of this chapter
specifies the applicable law, that provision governs and a contrary
agreement is effective only to the extent permitted by the law
(including the conflict of laws rules) so specified:
Rights of creditors against sold goods. section 2-402.
Applicability of the article on bank deposits and collections.
section 4-102.
Letters of credit. section 5-116.
Applicability of the article on investment securities.
section 8-110.
Perfection provisions of the article on secured transactions.
section 9-103.
ARTICLE 2. SALES.
§46-2-512. Payment by buyer before inspection.
(1) Where the contract requires payment before inspection
nonconformity of the goods does not excuse the buyer from so
making payment unless
(a) the nonconformity appears without inspection; or
(b) despite tender of the required documents the
circumstances would justify injunction against honor under the
provisions of this chapter (section 5-114 5-109(b)).
(2) Payment pursuant to subsection (1) does not constitute
an acceptance of goods or impair the buyer's right to inspect or
any of his remedies.
ARTICLE 5. LETTERS OF CREDIT.
§46-5-101. Short title.
This article may be cited as "Uniform Commercial
Code-Letters of Credit".
§46-5-102. Definitions.
(a) In this article:
(1) "Adviser" means a person who, at the request of the
issuer, a confirmer, or another adviser, notifies or requests
another adviser to notify the beneficiary that a letter of credit
has been issued, confirmed, or amended;
(2) "Applicant" means a person at whose request or for whose
account a letter of credit is issued. The term includes a person
who requests an issuer to issue a letter of credit on behalf of
another if the person making the request undertakes an obligation
to reimburse the issuer;
(3) "Beneficiary" means a person who under the terms of a
letter of credit is entitled to have its complying presentation
honored. The term includes a person to whom drawing rights have
been transferred under a transferable letter of credit;
(4) "Confirmer" means a nominated person who undertakes, at
the request or with the consent of the issuer, to honor a
presentation under a letter of credit issued by another;
(5) "Dishonor" of a letter of credit means failure timely to
honor or to take an interim action, such as acceptance of a
draft, that may be required by the letter of credit;
(6) "Document" means a draft or other demand, document of
title, investment security, certificate, invoice, or other
record, statement, or representation of fact, law, right, or
opinion (i) which is presented in a written or other medium
permitted by the letter of credit or, unless prohibited by the
letter of credit, by the standard practice referred to in section
5-108(e) and (ii) which is capable of being examined for compliance with the terms and conditions of the letter of credit.
A document may not be oral;
(7) "Good faith" means honesty in fact in the conduct or
transaction concerned;
(8) "Honor" of a letter of credit means performance of the
issuer's undertaking in the letter of credit to pay or deliver an
item of value. Unless the letter of credit otherwise provides,
"honor" occurs
(i) Upon payment,
(ii) if the letter of credit provides for acceptance, upon
acceptance of a draft and, at maturity, its payment, or
(iii) if the letter of credit provides for incurring a
deferred obligation, upon incurring the obligation and, at
maturity, its performance.
(9) "Issuer" means a bank or other person that issues a
letter of credit, but does not include an individual who makes an
engagement for personal, family, or household purposes.
(10) "Letter of credit" means a definite undertaking that
satisfies the requirements of section-104 by an issuer to a
beneficiary at the request or for the account of an applicant or,
in the case of a financial institution, to itself or for its own account, to honor a documentary presentation by payment or
delivery of an item of value;
(11) "Nominated person" means a person whom the issuer (i)
designates or authorizes to pay, accept, negotiate, or otherwise
give value under a letter of credit and (ii) undertakes by
agreement or custom and practice to reimburse;
(12) "Presentation" means delivery of a document to an
issuer or nominated person for honor or giving of value under a
letter of credit;
(13) "Presenter" means a person making a presentation as or
on behalf of a beneficiary or nominated person;
(14) "Record" means information that is inscribed on a
tangible medium, or that is stored in an electronic or other
medium and is retrievable in perceivable form; and
(15) "Successor of a beneficiary" means a person who
succeeds to substantially all of the rights of a beneficiary by
operation of law, including a corporation with or into which the
beneficiary has been merged or consolidated, an administrator,
executor, personal representative, trustee in bankruptcy, debtor
in possession, liquidator, and receiver.
(b) Definitions in other articles applying to this article
and the sections in which they appear are:
"Accept" or "Acceptance"Section 3-409.
"Value"Sections 3-303, 4-211.
(c) Article 1 contains certain additional general
definitions and principles of construction and interpretation
applicable throughout this article.
§46-5-103. Scope.
(a) This article applies to letters of credit and to certain
rights and obligations arising out of transactions involving
letters of credit.
(b) The statement of a rule in this article does not by
itself require, imply, or negate application of the same or a
different rule to a situation not provided for, or to a person
not specified, in this article.
(c) With the exception of this subsection, subsections (a)
and (d), sections 5-102(a)(9) and (10), 5-106(d), and 5-114(d),
and except to the extent prohibited in sections 1-102(3) and
5-117(d), the effect of this article may be varied by agreement
or by a provision stated or incorporated by reference in an
undertaking. A term in an agreement or undertaking generally
excusing liability or generally limiting remedies for failure to
perform obligations is not sufficient to vary obligations
prescribed by this article.
(d) Rights and obligations of an issuer to a beneficiary or
a nominated person under a letter of credit are independent of
the existence, performance, or nonperformance of a contract or
arrangement out of which the letter of credit arises or which
underlies it, including contracts or arrangements between the
issuer and the applicant and between the applicant and the
beneficiary.
§46-5-104. Formal requirements.
A letter of credit, confirmation, advice, transfer,
amendment, or cancellation may be issued in any form that is a
record and is authenticated (i) by a signature or (ii) in
accordance with the agreement of the parties or the standard
practice referred to in section 5-108(e).
§46-5-105. Consideration.
Consideration is not required to issue, amend, transfer, or
cancel a letter of credit, advice, or confirmation.
§46-5-106. Issuance, amendment, cancellation and duration.
(a) A letter of credit is issued and becomes enforceable
according to its terms against the issuer when the issuer sends
or otherwise transmits it to the person requested to advise or to
the beneficiary. A letter of credit is revocable only if it so
provides.
(b) After a letter of credit is issued, rights and
obligations of a beneficiary, applicant, confirmer, and issuer
are not affected by an amendment or cancellation to which that
person has not consented except to the extent the letter of
credit provides that it is revocable or that the issuer may amend
or cancel the letter of credit without that consent.
(c) If there is no stated expiration date or other provision
that determines its duration, a letter of credit expires one year
after its stated date of issuance or, if none is stated, after
the date on which it is issued.
(d) A letter of credit that states that it is perpetual
expires five years after its stated date of issuance, or if none
is stated, after the date on which it is issued.
§46-5-107. Confirmer, nominated person and adviser.
(a) A confirmer is directly obligated on a letter of credit
and has the rights and obligations of an issuer to the extent of
its confirmation. The confirmer also has rights against and
obligations to the issuer as if the issuer were an applicant and
the confirmer had issued the letter of credit at the request and
for the account of the issuer.
(b) A nominated person who is not a confirmer is not
obligated to honor or otherwise give value for a presentation.
(c) A person requested to advise may decline to act as an
adviser. An adviser that is not a confirmer is not obligated to
honor or give value for a presentation. An adviser undertakes to
the issuer and to the beneficiary accurately to advise the terms
of the letter of credit, confirmation, amendment, or advice
received by that person and undertakes to the beneficiary to
check the apparent authenticity of the request to advise. Even
if the advice is inaccurate, the letter of credit, confirmation,
or amendment is enforceable as issued.
(d) A person who notifies a transferee beneficiary of the
terms of a letter of credit, confirmation, amendment, or advice
has the rights and obligations of an adviser under subsection
(c). The terms in the notice to the transferee beneficiary may
differ from the terms in any notice to the transferor beneficiary
to the extent permitted by the letter of credit, confirmation,
amendment, or advice received by the person who so notifies.
§46-5-108. Issuer's rights and obligations.
(a) Except as otherwise provided in section 5-109, an issuer
shall honor a presentation that, as determined by the standard
practice referred to in subsection (e), appears on its face
strictly to comply with the terms and conditions of the letter of
credit. Except as otherwise provided in section 5-113 and unless otherwise agreed with the applicant, an issuer shall dishonor a
presentation that does not appear so to comply.
(b) An issuer has a reasonable time after presentation, but
not beyond the end of the seventh business day of the issuer
after the day of its receipt of documents:
(1) to honor,
(2) if the letter of credit provides for honor to be
completed more than seven business days after presentation, to
accept a draft or incur a deferred obligation, or
(3) to give notice to the presenter of discrepancies in the
presentation.
(c) Except as otherwise provided in subsection (d), an
issuer is precluded from asserting as a basis for dishonor any
discrepancy if timely notice is not given, or any discrepancy not
stated in the notice if timely notice is given.
(d) Failure to give the notice specified in subsection (b)
or to mention fraud, forgery, or expiration in the notice does
not preclude the issuer from asserting as a basis for dishonor
fraud or forgery as described in section 5-109(a) or expiration
of the letter of credit before presentation.
(e) An issuer shall observe standard practice of financial
institutions that regularly issue letters of credit. Determination of the issuer's observance of the standard practice
is a matter of interpretation for the court. The court shall
offer the parties a reasonable opportunity to present evidence of
the standard practice.
(f) An issuer is not responsible for:
(1) The performance or nonperformance of the underlying
contract, arrangement, or transaction;
(2) An act or omission of others; or
(3) Observance or knowledge of the usage of a particular
trade other than the standard practice referred to in subsection
(e).
(g) If an undertaking constituting a letter of credit under
section 5-102(a)(10) contains nondocumentary conditions, an
issuer shall disregard the nondocumentary conditions and treat
them as if they were not stated.
(h) An issuer that has dishonored a presentation shall
return the documents or hold them at the disposal of, and send
advice to that effect to, the presenter.
(i) An issuer that has honored a presentation as permitted
or required by this article:
(1) Is entitled to be reimbursed by the applicant in
immediately available funds not later than the date of its
payment of funds;
(2) Takes the documents free of claims of the beneficiary or
presenter;
(3) Is precluded from asserting a right of recourse on a
draft under sections 3-414 and 3-415;
(4) Except as otherwise provided in sections 5-110 and
5-117, is precluded from restitution of money paid or other value
given by mistake to the extent the mistake concerns discrepancies
in the documents or tender which are apparent on the face of the
presentation; and
(5) Is discharged to the extent of its performance under the
letter of credit unless the issuer honored a presentation in
which a required signature of a beneficiary was forged.
§46-5-109. Fraud and forgery.
(a) If a presentation is made that appears on its face
strictly to comply with the terms and conditions of the letter of
credit, but a required document is forged or materially
fraudulent, or honor of the presentation would facilitate a
material fraud by the beneficiary on the issuer or applicant:
(1) The issuer shall honor the presentation, if honor is
demanded by (i) A nominated person who has given value in good
faith and without notice of forgery or material fraud, (ii) a
confirmer who has honored its confirmation in good faith, (iii) a
holder in due course of a draft drawn under the letter of credit
which was taken after acceptance by the issuer or nominated
person, or (iv) an assignee of the issuer's or nominated person's
deferred obligation that was taken for value and without notice
of forgery or material fraud after the obligation was incurred by
the issuer or nominated person; and
(2) The issuer, acting in good faith, may honor or dishonor
the presentation in any other case.
(b) If an applicant claims that a required document is
forged or materially fraudulent or that honor of the presentation
would facilitate a material fraud by the beneficiary on the
issuer or applicant, a court of competent jurisdiction may
temporarily or permanently enjoin the issuer from honoring a
presentation or grant similar relief against the issuer or other
persons only if the court finds that:
(1) The relief is not prohibited under the law applicable to
an accepted draft or deferred obligation incurred by the issuer;
(2) A beneficiary, issuer, or nominated person who may be
adversely affected is adequately protected against loss that it
may suffer because the relief is granted;
(3) All of the conditions to entitle a person to the relief
under the law of this state have been met; and
(4) On the basis of the information submitted to the court,
the applicant is more likely than not to succeed under its claim
of forgery or material fraud and the person demanding honor does
not qualify for protection under subsection (a)(1).
§46-5-110. Warranties.
(a) If its presentation is honored, the beneficiary
warrants:
(1) To the issuer, any other person to whom presentation is
made, and the applicant that there is no fraud or forgery of the
kind described in section 5-109(a); and
(2) To the applicant that the drawing does not violate any
agreement between the applicant and beneficiary or any other
agreement intended by them to be augmented by the letter of
credit.
(b) The warranties in subsection (a) are in addition to
warranties arising under articles 3, 4, 7, and 8 because of the presentation or transfer of documents covered by any of those
articles.
§46-5-111. Remedies.
(a) If an issuer wrongfully dishonors or repudiates its
obligation to pay money under a letter of credit before
presentation, the beneficiary, successor, or nominated person
presenting on its own behalf may recover from the issuer the
amount that is the subject of the dishonor or repudiation. If
the issuer's obligation under the letter of credit is not for the
payment of money, the claimant may obtain specific performance
or, at the claimant's election, recover an amount equal to the
value of performance from the issuer. In either case, the
claimant may also recover incidental but not consequential
damages. The claimant is not obligated to take action to avoid
damages that might be due from the issuer under this subsection.
If, although not obligated to do so, the claimant avoids damages,
the claimant's recovery from the issuer must be reduced by the
amount of damages avoided. The issuer has the burden of proving
the amount of damages avoided. In the case of repudiation the
claimant need not present any document.
(b) If an issuer wrongfully dishonors a draft or demand
presented under a letter of credit or honors a draft or demand in breach of its obligation to the applicant, the applicant may
recover damages resulting from the breach, including incidental
but not consequential damages, less any amount saved as a result
of the breach.
(c) If an adviser or nominated person other than a confirmer
breaches an obligation under this article or an issuer breaches
an obligation not covered in subsection (a) or (b), a person to
whom the obligation is owed may recover damages resulting from
the breach, including incidental but not consequential damages,
less any amount saved as a result of the breach. To the extent
of the confirmation, a confirmer has the liability of an issuer
specified in this subsection and subsections (a) and (b).
(d) An issuer, nominated person, or adviser who is found
liable under subsections (a), (b), or (c) shall pay interest on
the amount owed thereunder from the date of wrongful dishonor or
other appropriate date.
(e) Reasonable attorney's fees and other expenses of
litigation must be awarded to the prevailing party in an action
in which a remedy is sought under this article.
(f) Damages that would otherwise be payable by a party for
breach of an obligation under this article may be liquidated by agreement or undertaking, but only in an amount or by a formula
that is reasonable in light of the harm anticipated.
§46-5-112. Transfer of letter of credit.
(a) Except as otherwise provided in section 5-113, unless a
letter of credit provides that it is transferable, the right of a
beneficiary to draw or otherwise demand performance under a
letter of credit may not be transferred.
(b) Even if a letter of credit provides that it is
transferable, the issuer may refuse to recognize or carry out a
transfer if:
(1) The transfer would violate applicable law; or
(2) The transferor or transferee has failed to comply with
any requirement stated in the letter of credit or any other
requirement relating to transfer imposed by the issuer which is
within the standard practice referred to in section 5-108(e) or
is otherwise reasonable under the circumstances.
§46-5-113. Transfer by operation of law.
(a) A successor of a beneficiary may consent to amendments,
sign and present documents, and receive payment or other items of
value in the name of the beneficiary without disclosing its
status as a successor.
(b) A successor of a beneficiary may consent to amendments,
sign and present documents, and receive payment or other items of
value in its own name as the disclosed successor of the
beneficiary. Except as otherwise provided in subsection (e), an
issuer shall recognize a disclosed successor of a beneficiary as
beneficiary in full substitution for its predecessor upon
compliance with the requirements for recognition by the issuer of
a transfer of drawing rights by operation of law under the
standard practice referred to in section 5-108(e) or, in the
absence of such a practice, compliance with other reasonable
procedures sufficient to protect the issuer.
(c) An issuer is not obliged to determine whether a
purported successor is a successor of a beneficiary or whether
the signature of a purported successor is genuine or authorized.
(d) Honor of a purported successor's apparently complying
presentation under subsections (a) or (b) has the consequences
specified in section 5-108(i) even if the purported successor is
not the successor of a beneficiary. Documents signed in the name
of the beneficiary or of a disclosed successor by a person who is
neither the beneficiary nor the successor of the beneficiary are
forged documents for the purposes of section 5-109.
(e) An issuer whose rights of reimbursement are not covered
by subsection (d) or substantially similar law and any confirmer
or nominated person may decline to recognize a presentation under
subsection (b).
(f) A beneficiary whose name is changed after the issuance
of a letter of credit has the same rights and obligations as a
successor of a beneficiary under this section.
§46-5-114. Assignment of proceeds.
(a) In this section, "proceeds of a letter of credit" means
the cash, check, accepted draft, or other item of value paid or
delivered upon honor or giving of value by the issuer or any
nominated person under the letter of credit. The term does not
include a beneficiary's drawing rights or documents presented by
the beneficiary.
(b) A beneficiary may assign its right to part or all of the
proceeds of a letter of credit. The beneficiary may do so before
presentation as a present assignment of its right to receive
proceeds contingent upon its compliance with the terms and
conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an
assignment of proceeds of a letter of credit until it consents to
the assignment.
(d) An issuer or nominated person has no obligation to give
or withhold its consent to an assignment of proceeds of a letter
of credit, but consent may not be unreasonably withheld if the
assignee possesses and exhibits the letter of credit and
presentation of the letter of credit is a condition to honor.
(e) Rights of a transferee beneficiary or nominated person
are independent of the beneficiary's assignment of the proceeds
of a letter of credit and are superior to the assignee's right to
the proceeds.
(f) Neither the rights recognized by this section between an
assignee and an issuer, transferee beneficiary, or nominated
person nor the issuer's or nominated person's payment of proceeds
to an assignee or a third person affect the rights between the
assignee and any person other than the issuer, transferee
beneficiary, or nominated person. The mode of creating and
perfecting a security interest in or granting an assignment of a
beneficiary's rights to proceeds is governed by Article 9 or
other law. Against persons other than the issuer, transferee
beneficiary, or nominated person, the rights and obligations
arising upon the creation of a security interest or other
assignment of a beneficiary's right to proceeds and its
perfection are governed by Article 9 or other law.
§46-5-115. Statute of limitations.
An action to enforce a right or obligation arising under
this article must be commenced within one year after the
expiration date of the relevant letter of credit or one year
after the cause of action accrues, whichever occurs later. A
cause of action accrues when the breach occurs, regardless of the
aggrieved party's lack of knowledge of the breach.
§46-5-116. Choice of law and forum.
(a) The liability of an issuer, nominated person, or adviser
for action or omission is governed by the law of the jurisdiction
chosen by an agreement in the form of a record signed or
otherwise authenticated by the affected parties in the manner
provided in section 5-104 or by a provision in the person's
letter of credit, confirmation, or other undertaking. The
jurisdiction whose law is chosen need not bear any relation to
the transaction.
(b) Unless subsection (a) applies, the liability of an
issuer, nominated person, or adviser for action or omission is
governed by the law of the jurisdiction in which the person is
located. The person is considered to be located at the address
indicated in the person's undertaking. If more than one address
is indicated, the person is considered to be located at the address from which the person's undertaking was issued. For the
purpose of jurisdiction, choice of law, and recognition of
interbranch letters of credit, but not enforcement of a judgment,
all branches of a bank are considered separate juridical entities
and a bank is considered to be located at the place where its
relevant branch is considered to be located under this
subsection.
(c) Except as otherwise provided in this subsection, the
liability of an issuer, nominated person, or adviser is governed
by any rules of custom or practice, such as the uniform customs
and practice for documentary credits, to which the letter of
credit, confirmation, or other undertaking is expressly made
subject. If (i) this article would govern the liability of an
issuer, nominated person, or adviser under subsection (a) or (b),
(ii) the relevant undertaking incorporates rules of custom or
practice, and (iii) there is conflict between this article and
those rules as applied to that undertaking, those rules govern
except to the extent of any conflict with the nonvariable
provisions specified in section 5-103(c).
(d) If there is conflict between this article and articles
3, 4, 4A, or 9, this article governs.
(e) The forum for settling disputes arising out of an
undertaking within this article may be chosen in the manner and
with the binding effect that governing law may be chosen in
accordance with subsection (a).
§46-5-117. Subrogation of issuer, applicant and nominated
person.
(a) An issuer that honors a beneficiary's presentation is
subrogated to the rights of the beneficiary to the same extent as
if the issuer were a secondary obligor of the underlying
obligation owed to the beneficiary and of the applicant to the
same extent as if the issuer were the secondary obligor of the
underlying obligation owed to the applicant.
(b) An applicant that reimburses an issuer is subrogated to
the rights of the issuer against any beneficiary, presenter, or
nominated person to the same extent as if the applicant were the
secondary obligor of the obligations owed to the issuer and has
the rights of subrogation of the issuer to the rights of the
beneficiary stated in subsection (a).
(c) A nominated person who pays or gives value against a
draft or demand presented under a letter of credit is subrogated
to the rights of:
(1) The issuer against the applicant to the same extent as
if the nominated person were a secondary obligor of the
obligation owed to the issuer by the applicant;
(2) The beneficiary to the same extent as if the nominated
person were a secondary obligor of the underlying obligation owed
to the beneficiary; and
(3) The applicant to same extent as if the nominated person
were a secondary obligor of the underlying obligation owed to the
applicant.
(d) Notwithstanding any agreement or term to the contrary,
the rights of subrogation stated in subsections (a) and (b) do
not arise until the issuer honors the letter of credit or
otherwise pays and the rights in subsection (c) do not arise
until the nominated person pays or otherwise gives value. Until
then, the issuer, nominated person, and the applicant do not
derive under this section present or prospective rights forming
the basis of a claim, defense, or excuse.
§46-5-118. Effective date.
The reenactment of this article shall become effective on
the first day of July, one thousand nine hundred ninety-six.
§46-5-119. Applicability.
This article applies to a letter of credit that is issued on
or after the effective date of the reenactment of this article.
This article does not apply to a transaction, event, obligation,
or duty arising out of or associated with a letter of credit that
was issued before the first day of July, one thousand nine
hundred ninety-six.
§46-5-20. Savings clause.
A transaction arising out of or associated with a letter of
credit that was issued before the effective date of the
reenactment of this article in the year one thousand nine hundred
ninety-six and the rights, obligations, and interests flowing
from that transaction are governed by any statute or other law
amended by the reenactment of this article as if the amendment
had not occurred and may be terminated, completed, consummated,
or enforced under that statute or other law.
ARTICLE 9. SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL
PAPER.
§46-9-103. Perfection of security interests in multiple state
transactions.
(1) Documents, instruments, letters of credit, and ordinary
goods. --
(a) This subsection applies to documents, and instruments,
rights to proceeds of written letters of credit, and to goods
other than those covered by a certificate of title described in
subsection (2) of this section, mobile goods described in
subsection (3), and minerals described in subsection (5) of this
section.
(b) Except as otherwise provided in this subsection,
perfection and the effect of perfection or nonperfection of a
security interest in collateral are governed by the law of the
jurisdiction where the collateral is when the last event occurs
on which is based the assertion that the security interest is
perfected or unperfected.
(c) If the parties to a transaction creating a purchase
money security interest in goods in one jurisdiction understand
at the time that the security interest attaches that the goods
will be kept in another jurisdiction, then the law of the other
jurisdiction governs the perfection and the effect of perfection
or nonperfection of the security interest from the time it
attaches until thirty days after the debtor receives possession
of the goods and thereafter if the goods are taken to the other
jurisdiction before the end of the thirty-day period.
(d) When collateral is brought into and kept in this state
while subject to a security interest perfected under the law of
the jurisdiction from which the collateral was removed, the
security interest remains perfected, but if action is required by
Part 3 of this article to perfect the security interest:
(i) If the action is not taken before the expiration of the
period of perfection in the other jurisdiction or the end of four
months after the collateral is brought into this state, whichever
period first expires, the security interest becomes unperfected
at the end of that period and is thereafter deemed to have been
unperfected as against a person who became a purchaser after
removal;
(ii) If the action is taken before the expiration of the
period specified in paragraph (i) of this subdivision, the
security interest continues perfected thereafter;
(iii) For the purpose of priority over a buyer of consumer
goods (subsection (2) of section 9-307), the period of the
effectiveness of a filing in the jurisdiction from which the
collateral is removed is governed by the rules with respect to
perfection in paragraphs (i) and (ii) of this subdivision.
(2) Certificate of title. --
(a) This subsection applies to goods covered by a
certificate of title issued under a statute of this state or of
another jurisdiction under the law of which indication of a
security interest on the certificate is required as a condition
of perfection.
(b) Except as otherwise provided in this subsection,
perfection and the effect of perfection or nonperfection of the
security interest are governed by the law (including the conflict
of laws rules) of the jurisdiction issuing the certificate until
four months after the goods are removed from that jurisdiction
and thereafter until the goods are registered in another
jurisdiction, but in any event not beyond surrender of the
certificate. After the expiration of that period, the goods are
not covered by the certificate of title within the meaning of
this section.
(c) Except with respect to the rights of a buyer described
in the next paragraph, a security interest, perfected in another
jurisdiction otherwise than by notation on a certificate of
title, in goods brought into this state and thereafter covered by
a certificate of title issued by this state is subject to the
rules stated in subdivision (d) subsection (1) of this section.
(d) If goods are brought into this state while a security
interest therein is perfected in any manner under the law of the
jurisdiction from which the goods are removed and a certificate
of title is issued by this state and the certificate does not
show that the goods are subject to the security interest or that
they may be subject to security interests not shown on the
certificate, the security interest is subordinate to the rights
of a buyer of the goods who is not in the business of selling
goods of that kind to the extent that he gives value and receives
delivery of the goods after issuance of the certificate and
without knowledge of the security interest.
(3) Accounts, general intangibles and mobile goods. --
(a) This subsection applies to accounts (other than an
account described in subsection (5) of this section on minerals)
and general intangibles (other than uncertificated securities)
and to goods which are mobile and which are of a type normally
used in more than one jurisdiction, such as motor vehicles,
trailers, rolling stock, airplanes, shipping containers, road
building and construction machinery and commercial harvesting
machinery and the like, if the goods are equipment or are
inventory leased or held for lease by the debtor to others, and are not covered by a certificate of title described in subsection
(2) of this section.
(b) The law (including the conflict of laws rules) of the
jurisdiction in which the debtor is located governs the
perfection and the effect of perfection or nonperfection of the
security interest.
(c) If, however, the debtor is located in a jurisdiction
which is not a part of the United States, and which does not
provide for perfection of the security interest by filing or
recording in that jurisdiction, the law of the jurisdiction in
the United States in which the debtor has its major executive
office in the United States governs the perfection and the effect
of perfection or nonperfection of the security interest through
filing. In the alternative, if the debtor is located in a
jurisdiction which is not a part of the United States or Canada
and the collateral is accounts or general intangibles for money
due or to become due, the security interest may be perfected by
notification to the account debtor. As used in this paragraph,
"United States" includes its territories and possessions and the
Commonwealth of Puerto Rico.
(d) A debtor shall be deemed located at his place of
business if he has one, at his chief executive office if he has more than one place of business, otherwise at his residence. If,
however, the debtor is a foreign air carrier under the federal
Aviation Act of 1958, as amended, it shall be deemed located at
the designated office of the agent upon whom service of process
may be made on behalf of the foreign air carrier.
(e) A security interest perfected under the law of the
jurisdiction of the location of the debtor is perfected until the
expiration of four months after a change of the debtor's location
to another jurisdiction, or until perfection would have ceased by
the law of the first jurisdiction, whichever period first
expires. Unless perfected in the new jurisdiction before the end
of that period, it becomes unperfected thereafter and is deemed
to have been unperfected as against a person who became a
purchaser after the change.
(4) Chattel paper. --
The rules stated for goods in subsection (1) of this section
apply to a possessory security interest in chattel paper. The
rules stated for accounts in subsection (3) of this section apply
to a nonpossessory security interest in chattel paper, but the
security interest may not be perfected by notification to the
account debtor.
(5) Minerals. --
Perfection and the effect of perfection or nonperfection of
a security interest which is created by a debtor who has an
interest in minerals or the like (including oil and gas) before
extraction and which attaches thereto as extracted, or which
attaches to an account resulting from the sale thereof at the
wellhead or minehead are governed by the law (including the
conflict of laws rules) of the jurisdiction wherein the wellhead
or minehead is located.
(6) Investment property. --
(a) This subsection applies to investment property.
(b) Except as otherwise provided in subdivision (f) of this
section, during the time that a security certificate is located
in a jurisdiction, perfection of a security interest, the effect
of perfection or nonperfection, and the priority of a security
interest in the certificated security represented thereby are
governed by the local law of that jurisdiction.
(c) Except as otherwise provided in subdivision (f) of this
section, perfection of a security interest, the effect of
perfection or nonperfection, and the priority of a security
interest in an uncertificated security are governed by the local
law of the issuer's jurisdiction as specified in section
8-110(d).
(d) Except as otherwise provided in subdivision (f) of this
section, perfection of a security interest, the effect of
perfection or nonperfection, and the priority of a security
interest in a security entitlement or securities account are
governed by the local law of the securities intermediary's
jurisdiction as specified in section 8-110(e).
(e) Except as otherwise provided in paragraph (f),
perfection of a security interest, the effect of perfection or
nonperfection, and the priority of a security interest in a
commodity contract or commodity account are governed by the local
law of the commodity intermediary's jurisdiction. The following
rules determine a "commodity intermediary's jurisdiction" for
purposes of this paragraph:
(i) If an agreement between the commodity intermediary and
commodity customer specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(ii) If an agreement between the commodity intermediary and
commodity customer does not specify the governing law as provided
in paragraph (i) of this subdivision, but expressly specifies
that the commodity account is maintained at an office in a particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(iii) If an agreement between the commodity intermediary and
commodity customer does not specify a jurisdiction as provided in
paragraphs (i) or (ii) of this subdivision, the commodity
intermediary's jurisdiction is the jurisdiction in which is
located the office identified in an account statement as the
office serving the commodity customer's account.
(iv) If an agreement between the commodity intermediary and
commodity customer does not specify a jurisdiction as provided in
subparagraph (i) or (ii) of this subdivision and an account
statement does not identify an office serving the commodity
customer's account as provided in paragraph (iii) of this
subdivision, the commodity intermediary's jurisdiction is the
jurisdiction in which is located the chief executive office of
the commodity intermediary.
(f) Perfection of a security interest by filing, automatic
perfection of a security interest in investment property granted
by a broker or securities intermediary, and automatic perfection
of a security interest in a commodity contract or commodity
account granted by a commodity intermediary are governed by the
local law of the jurisdiction in which the debtor is located.
§46-9-104. Transactions excluded from article.
This article does not apply
(a) to a security interest subject to any statute of the
United States such as the Ship Mortgage Act, 1920, to the extent
that such statute governs the rights of parties to and third
parties affected by transactions in particular types of property;
or
(b) to a landlord's lien; or
(c) to a lien given by statute or other rule of law for
services or materials except as provided in section 9-310 on
priority of such liens; or
(d) to a transfer of a claim for wages, salary or other
compensation of an employee; or
(e) to a transfer by a government or governmental
subdivision or agency; or
(f) to a sale of accounts or chattel paper as part of a sale
of the business out of which they arose, or an assignment of
accounts or chattel paper which is for the purpose of collection
only, or a transfer of a right to payment under a contract to an
assignee who is also to do the performance under the contract or
a transfer of a single account to an assignee in whole or partial
satisfaction of a preexisting indebtedness; or
(g) to a transfer of an interest in or claim in or under any
policy of insurance, except as provided with respect to proceeds
(section 9-306) and priorities in proceeds (section 9- 312); or
(h) to a right represented by a judgment (other than a
judgment taken on a right to payment which was collateral); or
(i) to any right of setoff; or
(j) except to the extent that provision is made for fixtures
in section 9-313, to the creation or transfer of an interest in
or lien on real estate, including a lease or rents thereunder; or
(k) to a transfer in whole or in part of any claim arising
out of tort; or
(l) to a transfer of an interest in any deposit account
(subsection (1) of section 9-105), except as provided with
respect to proceeds (section 9-306) and priorities in proceeds
(section 9-312).; or
(m) to a transfer of an interest in a letter of credit other
than the rights to proceeds of written letter of credit.
§46-9-105. Definitions and index of definitions.
(1) In this article unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on an
account, chattel paper or general intangible;
(b) "Chattel paper" means a writing or writings which
evidence both a monetary obligation and a security interest in or
a lease of specific goods, but a charter or other contract
involving the use or hire of a vessel is not chattel paper. When
a transaction is evidenced both by such a security agreement or a
lease and by an instrument or a series of instruments, the group
of writings taken together constitutes chattel paper;
(c) "Collateral" means the property subject to a security
interest, and includes accounts, and chattel paper which have
been sold;
(d) "Debtor" means the person who owes payment or other
performance of the obligation secured, whether or not he owns or
has rights in the collateral, and includes the seller of
accounts, or chattel paper. Where the debtor and the owner of
the collateral are not the same person, the term "debtor" means
the owner of the collateral in any provision of the article
dealing with the collateral, the obligor in any provision dealing
with the obligation, and may include both where the context so
requires;
(e) "Deposit account" means a demand, time, savings,
passbook or like account maintained with a bank, savings and loan association, credit union or like organization, other than an
account evidenced by a certificate of deposit;
(f) "Document" means document of title as defined in the
general definitions of article 1 (section 1-201), and a receipt
of the kind described in subsection (2) of section 7-201;
(g) "Encumbrance" includes real estate mortgages and other
liens on real estate and all other rights in real estate that are
not ownership interests;
(h) "Goods" includes all things which are moveable at the
time the security interest attaches or which are fixtures
(section 9-313), but does not include money, documents,
instruments, investment property, commodity contracts, accounts,
chattel paper, general intangibles, or minerals or the like
(including oil and gas) before extraction. "Goods" also includes
standing timber which is to be cut and removed under a conveyance
or contract for sale, the unborn young of animals, and growing
crops;
(i) "Instrument" means a negotiable instrument (defined in
section 3-104), or any other writing which evidences a right to
the payment of money and is not itself a security agreement or
lease and is of a type which is in ordinary course of business transferred by delivery with any necessary endorsement or
assignment. The term does not include investment property;
(j)"Mortgage" means a consensual interest created by a real
estate mortgage, a trust deed on real estate, or the like;
(k) An advance is made "pursuant to commitment" if the
secured party has bound himself to make it, whether or not a
subsequent event of default or other event not within his control
has relieved or may relieve him from his obligation;
(l) "Security agreement" means an agreement which creates or
provides for a security interest;
(m) "Secured party" means a lender, seller or other person
in whose favor there is a security interest, including a person
to whom accounts or chattel paper have been sold. When the
holders of obligations issued under an indenture of trust,
equipment trust agreement or the like are represented by a
trustee or other person, the representative is the secured party;
(n) "Transmitting utility" means any person primarily
engaged in the railroad, street railway or trolley bus business,
the electric or electronics communications transmission business,
the transmission of goods by pipeline, or the transmission or the
production and transmission of electricity, steam, gas or water,
or the provision of sewer service.
(2) Other definitions applying to this article and the
sections in which they appear are:
"Account".Section 9-106.
"Attach".Section 9-203.
"Commodity contract".Section 9-115.
"Commodity customer".Section 9-115.
"Commodity intermediary".Section 9-115.
"Construction mortgage".Section 9-313(1).
"Consumer goods".Section 9-109(1).
"Control".Section 9-115.
"Equipment".Section 9-109(2).
"Farm products".Section 9-109(3).
"Fixture".Section 9-313(1).
"Fixture filing".Section 9-313(1).
"General intangibles".Section 9-106.
"Inventory".Section 9-109(4).
"Investment property".Section 9-115.
"Lien creditor".Section 9-301(3).
"Proceeds".Section 9-306(1).
"Purchase money security interest".Section 9-107.
"United States".Section 9-103.
(3) The following definitions in other articles apply to
this article:
"Broker".Section 8-102.
"Certificated security".Section 8-102.
"Check".Section 3-104.
"Clearing corporation".Section 8-102.
"Contract for sale".Section 2-106.
"Control".Section 8-106.
"Delivery".Section 8-301.
"Entitlement holder".Section 8-102.
"Financial asset".Section 8-102.
"Holder in due course".Section 3-302.
"Letter of credit". Section 5-102.
"Note".Section 3-104.
"Proceeds of a letter of credit". Section 5-114(a).
"Sale".Section 2-106.
"Securities intermediary".Section 8-102.
"Security".Section 8-102.
"Security certificate".Section 8-102.
"Security entitlement".Section 8-102.
"Uncertificated security".Section 8-102.
(4) In addition, article 1 contains general definitions and
principles of construction and interpretation applicable
throughout this article.
§46-9-106. Definitions: "Account"; "general intangibles".
"Account" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an
instrument or chattel paper, whether or not it has been earned by
performance. "General intangibles" means any personal property
(including things in action) other than goods, accounts, chattel
paper, documents, instruments, investment property, rights to
proceeds of written letters of credit and money. All rights to
payment earned or unearned under a charter or other contract
involving the use or hire of a vessel and all rights incident to
the charter or contract are accounts.
§46-9-304. 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.
(1) A security interest in chattel paper or negotiable
documents may be perfected by filing. A security interest in the
rights to proceeds of a written letter of credit can be perfected
only by the secured party's taking possession of the letter of credit. A security interest in money or instruments (other than
[certificated securities or] instruments which constitute part of
chattel paper) can be perfected only by the secured party's
taking possession, except as provided in subsections (4) and (5)
of this section and subsections (2) and (3) of section 9-306 on
proceeds.
(2) During the period that goods are in the possession of
the issuer of a negotiable document therefor, a security interest
in the goods is perfected by perfecting a security interest in
the document, and any security interest in the goods otherwise
perfected during such period is subject thereto.
(3) A security interest in goods in the possession of a
bailee other than one who has issued a negotiable document
therefor is perfected by issuance of a document in the name of
the secured party or by the bailee's receipt of notification of
the secured party's interest or by filing as to the goods.
(4) A security interest in instruments, certificated
securities or negotiable documents is perfected without filing or
the taking of possession for a period of twenty-one days from the
time it attaches to the extent that it arises for new value given
under a written security agreement.
(5) A security interest remains perfected for a period of
twenty-one days without filing where a secured party having a
perfected security interest in an instrument, a certificated
security, a negotiable document or goods in possession of a
bailee other than one who has issued a negotiable document
therefor:
(a) Makes available to the debtor the goods or documents
representing the goods for the purpose of ultimate sale or
exchange or for the purpose of loading, unloading, storing,
shipping, transshipping, manufacturing, processing or otherwise
dealing with them in a manner preliminary to their sale or
exchange, but priority between conflicting security interests in
the goods is subject to subsection (3) of section 9-312; or
(b) Delivers the instrument or certificated security to the
debtor for the purpose of ultimate sale or exchange or of
presentation, collection, renewal or registration of transfer.
(6) After the twenty-one-day period in subsections (4) and
(5) of this section perfection depends upon compliance with
applicable provisions of this article.
§46-9-305. When possession by secured party perfects security
interest without filing.
A security interest in letters of credit and advices of
credit (subsection (2) (a) of section 5-116), goods, instruments,
(other than certificated securities), money, negotiable documents
or chattel paper may be perfected by the secured party's taking
possession of the collateral. A security interest in the right
to proceeds of a written letter of credit may be perfected by the
secured party's proceeds of a written letter of credit may be
perfected by the secured party's taking possession of the letter
of credit. If such collateral other than goods covered by a
negotiable document is held by a bailee, the secured party is
deemed to have possession from the time the bailee receives
notification of the secured party's interest. A security
interest is perfected by possession from the time possession is
taken without relation back and continues only so long as
possession is retained, unless otherwise specified in this
article. The security interest may be otherwise perfected as
provided in this article before or after the period of possession
by the secured party.
NOTE: The purpose of this bill is to update the provisions of the Uniform
Commercial Code governing letters of credit. This bill would conform the
provisions of Article 5 of the UCC to current customs and practices;
accommodate new forms of letters of credit consistent with evolving
technology, particularly the use of electronic media; maintain letters of
credit as an inexpensive and efficient instrument facilitating trade; and
resolve conflicts among reported case law decisions.
This bill was recommended for introduction by the Commissions on
Interstate Cooperation.
Strike-throughs indicate language that would be stricken from the
present law, and underling indicates new language that would be added.
Article five is rewritten; therefore, strike-throughs and underlining are
omitted.