Senate Bill S5901

2013-2014 Legislative Session

Relates to revising and modernizing the uniform commercial code

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Archive: Last Bill Status - In Senate Committee Judiciary Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 08, 2014	referred to judiciary
Jun 20, 2013	referred to rules

2013-S5901 (ACTIVE) - Details

Current Committee:: Senate Judiciary
Law Section:: Uniform Commercial Code
Laws Affected:: Amd UCC, generally

2013-S5901 (ACTIVE) - Summary

Relates to revising and modernizing the uniform commercial code; makes significant amendments and revisions to articles 1, 3, 4, 7 and 9; makes conforming amendments.

2013-S5901 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S5901

TITLE OF BILL:  An act to amend the uniform commercial code, in
relation to modernizing commercial law in New York state; and to
repeal certain provisions of such code relating thereto

PURPOSE:  To modernize the Uniform Commercial Code (UCC) and bring New
York up to date with comparable revisions enacted in other states.

SUMMARY OF PROVISIONS:

Section 1 of the bill repeals existing Article 1 of the UCC and enacts
a new Article 1 ("General Provisions").

Sections 2 through 15 make technical and clarifying amendments within
Article 2 of the UCC.

Sections 16 through 24 make renumbering and clarifying amendments
within Article 2-A of the UCC.

Section 26 repeals existing, Article 3 of the UCC and enacts a new
Article 3 ("Negotiable Instruments").

Section 27 repeals existing Article 4 of the UCC and enacts a new
Article 4 ("Bank Deposits -Collections").

Sections 28 through 30 make renumbering amendments within Article 4-A
of the UCC. Section 31 makes a renumbering amendment in Section 5-103
UCC.

Section 32 repeals existing Article 7 of the UCC and enacts a new
Article 7 ("Documents of Title").

Sections 33 and 34 make clarifying amendments within Article 8 of the
UCC.

Sections 35 through 66 make amendments within Article 9 of the UCC
("Secured Transactions").

Section 67 provides for the effective date, and clarifies and
specifies the applicability of the amendments.

JUSTIFICATION:  This bill would modernize the Uniform Commercial Code
(UCC) and bring New York up to date with comparable revisions enacted
in other states. Historically, New York has been a leading state for
commercial law and this status generates substantial economic activity
and employment in the State of New York. Section 5-1401 of the General
Obligations Law evidences a legislative desire to permit parties who
may be located outside of the State to select New York law to govern
their transactions. Unfortunately, New York has fallen significantly
behind its sister states in modernizing its commercial law.

Forty states have now enacted Revised Article 1 of the UCC and the
revision is currently pending in two other states. Every state other
than New York has enacted the 1990 revision to Articles 3 and 4 of the
UCC. Forty states have now enacted Revised Article 7 of the UCC and
the revision is currently pending in two other states. Eight states


have now enacted the 2010 Amendments to Article 9 of the UCC and the
amendments are currently pending in five other states.

Described below are the amendments to Articles 1, 3. 4, 7 and 9 of the
UCC, and the reason for updating such Articles.

ARTICLE 1 OF THE UCC:

Article 1 needs to be updated to reflect the fact that other articles
of the UCC have been revised and amended to accommodate changing
business practices and developments in the law.

Revised Article I contains many changes of a technical,
non-substantive nature, such as reordering and renumbering sections
and adding gender-neutral terminology. In addition, revised Article I
contains several changes to add greater clarity with regard to
provisions of Article 1 that have been identified as confusing or
imprecise.

Revised Article 1 also contains certain substantive changes where
developments in the law have led to the conclusion that substantive
change was needed, such as: (1) revised section 1-102 clarifies the
scope of Article 1 by expressly stating that the substantive rules of

Article 1 apply only to transactions within the scope of other
articles of the UCC; (2) revised section 1-103 clarifies the
application of supplemental principles of law with clearer
distinctions as to when the UCC is preemptive; (3) the statute of
frauds requirement aimed at transactions beyond the coverage of the
UCC has been deleted; and (4) under revised Article 1, evidence of
"course of performance" may be used along with course of dealing and
usage of trade to interpret a contract.

Article 1 impacts every transaction governed by the UCC, including any
sale of goods, any transfer of a check or other negotiable instrument,
any commercial electronic funds transfer, any letter of credit, any
warehouse receipt or bill of lading, any transfer of an investment
security, and any credit transaction in which a security interest is
taken in specific collateral. These are the transactions governed by
specific articles of the UCC and encompass the bulk of commercial
activity in the American economy. The rules and definitions of Article
1 apply across these specific articles, binding these various articles
together into one code. Because of this interrelationship, enactment
of the articles discussed below necessitates updates to Article I.

ARTICLES 3 AND 4 OF THE UCC ("Negotiable Instruments" and "Bank
Deposits -Collections")

Article 3 governs negotiable instruments, i.e. checks and some notes.
Article 4 governs bank deposits and collections, and establishes the
legal framework for a customer's dealings with a bank. Together these
Articles comprise a unit that governs instruments (and the resulting
debits and credits) from the time they are issued until the time when
final payment is made or the instrument is dishonored.

Revised Article 3 treats additional types of instruments as
"negotiable," and therefore subject to the Article 3 rules. Included


in the new definition are notes with variable rates of interest (such
as variable rate mortgage notes), as well as checks that are not
expressly made payable to order or to bearer. Because there are no
legal rules covering non-negotiable instruments (except as courts may
apply Article 3 by analogy), the revisions provide clarification of
the rules that govern such instruments.

Likewise, Article 4 expands the definition of "bank" to include
financial institutions other than commercial banks.

Many negotiable instruments are endorsed not by a writing, on the back
of the instrument, but by a writing on a separate piece of paper known
as an "allonge." The revisions clarify the status of such writings,
permitting them to qualify as endorsements even if not pasted or
stapled to the instrument and even if there is ample space on the
instrument itself for an endorsement

The revisions eliminate wasteful circular litigation in instances in
which a check is stolen and the payee endorsement is forged. They
clarify that the intended payee, having, never received the check,
retains its right to be paid by the drawer, although it cannot sue for
conversion. The drawer retains its right to be recredited by its bank
for unauthorized payment of the check, although it likewise cannot sue
for conversion. The drawer's bank recovers against the bank that dealt
with the thief, thus, the loss falls on the bank that was best able to
prevent it.

The revisions expressly state that a cashier's check and a teller's
check are within the definition of "check," and provide some new rules
to protect payees of such checks from the bank's unjustified refusal
to pay such instruments at the behest of a customer who originally
instructed the bank to issue the instrument, but has now decided to
abort the payment. The revised rules discourage dishonor by making the
bank liable for the damages caused to the payee, including, if advance
notice has been given, the payee's consequential damages.

New York law on accord and satisfaction - the practice of endorsing a
check in payment of a disputed amount with the words "in full
satisfaction" - is altered by the revisions. The revisions permit a
debtor to discharge its debt by making a payment that conspicuously
states that it is in full satisfaction of the debt, but offers
protection to an organizational creditor by enabling it to avoid
inadvertent discharge by notifying its debtors to send payment of such
disputed amounts to a specific location other than the location at
which payments are normally received. (A non-organizational creditor
that inadvertently cashes such a check can reverse the discharge by
returning the funds to the debtor.)

Automated processing is recognized in a number of places in the
amendments. First, because most checks are not manually inspected, it
is the customer's obligation, upon issuing a postdated check, to
inform its bank of that fact so that it is not inadvertently paid.
Likewise, a customer that wishes to stop its check must describe the
item with reasonable certainty so that the check can be flagged
electronically.


Current Article 4 establishes the time when a stop order, legal
process, or other instruction is received too late to affect payment
of an instrument as the moment the check is "posted," a term that
contemplates a manual clerical process that is inconsistent with
electronic processing. The revisions permit a bank to arbitrarily
establish the cut-off time and date, within prescribed parameters.

The revisions provide for electronic presentment of checks and for
retention of check images when checks are truncated. The rules
governing electronic collection of checks and funds availability,
however, have increasingly been federalized, largely as a result of
New York's longstanding failure to enact the revisions.

Finally, the revisions establish a comparative negligence standard in
an instance in which both the bank and its customer were negligent
with respect to a loss arising from an unauthorized signature or
alteration of a check. Although this standard may have been novel when
the revisions were first drafted, it is substantially identical to the
Federal Reserve's Regulation CC (governing check collection), which
currently provides that: "(c) Comparative negligence. If a person,
including a bank, fails to exercise ordinal), care or act in good
faith under this subpart in endorsing a check (§ 229.35), accepting a
returned check or notice of nonpayment (§§ 229.32(a) and 229.33(c)),
or otherwise, the damages incurred by that person under § 229.38(a)
shall be diminished in proportion to the amount of negligence or bad
faith attributable to that person "(12 C.F.R.  229.38(c)).

When the current versions of Articles 3 and 4 were enacted, in 1962.
payments were paper-based, check processing was in its infancy, and
banks were limited in their ability to branch within New York, much
less nationally. Today these transactions are electronic, processing
may be virtually instantaneous, and banks operate across state and
national lines. Yet New York currently remains governed by an
antiquated set of commercial laws that is increasingly no longer
taught to law students, even within New York.  These laws present a
trap for the unwary advisor, who is likely to consult the uniform
version of these Articles, not realizing that New York is the only
state that has failed to enact even the 1990 amendments. Additionally,
they present troublesome choice of law problems for practitioners when
pan of a transaction takes place in a "new statute" jurisdiction, and
part in New York, resulting in a lack of predictability as to outcome.

The result of the failure to enact the revisions has been to render
New York law increasingly irrelevant, as parties to banking
transactions have sought to elect the law of another jurisdiction,
whenever possible, and to resolve risk allocation issues governed by
these Articles by contract or system rule. Additionally, federal
agencies are now addressing by regulation payment issues that fall
within the scope of Article 4, on the assumption that New York will
not enact such revisions if they become part of the Uniform Commercial
Code. Enactment of the revisions cannot erase the damage done, but
will prevent the further erosion of New York's payments law.

ARTICLE 7 OF THE UCC ("Documents of Title"):

Article 7 governs "documents of title," items such as bills of lading
and warehouse receipts that control the right to the goods described


therein during commercial storage and shipment. When goods are
imported, they are frequently paid for by means of a letter of credit
(issued pursuant to Article 5 of the Uniform Commercial Code) calling
for payment against specific documents of title, as described in
Article 7. Thus, although documents of title may appear to be obscure
instruments, they are in fact utilized on a daily basis by New York
businesses and residents importing goods into the State.

New York's current Article 7 does not recognize electronic documents
of title, and therefore does not permit goods covered by electronic
documents to be transferred or financed. Revised Article 7 recognizes
electronic documents of title, and establishes rules for the transfer
of rights embodied therein from one person to another. Control of an
electronic document of title is the equivalent of possession and
indorsement of a tangible document of title. Revised Article 7 permits
the conversion of electronic documents to tangible documents and vice
versa.

In addition, revised Article 7 extends statute of frauds requirements
to include electronic records and signatures by creating new
definitions of "record" and "sign". The new definitions recognize
information stored in electronic format and electronic symbols,
respectively, as the term "writing" is replaced with the term "record"
wherever used in the Article.

The revisions to Article 7 are consistent with the increasing
recognition of electronic documents and instruments as equal in status
to their paper counterparts under both New York and federal law.

ARTICLE 9 OF THE UCC ("Secured transactions"):

Article 9 governs security interest in personal property. The Article
was substantially revised and enacted in New York in 2001. The current
bill contains targeted amendments (the "Amendments") to Article 9
relating to the rules for the system for filing and searching
financing statements, other discrete changes and some transition
rules.

I. Changes Relating to the Filing Rules. The Amendments contain a
number of changes related to the rules for the filing system:

A. Name to be Provided on a Financing Statement When the Debtor is an
Individual The most important change effected by the Article 9
revisions is that they establish the name to use when filing a UCC
financing statement against a debtor who is an individual. Presently,
there is no law that establishes the "legal name" of an individual.
Many official documents issued to the same person - birth certificate,
passport, and driver's license -frequently appear with different
names, or variations of names. None of these may correspond with the
name actually used by that person for business transactions. Foreign
naming conventions further complicate matters, as the person's family
name, rather than the given name, may appear first. Yet it is the
responsibility of the secured party making a UCC financing statement
filing to establish the correct legal name of the individual, at the
risk of making a filing that is legally ineffective.


To provide greater guidance, any of the following names for an
individual debtor would be sufficient as the debtor's name on the
financing statement: (1) the debtor's name as shown on the debtor's
driver's license if the debtor holds an unexpired driver's license
issued by the state whose law governs perfection under Article 9's
conflict of laws rules, (2) the individual name of the debtor, as
under current Article 9, or (3) the debtor's surname and first
personal name. If the debtor holds two driver's licenses issued by the
state, the most recently issued driver's license is the one to which
reference should be made to determine the debtor's name to be provided
on the financing statement.

B. Definition of "Registered Organization"

The Amendments modify the definition of "registered organization" to
reflect that an organization is a registered organization if it is
formed or organized solely under the law of a single state by the
filing of a public record with the state rather than, as under current
Article 9, by the state merely being required to maintain a public
record showing that the organization has been organized. This change
will more accurately reflect that a registered organization includes
an organization whose "birth certificate" emanates from the act of
making a public filing.

Furthermore, the Amendments expand the definition of "registered
organization" to include a common law trust that is formed for a
business or commercial purpose and is required by a state's business
trust statute to file with the state an organic record, such as the
trust agreement for a common law trust. This change will mean that a
Massachusetts business trust, for example, will be considered to be a
registered organization rather than, as would appear to be the case
under current Article 9, an organization that is not a registered
organization.

C. Name of Registered Organization

The Amendments clarify that, for a financing statement to be
sufficient, the name of the registered organization debtor to be
provided on the financing statement is the name reflected on the
"public organic record" of the registered organization. In most cases,
a registered organization's "public organic record" is the publicly
available record filed with the state to form or organize the
registered organization.

D. Name of Debtor When Collateral is Held in Trust

The Amendments require that, when the collateral is held in a trust
that is not a registered organization, the filer must provide in a
separate part of the financing statement a statement that the
collateral is held in trust. The reference to "collateral held in
trust" replaces the reference under current Article 9 to the debtor
being the trust or the trustee. The reference to the debtor being a
trust or trustee was thought to be confusing in practice especially
because typically under a common law trust in most states the debtor
would be the trustee.


If the name of the settlor or testator is provided as the debtor's
name, the filer must provide in a separate part of the financing
statement sufficient information to distinguish the trust from other
trusts of the same senior or testator. That distinguishing information
often could be, for example, merely the date of the trust agreement.

The requirement that this information be inserted in a separate part
of the financing statement was intended to reduce the risk that a
secured party would provide the information in the debtor's name block
of the financing statement. Under the search logic of the filing
office in some states, additional information provided in the debtor's
name block may cause the financing statement to be ineffective if a
search of the debtor's name without the additional information would
fail to disclose the financing statement.

E. Name of Debtor When Collateral is Administered by a Personal
Representative

Current Article 9 refers to the possibility that the debtor may be an
estate. The amendments more accurately refer to collateral that is
being administered by a personal representative of a deceased debtor.
In such a case the name of the deceased debtor on the financing
statement will be sufficient as a "safe harbor" if the name provided
is the name of the debtor on the court order appointing the personal
representative. If the appointment order contains more than one name
for the debtor, the first name of the debtor on the appointment order
is sufficient.

F. Debtor's Change of Location

Under current Article 9, if a debtor changes its location to a new
jurisdiction, a secured party whose security interest was perfected by
filing in the original jurisdiction has a period of up to four months
to continue the perfection of its security interest by filing a
financing statement in, or otherwise perfecting the security interest
under the law of, the new jurisdiction. The four month grace period
applies, however, only to collateral in which the secured party's
security interest was perfected at the time of the change of location.
Of course, a security interest in property acquired by the debtor
after the time of the change of location will not be perfected at the
time of the change because the security interest in the after-acquired
property will not attach until the property is acquired by the debtor
and the debtor then has rights in the collateral. There is no grace
period under current Article 9 for perfection of any security interest
that may attach to post-change of location after-acquired property of
the debtor.

The amendments add a grace period for the after-acquired property.
They do so by providing that the financing statement filed in the
original jurisdiction is effective with respect to collateral acquired
within the four months after the debtor's location changes.  The
secured party can continue perfection beyond the four-month period by
filing a financing statement or otherwise perfecting under the law of
the new jurisdiction.


The amendments will provide greater protection for a secured party
with a security interest in after-acquired property of its debtor if
the debtor changes its location.

G. New Debtor

The Amendments provide similar protection for a security interest in
after-acquired property if a new debtor becomes bound by the original
debtor's security agreement and the new debtor is located in a
different jurisdiction from the jurisdiction in which the original
debtor was located. For example, if Old Debtor located in State A
merges into New Debtor located in State B, under current Article 9
there is a grace period of up to one year for the secured party of Old
Debtor to file a financing statement against New Debtor in State B to
continue the effectiveness of the financing statement that the secured
party filed in State A against Old Debtor. But the grace period
applies only to a security interest that was perfected by filing in
State A at the time of the merger. There is no grace period for
perfection of any security interest that may attach to post-merger
after-acquired property. Using an approach similar to that taken with
respect to property acquired by a debtor after it relocates, the
Amendments provide for a grace period of up to four months in the case
of such an interstate merger.

As under current Article 9, a security interest in post-merger
after-acquired property that is perfected solely by the financing
statement filed by the secured party against Old Debtor in State A
will be subordinate to a security interest of a competing secured
party perfected by the filing of a financing statement against New
Debtor in State B. This result for an interstate merger is consistent
with the treatment of after-acquired property of a new debtor in the
case of an intrastate merger.

H. Other Filing Related Changes

The Amendments provide for other changes to the filing rules in Part 5
of Article 9:

- Only an initial financing statement may indicate that the debtor is
a transmitting utility, in which case the financing statement does not
lapse. Current Article 9 suggests that an initial financing statement
may be amended to indicate that the debtor is a transmitting utility.
The statutory change will make the transmitting utility filing
provision consistent with the public-finance and manufactured-home
transactions filing provision.

- A filing office will no longer be permitted to reject a financing
statement that fails to provide the type of organization of the
debtor, the jurisdiction of organization of the debtor, or the
organizational identification number of the debtor or a statement that
the debtor has none. This information was not considered to be
sufficiently useful in practice and often added cost and delay to the
filing process.

- The term "correction statement" as used in current Article 9 has
been changed to the more accurate "information statement." Under the
Amendments, an information statement may, but need not, be filed by a


secured party of record who believes that an amendment or other record
relating to the financing statement of the secured party of record was
filed by a person not entitled to do so. Under current Article 9 a
correction statement may be filed only by the debtor.

-The uniform forms of initial financing statement and amendment have
been updated to reflect the Amendments.

II. Changes Unrelated to Filing. The Amendments contain some changes
that are less connected to the filing rules in Part 5 of Article 9:

*Current section 9-406 renders unenforceable an anti-assignment term
of a payment intangible or promissory note that secures an obligation.
By way of contrast, current section 9-408 permits a sale of a payment
intangible or promissory note notwithstanding an anti-assignment term
but does not require the account debtor or maker to attorn to or
otherwise recognize the buyer. The Amendments clarify that
effectiveness of an anti-assignment term of a payment intangible or
promissory note in the case of a sale or other disposition of
collateral under section 9-610 or an acceptance of collateral under
section 9-620 is governed by section 9-406 and not by section 9-408.

*The Amendments modify the definition of the term "authenticate" to
conform to the definitions of "sign" in the revisions contained in the
bill to Article 1 and Article 7.

*The Amendments modify the definition of "certificate of title" to
take into account state certificate of title systems that permit or
require electronic records as an alternative to the issuance of
certificates of title.

*The Amendments modify the requirements for control of electronic
chattel paper to conform them with those in revisions contained in the
bill for Article 7 for electronic documents of title and in the
Uniform Electronic Transactions Act for transferable records. The
result is that the new requirements set forth the current requirements
as a "safe harbor" but permit other control systems as well.

*The Amendments clarify that a registered organization organized under
federal law, such as a national bank, that, by authorization under
federal law, designates its main or home office as its location is
located in the state of that office for purposes of Article 9

*The Amendments expand the list of collateral for which a licensee or
buyer takes free of a security interest if the licensee or buyer gives
value without knowledge of the security interests and before it is
perfected.

*The Amendments confirm that a secured party's authorization to record
an assignment of a mortgage securing a promissory note assigned to the
secured party in order for the secured party to conduct a non-judicial
foreclosure sale of the mortgaged real property applies when there is
a default by the mortgagor. The language in current Article 9 could
arguably have been read to refer to a default by the assignor of the
promissory note rather than by the mortgagor.


*The NY Amendments contain non-uniform provisions modeled on the
Delaware UCC that are intended to clarify when a secured party has
"control" over deposit accounts and securities accounts.

The Amendments to Article 9 provide greater certainty for the
sufficiency of the name of a debtor on a financing statement by tying
the concept of "legal name" to "license name." By so doing, the
revisions may help to reduce the current practice of requiring debtors
who are individuals to incorporate or establish limited liability
companies (whose legal name is easily determined) to qualify for
continuing commercial credit. in addition, the Amendments address a
number of filing system concerns under current Article 9 raised by the
International Association of Commercial Administrators, and resolve
ambiguities and address technical issues discovered in current Article
9 where there were substantial problems in practice or as to which
some states have enacted non-uniform amendments.

FISCAL IMPLICATIONS:  Keeping New York's commercial law as modern as
any in the nation is important for maintaining New York's status as a
preeminent commercial jurisdiction. This has a major impact on the
state's economy, which in turn has a major impact on the state's
budget.

New York is under increasing competition to maintain its rank as a
leading commercial jurisdiction. Today, significant commercial
transactions may be domiciled in a U.S. jurisdiction that has
modernized its law, or in a foreign locale that has a mature legal
system. While sophisticated and complex commercial transactions are
not themselves taxed, they generate both jobs and income for New
Yorkers, particularly in the financial services sector. It has been
estimated that for each professional job that is lost, there are at
least one to two additional nonprofessional jobs that are lost as
well.

EFFECTIVE DATE:July 1, 2013

2013-S5901 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5901

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                              June 20, 2013
                               ___________

Introduced  by  Sen.  FARLEY -- read twice and ordered printed, and when
  printed to be committed to the Committee on Rules

AN ACT to amend the uniform commercial code, in relation to  modernizing
  commercial  law in New York state; and to repeal certain provisions of
  such code relating thereto

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1. Article 1 of the uniform commercial code is REPEALED and a
new article 1 is added to read as follows:
                                ARTICLE 1
                                 PART 1
                           GENERAL PROVISIONS
SECTION 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.
SECTION 1--102. SCOPE OF ARTICLE.
  THIS  ARTICLE  APPLIES  TO  A  TRANSACTION  TO  THE  EXTENT THAT IT IS
GOVERNED BY ANOTHER ARTICLE OF THIS ACT.
SECTION 1--103. CONSTRUCTION OF UNIFORM COMMERCIAL CODE TO  PROMOTE  ITS
                  PURPOSES  AND  POLICIES; APPLICABILITY OF SUPPLEMENTAL
                  PRINCIPLES OF LAW.
  (A) THIS ACT 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 THIS ACT, THE
PRINCIPLES OF LAW AND EQUITY, INCLUDING THE LAW  MERCHANT  AND  THE  LAW

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11480-01-3

S. 5901                             2

RELATIVE  TO CAPACITY TO CONTRACT, PRINCIPAL AND AGENT, ESTOPPEL, FRAUD,
MISREPRESENTATION, DURESS,  COERCION,  MISTAKE,  BANKRUPTCY,  AND  OTHER
VALIDATING OR INVALIDATING CAUSE SUPPLEMENT ITS PROVISIONS.
SECTION 1--104. CONSTRUCTION AGAINST IMPLIED REPEAL.
  THIS  ACT  BEING  A  GENERAL ACT INTENDED AS A UNIFIED COVERAGE OF ITS
SUBJECT MATTER, NO PART OF IT SHALL BE DEEMED TO BE  IMPLIEDLY  REPEALED
BY  SUBSEQUENT  LEGISLATION  IF  SUCH  CONSTRUCTION  CAN  REASONABLY  BE
AVOIDED.
SECTION 1--105. SEVERABILITY.
  IF ANY PROVISION OR CLAUSE OF THIS  ACT  OR  ITS  APPLICATION  TO  ANY
PERSON  OR  CIRCUMSTANCE IS HELD INVALID, THE INVALIDITY DOES NOT AFFECT
OTHER PROVISIONS OR APPLICATIONS OF THIS ACT WHICH CAN BE  GIVEN  EFFECT
WITHOUT  THE  INVALID  PROVISION  OR  APPLICATION,  AND  TO THIS END THE
PROVISIONS OF THIS ACT ARE SEVERABLE.
SECTION 1--106. USE OF SINGULAR AND PLURAL; GENDER.
  IN THIS ACT, 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.
SECTION 1--107. SECTION CAPTIONS.
  SECTION  CAPTIONS  ARE  PART  OF  THIS ACT. THE SUBSECTION HEADINGS IN
ARTICLE NINE ARE NOT PART OF THIS ACT FOR PURPOSES OF CONSTRUCTION.
SECTION 1--108. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL
                 COMMERCE ACT.
  THIS ARTICLE MODIFIES, 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 MODIFIES, LIMITS, OR SUPER-
SEDES SECTION 7001(C) OF THAT ACT OR AUTHORIZES ELECTRONIC  DELIVERY  OF
ANY OF THE NOTICES DESCRIBED IN SECTION 7003(B) OF THAT ACT.
                                 PART 2
          GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION
SECTION 1--201. GENERAL DEFINITIONS.
  (A) UNLESS THE CONTEXT OTHERWISE REQUIRES, WORDS OR PHRASES DEFINED IN
THIS  SECTION, OR IN THE ADDITIONAL DEFINITIONS CONTAINED IN OTHER ARTI-
CLES OF THIS ACT THAT APPLY TO PARTICULAR  ARTICLES  OR  PARTS  THEREOF,
HAVE THE MEANINGS STATED.
  (B)  SUBJECT  TO  DEFINITIONS  CONTAINED IN OTHER ARTICLES OF THIS ACT
THAT APPLY TO PARTICULAR ARTICLES OR PARTS THEREOF:
  (1) "ACTION", IN THE SENSE OF A JUDICIAL PROCEEDING, INCLUDES  RECOUP-
MENT, COUNTERCLAIM, SET-OFF, 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 CERTIFICATED 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

S. 5901                             3

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
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 OFF 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 THIS ACT 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 ASSIG-
NEE FOR THE BENEFIT 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 (A) THAT IN THE REGULAR COURSE
OF BUSINESS OR FINANCING 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

S. 5901                             4

AND (B) THAT PURPORTS TO BE ISSUED BY OR ADDRESSED TO A  BAILEE  AND  TO
COVER  GOODS  IN  THE BAILEE'S POSSESSION WHICH ARE EITHER IDENTIFIED OR
ARE FUNGIBLE PORTIONS OF AN IDENTIFIED 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  INFORMA-
TION 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" MEANS HONESTY IN FACT.
  (21) "HOLDER" MEANS:
  (A) THE PERSON IN POSSESSION OF A NEGOTIABLE INSTRUMENT THAT IS  PAYA-
BLE  EITHER  TO  BEARER OR TO AN IDENTIFIED PERSON THAT IS THE PERSON IN
POSSESSION; OR
  (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 BENEFIT 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 FIDE 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  MONE-
TARY 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 THIS ACT.
  (27)  "PERSON"  MEANS  AN  INDIVIDUAL,  CORPORATION,  BUSINESS  TRUST,
ESTATE, TRUST,  PARTNERSHIP,  LIMITED  LIABILITY  COMPANY,  ASSOCIATION,
JOINT  VENTURE, GOVERNMENT, GOVERNMENTAL SUBDIVISION, AGENCY, OR INSTRU-
MENTALITY, 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 SPECIFIED 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 SPECIFIED, 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.

S. 5901                             5

  (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 OFFICER OF A CORPORATION OR ASSOCIATION, AND A
TRUSTEE, EXECUTOR, OR ADMINISTRATOR OF AN ESTATE.
  (34) "RIGHT" INCLUDES REMEDY.
  (35) "SECURITY INTEREST" MEANS AN INTEREST  IN  PERSONAL  PROPERTY  OR
FIXTURES WHICH SECURES PAYMENT OR PERFORMANCE OF AN OBLIGATION. "SECURI-
TY  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 IDENTIFICA-
TION  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  2-A  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  NOTWITH-
STANDING  SHIPMENT  OR  DELIVERY  TO  THE  BUYER UNDER SECTION 2--401 IS
LIMITED IN EFFECT 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 SPECIFIED 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 PRES-
ENT 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 TERRITO-
RY  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  PARTIC-
ULAR 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 INTEN-
TIONAL REDUCTION TO TANGIBLE FORM.  "WRITTEN" HAS A CORRESPONDING  MEAN-
ING.
SECTION 1--202. NOTICE; KNOWLEDGE.
  (A)  SUBJECT TO SUBSECTION (F), A PERSON HAS "NOTICE" OF A FACT IF THE
PERSON:
  (1) HAS ACTUAL KNOWLEDGE OF IT;
  (2) HAS RECEIVED A NOTICE OR NOTIFICATION OF IT; OR

S. 5901                             6

  (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 "NOTIFIES" OR "GIVES" A NOTICE OR NOTIFICATION 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 ACTUAL-
LY COMES TO KNOW OF IT.
  (E) SUBJECT TO SUBSECTION (F), A PERSON "RECEIVES" A NOTICE OR NOTIFI-
CATION 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  NOTIFICATION  RECEIVED  BY  AN
ORGANIZATION  IS EFFECTIVE FOR A PARTICULAR TRANSACTION FROM THE TIME IT
IS BROUGHT TO THE ATTENTION OF THE  INDIVIDUAL  CONDUCTING  THAT  TRANS-
ACTION  AND,  IN  ANY EVENT, FROM THE TIME IT WOULD HAVE BEEN BROUGHT TO
THE INDIVIDUAL'S ATTENTION IF THE ORGANIZATION HAD EXERCISED  DUE  DILI-
GENCE.  AN  ORGANIZATION EXERCISES DUE DILIGENCE IF IT MAINTAINS REASON-
ABLE ROUTINES FOR COMMUNICATING SIGNIFICANT INFORMATION  TO  THE  PERSON
CONDUCTING  THE  TRANSACTION AND THERE IS REASONABLE COMPLIANCE WITH THE
ROUTINES. DUE DILIGENCE DOES NOT REQUIRE AN INDIVIDUAL  ACTING  FOR  THE
ORGANIZATION TO COMMUNICATE INFORMATION UNLESS 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 AFFECTED
BY THE INFORMATION.
SECTION 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.
  (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 NOMI-
NAL 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;

S. 5901                             7

  (3) THE LESSEE AGREES TO PAY, WITH RESPECT TO THE GOODS, TAXES, INSUR-
ANCE, FILING, 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 FIXED 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
FIXED  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.
SECTION 1--204. VALUE.
  EXCEPT AS OTHERWISE PROVIDED IN ARTICLES 3, 4, AND 5, A  PERSON  GIVES
VALUE FOR RIGHTS IF THE PERSON ACQUIRES THEM:
  (A)  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  DIFFICUL-
TIES IN COLLECTION;
  (B)  AS SECURITY FOR, OR IN TOTAL OR PARTIAL SATISFACTION OF, A PREEX-
ISTING CLAIM;
  (C) BY ACCEPTING DELIVERY UNDER A PREEXISTING CONTRACT  FOR  PURCHASE;
OR
  (D)  IN  RETURN  FOR  ANY CONSIDERATION SUFFICIENT TO SUPPORT A SIMPLE
CONTRACT.
SECTION 1--205. REASONABLE TIME; SEASONABLENESS.
  (A) WHETHER A TIME FOR TAKING  AN  ACTION  REQUIRED  BY  THIS  ACT  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.
SECTION 1--206. PRESUMPTIONS.
  WHENEVER THIS ACT CREATES A "PRESUMPTION" WITH RESPECT TO A  FACT,  OR
PROVIDES  THAT  A  FACT  IS  "PRESUMED," THE TRIER OF FACT MUST FIND THE
EXISTENCE OF THE FACT UNLESS  AND  UNTIL  EVIDENCE  IS  INTRODUCED  THAT
SUPPORTS A FINDING OF ITS NONEXISTENCE.
                                 PART 3
               TERRITORIAL APPLICABILITY AND GENERAL RULES
SECTION 1--301. TERRITORIAL  APPLICABILITY;  PARTIES'  POWER  TO  CHOOSE
                  APPLICABLE LAW.

S. 5901                             8

  (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 EFFECTIVE UNDER SUBSECTION (A), AND
EXCEPT  AS  PROVIDED IN SUBSECTION (C), THIS ACT APPLIES TO TRANSACTIONS
BEARING AN APPROPRIATE RELATION TO THIS STATE.
  (C) IF ONE OF THE FOLLOWING  PROVISIONS  OF  THIS  ACT  SPECIFIES  THE
APPLICABLE  LAW,  THAT  PROVISION  GOVERNS  AND  A CONTRARY AGREEMENT IS
EFFECTIVE ONLY TO THE EXTENT PERMITTED BY THE LAW SO SPECIFIED:
  (1) SECTION 2--402;
  (2) SECTIONS 2-A--105 AND 2-A--106;
  (3) SECTION 4--102;
  (4) SECTION 4-A--507;
  (5) SECTION 5--116;
  (6) SECTION 8--110; AND
  (7) SECTIONS 9--301 THROUGH 9--307.
SECTION 1--302. VARIATION BY AGREEMENT.
  (A) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION  (B)  OR  ELSEWHERE  IN
THIS  ACT,  THE EFFECT OF PROVISIONS OF THIS ACT MAY BE VARIED BY AGREE-
MENT.
  (B) THE OBLIGATIONS OF GOOD FAITH, DILIGENCE, REASONABLENESS, AND CARE
PRESCRIBED BY THIS ACT 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 MANIFEST-
LY UNREASONABLE.  WHENEVER THIS ACT REQUIRES AN ACTION TO BE TAKEN WITH-
IN A REASONABLE TIME, A TIME THAT IS NOT MANIFESTLY UNREASONABLE MAY  BE
FIXED BY AGREEMENT.
  (C)  THE  PRESENCE  IN  CERTAIN  PROVISIONS  OF THIS ACT OF THE PHRASE
"UNLESS OTHERWISE AGREED", OR WORDS OF SIMILAR IMPORT,  DOES  NOT  IMPLY
THAT THE EFFECT OF OTHER PROVISIONS MAY NOT BE VARIED BY AGREEMENT UNDER
THIS SECTION.
SECTION 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 TO IT WITHOUT OBJECTION.
  (B) A "COURSE OF DEALING" IS A SEQUENCE OF CONDUCT CONCERNING PREVIOUS
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

S. 5901                             9

SPECIFIC 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  DEAL-
ING, 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, A COURSE OF PERFORMANCE IS RELEVANT TO
SHOW A WAIVER OR MODIFICATION OF ANY TERM INCONSISTENT WITH  THE  COURSE
OF PERFORMANCE.
  (G)  EVIDENCE OF A RELEVANT USAGE OF TRADE OFFERED BY ONE PARTY IS NOT
ADMISSIBLE UNLESS THAT PARTY HAS GIVEN THE OTHER PARTY NOTICE  THAT  THE
COURT FINDS SUFFICIENT TO PREVENT UNFAIR SURPRISE TO THE OTHER PARTY.
SECTION 1--304. OBLIGATION OF GOOD FAITH.
  EVERY  CONTRACT  OR DUTY WITHIN THIS ACT IMPOSES AN OBLIGATION OF GOOD
FAITH IN ITS PERFORMANCE AND ENFORCEMENT.
SECTION 1--305. REMEDIES TO BE LIBERALLY ADMINISTERED.
  (A) THE REMEDIES PROVIDED BY THIS ACT 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 SPECIFICALLY
PROVIDED IN THIS ACT OR BY OTHER RULE OF LAW.
  (B) ANY RIGHT OR OBLIGATION DECLARED BY THIS  ACT  IS  ENFORCEABLE  BY
ACTION  UNLESS  THE  PROVISION  DECLARING  IT  SPECIFIES A DIFFERENT AND
LIMITED EFFECT.
SECTION 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.
SECTION 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, OFFICIAL WEIGHER'S OR INSPECTOR'S CERTIFICATE,
CONSULAR INVOICE, OR ANY OTHER DOCUMENT AUTHORIZED OR  REQUIRED  BY  THE
CONTRACT  TO  BE  ISSUED BY A THIRD PARTY IS PRIMA FACIE EVIDENCE OF ITS
OWN AUTHENTICITY AND GENUINENESS AND OF THE FACTS STATED IN THE DOCUMENT
BY THE THIRD PARTY.
SECTION 1--308. PERFORMANCE OR ACCEPTANCE UNDER RESERVATION OF RIGHTS.
  (A) A PARTY THAT WITH EXPLICIT RESERVATION OF RIGHTS PERFORMS OR PROM-
ISES PERFORMANCE OR ASSENTS TO  PERFORMANCE  IN  A  MANNER  DEMANDED  OR
OFFERED  BY  THE  OTHER  PARTY  DOES  NOT  THEREBY  PREJUDICE THE RIGHTS
RESERVED. SUCH WORDS AS "WITHOUT PREJUDICE,"  "UNDER  PROTEST,"  OR  THE
LIKE ARE SUFFICIENT.
  (B) SUBSECTION (A) DOES NOT APPLY TO AN ACCORD AND SATISFACTION.
SECTION 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  ADDI-
TIONAL  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

S. 5901                            10

PERFORMANCE  IS  IMPAIRED. THE BURDEN OF ESTABLISHING LACK OF GOOD FAITH
IS ON THE PARTY AGAINST WHICH THE POWER HAS BEEN EXERCISED.
SECTION 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.  SUBORDI-
NATION  DOES NOT CREATE A SECURITY INTEREST AS AGAINST EITHER THE COMMON
DEBTOR OR A SUBORDINATED CREDITOR.
  S 2. Subsection 3 of section 2--103 of the uniform commercial code, as
amended by chapter 84 of the  laws  of  2001,  is  amended  to  read  as
follows:
  (3) The following definitions in other Articles apply to this Article:

               "Check".                 Section 3--104.
               "Consignee".             Section 7--102.
               "Consignor".             Section 7--102.
               "Consumer goods".        Section 9--102.
               "CONTROL".               SECTION 7--106.
               "Dishonor".              Section 3--507.
               "Draft".                 Section 3--104.
  S  3. Subsection 2 of section 2--104 of the uniform commercial code is
amended to read as follows:
  (2) "Financing agency" means a bank, finance company or  other  person
who  in  the ordinary course of business makes advances against goods or
documents of title or who by arrangement with either the seller  or  the
buyer  intervenes  in  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.  "Financing agency" includes also a bank or other person
who similarly intervenes between persons who  are  in  the  position  of
seller and buyer in respect to the goods (Section 2--707).
  S  4. Section 2--202 of the uniform commercial code is amended to read
as follows:
Section 2--202. Final Written Expression: Parol or Extrinsic Evidence.
  Terms with respect to which the confirmatory memoranda of the  parties
agree  or  which  are  otherwise  set forth in a writing intended by the
parties as a final expression of their agreement with  respect  to  such
terms as are included therein may not be contradicted by evidence of any
prior  agreement  or  of  a  contemporaneous  oral  agreement 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  finds
the  writing  to  have  been  intended  also as a complete and exclusive
statement of the terms of the agreement.
  S 5. Subsection (c) of section 2--310 of the uniform  commercial  code
is amended to read as follows:
  (c)  if  delivery  is authorized and made by way of documents of title
otherwise than by subsection (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 [regardless of
where the goods are to be received] OR (II) AT THE TIME THE BUYER IS  TO

S. 5901                            11

RECEIVE  DELIVERY  OF THE ELECTRONIC DOCUMENTS AND AT THE SELLER'S PLACE
OF BUSINESS OR IF NONE, THE SELLER'S RESIDENCE; and
  S  6.  The  opening  paragraph of subsection 2 of section 2-323 of the
uniform commercial code is amended to read as follows:
  Where in a case within subsection (1) a TANGIBLE bill  of  lading  has
been  issued in a set of parts, unless otherwise agreed if the documents
are not to be sent from abroad the buyer may demand tender of  the  full
set;  otherwise  only  one  part of the bill of lading need be tendered.
Even if the agreement expressly requires a full set:
  S 7. Subsection 3 of section 2--401 of the uniform commercial code  is
amended to read as follows:
  (3)  Unless  otherwise  explicitly agreed where delivery is to be made
without moving the goods,
       (a) if the seller is to deliver a  TANGIBLE  document  of  title,
           title passes at the time when and the place where he delivers
           such  documents AND IF THE SELLER IS TO DELIVER AN ELECTRONIC
           DOCUMENT OF TITLE, TITLE PASSES WHEN THE SELLER DELIVERS  THE
           DOCUMENT; or
       (b) if  the  goods are at the time of contracting already identi-
           fied and no documents OF TITLE are  to  be  delivered,  title
           passes at the time and place of contracting.
  S  8.  Paragraph  (b) of subsection 4 of section 2--503 of the uniform
commercial code is amended to read as follows:
       (b) tender to the buyer of a non-negotiable document of title  or
           of  a  [written  direction to] RECORD DIRECTING the bailee to
           deliver is sufficient  tender  unless  the  buyer  seasonably
           objects,  and  EXCEPT  AS  OTHERWISE  PROVIDED  IN  ARTICLE 9
           receipt by the bailee of notification of the  buyer's  rights
           fixes  those  rights  as  against  the  bailee  and all third
           persons; but risk of loss of the goods and of any failure  by
           the  bailee  to honor the non-negotiable document of title or
           to obey the direction remains on the seller until  the  buyer
           has  had  a reasonable time to present the document or direc-
           tion, and a refusal by the bailee to honor the document or to
           obey the direction defeats the tender.
  S 9. Paragraph (b) of subsection 5 of section 2--503  of  the  uniform
commercial code is amended to read as follows:
       (b)  tender  through customary banking channels is sufficient and
           dishonor of a draft accompanying OR ASSOCIATED WITH the docu-
           ments constitutes non-acceptance or rejection.
  S 10.  Section 2--505 of the uniform commercial  code  is  amended  to
read as follows:
Section 2--505. Seller's Shipment Under Reservation.
  (1) Where the seller has identified goods to the contract by or before
shipment:
       (a)  his  procurement  of  a negotiable bill of lading to his own
           order or otherwise reserves in him a security interest in the
           goods. His procurement of the bill to the order of a  financ-
           ing  agency  or  of  the buyer indicates in addition only the
           seller's expectation of transferring  that  interest  to  the
           person named.
       (b) a  non-negotiable  bill  of  lading to himself or his nominee
           reserves possession of the goods as security but except in  a
           case  of  conditional  delivery  (subsection  (2)  of Section
           2--507) a non-negotiable bill of lading naming the  buyer  as

S. 5901                            12

           consignee reserves no security interest even though the sell-
           er retains possession OR CONTROL of the bill of lading.
  (2)  When shipment by the seller with reservation of a security inter-
est is in violation of the contract for sale it constitutes an  improper
contract  for  transportation  within  the preceding section but impairs
neither the rights given to the buyer by shipment and identification  of
the goods to the contract nor the seller's powers as a holder of a nego-
tiable document OF TITLE.
  S 11. Subsection 2 of section 2--506 of the uniform commercial code is
amended to read as follows:
  (2) The right to reimbursement of a financing agency which has in good
faith  honored  or  purchased the draft under commitment to or authority
from the buyer is not impaired by subsequent discovery of  defects  with
reference  to any relevant document which was apparently regular [on its
face].
  S 12. Subsection 2 of section 2--509 of the uniform commercial code is
amended to read as follows:
  (2) Where the goods are held by a bailee to be delivered without being
moved, the risk of loss passes to the buyer
       (a) on his receipt of POSSESSION OR CONTROL OF a negotiable docu-
           ment of title covering the goods; or
       (b) on acknowledgment by the  bailee  of  the  buyer's  right  to
           possession of the goods; or
       (c)  after his receipt of POSSESSION OR CONTROL OF a non-negotia-
           ble document of title or other [written] direction to deliver
           IN A RECORD, as provided in subsection  (4)  (b)  of  Section
           2--503.
  S 13. Subsection 2 of section 2--605 of the uniform commercial code is
amended to read as follows:
  (2)  Payment  against  documents  made  without  reservation of rights
precludes recovery of the payment for defects apparent [on the face  of]
IN the documents.
  S 14. Subsection 2 of section 2--705 of the uniform commercial code is
amended to read as follows:
  (2) As against such buyer the seller may stop delivery until
       (a) receipt of the goods by the buyer; or
       (b) acknowledgment to the buyer by any bailee of the goods except
           a carrier that the bailee holds the goods for the buyer; or
       (c)  such  acknowledgment to the buyer by a carrier by reshipment
           or as [warehouseman] A WAREHOUSE; or
       (d) negotiation to the buyer of any negotiable document of  title
           covering the goods.
  S  15.  Paragraph (c) of subsection 3 of section 2--705 of the uniform
commercial code is amended to read as follows:
    (c) If a negotiable document of title has been issued for goods  the
    bailee is not obliged to obey a notification to stop until surrender
    OF POSSESSION OR CONTROL of the document.
  S  16.  Paragraphs  (a) and (o) of subsection 1 of section 2-A--103 of
the uniform commercial code, as added by chapter  114  of  the  laws  of
1994, are amended to read as follows:
       (a)  "Buyer in ordinary course of business" means a person who in
           good faith and without knowledge that the  sale  to  him  [or
           her]  is  in  violation  of  the ownership rights or security
           interest or leasehold interest of a third party in the goods,
           buys in ordinary course from a  person  in  the  business  of
           selling goods of that kind but does not include a pawnbroker.

S. 5901                            13

           "Buying"  may be for cash or by exchange of other property or
           on secured  or  unsecured  credit  and  includes  [receiving]
           ACQUIRING  goods  or  documents  of title under a preexisting
           contract  for sale but does not include a transfer in bulk or
           as security for or in total  or  partial  satisfaction  of  a
           money debt.
       (o) "Lessee in ordinary course of business" means a person who in
           good  faith  and  without knowledge that the lease to him [or
           her] is in violation of  the  ownership  rights  or  security
           interest  or leasehold interest of a third party in the goods
           leases in ordinary course from a person in  the  business  of
           selling  or leasing goods of that kind but does not include a
           pawnbroker.   "Leasing" may be for cash  or  by  exchange  of
           other property or on secured or unsecured credit and includes
           [receiving]  ACQUIRING  goods  or  documents of title under a
           preexisting lease contract but does not include a transfer in
           bulk or as security for or in total or  partial  satisfaction
           of a money debt.
  S 17. Subsection 3 of section 2-A--103 of the uniform commercial code,
as  amended  by  chapter  84  of the laws of 2001, is amended to read as
follows:
  (3) The following definitions 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)]
                                          9--102(A)(69).
               "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).
  S 18. Section 2-A--207 of the uniform commercial code is REPEALED.
  S 19. Subsection 4 of section 2-A--501 of the uniform commercial code,
as added by chapter 114 of the laws of  1994,  is  amended  to  read  as
follows:
  (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.
  S 20.   Subsection 2 of section 2-A--514  of  the  uniform  commercial
code, as added by chapter 114 of the laws of 1994, is amended to read as
follows:
  (2)  A  lessee's  failure  to reserve rights when paying rent or other
consideration against documents precludes recovery of  the  payment  for
defects apparent [on the face of] IN the documents.

S. 5901                            14

  S 21. Subsection 2 of section 2-A--518 of the uniform commercial code,
as  added  by  chapter  114  of  the laws of 1994, is amended to read as
follows:
  (2) Except as otherwise provided with respect to damages liquidated in
the  lease  agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-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 (a) 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
(b)  any  incidental  or  consequential  damages, less expenses saved in
consequence of the lessor's default.
  S 22. Subsection 1 of section 2-A--519 of the uniform commercial code,
as added by chapter 114 of the laws of  1994,  is  amended  to  read  as
follows:
  (1) Except as otherwise provided with respect to damages liquidated in
the  lease  agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Section [1-102(3)] 1--302 and 2-A-503),  if
a  lessee  elects not to cover or a lessee elects to cover and the cover
is by lease agreement, whether or not the lease agreement qualifies  for
treatment  under Section 2-A-518(2), or is by purchase or otherwise, the
measure of damages for non-delivery 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.
  S 23. Paragraph (c) of subsection 2 of section 2-A--526 of the uniform
commercial code, as added by chapter 114 of the laws of 1994, is amended
to read as follows:
       (c) such an acknowledgment to the lessee by a carrier via reship-
           ment or as [warehouseman] A WAREHOUSE.
  S 24. Subsection 2 of section 2-A--527 of the uniform commercial code,
as added by chapter 114 of the laws of  1994,  is  amended  to  read  as
follows:
  (2) Except as otherwise provided with respect to damages liquidated in
the  lease  agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-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 (a) accrued and unpaid rent as of the date of
the commencement of the term of the new lease agreement, (b) 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  lease term of the original lease agreement, and (c) any inci-
dental damages allowed under Section 2-A-530,  less  expenses  saved  in
consequence of the lessee's default.

S. 5901                            15

  S 25. Subsection 1 of section 2-A--528 of the uniform commercial code,
as  added  by  chapter  114  of  the laws of 1994, is amended to read as
follows:
  (1) Except as otherwise provided with respect to damages liquidated in
the  lease  agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections [1-102(3)] 1--302 and 2-A-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 whether or not the lease
agreement qualifies for treatment under Section  2-A-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 2-A-523(1) or 2-A-523 (3)(a),
or,  if  agreed, for other default of the lessee, (a) 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,  (b)  the  present
value  as  of the date determined under clause (a) 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 place where
the goods are located computed for the same  lease  term,  and  (c)  any
incidental damages allowed under Section 2-A-530, less expenses saved in
consequence of the lessee's default.
  S  26.  Article 3 of the uniform commercial code is REPEALED and a new
article 3 is added to read as follows:
                                ARTICLE 3
                         NEGOTIABLE INSTRUMENTS
                                 PART 1
                   GENERAL PROVISIONS AND DEFINITIONS
SECTION 3--101. SHORT TITLE.
  THIS ARTICLE MAY  BE  CITED  AS  UNIFORM  COMMERCIAL  CODE--NEGOTIABLE
INSTRUMENTS.
SECTION 3--102. SUBJECT MATTER.
  (A)  THIS ARTICLE APPLIES TO NEGOTIABLE INSTRUMENTS. IT DOES NOT APPLY
TO MONEY, TO PAYMENT ORDERS GOVERNED BY ARTICLE  4A,  OR  TO  SECURITIES
GOVERNED BY ARTICLE 8.
  (B)  IF  THERE  IS  CONFLICT  BETWEEN THIS ARTICLE AND ARTICLE 4 OR 9,
ARTICLES 4 AND 9 GOVERN.
  (C) REGULATIONS OF THE BOARD  OF  GOVERNORS  OF  THE  FEDERAL  RESERVE
SYSTEM  AND  OPERATING  CIRCULARS OF THE FEDERAL RESERVE BANKS SUPERSEDE
ANY INCONSISTENT PROVISION OF THIS ARTICLE TO THE EXTENT OF  THE  INCON-
SISTENCY.
SECTION 3--103. DEFINITIONS.
  (A) IN THIS ARTICLE:
  (1) "ACCEPTOR" MEANS A DRAWEE WHO HAS ACCEPTED A DRAFT.
  (2)  "CONSUMER  ACCOUNT" MEANS AN ACCOUNT ESTABLISHED BY AN INDIVIDUAL
PRIMARILY FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES.
  (3) "CONSUMER TRANSACTION" MEANS A TRANSACTION IN WHICH AN  INDIVIDUAL
INCURS  AN  OBLIGATION  PRIMARILY  FOR  PERSONAL,  FAMILY,  OR HOUSEHOLD
PURPOSES.
  (4) "DRAWEE" MEANS A PERSON ORDERED IN A DRAFT TO MAKE PAYMENT.
  (5) "DRAWER" MEANS A PERSON WHO SIGNS OR IS IDENTIFIED IN A DRAFT AS A
PERSON ORDERING PAYMENT.
  (6) "GOOD FAITH" MEANS HONESTY IN FACT AND THE OBSERVANCE  OF  REASON-
ABLE COMMERCIAL STANDARDS OF FAIR DEALING.
  (7)  "MAKER"  MEANS A PERSON WHO SIGNS OR IS IDENTIFIED IN A NOTE AS A
PERSON UNDERTAKING TO PAY.

S. 5901                            16

  (8) "ORDER" MEANS A WRITTEN INSTRUCTION TO PAY  MONEY  SIGNED  BY  THE
PERSON  GIVING THE INSTRUCTION.  THE INSTRUCTION MAY BE ADDRESSED TO ANY
PERSON, INCLUDING THE PERSON GIVING THE INSTRUCTION, OR TO ONE  OR  MORE
PERSONS JOINTLY OR IN THE ALTERNATIVE BUT NOT IN SUCCESSION. AN AUTHORI-
ZATION  TO  PAY  IS  NOT AN ORDER UNLESS THE PERSON AUTHORIZED TO PAY IS
ALSO INSTRUCTED TO PAY.
  (9) "ORDINARY CARE" IN THE CASE OF A PERSON ENGAGED IN BUSINESS  MEANS
OBSERVANCE OF REASONABLE COMMERCIAL STANDARDS, PREVAILING IN THE AREA IN
WHICH  THE  PERSON IS LOCATED, WITH RESPECT TO THE BUSINESS IN WHICH THE
PERSON IS ENGAGED. IN THE CASE OF A BANK THAT TAKES  AN  INSTRUMENT  FOR
PROCESSING  FOR  COLLECTION  OR  PAYMENT  BY AUTOMATED MEANS, REASONABLE
COMMERCIAL STANDARDS DO NOT REQUIRE THE BANK TO EXAMINE  THE  INSTRUMENT
IF  THE FAILURE TO EXAMINE DOES NOT VIOLATE THE BANK'S PRESCRIBED PROCE-
DURES AND THE BANK'S PROCEDURES DO NOT VARY  UNREASONABLY  FROM  GENERAL
BANKING USAGE NOT DISAPPROVED BY THIS ARTICLE OR ARTICLE 4.
  (10) "PARTY" MEANS A PARTY TO AN INSTRUMENT.
  (11)  "PRINCIPAL  OBLIGOR,"  WITH  RESPECT TO AN INSTRUMENT, MEANS THE
ACCOMMODATED PARTY OR ANY OTHER PARTY TO THE INSTRUMENT AGAINST  WHOM  A
SECONDARY OBLIGOR HAS RECOURSE UNDER THIS ARTICLE.
  (12)  "PROMISE" MEANS A WRITTEN UNDERTAKING TO PAY MONEY SIGNED BY THE
PERSON UNDERTAKING TO PAY.  AN ACKNOWLEDGMENT OF AN  OBLIGATION  BY  THE
OBLIGOR  IS  NOT A PROMISE UNLESS THE OBLIGOR ALSO UNDERTAKES TO PAY THE
OBLIGATION.
  (13) "PROVE" WITH RESPECT TO A FACT MEANS TO MEET THE BURDEN OF ESTAB-
LISHING THE FACT (SECTION 1-201(B)(8)).
  (14) RESERVED.
  (15) "REMITTER" MEANS A PERSON WHO PURCHASES AN  INSTRUMENT  FROM  ITS
ISSUER  IF  THE INSTRUMENT IS PAYABLE TO AN IDENTIFIED PERSON OTHER THAN
THE PURCHASER.
  (16) "REMOTELY-CREATED CONSUMER ITEM" MEANS AN ITEM DRAWN ON A CONSUM-
ER ACCOUNT, WHICH IS NOT CREATED BY THE PAYOR BANK AND DOES NOT  BEAR  A
HANDWRITTEN SIGNATURE PURPORTING TO BE THE SIGNATURE OF THE DRAWER.
  (17)  "SECONDARY OBLIGOR," WITH RESPECT TO AN INSTRUMENT, MEANS (A) AN
INDORSER OR AN ACCOMMODATION PARTY, (B) A DRAWER HAVING  THE  OBLIGATION
DESCRIBED  IN SECTION 3-414(D), OR (C) ANY OTHER PARTY TO THE INSTRUMENT
THAT HAS RECOURSE AGAINST ANOTHER PARTY TO THE  INSTRUMENT  PURSUANT  TO
SECTION 3-116(B).
  (B)  OTHER  DEFINITIONS  APPLYING  TO THIS ARTICLE AND THE SECTIONS IN
WHICH THEY APPEAR ARE:
"ACCEPTANCE". ........................................... SECTION 3--409
"ACCOMMODATED PARTY". ................................... SECTION 3--419
"ACCOMMODATION PARTY". .................................. SECTION 3--419
"ACCOUNT". .............................................. SECTION 4--104
"ALTERATION". ........................................... SECTION 3--407
"ANOMALOUS INDORSEMENT". ................................ SECTION 3--205
"BLANK INDORSEMENT". .................................... SECTION 3--205
"CASHIER'S CHECK". ...................................... SECTION 3--104
"CERTIFICATE OF DEPOSIT". ............................... SECTION 3--104
"CERTIFIED CHECK". ...................................... SECTION 3--409
"CHECK". ................................................ SECTION 3--104
"CONSIDERATION". ........................................ SECTION 3--303
"DRAFT". ................................................ SECTION 3--104
"HOLDER IN DUE COURSE". ................................. SECTION 3--302
"INCOMPLETE INSTRUMENT". ................................ SECTION 3--115
"INDORSEMENT". .......................................... SECTION 3--204
"INDORSER". ............................................. SECTION 3--204

S. 5901                            17

"INSTRUMENT". ........................................... SECTION 3--104
"ISSUE". ................................................ SECTION 3--105
"ISSUER". ............................................... SECTION 3--105
"NEGOTIABLE INSTRUMENT". ................................ SECTION 3--104
"NEGOTIATION". .......................................... SECTION 3--201
"NOTE". ................................................. SECTION 3--104
"PAYABLE AT A DEFINITE TIME". ........................... SECTION 3--108
"PAYABLE ON DEMAND". .................................... SECTION 3--108
"PAYABLE TO BEARER". .................................... SECTION 3--109
"PAYABLE TO ORDER". ..................................... SECTION 3--109
"PAYMENT". .............................................. SECTION 3--602
"PERSON ENTITLED TO ENFORCE". ........................... SECTION 3--301
"PRESENTMENT". .......................................... SECTION 3--501
"REACQUISITION". ........................................ SECTION 3--207
"SPECIAL INDORSEMENT". .................................. SECTION 3--205
"TELLER'S CHECK". ....................................... SECTION 3--104
"TRANSFER OF INSTRUMENT". ............................... SECTION 3--203
"TRAVELER'S CHECK". ..................................... SECTION 3--104
"VALUE". ................................................ SECTION 3--303
  (C) THE FOLLOWING DEFINITIONS IN OTHER ARTICLES APPLY TO THIS ARTICLE:
"BANKING DAY". .......................................... SECTION 4--104
"CLEARING HOUSE". ....................................... SECTION 4--104
"COLLECTING BANK". ...................................... SECTION 4--105
"DEPOSITARY BANK". ...................................... SECTION 4--105
"DOCUMENTARY DRAFT". .................................... SECTION 4--104
"INTERMEDIARY BANK". .................................... SECTION 4--105
"ITEM". ................................................. SECTION 4--104
"PAYOR BANK". ........................................... SECTION 4--105
"SUSPENDS PAYMENTS". .................................... SECTION 4--104
  (D) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES
OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE.
SECTION 3--104. NEGOTIABLE INSTRUMENT.
  (A) EXCEPT AS PROVIDED IN SUBSECTIONS (C) AND (D), "NEGOTIABLE INSTRU-
MENT"  MEANS  AN UNCONDITIONAL PROMISE OR ORDER TO PAY A FIXED AMOUNT OF
MONEY, WITH OR WITHOUT INTEREST OR OTHER CHARGES DESCRIBED IN THE  PROM-
ISE OR ORDER, IF IT:
  (1) IS PAYABLE TO BEARER OR TO ORDER AT THE TIME IT IS ISSUED OR FIRST
COMES INTO POSSESSION OF A HOLDER;
  (2) IS PAYABLE ON DEMAND OR AT A DEFINITE TIME; AND
  (3)  DOES NOT STATE ANY OTHER UNDERTAKING OR INSTRUCTION BY THE PERSON
PROMISING OR ORDERING PAYMENT TO DO ANY ACT IN ADDITION TO  THE  PAYMENT
OF  MONEY,  BUT  THE  PROMISE OR ORDER MAY CONTAIN (I) AN UNDERTAKING OR
POWER TO GIVE, MAINTAIN, OR PROTECT COLLATERAL TO SECURE  PAYMENT,  (II)
AN  AUTHORIZATION  OR POWER TO THE HOLDER TO CONFESS JUDGMENT OR REALIZE
ON OR DISPOSE OF COLLATERAL, OR (III) A WAIVER OF THE BENEFIT OF ANY LAW
INTENDED FOR THE ADVANTAGE OR PROTECTION OF AN OBLIGOR.
  (B) "INSTRUMENT" MEANS A NEGOTIABLE INSTRUMENT.
  (C) AN ORDER THAT MEETS ALL OF THE  REQUIREMENTS  OF  SUBSECTION  (A),
EXCEPT  PARAGRAPH  (1),  AND  OTHERWISE  FALLS  WITHIN THE DEFINITION OF
"CHECK" IN SUBSECTION (F) IS A NEGOTIABLE INSTRUMENT AND A CHECK.
  (D) A PROMISE OR ORDER OTHER THAN A CHECK IS NOT AN INSTRUMENT IF,  AT
THE  TIME  IT  IS  ISSUED OR FIRST COMES INTO POSSESSION OF A HOLDER, IT
CONTAINS A CONSPICUOUS STATEMENT, HOWEVER EXPRESSED, TO THE EFFECT  THAT
THE  PROMISE OR ORDER IS NOT NEGOTIABLE OR IS NOT AN INSTRUMENT GOVERNED
BY THIS ARTICLE.

S. 5901                            18

  (E) AN INSTRUMENT IS A "NOTE" IF IT IS A PROMISE AND IS A  "DRAFT"  IF
IT  IS  AN  ORDER.  IF AN INSTRUMENT FALLS WITHIN THE DEFINITION OF BOTH
"NOTE" AND "DRAFT," A PERSON ENTITLED  TO  ENFORCE  THE  INSTRUMENT  MAY
TREAT IT AS EITHER.
  (F) "CHECK" MEANS (I) A DRAFT, OTHER THAN A DOCUMENTARY DRAFT, PAYABLE
ON  DEMAND  AND  DRAWN  ON  A BANK OR (II) A CASHIER'S CHECK OR TELLER'S
CHECK. AN INSTRUMENT MAY BE A CHECK EVEN THOUGH IT IS DESCRIBED  ON  ITS
FACE BY ANOTHER TERM, SUCH AS "MONEY ORDER."
  (G)  "CASHIER'S  CHECK" MEANS A DRAFT WITH RESPECT TO WHICH THE DRAWER
AND DRAWEE ARE THE SAME BANK OR BRANCHES OF THE SAME BANK.
  (H) "TELLER'S CHECK" MEANS A DRAFT DRAWN BY  A  BANK  (I)  ON  ANOTHER
BANK, OR (II) PAYABLE AT OR THROUGH A BANK.
  (I)  "TRAVELER'S  CHECK"  MEANS  AN  INSTRUMENT THAT (I) IS PAYABLE ON
DEMAND, (II) IS DRAWN ON OR PAYABLE AT  OR  THROUGH  A  BANK,  (III)  IS
DESIGNATED  BY THE TERM "TRAVELER'S CHECK" OR BY A SUBSTANTIALLY SIMILAR
TERM, AND (IV) REQUIRES, AS A CONDITION TO PAYMENT,  A  COUNTERSIGNATURE
BY A PERSON WHOSE SPECIMEN SIGNATURE APPEARS ON THE INSTRUMENT.
  (J)  "CERTIFICATE  OF  DEPOSIT"  MEANS  AN  INSTRUMENT  CONTAINING  AN
ACKNOWLEDGMENT BY A BANK THAT A SUM OF MONEY HAS BEEN  RECEIVED  BY  THE
BANK  AND A PROMISE BY THE BANK TO REPAY THE SUM OF MONEY. A CERTIFICATE
OF DEPOSIT IS A NOTE OF THE BANK.
SECTION 3--105. ISSUE OF INSTRUMENT.
  (A) "ISSUE" MEANS THE FIRST DELIVERY OF AN INSTRUMENT BY THE MAKER  OR
DRAWER,  WHETHER  TO  A  HOLDER  OR NONHOLDER, FOR THE PURPOSE OF GIVING
RIGHTS ON THE INSTRUMENT TO ANY PERSON.
  (B) AN UNISSUED INSTRUMENT, OR AN UNISSUED INCOMPLETE INSTRUMENT  THAT
IS  COMPLETED,  IS  BINDING ON THE MAKER OR DRAWER, BUT NONISSUANCE IS A
DEFENSE. AN INSTRUMENT THAT IS CONDITIONALLY ISSUED OR IS ISSUED  FOR  A
SPECIAL  PURPOSE  IS  BINDING ON THE MAKER OR DRAWER, BUT FAILURE OF THE
CONDITION OR SPECIAL PURPOSE TO BE FULFILLED IS A DEFENSE.
       (C) "ISSUER" APPLIES TO ISSUED AND UNISSUED INSTRUMENTS AND MEANS
           A MAKER OR DRAWER OF AN INSTRUMENT.
SECTION 3--106. UNCONDITIONAL PROMISE OR ORDER.
  (A) EXCEPT AS PROVIDED IN THIS SECTION, FOR THE  PURPOSES  OF  SECTION
3--104(A),  A  PROMISE OR ORDER IS UNCONDITIONAL UNLESS IT STATES (I) AN
EXPRESS CONDITION TO PAYMENT, (II) THAT THE PROMISE OR ORDER IS  SUBJECT
TO  OR  GOVERNED  BY ANOTHER RECORD, OR (III) THAT RIGHTS OR OBLIGATIONS
WITH RESPECT TO THE PROMISE OR ORDER ARE STATED  IN  ANOTHER  RECORD.  A
REFERENCE TO ANOTHER RECORD DOES NOT OF ITSELF MAKE THE PROMISE OR ORDER
CONDITIONAL.
  (B)  A  PROMISE OR ORDER IS NOT MADE CONDITIONAL (I) BY A REFERENCE TO
ANOTHER RECORD FOR A STATEMENT OF RIGHTS  WITH  RESPECT  TO  COLLATERAL,
PREPAYMENT,  OR  ACCELERATION,  OR  (II)  BECAUSE  PAYMENT IS LIMITED TO
RESORT TO A PARTICULAR FUND OR SOURCE.
  (C) IF A PROMISE OR ORDER REQUIRES, AS A CONDITION TO PAYMENT, A COUN-
TERSIGNATURE BY A PERSON WHOSE SPECIMEN SIGNATURE APPEARS ON THE PROMISE
OR ORDER, THE CONDITION DOES NOT MAKE THE PROMISE OR  ORDER  CONDITIONAL
FOR  THE  PURPOSES  OF  SECTION  3--104(A). IF THE PERSON WHOSE SPECIMEN
SIGNATURE APPEARS ON AN INSTRUMENT FAILS TO COUNTERSIGN THE  INSTRUMENT,
THE FAILURE TO COUNTERSIGN IS A DEFENSE TO THE OBLIGATION OF THE ISSUER,
BUT  THE  FAILURE  DOES  NOT PREVENT A TRANSFEREE OF THE INSTRUMENT FROM
BECOMING A HOLDER OF THE INSTRUMENT.
  (D) IF A PROMISE OR ORDER AT THE TIME IT IS ISSUED OR FIRST COMES INTO
POSSESSION OF A HOLDER CONTAINS  A  STATEMENT,  REQUIRED  BY  APPLICABLE
STATUTORY  OR  ADMINISTRATIVE  LAW,  TO  THE EFFECT THAT THE RIGHTS OF A
HOLDER OR TRANSFEREE ARE SUBJECT TO CLAIMS OR DEFENSES THAT  THE  ISSUER

S. 5901                            19

COULD  ASSERT  AGAINST  THE  ORIGINAL PAYEE, THE PROMISE OR ORDER IS NOT
THEREBY MADE CONDITIONAL FOR THE PURPOSES OF SECTION  3-104(A);  BUT  IF
THE  PROMISE  OR ORDER IS AN INSTRUMENT, THERE CANNOT BE A HOLDER IN DUE
COURSE OF THE INSTRUMENT.
SECTION 3--107. INSTRUMENT PAYABLE IN FOREIGN MONEY.
  UNLESS  THE  INSTRUMENT  OTHERWISE PROVIDES, AN INSTRUMENT THAT STATES
THE AMOUNT PAYABLE IN FOREIGN MONEY MAY BE PAID IN THE FOREIGN MONEY  OR
IN  AN  EQUIVALENT  AMOUNT  IN  DOLLARS  CALCULATED BY USING THE CURRENT
BANK-OFFERED SPOT RATE AT THE PLACE  OF  PAYMENT  FOR  THE  PURCHASE  OF
DOLLARS ON THE DAY ON WHICH THE INSTRUMENT IS PAID.
SECTION 3--108. PAYABLE ON DEMAND OR AT DEFINITE TIME.
  (A) A PROMISE OR ORDER IS "PAYABLE ON DEMAND" IF IT (I) STATES THAT IT
IS  PAYABLE  ON  DEMAND  OR  AT SIGHT, OR OTHERWISE INDICATES THAT IT IS
PAYABLE AT THE WILL OF THE HOLDER, OR (II) DOES NOT STATE  ANY  TIME  OF
PAYMENT.
  (B)  A PROMISE OR ORDER IS "PAYABLE AT A DEFINITE TIME" IF IT IS PAYA-
BLE ON ELAPSE OF A DEFINITE PERIOD OF TIME AFTER SIGHT OR ACCEPTANCE  OR
AT  A FIXED DATE OR DATES OR AT A TIME OR TIMES READILY ASCERTAINABLE AT
THE TIME THE PROMISE OR ORDER  IS  ISSUED,  SUBJECT  TO  RIGHTS  OF  (I)
PREPAYMENT,  (II)  ACCELERATION,  (III)  EXTENSION  AT THE OPTION OF THE
HOLDER, OR (IV) EXTENSION TO A FURTHER DEFINITE TIME AT  THE  OPTION  OF
THE  MAKER OR ACCEPTOR OR AUTOMATICALLY UPON OR AFTER A SPECIFIED ACT OR
EVENT.
  (C) IF AN INSTRUMENT, PAYABLE AT A FIXED DATE, IS  ALSO  PAYABLE  UPON
DEMAND  MADE  BEFORE THE FIXED DATE, THE INSTRUMENT IS PAYABLE ON DEMAND
UNTIL THE FIXED DATE AND, IF DEMAND FOR PAYMENT IS NOT MADE BEFORE  THAT
DATE, BECOMES PAYABLE AT A DEFINITE TIME ON THE FIXED DATE.
SECTION 3--109. PAYABLE TO BEARER OR TO ORDER.
  (A) A PROMISE OR ORDER IS PAYABLE TO BEARER IF IT:
  (1)  STATES  THAT IT IS PAYABLE TO BEARER OR TO THE ORDER OF BEARER OR
OTHERWISE INDICATES THAT THE PERSON IN  POSSESSION  OF  THE  PROMISE  OR
ORDER IS ENTITLED TO PAYMENT;
  (2) DOES NOT STATE A PAYEE; OR
  (3)  STATES THAT IT IS PAYABLE TO OR TO THE ORDER OF CASH OR OTHERWISE
INDICATES THAT IT IS NOT PAYABLE TO AN IDENTIFIED PERSON.
  (B) A PROMISE OR ORDER THAT IS NOT PAYABLE TO  BEARER  IS  PAYABLE  TO
ORDER  IF IT IS PAYABLE (I) TO THE ORDER OF AN IDENTIFIED PERSON OR (II)
TO AN IDENTIFIED PERSON OR ORDER. A PROMISE OR ORDER THAT IS PAYABLE  TO
ORDER IS PAYABLE TO THE IDENTIFIED PERSON.
  (C)  AN  INSTRUMENT PAYABLE TO BEARER MAY BECOME PAYABLE TO AN IDENTI-
FIED PERSON IF IT IS SPECIALLY INDORSED PURSUANT TO  SECTION  3--205(A).
AN  INSTRUMENT  PAYABLE  TO  AN  IDENTIFIED PERSON MAY BECOME PAYABLE TO
BEARER IF IT IS INDORSED IN BLANK PURSUANT TO SECTION 3--205(B).
SECTION 3--110. IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS PAYABLE.
  (A) THE PERSON TO WHOM AN INSTRUMENT IS INITIALLY  PAYABLE  IS  DETER-
MINED  BY  THE  INTENT OF THE PERSON, WHETHER OR NOT AUTHORIZED, SIGNING
AS, OR IN THE NAME OR BEHALF OF,  THE  ISSUER  OF  THE  INSTRUMENT.  THE
INSTRUMENT  IS PAYABLE TO THE PERSON INTENDED BY THE SIGNER EVEN IF THAT
PERSON IS IDENTIFIED IN THE INSTRUMENT BY A NAME OR OTHER IDENTIFICATION
THAT IS NOT THAT OF THE INTENDED PERSON. IF MORE THAN ONE  PERSON  SIGNS
IN THE NAME OR BEHALF OF THE ISSUER OF AN INSTRUMENT AND ALL THE SIGNERS
DO NOT INTEND THE SAME PERSON AS PAYEE, THE INSTRUMENT IS PAYABLE TO ANY
PERSON INTENDED BY ONE OR MORE OF THE SIGNERS.
  (B)  IF  THE SIGNATURE OF THE ISSUER OF AN INSTRUMENT IS MADE BY AUTO-
MATED MEANS, SUCH AS A CHECK-WRITING MACHINE, THE PAYEE OF  THE  INSTRU-

S. 5901                            20

MENT  IS DETERMINED BY THE INTENT OF THE PERSON WHO SUPPLIED THE NAME OR
IDENTIFICATION OF THE PAYEE, WHETHER OR NOT AUTHORIZED TO DO SO.
  (C) A PERSON TO WHOM AN INSTRUMENT IS PAYABLE MAY BE IDENTIFIED IN ANY
WAY,  INCLUDING  BY NAME, IDENTIFYING NUMBER, OFFICE, OR ACCOUNT NUMBER.
FOR THE PURPOSE OF DETERMINING THE HOLDER OF AN INSTRUMENT, THE  FOLLOW-
ING RULES APPLY:
  (1) IF AN INSTRUMENT IS PAYABLE TO AN ACCOUNT AND THE ACCOUNT IS IDEN-
TIFIED  ONLY  BY NUMBER, THE INSTRUMENT IS PAYABLE TO THE PERSON TO WHOM
THE ACCOUNT IS PAYABLE.  IF AN INSTRUMENT IS PAYABLE TO AN ACCOUNT IDEN-
TIFIED BY NUMBER AND BY THE NAME OF A PERSON, THE INSTRUMENT IS  PAYABLE
TO  THE  NAMED  PERSON,  WHETHER  OR NOT THAT PERSON IS THE OWNER OF THE
ACCOUNT IDENTIFIED BY NUMBER.
  (2) IF AN INSTRUMENT IS PAYABLE TO:
  (I) A TRUST, AN ESTATE, OR A PERSON DESCRIBED AS TRUSTEE OR  REPRESEN-
TATIVE  OF  A TRUST OR ESTATE, THE INSTRUMENT IS PAYABLE TO THE TRUSTEE,
THE REPRESENTATIVE, OR A SUCCESSOR OF EITHER, WHETHER OR NOT THE BENEFI-
CIARY OR ESTATE IS ALSO NAMED;
  (II) A PERSON DESCRIBED AS AGENT OR SIMILAR REPRESENTATIVE OF A  NAMED
OR  IDENTIFIED  PERSON,  THE  INSTRUMENT  IS  PAYABLE TO THE REPRESENTED
PERSON, THE REPRESENTATIVE, OR A SUCCESSOR OF THE REPRESENTATIVE;
  (III) A FUND OR ORGANIZATION THAT IS NOT A LEGAL ENTITY,  THE  INSTRU-
MENT IS PAYABLE TO A REPRESENTATIVE OF THE MEMBERS OF THE FUND OR ORGAN-
IZATION; OR
  (IV)  AN  OFFICE  OR  TO  A PERSON DESCRIBED AS HOLDING AN OFFICE, THE
INSTRUMENT IS PAYABLE TO THE NAMED PERSON, THE INCUMBENT OF THE  OFFICE,
OR A SUCCESSOR TO THE INCUMBENT.
  (D)  IF AN INSTRUMENT IS PAYABLE TO TWO OR MORE PERSONS ALTERNATIVELY,
IT IS PAYABLE TO ANY OF THEM  AND  MAY  BE  NEGOTIATED,  DISCHARGED,  OR
ENFORCED  BY  ANY  OR ALL OF THEM IN POSSESSION OF THE INSTRUMENT. IF AN
INSTRUMENT IS PAYABLE TO TWO OR MORE PERSONS NOT  ALTERNATIVELY,  IT  IS
PAYABLE  TO  ALL  OF THEM AND MAY BE NEGOTIATED, DISCHARGED, OR ENFORCED
ONLY BY ALL OF THEM. IF AN INSTRUMENT PAYABLE TO TWO OR MORE PERSONS  IS
AMBIGUOUS  AS TO WHETHER IT IS PAYABLE TO THE PERSONS ALTERNATIVELY, THE
INSTRUMENT IS PAYABLE TO THE PERSONS ALTERNATIVELY.
SECTION 3--111. PLACE OF PAYMENT.
  EXCEPT AS OTHERWISE PROVIDED FOR ITEMS IN ARTICLE 4, AN INSTRUMENT  IS
PAYABLE AT THE PLACE OF PAYMENT STATED IN THE INSTRUMENT. IF NO PLACE OF
PAYMENT IS STATED, AN INSTRUMENT IS PAYABLE AT THE ADDRESS OF THE DRAWEE
OR MAKER STATED IN THE INSTRUMENT. IF NO ADDRESS IS STATED, THE PLACE OF
PAYMENT  IS THE PLACE OF BUSINESS OF THE DRAWEE OR MAKER. IF A DRAWEE OR
MAKER HAS MORE THAN ONE PLACE OF BUSINESS, THE PLACE OF PAYMENT  IS  ANY
PLACE  OF  BUSINESS OF THE DRAWEE OR MAKER CHOSEN BY THE PERSON ENTITLED
TO ENFORCE THE INSTRUMENT. IF THE DRAWEE OR MAKER HAS NO PLACE OF  BUSI-
NESS, THE PLACE OF PAYMENT IS THE RESIDENCE OF THE DRAWEE OR MAKER.
SECTION 3--112. INTEREST.
  (A)  UNLESS OTHERWISE PROVIDED IN THE INSTRUMENT, (I) AN INSTRUMENT IS
NOT PAYABLE WITH INTEREST, AND  (II)  INTEREST  ON  AN  INTEREST-BEARING
INSTRUMENT IS PAYABLE FROM THE DATE OF THE INSTRUMENT.
  (B)  INTEREST  MAY  BE  STATED IN AN INSTRUMENT AS A FIXED OR VARIABLE
AMOUNT OF MONEY OR IT MAY BE EXPRESSED AS A FIXED OR  VARIABLE  RATE  OR
RATES.  THE AMOUNT OR RATE OF INTEREST MAY BE STATED OR DESCRIBED IN THE
INSTRUMENT IN ANY MANNER AND MAY REQUIRE REFERENCE  TO  INFORMATION  NOT
CONTAINED IN THE INSTRUMENT. IF AN INSTRUMENT PROVIDES FOR INTEREST, BUT
THE   AMOUNT   OF  INTEREST  PAYABLE  CANNOT  BE  ASCERTAINED  FROM  THE
DESCRIPTION, INTEREST IS PAYABLE AT THE JUDGMENT RATE IN EFFECT  AT  THE

S. 5901                            21

PLACE  OF  PAYMENT  OF  THE  INSTRUMENT  AND  AT THE TIME INTEREST FIRST
ACCRUES.
SECTION 3--113. DATE OF INSTRUMENT.
  (A)  AN  INSTRUMENT  MAY  BE  ANTEDATED  OR POSTDATED. THE DATE STATED
DETERMINES THE TIME OF PAYMENT IF THE INSTRUMENT IS PAYABLE AT  A  FIXED
PERIOD  AFTER  THE  DATE.  EXCEPT  AS  PROVIDED IN SECTION 4--401(C), AN
INSTRUMENT PAYABLE ON DEMAND IS NOT  PAYABLE  BEFORE  THE  DATE  OF  THE
INSTRUMENT.
  (B) IF AN INSTRUMENT IS UNDATED, ITS DATE IS THE DATE OF ITS ISSUE OR,
IN  THE  CASE  OF  AN  UNISSUED INSTRUMENT, THE DATE IT FIRST COMES INTO
POSSESSION OF A HOLDER.
SECTION 3--114. CONTRADICTORY TERMS OF INSTRUMENT.
  IF AN  INSTRUMENT  CONTAINS  CONTRADICTORY  TERMS,  TYPEWRITTEN  TERMS
PREVAIL  OVER  PRINTED  TERMS,  HANDWRITTEN TERMS PREVAIL OVER BOTH, AND
WORDS PREVAIL OVER NUMBERS.
SECTION 3--115. INCOMPLETE INSTRUMENT.
  (A) "INCOMPLETE INSTRUMENT" MEANS A SIGNED  WRITING,  WHETHER  OR  NOT
ISSUED  BY THE SIGNER, THE CONTENTS OF WHICH SHOW AT THE TIME OF SIGNING
THAT IT IS INCOMPLETE BUT THAT THE SIGNER INTENDED IT TO BE COMPLETED BY
THE ADDITION OF WORDS OR NUMBERS.
  (B) SUBJECT TO SUBSECTION (C),  IF  AN  INCOMPLETE  INSTRUMENT  IS  AN
INSTRUMENT  UNDER  SECTION  3--104,  IT MAY BE ENFORCED ACCORDING TO ITS
TERMS IF IT IS NOT COMPLETED, OR ACCORDING TO ITS TERMS AS AUGMENTED  BY
COMPLETION.  IF  AN  INCOMPLETE  INSTRUMENT  IS  NOT AN INSTRUMENT UNDER
SECTION 3--104, BUT,  AFTER  COMPLETION,  THE  REQUIREMENTS  OF  SECTION
3--104 ARE MET, THE INSTRUMENT MAY BE ENFORCED ACCORDING TO ITS TERMS AS
AUGMENTED BY COMPLETION.
  (C)  IF WORDS OR NUMBERS ARE ADDED TO AN INCOMPLETE INSTRUMENT WITHOUT
AUTHORITY OF THE SIGNER,  THERE  IS  AN  ALTERATION  OF  THE  INCOMPLETE
INSTRUMENT UNDER SECTION 3--407.
  (D)  THE BURDEN OF ESTABLISHING THAT WORDS OR NUMBERS WERE ADDED TO AN
INCOMPLETE INSTRUMENT WITHOUT AUTHORITY OF THE SIGNER IS ON  THE  PERSON
ASSERTING THE LACK OF AUTHORITY.
SECTION 3--116. JOINT AND SEVERAL LIABILITY; CONTRIBUTION.
  (A)  EXCEPT  AS  OTHERWISE  PROVIDED  IN  THE  INSTRUMENT, TWO OR MORE
PERSONS WHO HAVE THE SAME LIABILITY ON AN INSTRUMENT AS MAKERS, DRAWERS,
ACCEPTORS, INDORSERS WHO INDORSE AS JOINT PAYEES, OR ANOMALOUS INDORSERS
ARE JOINTLY AND SEVERALLY LIABLE IN THE CAPACITY IN WHICH THEY SIGN.
  (B) EXCEPT AS PROVIDED IN SECTION 3--419(F) OR  BY  AGREEMENT  OF  THE
AFFECTED  PARTIES,  A  PARTY HAVING JOINT AND SEVERAL LIABILITY WHO PAYS
THE INSTRUMENT IS ENTITLED TO RECEIVE FROM ANY  PARTY  HAVING  THE  SAME
JOINT  AND  SEVERAL LIABILITY CONTRIBUTION IN ACCORDANCE WITH APPLICABLE
LAW.
SECTION 3--117. OTHER AGREEMENTS AFFECTING INSTRUMENT.
  SUBJECT TO APPLICABLE LAW REGARDING EXCLUSION OF PROOF OF  CONTEMPORA-
NEOUS OR PREVIOUS AGREEMENTS, THE OBLIGATION OF A PARTY TO AN INSTRUMENT
TO  PAY  THE INSTRUMENT MAY BE MODIFIED, SUPPLEMENTED, OR NULLIFIED BY A
SEPARATE AGREEMENT OF THE OBLIGOR AND A PERSON ENTITLED TO  ENFORCE  THE
INSTRUMENT, IF THE INSTRUMENT IS ISSUED OR THE OBLIGATION IS INCURRED IN
RELIANCE ON THE AGREEMENT OR AS PART OF THE SAME TRANSACTION GIVING RISE
TO THE AGREEMENT. TO THE EXTENT AN OBLIGATION IS MODIFIED, SUPPLEMENTED,
OR  NULLIFIED  BY  AN  AGREEMENT  UNDER THIS SECTION, THE AGREEMENT IS A
DEFENSE TO THE OBLIGATION.
SECTION 3--118. STATUTE OF LIMITATIONS.
  (A) EXCEPT AS PROVIDED IN SUBSECTION (E), AN  ACTION  TO  ENFORCE  THE
OBLIGATION  OF  A PARTY TO PAY A NOTE PAYABLE AT A DEFINITE TIME MUST BE

S. 5901                            22

COMMENCED WITHIN SIX YEARS AFTER THE DUE DATE OR  DATES  STATED  IN  THE
NOTE OR, IF A DUE DATE IS ACCELERATED, WITHIN SIX YEARS AFTER THE ACCEL-
ERATED DUE DATE.
  (B) EXCEPT AS PROVIDED IN SUBSECTION (D) OR (E), IF DEMAND FOR PAYMENT
IS  MADE  TO THE MAKER OF A NOTE PAYABLE ON DEMAND, AN ACTION TO ENFORCE
THE OBLIGATION OF A PARTY TO PAY THE NOTE MUST BE COMMENCED  WITHIN  SIX
YEARS  AFTER  THE DEMAND. IF NO DEMAND FOR PAYMENT IS MADE TO THE MAKER,
AN ACTION TO ENFORCE THE NOTE IS BARRED IF NEITHER PRINCIPAL NOR  INTER-
EST ON THE NOTE HAS BEEN PAID FOR A CONTINUOUS PERIOD OF TEN YEARS.
  (C)  EXCEPT  AS  PROVIDED  IN SUBSECTION (D), AN ACTION TO ENFORCE THE
OBLIGATION OF A PARTY TO AN UNACCEPTED DRAFT TO PAY THE  DRAFT  MUST  BE
COMMENCED  WITHIN  THREE  YEARS AFTER DISHONOR OF THE DRAFT OR TEN YEARS
AFTER THE DATE OF THE DRAFT, WHICHEVER PERIOD EXPIRES FIRST.
  (D) AN ACTION TO ENFORCE THE OBLIGATION OF THE ACCEPTOR OF A CERTIFIED
CHECK OR THE ISSUER OF A TELLER'S CHECK, CASHIER'S CHECK, OR  TRAVELER'S
CHECK  MUST  BE COMMENCED WITHIN THREE YEARS AFTER DEMAND FOR PAYMENT IS
MADE TO THE ACCEPTOR OR ISSUER, AS THE CASE MAY BE.
  (E) AN ACTION TO ENFORCE THE OBLIGATION OF A PARTY TO A CERTIFICATE OF
DEPOSIT TO PAY THE INSTRUMENT MUST BE COMMENCED WITHIN SIX  YEARS  AFTER
DEMAND  FOR PAYMENT IS MADE TO THE MAKER, BUT IF THE INSTRUMENT STATES A
DUE DATE AND THE MAKER IS NOT REQUIRED TO  PAY  BEFORE  THAT  DATE,  THE
SIX-YEAR  PERIOD  BEGINS  WHEN A DEMAND FOR PAYMENT IS IN EFFECT AND THE
DUE DATE HAS PASSED.
  (F) AN ACTION TO ENFORCE THE OBLIGATION OF A PARTY TO PAY AN  ACCEPTED
DRAFT,  OTHER  THAN  A CERTIFIED CHECK, MUST BE COMMENCED (1) WITHIN SIX
YEARS AFTER THE DUE DATE OR DATES STATED IN THE DRAFT OR  ACCEPTANCE  IF
THE  OBLIGATION  OF  THE  ACCEPTOR IS PAYABLE AT A DEFINITE TIME, OR (2)
WITHIN SIX YEARS AFTER THE DATE OF THE ACCEPTANCE IF THE  OBLIGATION  OF
THE ACCEPTOR IS PAYABLE ON DEMAND.
  (G)  UNLESS  GOVERNED  BY  OTHER LAW REGARDING CLAIMS FOR INDEMNITY OR
CONTRIBUTION, AN ACTION (1) FOR CONVERSION OF AN INSTRUMENT,  FOR  MONEY
HAD  AND RECEIVED, OR LIKE ACTION BASED ON CONVERSION, (2) FOR BREACH OF
WARRANTY, OR (3) TO ENFORCE AN OBLIGATION, DUTY, OR RIGHT ARISING  UNDER
THIS  ARTICLE  AND NOT GOVERNED BY THIS SECTION MUST BE COMMENCED WITHIN
THREE YEARS AFTER THE CAUSE OF ACTION ACCRUES.
SECTION 3--119. NOTICE OF RIGHT TO DEFEND ACTION.
  IN AN ACTION FOR BREACH OF AN OBLIGATION FOR WHICH A THIRD  PERSON  IS
ANSWERABLE OVER PURSUANT TO THIS ARTICLE OR ARTICLE 4, THE DEFENDANT MAY
GIVE  THE  THIRD  PERSON  NOTICE  OF THE LITIGATION IN A RECORD, AND THE
PERSON NOTIFIED MAY THEN GIVE SIMILAR NOTICE TO ANY OTHER PERSON WHO  IS
ANSWERABLE  OVER.  IF THE NOTICE STATES (1) THAT THE PERSON NOTIFIED MAY
COME IN AND DEFEND AND (2) THAT FAILURE TO DO SO WILL  BIND  THE  PERSON
NOTIFIED  IN  AN ACTION LATER BROUGHT BY THE PERSON GIVING THE NOTICE AS
TO ANY DETERMINATION OF FACT COMMON TO THE TWO LITIGATIONS,  THE  PERSON
NOTIFIED  IS  SO BOUND UNLESS AFTER SEASONABLE RECEIPT OF THE NOTICE THE
PERSON NOTIFIED DOES COME IN AND DEFEND.
                                 PART 2
                 NEGOTIATION, TRANSFER, AND INDORSEMENT
SECTION 3--201. NEGOTIATION.
  (A) "NEGOTIATION" MEANS A TRANSFER OF POSSESSION, WHETHER VOLUNTARY OR
INVOLUNTARY, OF AN INSTRUMENT BY A PERSON OTHER THAN  THE  ISSUER  TO  A
PERSON WHO THEREBY BECOMES ITS HOLDER.
  (B)  EXCEPT FOR NEGOTIATION BY A REMITTER, IF AN INSTRUMENT IS PAYABLE
TO AN IDENTIFIED PERSON, NEGOTIATION REQUIRES TRANSFER OF POSSESSION  OF
THE  INSTRUMENT  AND  ITS INDORSEMENT BY THE HOLDER. IF AN INSTRUMENT IS
PAYABLE TO BEARER, IT MAY BE NEGOTIATED BY TRANSFER OF POSSESSION ALONE.

S. 5901                            23

SECTION 3--202. NEGOTIATION SUBJECT TO RESCISSION.
  (A)  NEGOTIATION  IS  EFFECTIVE EVEN IF OBTAINED (1) FROM AN INFANT, A
CORPORATION EXCEEDING ITS POWERS, OR A PERSON WITHOUT CAPACITY,  (2)  BY
FRAUD,  DURESS,  OR  MISTAKE,  OR (3) IN BREACH OF DUTY OR AS PART OF AN
ILLEGAL TRANSACTION.
  (B) TO THE EXTENT PERMITTED BY OTHER LAW, NEGOTIATION MAY BE RESCINDED
OR MAY BE SUBJECT TO OTHER REMEDIES,  BUT  THOSE  REMEDIES  MAY  NOT  BE
ASSERTED  AGAINST  A  SUBSEQUENT HOLDER IN DUE COURSE OR A PERSON PAYING
THE INSTRUMENT IN GOOD FAITH AND WITHOUT KNOWLEDGE OF FACTS THAT  ARE  A
BASIS FOR RESCISSION OR OTHER REMEDY.
SECTION 3--203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY TRANSFER.
  (A)  AN  INSTRUMENT  IS  TRANSFERRED  WHEN IT IS DELIVERED BY A PERSON
OTHER THAN ITS ISSUER FOR THE PURPOSE OF GIVING TO THE PERSON  RECEIVING
DELIVERY THE RIGHT TO ENFORCE THE INSTRUMENT.
  (B)  TRANSFER OF AN INSTRUMENT, WHETHER OR NOT THE TRANSFER IS A NEGO-
TIATION, VESTS IN THE TRANSFEREE ANY RIGHT OF THE TRANSFEROR TO  ENFORCE
THE  INSTRUMENT,  INCLUDING ANY RIGHT AS A HOLDER IN DUE COURSE, BUT THE
TRANSFEREE CANNOT ACQUIRE RIGHTS OF A HOLDER IN DUE COURSE BY  A  TRANS-
FER,  DIRECTLY  OR INDIRECTLY, FROM A HOLDER IN DUE COURSE IF THE TRANS-
FEREE ENGAGED IN FRAUD OR ILLEGALITY AFFECTING THE INSTRUMENT.
  (C) UNLESS OTHERWISE AGREED, IF AN INSTRUMENT IS TRANSFERRED FOR VALUE
AND THE TRANSFEREE DOES NOT BECOME A HOLDER BECAUSE OF LACK OF  INDORSE-
MENT  BY  THE  TRANSFEROR, THE TRANSFEREE HAS A SPECIFICALLY ENFORCEABLE
RIGHT TO THE UNQUALIFIED INDORSEMENT OF THE TRANSFEROR, BUT  NEGOTIATION
OF THE INSTRUMENT DOES NOT OCCUR UNTIL THE INDORSEMENT IS MADE.
  (D)  IF A TRANSFEROR PURPORTS TO TRANSFER LESS THAN THE ENTIRE INSTRU-
MENT, NEGOTIATION OF THE  INSTRUMENT  DOES  NOT  OCCUR.  THE  TRANSFEREE
OBTAINS  NO  RIGHTS  UNDER  THIS  ARTICLE  AND  HAS ONLY THE RIGHTS OF A
PARTIAL ASSIGNEE.
SECTION 3--204. INDORSEMENT.
  (A) "INDORSEMENT" MEANS A SIGNATURE, OTHER THAN THAT OF  A  SIGNER  AS
MAKER,  DRAWER, OR ACCEPTOR, THAT ALONE OR ACCOMPANIED BY OTHER WORDS IS
MADE ON AN INSTRUMENT FOR THE PURPOSE OF (1) NEGOTIATING THE INSTRUMENT,
(2) RESTRICTING PAYMENT OF THE INSTRUMENT, OR (3)  INCURRING  INDORSER'S
LIABILITY ON THE INSTRUMENT, BUT REGARDLESS OF THE INTENT OF THE SIGNER,
A  SIGNATURE  AND  ITS  ACCOMPANYING  WORDS IS AN INDORSEMENT UNLESS THE
ACCOMPANYING WORDS, TERMS OF THE INSTRUMENT, PLACE OF THE SIGNATURE,  OR
OTHER  CIRCUMSTANCES  UNAMBIGUOUSLY INDICATE THAT THE SIGNATURE WAS MADE
FOR A PURPOSE OTHER THAN INDORSEMENT. FOR  THE  PURPOSE  OF  DETERMINING
WHETHER  A  SIGNATURE  IS  MADE ON AN INSTRUMENT, A PAPER AFFIXED TO THE
INSTRUMENT IS A PART OF THE INSTRUMENT.
  (B) "INDORSER" MEANS A PERSON WHO MAKES AN INDORSEMENT.
  (C) FOR THE PURPOSE  OF  DETERMINING  WHETHER  THE  TRANSFEREE  OF  AN
INSTRUMENT  IS A HOLDER, AN INDORSEMENT THAT TRANSFERS A SECURITY INTER-
EST IN THE INSTRUMENT IS EFFECTIVE AS AN UNQUALIFIED INDORSEMENT OF  THE
INSTRUMENT.
  (D)  IF  AN INSTRUMENT IS PAYABLE TO A HOLDER UNDER A NAME THAT IS NOT
THE NAME OF THE HOLDER, INDORSEMENT MAY BE MADE BY  THE  HOLDER  IN  THE
NAME  STATED  IN  THE  INSTRUMENT  OR  IN THE HOLDER'S NAME OR BOTH, BUT
SIGNATURE IN BOTH NAMES MAY BE REQUIRED BY A PERSON PAYING OR TAKING THE
INSTRUMENT FOR VALUE OR COLLECTION.
SECTION 3--205. SPECIAL  INDORSEMENT;   BLANK   INDORSEMENT;   ANOMALOUS
                  INDORSEMENT.
  (A)  IF AN INDORSEMENT IS MADE BY THE HOLDER OF AN INSTRUMENT, WHETHER
PAYABLE TO AN IDENTIFIED PERSON OR PAYABLE TO BEARER, AND  THE  INDORSE-
MENT  IDENTIFIES A PERSON TO WHOM IT MAKES THE INSTRUMENT PAYABLE, IT IS

S. 5901                            24

A "SPECIAL INDORSEMENT." WHEN SPECIALLY INDORSED, AN INSTRUMENT  BECOMES
PAYABLE  TO  THE  IDENTIFIED  PERSON  AND  MAY BE NEGOTIATED ONLY BY THE
INDORSEMENT OF THAT PERSON. THE  PRINCIPLES  STATED  IN  SECTION  3--110
APPLY TO SPECIAL INDORSEMENTS.
  (B) IF AN INDORSEMENT IS MADE BY THE HOLDER OF AN INSTRUMENT AND IT IS
NOT A SPECIAL INDORSEMENT, IT IS A "BLANK INDORSEMENT." WHEN INDORSED IN
BLANK,  AN INSTRUMENT BECOMES PAYABLE TO BEARER AND MAY BE NEGOTIATED BY
TRANSFER OF POSSESSION ALONE UNTIL SPECIALLY INDORSED.
  (C) THE HOLDER MAY CONVERT A BLANK INDORSEMENT THAT CONSISTS ONLY OF A
SIGNATURE INTO A SPECIAL INDORSEMENT BY WRITING, ABOVE THE SIGNATURE  OF
THE  INDORSER,  WORDS  IDENTIFYING  THE PERSON TO WHOM THE INSTRUMENT IS
MADE PAYABLE.
  (D) "ANOMALOUS INDORSEMENT" MEANS AN INDORSEMENT MADE BY A PERSON  WHO
IS  NOT  THE HOLDER OF THE INSTRUMENT. AN ANOMALOUS INDORSEMENT DOES NOT
AFFECT THE MANNER IN WHICH THE INSTRUMENT MAY BE NEGOTIATED.
SECTION 3--206. RESTRICTIVE INDORSEMENT.
  (A) AN INDORSEMENT LIMITING PAYMENT TO A PARTICULAR PERSON  OR  OTHER-
WISE  PROHIBITING  FURTHER  TRANSFER OR NEGOTIATION OF THE INSTRUMENT IS
NOT EFFECTIVE TO PREVENT FURTHER TRANSFER OR NEGOTIATION OF THE  INSTRU-
MENT.
  (B) AN INDORSEMENT STATING A CONDITION TO THE RIGHT OF THE INDORSEE TO
RECEIVE PAYMENT DOES NOT AFFECT THE RIGHT OF THE INDORSEE TO ENFORCE THE
INSTRUMENT.  A  PERSON  PAYING  THE INSTRUMENT OR TAKING IT FOR VALUE OR
COLLECTION MAY DISREGARD THE CONDITION, AND THE RIGHTS  AND  LIABILITIES
OF  THAT  PERSON  ARE  NOT  AFFECTED  BY  WHETHER THE CONDITION HAS BEEN
FULFILLED.
  (C) IF AN INSTRUMENT BEARS AN INDORSEMENT  (I)  DESCRIBED  IN  SECTION
4--201(B), OR (II) IN BLANK OR TO A PARTICULAR BANK USING THE WORDS "FOR
DEPOSIT,"  "FOR  COLLECTION,"  OR  OTHER  WORDS  INDICATING A PURPOSE OF
HAVING THE INSTRUMENT COLLECTED BY A BANK FOR  THE  INDORSER  OR  FOR  A
PARTICULAR ACCOUNT, THE FOLLOWING RULES APPLY:
  (1)  A PERSON, OTHER THAN A BANK, WHO PURCHASES THE INSTRUMENT WHEN SO
INDORSED CONVERTS THE INSTRUMENT UNLESS THE AMOUNT PAID FOR THE  INSTRU-
MENT  IS  RECEIVED  BY  THE  INDORSER  OR  APPLIED CONSISTENTLY WITH THE
INDORSEMENT.
  (2) A DEPOSITARY BANK THAT PURCHASES THE INSTRUMENT OR  TAKES  IT  FOR
COLLECTION  WHEN  SO  INDORSED CONVERTS THE INSTRUMENT UNLESS THE AMOUNT
PAID BY THE BANK WITH RESPECT TO  THE  INSTRUMENT  IS  RECEIVED  BY  THE
INDORSER OR APPLIED CONSISTENTLY WITH THE INDORSEMENT.
  (3)  A  PAYOR  BANK THAT IS ALSO THE DEPOSITARY BANK OR THAT TAKES THE
INSTRUMENT FOR IMMEDIATE PAYMENT OVER THE COUNTER FROM  A  PERSON  OTHER
THAN  A  COLLECTING  BANK CONVERTS THE INSTRUMENT UNLESS THE PROCEEDS OF
THE INSTRUMENT ARE RECEIVED BY THE INDORSER OR APPLIED CONSISTENTLY WITH
THE INDORSEMENT.
  (4) EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPH (3),  A  PAYOR  BANK  OR
INTERMEDIARY BANK MAY DISREGARD THE INDORSEMENT AND IS NOT LIABLE IF THE
PROCEEDS  OF  THE INSTRUMENT ARE NOT RECEIVED BY THE INDORSER OR APPLIED
CONSISTENTLY WITH THE INDORSEMENT.
  (D) EXCEPT FOR AN INDORSEMENT COVERED BY SUBSECTION (C), IF AN INSTRU-
MENT BEARS AN INDORSEMENT USING WORDS TO THE EFFECT THAT PAYMENT  IS  TO
BE  MADE  TO  THE INDORSEE AS AGENT, TRUSTEE, OR OTHER FIDUCIARY FOR THE
BENEFIT OF THE INDORSER OR ANOTHER PERSON, THE FOLLOWING RULES APPLY:
  (1) UNLESS THERE IS NOTICE OF BREACH OF FIDUCIARY DUTY AS PROVIDED  IN
SECTION  3--307, A PERSON WHO PURCHASES THE INSTRUMENT FROM THE INDORSEE
OR TAKES THE INSTRUMENT FROM THE INDORSEE FOR COLLECTION OR PAYMENT  MAY
PAY THE PROCEEDS OF PAYMENT OR THE VALUE GIVEN FOR THE INSTRUMENT TO THE

S. 5901                            25

INDORSEE  WITHOUT  REGARD  TO  WHETHER THE INDORSEE VIOLATES A FIDUCIARY
DUTY TO THE INDORSER.
  (2)  A  SUBSEQUENT TRANSFEREE OF THE INSTRUMENT OR PERSON WHO PAYS THE
INSTRUMENT IS  NEITHER  GIVEN  NOTICE  NOR  OTHERWISE  AFFECTED  BY  THE
RESTRICTION IN THE INDORSEMENT UNLESS THE TRANSFEREE OR PAYOR KNOWS THAT
THE  FIDUCIARY  DEALT  WITH  THE INSTRUMENT OR ITS PROCEEDS IN BREACH OF
FIDUCIARY DUTY.
  (E) THE PRESENCE ON AN INSTRUMENT OF  AN  INDORSEMENT  TO  WHICH  THIS
SECTION  APPLIES  DOES  NOT  PREVENT  A PURCHASER OF THE INSTRUMENT FROM
BECOMING A HOLDER IN DUE COURSE OF THE INSTRUMENT UNLESS  THE  PURCHASER
IS A CONVERTER UNDER SUBSECTION (C) OR HAS NOTICE OR KNOWLEDGE OF BREACH
OF FIDUCIARY DUTY AS STATED IN SUBSECTION (D).
  (F)  IN  AN  ACTION  TO  ENFORCE  THE OBLIGATION OF A PARTY TO PAY THE
INSTRUMENT, THE OBLIGOR HAS  A  DEFENSE  IF  PAYMENT  WOULD  VIOLATE  AN
INDORSEMENT TO WHICH THIS SECTION APPLIES AND THE PAYMENT IS NOT PERMIT-
TED BY THIS SECTION.
SECTION 3--207. REACQUISITION.
  REACQUISITION OF AN INSTRUMENT OCCURS IF IT IS TRANSFERRED TO A FORMER
HOLDER,  BY NEGOTIATION OR OTHERWISE. A FORMER HOLDER WHO REACQUIRES THE
INSTRUMENT MAY CANCEL  INDORSEMENTS  MADE  AFTER  THE  REACQUIRER  FIRST
BECAME  A  HOLDER  OF  THE  INSTRUMENT.  IF  THE CANCELLATION CAUSES THE
INSTRUMENT TO BE PAYABLE TO THE REACQUIRER OR TO BEARER, THE  REACQUIRER
MAY  NEGOTIATE THE INSTRUMENT. AN INDORSER WHOSE INDORSEMENT IS CANCELED
IS DISCHARGED, AND THE DISCHARGE IS  EFFECTIVE  AGAINST  ANY  SUBSEQUENT
HOLDER.

                                 PART 3
                       ENFORCEMENT OF INSTRUMENTS

SECTION 3--301. PERSON ENTITLED TO ENFORCE INSTRUMENT.
  "PERSON ENTITLED TO ENFORCE" AN INSTRUMENT MEANS (1) THE HOLDER OF THE
INSTRUMENT,  (2) A NONHOLDER IN POSSESSION OF THE INSTRUMENT WHO HAS THE
RIGHTS OF A HOLDER, OR (3) A PERSON NOT IN POSSESSION OF THE  INSTRUMENT
WHO  IS ENTITLED TO ENFORCE THE INSTRUMENT PURSUANT TO SECTION 3--309 OR
3--418(D). A PERSON MAY BE A PERSON ENTITLED TO ENFORCE  THE  INSTRUMENT
EVEN  THOUGH  THE  PERSON  IS  NOT  THE OWNER OF THE INSTRUMENT OR IS IN
WRONGFUL POSSESSION OF THE INSTRUMENT.
SECTION 3--302. HOLDER IN DUE COURSE.
  (A) SUBJECT TO SUBSECTION (C) AND SECTION 3--106(D),  "HOLDER  IN  DUE
COURSE" MEANS THE HOLDER OF AN INSTRUMENT IF:
  (1)  THE  INSTRUMENT  WHEN ISSUED OR NEGOTIATED TO THE HOLDER DOES NOT
BEAR SUCH APPARENT EVIDENCE OF FORGERY OR ALTERATION OR IS NOT OTHERWISE
SO IRREGULAR OR INCOMPLETE AS TO CALL INTO  QUESTION  ITS  AUTHENTICITY;
AND
  (2)  THE HOLDER TOOK THE INSTRUMENT (I) FOR VALUE, (II) IN GOOD FAITH,
(III) WITHOUT NOTICE THAT THE INSTRUMENT IS OVERDUE OR HAS BEEN  DISHON-
ORED  OR  THAT  THERE  IS  AN UNCURED DEFAULT WITH RESPECT TO PAYMENT OF
ANOTHER INSTRUMENT ISSUED AS PART  OF  THE  SAME  SERIES,  (IV)  WITHOUT
NOTICE  THAT  THE  INSTRUMENT  CONTAINS AN UNAUTHORIZED SIGNATURE OR HAS
BEEN ALTERED,  (V)  WITHOUT  NOTICE  OF  ANY  CLAIM  TO  THE  INSTRUMENT
DESCRIBED  IN SECTION 3--306, AND (VI) WITHOUT NOTICE THAT ANY PARTY HAS
A DEFENSE OR CLAIM IN RECOUPMENT DESCRIBED IN SECTION 3--305(A).
  (B) NOTICE OF DISCHARGE OF A PARTY, OTHER THAN DISCHARGE IN AN  INSOL-
VENCY  PROCEEDING,  IS NOT NOTICE OF A DEFENSE UNDER SUBSECTION (A), BUT
DISCHARGE IS EFFECTIVE AGAINST A PERSON  WHO  BECAME  A  HOLDER  IN  DUE
COURSE  WITH  NOTICE  OF  THE DISCHARGE. PUBLIC FILING OR RECORDING OF A

S. 5901                            26

DOCUMENT DOES NOT OF ITSELF CONSTITUTE NOTICE OF  A  DEFENSE,  CLAIM  IN
RECOUPMENT, OR CLAIM TO THE INSTRUMENT.
  (C)  EXCEPT  TO THE EXTENT A TRANSFEROR OR PREDECESSOR IN INTEREST HAS
RIGHTS AS A HOLDER IN DUE COURSE, A PERSON DOES NOT ACQUIRE RIGHTS OF  A
HOLDER  IN  DUE COURSE OF AN INSTRUMENT TAKEN (1) BY LEGAL PROCESS OR BY
PURCHASE IN AN EXECUTION, BANKRUPTCY,  OR  CREDITOR'S  SALE  OR  SIMILAR
PROCEEDING,  (2)  BY PURCHASE AS PART OF A BULK TRANSACTION NOT IN ORDI-
NARY COURSE OF BUSINESS OF THE TRANSFEROR, OR (3) AS  THE  SUCCESSOR  IN
INTEREST TO AN ESTATE OR OTHER ORGANIZATION.
  (D) IF, UNDER SECTION 3--303(A)(1), THE PROMISE OF PERFORMANCE THAT IS
THE  CONSIDERATION  FOR  AN INSTRUMENT HAS BEEN PARTIALLY PERFORMED, THE
HOLDER MAY ASSERT RIGHTS AS A HOLDER IN DUE  COURSE  OF  THE  INSTRUMENT
ONLY TO THE FRACTION OF THE AMOUNT PAYABLE UNDER THE INSTRUMENT EQUAL TO
THE  VALUE  OF THE PARTIAL PERFORMANCE DIVIDED BY THE VALUE OF THE PROM-
ISED PERFORMANCE.
  (E) IF (1) THE PERSON ENTITLED TO ENFORCE AN  INSTRUMENT  HAS  ONLY  A
SECURITY  INTEREST  IN  THE INSTRUMENT AND (2) THE PERSON OBLIGED TO PAY
THE INSTRUMENT HAS A DEFENSE, CLAIM  IN  RECOUPMENT,  OR  CLAIM  TO  THE
INSTRUMENT THAT MAY BE ASSERTED AGAINST THE PERSON WHO GRANTED THE SECU-
RITY  INTEREST, THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT MAY ASSERT
RIGHTS AS A HOLDER IN DUE COURSE ONLY TO AN  AMOUNT  PAYABLE  UNDER  THE
INSTRUMENT WHICH, AT THE TIME OF ENFORCEMENT OF THE INSTRUMENT, DOES NOT
EXCEED THE AMOUNT OF THE UNPAID OBLIGATION SECURED.
  (F) TO BE EFFECTIVE, NOTICE MUST BE RECEIVED AT A TIME AND IN A MANNER
THAT GIVES A REASONABLE OPPORTUNITY TO ACT ON IT.
  (G)  THIS SECTION IS SUBJECT TO ANY LAW LIMITING STATUS AS A HOLDER IN
DUE COURSE IN PARTICULAR CLASSES OF TRANSACTIONS.
SECTION 3--303. VALUE AND CONSIDERATION.
  (A) AN INSTRUMENT IS ISSUED OR TRANSFERRED FOR VALUE IF:
  (1) THE INSTRUMENT IS ISSUED OR TRANSFERRED FOR A PROMISE OF  PERFORM-
ANCE, TO THE EXTENT THE PROMISE HAS BEEN PERFORMED;
  (2)  THE  TRANSFEREE ACQUIRES A SECURITY INTEREST OR OTHER LIEN IN THE
INSTRUMENT OTHER THAN A LIEN OBTAINED BY JUDICIAL PROCEEDING;
  (3) THE INSTRUMENT IS ISSUED OR TRANSFERRED AS PAYMENT OF, OR AS SECU-
RITY FOR, AN ANTECEDENT CLAIM AGAINST ANY PERSON,  WHETHER  OR  NOT  THE
CLAIM IS DUE;
  (4)  THE INSTRUMENT IS ISSUED OR TRANSFERRED IN EXCHANGE FOR A NEGOTI-
ABLE INSTRUMENT; OR
  (5) THE INSTRUMENT IS ISSUED OR TRANSFERRED IN EXCHANGE FOR THE INCUR-
RING OF AN IRREVOCABLE OBLIGATION TO A THIRD PARTY BY THE PERSON  TAKING
THE INSTRUMENT.
  (B)  "CONSIDERATION"  MEANS  ANY CONSIDERATION SUFFICIENT TO SUPPORT A
SIMPLE CONTRACT. THE DRAWER OR MAKER OF AN INSTRUMENT HAS A  DEFENSE  IF
THE  INSTRUMENT  IS  ISSUED  WITHOUT  CONSIDERATION. IF AN INSTRUMENT IS
ISSUED FOR A PROMISE OF PERFORMANCE, THE ISSUER HAS  A  DEFENSE  TO  THE
EXTENT  PERFORMANCE  OF  THE PROMISE IS DUE AND THE PROMISE HAS NOT BEEN
PERFORMED. IF AN INSTRUMENT IS ISSUED FOR VALUE AS STATED IN  SUBSECTION
(A), THE INSTRUMENT IS ALSO ISSUED FOR CONSIDERATION.
SECTION 3--304. OVERDUE INSTRUMENT.
  (A) AN INSTRUMENT PAYABLE ON DEMAND BECOMES OVERDUE AT THE EARLIEST OF
THE FOLLOWING TIMES:
  (1) ON THE DAY AFTER THE DAY DEMAND FOR PAYMENT IS DULY MADE;
  (2) IF THE INSTRUMENT IS A CHECK, NINETY DAYS AFTER ITS DATE; OR
  (3)  IF  THE  INSTRUMENT  IS NOT A CHECK, WHEN THE INSTRUMENT HAS BEEN
OUTSTANDING FOR A PERIOD OF TIME AFTER ITS DATE  WHICH  IS  UNREASONABLY

S. 5901                            27

LONG  UNDER  THE  CIRCUMSTANCES  OF  THE PARTICULAR CASE IN LIGHT OF THE
NATURE OF THE INSTRUMENT AND USAGE OF THE TRADE.
  (B)  WITH  RESPECT  TO  AN  INSTRUMENT  PAYABLE AT A DEFINITE TIME THE
FOLLOWING RULES APPLY:
  (1) IF THE PRINCIPAL IS PAYABLE IN INSTALLMENTS AND A DUE DATE HAS NOT
BEEN ACCELERATED, THE INSTRUMENT BECOMES OVERDUE UPON DEFAULT UNDER  THE
INSTRUMENT  FOR NONPAYMENT OF AN INSTALLMENT, AND THE INSTRUMENT REMAINS
OVERDUE UNTIL THE DEFAULT IS CURED.
  (2) IF THE PRINCIPAL IS NOT PAYABLE IN INSTALLMENTS AND THE  DUE  DATE
HAS  NOT  BEEN  ACCELERATED,  THE  INSTRUMENT BECOMES OVERDUE ON THE DAY
AFTER THE DUE DATE.
  (3) IF A DUE DATE WITH RESPECT TO PRINCIPAL HAS BEEN ACCELERATED,  THE
INSTRUMENT BECOMES OVERDUE ON THE DAY AFTER THE ACCELERATED DUE DATE.
  (C)  UNLESS THE DUE DATE OF PRINCIPAL HAS BEEN ACCELERATED, AN INSTRU-
MENT DOES NOT BECOME OVERDUE IF THERE IS DEFAULT IN PAYMENT OF  INTEREST
BUT NO DEFAULT IN PAYMENT OF PRINCIPAL.
SECTION 3--305. DEFENSES  AND  CLAIMS  IN RECOUPMENT; CLAIMS IN CONSUMER
                  TRANSACTIONS.
  (A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE RIGHT TO ENFORCE
THE OBLIGATION OF A PARTY TO PAY AN INSTRUMENT IS SUBJECT TO THE FOLLOW-
ING:
  (1) A DEFENSE OF THE OBLIGOR BASED ON (I) INFANCY OF  THE  OBLIGOR  TO
THE  EXTENT  IT  IS A DEFENSE TO A SIMPLE CONTRACT, (II) DURESS, LACK OF
LEGAL CAPACITY, OR ILLEGALITY OF THE TRANSACTION WHICH, UNDER OTHER LAW,
NULLIFIES THE OBLIGATION OF THE OBLIGOR, (III) FRAUD  THAT  INDUCED  THE
OBLIGOR  TO  SIGN  THE  INSTRUMENT WITH NEITHER KNOWLEDGE NOR REASONABLE
OPPORTUNITY TO LEARN OF ITS CHARACTER OR ITS ESSENTIAL  TERMS,  OR  (IV)
DISCHARGE OF THE OBLIGOR IN INSOLVENCY PROCEEDINGS;
  (2) A DEFENSE OF THE OBLIGOR STATED IN ANOTHER SECTION OF THIS ARTICLE
OR  A DEFENSE OF THE OBLIGOR THAT WOULD BE AVAILABLE IF THE PERSON ENTI-
TLED TO ENFORCE THE INSTRUMENT WERE ENFORCING A RIGHT TO PAYMENT UNDER A
SIMPLE CONTRACT; AND
  (3) A CLAIM IN RECOUPMENT OF THE OBLIGOR AGAINST THE ORIGINAL PAYEE OF
THE INSTRUMENT IF THE CLAIM AROSE FROM THE TRANSACTION THAT GAVE RISE TO
THE INSTRUMENT; BUT THE CLAIM OF THE OBLIGOR MAY BE ASSERTED  AGAINST  A
TRANSFEREE  OF  THE  INSTRUMENT  ONLY  TO REDUCE THE AMOUNT OWING ON THE
INSTRUMENT AT THE TIME THE ACTION IS BROUGHT.
  (B) THE RIGHT OF A HOLDER IN DUE COURSE TO ENFORCE THE OBLIGATION OF A
PARTY TO PAY THE INSTRUMENT IS SUBJECT TO DEFENSES OF THE OBLIGOR STATED
IN SUBSECTION (A)(1), BUT IS NOT SUBJECT  TO  DEFENSES  OF  THE  OBLIGOR
STATED IN SUBSECTION (A)(2) OR CLAIMS IN RECOUPMENT STATED IN SUBSECTION
(A)(3) AGAINST A PERSON OTHER THAN THE HOLDER.
  (C)  EXCEPT  AS  STATED IN SUBSECTION (D), IN AN ACTION TO ENFORCE THE
OBLIGATION OF A PARTY TO PAY THE INSTRUMENT, THE OBLIGOR MAY NOT  ASSERT
AGAINST  THE  PERSON ENTITLED TO ENFORCE THE INSTRUMENT A DEFENSE, CLAIM
IN RECOUPMENT, OR CLAIM TO THE INSTRUMENT (SECTION  3--306)  OF  ANOTHER
PERSON,  BUT  THE OTHER PERSON'S CLAIM TO THE INSTRUMENT MAY BE ASSERTED
BY THE OBLIGOR  IF  THE  OTHER  PERSON  IS  JOINED  IN  THE  ACTION  AND
PERSONALLY  ASSERTS THE CLAIM AGAINST THE PERSON ENTITLED TO ENFORCE THE
INSTRUMENT. AN OBLIGOR IS NOT OBLIGED  TO  PAY  THE  INSTRUMENT  IF  THE
PERSON  SEEKING  ENFORCEMENT OF THE INSTRUMENT DOES NOT HAVE RIGHTS OF A
HOLDER IN DUE COURSE AND THE OBLIGOR PROVES THAT  THE  INSTRUMENT  IS  A
LOST OR STOLEN INSTRUMENT.
  (D)  IN  AN ACTION TO ENFORCE THE OBLIGATION OF AN ACCOMMODATION PARTY
TO PAY AN INSTRUMENT, THE ACCOMMODATION PARTY  MAY  ASSERT  AGAINST  THE
PERSON  ENTITLED  TO  ENFORCE  THE  INSTRUMENT  ANY  DEFENSE OR CLAIM IN

S. 5901                            28

RECOUPMENT UNDER SUBSECTION (A) THAT THE ACCOMMODATED PARTY COULD ASSERT
AGAINST THE PERSON  ENTITLED  TO  ENFORCE  THE  INSTRUMENT,  EXCEPT  THE
DEFENSES  OF  DISCHARGE  IN INSOLVENCY PROCEEDINGS, INFANCY, AND LACK OF
LEGAL CAPACITY.
  (E) IN A CONSUMER TRANSACTION, IF LAW OTHER THAN THIS ARTICLE REQUIRES
THAT  AN INSTRUMENT INCLUDE A STATEMENT TO THE EFFECT THAT THE RIGHTS OF
A HOLDER OR TRANSFEREE ARE SUBJECT TO A CLAIM OR DEFENSE THAT THE ISSUER
COULD ASSERT AGAINST THE ORIGINAL PAYEE, AND  THE  INSTRUMENT  DOES  NOT
INCLUDE SUCH A STATEMENT:
  (1)  THE  INSTRUMENT HAS THE SAME EFFECT AS IF THE INSTRUMENT INCLUDED
SUCH A STATEMENT;
  (2) THE ISSUER MAY ASSERT AGAINST THE HOLDER OR TRANSFEREE ALL  CLAIMS
AND  DEFENSES  THAT WOULD HAVE BEEN AVAILABLE IF THE INSTRUMENT INCLUDED
SUCH A STATEMENT; AND
  (3) THE EXTENT TO WHICH CLAIMS MAY BE ASSERTED AGAINST THE  HOLDER  OR
TRANSFEREE IS DETERMINED AS IF THE INSTRUMENT INCLUDED SUCH A STATEMENT.
  (F) THIS SECTION IS SUBJECT TO LAW OTHER THAN THIS ARTICLE THAT ESTAB-
LISHES A DIFFERENT RULE FOR CONSUMER TRANSACTIONS.
SECTION 3--306. CLAIMS TO AN INSTRUMENT.
  A  PERSON TAKING AN INSTRUMENT, OTHER THAN A PERSON HAVING RIGHTS OF A
HOLDER IN DUE COURSE, IS SUBJECT TO A CLAIM OF A PROPERTY OR  POSSESSORY
RIGHT  IN THE INSTRUMENT OR ITS PROCEEDS, INCLUDING A CLAIM TO RESCIND A
NEGOTIATION AND TO RECOVER THE INSTRUMENT  OR  ITS  PROCEEDS.  A  PERSON
HAVING  RIGHTS  OF A HOLDER IN DUE COURSE TAKES FREE OF THE CLAIM TO THE
INSTRUMENT.
SECTION 3--307. NOTICE OF BREACH OF FIDUCIARY DUTY.
  (A) IN THIS SECTION:
  (1) "FIDUCIARY" MEANS AN AGENT, TRUSTEE, PARTNER, CORPORATE OFFICER OR
DIRECTOR, OR OTHER REPRESENTATIVE OWING A FIDUCIARY DUTY WITH RESPECT TO
AN INSTRUMENT.
  (2) "REPRESENTED PERSON" MEANS THE  PRINCIPAL,  BENEFICIARY,  PARTNER-
SHIP,  CORPORATION, OR OTHER PERSON TO WHOM THE DUTY STATED IN PARAGRAPH
(1) IS OWED.
  (B) IF (1) AN INSTRUMENT IS TAKEN FROM  A  FIDUCIARY  FOR  PAYMENT  OR
COLLECTION  OR  FOR  VALUE, (2) THE TAKER HAS KNOWLEDGE OF THE FIDUCIARY
STATUS OF THE FIDUCIARY, AND (3) THE REPRESENTED PERSON MAKES A CLAIM TO
THE INSTRUMENT OR ITS PROCEEDS ON THE BASIS THAT THE TRANSACTION OF  THE
FIDUCIARY IS A BREACH OF FIDUCIARY DUTY, THE FOLLOWING RULES APPLY:
  (I)  NOTICE  OF BREACH OF FIDUCIARY DUTY BY THE FIDUCIARY IS NOTICE OF
THE CLAIM OF THE REPRESENTED PERSON.
  (II) IN THE CASE OF AN INSTRUMENT PAYABLE TO THE REPRESENTED PERSON OR
THE FIDUCIARY AS SUCH, THE TAKER HAS NOTICE OF THE BREACH  OF  FIDUCIARY
DUTY  IF  THE INSTRUMENT IS (A) TAKEN IN PAYMENT OF OR AS SECURITY FOR A
DEBT KNOWN BY THE TAKER TO BE THE PERSONAL DEBT OF  THE  FIDUCIARY,  (B)
TAKEN IN A TRANSACTION KNOWN BY THE TAKER TO BE FOR THE PERSONAL BENEFIT
OF  THE  FIDUCIARY, OR (C) DEPOSITED TO AN ACCOUNT OTHER THAN AN ACCOUNT
OF THE FIDUCIARY, AS SUCH, OR AN ACCOUNT OF THE REPRESENTED PERSON.
  (III) IF AN INSTRUMENT IS ISSUED BY  THE  REPRESENTED  PERSON  OR  THE
FIDUCIARY  AS  SUCH,  AND  MADE PAYABLE TO THE FIDUCIARY PERSONALLY, THE
TAKER DOES NOT HAVE NOTICE OF THE BREACH OF FIDUCIARY  DUTY  UNLESS  THE
TAKER KNOWS OF THE BREACH OF FIDUCIARY DUTY.
  (IV) IF AN INSTRUMENT IS ISSUED BY THE REPRESENTED PERSON OR THE FIDU-
CIARY AS SUCH, TO THE TAKER AS PAYEE, THE TAKER HAS NOTICE OF THE BREACH
OF  FIDUCIARY  DUTY  IF  THE INSTRUMENT IS (A) TAKEN IN PAYMENT OF OR AS
SECURITY FOR A DEBT KNOWN BY THE TAKER TO BE THE PERSONAL  DEBT  OF  THE
FIDUCIARY,  (B)  TAKEN IN A TRANSACTION KNOWN BY THE TAKER TO BE FOR THE

S. 5901                            29

PERSONAL BENEFIT OF THE FIDUCIARY, OR (C) DEPOSITED TO AN ACCOUNT  OTHER
THAN  AN ACCOUNT OF THE FIDUCIARY, AS SUCH, OR AN ACCOUNT OF THE REPRES-
ENTED PERSON.
SECTION 3--308. PROOF OF SIGNATURES AND STATUS AS HOLDER IN DUE COURSE.
  (A)  IN  AN ACTION WITH RESPECT TO AN INSTRUMENT, THE AUTHENTICITY OF,
AND AUTHORITY TO MAKE, EACH SIGNATURE  ON  THE  INSTRUMENT  IS  ADMITTED
UNLESS SPECIFICALLY DENIED IN THE PLEADINGS. IF THE VALIDITY OF A SIGNA-
TURE  IS DENIED IN THE PLEADINGS, THE BURDEN OF ESTABLISHING VALIDITY IS
ON THE PERSON CLAIMING VALIDITY, BUT THE SIGNATURE  IS  PRESUMED  TO  BE
AUTHENTIC  AND  AUTHORIZED UNLESS THE ACTION IS TO ENFORCE THE LIABILITY
OF THE PURPORTED SIGNER AND THE SIGNER IS DEAD  OR  INCOMPETENT  AT  THE
TIME OF TRIAL OF THE ISSUE OF VALIDITY OF THE SIGNATURE. IF AN ACTION TO
ENFORCE  THE  INSTRUMENT  IS BROUGHT AGAINST A PERSON AS THE UNDISCLOSED
PRINCIPAL OF A PERSON WHO SIGNED  THE  INSTRUMENT  AS  A  PARTY  TO  THE
INSTRUMENT,  THE  PLAINTIFF  HAS  THE  BURDEN  OF  ESTABLISHING THAT THE
DEFENDANT IS LIABLE ON THE INSTRUMENT  AS  A  REPRESENTED  PERSON  UNDER
SECTION 3--402(A).
  (B)  IF  THE VALIDITY OF SIGNATURES IS ADMITTED OR PROVED AND THERE IS
COMPLIANCE WITH SUBSECTION (A), A PLAINTIFF PRODUCING THE INSTRUMENT  IS
ENTITLED  TO  PAYMENT IF THE PLAINTIFF PROVES ENTITLEMENT TO ENFORCE THE
INSTRUMENT UNDER SECTION 3--301, UNLESS THE DEFENDANT PROVES  A  DEFENSE
OR  CLAIM  IN RECOUPMENT. IF A DEFENSE OR CLAIM IN RECOUPMENT IS PROVED,
THE RIGHT TO PAYMENT OF THE PLAINTIFF  IS  SUBJECT  TO  THE  DEFENSE  OR
CLAIM,  EXCEPT TO THE EXTENT THE PLAINTIFF PROVES THAT THE PLAINTIFF HAS
RIGHTS OF A HOLDER IN DUE COURSE WHICH ARE NOT SUBJECT TO THE DEFENSE OR
CLAIM.
SECTION 3--309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT.
  (A) A PERSON NOT IN POSSESSION OF AN INSTRUMENT IS ENTITLED TO ENFORCE
THE INSTRUMENT IF:
  (1) THE PERSON SEEKING TO ENFORCE THE INSTRUMENT:
  (A) WAS ENTITLED TO ENFORCE THE INSTRUMENT  WHEN  LOSS  OF  POSSESSION
OCCURRED; OR
  (B)  HAS  DIRECTLY  OR INDIRECTLY ACQUIRED OWNERSHIP OF THE INSTRUMENT
FROM A PERSON WHO WAS ENTITLED TO ENFORCE THE INSTRUMENT  WHEN  LOSS  OF
POSSESSION OCCURRED;
  (2)  THE  LOSS  OF  POSSESSION WAS NOT THE RESULT OF A TRANSFER BY THE
PERSON OR A LAWFUL SEIZURE; AND
  (3) THE PERSON CANNOT REASONABLY OBTAIN POSSESSION OF  THE  INSTRUMENT
BECAUSE  THE  INSTRUMENT WAS DESTROYED, ITS WHEREABOUTS CANNOT BE DETER-
MINED, OR IT IS IN THE WRONGFUL POSSESSION OF AN  UNKNOWN  PERSON  OR  A
PERSON THAT CANNOT BE FOUND OR IS NOT AMENABLE TO SERVICE OF PROCESS.
  (B) A PERSON SEEKING ENFORCEMENT OF AN INSTRUMENT UNDER SUBSECTION (A)
MUST PROVE THE TERMS OF THE INSTRUMENT AND THE PERSON'S RIGHT TO ENFORCE
THE  INSTRUMENT.  IF  THAT  PROOF IS MADE, SECTION 3--308 APPLIES TO THE
CASE AS IF THE PERSON SEEKING ENFORCEMENT HAD PRODUCED  THE  INSTRUMENT.
THE COURT MAY NOT ENTER JUDGMENT IN FAVOR OF THE PERSON SEEKING ENFORCE-
MENT  UNLESS  IT FINDS THAT THE PERSON REQUIRED TO PAY THE INSTRUMENT IS
ADEQUATELY PROTECTED AGAINST LOSS THAT MIGHT OCCUR BY REASON OF A  CLAIM
BY  ANOTHER PERSON TO ENFORCE THE INSTRUMENT. ADEQUATE PROTECTION MAY BE
PROVIDED BY ANY REASONABLE MEANS.
SECTION 3--310. EFFECT OF INSTRUMENT ON OBLIGATION FOR WHICH TAKEN.
  (A) UNLESS OTHERWISE AGREED, IF A CERTIFIED CHECK, CASHIER'S CHECK, OR
TELLER'S CHECK IS TAKEN FOR AN OBLIGATION, THE OBLIGATION IS  DISCHARGED
TO THE SAME EXTENT DISCHARGE WOULD RESULT IF AN AMOUNT OF MONEY EQUAL TO
THE  AMOUNT  OF  THE INSTRUMENT WERE TAKEN IN PAYMENT OF THE OBLIGATION.

S. 5901                            30

DISCHARGE OF THE OBLIGATION DOES NOT AFFECT ANY LIABILITY THAT THE OBLI-
GOR MAY HAVE AS AN INDORSER OF THE INSTRUMENT.
  (B)  UNLESS OTHERWISE AGREED AND EXCEPT AS PROVIDED IN SUBSECTION (A),
IF A NOTE OR AN UNCERTIFIED CHECK IS TAKEN FOR AN OBLIGATION, THE  OBLI-
GATION  IS  SUSPENDED  TO  THE  SAME  EXTENT  THE  OBLIGATION  WOULD  BE
DISCHARGED IF AN AMOUNT OF MONEY EQUAL TO THE AMOUNT OF  THE  INSTRUMENT
WERE TAKEN, AND THE FOLLOWING RULES APPLY:
  (1)  IN THE CASE OF AN UNCERTIFIED CHECK, SUSPENSION OF THE OBLIGATION
CONTINUES UNTIL DISHONOR OF THE CHECK OR UNTIL IT IS PAID OR  CERTIFIED.
PAYMENT  OR CERTIFICATION OF THE CHECK RESULTS IN DISCHARGE OF THE OBLI-
GATION TO THE EXTENT OF THE AMOUNT OF THE CHECK.
  (2) IN THE CASE OF A NOTE,  SUSPENSION  OF  THE  OBLIGATION  CONTINUES
UNTIL  DISHONOR  OF  THE  NOTE  OR UNTIL IT IS PAID. PAYMENT OF THE NOTE
RESULTS IN DISCHARGE OF THE OBLIGATION TO THE EXTENT OF THE PAYMENT.
  (3) EXCEPT AS PROVIDED IN PARAGRAPH (4),  IF  THE  CHECK  OR  NOTE  IS
DISHONORED  AND  THE  OBLIGEE OF THE OBLIGATION FOR WHICH THE INSTRUMENT
WAS TAKEN IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE  OBLIGEE
MAY  ENFORCE  EITHER THE INSTRUMENT OR THE OBLIGATION. IN THE CASE OF AN
INSTRUMENT OF A THIRD PERSON WHICH IS NEGOTIATED TO THE OBLIGEE  BY  THE
OBLIGOR,  DISCHARGE OF THE OBLIGOR ON THE INSTRUMENT ALSO DISCHARGES THE
OBLIGATION.
  (4) IF THE PERSON ENTITLED TO ENFORCE  THE  INSTRUMENT  TAKEN  FOR  AN
OBLIGATION  IS  A  PERSON  OTHER  THAN  THE OBLIGEE, THE OBLIGEE MAY NOT
ENFORCE THE OBLIGATION TO THE EXTENT THE OBLIGATION IS SUSPENDED. IF THE
OBLIGEE IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT BUT  NO  LONGER
HAS  POSSESSION  OF  IT  BECAUSE  IT WAS LOST, STOLEN, OR DESTROYED, THE
OBLIGATION MAY NOT BE ENFORCED TO THE EXTENT OF THE  AMOUNT  PAYABLE  ON
THE  INSTRUMENT,  AND  TO  THAT  EXTENT THE OBLIGEE'S RIGHTS AGAINST THE
OBLIGOR ARE LIMITED TO ENFORCEMENT OF THE INSTRUMENT.
  (C) IF AN INSTRUMENT OTHER THAN ONE DESCRIBED IN SUBSECTION (A) OR (B)
IS TAKEN FOR AN OBLIGATION, THE EFFECT IS (1) THAT STATED IN  SUBSECTION
(A)  IF  THE  INSTRUMENT  IS  ONE  ON WHICH A BANK IS LIABLE AS MAKER OR
ACCEPTOR, OR (2) THAT STATED IN SUBSECTION (B) IN ANY OTHER CASE.
SECTION 3--311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT.
  (A) IF A PERSON AGAINST WHOM A CLAIM IS ASSERTED PROVES THAT (1)  THAT
PERSON  IN  GOOD  FAITH  TENDERED  AN INSTRUMENT TO THE CLAIMANT AS FULL
SATISFACTION OF THE CLAIM, (2) THE AMOUNT OF THE CLAIM WAS  UNLIQUIDATED
OR SUBJECT TO A BONA FIDE DISPUTE, AND (3) THE CLAIMANT OBTAINED PAYMENT
OF THE INSTRUMENT, THE FOLLOWING SUBSECTIONS APPLY.
  (B)  UNLESS  SUBSECTION  (C)  APPLIES,  THE CLAIM IS DISCHARGED IF THE
PERSON AGAINST WHOM THE CLAIM IS ASSERTED PROVES THAT THE INSTRUMENT  OR
AN  ACCOMPANYING WRITTEN COMMUNICATION CONTAINED A CONSPICUOUS STATEMENT
TO THE EFFECT THAT THE INSTRUMENT WAS TENDERED AS FULL  SATISFACTION  OF
THE CLAIM.
  (C)  SUBJECT  TO  SUBSECTION  (D),  A  CLAIM  IS  NOT DISCHARGED UNDER
SUBSECTION (B) IF EITHER OF THE FOLLOWING APPLIES:
  (1) THE CLAIMANT, IF AN ORGANIZATION, PROVES THAT (I) WITHIN A REASON-
ABLE TIME BEFORE THE TENDER, THE CLAIMANT SENT A  CONSPICUOUS  STATEMENT
TO  THE  PERSON  AGAINST  WHOM THE CLAIM IS ASSERTED THAT COMMUNICATIONS
CONCERNING DISPUTED DEBTS, INCLUDING  AN  INSTRUMENT  TENDERED  AS  FULL
SATISFACTION  OF  A DEBT, ARE TO BE SENT TO A DESIGNATED PERSON, OFFICE,
OR PLACE, AND (II) THE INSTRUMENT OR ACCOMPANYING COMMUNICATION WAS  NOT
RECEIVED BY THAT DESIGNATED PERSON, OFFICE, OR PLACE.
  (2)  THE  CLAIMANT, WHETHER OR NOT AN ORGANIZATION, PROVES THAT WITHIN
NINETY DAYS AFTER PAYMENT  OF  THE  INSTRUMENT,  THE  CLAIMANT  TENDERED
REPAYMENT OF THE AMOUNT OF THE INSTRUMENT TO THE PERSON AGAINST WHOM THE

S. 5901                            31

CLAIM  IS  ASSERTED. THIS PARAGRAPH DOES NOT APPLY IF THE CLAIMANT IS AN
ORGANIZATION THAT SENT A STATEMENT COMPLYING WITH PARAGRAPH (1)(I).
  (D)  A  CLAIM  IS  DISCHARGED  IF THE PERSON AGAINST WHOM THE CLAIM IS
ASSERTED PROVES THAT WITHIN A REASONABLE TIME BEFORE COLLECTION  OF  THE
INSTRUMENT  WAS  INITIATED,  THE  CLAIMANT,  OR AN AGENT OF THE CLAIMANT
HAVING DIRECT RESPONSIBILITY WITH RESPECT TO  THE  DISPUTED  OBLIGATION,
KNEW THAT THE INSTRUMENT WAS TENDERED IN FULL SATISFACTION OF THE CLAIM.
SECTION 3--312. LOST,  DESTROYED,  OR  STOLEN  CASHIER'S CHECK, TELLER'S
                  CHECK, OR CERTIFIED CHECK.
  (A) IN THIS SECTION:
  (1) "CHECK" MEANS A CASHIER'S  CHECK,  TELLER'S  CHECK,  OR  CERTIFIED
CHECK.
  (2)  "CLAIMANT"  MEANS  A  PERSON  WHO CLAIMS THE RIGHT TO RECEIVE THE
AMOUNT OF A CASHIER'S CHECK, TELLER'S CHECK, OR CERTIFIED CHECK THAT WAS
LOST, DESTROYED, OR STOLEN.
  (3) "DECLARATION OF LOSS" MEANS A STATEMENT, MADE IN  A  RECORD  UNDER
PENALTY  OF PERJURY, TO THE EFFECT THAT (I) THE DECLARER LOST POSSESSION
OF A CHECK, (II) THE DECLARER IS THE DRAWER OR PAYEE OF  THE  CHECK,  IN
THE CASE OF A CERTIFIED CHECK, OR THE REMITTER OR PAYEE OF THE CHECK, IN
THE  CASE  OF  A  CASHIER'S  CHECK  OR TELLER'S CHECK, (III) THE LOSS OF
POSSESSION WAS NOT THE RESULT OF A TRANSFER BY THE DECLARER OR A  LAWFUL
SEIZURE,  AND  (IV)  THE DECLARER CANNOT REASONABLY OBTAIN POSSESSION OF
THE CHECK BECAUSE THE CHECK WAS DESTROYED,  ITS  WHEREABOUTS  CANNOT  BE
DETERMINED,  OR IT IS IN THE WRONGFUL POSSESSION OF AN UNKNOWN PERSON OR
A PERSON THAT CANNOT BE FOUND OR IS NOT AMENABLE TO SERVICE OF PROCESS.
  (4) "OBLIGATED BANK" MEANS THE ISSUER OF A CASHIER'S CHECK OR TELLER'S
CHECK OR THE ACCEPTOR OF A CERTIFIED CHECK.
  (B) A CLAIMANT MAY ASSERT A CLAIM TO THE AMOUNT OF A CHECK BY A COMMU-
NICATION TO THE OBLIGATED BANK  DESCRIBING  THE  CHECK  WITH  REASONABLE
CERTAINTY  AND REQUESTING PAYMENT OF THE AMOUNT OF THE CHECK, IF (1) THE
CLAIMANT IS THE DRAWER OR PAYEE OF A CERTIFIED CHECK OR THE REMITTER  OR
PAYEE  OF  A  CASHIER'S  CHECK  OR TELLER'S CHECK, (2) THE COMMUNICATION
CONTAINS OR IS ACCOMPANIED BY A DECLARATION OF LOSS OF THE CLAIMANT WITH
RESPECT TO THE CHECK, (3) THE COMMUNICATION IS RECEIVED AT A TIME AND IN
A MANNER AFFORDING THE BANK A REASONABLE TIME TO ACT ON  IT  BEFORE  THE
CHECK  IS  PAID, AND (4) THE CLAIMANT PROVIDES REASONABLE IDENTIFICATION
IF REQUESTED BY THE OBLIGATED BANK. DELIVERY OF A DECLARATION OF LOSS IS
A WARRANTY OF THE TRUTH OF THE STATEMENTS MADE IN THE DECLARATION. IF  A
CLAIM  IS  ASSERTED  IN  COMPLIANCE  WITH THIS SUBSECTION, THE FOLLOWING
RULES APPLY:
  (1) THE CLAIM BECOMES ENFORCEABLE AT THE LATER OF  (I)  THE  TIME  THE
CLAIM  IS  ASSERTED, OR (II) THE NINETIETH DAY FOLLOWING THE DATE OF THE
CHECK, IN THE CASE OF A CASHIER'S CHECK OR TELLER'S CHECK, OR THE  NINE-
TIETH  DAY FOLLOWING THE DATE OF THE ACCEPTANCE, IN THE CASE OF A CERTI-
FIED CHECK.
  (2) UNTIL THE CLAIM BECOMES ENFORCEABLE, IT HAS NO  LEGAL  EFFECT  AND
THE  OBLIGATED  BANK  MAY  PAY  THE  CHECK OR, IN THE CASE OF A TELLER'S
CHECK, MAY PERMIT THE DRAWEE TO PAY THE CHECK. PAYMENT TO A PERSON ENTI-
TLED TO ENFORCE THE CHECK DISCHARGES ALL LIABILITY OF THE OBLIGATED BANK
WITH RESPECT TO THE CHECK.
  (3) IF THE CLAIM BECOMES ENFORCEABLE BEFORE THE CHECK IS PRESENTED FOR
PAYMENT, THE OBLIGATED BANK IS NOT OBLIGED TO PAY THE CHECK.
  (4) WHEN THE CLAIM BECOMES ENFORCEABLE,  THE  OBLIGATED  BANK  BECOMES
OBLIGED TO PAY THE AMOUNT OF THE CHECK TO THE CLAIMANT IF PAYMENT OF THE
CHECK  HAS  NOT  BEEN  MADE  TO  A PERSON ENTITLED TO ENFORCE THE CHECK.

S. 5901                            32

SUBJECT TO SECTION 4-302(A)(1), PAYMENT TO THE CLAIMANT  DISCHARGES  ALL
LIABILITY OF THE OBLIGATED BANK WITH RESPECT TO THE CHECK.
  (C)  IF  THE  OBLIGATED  BANK PAYS THE AMOUNT OF A CHECK TO A CLAIMANT
UNDER SUBSECTION (B)(4) AND THE CHECK IS  PRESENTED  FOR  PAYMENT  BY  A
PERSON  HAVING RIGHTS OF A HOLDER IN DUE COURSE, THE CLAIMANT IS OBLIGED
TO (1) REFUND THE PAYMENT TO THE OBLIGATED BANK IF THE CHECK IS PAID, OR
(2) PAY THE AMOUNT OF THE CHECK TO THE PERSON HAVING RIGHTS OF A  HOLDER
IN DUE COURSE IF THE CHECK IS DISHONORED.
  (D) IF A CLAIMANT HAS THE RIGHT TO ASSERT A CLAIM UNDER SUBSECTION (B)
AND  IS  ALSO  A  PERSON ENTITLED TO ENFORCE A CASHIER'S CHECK, TELLER'S
CHECK, OR CERTIFIED CHECK WHICH  IS  LOST,  DESTROYED,  OR  STOLEN,  THE
CLAIMANT  MAY  ASSERT RIGHTS WITH RESPECT TO THE CHECK EITHER UNDER THIS
SECTION OR SECTION 3--309.
                                 PART 4
                          LIABILITY OF PARTIES
SECTION 3--401. SIGNATURE.
  (A) A PERSON IS NOT LIABLE ON AN  INSTRUMENT  UNLESS  (1)  THE  PERSON
SIGNED  THE  INSTRUMENT, OR (2) THE PERSON IS REPRESENTED BY AN AGENT OR
REPRESENTATIVE WHO SIGNED THE INSTRUMENT AND THE SIGNATURE IS BINDING ON
THE REPRESENTED PERSON UNDER SECTION 3--402.
  (B) A SIGNATURE MAY BE MADE (1) MANUALLY OR BY MEANS OF  A  DEVICE  OR
MACHINE,  AND  (2)  BY THE USE OF ANY NAME, INCLUDING A TRADE OR ASSUMED
NAME, OR BY A WORD, MARK, OR SYMBOL EXECUTED OR ADOPTED BY A PERSON WITH
PRESENT INTENTION TO AUTHENTICATE A WRITING.
SECTION 3--402. SIGNATURE BY REPRESENTATIVE.
  (A) IF A PERSON ACTING, OR PURPORTING  TO  ACT,  AS  A  REPRESENTATIVE
SIGNS AN INSTRUMENT BY SIGNING EITHER THE NAME OF THE REPRESENTED PERSON
OR THE NAME OF THE SIGNER, THE REPRESENTED PERSON IS BOUND BY THE SIGNA-
TURE  TO  THE  SAME  EXTENT THE REPRESENTED PERSON WOULD BE BOUND IF THE
SIGNATURE WERE ON A SIMPLE CONTRACT. IF THE REPRESENTED PERSON IS BOUND,
THE SIGNATURE OF THE REPRESENTATIVE IS THE "AUTHORIZED SIGNATURE OF  THE
REPRESENTED  PERSON" AND THE REPRESENTED PERSON IS LIABLE ON THE INSTRU-
MENT, WHETHER OR NOT IDENTIFIED IN THE INSTRUMENT.
  (B) IF A REPRESENTATIVE SIGNS THE NAME OF  THE  REPRESENTATIVE  TO  AN
INSTRUMENT  AND  THE SIGNATURE IS AN AUTHORIZED SIGNATURE OF THE REPRES-
ENTED PERSON, THE FOLLOWING RULES APPLY:
  (1) IF THE FORM OF THE SIGNATURE SHOWS UNAMBIGUOUSLY THAT  THE  SIGNA-
TURE  IS  MADE  ON BEHALF OF THE REPRESENTED PERSON WHO IS IDENTIFIED IN
THE INSTRUMENT, THE REPRESENTATIVE IS NOT LIABLE ON THE INSTRUMENT.
  (2) SUBJECT TO SUBSECTION (C), IF (I) THE FORM OF THE  SIGNATURE  DOES
NOT  SHOW  UNAMBIGUOUSLY  THAT THE SIGNATURE IS MADE IN A REPRESENTATIVE
CAPACITY OR (II) THE REPRESENTED PERSON IS NOT IDENTIFIED IN THE INSTRU-
MENT, THE REPRESENTATIVE IS LIABLE ON THE INSTRUMENT TO A HOLDER IN  DUE
COURSE  THAT  TOOK THE INSTRUMENT WITHOUT NOTICE THAT THE REPRESENTATIVE
WAS NOT INTENDED TO BE LIABLE ON THE INSTRUMENT.  WITH  RESPECT  TO  ANY
OTHER  PERSON, THE REPRESENTATIVE IS LIABLE ON THE INSTRUMENT UNLESS THE
REPRESENTATIVE PROVES THAT THE  ORIGINAL  PARTIES  DID  NOT  INTEND  THE
REPRESENTATIVE TO BE LIABLE ON THE INSTRUMENT.
  (C) IF A REPRESENTATIVE SIGNS THE NAME OF THE REPRESENTATIVE AS DRAWER
OF A CHECK WITHOUT INDICATION OF THE REPRESENTATIVE STATUS AND THE CHECK
IS  PAYABLE  FROM AN ACCOUNT OF THE REPRESENTED PERSON WHO IS IDENTIFIED
ON THE CHECK, THE SIGNER IS NOT LIABLE ON THE CHECK IF THE SIGNATURE  IS
AN AUTHORIZED SIGNATURE OF THE REPRESENTED PERSON.
SECTION 3--403. UNAUTHORIZED SIGNATURE.
  (A)  UNLESS  OTHERWISE PROVIDED IN THIS ARTICLE OR ARTICLE 4, AN UNAU-
THORIZED SIGNATURE IS INEFFECTIVE EXCEPT AS THE SIGNATURE OF  THE  UNAU-

S. 5901                            33

THORIZED  SIGNER IN FAVOR OF A PERSON WHO IN GOOD FAITH PAYS THE INSTRU-
MENT OR TAKES IT FOR VALUE. AN UNAUTHORIZED SIGNATURE  MAY  BE  RATIFIED
FOR ALL PURPOSES OF THIS ARTICLE.
  (B) IF THE SIGNATURE OF MORE THAN ONE PERSON IS REQUIRED TO CONSTITUTE
THE AUTHORIZED SIGNATURE OF AN ORGANIZATION, THE SIGNATURE OF THE ORGAN-
IZATION IS UNAUTHORIZED IF ONE OF THE REQUIRED SIGNATURES IS LACKING.
  (C) THE CIVIL OR CRIMINAL LIABILITY OF A PERSON WHO MAKES AN UNAUTHOR-
IZED  SIGNATURE  IS  NOT AFFECTED BY ANY PROVISION OF THIS ARTICLE WHICH
MAKES THE UNAUTHORIZED SIGNATURE EFFECTIVE  FOR  THE  PURPOSES  OF  THIS
ARTICLE.
SECTION 3--404. IMPOSTORS; FICTITIOUS PAYEES.
  (A)  IF  AN  IMPOSTOR,  BY  USE OF THE MAILS OR OTHERWISE, INDUCES THE
ISSUER OF AN INSTRUMENT TO ISSUE THE INSTRUMENT TO THE IMPOSTOR, OR TO A
PERSON ACTING IN CONCERT WITH THE IMPOSTOR, BY IMPERSONATING  THE  PAYEE
OF  THE  INSTRUMENT  OR  A  PERSON  AUTHORIZED  TO ACT FOR THE PAYEE, AN
INDORSEMENT OF THE INSTRUMENT BY ANY PERSON IN THE NAME OF THE PAYEE  IS
EFFECTIVE  AS  THE INDORSEMENT OF THE PAYEE IN FAVOR OF A PERSON WHO, IN
GOOD FAITH, PAYS THE INSTRUMENT OR TAKES IT FOR VALUE OR FOR COLLECTION.
  (B) IF (1) A PERSON WHOSE INTENT DETERMINES TO WHOM AN  INSTRUMENT  IS
PAYABLE  (SECTION 3--110) DOES NOT INTEND THE PERSON IDENTIFIED AS PAYEE
TO HAVE ANY INTEREST IN THE INSTRUMENT, OR (2) THE PERSON IDENTIFIED  AS
PAYEE OF AN INSTRUMENT IS A FICTITIOUS PERSON, THE FOLLOWING RULES APPLY
UNTIL THE INSTRUMENT IS NEGOTIATED BY SPECIAL INDORSEMENT:
  (I) ANY PERSON IN POSSESSION OF THE INSTRUMENT IS ITS HOLDER.
  (II)  AN  INDORSEMENT BY ANY PERSON IN THE NAME OF THE PAYEE STATED IN
THE INSTRUMENT IS EFFECTIVE AS THE INDORSEMENT OF THE PAYEE IN FAVOR  OF
A  PERSON  WHO, IN GOOD FAITH, PAYS THE INSTRUMENT OR TAKES IT FOR VALUE
OR FOR COLLECTION.
  (C) UNDER SUBSECTION (A) OR (B), AN INDORSEMENT IS MADE IN THE NAME OF
A PAYEE IF (1) IT IS MADE IN A NAME SUBSTANTIALLY SIMILAR TO THAT OF THE
PAYEE OR (2) THE INSTRUMENT, WHETHER OR NOT INDORSED, IS DEPOSITED IN  A
DEPOSITARY BANK TO AN ACCOUNT IN A NAME SUBSTANTIALLY SIMILAR TO THAT OF
THE PAYEE.
  (D)  WITH  RESPECT  TO  AN  INSTRUMENT  TO WHICH SUBSECTION (A) OR (B)
APPLIES, IF A PERSON PAYING THE INSTRUMENT OR TAKING IT FOR VALUE OR FOR
COLLECTION FAILS TO EXERCISE ORDINARY  CARE  IN  PAYING  OR  TAKING  THE
INSTRUMENT  AND THAT FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS RESULTING
FROM PAYMENT OF THE INSTRUMENT, THE PERSON BEARING THE LOSS MAY  RECOVER
FROM  THE  PERSON  FAILING  TO  EXERCISE ORDINARY CARE TO THE EXTENT THE
FAILURE TO EXERCISE ORDINARY CARE CONTRIBUTED TO THE LOSS.
SECTION 3--405. EMPLOYER'S RESPONSIBILITY FOR FRAUDULENT INDORSEMENT  BY
        EMPLOYEE.
  (A) IN THIS SECTION:
  (1)  "EMPLOYEE"  INCLUDES AN INDEPENDENT CONTRACTOR AND EMPLOYEE OF AN
INDEPENDENT CONTRACTOR RETAINED BY THE EMPLOYER.
  (2) "FRAUDULENT INDORSEMENT" MEANS (I) IN THE CASE  OF  AN  INSTRUMENT
PAYABLE  TO  THE EMPLOYER, A FORGED INDORSEMENT PURPORTING TO BE THAT OF
THE EMPLOYER, OR (II) IN THE CASE OF AN INSTRUMENT WITH RESPECT TO WHICH
THE EMPLOYER IS THE ISSUER, A FORGED INDORSEMENT PURPORTING TO  BE  THAT
OF THE PERSON IDENTIFIED AS PAYEE.
  (3)  "RESPONSIBILITY"  WITH RESPECT TO INSTRUMENTS MEANS AUTHORITY (I)
TO SIGN OR INDORSE INSTRUMENTS ON BEHALF OF THE EMPLOYER, (II) TO  PROC-
ESS  INSTRUMENTS  RECEIVED BY THE EMPLOYER FOR BOOKKEEPING PURPOSES, FOR
DEPOSIT TO AN ACCOUNT, OR FOR OTHER DISPOSITION,  (III)  TO  PREPARE  OR
PROCESS  INSTRUMENTS  FOR  ISSUE  IN  THE  NAME OF THE EMPLOYER, (IV) TO
SUPPLY INFORMATION DETERMINING THE  NAMES  OR  ADDRESSES  OF  PAYEES  OF

S. 5901                            34

INSTRUMENTS TO BE ISSUED IN THE NAME OF THE EMPLOYER, (V) TO CONTROL THE
DISPOSITION  OF INSTRUMENTS TO BE ISSUED IN THE NAME OF THE EMPLOYER, OR
(VI) TO ACT OTHERWISE WITH  RESPECT  TO  INSTRUMENTS  IN  A  RESPONSIBLE
CAPACITY. "RESPONSIBILITY" DOES NOT INCLUDE AUTHORITY THAT MERELY ALLOWS
AN EMPLOYEE TO HAVE ACCESS TO INSTRUMENTS OR BLANK OR INCOMPLETE INSTRU-
MENT  FORMS THAT ARE BEING STORED OR TRANSPORTED OR ARE PART OF INCOMING
OR OUTGOING MAIL, OR SIMILAR ACCESS.
  (B) FOR THE PURPOSE OF DETERMINING THE RIGHTS  AND  LIABILITIES  OF  A
PERSON  WHO,  IN GOOD FAITH, PAYS AN INSTRUMENT OR TAKES IT FOR VALUE OR
FOR COLLECTION, IF AN EMPLOYER ENTRUSTED AN EMPLOYEE WITH RESPONSIBILITY
WITH RESPECT TO THE INSTRUMENT AND THE EMPLOYEE OR A  PERSON  ACTING  IN
CONCERT  WITH THE EMPLOYEE MAKES A FRAUDULENT INDORSEMENT OF THE INSTRU-
MENT, THE INDORSEMENT IS EFFECTIVE AS THE INDORSEMENT OF THE  PERSON  TO
WHOM THE INSTRUMENT IS PAYABLE IF IT IS MADE IN THE NAME OF THAT PERSON.
IF  THE  PERSON  PAYING  THE  INSTRUMENT  OR  TAKING IT FOR VALUE OR FOR
COLLECTION FAILS TO EXERCISE ORDINARY  CARE  IN  PAYING  OR  TAKING  THE
INSTRUMENT  AND THAT FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS RESULTING
FROM THE FRAUD, THE PERSON BEARING THE LOSS MAY RECOVER FROM THE  PERSON
FAILING  TO EXERCISE ORDINARY CARE TO THE EXTENT THE FAILURE TO EXERCISE
ORDINARY CARE CONTRIBUTED TO THE LOSS.
  (C) UNDER SUBSECTION (B), AN INDORSEMENT IS MADE IN THE  NAME  OF  THE
PERSON  TO  WHOM  AN  INSTRUMENT  IS PAYABLE IF (1) IT IS MADE IN A NAME
SUBSTANTIALLY SIMILAR TO THE NAME OF THAT PERSON OR (2) THE  INSTRUMENT,
WHETHER OR NOT INDORSED, IS DEPOSITED IN A DEPOSITARY BANK TO AN ACCOUNT
IN A NAME SUBSTANTIALLY SIMILAR TO THE NAME OF THAT PERSON.
SECTION 3--406. NEGLIGENCE  CONTRIBUTING  TO  FORGED SIGNATURE OR ALTER-
                  ATION OF INSTRUMENT.
  (A) A PERSON WHOSE FAILURE TO  EXERCISE  ORDINARY  CARE  SUBSTANTIALLY
CONTRIBUTES  TO  AN  ALTERATION  OF  AN INSTRUMENT OR TO THE MAKING OF A
FORGED SIGNATURE ON AN INSTRUMENT IS PRECLUDED FROM ASSERTING THE ALTER-
ATION OR THE FORGERY AGAINST A PERSON  WHO,  IN  GOOD  FAITH,  PAYS  THE
INSTRUMENT OR TAKES IT FOR VALUE OR FOR COLLECTION.
  (B) UNDER SUBSECTION (A), IF THE PERSON ASSERTING THE PRECLUSION FAILS
TO  EXERCISE  ORDINARY  CARE IN PAYING OR TAKING THE INSTRUMENT AND THAT
FAILURE SUBSTANTIALLY CONTRIBUTES TO LOSS, THE LOSS IS ALLOCATED BETWEEN
THE PERSON PRECLUDED AND THE PERSON ASSERTING THE  PRECLUSION  ACCORDING
TO  THE  EXTENT  TO  WHICH THE FAILURE OF EACH TO EXERCISE ORDINARY CARE
CONTRIBUTED TO THE LOSS.
  (C) UNDER SUBSECTION (A), THE BURDEN OF PROVING  FAILURE  TO  EXERCISE
ORDINARY   CARE  IS  ON  THE  PERSON  ASSERTING  THE  PRECLUSION.  UNDER
SUBSECTION (B), THE BURDEN OF PROVING FAILURE TO EXERCISE ORDINARY  CARE
IS ON THE PERSON PRECLUDED.
SECTION 3--407. ALTERATION.
  (A)  "ALTERATION"  MEANS  (1)  AN UNAUTHORIZED CHANGE IN AN INSTRUMENT
THAT PURPORTS TO MODIFY IN ANY RESPECT THE OBLIGATION OF A PARTY, OR (2)
AN UNAUTHORIZED ADDITION OF WORDS OR  NUMBERS  OR  OTHER  CHANGE  TO  AN
INCOMPLETE INSTRUMENT RELATING TO THE OBLIGATION OF A PARTY.
  (B)  EXCEPT  AS PROVIDED IN SUBSECTION (C), AN ALTERATION FRAUDULENTLY
MADE DISCHARGES A PARTY WHOSE OBLIGATION IS AFFECTED BY  THE  ALTERATION
UNLESS THAT PARTY ASSENTS OR IS PRECLUDED FROM ASSERTING THE ALTERATION.
NO  OTHER  ALTERATION  DISCHARGES  A  PARTY,  AND  THE INSTRUMENT MAY BE
ENFORCED ACCORDING TO ITS ORIGINAL TERMS.
  (C) A PAYOR BANK OR DRAWEE PAYING A FRAUDULENTLY ALTERED INSTRUMENT OR
A PERSON TAKING IT FOR VALUE, IN GOOD FAITH AND WITHOUT  NOTICE  OF  THE
ALTERATION,  MAY  ENFORCE  RIGHTS  WITH  RESPECT  TO  THE INSTRUMENT (1)
ACCORDING TO ITS ORIGINAL TERMS, OR (2) IN THE  CASE  OF  AN  INCOMPLETE

S. 5901                            35

INSTRUMENT ALTERED BY UNAUTHORIZED COMPLETION, ACCORDING TO ITS TERMS AS
COMPLETED.
SECTION 3--408. DRAWEE NOT LIABLE ON UNACCEPTED DRAFT.
  A  CHECK OR OTHER DRAFT DOES NOT OF ITSELF OPERATE AS AN ASSIGNMENT OF
FUNDS IN THE HANDS OF THE DRAWEE AVAILABLE  FOR  ITS  PAYMENT,  AND  THE
DRAWEE IS NOT LIABLE ON THE INSTRUMENT UNTIL THE DRAWEE ACCEPTS IT.
SECTION 3--409. ACCEPTANCE OF DRAFT; CERTIFIED CHECK.
  (A) "ACCEPTANCE" MEANS THE DRAWEE'S SIGNED AGREEMENT TO PAY A DRAFT AS
PRESENTED.  IT  MUST  BE  WRITTEN  ON  THE  DRAFT AND MAY CONSIST OF THE
DRAWEE'S SIGNATURE ALONE.   ACCEPTANCE MAY  BE  MADE  AT  ANY  TIME  AND
BECOMES EFFECTIVE WHEN NOTIFICATION PURSUANT TO INSTRUCTIONS IS GIVEN OR
THE  ACCEPTED DRAFT IS DELIVERED FOR THE PURPOSE OF GIVING RIGHTS ON THE
ACCEPTANCE TO ANY PERSON.
  (B) A DRAFT MAY BE ACCEPTED ALTHOUGH IT HAS NOT  BEEN  SIGNED  BY  THE
DRAWER, IS OTHERWISE INCOMPLETE, IS OVERDUE, OR HAS BEEN DISHONORED.
  (C) IF A DRAFT IS PAYABLE AT A FIXED PERIOD AFTER SIGHT AND THE ACCEP-
TOR FAILS TO DATE THE ACCEPTANCE, THE HOLDER MAY COMPLETE THE ACCEPTANCE
BY SUPPLYING A DATE IN GOOD FAITH.
  (D)  "CERTIFIED  CHECK" MEANS A CHECK ACCEPTED BY THE BANK ON WHICH IT
IS DRAWN. ACCEPTANCE MAY BE MADE AS STATED IN SUBSECTION  (A)  OR  BY  A
WRITING  ON  THE  CHECK WHICH INDICATES THAT THE CHECK IS CERTIFIED. THE
DRAWEE OF A CHECK HAS NO OBLIGATION TO CERTIFY THE CHECK, AND REFUSAL TO
CERTIFY IS NOT DISHONOR OF THE CHECK.
SECTION 3--410. ACCEPTANCE VARYING DRAFT.
  (A) IF THE TERMS OF A DRAWEE'S ACCEPTANCE VARY FROM THE TERMS  OF  THE
DRAFT  AS  PRESENTED, THE HOLDER MAY REFUSE THE ACCEPTANCE AND TREAT THE
DRAFT AS DISHONORED. IN THAT CASE, THE DRAWEE MAY CANCEL THE ACCEPTANCE.
  (B) THE TERMS OF A DRAFT ARE NOT VARIED BY AN ACCEPTANCE TO PAY  AT  A
PARTICULAR  BANK  OR  PLACE  IN THE UNITED STATES, UNLESS THE ACCEPTANCE
STATES THAT THE DRAFT IS TO BE PAID ONLY AT THAT BANK OR PLACE.
  (C) IF THE HOLDER ASSENTS TO AN ACCEPTANCE  VARYING  THE  TERMS  OF  A
DRAFT, THE OBLIGATION OF EACH DRAWER AND INDORSER THAT DOES NOT EXPRESS-
LY ASSENT TO THE ACCEPTANCE IS DISCHARGED.
SECTION 3--411. REFUSAL  TO  PAY  CASHIER'S CHECKS, TELLER'S CHECKS, AND
                  CERTIFIED CHECKS.
  (A) IN THIS SECTION, "OBLIGATED BANK" MEANS THE ACCEPTOR OF  A  CERTI-
FIED  CHECK  OR THE ISSUER OF A CASHIER'S CHECK OR TELLER'S CHECK BOUGHT
FROM THE ISSUER.
  (B) IF THE OBLIGATED BANK WRONGFULLY (1) REFUSES TO  PAY  A  CASHIER'S
CHECK  OR CERTIFIED CHECK, (2) STOPS PAYMENT OF A TELLER'S CHECK, OR (3)
REFUSES TO PAY A DISHONORED TELLER'S CHECK,  THE  PERSON  ASSERTING  THE
RIGHT  TO ENFORCE THE CHECK IS ENTITLED TO COMPENSATION FOR EXPENSES AND
LOSS OF INTEREST RESULTING FROM THE NONPAYMENT AND  MAY  RECOVER  CONSE-
QUENTIAL  DAMAGES  IF  THE OBLIGATED BANK REFUSES TO PAY AFTER RECEIVING
NOTICE OF PARTICULAR CIRCUMSTANCES GIVING RISE TO THE DAMAGES.
  (C) EXPENSES OR CONSEQUENTIAL DAMAGES UNDER  SUBSECTION  (B)  ARE  NOT
RECOVERABLE  IF  THE REFUSAL OF THE OBLIGATED BANK TO PAY OCCURS BECAUSE
(1) THE BANK SUSPENDS PAYMENTS, (2) THE OBLIGATED BANK ASSERTS  A  CLAIM
OR  DEFENSE  OF  THE  BANK  THAT IT HAS REASONABLE GROUNDS TO BELIEVE IS
AVAILABLE AGAINST THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, (3) THE
OBLIGATED BANK HAS A  REASONABLE  DOUBT  WHETHER  THE  PERSON  DEMANDING
PAYMENT IS THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT, OR (4) PAYMENT
IS PROHIBITED BY LAW.
SECTION 3--412. OBLIGATION OF ISSUER OF NOTE OR CASHIER'S CHECK.
  THE  ISSUER  OF  A NOTE OR CASHIER'S CHECK OR OTHER DRAFT DRAWN ON THE
DRAWER IS OBLIGED TO PAY THE INSTRUMENT (1) ACCORDING TO  ITS  TERMS  AT

S. 5901                            36

THE TIME IT WAS ISSUED OR, IF NOT ISSUED, AT THE TIME IT FIRST CAME INTO
POSSESSION  OF  A  HOLDER,  OR  (2)  IF  THE ISSUER SIGNED AN INCOMPLETE
INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED, TO THE EXTENT  STATED
IN  SECTIONS 3--115 AND 3--407. THE OBLIGATION IS OWED TO A PERSON ENTI-
TLED TO ENFORCE THE INSTRUMENT OR TO AN INDORSER WHO PAID THE INSTRUMENT
UNDER SECTION 3--415.
SECTION 3--413. OBLIGATION OF ACCEPTOR.
  (A) THE ACCEPTOR OF A DRAFT IS OBLIGED TO PAY THE DRAFT (1)  ACCORDING
TO  ITS  TERMS  AT  THE TIME IT WAS ACCEPTED, EVEN THOUGH THE ACCEPTANCE
STATES THAT THE DRAFT IS PAYABLE "AS  ORIGINALLY  DRAWN"  OR  EQUIVALENT
TERMS, (2) IF THE ACCEPTANCE VARIES THE TERMS OF THE DRAFT, ACCORDING TO
THE TERMS OF THE DRAFT AS VARIED, OR (3) IF THE ACCEPTANCE IS OF A DRAFT
THAT IS AN INCOMPLETE INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED,
TO  THE  EXTENT  STATED IN SECTIONS 3--115 AND 3--407. THE OBLIGATION IS
OWED TO A PERSON ENTITLED TO ENFORCE THE DRAFT OR TO THE  DRAWER  OR  AN
INDORSER WHO PAID THE DRAFT UNDER SECTION 3--414 OR 3--415.
  (B)  IF  THE  CERTIFICATION  OF A CHECK OR OTHER ACCEPTANCE OF A DRAFT
STATES THE AMOUNT CERTIFIED OR ACCEPTED, THE OBLIGATION OF THE  ACCEPTOR
IS THAT AMOUNT. IF (1) THE CERTIFICATION OR ACCEPTANCE DOES NOT STATE AN
AMOUNT, (2) THE AMOUNT OF THE INSTRUMENT IS SUBSEQUENTLY RAISED, AND (3)
THE  INSTRUMENT  IS THEN NEGOTIATED TO A HOLDER IN DUE COURSE, THE OBLI-
GATION OF THE ACCEPTOR IS THE AMOUNT OF THE INSTRUMENT AT  THE  TIME  IT
WAS TAKEN BY THE HOLDER IN DUE COURSE.
SECTION 3--414. OBLIGATION OF DRAWER.
  (A)  THIS  SECTION  DOES NOT APPLY TO CASHIER'S CHECKS OR OTHER DRAFTS
DRAWN ON THE DRAWER.
  (B) IF AN UNACCEPTED DRAFT IS DISHONORED, THE DRAWER IS OBLIGED TO PAY
THE DRAFT (1) ACCORDING TO ITS TERMS AT THE TIME IT WAS  ISSUED  OR,  IF
NOT  ISSUED,  AT  THE TIME IT FIRST CAME INTO POSSESSION OF A HOLDER, OR
(2) IF THE DRAWER SIGNED AN  INCOMPLETE  INSTRUMENT,  ACCORDING  TO  ITS
TERMS  WHEN  COMPLETED,  TO  THE  EXTENT  STATED  IN SECTIONS 3--115 AND
3--407. THE OBLIGATION IS OWED TO A PERSON ENTITLED TO ENFORCE THE DRAFT
OR TO AN INDORSER WHO PAID THE DRAFT UNDER SECTION 3--415.
  (C) IF A DRAFT IS ACCEPTED  BY  A  BANK,  THE  DRAWER  IS  DISCHARGED,
REGARDLESS OF WHEN OR BY WHOM ACCEPTANCE WAS OBTAINED.
  (D)  IF  A DRAFT IS ACCEPTED AND THE ACCEPTOR IS NOT A BANK, THE OBLI-
GATION OF THE DRAWER TO PAY THE DRAFT IF THE DRAFT IS DISHONORED BY  THE
ACCEPTOR  IS  THE  SAME  AS  THE OBLIGATION OF AN INDORSER UNDER SECTION
3--415(A) AND (C).
  (E) IF A DRAFT STATES THAT IT IS DRAWN "WITHOUT RECOURSE" OR OTHERWISE
DISCLAIMS LIABILITY OF THE DRAWER TO PAY THE DRAFT, THE  DRAWER  IS  NOT
LIABLE  UNDER  SUBSECTION  (B)  TO  PAY  THE DRAFT IF THE DRAFT IS NOT A
CHECK. A DISCLAIMER OF THE LIABILITY STATED IN  SUBSECTION  (B)  IS  NOT
EFFECTIVE IF THE DRAFT IS A CHECK.
  (F)  IF (1) A CHECK IS NOT PRESENTED FOR PAYMENT OR GIVEN TO A DEPOSI-
TARY BANK FOR COLLECTION WITHIN THIRTY DAYS  AFTER  ITS  DATE,  (2)  THE
DRAWEE SUSPENDS PAYMENTS AFTER EXPIRATION OF THE THIRTY-DAY PERIOD WITH-
OUT PAYING THE CHECK, AND (3) BECAUSE OF THE SUSPENSION OF PAYMENTS, THE
DRAWER  IS DEPRIVED OF FUNDS MAINTAINED WITH THE DRAWEE TO COVER PAYMENT
OF THE CHECK, THE DRAWER TO THE EXTENT DEPRIVED OF FUNDS  MAY  DISCHARGE
ITS  OBLIGATION  TO PAY THE CHECK BY ASSIGNING TO THE PERSON ENTITLED TO
ENFORCE THE CHECK THE RIGHTS OF  THE  DRAWER  AGAINST  THE  DRAWEE  WITH
RESPECT TO THE FUNDS.
SECTION 3--415. OBLIGATION OF INDORSER.
  (A)  SUBJECT  TO  SUBSECTIONS  (B),  (C),  (D),  (E)  AND  TO  SECTION
3--419(D), IF AN INSTRUMENT IS DISHONORED, AN INDORSER IS OBLIGED TO PAY

S. 5901                            37

THE AMOUNT DUE ON THE INSTRUMENT (1)  ACCORDING  TO  THE  TERMS  OF  THE
INSTRUMENT  AT THE TIME IT WAS INDORSED, OR (2) IF THE INDORSER INDORSED
AN INCOMPLETE INSTRUMENT, ACCORDING TO ITS TERMS WHEN COMPLETED, TO  THE
EXTENT  STATED  IN  SECTIONS  3--115  AND  3--407. THE OBLIGATION OF THE
INDORSER IS OWED TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT OR TO  A
SUBSEQUENT INDORSER WHO PAID THE INSTRUMENT UNDER THIS SECTION.
  (B)  IF  AN  INDORSEMENT  STATES THAT IT IS MADE "WITHOUT RECOURSE" OR
OTHERWISE DISCLAIMS LIABILITY OF  THE  INDORSER,  THE  INDORSER  IS  NOT
LIABLE UNDER SUBSECTION (A) TO PAY THE INSTRUMENT.
  (C)  IF  NOTICE  OF  DISHONOR  OF AN INSTRUMENT IS REQUIRED BY SECTION
3--503 AND NOTICE OF DISHONOR COMPLYING WITH THAT SECTION IS  NOT  GIVEN
TO  AN  INDORSER,  THE LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS
DISCHARGED.
  (D) IF A DRAFT IS ACCEPTED BY A BANK AFTER AN INDORSEMENT IS MADE, THE
LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS DISCHARGED.
  (E) IF AN INDORSER OF A CHECK IS LIABLE UNDER SUBSECTION (A)  AND  THE
CHECK  IS  NOT  PRESENTED FOR PAYMENT, OR GIVEN TO A DEPOSITARY BANK FOR
COLLECTION, WITHIN THIRTY DAYS AFTER THE DAY THE INDORSEMENT  WAS  MADE,
THE LIABILITY OF THE INDORSER UNDER SUBSECTION (A) IS DISCHARGED.
SECTION 3--416. TRANSFER WARRANTIES.
  (A) A PERSON WHO TRANSFERS AN INSTRUMENT FOR CONSIDERATION WARRANTS TO
THE TRANSFEREE AND, IF THE TRANSFER IS BY INDORSEMENT, TO ANY SUBSEQUENT
TRANSFEREE THAT:
  (1) THE WARRANTOR IS A PERSON ENTITLED TO ENFORCE THE INSTRUMENT;
  (2) ALL SIGNATURES ON THE INSTRUMENT ARE AUTHENTIC AND AUTHORIZED;
  (3) THE INSTRUMENT HAS NOT BEEN ALTERED;
  (4)  THE INSTRUMENT IS NOT SUBJECT TO A DEFENSE OR CLAIM IN RECOUPMENT
OF ANY PARTY WHICH CAN BE ASSERTED AGAINST THE WARRANTOR;
  (5) THE WARRANTOR  HAS  NO  KNOWLEDGE  OF  ANY  INSOLVENCY  PROCEEDING
COMMENCED  WITH  RESPECT  TO THE MAKER OR ACCEPTOR OR, IN THE CASE OF AN
UNACCEPTED DRAFT, THE DRAWER; AND
  (6) WITH RESPECT TO A REMOTELY-CREATED CONSUMER ITEM, THAT THE  PERSON
ON  WHOSE  ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE ITEM
IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN.
  (B) A PERSON TO WHOM THE WARRANTIES UNDER SUBSECTION (A) ARE MADE  AND
WHO  TOOK THE INSTRUMENT IN GOOD FAITH MAY RECOVER FROM THE WARRANTOR AS
DAMAGES FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A
RESULT OF THE BREACH, BUT NOT MORE THAN THE  AMOUNT  OF  THE  INSTRUMENT
PLUS EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT OF THE BREACH.
  (C)  THE WARRANTIES STATED IN SUBSECTION (A) CANNOT BE DISCLAIMED WITH
RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH  OF  WARRANTY  IS
GIVEN  TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE CLAIMANT HAS REASON
TO KNOW OF THE BREACH AND THE IDENTITY OF THE WARRANTOR,  THE  LIABILITY
OF THE WARRANTOR UNDER SUBSECTION (B) IS DISCHARGED TO THE EXTENT OF ANY
LOSS CAUSED BY THE DELAY IN GIVING NOTICE OF THE CLAIM.
  (D)  A  CAUSE  OF  ACTION  FOR  BREACH  OF WARRANTY UNDER THIS SECTION
ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH.
SECTION 3--417. PRESENTMENT WARRANTIES.
  (A) IF AN UNACCEPTED DRAFT IS PRESENTED TO THE DRAWEE FOR  PAYMENT  OR
ACCEPTANCE  AND  THE  DRAWEE  PAYS  OR ACCEPTS THE DRAFT, (1) THE PERSON
OBTAINING PAYMENT OR ACCEPTANCE, AT THE TIME OF PRESENTMENT, AND  (2)  A
PREVIOUS  TRANSFEROR  OF  THE DRAFT, AT THE TIME OF TRANSFER, WARRANT TO
THE DRAWEE MAKING PAYMENT OR ACCEPTING THE DRAFT IN GOOD FAITH THAT:
  (I) THE WARRANTOR IS, OR WAS, AT THE TIME  THE  WARRANTOR  TRANSFERRED
THE  DRAFT,  A  PERSON  ENTITLED  TO  ENFORCE THE DRAFT OR AUTHORIZED TO

S. 5901                            38

OBTAIN PAYMENT OR ACCEPTANCE OF THE DRAFT ON BEHALF OF A PERSON ENTITLED
TO ENFORCE THE DRAFT;
  (II) THE DRAFT HAS NOT BEEN ALTERED;
  (III)  THE WARRANTOR HAS NO KNOWLEDGE THAT THE SIGNATURE OF THE DRAWER
OF THE DRAFT IS UNAUTHORIZED; AND
  (IV) WITH RESPECT TO ANY  REMOTELY-CREATED  CONSUMER  ITEM,  THAT  THE
PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE
ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN.
  (B) A DRAWEE MAKING PAYMENT MAY RECOVER FROM ANY WARRANTOR DAMAGES FOR
BREACH  OF  WARRANTY  EQUAL  TO  THE  AMOUNT PAID BY THE DRAWEE LESS THE
AMOUNT THE DRAWEE RECEIVED OR IS ENTITLED TO  RECEIVE  FROM  THE  DRAWER
BECAUSE  OF  THE PAYMENT. IN ADDITION, THE DRAWEE IS ENTITLED TO COMPEN-
SATION FOR EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH.  THE
RIGHT  OF  THE  DRAWEE  TO  RECOVER DAMAGES UNDER THIS SUBSECTION IS NOT
AFFECTED BY ANY FAILURE OF THE  DRAWEE  TO  EXERCISE  ORDINARY  CARE  IN
MAKING PAYMENT. IF THE DRAWEE ACCEPTS THE DRAFT, BREACH OF WARRANTY IS A
DEFENSE TO THE OBLIGATION OF THE ACCEPTOR. IF THE ACCEPTOR MAKES PAYMENT
WITH  RESPECT TO THE DRAFT, THE ACCEPTOR IS ENTITLED TO RECOVER FROM ANY
WARRANTOR FOR BREACH OF WARRANTY THE AMOUNTS STATED IN THIS SUBSECTION.
  (C) IF  A  DRAWEE  ASSERTS  A  CLAIM  FOR  BREACH  OF  WARRANTY  UNDER
SUBSECTION  (A)  BASED ON AN UNAUTHORIZED INDORSEMENT OF THE DRAFT OR AN
ALTERATION OF THE DRAFT, THE WARRANTOR MAY DEFEND BY  PROVING  THAT  THE
INDORSEMENT IS EFFECTIVE UNDER SECTION 3--404 OR 3--405 OR THE DRAWER IS
PRECLUDED  UNDER  SECTION  3--406  OR  4--406 FROM ASSERTING AGAINST THE
DRAWEE THE UNAUTHORIZED INDORSEMENT OR ALTERATION.
  (D) IF (1) A DISHONORED DRAFT IS PRESENTED FOR PAYMENT TO  THE  DRAWER
OR AN INDORSER OR (2) ANY OTHER INSTRUMENT IS PRESENTED FOR PAYMENT TO A
PARTY  OBLIGED  TO  PAY THE INSTRUMENT, AND (3) PAYMENT IS RECEIVED, THE
FOLLOWING RULES APPLY:
  (I) THE PERSON OBTAINING PAYMENT AND A PRIOR TRANSFEROR OF THE INSTRU-
MENT WARRANT TO THE PERSON MAKING PAYMENT IN GOOD FAITH THAT THE WARRAN-
TOR IS, OR WAS, AT THE TIME THE WARRANTOR TRANSFERRED THE INSTRUMENT,  A
PERSON  ENTITLED  TO  ENFORCE  THE  INSTRUMENT  OR  AUTHORIZED TO OBTAIN
PAYMENT ON BEHALF OF A PERSON ENTITLED TO ENFORCE THE INSTRUMENT.
  (II) THE PERSON MAKING PAYMENT MAY  RECOVER  FROM  ANY  WARRANTOR  FOR
BREACH  OF WARRANTY AN AMOUNT EQUAL TO THE AMOUNT PAID PLUS EXPENSES AND
LOSS OF INTEREST RESULTING FROM THE BREACH.
  (E) THE WARRANTIES  STATED  IN  SUBSECTIONS  (A)  AND  (D)  CANNOT  BE
DISCLAIMED  WITH  RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH
OF WARRANTY IS GIVEN TO THE  WARRANTOR  WITHIN  THIRTY  DAYS  AFTER  THE
CLAIMANT  HAS  REASON  TO  KNOW  OF  THE  BREACH AND THE IDENTITY OF THE
WARRANTOR, THE LIABILITY OF THE WARRANTOR UNDER SUBSECTION (B) OR (D) IS
DISCHARGED TO THE EXTENT OF ANY LOSS  CAUSED  BY  THE  DELAY  IN  GIVING
NOTICE OF THE CLAIM.
  (F)  A  CAUSE  OF  ACTION  FOR  BREACH  OF WARRANTY UNDER THIS SECTION
ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH.
SECTION 3--418. PAYMENT OR ACCEPTANCE BY MISTAKE.
  (A) EXCEPT AS PROVIDED IN SUBSECTION (C), IF THE  DRAWEE  OF  A  DRAFT
PAYS  OR  ACCEPTS  THE DRAFT AND THE DRAWEE ACTED ON THE MISTAKEN BELIEF
THAT (1) PAYMENT OF THE DRAFT HAD NOT BEEN STOPPED PURSUANT  TO  SECTION
4--403  OR  (2) THE SIGNATURE OF THE DRAWER OF THE DRAFT WAS AUTHORIZED,
THE DRAWEE MAY RECOVER THE AMOUNT OF THE DRAFT FROM THE PERSON  TO  WHOM
OR FOR WHOSE BENEFIT PAYMENT WAS MADE OR, IN THE CASE OF ACCEPTANCE, MAY
REVOKE  THE  ACCEPTANCE.  RIGHTS OF THE DRAWEE UNDER THIS SUBSECTION ARE
NOT AFFECTED BY FAILURE OF THE  DRAWEE  TO  EXERCISE  ORDINARY  CARE  IN
PAYING OR ACCEPTING THE DRAFT.

S. 5901                            39

  (B)  EXCEPT  AS  PROVIDED IN SUBSECTION (C), IF AN INSTRUMENT HAS BEEN
PAID OR ACCEPTED BY MISTAKE AND THE CASE IS NOT  COVERED  BY  SUBSECTION
(A),  THE PERSON PAYING OR ACCEPTING MAY, TO THE EXTENT PERMITTED BY THE
LAW GOVERNING MISTAKE AND RESTITUTION, (1) RECOVER THE PAYMENT FROM  THE
PERSON  TO WHOM OR FOR WHOSE BENEFIT PAYMENT WAS MADE OR (2) IN THE CASE
OF ACCEPTANCE, MAY REVOKE THE ACCEPTANCE.
  (C) THE REMEDIES PROVIDED BY SUBSECTION (A) OR (B) MAY NOT BE ASSERTED
AGAINST A PERSON WHO TOOK THE INSTRUMENT IN GOOD FAITH AND FOR VALUE  OR
WHO IN GOOD FAITH CHANGED POSITION IN RELIANCE ON THE PAYMENT OR ACCEPT-
ANCE. THIS SUBSECTION DOES NOT LIMIT REMEDIES PROVIDED BY SECTION 3--417
OR 4--407.
  (D)  NOTWITHSTANDING  SECTION  4--215,  IF  AN  INSTRUMENT  IS PAID OR
ACCEPTED BY MISTAKE AND  THE  PAYOR  OR  ACCEPTOR  RECOVERS  PAYMENT  OR
REVOKES ACCEPTANCE UNDER SUBSECTION (A) OR (B), THE INSTRUMENT IS DEEMED
NOT  TO HAVE BEEN PAID OR ACCEPTED AND IS TREATED AS DISHONORED, AND THE
PERSON FROM WHOM PAYMENT IS RECOVERED HAS RIGHTS AS A PERSON ENTITLED TO
ENFORCE THE DISHONORED INSTRUMENT.
SECTION 3--419. INSTRUMENTS SIGNED FOR ACCOMMODATION.
  (A) IF AN INSTRUMENT IS ISSUED FOR VALUE GIVEN FOR THE  BENEFIT  OF  A
PARTY  TO THE INSTRUMENT ("ACCOMMODATED PARTY") AND ANOTHER PARTY TO THE
INSTRUMENT ("ACCOMMODATION PARTY") SIGNS THE INSTRUMENT FOR THE  PURPOSE
OF  INCURRING LIABILITY ON THE INSTRUMENT WITHOUT BEING A DIRECT BENEFI-
CIARY OF THE VALUE GIVEN FOR THE INSTRUMENT, THE INSTRUMENT IS SIGNED BY
THE ACCOMMODATION PARTY "FOR ACCOMMODATION."
  (B) AN ACCOMMODATION PARTY MAY SIGN THE INSTRUMENT AS  MAKER,  DRAWER,
ACCEPTOR,  OR INDORSER AND, SUBJECT TO SUBSECTION (D), IS OBLIGED TO PAY
THE INSTRUMENT IN THE CAPACITY IN WHICH THE ACCOMMODATION  PARTY  SIGNS.
THE OBLIGATION OF AN ACCOMMODATION PARTY MAY BE ENFORCED NOTWITHSTANDING
ANY  STATUTE  OF  FRAUDS  AND  WHETHER  OR  NOT  THE ACCOMMODATION PARTY
RECEIVES CONSIDERATION FOR THE ACCOMMODATION.
  (C) A PERSON SIGNING AN INSTRUMENT IS PRESUMED TO BE AN  ACCOMMODATION
PARTY  AND  THERE  IS  NOTICE THAT THE INSTRUMENT IS SIGNED FOR ACCOMMO-
DATION IF THE SIGNATURE IS AN ANOMALOUS INDORSEMENT OR IS ACCOMPANIED BY
WORDS INDICATING THAT THE SIGNER IS ACTING AS SURETY OR  GUARANTOR  WITH
RESPECT  TO THE OBLIGATION OF ANOTHER PARTY TO THE INSTRUMENT. EXCEPT AS
PROVIDED IN SECTION 3--605, THE OBLIGATION OF AN ACCOMMODATION PARTY  TO
PAY THE INSTRUMENT IS NOT AFFECTED BY THE FACT THAT THE PERSON ENFORCING
THE  OBLIGATION  HAD NOTICE WHEN THE INSTRUMENT WAS TAKEN BY THAT PERSON
THAT THE ACCOMMODATION PARTY SIGNED THE INSTRUMENT FOR ACCOMMODATION.
  (D) IF THE SIGNATURE OF A PARTY TO AN  INSTRUMENT  IS  ACCOMPANIED  BY
WORDS INDICATING UNAMBIGUOUSLY THAT THE PARTY IS GUARANTEEING COLLECTION
RATHER  THAN  PAYMENT  OF THE OBLIGATION OF ANOTHER PARTY TO THE INSTRU-
MENT, THE SIGNER IS OBLIGED TO PAY THE AMOUNT DUE ON THE INSTRUMENT TO A
PERSON ENTITLED TO ENFORCE THE INSTRUMENT ONLY IF (1) EXECUTION OF JUDG-
MENT AGAINST THE OTHER PARTY HAS  BEEN  RETURNED  UNSATISFIED,  (2)  THE
OTHER  PARTY  IS INSOLVENT OR IN AN INSOLVENCY PROCEEDING, (3) THE OTHER
PARTY CANNOT BE SERVED WITH PROCESS, OR (4)  IT  IS  OTHERWISE  APPARENT
THAT PAYMENT CANNOT BE OBTAINED FROM THE OTHER PARTY.
  (E)  IF  THE  SIGNATURE  OF A PARTY TO AN INSTRUMENT IS ACCOMPANIED BY
WORDS INDICATING THAT THE PARTY GUARANTEES PAYMENT OR THE  SIGNER  SIGNS
THE  INSTRUMENT AS AN ACCOMMODATION PARTY IN SOME OTHER MANNER THAT DOES
NOT UNAMBIGUOUSLY INDICATE AN INTENTION TO GUARANTEE  COLLECTION  RATHER
THAN PAYMENT, THE SIGNER IS OBLIGED TO PAY THE AMOUNT DUE ON THE INSTRU-
MENT  TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT IN THE SAME CIRCUM-
STANCES AS THE ACCOMMODATED PARTY WOULD BE OBLIGED, WITHOUT PRIOR RESORT

S. 5901                            40

TO THE ACCOMMODATED PARTY BY THE PERSON ENTITLED TO ENFORCE THE  INSTRU-
MENT.
  (F)  AN  ACCOMMODATION  PARTY  WHO  PAYS THE INSTRUMENT IS ENTITLED TO
REIMBURSEMENT FROM THE ACCOMMODATED PARTY AND IS ENTITLED TO ENFORCE THE
INSTRUMENT AGAINST THE ACCOMMODATED PARTY. IN PROPER  CIRCUMSTANCES,  AN
ACCOMMODATION  PARTY  MAY  OBTAIN  RELIEF THAT REQUIRES THE ACCOMMODATED
PARTY TO PERFORM ITS OBLIGATIONS  ON  THE  INSTRUMENT.  AN  ACCOMMODATED
PARTY  THAT PAYS THE INSTRUMENT HAS NO RIGHT OF RECOURSE AGAINST, AND IS
NOT ENTITLED TO CONTRIBUTION FROM, AN ACCOMMODATION PARTY.
SECTION 3--420. CONVERSION OF INSTRUMENT.
  (A) THE LAW APPLICABLE TO CONVERSION OF PERSONAL PROPERTY  APPLIES  TO
INSTRUMENTS. AN INSTRUMENT IS ALSO CONVERTED IF IT IS TAKEN BY TRANSFER,
OTHER  THAN  A  NEGOTIATION,  FROM  A PERSON NOT ENTITLED TO ENFORCE THE
INSTRUMENT OR A BANK MAKES  OR  OBTAINS  PAYMENT  WITH  RESPECT  TO  THE
INSTRUMENT  FOR  A  PERSON  NOT  ENTITLED  TO  ENFORCE THE INSTRUMENT OR
RECEIVE PAYMENT. AN ACTION FOR CONVERSION OF AN INSTRUMENT  MAY  NOT  BE
BROUGHT  BY  (1) THE ISSUER OR ACCEPTOR OF THE INSTRUMENT OR (2) A PAYEE
OR INDORSEE WHO DID  NOT  RECEIVE  DELIVERY  OF  THE  INSTRUMENT  EITHER
DIRECTLY OR THROUGH DELIVERY TO AN AGENT OR A CO-PAYEE.
  (B)  IN  AN  ACTION  UNDER SUBSECTION (A), THE MEASURE OF LIABILITY IS
PRESUMED TO BE THE AMOUNT PAYABLE ON THE INSTRUMENT,  BUT  RECOVERY  MAY
NOT EXCEED THE AMOUNT OF THE PLAINTIFF'S INTEREST IN THE INSTRUMENT.
  (C)  A  REPRESENTATIVE,  OTHER THAN A DEPOSITARY BANK, WHO HAS IN GOOD
FAITH DEALT WITH AN INSTRUMENT OR ITS PROCEEDS ON BEHALF OF ONE WHO  WAS
NOT  THE  PERSON  ENTITLED  TO  ENFORCE  THE INSTRUMENT IS NOT LIABLE IN
CONVERSION TO THAT PERSON BEYOND THE AMOUNT OF ANY PROCEEDS THAT IT  HAS
NOT PAID OUT.
                                 PART 5
                                DISHONOR
SECTION 3--501. PRESENTMENT.
  (A)  "PRESENTMENT"  MEANS  A  DEMAND  MADE BY OR ON BEHALF OF A PERSON
ENTITLED TO ENFORCE AN INSTRUMENT (1) TO PAY THE INSTRUMENT MADE TO  THE
DRAWEE  OR  A  PARTY  OBLIGED TO PAY THE INSTRUMENT OR, IN THE CASE OF A
NOTE OR ACCEPTED DRAFT PAYABLE AT A BANK, TO THE BANK, OR (2) TO  ACCEPT
A DRAFT MADE TO THE DRAWEE.
  (B)  THE  FOLLOWING  RULES  ARE SUBJECT TO ARTICLE 4, AGREEMENT OF THE
PARTIES, AND CLEARING HOUSE RULES AND THE LIKE:
  (1) PRESENTMENT MAY BE MADE AT THE PLACE OF PAYMENT OF THE  INSTRUMENT
AND MUST BE MADE AT THE PLACE OF PAYMENT IF THE INSTRUMENT IS PAYABLE AT
A  BANK IN THE UNITED STATES; MAY BE MADE BY ANY COMMERCIALLY REASONABLE
MEANS, INCLUDING AN  ORAL,  WRITTEN,  OR  ELECTRONIC  COMMUNICATION;  IS
EFFECTIVE  WHEN  THE DEMAND FOR PAYMENT OR ACCEPTANCE IS RECEIVED BY THE
PERSON TO WHOM PRESENTMENT IS MADE; AND IS EFFECTIVE IF MADE TO ANY  ONE
OF TWO OR MORE MAKERS, ACCEPTORS, DRAWEES, OR OTHER PAYORS.
  (2)  UPON DEMAND OF THE PERSON TO WHOM PRESENTMENT IS MADE, THE PERSON
MAKING PRESENTMENT MUST (I) EXHIBIT THE INSTRUMENT, (II) GIVE REASONABLE
IDENTIFICATION AND, IF PRESENTMENT IS MADE ON BEHALF OF ANOTHER  PERSON,
REASONABLE  EVIDENCE  OF AUTHORITY TO DO SO, AND (III) SIGN A RECEIPT ON
THE INSTRUMENT FOR ANY PAYMENT MADE OR SURRENDER THE INSTRUMENT IF  FULL
PAYMENT IS MADE.
  (3)  WITHOUT DISHONORING THE INSTRUMENT, THE PARTY TO WHOM PRESENTMENT
IS MADE MAY (I) RETURN THE INSTRUMENT FOR LACK OF A  NECESSARY  INDORSE-
MENT,  OR  (II) REFUSE PAYMENT OR ACCEPTANCE FOR FAILURE OF THE PRESENT-
MENT TO COMPLY WITH THE TERMS OF THE INSTRUMENT,  AN  AGREEMENT  OF  THE
PARTIES, OR OTHER APPLICABLE LAW OR RULE.

S. 5901                            41

  (4)  THE  PARTY  TO  WHOM PRESENTMENT IS MADE MAY TREAT PRESENTMENT AS
OCCURRING ON THE NEXT BUSINESS DAY AFTER THE DAY OF PRESENTMENT  IF  THE
PARTY  TO  WHOM  PRESENTMENT  IS MADE HAS ESTABLISHED A CUT-OFF HOUR NOT
EARLIER THAN 2 P.M.  FOR  THE  RECEIPT  AND  PROCESSING  OF  INSTRUMENTS
PRESENTED  FOR  PAYMENT  OR ACCEPTANCE AND PRESENTMENT IS MADE AFTER THE
CUT-OFF HOUR.
SECTION 3--502. DISHONOR.
  (A) DISHONOR OF A NOTE IS GOVERNED BY THE FOLLOWING RULES:
  (1) IF THE NOTE IS PAYABLE  ON  DEMAND,  THE  NOTE  IS  DISHONORED  IF
PRESENTMENT  IS  DULY  MADE TO THE MAKER AND THE NOTE IS NOT PAID ON THE
DAY OF PRESENTMENT.
  (2) IF THE NOTE IS NOT PAYABLE ON DEMAND AND IS PAYABLE AT OR  THROUGH
A BANK OR THE TERMS OF THE NOTE REQUIRE PRESENTMENT, THE NOTE IS DISHON-
ORED  IF PRESENTMENT IS DULY MADE AND THE NOTE IS NOT PAID ON THE DAY IT
BECOMES PAYABLE OR THE DAY OF PRESENTMENT, WHICHEVER IS LATER.
  (3) IF THE NOTE IS NOT PAYABLE ON DEMAND AND PARAGRAPH  (2)  DOES  NOT
APPLY,  THE  NOTE  IS DISHONORED IF IT IS NOT PAID ON THE DAY IT BECOMES
PAYABLE.
  (B) DISHONOR OF AN UNACCEPTED DRAFT OTHER THAN A DOCUMENTARY DRAFT  IS
GOVERNED BY THE FOLLOWING RULES:
  (1)  IF A CHECK IS DULY PRESENTED FOR PAYMENT TO THE PAYOR BANK OTHER-
WISE THAN FOR IMMEDIATE PAYMENT OVER THE COUNTER, THE CHECK  IS  DISHON-
ORED  IF THE PAYOR BANK MAKES TIMELY RETURN OF THE CHECK OR SENDS TIMELY
NOTICE OF DISHONOR OR NONPAYMENT UNDER  SECTION  4--301  OR  4--302,  OR
BECOMES ACCOUNTABLE FOR THE AMOUNT OF THE CHECK UNDER SECTION 4--302.
  (2)  IF A DRAFT IS PAYABLE ON DEMAND AND PARAGRAPH (1) DOES NOT APPLY,
THE DRAFT IS DISHONORED IF PRESENTMENT FOR PAYMENT IS DULY MADE  TO  THE
DRAWEE AND THE DRAFT IS NOT PAID ON THE DAY OF PRESENTMENT.
  (3)  IF A DRAFT IS PAYABLE ON A DATE STATED IN THE DRAFT, THE DRAFT IS
DISHONORED IF (I) PRESENTMENT FOR PAYMENT IS DULY MADE TO THE DRAWEE AND
PAYMENT IS NOT MADE ON THE DAY THE DRAFT BECOMES PAYABLE OR THE  DAY  OF
PRESENTMENT,  WHICHEVER  IS LATER, OR (II) PRESENTMENT FOR ACCEPTANCE IS
DULY MADE BEFORE THE DAY THE DRAFT BECOMES PAYABLE AND THE DRAFT IS  NOT
ACCEPTED ON THE DAY OF PRESENTMENT.
  (4) IF A DRAFT IS PAYABLE ON ELAPSE OF A PERIOD OF TIME AFTER SIGHT OR
ACCEPTANCE,  THE  DRAFT  IS  DISHONORED IF PRESENTMENT FOR ACCEPTANCE IS
DULY MADE AND THE DRAFT IS NOT ACCEPTED ON THE DAY OF PRESENTMENT.
  (C) DISHONOR OF AN UNACCEPTED DOCUMENTARY DRAFT  OCCURS  ACCORDING  TO
THE  RULES  STATED  IN  SUBSECTIONS  (B)(2),  (3),  AND (4), EXCEPT THAT
PAYMENT OR ACCEPTANCE MAY BE DELAYED WITHOUT  DISHONOR  UNTIL  NO  LATER
THAN THE CLOSE OF THE THIRD BUSINESS DAY OF THE DRAWEE FOLLOWING THE DAY
ON WHICH PAYMENT OR ACCEPTANCE IS REQUIRED BY THOSE PARAGRAPHS.
  (D) DISHONOR OF AN ACCEPTED DRAFT IS GOVERNED BY THE FOLLOWING RULES:
  (1)  IF  THE  DRAFT  IS  PAYABLE ON DEMAND, THE DRAFT IS DISHONORED IF
PRESENTMENT FOR PAYMENT IS DULY MADE TO THE ACCEPTOR AND  THE  DRAFT  IS
NOT PAID ON THE DAY OF PRESENTMENT.
  (2)  IF THE DRAFT IS NOT PAYABLE ON DEMAND, THE DRAFT IS DISHONORED IF
PRESENTMENT FOR PAYMENT IS DULY MADE TO THE ACCEPTOR AND PAYMENT IS  NOT
MADE  ON THE DAY IT BECOMES PAYABLE OR THE DAY OF PRESENTMENT, WHICHEVER
IS LATER.
  (E) IN ANY CASE IN WHICH PRESENTMENT IS OTHERWISE REQUIRED FOR DISHON-
OR UNDER THIS SECTION AND PRESENTMENT IS EXCUSED UNDER  SECTION  3--504,
DISHONOR  OCCURS  WITHOUT  PRESENTMENT  IF  THE  INSTRUMENT  IS NOT DULY
ACCEPTED OR PAID.
  (F) IF A DRAFT IS DISHONORED BECAUSE TIMELY ACCEPTANCE  OF  THE  DRAFT
WAS  NOT MADE AND THE PERSON ENTITLED TO DEMAND ACCEPTANCE CONSENTS TO A

S. 5901                            42

LATE ACCEPTANCE, FROM THE TIME OF ACCEPTANCE THE  DRAFT  IS  TREATED  AS
NEVER HAVING BEEN DISHONORED.
SECTION 3--503. NOTICE OF DISHONOR.
  (A)  THE OBLIGATION OF AN INDORSER STATED IN SECTION 3--415(A) AND THE
OBLIGATION OF A DRAWER STATED IN SECTION 3--414(D) MAY NOT  BE  ENFORCED
UNLESS  (1)  THE  INDORSER  OR DRAWER IS GIVEN NOTICE OF DISHONOR OF THE
INSTRUMENT COMPLYING WITH THIS SECTION OR  (2)  NOTICE  OF  DISHONOR  IS
EXCUSED UNDER SECTION 3--504(B).
  (B) NOTICE OF DISHONOR MAY BE GIVEN BY ANY PERSON; MAY BE GIVEN BY ANY
COMMERCIALLY REASONABLE MEANS, INCLUDING AN ORAL, WRITTEN, OR ELECTRONIC
COMMUNICATION; AND IS SUFFICIENT IF IT REASONABLY IDENTIFIES THE INSTRU-
MENT  AND  INDICATES  THAT THE INSTRUMENT HAS BEEN DISHONORED OR HAS NOT
BEEN PAID OR ACCEPTED.   RETURN OF AN INSTRUMENT GIVEN  TO  A  BANK  FOR
COLLECTION IS SUFFICIENT NOTICE OF DISHONOR.
  (C)  SUBJECT TO SECTION 3--504(C), WITH RESPECT TO AN INSTRUMENT TAKEN
FOR COLLECTION BY A COLLECTING BANK, NOTICE OF DISHONOR  MUST  BE  GIVEN
(1)  BY  THE  BANK BEFORE MIDNIGHT OF THE NEXT BANKING DAY FOLLOWING THE
BANKING DAY ON WHICH THE BANK RECEIVES NOTICE OF DISHONOR OF THE INSTRU-
MENT, OR (2) BY ANY OTHER PERSON WITHIN THIRTY DAYS FOLLOWING THE DAY ON
WHICH THE PERSON RECEIVES NOTICE OF DISHONOR. WITH RESPECT TO ANY  OTHER
INSTRUMENT,  NOTICE OF DISHONOR MUST BE GIVEN WITHIN THIRTY DAYS FOLLOW-
ING THE DAY ON WHICH DISHONOR OCCURS.
SECTION 3--504. EXCUSED PRESENTMENT AND NOTICE OF DISHONOR.
  (A) PRESENTMENT FOR PAYMENT OR ACCEPTANCE OF AN INSTRUMENT IS  EXCUSED
IF (1) THE PERSON ENTITLED TO PRESENT THE INSTRUMENT CANNOT WITH REASON-
ABLE  DILIGENCE  MAKE PRESENTMENT, (2) THE MAKER OR ACCEPTOR HAS REPUDI-
ATED AN OBLIGATION TO PAY THE INSTRUMENT OR IS  DEAD  OR  IN  INSOLVENCY
PROCEEDINGS,  (3)  BY  THE  TERMS  OF  THE INSTRUMENT PRESENTMENT IS NOT
NECESSARY TO ENFORCE THE OBLIGATION OF INDORSERS OR THE DRAWER, (4)  THE
DRAWER  OR  INDORSER  WHOSE  OBLIGATION  IS  BEING  ENFORCED  HAS WAIVED
PRESENTMENT OR OTHERWISE HAS NO REASON TO EXPECT  OR  RIGHT  TO  REQUIRE
THAT  THE  INSTRUMENT  BE PAID OR ACCEPTED, OR (5) THE DRAWER INSTRUCTED
THE DRAWEE NOT TO PAY OR ACCEPT THE DRAFT OR THE DRAWEE  WAS  NOT  OBLI-
GATED TO THE DRAWER TO PAY THE DRAFT.
  (B)  NOTICE  OF DISHONOR IS EXCUSED IF (1) BY THE TERMS OF THE INSTRU-
MENT NOTICE OF DISHONOR IS NOT NECESSARY TO ENFORCE THE OBLIGATION OF  A
PARTY  TO PAY THE INSTRUMENT, OR (2) THE PARTY WHOSE OBLIGATION IS BEING
ENFORCED WAIVED NOTICE OF DISHONOR. A WAIVER OF PRESENTMENT  IS  ALSO  A
WAIVER OF NOTICE OF DISHONOR.
  (C)  DELAY  IN  GIVING  NOTICE OF DISHONOR IS EXCUSED IF THE DELAY WAS
CAUSED BY CIRCUMSTANCES BEYOND THE CONTROL  OF  THE  PERSON  GIVING  THE
NOTICE  AND  THE PERSON GIVING THE NOTICE EXERCISED REASONABLE DILIGENCE
AFTER THE CAUSE OF THE DELAY CEASED TO OPERATE.
SECTION 3--505. EVIDENCE OF DISHONOR.
  (A) THE FOLLOWING ARE ADMISSIBLE AS EVIDENCE AND CREATE A  PRESUMPTION
OF DISHONOR AND OF ANY NOTICE OF DISHONOR STATED:
  (1)  A  DOCUMENT  REGULAR  IN FORM AS PROVIDED IN SUBSECTION (B) WHICH
PURPORTS TO BE A PROTEST;
  (2) A PURPORTED STAMP  OR  WRITING  OF  THE  DRAWEE,  PAYOR  BANK,  OR
PRESENTING  BANK  ON OR ACCOMPANYING THE INSTRUMENT STATING THAT ACCEPT-
ANCE OR PAYMENT HAS BEEN REFUSED UNLESS  REASONS  FOR  THE  REFUSAL  ARE
STATED AND THE REASONS ARE NOT CONSISTENT WITH DISHONOR;
  (3)  A  BOOK  OR RECORD OF THE DRAWEE, PAYOR BANK, OR COLLECTING BANK,
KEPT IN THE USUAL COURSE OF BUSINESS WHICH SHOWS DISHONOR, EVEN IF THERE
IS NO EVIDENCE OF WHO MADE THE ENTRY.

S. 5901                            43

  (B) A PROTEST IS A CERTIFICATE OF DISHONOR MADE  BY  A  UNITED  STATES
CONSUL  OR VICE CONSUL, OR A NOTARY PUBLIC OR OTHER PERSON AUTHORIZED TO
ADMINISTER OATHS BY THE LAW OF THE PLACE WHERE DISHONOR OCCURS.  IT  MAY
BE  MADE  UPON INFORMATION SATISFACTORY TO THAT PERSON. THE PROTEST MUST
IDENTIFY  THE  INSTRUMENT  AND  CERTIFY EITHER THAT PRESENTMENT HAS BEEN
MADE OR, IF NOT MADE, THE REASON WHY IT  WAS  NOT  MADE,  AND  THAT  THE
INSTRUMENT  HAS  BEEN  DISHONORED  BY  NONACCEPTANCE  OR NONPAYMENT. THE
PROTEST MAY ALSO CERTIFY THAT NOTICE OF DISHONOR HAS BEEN GIVEN TO  SOME
OR ALL PARTIES.
                                 PART 6
                          DISCHARGE AND PAYMENT
SECTION 3--601. DISCHARGE AND EFFECT OF DISCHARGE.
  (A)  THE  OBLIGATION OF A PARTY TO PAY THE INSTRUMENT IS DISCHARGED AS
STATED IN THIS ARTICLE OR BY AN ACT OR AGREEMENT WITH  THE  PARTY  WHICH
WOULD DISCHARGE AN OBLIGATION TO PAY MONEY UNDER A SIMPLE CONTRACT.
  (B)  DISCHARGE OF THE OBLIGATION OF A PARTY IS NOT EFFECTIVE AGAINST A
PERSON ACQUIRING RIGHTS OF A HOLDER IN  DUE  COURSE  OF  THE  INSTRUMENT
WITHOUT NOTICE OF THE DISCHARGE.
SECTION 3--602. PAYMENT.
  (A)  SUBJECT  TO  SUBSECTION  (E), AN INSTRUMENT IS PAID TO THE EXTENT
PAYMENT IS MADE BY OR ON BEHALF OF A PARTY OBLIGED TO  PAY  THE  INSTRU-
MENT, AND TO A PERSON ENTITLED TO ENFORCE THE INSTRUMENT.
  (B) SUBJECT TO SUBSECTION (E), A NOTE IS PAID TO THE EXTENT PAYMENT IS
MADE BY OR ON BEHALF OF A PARTY OBLIGED TO PAY THE NOTE TO A PERSON THAT
FORMERLY  WAS  ENTITLED  TO  ENFORCE THE NOTE ONLY IF AT THE TIME OF THE
PAYMENT THE PARTY OBLIGED TO PAY HAS NOT RECEIVED ADEQUATE  NOTIFICATION
THAT THE NOTE HAS BEEN TRANSFERRED AND THAT PAYMENT IS TO BE MADE TO THE
TRANSFEREE.  A  NOTIFICATION  IS  ADEQUATE  ONLY  IF IT IS SIGNED BY THE
TRANSFEROR OR THE  TRANSFEREE;  REASONABLY  IDENTIFIES  THE  TRANSFERRED
NOTE;  AND  PROVIDES AN ADDRESS AT WHICH PAYMENTS SUBSEQUENTLY ARE TO BE
MADE. UPON REQUEST, A TRANSFEREE SHALL FURNISH REASONABLE PROOF THAT THE
NOTE HAS BEEN TRANSFERRED.  UNLESS  THE  TRANSFEREE  COMPLIES  WITH  THE
REQUEST,  A  PAYMENT TO THE PERSON THAT FORMERLY WAS ENTITLED TO ENFORCE
THE NOTE IS EFFECTIVE FOR PURPOSES OF SUBSECTION (C) EVEN IF  THE  PARTY
OBLIGED  TO  PAY  THE  NOTE HAS RECEIVED A NOTIFICATION UNDER THIS PARA-
GRAPH.
  (C) SUBJECT TO SUBSECTION (E),  TO  THE  EXTENT  OF  A  PAYMENT  UNDER
SUBSECTIONS  (A) AND (B), THE OBLIGATION OF THE PARTY OBLIGED TO PAY THE
INSTRUMENT IS DISCHARGED EVEN THOUGH PAYMENT IS MADE WITH KNOWLEDGE OF A
CLAIM TO THE INSTRUMENT UNDER SECTION 3--306 BY ANOTHER PERSON.
  (D) SUBJECT TO SUBSECTION (E), A TRANSFEREE, OR  ANY  PARTY  THAT  HAS
ACQUIRED  RIGHTS  IN THE INSTRUMENT DIRECTLY OR INDIRECTLY FROM A TRANS-
FEREE, INCLUDING ANY SUCH PARTY THAT HAS  RIGHTS  AS  A  HOLDER  IN  DUE
COURSE,  IS  DEEMED  TO  HAVE  NOTICE  OF ANY PAYMENT THAT IS MADE UNDER
SUBSECTION (B) AFTER THE DATE THAT THE NOTE IS TRANSFERRED TO THE TRANS-
FEREE BUT BEFORE THE PARTY OBLIGED TO PAY  THE  NOTE  RECEIVES  ADEQUATE
NOTIFICATION OF THE TRANSFER.
  (E)  THE OBLIGATION OF A PARTY TO PAY THE INSTRUMENT IS NOT DISCHARGED
UNDER SUBSECTIONS (A) THROUGH (D) IF:
  (1) A CLAIM TO THE INSTRUMENT  UNDER  SECTION  3--306  IS  ENFORCEABLE
AGAINST  THE  PARTY RECEIVING PAYMENT AND (I) PAYMENT IS MADE WITH KNOW-
LEDGE BY THE PAYOR THAT PAYMENT IS PROHIBITED BY INJUNCTION  OR  SIMILAR
PROCESS  OF A COURT OF COMPETENT JURISDICTION, OR (II) IN THE CASE OF AN
INSTRUMENT OTHER THAN A CASHIER'S CHECK, TELLER'S  CHECK,  OR  CERTIFIED
CHECK, THE PARTY MAKING PAYMENT ACCEPTED, FROM THE PERSON HAVING A CLAIM

S. 5901                            44

TO  THE INSTRUMENT, INDEMNITY AGAINST LOSS RESULTING FROM REFUSAL TO PAY
THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT; OR
  (2)  THE  PERSON  MAKING PAYMENT KNOWS THAT THE INSTRUMENT IS A STOLEN
INSTRUMENT AND PAYS A PERSON IT KNOWS IS IN WRONGFUL POSSESSION  OF  THE
INSTRUMENT.
  (F)  AS  USED IN THIS SECTION, "SIGNED," WITH RESPECT TO A RECORD THAT
IS NOT A WRITING, INCLUDES THE ATTACHMENT TO OR LOGICAL ASSOCIATION WITH
THE RECORD OF AN ELECTRONIC SYMBOL, SOUND, OR PROCESS WITH  THE  PRESENT
INTENT TO ADOPT OR ACCEPT THE RECORD.
SECTION 3--603. TENDER OF PAYMENT.
  (A) IF TENDER OF PAYMENT OF AN OBLIGATION TO PAY AN INSTRUMENT IS MADE
TO  A PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE EFFECT OF TENDER IS
GOVERNED BY PRINCIPLES OF LAW APPLICABLE TO TENDER OF  PAYMENT  UNDER  A
SIMPLE CONTRACT.
  (B) IF TENDER OF PAYMENT OF AN OBLIGATION TO PAY AN INSTRUMENT IS MADE
TO  A  PERSON  ENTITLED  TO  ENFORCE  THE  INSTRUMENT  AND THE TENDER IS
REFUSED, THERE IS DISCHARGE, TO THE EXTENT OF THE AMOUNT OF THE  TENDER,
OF  THE  OBLIGATION OF AN INDORSER OR ACCOMMODATION PARTY HAVING A RIGHT
OF RECOURSE WITH RESPECT TO THE OBLIGATION TO WHICH THE TENDER RELATES.
  (C) IF TENDER OF PAYMENT OF AN AMOUNT DUE ON AN INSTRUMENT IS MADE  TO
A PERSON ENTITLED TO ENFORCE THE INSTRUMENT, THE OBLIGATION OF THE OBLI-
GOR  TO  PAY  INTEREST  AFTER  THE  DUE  DATE  ON THE AMOUNT TENDERED IS
DISCHARGED. IF PRESENTMENT IS REQUIRED WITH RESPECT TO AN INSTRUMENT AND
THE OBLIGOR IS ABLE AND READY TO PAY ON THE DUE DATE AT EVERY  PLACE  OF
PAYMENT  STATED  IN  THE  INSTRUMENT, THE OBLIGOR IS DEEMED TO HAVE MADE
TENDER OF PAYMENT ON THE DUE DATE TO THE PERSON ENTITLED TO ENFORCE  THE
INSTRUMENT.
SECTION 3--604. DISCHARGE BY CANCELLATION OR RENUNCIATION.
  (A)  A  PERSON  ENTITLED  TO  ENFORCE  AN  INSTRUMENT, WITH OR WITHOUT
CONSIDERATION, MAY DISCHARGE THE  OBLIGATION  OF  A  PARTY  TO  PAY  THE
INSTRUMENT (1) BY AN INTENTIONAL VOLUNTARY ACT, SUCH AS SURRENDER OF THE
INSTRUMENT TO THE PARTY, DESTRUCTION, MUTILATION, OR CANCELLATION OF THE
INSTRUMENT,  CANCELLATION  OR  STRIKING OUT OF THE PARTY'S SIGNATURE, OR
THE ADDITION OF WORDS TO THE INSTRUMENT INDICATING DISCHARGE, OR (2)  BY
AGREEING  NOT TO SUE OR OTHERWISE RENOUNCING RIGHTS AGAINST THE PARTY BY
A SIGNED RECORD.
  (B) CANCELLATION  OR  STRIKING  OUT  OF  AN  INDORSEMENT  PURSUANT  TO
SUBSECTION  (A) DOES NOT AFFECT THE STATUS AND RIGHTS OF A PARTY DERIVED
FROM THE INDORSEMENT.
  (C) IN THIS SECTION, "SIGNED," WITH RESPECT TO A RECORD THAT IS NOT  A
WRITING,  INCLUDES  THE  ATTACHMENT  TO  OR LOGICAL ASSOCIATION WITH THE
RECORD OF AN ELECTRONIC SYMBOL,  SOUND,  OR  PROCESS  WITH  THE  PRESENT
INTENT TO ADOPT OR ACCEPT THE RECORD.
SECTION 3--605. DISCHARGE OF SECONDARY OBLIGORS.
  (A)  IF  A PERSON ENTITLED TO ENFORCE AN INSTRUMENT RELEASES THE OBLI-
GATION OF A PRINCIPAL OBLIGOR IN WHOLE OR IN PART, AND ANOTHER PARTY  TO
THE  INSTRUMENT IS A SECONDARY OBLIGOR WITH RESPECT TO THE OBLIGATION OF
THAT PRINCIPAL OBLIGOR, THE FOLLOWING RULES APPLY:
  (1) ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY  OBLIGOR
WITH  RESPECT  TO  ANY PREVIOUS PAYMENT BY THE SECONDARY OBLIGOR ARE NOT
AFFECTED. UNLESS  THE  TERMS  OF  THE  RELEASE  PRESERVE  THE  SECONDARY
OBLIGOR'S  RECOURSE,  THE PRINCIPAL OBLIGOR IS DISCHARGED, TO THE EXTENT
OF THE RELEASE, FROM ANY OTHER DUTIES TO  THE  SECONDARY  OBLIGOR  UNDER
THIS ARTICLE.
  (2)  UNLESS  THE TERMS OF THE RELEASE PROVIDE THAT THE PERSON ENTITLED
TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT TO  ENFORCE  THE  INSTRUMENT

S. 5901                            45

AGAINST  THE  SECONDARY  OBLIGOR, THE SECONDARY OBLIGOR IS DISCHARGED TO
THE SAME EXTENT AS THE PRINCIPAL OBLIGOR FROM ANY UNPERFORMED PORTION OF
ITS OBLIGATION ON THE INSTRUMENT. IF THE INSTRUMENT IS A CHECK  AND  THE
OBLIGATION  OF  THE  SECONDARY OBLIGOR IS BASED ON AN INDORSEMENT OF THE
CHECK, THE  SECONDARY  OBLIGOR  IS  DISCHARGED  WITHOUT  REGARD  TO  THE
LANGUAGE OR CIRCUMSTANCES OF THE DISCHARGE OR OTHER RELEASE.
  (3)  IF  THE  SECONDARY OBLIGOR IS NOT DISCHARGED UNDER PARAGRAPH (2),
THE SECONDARY OBLIGOR IS DISCHARGED TO THE EXTENT OF THE  VALUE  OF  THE
CONSIDERATION  FOR THE RELEASE, AND TO THE EXTENT THAT THE RELEASE WOULD
OTHERWISE CAUSE THE SECONDARY OBLIGOR A LOSS.
  (B) IF A PERSON ENTITLED TO ENFORCE AN INSTRUMENT GRANTS  A  PRINCIPAL
OBLIGOR  AN  EXTENSION OF THE TIME AT WHICH ONE OR MORE PAYMENTS ARE DUE
ON THE INSTRUMENT AND ANOTHER PARTY TO THE  INSTRUMENT  IS  A  SECONDARY
OBLIGOR  WITH  RESPECT  TO THE OBLIGATION OF THAT PRINCIPAL OBLIGOR, THE
FOLLOWING RULES APPLY:
  (1) ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY  OBLIGOR
WITH  RESPECT  TO  ANY PREVIOUS PAYMENT BY THE SECONDARY OBLIGOR ARE NOT
AFFECTED. UNLESS THE TERMS  OF  THE  EXTENSION  PRESERVE  THE  SECONDARY
OBLIGOR'S  RECOURSE,  THE EXTENSION CORRESPONDINGLY EXTENDS THE TIME FOR
PERFORMANCE OF ANY OTHER DUTIES OWED TO THE  SECONDARY  OBLIGOR  BY  THE
PRINCIPAL OBLIGOR UNDER THIS ARTICLE.
  (2)  THE SECONDARY OBLIGOR IS DISCHARGED TO THE EXTENT THAT THE EXTEN-
SION WOULD OTHERWISE CAUSE THE SECONDARY OBLIGOR A LOSS.
  (3) TO THE EXTENT THAT THE SECONDARY OBLIGOR IS NOT  DISCHARGED  UNDER
PARAGRAPH  (2),  THE  SECONDARY OBLIGOR MAY PERFORM ITS OBLIGATIONS TO A
PERSON ENTITLED TO ENFORCE THE INSTRUMENT AS IF THE TIME FOR PAYMENT HAD
NOT BEEN EXTENDED OR, UNLESS THE TERMS OF THE EXTENSION PROVIDE THAT THE
PERSON ENTITLED TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT  TO  ENFORCE
THE  INSTRUMENT AGAINST THE SECONDARY OBLIGOR AS IF THE TIME FOR PAYMENT
HAD NOT BEEN EXTENDED, TREAT THE TIME FOR PERFORMANCE OF ITS OBLIGATIONS
AS HAVING BEEN EXTENDED CORRESPONDINGLY.
  (C) IF A PERSON ENTITLED TO ENFORCE  AN  INSTRUMENT  AGREES,  WITH  OR
WITHOUT  CONSIDERATION, TO A MODIFICATION OF THE OBLIGATION OF A PRINCI-
PAL OBLIGOR OTHER THAN A COMPLETE OR PARTIAL RELEASE OR AN EXTENSION  OF
THE  DUE DATE AND ANOTHER PARTY TO THE INSTRUMENT IS A SECONDARY OBLIGOR
WITH RESPECT TO THE OBLIGATION OF THAT PRINCIPAL OBLIGOR, THE  FOLLOWING
RULES APPLY:
  (1)  ANY OBLIGATIONS OF THE PRINCIPAL OBLIGOR TO THE SECONDARY OBLIGOR
WITH RESPECT TO ANY PREVIOUS PAYMENT BY THE SECONDARY  OBLIGOR  ARE  NOT
AFFECTED.  THE  MODIFICATION  CORRESPONDINGLY  MODIFIES ANY OTHER DUTIES
OWED TO THE SECONDARY OBLIGOR BY THE PRINCIPAL OBLIGOR UNDER THIS  ARTI-
CLE.
  (2)  THE  SECONDARY OBLIGOR IS DISCHARGED FROM ANY UNPERFORMED PORTION
OF ITS OBLIGATION TO THE EXTENT THAT THE  MODIFICATION  WOULD  OTHERWISE
CAUSE THE SECONDARY OBLIGOR A LOSS.
  (3)  TO  THE EXTENT THAT THE SECONDARY OBLIGOR IS NOT DISCHARGED UNDER
PARAGRAPH (2), THE SECONDARY OBLIGOR MAY SATISFY ITS OBLIGATION  ON  THE
INSTRUMENT  AS  IF THE MODIFICATION HAD NOT OCCURRED, OR TREAT ITS OBLI-
GATION ON THE INSTRUMENT AS HAVING BEEN MODIFIED CORRESPONDINGLY.
  (D) IF THE OBLIGATION OF A PRINCIPAL OBLIGOR IS SECURED BY AN INTEREST
IN COLLATERAL, ANOTHER PARTY TO THE INSTRUMENT IS  A  SECONDARY  OBLIGOR
WITH  RESPECT  TO  THAT OBLIGATION, AND A PERSON ENTITLED TO ENFORCE THE
INSTRUMENT IMPAIRS THE VALUE OF THE INTEREST IN  COLLATERAL,  THE  OBLI-
GATION  OF  THE  SECONDARY  OBLIGOR  IS  DISCHARGED TO THE EXTENT OF THE
IMPAIRMENT. THE VALUE OF AN INTEREST IN COLLATERAL IS  IMPAIRED  TO  THE
EXTENT  THE  VALUE OF THE INTEREST IS REDUCED TO AN AMOUNT LESS THAN THE

S. 5901                            46

AMOUNT OF THE RECOURSE OF THE SECONDARY OBLIGOR,  OR  THE  REDUCTION  IN
VALUE  OF  THE  INTEREST  CAUSES  AN INCREASE IN THE AMOUNT BY WHICH THE
AMOUNT OF THE RECOURSE EXCEEDS THE VALUE OF THE INTEREST.  FOR  PURPOSES
OF  THIS  SUBSECTION,  IMPAIRING  THE VALUE OF AN INTEREST IN COLLATERAL
INCLUDES FAILURE TO OBTAIN OR MAINTAIN PERFECTION OR RECORDATION OF  THE
INTEREST  IN  COLLATERAL,  RELEASE OF COLLATERAL WITHOUT SUBSTITUTION OF
COLLATERAL OF EQUAL VALUE OR  EQUIVALENT  REDUCTION  OF  THE  UNDERLYING
OBLIGATION,  FAILURE  TO PERFORM A DUTY TO PRESERVE THE VALUE OF COLLAT-
ERAL OWED, UNDER ARTICLE 9 OR OTHER LAW, TO A  DEBTOR  OR  OTHER  PERSON
SECONDARILY LIABLE, AND FAILURE TO COMPLY WITH APPLICABLE LAW IN DISPOS-
ING OF OR OTHERWISE ENFORCING THE INTEREST IN COLLATERAL.
  (E)  A  SECONDARY  OBLIGOR IS NOT DISCHARGED UNDER SUBSECTIONS (A)(3),
(B), (C), OR (D) UNLESS THE PERSON ENTITLED TO  ENFORCE  THE  INSTRUMENT
KNOWS THAT THE PERSON IS A SECONDARY OBLIGOR OR HAS NOTICE UNDER SECTION
3--419(C) THAT THE INSTRUMENT WAS SIGNED FOR ACCOMMODATION.
  (F)  A  SECONDARY  OBLIGOR IS NOT DISCHARGED UNDER THIS SECTION IF THE
SECONDARY OBLIGOR CONSENTS TO THE EVENT OR CONDUCT THAT IS THE BASIS  OF
THE  DISCHARGE,  OR  THE INSTRUMENT OR A SEPARATE AGREEMENT OF THE PARTY
PROVIDES FOR WAIVER OF DISCHARGE UNDER THIS SECTION SPECIFICALLY  OR  BY
GENERAL LANGUAGE INDICATING THAT PARTIES WAIVE DEFENSES BASED ON SURETY-
SHIP  OR  IMPAIRMENT  OF COLLATERAL.   UNLESS THE CIRCUMSTANCES INDICATE
OTHERWISE, CONSENT BY THE PRINCIPAL OBLIGOR TO AN ACT THAT WOULD LEAD TO
A DISCHARGE UNDER THIS SECTION CONSTITUTES CONSENT TO THAT  ACT  BY  THE
SECONDARY  OBLIGOR IF THE SECONDARY OBLIGOR CONTROLS THE PRINCIPAL OBLI-
GOR OR DEALS WITH THE PERSON  ENTITLED  TO  ENFORCE  THE  INSTRUMENT  ON
BEHALF OF THE PRINCIPAL OBLIGOR.
  (G) A RELEASE OR EXTENSION PRESERVES A SECONDARY OBLIGOR'S RECOURSE IF
THE TERMS OF THE RELEASE OR EXTENSION PROVIDE THAT:
  (1) THE PERSON ENTITLED TO ENFORCE THE INSTRUMENT RETAINS THE RIGHT TO
ENFORCE THE INSTRUMENT AGAINST THE SECONDARY OBLIGOR; AND
  (2)  THE RECOURSE OF THE SECONDARY OBLIGOR CONTINUES AS IF THE RELEASE
OR EXTENSION HAD NOT BEEN GRANTED.
  (H) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (I), A SECONDARY  OBLI-
GOR  ASSERTING DISCHARGE UNDER THIS SECTION HAS THE BURDEN OF PERSUASION
BOTH WITH RESPECT TO THE OCCURRENCE OF THE  ACTS  ALLEGED  TO  HARM  THE
SECONDARY OBLIGOR AND LOSS OR PREJUDICE CAUSED BY THOSE ACTS.
  (I)  IF  THE  SECONDARY  OBLIGOR  DEMONSTRATES  PREJUDICE CAUSED BY AN
IMPAIRMENT OF ITS RECOURSE, AND THE CIRCUMSTANCES OF THE  CASE  INDICATE
THAT  THE AMOUNT OF LOSS IS NOT REASONABLY SUSCEPTIBLE OF CALCULATION OR
REQUIRES PROOF OF FACTS THAT ARE NOT ASCERTAINABLE, IT IS PRESUMED  THAT
THE  ACT  IMPAIRING  RECOURSE  CAUSED  A LOSS OR IMPAIRMENT EQUAL TO THE
LIABILITY OF THE SECONDARY OBLIGOR ON THE INSTRUMENT. IN THAT EVENT, THE
BURDEN OF PERSUASION AS TO ANY LESSER AMOUNT  OF  THE  LOSS  IS  ON  THE
PERSON ENTITLED TO ENFORCE THE INSTRUMENT.
  S  27.  Article 4 of the uniform commercial code is REPEALED and a new
article 4 is added to read as follows:
                                ARTICLE 4
                       BANK DEPOSITS--COLLECTIONS
                   GENERAL PROVISIONS AND DEFINITIONS
                                 PART 1
SECTION 4--101. SHORT TITLE.
  THIS ARTICLE MAY BE CITED AS UNIFORM  COMMERCIAL  CODE--BANK  DEPOSITS
AND COLLECTIONS.
SECTION 4--102. APPLICABILITY.

S. 5901                            47

  (A) TO THE EXTENT THAT ITEMS WITHIN THIS ARTICLE ARE ALSO WITHIN ARTI-
CLES  3 AND 8, THEY ARE SUBJECT TO THOSE ARTICLES. IF THERE IS CONFLICT,
THIS ARTICLE GOVERNS ARTICLE 3, BUT ARTICLE 8 GOVERNS THIS ARTICLE.
  (B)  THE  LIABILITY OF A BANK FOR ACTION OR NON-ACTION WITH RESPECT TO
AN  ITEM  HANDLED  BY  IT  FOR  PURPOSES  OF  PRESENTMENT,  PAYMENT,  OR
COLLECTION  IS  GOVERNED  BY  THE  LAW  OF  THE  PLACE WHERE THE BANK IS
LOCATED. IN THE CASE OF ACTION OR NON-ACTION BY OR AT A BRANCH OR  SEPA-
RATE OFFICE OF A BANK, ITS LIABILITY IS GOVERNED BY THE LAW OF THE PLACE
WHERE THE BRANCH OR SEPARATE OFFICE IS LOCATED.
SECTION 4--103. VARIATION  BY  AGREEMENT;  MEASURE  OF  DAMAGES;  ACTION
                  CONSTITUTING ORDINARY CARE.
  (A) THE EFFECT OF THE PROVISIONS OF THIS  ARTICLE  MAY  BE  VARIED  BY
AGREEMENT,  BUT  THE  PARTIES  TO THE AGREEMENT CANNOT DISCLAIM A BANK'S
RESPONSIBILITY FOR ITS LACK OF GOOD FAITH OR FAILURE TO  EXERCISE  ORDI-
NARY  CARE  OR  LIMIT  THE  MEASURE  OF DAMAGES FOR THE LACK OR FAILURE.
HOWEVER, THE PARTIES MAY DETERMINE BY AGREEMENT THE STANDARDS  BY  WHICH
THE  BANK'S  RESPONSIBILITY IS TO BE MEASURED IF THOSE STANDARDS ARE NOT
MANIFESTLY UNREASONABLE.
  (B)   FEDERAL   RESERVE   REGULATIONS   AND    OPERATING    CIRCULARS,
CLEARING-HOUSE  RULES,  AND THE LIKE HAVE THE EFFECT OF AGREEMENTS UNDER
SUBSECTION (A), WHETHER OR NOT SPECIFICALLY ASSENTED TO BY  ALL  PARTIES
INTERESTED IN ITEMS HANDLED.
  (C)  ACTION  OR  NON-ACTION  APPROVED  BY  THIS ARTICLE OR PURSUANT TO
FEDERAL RESERVE REGULATIONS OR OPERATING CIRCULARS IS  THE  EXERCISE  OF
ORDINARY  CARE  AND,  IN  THE ABSENCE OF SPECIAL INSTRUCTIONS, ACTION OR
NON-ACTION CONSISTENT WITH CLEARING-HOUSE RULES AND THE LIKE OR  WITH  A
GENERAL  BANKING  USAGE  NOT DISAPPROVED BY THIS ARTICLE, IS PRIMA FACIE
THE EXERCISE OF ORDINARY CARE.
  (D) THE SPECIFICATION OR APPROVAL OF CERTAIN PROCEDURES BY THIS  ARTI-
CLE  IS NOT DISAPPROVAL OF OTHER PROCEDURES THAT MAY BE REASONABLE UNDER
THE CIRCUMSTANCES.
  (E) THE MEASURE OF DAMAGES FOR FAILURE TO EXERCISE  ORDINARY  CARE  IN
HANDLING  AN  ITEM  IS  THE AMOUNT OF THE ITEM REDUCED BY AN AMOUNT THAT
COULD NOT HAVE BEEN REALIZED BY THE EXERCISE OF ORDINARY CARE. IF  THERE
IS  ALSO BAD FAITH IT INCLUDES ANY OTHER DAMAGES THE PARTY SUFFERED AS A
PROXIMATE CONSEQUENCE.
SECTION 4--104. DEFINITIONS AND INDEX OF DEFINITIONS.
  (A) IN THIS ARTICLE, UNLESS THE CONTEXT OTHERWISE REQUIRES:
  (1) "ACCOUNT" MEANS ANY DEPOSIT OR CREDIT ACCOUNT WITH A BANK, INCLUD-
ING A DEMAND, TIME, SAVINGS, PASSBOOK, SHARE  DRAFT,  OR  LIKE  ACCOUNT,
OTHER THAN AN ACCOUNT EVIDENCED BY A CERTIFICATE OF DEPOSIT;
  (2) "AFTERNOON" MEANS THE PERIOD OF A DAY BETWEEN NOON AND MIDNIGHT;
  (3)  "BANKING  DAY" MEANS THE PART OF A DAY ON WHICH A BANK IS OPEN TO
THE PUBLIC FOR CARRYING ON SUBSTANTIALLY ALL OF ITS BANKING FUNCTIONS;
  (4) "CLEARING HOUSE" MEANS AN ASSOCIATION OF  BANKS  OR  OTHER  PAYORS
REGULARLY CLEARING ITEMS;
  (5)  "CUSTOMER"  MEANS  A  PERSON HAVING AN ACCOUNT WITH A BANK OR FOR
WHOM A BANK HAS AGREED TO COLLECT ITEMS, INCLUDING A BANK THAT MAINTAINS
AN ACCOUNT AT ANOTHER BANK;
  (6) "DOCUMENTARY DRAFT" MEANS A DRAFT TO BE PRESENTED  FOR  ACCEPTANCE
OR  PAYMENT  IF  SPECIFIED  DOCUMENTS,  CERTIFICATED SECURITIES (SECTION
8--102) OR INSTRUCTIONS FOR UNCERTIFICATED SECURITIES (SECTION  8--102),
OR OTHER CERTIFICATES, STATEMENTS, OR THE LIKE ARE TO BE RECEIVED BY THE
DRAWEE OR OTHER PAYOR BEFORE ACCEPTANCE OR PAYMENT OF THE DRAFT;
  (7)  "DRAFT"  MEANS  A  DRAFT AS DEFINED IN SECTION 3--104 OR AN ITEM,
OTHER THAN AN INSTRUMENT, THAT IS AN ORDER;

S. 5901                            48

  (8) "DRAWEE" MEANS A PERSON ORDERED IN A DRAFT TO MAKE PAYMENT;
  (9)  "ITEM"  MEANS  AN  INSTRUMENT  OR A PROMISE OR ORDER TO PAY MONEY
HANDLED BY A BANK FOR COLLECTION OR PAYMENT. THE TERM DOES NOT INCLUDE A
PAYMENT ORDER GOVERNED BY ARTICLE 4-A OR A CREDIT OR DEBIT CARD SLIP;
  (10) "MIDNIGHT DEADLINE" WITH RESPECT TO A BANK  IS  MIDNIGHT  ON  ITS
NEXT  BANKING  DAY  FOLLOWING  THE  BANKING DAY ON WHICH IT RECEIVES THE
RELEVANT ITEM OR NOTICE  OR  FROM  WHICH  THE  TIME  FOR  TAKING  ACTION
COMMENCES TO RUN, WHICHEVER IS LATER;
  (11) "SETTLE" MEANS TO PAY IN CASH, BY CLEARING-HOUSE SETTLEMENT, IN A
CHARGE  OR CREDIT OR BY REMITTANCE, OR OTHERWISE AS AGREED. A SETTLEMENT
MAY BE EITHER PROVISIONAL OR FINAL;
  (12) "SUSPENDS PAYMENTS" WITH RESPECT TO A BANK MEANS THAT IT HAS BEEN
CLOSED BY ORDER OF THE SUPERVISORY AUTHORITIES, THAT  A  PUBLIC  OFFICER
HAS BEEN APPOINTED TO TAKE IT OVER, OR THAT IT CEASES OR REFUSES TO MAKE
PAYMENTS IN THE ORDINARY COURSE OF BUSINESS.
  (B)  OTHER  DEFINITIONS  APPLYING  TO THIS ARTICLE AND THE SECTIONS IN
WHICH THEY APPEAR ARE:
"AGREEMENT FOR ELECTRONIC PRESENTMENT" ................. SECTION 4--110.
"COLLECTING BANK" ...................................... SECTION 4--105.
"DEPOSITARY BANK" ...................................... SECTION 4--105.
"INTERMEDIARY BANK" .................................... SECTION 4--105.
"PAYOR BANK" ........................................... SECTION 4--105.
"PRESENTING BANK" ...................................... SECTION 4--105.
"PRESENTMENT NOTICE" ................................... SECTION 4--110.
  (C) THE FOLLOWING DEFINITIONS IN OTHER ARTICLES APPLY TO THIS ARTICLE:
"ACCEPTANCE" ........................................... SECTION 3--409.
"ALTERATION" ........................................... SECTION 3--407.
"CASHIER'S CHECK" ...................................... SECTION 3--104.
"CERTIFICATE OF DEPOSIT" ............................... SECTION 3--104.
"CERTIFIED CHECK" ...................................... SECTION 3--409.
"CHECK" ................................................ SECTION 3--104.
"CONTROL" .............................................. SECTION 7--106.
"GOOD FAITH" ........................................... SECTION 3--103.
"HOLDER IN DUE COURSE" ................................. SECTION 3--302.
"INSTRUMENT" ........................................... SECTION 3--104.
"NOTICE OF DISHONOR" ................................... SECTION 3--503.
"ORDER" ................................................ SECTION 3--103.
"ORDINARY CARE" ........................................ SECTION 3--103.
"PERSON ENTITLED TO ENFORCE" ........................... SECTION 3--301.
"PRESENTMENT" .......................................... SECTION 3--501.
"PROMISE" .............................................. SECTION 3--103.
"PROVE" ................................................ SECTION 3--103.
"RECORD" ..................................................... RESERVED.
"REMOTELY-CREATED CONSUMER ITEM" ....................... SECTION 3--103.
"TELLER'S CHECK" ....................................... SECTION 3--104.
"UNAUTHORIZED SIGNATURE" ............................... SECTION 3--403.
  (D) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES
OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE.
SECTION 4--105. DEFINITIONS OF TYPES OF BANKS.
  IN THIS ARTICLE:
  (A) [RESERVED]
  (B) "DEPOSITARY BANK" MEANS THE FIRST BANK TO TAKE AN ITEM EVEN THOUGH
IT IS ALSO THE PAYOR BANK, UNLESS THE ITEM IS  PRESENTED  FOR  IMMEDIATE
PAYMENT OVER THE COUNTER;
  (C) "PAYOR BANK" MEANS A BANK THAT IS THE DRAWEE OF A DRAFT;

S. 5901                            49

  (D)  "INTERMEDIARY  BANK" MEANS A BANK TO WHICH AN ITEM IS TRANSFERRED
IN COURSE OF COLLECTION EXCEPT THE DEPOSITARY OR PAYOR BANK;
  (E)  "COLLECTING  BANK"  MEANS  A BANK HANDLING AN ITEM FOR COLLECTION
EXCEPT THE PAYOR BANK;
  (F) "PRESENTING BANK" MEANS A BANK PRESENTING AN ITEM EXCEPT  A  PAYOR
BANK.
SECTION 4--106. PAYABLE THROUGH OR PAYABLE AT BANK: COLLECTING BANK.
  (A)  IF  AN ITEM STATES THAT IT IS "PAYABLE THROUGH" A BANK IDENTIFIED
IN THE ITEM, (1) THE ITEM DESIGNATES THE BANK AS A COLLECTING  BANK  AND
DOES  NOT BY ITSELF AUTHORIZE THE BANK TO PAY THE ITEM, AND (2) THE ITEM
MAY BE PRESENTED FOR PAYMENT ONLY BY OR THROUGH THE BANK.
  (B) IF AN ITEM STATES THAT IT IS "PAYABLE AT" A BANK IDENTIFIED IN THE
ITEM, THE ITEM IS EQUIVALENT TO A DRAFT DRAWN ON THE BANK.
  (C) IF A DRAFT NAMES A NONBANK DRAWEE AND IT IS UNCLEAR WHETHER A BANK
NAMED IN THE DRAFT IS A CO-DRAWEE OR A COLLECTING BANK, THE  BANK  IS  A
COLLECTING BANK.
SECTION 4--107. SEPARATE OFFICE OF BANK.
  A  BRANCH  OR  SEPARATE  OFFICE  OF  A BANK IS A SEPARATE BANK FOR THE
PURPOSE OF COMPUTING THE TIME WITHIN WHICH AND DETERMINING THE PLACE  AT
OR  TO  WHICH  ACTION  MAY  BE TAKEN OR NOTICES OR ORDERS SHALL BE GIVEN
UNDER THIS ARTICLE AND UNDER ARTICLE 3.
SECTION 4--108. TIME OF RECEIPT OF ITEMS.
  (A) FOR THE PURPOSE OF ALLOWING TIME TO PROCESS ITEMS, PROVE BALANCES,
AND MAKE THE NECESSARY ENTRIES ON ITS BOOKS TO  DETERMINE  ITS  POSITION
FOR  THE  DAY,  A BANK MAY FIX AN AFTERNOON HOUR OF 2 P.M. OR LATER AS A
CUTOFF HOUR FOR THE HANDLING OF  MONEY  AND  ITEMS  AND  THE  MAKING  OF
ENTRIES ON ITS BOOKS.
  (B)  AN  ITEM  OR  DEPOSIT OF MONEY RECEIVED ON ANY DAY AFTER A CUTOFF
HOUR SO FIXED OR AFTER THE CLOSE OF THE BANKING DAY MAY  BE  TREATED  AS
BEING RECEIVED AT THE OPENING OF THE NEXT BANKING DAY.
SECTION 4--109. DELAYS.
  (A)  UNLESS  OTHERWISE  INSTRUCTED,  A COLLECTING BANK IN A GOOD FAITH
EFFORT TO SECURE PAYMENT OF A SPECIFIC ITEM DRAWN ON A PAYOR OTHER  THAN
A  BANK,  AND  WITH  OR WITHOUT THE APPROVAL OF ANY PERSON INVOLVED, MAY
WAIVE, MODIFY, OR EXTEND TIME LIMITS IMPOSED OR PERMITTED  BY  THIS  ACT
FOR A PERIOD NOT EXCEEDING TWO ADDITIONAL BANKING DAYS WITHOUT DISCHARGE
OF DRAWERS OR INDORSERS OR LIABILITY TO ITS TRANSFEROR OR A PRIOR PARTY.
  (B)  DELAY  BY  A  COLLECTING  BANK  OR  PAYOR BANK BEYOND TIME LIMITS
PRESCRIBED OR PERMITTED BY THIS ACT OR BY INSTRUCTIONS IS EXCUSED IF (1)
THE DELAY IS CAUSED BY INTERRUPTION OF COMMUNICATION OR COMPUTER FACILI-
TIES, SUSPENSION OF PAYMENTS BY ANOTHER BANK, WAR, EMERGENCY CONDITIONS,
FAILURE OF EQUIPMENT, OR OTHER CIRCUMSTANCES BEYOND THE CONTROL  OF  THE
BANK,  AND  (2)  THE  BANK EXERCISES SUCH DILIGENCE AS THE CIRCUMSTANCES
REQUIRE.
SECTION 4--110. ELECTRONIC PRESENTMENT.
  (A) "AGREEMENT FOR ELECTRONIC PRESENTMENT" MEANS AN AGREEMENT,  CLEAR-
ING-HOUSE  RULE,  OR  FEDERAL  RESERVE REGULATION OR OPERATING CIRCULAR,
PROVIDING THAT PRESENTMENT OF AN ITEM MAY BE MADE BY TRANSMISSION OF  AN
IMAGE  OF  AN  ITEM  OR  INFORMATION  DESCRIBING  THE ITEM ("PRESENTMENT
NOTICE") RATHER THAN DELIVERY OF THE  ITEM  ITSELF.  THE  AGREEMENT  MAY
PROVIDE   FOR  PROCEDURES  GOVERNING  RETENTION,  PRESENTMENT,  PAYMENT,
DISHONOR, AND OTHER MATTERS CONCERNING ITEMS SUBJECT TO THE AGREEMENT.
  (B) PRESENTMENT OF AN ITEM PURSUANT TO AN AGREEMENT FOR PRESENTMENT IS
MADE WHEN THE PRESENTMENT NOTICE IS RECEIVED.

S. 5901                            50

  (C) IF PRESENTMENT IS MADE  BY  PRESENTMENT  NOTICE,  A  REFERENCE  TO
"ITEM"  OR  "CHECK"  IN THIS ARTICLE MEANS THE PRESENTMENT NOTICE UNLESS
THE CONTEXT OTHERWISE INDICATES.
SECTION 4--111. STATUTE OF LIMITATIONS.
  AN  ACTION TO ENFORCE AN OBLIGATION, DUTY, OR RIGHT ARISING UNDER THIS
ARTICLE MUST BE COMMENCED WITHIN THREE YEARS AFTER THE CAUSE  OF  ACTION
ACCRUES.
                                 PART 2
          COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS
SECTION 4--201. STATUS  OF  COLLECTING  BANK  AS  AGENT  AND PROVISIONAL
                  STATUS OF  CREDITS;  APPLICABILITY  OF  ARTICLE;  ITEM
                  INDORSED "PAY ANY BANK".
  (A)  UNLESS A CONTRARY INTENT CLEARLY APPEARS AND BEFORE THE TIME THAT
A SETTLEMENT GIVEN BY A COLLECTING BANK FOR AN ITEM IS OR BECOMES FINAL,
THE BANK, WITH RESPECT TO AN ITEM, IS AN AGENT OR SUB-AGENT OF THE OWNER
OF THE ITEM AND ANY SETTLEMENT GIVEN FOR THE ITEM IS PROVISIONAL.   THIS
PROVISION  APPLIES  REGARDLESS  OF  THE  FORM  OF INDORSEMENT OR LACK OF
INDORSEMENT AND EVEN THOUGH CREDIT GIVEN FOR  THE  ITEM  IS  SUBJECT  TO
IMMEDIATE  WITHDRAWAL  AS  OF  RIGHT  OR  IS  IN FACT WITHDRAWN; BUT THE
CONTINUANCE OF OWNERSHIP OF AN ITEM BY ITS OWNER AND ANY RIGHTS  OF  THE
OWNER  TO  PROCEEDS  OF  THE  ITEM ARE SUBJECT TO RIGHTS OF A COLLECTING
BANK, SUCH AS THOSE RESULTING FROM OUTSTANDING ADVANCES ON THE ITEM  AND
RIGHTS  OF  RECOUPMENT  OR  SETOFF.  IF  AN ITEM IS HANDLED BY BANKS FOR
PURPOSES OF PRESENTMENT, PAYMENT, COLLECTION, OR  RETURN,  THE  RELEVANT
PROVISIONS  OF  THIS  ARTICLE  APPLY  EVEN  THOUGH ACTION OF THE PARTIES
CLEARLY ESTABLISHES THAT A PARTICULAR BANK HAS PURCHASED THE ITEM AND IS
THE OWNER OF IT.
  (B) AFTER AN ITEM HAS BEEN INDORSED WITH THE WORDS "PAY ANY  BANK"  OR
THE  LIKE, ONLY A BANK MAY ACQUIRE THE RIGHTS OF A HOLDER UNTIL THE ITEM
HAS BEEN:
  (1) RETURNED TO THE CUSTOMER INITIATING COLLECTION; OR
  (2) SPECIALLY INDORSED BY A BANK TO A PERSON WHO IS NOT A BANK.
SECTION 4--202. RESPONSIBILITY FOR COLLECTION  OR  RETURN;  WHEN  ACTION
                  TIMELY.
  (A) A COLLECTING BANK MUST EXERCISE ORDINARY CARE IN:
  (1) PRESENTING AN ITEM OR SENDING IT FOR PRESENTMENT;
  (2)  SENDING  NOTICE  OF  DISHONOR  OR NONPAYMENT OR RETURNING AN ITEM
OTHER THAN A DOCUMENTARY DRAFT TO THE BANK'S TRANSFEROR  AFTER  LEARNING
THAT THE ITEM HAS NOT BEEN PAID OR ACCEPTED, AS THE CASE MAY BE;
  (3) SETTLING FOR AN ITEM WHEN THE BANK RECEIVES FINAL SETTLEMENT; AND
  (4)  NOTIFYING ITS TRANSFEROR OF ANY LOSS OR DELAY IN TRANSIT WITHIN A
REASONABLE TIME AFTER DISCOVERY THEREOF.
  (B) A COLLECTING BANK EXERCISES ORDINARY CARE UNDER SUBSECTION (A)  BY
TAKING  PROPER  ACTION BEFORE ITS MIDNIGHT DEADLINE FOLLOWING RECEIPT OF
AN ITEM, NOTICE, OR SETTLEMENT.  TAKING PROPER ACTION WITHIN  A  REASON-
ABLY  LONGER  TIME MAY CONSTITUTE THE EXERCISE OF ORDINARY CARE, BUT THE
BANK HAS THE BURDEN OF ESTABLISHING TIMELINESS.
  (C) SUBJECT TO SUBSECTION (A)(1), A BANK IS NOT LIABLE FOR THE  INSOL-
VENCY,  NEGLECT,  MISCONDUCT,  MISTAKE,  OR  DEFAULT  OF ANOTHER BANK OR
PERSON OR FOR LOSS OR DESTRUCTION OF AN ITEM IN THE POSSESSION OF OTHERS
OR IN TRANSIT.
SECTION 4--203. EFFECT OF INSTRUCTIONS.
  SUBJECT TO ARTICLE 3 CONCERNING  CONVERSION  OF  INSTRUMENTS  (SECTION
3-420)  AND  RESTRICTIVE INDORSEMENTS (SECTION 3-206), ONLY A COLLECTING
BANK'S TRANSFEROR CAN GIVE INSTRUCTIONS THAT AFFECT THE BANK OR  CONSTI-
TUTE  NOTICE TO IT, AND A COLLECTING BANK IS NOT LIABLE TO PRIOR PARTIES

S. 5901                            51

FOR ANY ACTION TAKEN PURSUANT TO THE INSTRUCTIONS OR IN ACCORDANCE  WITH
ANY AGREEMENT WITH ITS TRANSFEROR.
SECTION 4--204. METHODS  OF  SENDING AND PRESENTING; SENDING DIRECTLY TO
                  PAYOR BANK.
  (A) A COLLECTING BANK SHALL SEND ITEMS BY A REASONABLY PROMPT  METHOD,
TAKING INTO CONSIDERATION RELEVANT INSTRUCTIONS, THE NATURE OF THE ITEM,
THE  NUMBER OF THOSE ITEMS ON HAND, THE COST OF COLLECTION INVOLVED, AND
THE METHOD GENERALLY USED BY IT OR OTHERS TO PRESENT THOSE ITEMS.
  (B) A COLLECTING BANK MAY SEND:
  (1) AN ITEM DIRECTLY TO THE PAYOR BANK;
  (2) AN ITEM TO A NONBANK PAYOR IF AUTHORIZED BY ITS TRANSFEROR; AND
  (3) AN ITEM OTHER THAN DOCUMENTARY  DRAFTS  TO  A  NONBANK  PAYOR,  IF
AUTHORIZED  BY  FEDERAL RESERVE REGULATION OR OPERATING CIRCULAR, CLEAR-
ING-HOUSE RULE, OR THE LIKE.
  (C) PRESENTMENT MAY BE MADE BY A PRESENTING BANK AT A PLACE WHERE  THE
PAYOR BANK OR OTHER PAYOR HAS REQUESTED THAT PRESENTMENT BE MADE.
SECTION 4--205. DEPOSITARY BANK HOLDER OF UNINDORSED ITEM.
  IF A CUSTOMER DELIVERS AN ITEM TO A DEPOSITARY BANK FOR COLLECTION:
  (A)  THE  DEPOSITARY  BANK BECOMES A HOLDER OF THE ITEM AT THE TIME IT
RECEIVES THE ITEM FOR COLLECTION IF THE CUSTOMER AT THE TIME OF DELIVERY
WAS A HOLDER OF THE ITEM, WHETHER OR NOT THE CUSTOMER INDORSES THE ITEM,
AND, IF THE BANK SATISFIES THE OTHER REQUIREMENTS OF SECTION 3--302,  IT
IS A HOLDER IN DUE COURSE; AND
  (B)  THE  DEPOSITARY BANK WARRANTS TO COLLECTING BANKS, THE PAYOR BANK
OR OTHER PAYOR, AND THE DRAWER THAT THE AMOUNT OF THE ITEM WAS  PAID  TO
THE CUSTOMER OR DEPOSITED TO THE CUSTOMER'S ACCOUNT.
SECTION 4--206. TRANSFER BETWEEN BANKS.
  ANY  AGREED  METHOD  THAT IDENTIFIES THE TRANSFEROR BANK IS SUFFICIENT
FOR THE ITEM'S FURTHER TRANSFER TO ANOTHER BANK.
SECTION 4--207. TRANSFER WARRANTIES.
  (A) A CUSTOMER OR COLLECTING BANK THAT TRANSFERS AN ITEM AND  RECEIVES
A  SETTLEMENT  OR  OTHER CONSIDERATION WARRANTS TO THE TRANSFEREE AND TO
ANY SUBSEQUENT COLLECTING BANK THAT:
  (1) THE WARRANTOR IS A PERSON ENTITLED TO ENFORCE THE ITEM;
  (2) ALL SIGNATURES ON THE ITEM ARE AUTHENTIC AND AUTHORIZED;
  (3) THE ITEM HAS NOT BEEN ALTERED;
  (4) THE ITEM IS NOT SUBJECT  TO  A  DEFENSE  OR  CLAIM  IN  RECOUPMENT
(SECTION  3--305(A))  OF  ANY  PARTY  THAT  CAN  BE ASSERTED AGAINST THE
WARRANTOR;
  (5) THE WARRANTOR  HAS  NO  KNOWLEDGE  OF  ANY  INSOLVENCY  PROCEEDING
COMMENCED  WITH  RESPECT  TO THE MAKER OR ACCEPTOR OR, IN THE CASE OF AN
UNACCEPTED DRAFT, THE DRAWER; AND
  (6) WITH RESPECT TO  ANY  REMOTELY-CREATED  CONSUMER  ITEM,  THAT  THE
PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE
ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN.
  (B)  IF  AN  ITEM  IS DISHONORED, A CUSTOMER OR COLLECTING BANK TRANS-
FERRING THE ITEM AND RECEIVING  SETTLEMENT  OR  OTHER  CONSIDERATION  IS
OBLIGED  TO PAY THE AMOUNT DUE ON THE ITEM (I) ACCORDING TO THE TERMS OF
THE ITEM AT THE TIME IT WAS TRANSFERRED, OR (II) IF THE TRANSFER WAS  OF
AN  INCOMPLETE  ITEM, ACCORDING TO ITS TERMS WHEN COMPLETED AS STATED IN
SECTIONS 3--115 AND 3--407. THE OBLIGATION OF A TRANSFEROR  IS  OWED  TO
THE TRANSFEREE AND TO ANY SUBSEQUENT COLLECTING BANK THAT TAKES THE ITEM
IN  GOOD  FAITH.  A TRANSFEROR CANNOT DISCLAIM ITS OBLIGATION UNDER THIS
SUBSECTION BY AN INDORSEMENT STATING THAT IT IS MADE "WITHOUT  RECOURSE"
OR OTHERWISE DISCLAIMING LIABILITY.

S. 5901                            52

  (C)  A PERSON TO WHOM THE WARRANTIES UNDER SUBSECTION (A) ARE MADE AND
WHO TOOK THE ITEM IN GOOD  FAITH  MAY  RECOVER  FROM  THE  WARRANTOR  AS
DAMAGES FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A
RESULT  OF  THE  BREACH,  BUT  NOT MORE THAN THE AMOUNT OF THE ITEM PLUS
EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT OF THE BREACH.
  (D)  THE WARRANTIES STATED IN SUBSECTION (A) CANNOT BE DISCLAIMED WITH
RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM FOR BREACH  OF  WARRANTY  IS
GIVEN  TO THE WARRANTOR WITHIN THIRTY DAYS AFTER THE CLAIMANT HAS REASON
TO KNOW OF THE BREACH AND THE IDENTITY OF THE WARRANTOR,  THE  WARRANTOR
IS  DISCHARGED  TO  THE EXTENT OF ANY LOSS CAUSED BY THE DELAY IN GIVING
NOTICE OF THE CLAIM.
  (E) A CAUSE OF ACTION  FOR  BREACH  OF  WARRANTY  UNDER  THIS  SECTION
ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH.
SECTION 4--208. PRESENTMENT WARRANTIES.
  (A)  IF  AN UNACCEPTED DRAFT IS PRESENTED TO THE DRAWEE FOR PAYMENT OR
ACCEPTANCE AND THE DRAWEE PAYS OR ACCEPTS  THE  DRAFT,  (I)  THE  PERSON
OBTAINING  PAYMENT OR ACCEPTANCE, AT THE TIME OF PRESENTMENT, AND (II) A
PREVIOUS TRANSFEROR OF THE DRAFT, AT THE TIME OF  TRANSFER,  WARRANT  TO
THE DRAWEE THAT PAYS OR ACCEPTS THE DRAFT IN GOOD FAITH THAT:
  (1)  THE  WARRANTOR  IS, OR WAS, AT THE TIME THE WARRANTOR TRANSFERRED
THE DRAFT, A PERSON ENTITLED TO  ENFORCE  THE  DRAFT  OR  AUTHORIZED  TO
OBTAIN PAYMENT OR ACCEPTANCE OF THE DRAFT ON BEHALF OF A PERSON ENTITLED
TO ENFORCE THE DRAFT;
  (2) THE DRAFT HAS NOT BEEN ALTERED; AND
  (3) THE WARRANTOR HAS NO KNOWLEDGE THAT THE SIGNATURE OF THE PURPORTED
DRAWER OF THE DRAFT IS UNAUTHORIZED; AND
  (4)  WITH  RESPECT  TO  ANY  REMOTELY-CREATED  CONSUMER ITEM, THAT THE
PERSON ON WHOSE ACCOUNT THE ITEM IS DRAWN AUTHORIZED THE ISSUANCE OF THE
ITEM IN THE AMOUNT FOR WHICH THE ITEM IS DRAWN.
  (B) A DRAWEE MAKING PAYMENT MAY RECOVER FROM A WARRANTOR  DAMAGES  FOR
BREACH  OF  WARRANTY  EQUAL  TO  THE  AMOUNT PAID BY THE DRAWEE LESS THE
AMOUNT THE DRAWEE RECEIVED OR IS ENTITLED TO  RECEIVE  FROM  THE  DRAWER
BECAUSE  OF  THE PAYMENT. IN ADDITION, THE DRAWEE IS ENTITLED TO COMPEN-
SATION FOR EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH.  THE
RIGHT  OF  THE  DRAWEE  TO  RECOVER DAMAGES UNDER THIS SUBSECTION IS NOT
AFFECTED BY ANY FAILURE OF THE  DRAWEE  TO  EXERCISE  ORDINARY  CARE  IN
MAKING  PAYMENT.  IF THE DRAWEE ACCEPTS THE DRAFT (I) BREACH OF WARRANTY
IS A DEFENSE TO THE OBLIGATION OF THE ACCEPTOR, AND (II) IF THE ACCEPTOR
MAKES PAYMENT WITH RESPECT TO THE DRAFT, THE  ACCEPTOR  IS  ENTITLED  TO
RECOVER  FROM  A  WARRANTOR FOR BREACH OF WARRANTY THE AMOUNTS STATED IN
THIS SUBSECTION.
  (C) IF  A  DRAWEE  ASSERTS  A  CLAIM  FOR  BREACH  OF  WARRANTY  UNDER
SUBSECTION  (A)  BASED ON AN UNAUTHORIZED INDORSEMENT OF THE DRAFT OR AN
ALTERATION OF THE DRAFT, THE WARRANTOR MAY DEFEND BY  PROVING  THAT  THE
INDORSEMENT IS EFFECTIVE UNDER SECTION 3--404 OR 3--405 OR THE DRAWER IS
PRECLUDED  UNDER  SECTION  3--406  OR  4--406 FROM ASSERTING AGAINST THE
DRAWEE THE UNAUTHORIZED INDORSEMENT OR ALTERATION.
  (D) IF (I) A DISHONORED DRAFT IS PRESENTED FOR PAYMENT TO  THE  DRAWER
OR  AN  INDORSER  OR  (II)  ANY OTHER ITEM IS PRESENTED FOR PAYMENT TO A
PARTY OBLIGED TO PAY THE ITEM, AND THE ITEM IS PAID, THE PERSON  OBTAIN-
ING  PAYMENT  AND  A  PRIOR TRANSFEROR OF THE ITEM WARRANT TO THE PERSON
MAKING PAYMENT IN GOOD FAITH THAT THE WARRANTOR IS, OR WAS, AT THE  TIME
THE  WARRANTOR  TRANSFERRED  THE  ITEM, A PERSON ENTITLED TO ENFORCE THE
ITEM OR AUTHORIZED TO OBTAIN PAYMENT ON BEHALF OF A PERSON  ENTITLED  TO
ENFORCE  THE  ITEM.    THE  PERSON  MAKING  PAYMENT MAY RECOVER FROM ANY

S. 5901                            53

WARRANTOR FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE AMOUNT PAID PLUS
EXPENSES AND LOSS OF INTEREST RESULTING FROM THE BREACH.
  (E)  THE  WARRANTIES  STATED  IN  SUBSECTIONS  (A)  AND  (D) CANNOT BE
DISCLAIMED WITH RESPECT TO CHECKS. UNLESS NOTICE OF A CLAIM  FOR  BREACH
OF  WARRANTY  IS  GIVEN  TO  THE  WARRANTOR WITHIN THIRTY DAYS AFTER THE
CLAIMANT HAS REASON TO KNOW OF  THE  BREACH  AND  THE  IDENTITY  OF  THE
WARRANTOR,  THE WARRANTOR IS DISCHARGED TO THE EXTENT OF ANY LOSS CAUSED
BY THE DELAY IN GIVING NOTICE OF THE CLAIM.
  (F) A CAUSE OF ACTION  FOR  BREACH  OF  WARRANTY  UNDER  THIS  SECTION
ACCRUES WHEN THE CLAIMANT HAS REASON TO KNOW OF THE BREACH.
SECTION 4--209. ENCODING AND RETENTION WARRANTIES.
  (A)  A  PERSON  WHO  ENCODES INFORMATION ON OR WITH RESPECT TO AN ITEM
AFTER ISSUE WARRANTS TO ANY SUBSEQUENT COLLECTING BANK AND TO THE  PAYOR
BANK  OR  OTHER PAYOR THAT THE INFORMATION IS CORRECTLY ENCODED.  IF THE
CUSTOMER OF A DEPOSITARY BANK ENCODES, THAT BANK ALSO MAKES THE  WARRAN-
TY.
  (B) A PERSON WHO UNDERTAKES TO RETAIN AN ITEM PURSUANT TO AN AGREEMENT
FOR  ELECTRONIC  PRESENTMENT  WARRANTS TO ANY SUBSEQUENT COLLECTING BANK
AND TO THE PAYOR BANK OR OTHER PAYOR THAT RETENTION AND  PRESENTMENT  OF
THE  ITEM  COMPLY WITH THE AGREEMENT. IF A CUSTOMER OF A DEPOSITARY BANK
UNDERTAKES TO RETAIN AN ITEM, THAT BANK ALSO MAKES THIS WARRANTY.
  (C) A PERSON TO WHOM WARRANTIES ARE MADE UNDER THIS SECTION,  AND  WHO
TOOK  THE  ITEM IN GOOD FAITH, MAY RECOVER FROM THE WARRANTOR AS DAMAGES
FOR BREACH OF WARRANTY AN AMOUNT EQUAL TO THE LOSS SUFFERED AS A  RESULT
OF  THE  BREACH, PLUS EXPENSES AND LOSS OF INTEREST INCURRED AS A RESULT
OF THE BREACH.
SECTION 4--210. SECURITY INTEREST OF COLLECTING BANK IN ITEMS,  ACCOMPA-
                  NYING DOCUMENTS AND PROCEEDS.
  (A)  A  COLLECTING  BANK  HAS  A  SECURITY INTEREST IN AN ITEM AND ANY
ACCOMPANYING DOCUMENTS OR THE PROCEEDS OF EITHER:
  (1) IN THE CASE OF AN ITEM DEPOSITED IN AN ACCOUNT, TO THE  EXTENT  TO
WHICH CREDIT GIVEN FOR THE ITEM HAS BEEN WITHDRAWN OR APPLIED;
  (2) IN THE CASE OF AN ITEM FOR WHICH IT HAS GIVEN CREDIT AVAILABLE FOR
WITHDRAWAL  AS  OF  RIGHT, TO THE EXTENT OF THE CREDIT GIVEN, WHETHER OR
NOT THE CREDIT IS DRAWN UPON OR THERE IS A RIGHT OF CHARGE-BACK; OR
  (3) IF IT MAKES AN ADVANCE ON OR AGAINST THE ITEM.
  (B) IF CREDIT GIVEN FOR SEVERAL ITEMS RECEIVED AT ONE TIME OR PURSUANT
TO A SINGLE AGREEMENT IS WITHDRAWN OR  APPLIED  IN  PART,  THE  SECURITY
INTEREST  REMAINS UPON ALL THE ITEMS, ANY ACCOMPANYING DOCUMENTS, OR THE
PROCEEDS OF EITHER. FOR THE PURPOSE OF THIS SECTION, CREDITS FIRST GIVEN
ARE FIRST WITHDRAWN.
  (C) RECEIPT BY A COLLECTING BANK OF A FINAL SETTLEMENT FOR AN ITEM  IS
A  REALIZATION  ON ITS SECURITY INTEREST IN THE ITEM, ACCOMPANYING DOCU-
MENTS, AND PROCEEDS. SO LONG AS THE BANK DOES NOT RECEIVE FINAL  SETTLE-
MENT  FOR  THE  ITEM, OR GIVE UP POSSESSION OF THE ITEM OR POSSESSION OR
CONTROL  OF  THE  ACCOMPANYING  DOCUMENTS  FOR   PURPOSES   OTHER   THAN
COLLECTION,  THE  SECURITY  INTEREST  CONTINUES  TO  THAT  EXTENT AND IS
SUBJECT TO ARTICLE 9, BUT:
  (1) NO SECURITY AGREEMENT IS NECESSARY TO MAKE THE  SECURITY  INTEREST
ENFORCEABLE (SECTION 9--203(B)(3)(A));
  (2) NO FILING IS REQUIRED TO PERFECT THE SECURITY INTEREST; AND
  (3)  THE  SECURITY  INTEREST  HAS  PRIORITY OVER CONFLICTING PERFECTED
SECURITY INTERESTS IN THE ITEM, ACCOMPANYING DOCUMENTS, OR PROCEEDS.
SECTION 4--211. WHEN BANK GIVES VALUE FOR  PURPOSES  OF  HOLDER  IN  DUE
                  COURSE.

S. 5901                            54

  FOR  PURPOSES  OF  DETERMINING ITS STATUS AS A HOLDER IN DUE COURSE, A
BANK HAS GIVEN VALUE TO THE EXTENT IT HAS  A  SECURITY  INTEREST  IN  AN
ITEM,  IF  THE  BANK OTHERWISE COMPLIES WITH THE REQUIREMENTS OF SECTION
3--302 ON WHAT CONSTITUTES A HOLDER IN DUE COURSE.
SECTION 4--212. PRESENTMENT  BY  NOTICE OF ITEM NOT PAYABLE BY, THROUGH,
                  OR AT BANK; LIABILITY OF DRAWER OR INDORSER.
  (A) UNLESS OTHERWISE INSTRUCTED, A COLLECTING BANK MAY PRESENT AN ITEM
NOT PAYABLE BY, THROUGH, OR AT A BANK BY SENDING TO THE PARTY TO  ACCEPT
OR  PAY  A  RECORD  PROVIDING  NOTICE  THAT  THE BANK HOLDS THE ITEM FOR
ACCEPTANCE OR PAYMENT. THE NOTICE MUST BE SENT IN TIME TO BE RECEIVED ON
OR BEFORE THE DAY WHEN PRESENTMENT IS DUE, AND THE BANK  MUST  MEET  ANY
REQUIREMENT  OF  THE  PARTY TO ACCEPT OR PAY UNDER SECTION 3--501 BY THE
CLOSE OF THE BANK'S NEXT BANKING DAY AFTER IT KNOWS OF THE REQUIREMENT.
  (B) IF PRESENTMENT IS MADE  BY  NOTICE  AND  PAYMENT,  ACCEPTANCE,  OR
REQUEST  FOR  COMPLIANCE  WITH A REQUIREMENT UNDER SECTION 3--501 IS NOT
RECEIVED BY THE CLOSE OF BUSINESS ON THE DAY AFTER MATURITY OR,  IN  THE
CASE  OF DEMAND ITEMS, BY THE CLOSE OF BUSINESS ON THE THIRD BANKING DAY
AFTER NOTICE WAS SENT, THE PRESENTING BANK MAY TREAT THE ITEM AS DISHON-
ORED AND CHARGE ANY DRAWER OR INDORSER  BY  SENDING  IT  NOTICE  OF  THE
FACTS.
SECTION 4--213. MEDIUM AND TIME OF SETTLEMENT BY BANK.
  (A)  WITH  RESPECT  TO  SETTLEMENT  BY  A BANK, THE MEDIUM AND TIME OF
SETTLEMENT MAY BE PRESCRIBED BY FEDERAL RESERVE  REGULATIONS  OR  CIRCU-
LARS,  CLEARING-HOUSE  RULES,  AND  THE  LIKE,  OR  BY AGREEMENT. IN THE
ABSENCE OF SUCH PRESCRIPTION:
  (1) THE MEDIUM OF SETTLEMENT IS CASH OR CREDIT  TO  AN  ACCOUNT  IN  A
FEDERAL  RESERVE BANK OF, OR SPECIFIED BY, THE PERSON TO RECEIVE SETTLE-
MENT; AND
  (2) THE TIME OF SETTLEMENT, IS:
  (I) WITH RESPECT TO TENDER OF SETTLEMENT BY CASH, A  CASHIER'S  CHECK,
OR TELLER'S CHECK, WHEN THE CASH OR CHECK IS SENT OR DELIVERED;
  (II) WITH RESPECT TO TENDER OF SETTLEMENT BY CREDIT IN AN ACCOUNT IN A
FEDERAL RESERVE BANK, WHEN THE CREDIT IS MADE;
  (III)  WITH RESPECT TO TENDER OF SETTLEMENT BY A CREDIT OR DEBIT TO AN
ACCOUNT IN A BANK, WHEN THE CREDIT OR DEBIT IS MADE OR, IN THE  CASE  OF
TENDER OF SETTLEMENT BY AUTHORITY TO CHARGE AN ACCOUNT, WHEN THE AUTHOR-
ITY IS SENT OR DELIVERED; OR
  (IV)  WITH  RESPECT  TO TENDER OF SETTLEMENT BY A FUNDS TRANSFER, WHEN
PAYMENT IS MADE PURSUANT TO SECTION 4A--406(A) TO THE  PERSON  RECEIVING
SETTLEMENT.
  (B)  IF  THE  TENDER  OF  SETTLEMENT  IS NOT BY A MEDIUM AUTHORIZED BY
SUBSECTION (A) OR THE TIME OF SETTLEMENT IS NOT FIXED BY SUBSECTION (A),
NO SETTLEMENT OCCURS UNTIL THE TENDER OF SETTLEMENT IS ACCEPTED  BY  THE
PERSON RECEIVING SETTLEMENT.
  (C)  IF  SETTLEMENT FOR AN ITEM IS MADE BY CASHIER'S CHECK OR TELLER'S
CHECK AND THE PERSON RECEIVING SETTLEMENT, BEFORE ITS MIDNIGHT DEADLINE:
  (1) PRESENTS OR FORWARDS THE CHECK FOR COLLECTION, SETTLEMENT IS FINAL
WHEN THE CHECK IS FINALLY PAID; OR
  (2) FAILS TO PRESENT OR FORWARD THE CHECK FOR  COLLECTION,  SETTLEMENT
IS FINAL AT THE MIDNIGHT DEADLINE OF THE PERSON RECEIVING SETTLEMENT.
  (D)  IF  SETTLEMENT  FOR AN ITEM IS MADE BY GIVING AUTHORITY TO CHARGE
THE ACCOUNT OF THE BANK GIVING SETTLEMENT IN THE BANK RECEIVING  SETTLE-
MENT,  SETTLEMENT IS FINAL WHEN THE CHARGE IS MADE BY THE BANK RECEIVING
SETTLEMENT, IF THERE ARE FUNDS AVAILABLE IN THE ACCOUNT FOR  THE  AMOUNT
OF THE ITEM.

S. 5901                            55

SECTION 4--214. RIGHT  OF CHARGE-BACK OR REFUND; LIABILITY OF COLLECTING
                  BANK; RETURN OF ITEM.
  (A)  IF  A  COLLECTING  BANK  HAS MADE PROVISIONAL SETTLEMENT WITH ITS
CUSTOMER FOR AN ITEM AND FAILS BY  REASON  OF  DISHONOR,  SUSPENSION  OF
PAYMENTS  BY  A  BANK,  OR OTHERWISE, TO RECEIVE SETTLEMENT FOR THE ITEM
WHICH IS OR BECOMES FINAL, THE BANK MAY REVOKE THE SETTLEMENT  GIVEN  BY
IT,  CHARGE  BACK  THE  AMOUNT  OF  ANY CREDIT GIVEN FOR THE ITEM TO ITS
CUSTOMER'S ACCOUNT, OR OBTAIN REFUND FROM ITS CUSTOMER, WHETHER  OR  NOT
IT  IS ABLE TO RETURN THE ITEM, IF BY ITS MIDNIGHT DEADLINE, OR WITHIN A
LONGER REASONABLE TIME AFTER IT LEARNS THE FACTS, IT RETURNS THE ITEM OR
SENDS NOTIFICATION OF THE FACTS. IF THE  RETURN  OR  NOTICE  IS  DELAYED
BEYOND  THE  BANK'S MIDNIGHT DEADLINE, OR A LONGER REASONABLE TIME AFTER
IT LEARNS THE FACTS, THE BANK MAY REVOKE THE SETTLEMENT, CHARGE BACK THE
CREDIT, OR OBTAIN REFUND FROM ITS CUSTOMER, BUT IT  IS  LIABLE  FOR  ANY
LOSS  RESULTING FROM THE DELAY. THESE RIGHTS TO REVOKE, CHARGE BACK, AND
OBTAIN REFUND TERMINATE IF AND WHEN A SETTLEMENT FOR THE  ITEM  RECEIVED
BY THE BANK IS OR BECOMES FINAL.
  (B)  A COLLECTING BANK RETURNS AN ITEM WHEN IT IS SENT OR DELIVERED TO
THE BANK'S CUSTOMER OR TRANSFEROR, OR PURSUANT TO ITS INSTRUCTIONS.
  (C) A DEPOSITARY BANK THAT IS ALSO  THE  PAYOR  MAY  CHARGE  BACK  THE
AMOUNT  OF  AN  ITEM  TO  ITS  CUSTOMER'S  ACCOUNT OR OBTAIN A REFUND IN
ACCORDANCE WITH THE SECTION GOVERNING RETURN OF AN ITEM  RECEIVED  BY  A
PAYOR BANK FOR CREDIT ON ITS BOOKS (SECTION 4--301).
  (D) THE RIGHT TO CHARGE BACK IS NOT AFFECTED BY:
  (1) PREVIOUS USE OF A CREDIT GIVEN FOR THE ITEM; OR
  (2)  FAILURE BY ANY BANK TO EXERCISE ORDINARY CARE WITH RESPECT TO THE
ITEM, BUT A BANK SO FAILING REMAINS LIABLE.
  (E) A FAILURE TO CHARGE BACK OR CLAIM REFUND  DOES  NOT  AFFECT  OTHER
RIGHTS OF THE BANK AGAINST THE CUSTOMER OR ANY OTHER PARTY.
  (F) IF CREDIT IS GIVEN IN DOLLARS AS THE EQUIVALENT OF THE VALUE OF AN
ITEM  PAYABLE  IN FOREIGN MONEY, THE DOLLAR AMOUNT OF ANY CHARGE-BACK OR
REFUND MUST BE CALCULATED ON THE BASIS OF THE BANK-OFFERED SPOT RATE FOR
THE FOREIGN MONEY PREVAILING ON THE DAY WHEN THE PERSON ENTITLED TO  THE
CHARGE-BACK  OR  REFUND  LEARNS  THAT IT WILL NOT RECEIVE PAYMENT IN THE
ORDINARY COURSE.
SECTION 4--215. FINAL PAYMENT OF ITEM BY PAYOR  BANK;  WHEN  PROVISIONAL
                  DEBITS  AND CREDITS BECOME FINAL; WHEN CERTAIN CREDITS
                  BECOME AVAILABLE FOR WITHDRAWAL.
  (A) AN ITEM IS FINALLY PAID BY A PAYOR BANK WHEN THE  BANK  HAS  FIRST
DONE ANY OF THE FOLLOWING:
  (1) PAID FOR THE ITEM IN CASH;
  (2)  SETTLED FOR THE ITEM WITHOUT HAVING A RIGHT TO REVOKE THE SETTLE-
MENT UNDER STATUTE, CLEARING-HOUSE RULE, OR AGREEMENT; OR
  (3) MADE A PROVISIONAL SETTLEMENT FOR THE ITEM AND  FAILED  TO  REVOKE
THE   SETTLEMENT   IN   THE   TIME  AND  MANNER  PERMITTED  BY  STATUTE,
CLEARING-HOUSE RULE, OR AGREEMENT.
  (B) IF PROVISIONAL SETTLEMENT FOR AN ITEM DOES NOT BECOME  FINAL,  THE
ITEM IS NOT FINALLY PAID.
  (C)  IF  PROVISIONAL SETTLEMENT FOR AN ITEM BETWEEN THE PRESENTING AND
PAYOR BANKS IS MADE THROUGH A CLEARING HOUSE OR BY DEBITS OR CREDITS  IN
AN  ACCOUNT  BETWEEN THEM, THEN TO THE EXTENT THAT PROVISIONAL DEBITS OR
CREDITS FOR THE ITEM ARE ENTERED IN ACCOUNTS BETWEEN THE PRESENTING  AND
PAYOR  BANKS,  OR BETWEEN THE PRESENTING AND SUCCESSIVE PRIOR COLLECTING
BANKS SERIATIM, THEY BECOME FINAL UPON FINAL PAYMENT OF THE ITEM BY  THE
PAYOR BANK.

S. 5901                            56

  (D) IF A COLLECTING BANK RECEIVES A SETTLEMENT FOR AN ITEM WHICH IS OR
BECOMES FINAL, THE BANK IS ACCOUNTABLE TO ITS CUSTOMER FOR THE AMOUNT OF
THE  ITEM  AND  ANY  PROVISIONAL CREDIT GIVEN FOR THE ITEM IN AN ACCOUNT
WITH ITS CUSTOMER BECOMES FINAL.
  (E)  SUBJECT  TO (I) APPLICABLE LAW STATING A TIME FOR AVAILABILITY OF
FUNDS, AND (II) ANY RIGHT OF THE BANK TO APPLY THE CREDIT  TO  AN  OBLI-
GATION  OF THE CUSTOMER, CREDIT GIVEN BY A BANK FOR AN ITEM IN A CUSTOM-
ER'S ACCOUNT BECOMES AVAILABLE FOR WITHDRAWAL AS OF RIGHT:
  (1) IF THE BANK HAS RECEIVED A PROVISIONAL SETTLEMENT  FOR  THE  ITEM,
WHEN THE SETTLEMENT BECOMES FINAL AND THE BANK HAS HAD A REASONABLE TIME
TO RECEIVE RETURN OF THE ITEM, AND THE ITEM HAS NOT BEEN RECEIVED WITHIN
THAT TIME;
  (2)  IF  THE  BANK IS BOTH THE DEPOSITARY BANK AND THE PAYOR BANK, AND
THE ITEM IS FINALLY PAID, AT THE OPENING OF THE  BANK'S  SECOND  BANKING
DAY FOLLOWING RECEIPT OF THE ITEM.
  (F) SUBJECT TO APPLICABLE LAW STATING A TIME FOR AVAILABILITY OF FUNDS
AND ANY RIGHT OF A BANK TO APPLY A DEPOSIT TO AN OBLIGATION OF THE DEPO-
SITOR,  A  DEPOSIT OF MONEY BECOMES AVAILABLE FOR WITHDRAWAL AS OF RIGHT
AT THE OPENING OF THE BANK'S NEXT  BANKING  DAY  AFTER  RECEIPT  OF  THE
DEPOSIT.
SECTION 4--216. INSOLVENCY AND PREFERENCE.
  (A)  IF  AN  ITEM  IS  IN, OR COMES INTO THE POSSESSION OF, A PAYOR OR
COLLECTING BANK THAT SUSPENDS PAYMENT AND THE ITEM HAS NOT BEEN  FINALLY
PAID,  THE  ITEM  MUST BE RETURNED BY THE RECEIVER, TRUSTEE, OR AGENT IN
CHARGE OF THE CLOSED BANK TO THE PRESENTING BANK OR  THE  CLOSED  BANK'S
CUSTOMER.
  (B) IF A PAYOR BANK FINALLY PAYS AN ITEM AND SUSPENDS PAYMENTS WITHOUT
MAKING  A  SETTLEMENT  FOR  THE ITEM WITH ITS CUSTOMER OR THE PRESENTING
BANK WHICH SETTLEMENT IS OR BECOMES FINAL, THE OWNER OF THE ITEM  HAS  A
PREFERRED CLAIM AGAINST THE PAYOR BANK.
  (C)  IF  A PAYOR BANK GIVES, OR A COLLECTING BANK GIVES OR RECEIVES, A
PROVISIONAL SETTLEMENT FOR AN ITEM AND THEREAFTER SUSPENDS PAYMENTS, THE
SUSPENSION DOES NOT PREVENT OR INTERFERE WITH THE SETTLEMENT'S  BECOMING
FINAL  IF  THE  FINALITY  OCCURS AUTOMATICALLY UPON THE LAPSE OF CERTAIN
TIME OR THE HAPPENING OF CERTAIN EVENTS.
  (D) IF A COLLECTING BANK RECEIVES FROM SUBSEQUENT  PARTIES  SETTLEMENT
FOR AN ITEM, WHICH SETTLEMENT IS OR BECOMES FINAL, AND THE BANK SUSPENDS
PAYMENTS  WITHOUT  MAKING  A  SETTLEMENT  FOR THE ITEM WITH ITS CUSTOMER
WHICH SETTLEMENT IS OR BECOMES FINAL,  THE  OWNER  OF  THE  ITEM  HAS  A
PREFERRED CLAIM AGAINST THE COLLECTING BANK.
                                 PART 3
                    COLLECTION OF ITEMS: PAYOR BANKS
SECTION 4--301. POSTING; RECOVERY OF PAYMENT BY RETURN OF ITEMS; TIME OF
                  DISHONOR; RETURN OF ITEMS BY PAYOR BANK.
  (A) IF A PAYOR BANK SETTLES FOR A DEMAND ITEM OTHER THAN A DOCUMENTARY
DRAFT  PRESENTED  OTHERWISE  THAN FOR IMMEDIATE PAYMENT OVER THE COUNTER
BEFORE MIDNIGHT OF THE BANKING DAY OF RECEIPT, THE PAYOR BANK MAY REVOKE
THE SETTLEMENT AND RECOVER THE SETTLEMENT IF, BEFORE IT HAS  MADE  FINAL
PAYMENT AND BEFORE ITS MIDNIGHT DEADLINE, IT
  (1) RETURNS THE ITEM;
  (2)  RETURNS AN IMAGE OF THE ITEM, IF THE PARTY TO WHICH THE RETURN IS
MADE HAS ENTERED INTO AN AGREEMENT TO ACCEPT AN IMAGE AS A RETURN OF THE
ITEM AND THE IMAGE IS RETURNED IN ACCORDANCE WITH THAT AGREEMENT; OR
  (3) SENDS A RECORD PROVIDING NOTICE OF DISHONOR OR NONPAYMENT  IF  THE
ITEM IS UNAVAILABLE FOR RETURN.

S. 5901                            57

  (B)  IF  A  DEMAND  ITEM IS RECEIVED BY A PAYOR BANK FOR CREDIT ON ITS
BOOKS, IT MAY RETURN THE ITEM OR SEND NOTICE OF DISHONOR AND MAY  REVOKE
ANY  CREDIT GIVEN OR RECOVER THE AMOUNT THEREOF WITHDRAWN BY ITS CUSTOM-
ER, IF IT ACTS WITHIN THE TIME LIMIT AND  IN  THE  MANNER  SPECIFIED  IN
SUBSECTION (A).
  (C)  UNLESS  PREVIOUS  NOTICE  OF  DISHONOR  HAS BEEN SENT, AN ITEM IS
DISHONORED AT THE TIME WHEN FOR PURPOSES OF DISHONOR IT IS  RETURNED  OR
NOTICE SENT IN ACCORDANCE WITH THIS SECTION.
  (D) AN ITEM IS RETURNED:
  (1)  AS  TO  AN  ITEM  PRESENTED  THROUGH A CLEARING HOUSE, WHEN IT IS
DELIVERED TO THE PRESENTING OR LAST COLLECTING BANK OR TO  THE  CLEARING
HOUSE  OR  IS SENT OR DELIVERED IN ACCORDANCE WITH CLEARING HOUSE RULES;
OR
  (2) IN ALL OTHER CASES, WHEN IT IS SENT OR  DELIVERED  TO  THE  BANK'S
CUSTOMER OR TRANSFEROR OR PURSUANT TO INSTRUCTIONS.
SECTION 4--302. PAYER'S BANK RESPONSIBILITY FOR LATE RETURN OF ITEM.
  (A)  IF AN ITEM IS PRESENTED TO AND RECEIVED BY A PAYOR BANK, THE BANK
IS ACCOUNTABLE FOR THE AMOUNT OF:
  (1) A DEMAND ITEM, OTHER THAN A DOCUMENTARY  DRAFT,  WHETHER  PROPERLY
PAYABLE  OR  NOT,  IF  THE BANK, IN ANY CASE IN WHICH IT IS NOT ALSO THE
DEPOSITARY BANK, RETAINS THE ITEM BEYOND MIDNIGHT OF THE BANKING DAY  OF
RECEIPT  WITHOUT SETTLING FOR IT OR, WHETHER OR NOT IT IS ALSO THE DEPO-
SITARY BANK, DOES NOT PAY OR RETURN THE ITEM OR SEND NOTICE OF  DISHONOR
UNTIL AFTER ITS MIDNIGHT DEADLINE; OR
  (2)  ANY  OTHER  PROPERLY PAYABLE ITEM UNLESS, WITHIN THE TIME ALLOWED
FOR ACCEPTANCE OR PAYMENT OF THAT ITEM, THE BANK EITHER ACCEPTS OR  PAYS
THE ITEM OR RETURNS IT AND ACCOMPANYING DOCUMENTS.
  (B)  THE  LIABILITY  OF  A  PAYOR  BANK  TO  PAY  AN  ITEM PURSUANT TO
SUBSECTION (A) IS SUBJECT TO DEFENSES BASED ON BREACH OF  A  PRESENTMENT
WARRANTY  (SECTION  4--208) OR PROOF THAT THE PERSON SEEKING ENFORCEMENT
OF THE LIABILITY PRESENTED OR TRANSFERRED THE ITEM FOR  THE  PURPOSE  OF
DEFRAUDING THE PAYOR BANK.
SECTION 4--303. WHEN  ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER, LEGAL
                  PROCESS, OR  SETOFF;  ORDER  IN  WHICH  ITEMS  MAY  BE
                  CHANGED OR CERTIFIED.
  (A)  ANY  KNOWLEDGE,  NOTICE, OR STOP-PAYMENT ORDER RECEIVED BY, LEGAL
PROCESS SERVED UPON, OR SETOFF EXERCISED BY A PAYOR BANK COMES TOO  LATE
TO TERMINATE, SUSPEND, OR MODIFY THE BANK'S RIGHT OR DUTY TO PAY AN ITEM
OR  TO  CHARGE  ITS  CUSTOMER'S  ACCOUNT  FOR THE ITEM IF THE KNOWLEDGE,
NOTICE, STOP-PAYMENT ORDER, OR LEGAL PROCESS IS RECEIVED OR SERVED AND A
REASONABLE TIME FOR THE BANK TO ACT THEREON EXPIRES  OR  THE  SETOFF  IS
EXERCISED AFTER THE EARLIEST OF THE FOLLOWING:
  (1) THE BANK ACCEPTS OR CERTIFIES THE ITEM;
  (2) THE BANK PAYS THE ITEM IN CASH;
  (3) THE BANK SETTLES FOR THE ITEM WITHOUT HAVING A RIGHT TO REVOKE THE
SETTLEMENT UNDER STATUTE, CLEARING-HOUSE RULE, OR AGREEMENT;
  (4)  THE  BANK  BECOMES  ACCOUNTABLE  FOR THE AMOUNT OF THE ITEM UNDER
SECTION 4--302 DEALING WITH THE PAYOR  BANK'S  RESPONSIBILITY  FOR  LATE
RETURN OF ITEMS; OR
  (5)  WITH  RESPECT  TO  CHECKS, A CUTOFF HOUR NO EARLIER THAN ONE HOUR
AFTER THE OPENING OF THE NEXT BANKING DAY AFTER THE BANKING DAY ON WHICH
THE BANK RECEIVED THE CHECK AND NO LATER THAN THE  CLOSE  OF  THAT  NEXT
BANKING  DAY OR, IF NO CUTOFF HOUR IS FIXED, THE CLOSE OF THE NEXT BANK-
ING DAY AFTER THE BANKING DAY ON WHICH THE BANK RECEIVED THE CHECK.
  (B) SUBJECT TO SUBSECTION (A), ITEMS MAY BE ACCEPTED, PAID, CERTIFIED,
OR CHARGED TO THE INDICATED ACCOUNT OF ITS CUSTOMER IN ANY ORDER.

S. 5901                            58

                                 PART 4
            RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER
SECTION 4--401. WHEN BANK MAY CHARGE CUSTOMER'S ACCOUNT.
  (A)  A  BANK MAY CHARGE AGAINST THE ACCOUNT OF A CUSTOMER AN ITEM THAT
IS PROPERLY PAYABLE FROM THE ACCOUNT EVEN THOUGH THE CHARGE  CREATES  AN
OVERDRAFT.  AN  ITEM  IS  PROPERLY  PAYABLE  IF  IT IS AUTHORIZED BY THE
CUSTOMER AND IS IN ACCORDANCE WITH ANY AGREEMENT  BETWEEN  THE  CUSTOMER
AND BANK.
  (B)  A  CUSTOMER  IS  NOT LIABLE FOR THE AMOUNT OF AN OVERDRAFT IF THE
CUSTOMER NEITHER SIGNED THE ITEM NOR BENEFITED FROM THE PROCEEDS OF  THE
ITEM.
  (C)  A  BANK MAY CHARGE AGAINST THE ACCOUNT OF A CUSTOMER A CHECK THAT
IS OTHERWISE PROPERLY PAYABLE FROM THE ACCOUNT, EVEN THOUGH PAYMENT  WAS
MADE  BEFORE THE DATE OF THE CHECK, UNLESS THE CUSTOMER HAS GIVEN NOTICE
TO THE BANK OF THE  POSTDATING  DESCRIBING  THE  CHECK  WITH  REASONABLE
CERTAINTY.  THE  NOTICE  IS  EFFECTIVE  FOR THE PERIOD STATED IN SECTION
4--403(B) FOR STOP-PAYMENT ORDERS, AND MUST BE RECEIVED AT SUCH TIME AND
IN SUCH MANNER AS TO AFFORD THE BANK A REASONABLE OPPORTUNITY TO ACT  ON
IT  BEFORE THE BANK TAKES ANY ACTION WITH RESPECT TO THE CHECK DESCRIBED
IN SECTION 4--303. IF A BANK CHARGES AGAINST THE ACCOUNT OF A CUSTOMER A
CHECK BEFORE THE DATE STATED IN THE NOTICE OF POSTDATING,  THE  BANK  IS
LIABLE  FOR  DAMAGES  FOR  THE LOSS RESULTING FROM ITS ACT. THE LOSS MAY
INCLUDE DAMAGES FOR DISHONOR OF SUBSEQUENT ITEMS UNDER SECTION 4--402.
  (D) A BANK THAT IN GOOD FAITH MAKES PAYMENT TO A HOLDER MAY CHARGE THE
INDICATED ACCOUNT OF ITS CUSTOMER ACCORDING TO:
  (1) THE ORIGINAL TERMS OF THE ALTERED ITEM; OR
  (2) THE TERMS OF THE COMPLETED ITEM, EVEN THOUGH THE  BANK  KNOWS  THE
ITEM  HAS  BEEN COMPLETED UNLESS THE BANK HAS NOTICE THAT THE COMPLETION
WAS IMPROPER.
SECTION 4--402. BANK'S LIABILITY TO CUSTOMER FOR WRONGFUL DISHONOR, TIME
                  OF DETERMINING INSUFFICIENT BALANCE OF ACCOUNT.
  (A) EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE, A PAYOR BANK  WRONG-
FULLY  DISHONORS  AN ITEM IF IT DISHONORS AN ITEM THAT IS PROPERLY PAYA-
BLE, BUT A BANK MAY DISHONOR AN ITEM  THAT  WOULD  CREATE  AN  OVERDRAFT
UNLESS IT HAS AGREED TO PAY THE OVERDRAFT.
  (B)  A  PAYOR  BANK  IS LIABLE TO ITS CUSTOMER FOR DAMAGES PROXIMATELY
CAUSED BY THE WRONGFUL DISHONOR OF AN  ITEM.  LIABILITY  IS  LIMITED  TO
ACTUAL  DAMAGES  PROVED  AND MAY INCLUDE DAMAGES FOR AN ARREST OR PROSE-
CUTION OF THE CUSTOMER  OR  OTHER  CONSEQUENTIAL  DAMAGES.  WHETHER  ANY
CONSEQUENTIAL DAMAGES ARE PROXIMATELY CAUSED BY THE WRONGFUL DISHONOR IS
A QUESTION OF FACT TO BE DETERMINED IN EACH CASE.
  (C)  A PAYOR BANK'S DETERMINATION OF THE CUSTOMER'S ACCOUNT BALANCE ON
WHICH A DECISION TO DISHONOR FOR INSUFFICIENCY  OF  AVAILABLE  FUNDS  IS
BASED  MAY  BE MADE AT ANY TIME BETWEEN THE TIME THE ITEM IS RECEIVED BY
THE PAYOR BANK AND THE TIME THAT THE PAYOR  BANK  RETURNS  THE  ITEM  OR
GIVES  NOTICE IN LIEU OF RETURN, AND NO MORE THAN ONE DETERMINATION NEED
BE MADE. IF, AT THE ELECTION OF THE PAYOR  BANK,  A  SUBSEQUENT  BALANCE
DETERMINATION  IS  MADE FOR THE PURPOSE OF REEVALUATING THE BANK'S DECI-
SION TO DISHONOR THE ITEM, THE ACCOUNT BALANCE AT THAT TIME IS  DETERMI-
NATIVE  OF  WHETHER  A  DISHONOR FOR INSUFFICIENCY OF AVAILABLE FUNDS IS
WRONGFUL.
SECTION 4--403. CUSTOMER'S RIGHT TO STOP PAYMENT;  BURDEN  OF  PROOF  OF
                  LOSS.
  (A)  A  CUSTOMER  OR  ANY  PERSON AUTHORIZED TO DRAW ON THE ACCOUNT IF
THERE IS MORE THAN ONE PERSON MAY STOP PAYMENT OF ANY ITEM DRAWN ON  THE
CUSTOMER'S ACCOUNT OR CLOSE THE ACCOUNT BY AN ORDER TO THE BANK DESCRIB-

S. 5901                            59

ING THE ITEM OR ACCOUNT WITH REASONABLE CERTAINTY RECEIVED AT A TIME AND
IN  A MANNER THAT AFFORDS THE BANK A REASONABLE OPPORTUNITY TO ACT ON IT
BEFORE ANY ACTION BY THE BANK WITH RESPECT  TO  THE  ITEM  DESCRIBED  IN
SECTION  4--303. IF THE SIGNATURE OF MORE THAN ONE PERSON IS REQUIRED TO
DRAW ON AN ACCOUNT, ANY OF THESE PERSONS MAY STOP PAYMENT OR  CLOSE  THE
ACCOUNT.
  (B)  A  STOP-PAYMENT  ORDER IS EFFECTIVE FOR SIX MONTHS, BUT IT LAPSES
AFTER FOURTEEN CALENDAR DAYS IF THE ORIGINAL ORDER WAS ORAL AND WAS  NOT
CONFIRMED  IN  A RECORD WITHIN THAT PERIOD.  A STOP-PAYMENT ORDER MAY BE
RENEWED FOR ADDITIONAL SIX-MONTH PERIODS BY A RECORD GIVEN TO  THE  BANK
WITHIN A PERIOD DURING WHICH THE STOP-PAYMENT ORDER IS EFFECTIVE.
  (C)  THE  BURDEN OF ESTABLISHING THE FACT AND AMOUNT OF LOSS RESULTING
FROM THE PAYMENT OF AN ITEM CONTRARY TO A STOP-PAYMENT ORDER OR ORDER TO
CLOSE AN ACCOUNT IS ON THE CUSTOMER. THE LOSS FROM PAYMENT  OF  AN  ITEM
CONTRARY  TO  A  STOP-PAYMENT  ORDER MAY INCLUDE DAMAGES FOR DISHONOR OF
SUBSEQUENT ITEMS UNDER SECTION 4--402.
SECTION 4--404. BANK NOT OBLIGED TO PAY CHECK MORE THAN SIX MONTHS OLD.
  A BANK IS UNDER NO OBLIGATION TO A CUSTOMER HAVING A CHECKING  ACCOUNT
TO  PAY  A  CHECK, OTHER THAN A CERTIFIED CHECK, WHICH IS PRESENTED MORE
THAN SIX MONTHS AFTER ITS DATE, BUT IT MAY CHARGE ITS CUSTOMER'S ACCOUNT
FOR A PAYMENT MADE THEREAFTER IN GOOD FAITH.
SECTION 4--405. DEATH OR INCOMPETENCE OF CUSTOMER.
  (A) A PAYOR OR COLLECTING BANK'S AUTHORITY TO ACCEPT, PAY, OR  COLLECT
AN  ITEM  OR  TO  ACCOUNT  FOR  PROCEEDS OF ITS COLLECTION, IF OTHERWISE
EFFECTIVE, IS NOT RENDERED INEFFECTIVE BY INCOMPETENCE OF A CUSTOMER  OF
EITHER BANK EXISTING AT THE TIME THE ITEM IS ISSUED OR ITS COLLECTION IS
UNDERTAKEN IF THE BANK DOES NOT KNOW OF AN ADJUDICATION OF INCOMPETENCE.
NEITHER  DEATH  NOR  INCOMPETENCE OF A CUSTOMER REVOKES THE AUTHORITY TO
ACCEPT, PAY, COLLECT, OR ACCOUNT UNTIL THE BANK KNOWS  OF  THE  FACT  OF
DEATH  OR OF AN ADJUDICATION OF INCOMPETENCE AND HAS REASONABLE OPPORTU-
NITY TO ACT ON IT.
  (B) EVEN WITH KNOWLEDGE, A BANK MAY FOR TEN DAYS  AFTER  THE  DATE  OF
DEATH  PAY OR CERTIFY CHECKS DRAWN ON OR BEFORE THAT DATE UNLESS ORDERED
TO STOP PAYMENT BY A PERSON CLAIMING AN INTEREST IN THE ACCOUNT.
SECTION 4--406. CUSTOMER'S DUTY  TO  DISCOVER  AND  REPORT  UNAUTHORIZED
                  SIGNATURE OR ALTERATION.
  (A)  A BANK THAT SENDS OR MAKES AVAILABLE TO A CUSTOMER A STATEMENT OF
ACCOUNT SHOWING PAYMENT OF ITEMS FOR THE ACCOUNT SHALL EITHER RETURN  OR
MAKE  AVAILABLE TO THE CUSTOMER THE ITEMS PAID OR PROVIDE INFORMATION IN
THE STATEMENT OF ACCOUNT SUFFICIENT TO ALLOW THE CUSTOMER REASONABLY  TO
IDENTIFY  THE  ITEMS  PAID. THE STATEMENT OF ACCOUNT PROVIDES SUFFICIENT
INFORMATION IF THE ITEM IS DESCRIBED BY ITEM NUMBER, AMOUNT, AND DATE OF
PAYMENT.
  (B) IF THE ITEMS ARE NOT RETURNED TO THE CUSTOMER, THE PERSON  RETAIN-
ING  THE  ITEMS  SHALL  EITHER  RETAIN  THE  ITEMS  OR, IF THE ITEMS ARE
DESTROYED, MAINTAIN THE CAPACITY TO FURNISH LEGIBLE COPIES OF THE  ITEMS
UNTIL  THE  EXPIRATION  OF  SEVEN  YEARS  AFTER  RECEIPT OF THE ITEMS. A
CUSTOMER MAY REQUEST AN ITEM FROM THE BANK THAT PAID THE ITEM, AND  THAT
BANK  MUST  PROVIDE IN A REASONABLE TIME EITHER THE ITEM OR, IF THE ITEM
HAS BEEN DESTROYED OR IS NOT OTHERWISE OBTAINABLE, A LEGIBLE COPY OF THE
ITEM.
  (C) IF A BANK SENDS OR MAKES AVAILABLE A STATEMENT OF ACCOUNT OR ITEMS
PURSUANT TO  SUBSECTION  (A),  THE  CUSTOMER  MUST  EXERCISE  REASONABLE
PROMPTNESS  IN EXAMINING THE STATEMENT OR THE ITEMS TO DETERMINE WHETHER
ANY PAYMENT WAS NOT AUTHORIZED BECAUSE OF AN ALTERATION OF  AN  ITEM  OR
BECAUSE  A  PURPORTED  SIGNATURE BY OR ON BEHALF OF THE CUSTOMER WAS NOT

S. 5901                            60

AUTHORIZED. IF, BASED ON THE STATEMENT OR ITEMS PROVIDED,  THE  CUSTOMER
SHOULD REASONABLY HAVE DISCOVERED THE UNAUTHORIZED PAYMENT, THE CUSTOMER
MUST PROMPTLY NOTIFY THE BANK OF THE RELEVANT FACTS.
  (D)  IF  THE  BANK PROVES THAT THE CUSTOMER FAILED, WITH RESPECT TO AN
ITEM, TO COMPLY WITH THE DUTIES IMPOSED ON THE  CUSTOMER  BY  SUBSECTION
(C), THE CUSTOMER IS PRECLUDED FROM ASSERTING AGAINST THE BANK:
  (1)  THE  CUSTOMER'S  UNAUTHORIZED  SIGNATURE OR ANY ALTERATION ON THE
ITEM, IF THE BANK ALSO PROVES THAT IT SUFFERED A LOSS BY REASON  OF  THE
FAILURE; AND
  (2)  THE  CUSTOMER'S  UNAUTHORIZED SIGNATURE OR ALTERATION BY THE SAME
WRONGDOER ON ANY OTHER ITEM PAID IN  GOOD  FAITH  BY  THE  BANK  IF  THE
PAYMENT  WAS  MADE  BEFORE THE BANK RECEIVED NOTICE FROM THE CUSTOMER OF
THE UNAUTHORIZED SIGNATURE OR ALTERATION AND AFTER THE CUSTOMER HAD BEEN
AFFORDED A REASONABLE PERIOD OF TIME,  NOT  EXCEEDING  THIRTY  DAYS,  IN
WHICH TO EXAMINE THE ITEM OR STATEMENT OF ACCOUNT AND NOTIFY THE BANK.
  (E)  IF  SUBSECTION  (D) APPLIES AND THE CUSTOMER PROVES THAT THE BANK
FAILED TO EXERCISE ORDINARY CARE IN PAYING THE ITEM AND THAT THE FAILURE
SUBSTANTIALLY CONTRIBUTED TO LOSS, THE LOSS  IS  ALLOCATED  BETWEEN  THE
CUSTOMER  PRECLUDED  AND  THE BANK ASSERTING THE PRECLUSION ACCORDING TO
THE EXTENT  TO  WHICH  THE  FAILURE  OF  THE  CUSTOMER  TO  COMPLY  WITH
SUBSECTION  (C)  AND  THE  FAILURE OF THE BANK TO EXERCISE ORDINARY CARE
CONTRIBUTED TO THE LOSS. IF THE CUSTOMER PROVES THAT THE  BANK  DID  NOT
PAY THE ITEM IN GOOD FAITH, THE PRECLUSION UNDER SUBSECTION (D) DOES NOT
APPLY.
  (F)  WITHOUT  REGARD TO CARE OR LACK OF CARE OF EITHER THE CUSTOMER OR
THE BANK, A CUSTOMER WHO DOES NOT WITHIN ONE YEAR AFTER THE STATEMENT OR
ITEMS ARE MADE AVAILABLE TO THE CUSTOMER (SUBSECTION (A))  DISCOVER  AND
REPORT THE CUSTOMER'S UNAUTHORIZED SIGNATURE ON OR ANY ALTERATION ON THE
ITEM  IS  PRECLUDED  FROM  ASSERTING  AGAINST  THE BANK THE UNAUTHORIZED
SIGNATURE OR ALTERATION. IF THERE IS A PRECLUSION UNDER THIS SUBSECTION,
THE PAYOR BANK MAY NOT RECOVER FOR  BREACH  OF  WARRANTY  UNDER  SECTION
4--208 WITH RESPECT TO THE UNAUTHORIZED SIGNATURE OR ALTERATION TO WHICH
THE PRECLUSION APPLIES.
SECTION 4--407. PAYOR BANK'S RIGHT TO SUBROGATION ON IMPROPER PAYMENT.
  IF A PAYOR BANK HAS PAID AN ITEM OVER THE ORDER OF THE DRAWER OR MAKER
TO STOP PAYMENT, OR AFTER AN ACCOUNT HAS BEEN CLOSED, OR OTHERWISE UNDER
CIRCUMSTANCES  GIVING  A  BASIS FOR OBJECTION BY THE DRAWER OR MAKER, TO
PREVENT UNJUST ENRICHMENT AND ONLY TO THE EXTENT  NECESSARY  TO  PREVENT
LOSS TO THE BANK BY REASON OF ITS PAYMENT OF THE ITEM, THE PAYOR BANK IS
SUBROGATED TO THE RIGHTS
  (1)  OF  ANY  HOLDER  IN  DUE COURSE ON THE ITEM AGAINST THE DRAWER OR
MAKER;
  (2) OF THE PAYEE OR ANY OTHER HOLDER OF THE ITEM AGAINST THE DRAWER OR
MAKER EITHER ON THE ITEM OR UNDER THE TRANSACTION OUT OF WHICH THE  ITEM
AROSE; AND
  (3)  OF  THE  DRAWER OR MAKER AGAINST THE PAYEE OR ANY OTHER HOLDER OF
THE ITEM WITH RESPECT TO THE TRANSACTION OUT OF WHICH THE ITEM AROSE.
                                 PART 5
                    COLLECTION OF DOCUMENTARY DRAFTS
SECTION 4--501. HANDLING  OF  DOCUMENTARY  DRAFTS;  DUTY  TO  SEND   FOR
                  PRESENTMENT AND TO NOTIFY CUSTOMER OF DISHONOR.
  A  BANK THAT TAKES A DOCUMENTARY DRAFT FOR COLLECTION SHALL PRESENT OR
SEND THE DRAFT AND ACCOMPANYING  DOCUMENTS  FOR  PRESENTMENT  AND,  UPON
LEARNING  THAT  THE  DRAFT  HAS NOT BEEN PAID OR ACCEPTED IN DUE COURSE,
SHALL REASONABLY NOTIFY ITS CUSTOMER OF THE FACT EVEN THOUGH IT MAY HAVE

S. 5901                            61

DISCOUNTED OR BOUGHT THE DRAFT OR EXTENDED CREDIT  AVAILABLE  FOR  WITH-
DRAWAL AS OF RIGHT.
SECTION 4--502. PRESENTMENT OF "ON ARRIVAL" DRAFTS.
  IF  A  DRAFT  OR  THE  RELEVANT  INSTRUCTIONS  REQUIRE PRESENTMENT "ON
ARRIVAL", "WHEN GOODS ARRIVE" OR THE LIKE, THE COLLECTING BANK NEED  NOT
PRESENT UNTIL IN ITS JUDGMENT A REASONABLE TIME FOR ARRIVAL OF THE GOODS
HAS  EXPIRED.    REFUSAL  TO  PAY  OR  ACCEPT BECAUSE THE GOODS HAVE NOT
ARRIVED IS NOT DISHONOR; THE BANK MUST  NOTIFY  ITS  TRANSFEROR  OF  THE
REFUSAL  BUT  NEED NOT PRESENT THE DRAFT AGAIN UNTIL IT IS INSTRUCTED TO
DO SO OR LEARNS OF THE ARRIVAL OF THE GOODS.
SECTION 4--503. RESPONSIBILITY OF  PRESENTING  BANK  FOR  DOCUMENTS  AND
                  GOODS; REPORT OF REASONS FOR DISHONOR; REFEREE IN CASE
                  OF NEED.
  UNLESS  OTHERWISE  INSTRUCTED  AND  EXCEPT AS PROVIDED IN ARTICLE 5, A
BANK PRESENTING A DOCUMENTARY DRAFT:
  (1) MUST DELIVER THE DOCUMENTS TO THE  DRAWEE  ON  ACCEPTANCE  OF  THE
DRAFT  IF  IT  IS PAYABLE MORE THAN THREE DAYS AFTER PRESENTMENT; OTHER-
WISE, ONLY ON PAYMENT; AND
  (2) UPON DISHONOR, EITHER IN THE CASE OF PRESENTMENT FOR ACCEPTANCE OR
PRESENTMENT FOR PAYMENT, MAY  SEEK  AND  FOLLOW  INSTRUCTIONS  FROM  ANY
REFEREE  IN  CASE  OF NEED DESIGNATED IN THE DRAFT OR, IF THE PRESENTING
BANK DOES NOT CHOOSE TO UTILIZE THE  REFEREE'S  SERVICES,  IT  MUST  USE
DILIGENCE  AND  GOOD  FAITH  TO  ASCERTAIN THE REASON FOR DISHONOR, MUST
NOTIFY ITS TRANSFEROR OF THE DISHONOR AND OF THE RESULTS OF  ITS  EFFORT
TO ASCERTAIN THE REASONS THEREFOR, AND MUST REQUEST INSTRUCTIONS.
  HOWEVER  THE  PRESENTING  BANK  IS UNDER NO OBLIGATION WITH RESPECT TO
GOODS REPRESENTED BY THE  DOCUMENTS  EXCEPT  TO  FOLLOW  ANY  REASONABLE
INSTRUCTIONS  REASONABLY  RECEIVED;  IT HAS A RIGHT TO REIMBURSEMENT FOR
ANY EXPENSE INCURRED IN FOLLOWING INSTRUCTIONS AND TO PREPAYMENT  OF  OR
INDEMNITY FOR THOSE EXPENSES.
SECTION 4--504. PRIVILEGE OF PRESENTING BANK TO DEAL WITH GOODS; SECURI-
                  TY INTEREST FOR EXPENSES.
  (A)  A  PRESENTING  BANK THAT, FOLLOWING THE DISHONOR OF A DOCUMENTARY
DRAFT, HAS REASONABLY REQUESTED INSTRUCTIONS BUT DOES NOT  RECEIVE  THEM
WITHIN  A  REASONABLE  TIME  MAY STORE, SELL, OR OTHERWISE DEAL WITH THE
GOODS IN ANY REASONABLE MANNER.
  (B) FOR ITS REASONABLE EXPENSES INCURRED BY  ACTION  UNDER  SUBSECTION
(A)  THE  PRESENTING  BANK  HAS A LIEN UPON THE GOODS OR THEIR PROCEEDS,
WHICH MAY BE FORECLOSED IN THE SAME MANNER AS AN UNPAID SELLER'S LIEN.
  S 28. Paragraph (g) of subsection 1 of section 4-A-105 of the  uniform
commercial code, as added by chapter 208 of the laws of 1990, is amended
to read as follows:
       (g) "Prove"  with  respect  to a fact means to meet the burden of
           establishing the fact (subsection (B)(8) of section 1-201).
  S 29. Subsection 1 of section 4-A-106 of the uniform commercial  code,
as  added  by  chapter  208  of  the laws of 1990, is amended to read as
follows:
  (1) 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  [subsection (27) of] Section [1-201]
1--202.  A receiving bank may fix a cut-off time or times  on  a  funds-
transfer  business  day for the receipt and processing of payment orders
and communications cancelling  or  amending  payment  orders.  Different
cut-off times may apply to payment orders, cancellations, or amendments,
or  to  different categories of payment orders, cancellations, or amend-
ments. A cut-off time may apply to senders generally or  different  cut-

S. 5901                            62

off  times  may  apply  to  different  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-off 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.
  S  30. Subsection 2 of section 4-A-204 of the uniform commercial code,
as added by chapter 208 of the laws of  1990,  is  amended  to  read  as
follows:
  (2)  Reasonable time under subsection (1) may be fixed by agreement as
stated in subsection (1) of Section [1-204]  1--302(B),  but  the  obli-
gation of a receiving bank to refund payment as stated in subsection (1)
may not otherwise be varied by agreement.
  S 31. Subsection (c) of section 5--103 of the uniform commercial code,
as  added  by  chpater  471  of  the laws of 2000, is amended to read as
follows:
  (c) With the exception of this subsection, subsections (a) and (d)  of
this  section,  paragraphs  (9)  and  (10)  of subsection (a) of section
5--102, subsection (d) of section 5--106, and subsection (d) of  section
5--114,  and  except  to  the  extent  prohibited in [subsection (3) of]
section [1--102] 1--302 and subsection (d) of section 5--117, 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.
  S  32.  Article 7 of the uniform commercial code is REPEALED and a new
article 7 is added to read as follows:
                      ARTICLE 7-DOCUMENTS OF TITLE
                                 PART 1
                                 GENERAL
SECTION 7--101. SHORT TITLE.
  THIS ARTICLE MAY BE CITED  AS  UNIFORM  COMMERCIAL  CODE-DOCUMENTS  OF
TITLE.
SECTION 7--102. DEFINITIONS AND INDEX OF DEFINITIONS.
  (A) IN THIS ARTICLE, UNLESS THE CONTEXT OTHERWISE REQUIRES:
  (1)  "BAILEE"  MEANS  A  PERSON  THAT  BY A WAREHOUSE RECEIPT, BILL OF
LADING, OR OTHER DOCUMENT OF TITLE ACKNOWLEDGES POSSESSION OF GOODS  AND
CONTRACTS TO DELIVER THEM.
  (2) "CARRIER" MEANS A PERSON THAT ISSUES A BILL OF LADING.
  (3)  "CONSIGNEE"  MEANS A PERSON NAMED IN A BILL OF LADING TO WHICH OR
TO WHOSE ORDER THE BILL PROMISES DELIVERY.
  (4) "CONSIGNOR" MEANS A PERSON NAMED IN A BILL OF LADING AS THE PERSON
FROM WHICH THE GOODS HAVE BEEN RECEIVED FOR SHIPMENT.
  (5) "DELIVERY ORDER" MEANS A RECORD THAT CONTAINS AN ORDER TO  DELIVER
GOODS  DIRECTED  TO  A  WAREHOUSE,  CARRIER, OR OTHER PERSON THAT IN THE
ORDINARY COURSE OF  BUSINESS  ISSUES  WAREHOUSE  RECEIPTS  OR  BILLS  OF
LADING.
  (6)  "GOOD  FAITH" MEANS HONESTY IN FACT AND THE OBSERVANCE OF REASON-
ABLE COMMERCIAL STANDARDS OF FAIR DEALING.
  (7) "GOODS" MEANS ALL THINGS THAT  ARE  TREATED  AS  MOVABLE  FOR  THE
PURPOSES OF A CONTRACT FOR STORAGE OR TRANSPORTATION.
  (8) "ISSUER" MEANS A BAILEE THAT ISSUES A DOCUMENT OF TITLE OR, IN THE
CASE OF AN UNACCEPTED DELIVERY ORDER, THE PERSON THAT ORDERS THE POSSES-
SOR  OF  GOODS TO DELIVER. THE TERM INCLUDES A PERSON FOR WHICH AN AGENT
OR EMPLOYEE PURPORTS TO ACT IN  ISSUING  A  DOCUMENT  IF  THE  AGENT  OR

S. 5901                            63

EMPLOYEE  HAS REAL OR APPARENT AUTHORITY TO ISSUE DOCUMENTS, EVEN IF THE
ISSUER DID NOT RECEIVE ANY GOODS, THE GOODS WERE MISDESCRIBED, OR IN ANY
OTHER RESPECT THE AGENT OR EMPLOYEE VIOLATED THE ISSUER'S INSTRUCTIONS.
  (9) "PERSON ENTITLED UNDER THE DOCUMENT" MEANS THE HOLDER, IN THE CASE
OF  A  NEGOTIABLE  DOCUMENT OF TITLE, OR THE PERSON TO WHICH DELIVERY OF
THE GOODS IS TO BE MADE BY THE TERMS OF, OR PURSUANT TO INSTRUCTIONS  IN
A RECORD UNDER, A NONNEGOTIABLE DOCUMENT OF TITLE.
  (10) [RESERVED].
  (11)  "SIGN"  MEANS,  WITH  PRESENT  INTENT TO AUTHENTICATE OR ADOPT A
RECORD:
  (A) TO EXECUTE OR ADOPT A TANGIBLE SYMBOL; OR
  (B) TO ATTACH TO OR LOGICALLY ASSOCIATE WITH THE RECORD AN  ELECTRONIC
SOUND, SYMBOL, OR PROCESS.
  (12) "SHIPPER" MEANS A PERSON THAT ENTERS INTO A CONTRACT OF TRANSPOR-
TATION WITH A CARRIER.
  (13)  "WAREHOUSE"  MEANS  A  PERSON ENGAGED IN THE BUSINESS OF STORING
GOODS FOR HIRE.
  (B) DEFINITIONS IN OTHER ARTICLES APPLYING TO  THIS  ARTICLE  AND  THE
SECTIONS IN WHICH THEY APPEAR ARE:
  (1) "CONTRACT FOR SALE", SECTION 2--106.
  (2) "LESSEE IN THE ORDINARY COURSE OF BUSINESS", SECTION 2A--103.
  (3) "RECEIPT" OF GOODS, SECTION 2--103.
  (C) IN ADDITION, ARTICLE 1 CONTAINS GENERAL DEFINITIONS AND PRINCIPLES
OF CONSTRUCTION AND INTERPRETATION APPLICABLE THROUGHOUT THIS ARTICLE.
SECTION 7--103. RELATION OF ARTICLE TO TREATY OR STATUTE.
  (A)  THIS  ARTICLE  IS  SUBJECT TO ANY TREATY OR STATUTE OF THE UNITED
STATES OR REGULATORY STATUTE OF THIS STATE TO  THE  EXTENT  THE  TREATY,
STATUTE, OR REGULATORY STATUTE IS APPLICABLE.
  (B)  THIS  ARTICLE  DOES  NOT MODIFY OR REPEAL ANY LAW PRESCRIBING THE
FORM OR CONTENT OF A DOCUMENT OF TITLE OR THE SERVICES OR FACILITIES  TO
BE  AFFORDED BY A BAILEE, OR OTHERWISE REGULATING A BAILEE'S BUSINESS IN
RESPECTS NOT SPECIFICALLY TREATED IN THIS ARTICLE. HOWEVER, VIOLATION OF
SUCH A LAW DOES NOT AFFECT THE STATUS OF A DOCUMENT OF TITLE THAT OTHER-
WISE IS WITHIN THE DEFINITION OF A DOCUMENT OF TITLE.
  (C) THIS ARTICLE MODIFIES, LIMITS, AND SUPERSEDES  THE  FEDERAL  ELEC-
TRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT (15 U.S.C. SECTION
7001,  ET. SEQ.) BUT DOES NOT MODIFY, LIMIT, OR SUPERSEDE SECTION 101(C)
OF THAT ACT (15 U.S.C. SECTION 7001(C)) OR AUTHORIZE ELECTRONIC DELIVERY
OF ANY OF THE NOTICES DESCRIBED IN SECTION 103(B) OF THAT ACT (15 U.S.C.
SECTION 7003(B)).
  (D) TO THE EXTENT THERE IS A CONFLICT BETWEEN  THE  ELECTRONIC  SIGNA-
TURES AND RECORDS ACT (STATE TECHNOLOGY LAW 301 ET. SEQ.) AND THIS ARTI-
CLE, THIS ARTICLE GOVERNS.
SECTION 7--104. NEGOTIABLE AND NONNEGOTIABLE DOCUMENT OF TITLE.
  (A)  EXCEPT  AS  OTHERWISE  PROVIDED  IN SUBSECTION (C), A DOCUMENT OF
TITLE IS NEGOTIABLE IF BY ITS TERMS THE GOODS ARE  TO  BE  DELIVERED  TO
BEARER OR TO THE ORDER OF A NAMED PERSON.
  (B)  A DOCUMENT OF TITLE OTHER THAN ONE DESCRIBED IN SUBSECTION (A) IS
NONNEGOTIABLE. A BILL OF LADING THAT STATES THAT THE GOODS ARE CONSIGNED
TO A NAMED PERSON IS NOT MADE NEGOTIABLE BY A PROVISION THAT  THE  GOODS
ARE TO BE DELIVERED ONLY AGAINST AN ORDER IN A RECORD SIGNED BY THE SAME
OR ANOTHER NAMED PERSON.
  (C) A DOCUMENT OF TITLE IS NONNEGOTIABLE IF, AT THE TIME IT IS ISSUED,
THE  DOCUMENT  HAS  A  CONSPICUOUS LEGEND, HOWEVER EXPRESSED, THAT IT IS
NONNEGOTIABLE.
SECTION 7--105. REISSUANCE IN ALTERNATIVE MEDIUM.

S. 5901                            64

  (A) UPON REQUEST OF A PERSON ENTITLED UNDER AN ELECTRONIC DOCUMENT  OF
TITLE,  THE ISSUER OF THE ELECTRONIC DOCUMENT MAY ISSUE A TANGIBLE DOCU-
MENT OF TITLE AS A SUBSTITUTE FOR THE ELECTRONIC DOCUMENT IF:
  (1)  THE  PERSON  ENTITLED  UNDER  THE  ELECTRONIC DOCUMENT SURRENDERS
CONTROL OF THE DOCUMENT TO THE ISSUER; AND
  (2) THE TANGIBLE DOCUMENT WHEN ISSUED CONTAINS A STATEMENT THAT IT  IS
ISSUED IN SUBSTITUTION FOR THE ELECTRONIC DOCUMENT.
  (B)  UPON ISSUANCE OF A TANGIBLE DOCUMENT OF TITLE IN SUBSTITUTION FOR
AN ELECTRONIC DOCUMENT OF TITLE IN ACCORDANCE WITH SUBSECTION (A):
  (1) THE ELECTRONIC DOCUMENT CEASES TO HAVE ANY EFFECT OR VALIDITY; AND
  (2) THE  PERSON  THAT  PROCURED  ISSUANCE  OF  THE  TANGIBLE  DOCUMENT
WARRANTS  TO ALL SUBSEQUENT PERSONS ENTITLED UNDER THE TANGIBLE DOCUMENT
THAT THE WARRANTOR WAS A PERSON ENTITLED UNDER THE  ELECTRONIC  DOCUMENT
WHEN THE WARRANTOR SURRENDERED CONTROL OF THE ELECTRONIC DOCUMENT TO THE
ISSUER.
  (C)  UPON  REQUEST  OF  A PERSON ENTITLED UNDER A TANGIBLE DOCUMENT OF
TITLE, THE ISSUER OF THE TANGIBLE DOCUMENT MAY ISSUE AN ELECTRONIC DOCU-
MENT OF TITLE AS A SUBSTITUTE FOR THE TANGIBLE DOCUMENT IF:
  (1)  THE  PERSON  ENTITLED  UNDER  THE  TANGIBLE  DOCUMENT  SURRENDERS
POSSESSION OF THE DOCUMENT TO THE ISSUER; AND
  (2)  THE  ELECTRONIC DOCUMENT WHEN ISSUED CONTAINS A STATEMENT THAT IT
IS ISSUED IN SUBSTITUTION FOR THE TANGIBLE DOCUMENT.
  (D) UPON ISSUANCE OF AN ELECTRONIC DOCUMENT OF TITLE  IN  SUBSTITUTION
FOR A TANGIBLE DOCUMENT OF TITLE IN ACCORDANCE WITH SUBSECTION (C):
  (1) THE TANGIBLE DOCUMENT CEASES TO HAVE ANY EFFECT OR VALIDITY; AND
  (2)  THE  PERSON  THAT  PROCURED  ISSUANCE  OF THE ELECTRONIC DOCUMENT
WARRANTS TO ALL SUBSEQUENT PERSONS ENTITLED UNDER THE  ELECTRONIC  DOCU-
MENT  THAT  THE WARRANTOR WAS A PERSON ENTITLED UNDER THE TANGIBLE DOCU-
MENT WHEN THE WARRANTOR SURRENDERED POSSESSION OF THE TANGIBLE  DOCUMENT
TO THE ISSUER.
SECTION 7--106. CONTROL OF ELECTRONIC DOCUMENT OF TITLE.
  (A)  A  PERSON  HAS  CONTROL  OF  AN ELECTRONIC DOCUMENT OF TITLE IF A
SYSTEM EMPLOYED FOR EVIDENCING THE TRANSFER OF INTERESTS  IN  THE  ELEC-
TRONIC  DOCUMENT RELIABLY ESTABLISHES THAT PERSON AS THE PERSON TO WHICH
THE ELECTRONIC DOCUMENT WAS ISSUED OR TRANSFERRED.
  (B) A SYSTEM SATISFIES SUBSECTION (A), AND A PERSON IS DEEMED TO  HAVE
CONTROL  OF AN ELECTRONIC DOCUMENT OF TITLE, IF THE DOCUMENT IS CREATED,
STORED AND ASSIGNED IN SUCH A MANNER THAT:
  (1) A SINGLE AUTHORITATIVE  COPY  OF  THE  DOCUMENT  EXISTS  WHICH  IS
UNIQUE,  IDENTIFIABLE,  AND,  EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPHS
(4), (5), AND (6), UNALTERABLE;
  (2) THE AUTHORITATIVE COPY IDENTIFIES THE PERSON ASSERTING CONTROL AS:
  (A) THE PERSON TO WHICH THE DOCUMENT WAS ISSUED; OR
  (B) IF THE AUTHORITATIVE COPY INDICATES THAT  THE  DOCUMENT  HAS  BEEN
TRANSFERRED,  THE  PERSON TO WHICH THE DOCUMENT WAS MOST RECENTLY TRANS-
FERRED;
  (3) THE AUTHORITATIVE COPY IS COMMUNICATED TO AND  MAINTAINED  BY  THE
PERSON ASSERTING CONTROL OR ITS DESIGNATED CUSTODIAN;
  (4)  COPIES OR AMENDMENTS THAT ADD OR CHANGE AN IDENTIFIED ASSIGNEE OF
THE AUTHORITATIVE COPY CAN BE MADE ONLY WITH THE CONSENT OF  THE  PERSON
ASSERTING CONTROL;
  (5)  EACH  COPY  OF  THE  AUTHORITATIVE COPY AND ANY COPY OF A COPY IS
READILY IDENTIFIABLE AS A COPY THAT IS NOT THE AUTHORITATIVE COPY; AND
  (6) ANY AMENDMENT OF THE AUTHORITATIVE COPY IS READILY IDENTIFIABLE AS
AUTHORIZED OR UNAUTHORIZED.

S. 5901                            65

                                 PART 2
                 WAREHOUSE RECEIPTS: SPECIAL PROVISIONS
SECTION 7--201. PERSON THAT MAY ISSUE A WAREHOUSE RECEIPT; STORAGE UNDER
                  BOND.
  (A) A WAREHOUSE RECEIPT MAY BE ISSUED BY ANY WAREHOUSE.
  (B)  IF  GOODS,  INCLUDING  DISTILLED SPIRITS AND AGRICULTURAL COMMOD-
ITIES, ARE STORED UNDER A STATUTE REQUIRING A BOND AGAINST WITHDRAWAL OR
A LICENSE FOR THE ISSUANCE  OF  RECEIPTS  IN  THE  NATURE  OF  WAREHOUSE
RECEIPTS,  A  RECEIPT  ISSUED  FOR THE GOODS IS DEEMED TO BE A WAREHOUSE
RECEIPT EVEN IF ISSUED BY A PERSON THAT IS THE OWNER OF THE GOODS AND IS
NOT A WAREHOUSE.
SECTION 7--202. FORM OF WAREHOUSE RECEIPT; EFFECT OF OMISSION.
  (A) A WAREHOUSE RECEIPT NEED NOT BE IN ANY PARTICULAR FORM.
  (B) UNLESS A WAREHOUSE RECEIPT PROVIDES FOR EACH OF THE FOLLOWING, THE
WAREHOUSE IS LIABLE FOR DAMAGES CAUSED TO A PERSON INJURED BY ITS  OMIS-
SION:
  (1)  A  STATEMENT  OF THE LOCATION OF THE WAREHOUSE FACILITY WHERE THE
GOODS ARE STORED;
  (2) THE DATE OF ISSUE OF THE RECEIPT;
  (3) THE UNIQUE IDENTIFICATION CODE OF THE RECEIPT;
  (4) A STATEMENT WHETHER THE GOODS RECEIVED WILL BE  DELIVERED  TO  THE
BEARER, TO A NAMED PERSON, OR TO A NAMED PERSON OR ITS ORDER;
  (5)  THE RATE OF STORAGE AND HANDLING CHARGES, UNLESS GOODS ARE STORED
UNDER A FIELD WAREHOUSING ARRANGEMENT, IN WHICH CASE A STATEMENT OF THAT
FACT IS SUFFICIENT ON A NONNEGOTIABLE RECEIPT;
  (6) A DESCRIPTION OF THE GOODS OR THE PACKAGES CONTAINING THEM;
  (7) THE SIGNATURE OF THE WAREHOUSE OR ITS AGENT;
  (8) IF THE RECEIPT IS ISSUED FOR GOODS THAT THE WAREHOUSE OWNS, EITHER
SOLELY, JOINTLY, OR IN COMMON WITH OTHERS, A STATEMENT OF  THE  FACT  OF
THAT OWNERSHIP; AND
  (9)  A  STATEMENT  OF  THE  AMOUNT OF ADVANCES MADE AND OF LIABILITIES
INCURRED FOR WHICH THE WAREHOUSE CLAIMS A  LIEN  OR  SECURITY  INTEREST,
UNLESS  THE  PRECISE AMOUNT OF ADVANCES MADE OR LIABILITIES INCURRED, AT
THE TIME OF THE ISSUE OF THE RECEIPT, IS UNKNOWN TO THE WAREHOUSE OR  TO
ITS AGENT THAT ISSUED THE RECEIPT, IN WHICH CASE A STATEMENT OF THE FACT
THAT  ADVANCES HAVE BEEN MADE OR LIABILITIES INCURRED AND THE PURPOSE OF
THE ADVANCES OR LIABILITIES IS SUFFICIENT.
  (C) A WAREHOUSE MAY INSERT IN ITS  RECEIPT  ANY  TERMS  THAT  ARE  NOT
CONTRARY  TO THIS ACT AND DO NOT IMPAIR ITS OBLIGATION OF DELIVERY UNDER
SECTION 7--403 OR ITS DUTY OF CARE UNDER SECTION  7--204.  ANY  CONTRARY
PROVISION IS INEFFECTIVE.
SECTION 7--203. LIABILITY FOR NONRECEIPT OR MISDESCRIPTION.
  A  PARTY  TO,  OR  PURCHASER FOR, VALUE IN GOOD FAITH OF A DOCUMENT OF
TITLE, OTHER THAN A BILL OF LADING, THAT RELIES UPON THE DESCRIPTION  OF
THE  GOODS IN THE DOCUMENT MAY RECOVER FROM THE ISSUER DAMAGES CAUSED BY
THE NONRECEIPT OR MISDESCRIPTION OF THE  GOODS,  EXCEPT  TO  THE  EXTENT
THAT:
  (1) THE DOCUMENT CONSPICUOUSLY INDICATES THAT THE ISSUER DOES NOT KNOW
WHETHER ALL OR PART OF THE GOODS IN FACT WERE RECEIVED OR CONFORM TO THE
DESCRIPTION,  SUCH  AS  A  CASE  IN WHICH THE DESCRIPTION IS IN TERMS OF
MARKS OR LABELS OR KIND, QUANTITY,  OR  CONDITION,  OR  THE  RECEIPT  OR
DESCRIPTION  IS QUALIFIED BY "CONTENTS, CONDITION, AND QUALITY UNKNOWN",
"SAID TO CONTAIN", OR WORDS OF SIMILAR  IMPORT,  IF  THE  INDICATION  IS
TRUE; OR
  (2)  THE  PARTY OR PURCHASER OTHERWISE HAS NOTICE OF THE NONRECEIPT OR
MISDESCRIPTION.

S. 5901                            66

SECTION 7--204. DUTY OF  CARE;  CONTRACTUAL  LIMITATION  OF  WAREHOUSE'S
                  LIABILITY.
  (A)  A  WAREHOUSE  IS  LIABLE FOR DAMAGES FOR LOSS OF OR INJURY TO THE
GOODS CAUSED BY ITS FAILURE TO EXERCISE CARE WITH REGARD  TO  THE  GOODS
THAT  A  REASONABLY  CAREFUL PERSON WOULD EXERCISE UNDER SIMILAR CIRCUM-
STANCES.   UNLESS OTHERWISE AGREED, THE  WAREHOUSE  IS  NOT  LIABLE  FOR
DAMAGES THAT COULD NOT HAVE BEEN AVOIDED BY THE EXERCISE OF THAT CARE.
  (B) DAMAGES MAY BE LIMITED BY A TERM IN THE WAREHOUSE RECEIPT OR STOR-
AGE AGREEMENT LIMITING THE AMOUNT OF LIABILITY IN CASE OF LOSS OR DAMAGE
BEYOND  WHICH  THE  WAREHOUSE  IS  NOT  LIABLE. SUCH A LIMITATION IS NOT
EFFECTIVE WITH RESPECT TO THE WAREHOUSE'S LIABILITY  FOR  CONVERSION  TO
ITS OWN USE. ON REQUEST OF THE BAILOR IN A RECORD AT THE TIME OF SIGNING
THE  STORAGE  AGREEMENT OR WITHIN A REASONABLE TIME AFTER RECEIPT OF THE
WAREHOUSE RECEIPT, THE WAREHOUSE'S LIABILITY MAY BE INCREASED ON PART OR
ALL OF THE GOODS COVERED BY  THE  STORAGE  AGREEMENT  OR  THE  WAREHOUSE
RECEIPT.  IN  THIS  EVENT,  INCREASED  RATES  MAY BE CHARGED BASED ON AN
INCREASED VALUATION OF THE GOODS.
  (C) REASONABLE PROVISIONS AS TO THE  TIME  AND  MANNER  OF  PRESENTING
CLAIMS  AND  COMMENCING ACTIONS BASED ON THE BAILMENT MAY BE INCLUDED IN
THE WAREHOUSE RECEIPT OR STORAGE AGREEMENT.
SECTION 7--205. TITLE UNDER WAREHOUSE RECEIPT DEFEATED IN CERTAIN CASES.
  A BUYER IN ORDINARY COURSE OF BUSINESS  OF  FUNGIBLE  GOODS  SOLD  AND
DELIVERED  BY  A  WAREHOUSE  THAT  IS ALSO IN THE BUSINESS OF BUYING AND
SELLING SUCH GOODS TAKES THE GOODS FREE OF ANY CLAIM UNDER  A  WAREHOUSE
RECEIPT EVEN IF THE RECEIPT IS NEGOTIABLE AND HAS BEEN DULY NEGOTIATED.
SECTION 7--206. TERMINATION OF STORAGE AT WAREHOUSE'S OPTION.
  (A)  A  WAREHOUSE, BY GIVING NOTICE TO THE PERSON ON WHOSE ACCOUNT THE
GOODS ARE HELD AND ANY OTHER PERSON KNOWN TO CLAIM AN  INTEREST  IN  THE
GOODS,  MAY REQUIRE PAYMENT OF ANY CHARGES AND REMOVAL OF THE GOODS FROM
THE WAREHOUSE AT THE TERMINATION OF THE PERIOD OF STORAGE FIXED  BY  THE
DOCUMENT  OF  TITLE OR, IF A PERIOD IS NOT FIXED, WITHIN A STATED PERIOD
NOT LESS THAN 30 DAYS AFTER THE WAREHOUSE GIVES NOTICE. IF THE GOODS ARE
NOT REMOVED BEFORE THE DATE SPECIFIED IN THE NOTICE, THE  WAREHOUSE  MAY
SELL THEM PURSUANT TO SECTION 7--210.
  (B)  IF  A  WAREHOUSE  IN  GOOD FAITH BELIEVES THAT GOODS ARE ABOUT TO
DETERIORATE OR DECLINE IN VALUE TO LESS THAN  THE  AMOUNT  OF  ITS  LIEN
WITHIN THE TIME PROVIDED IN SUBSECTION (A) AND SECTION 7--210, THE WARE-
HOUSE  MAY  SPECIFY IN THE NOTICE GIVEN UNDER SUBSECTION (A) ANY REASON-
ABLE SHORTER TIME FOR REMOVAL OF THE GOODS AND, IF  THE  GOODS  ARE  NOT
REMOVED,  MAY SELL THEM AT PUBLIC SALE HELD NOT LESS THAN ONE WEEK AFTER
A SINGLE ADVERTISEMENT OR POSTING.
  (C) IF, AS A RESULT OF A QUALITY OR CONDITION OF THE  GOODS  OF  WHICH
THE  WAREHOUSE DID NOT HAVE NOTICE AT THE TIME OF DEPOSIT, THE GOODS ARE
A HAZARD TO OTHER PROPERTY, THE WAREHOUSE FACILITIES, OR OTHER  PERSONS,
THE  WAREHOUSE  MAY  SELL  THE  GOODS  AT PUBLIC OR PRIVATE SALE WITHOUT
ADVERTISEMENT OR POSTING ON REASONABLE NOTIFICATION TO ALL PERSONS KNOWN
TO CLAIM AN INTEREST IN THE GOODS.  IF THE WAREHOUSE, AFTER A REASONABLE
EFFORT, IS UNABLE TO SELL THE GOODS, IT  MAY  DISPOSE  OF  THEM  IN  ANY
LAWFUL  MANNER  AND  DOES NOT INCUR LIABILITY BY REASON OF THAT DISPOSI-
TION.
  (D) A WAREHOUSE SHALL DELIVER THE GOODS TO ANY PERSON ENTITLED TO THEM
UNDER THIS ARTICLE UPON DUE DEMAND MADE AT ANY TIME BEFORE SALE OR OTHER
DISPOSITION UNDER THIS SECTION.
  (E) A WAREHOUSE MAY SATISFY ITS LIEN FROM THE PROCEEDS OF ANY SALE  OR
DISPOSITION  UNDER  THIS SECTION BUT SHALL HOLD THE BALANCE FOR DELIVERY

S. 5901                            67

ON THE DEMAND OF ANY PERSON TO WHICH THE WAREHOUSE WOULD HAVE BEEN BOUND
TO DELIVER THE GOODS.
SECTION 7--207. GOODS MUST BE KEPT SEPARATE; FUNGIBLE GOODS.
  (A) UNLESS THE WAREHOUSE RECEIPT PROVIDES OTHERWISE, A WAREHOUSE SHALL
KEEP  SEPARATE  THE GOODS COVERED BY EACH RECEIPT SO AS TO PERMIT AT ALL
TIMES IDENTIFICATION AND DELIVERY OF  THOSE  GOODS.  HOWEVER,  DIFFERENT
LOTS OF FUNGIBLE GOODS MAY BE COMMINGLED.
  (B)  IF DIFFERENT LOTS OF FUNGIBLE GOODS ARE COMMINGLED, THE GOODS ARE
OWNED IN COMMON BY THE PERSONS ENTITLED THERETO  AND  THE  WAREHOUSE  IS
SEVERALLY  LIABLE  TO  EACH OWNER FOR THAT OWNER'S SHARE. IF, BECAUSE OF
OVERISSUE, A MASS OF FUNGIBLE GOODS IS  INSUFFICIENT  TO  MEET  ALL  THE
RECEIPTS  THE  WAREHOUSE  HAS  ISSUED  AGAINST  IT, THE PERSONS ENTITLED
INCLUDE ALL HOLDERS TO WHICH OVERISSUED RECEIPTS HAVE BEEN DULY  NEGOTI-
ATED.
SECTION 7--208. ALTERED WAREHOUSE RECEIPTS.
  IF  A BLANK IN A NEGOTIABLE TANGIBLE WAREHOUSE RECEIPT HAS BEEN FILLED
IN WITHOUT AUTHORITY, A  GOOD-FAITH  PURCHASER  FOR  VALUE  AND  WITHOUT
NOTICE  OF  THE LACK OF AUTHORITY MAY TREAT THE INSERTION AS AUTHORIZED.
ANY OTHER UNAUTHORIZED ALTERATION  LEAVES  ANY  TANGIBLE  OR  ELECTRONIC
WAREHOUSE  RECEIPT  ENFORCEABLE  AGAINST  THE  ISSUER  ACCORDING  TO ITS
ORIGINAL TENOR.
SECTION 7--209. LIEN OF WAREHOUSE.
  (A) A WAREHOUSE HAS A LIEN AGAINST THE BAILOR ON THE GOODS COVERED  BY
A  WAREHOUSE  RECEIPT OR STORAGE AGREEMENT OR ON THE PROCEEDS THEREOF IN
ITS POSSESSION FOR CHARGES  FOR  STORAGE  OR  TRANSPORTATION,  INCLUDING
DEMURRAGE  AND  TERMINAL  CHARGES,  INSURANCE,  LABOR, OR OTHER CHARGES,
PRESENT OR FUTURE, IN RELATION TO THE GOODS, AND FOR EXPENSES  NECESSARY
FOR  PRESERVATION  OF  THE  GOODS  OR  REASONABLY INCURRED IN THEIR SALE
PURSUANT TO LAW. IF THE PERSON ON WHOSE ACCOUNT THE GOODS  ARE  HELD  IS
LIABLE  FOR SIMILAR CHARGES OR EXPENSES IN RELATION TO OTHER GOODS WHEN-
EVER DEPOSITED AND IT IS STATED IN  THE  WAREHOUSE  RECEIPT  OR  STORAGE
AGREEMENT THAT A LIEN IS CLAIMED FOR CHARGES AND EXPENSES IN RELATION TO
OTHER  GOODS, THE WAREHOUSE ALSO HAS A LIEN AGAINST THE GOODS COVERED BY
THE WAREHOUSE RECEIPT OR STORAGE AGREEMENT OR ON THE PROCEEDS THEREOF IN
ITS POSSESSION FOR THOSE CHARGES AND EXPENSES, WHETHER OR NOT THE  OTHER
GOODS HAVE BEEN DELIVERED BY THE WAREHOUSE. HOWEVER, AS AGAINST A PERSON
TO  WHICH  A  NEGOTIABLE  WAREHOUSE  RECEIPT IS DULY NEGOTIATED, A WARE-
HOUSE'S LIEN IS LIMITED TO CHARGES IN AN AMOUNT OR AT A  RATE  SPECIFIED
IN  THE  WAREHOUSE  RECEIPT  OR,  IF  NO  CHARGES ARE SO SPECIFIED, TO A
REASONABLE CHARGE FOR STORAGE OF  THE  SPECIFIC  GOODS  COVERED  BY  THE
RECEIPT SUBSEQUENT TO THE DATE OF THE RECEIPT.
  (B)  A  WAREHOUSE  MAY  ALSO  RESERVE  A SECURITY INTEREST AGAINST THE
BAILOR FOR THE MAXIMUM AMOUNT SPECIFIED ON THE RECEIPT FOR CHARGES OTHER
THAN THOSE SPECIFIED IN SUBSECTION (A), SUCH AS FOR MONEY  ADVANCED  AND
INTEREST. THE SECURITY INTEREST IS GOVERNED BY ARTICLE 9.
  (C)  A  WAREHOUSE'S LIEN FOR CHARGES AND EXPENSES UNDER SUBSECTION (A)
OR A SECURITY INTEREST UNDER SUBSECTION (B) IS  ALSO  EFFECTIVE  AGAINST
ANY  PERSON  THAT  SO  ENTRUSTED THE BAILOR WITH POSSESSION OF THE GOODS
THAT A PLEDGE OF THEM BY THE BAILOR TO A GOOD-FAITH PURCHASER FOR  VALUE
WOULD  HAVE  BEEN  VALID.  HOWEVER, THE LIEN OR SECURITY INTEREST IS NOT
EFFECTIVE AGAINST A PERSON THAT BEFORE ISSUANCE OF A DOCUMENT  OF  TITLE
HAD  A  LEGAL INTEREST OR A PERFECTED SECURITY INTEREST IN THE GOODS AND
THAT DID NOT:
  (1) DELIVER OR ENTRUST THE GOODS OR ANY DOCUMENT OF TITLE COVERING THE
GOODS TO THE BAILOR OR THE BAILOR'S NOMINEE WITH:
  (A) ACTUAL OR APPARENT AUTHORITY TO SHIP, STORE, OR SELL;

S. 5901                            68

  (B) POWER TO OBTAIN DELIVERY UNDER SECTION 7--403; OR
  (C)   POWER   OF   DISPOSITION   UNDER  SECTIONS  2--403,  2A--304(2),
2A--305(2), 9--320, OR 9--321(C) OR OTHER STATUTE OR RULE OF LAW; OR
  (2) ACQUIESCE IN THE PROCUREMENT BY THE BAILOR OR ITS NOMINEE  OF  ANY
DOCUMENT.
  (D)  A WAREHOUSE'S LIEN ON HOUSEHOLD GOODS FOR CHARGES AND EXPENSES IN
RELATION TO THE GOODS UNDER SUBSECTION (A) IS ALSO EFFECTIVE AGAINST ALL
PERSONS IF THE DEPOSITOR WAS THE LEGAL POSSESSOR OF  THE  GOODS  AT  THE
TIME  OF DEPOSIT. IN THIS SUBSECTION, "HOUSEHOLD GOODS" MEANS FURNITURE,
FURNISHINGS, OR PERSONAL EFFECTS USED BY THE DEPOSITOR IN A DWELLING.
  (E) A WAREHOUSE LOSES ITS LIEN ON ANY GOODS THAT IT VOLUNTARILY DELIV-
ERS OR UNJUSTIFIABLY REFUSES TO DELIVER.
SECTION 7--210. ENFORCEMENT OF WAREHOUSE'S LIEN.
  (A) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (B), A WAREHOUSE'S LIEN
MAY BE ENFORCED BY PUBLIC OR PRIVATE SALE OF THE GOODS, IN  BULK  OR  IN
PACKAGES,  AT  ANY  TIME OR PLACE AND ON ANY TERMS THAT ARE COMMERCIALLY
REASONABLE, AFTER NOTIFYING ALL PERSONS KNOWN TO CLAIM  AN  INTEREST  IN
THE  GOODS. THE NOTIFICATION MUST INCLUDE A STATEMENT OF THE AMOUNT DUE,
THE NATURE OF THE PROPOSED SALE, AND THE TIME AND PLACE  OF  ANY  PUBLIC
SALE. THE FACT THAT A BETTER PRICE COULD HAVE BEEN OBTAINED BY A SALE AT
A  DIFFERENT  TIME  OR  IN  A METHOD DIFFERENT FROM THAT SELECTED BY THE
WAREHOUSE IS NOT OF ITSELF SUFFICIENT TO ESTABLISH THAT THE SALE WAS NOT
MADE IN A COMMERCIALLY REASONABLE  MANNER.  THE  WAREHOUSE  SELLS  IN  A
COMMERCIALLY  REASONABLE  MANNER IF THE WAREHOUSE SELLS THE GOODS IN THE
USUAL MANNER IN ANY RECOGNIZED MARKET  THEREFORE,  SELLS  AT  THE  PRICE
CURRENT  IN  THAT  MARKET AT THE TIME OF THE SALE, OR OTHERWISE SELLS IN
CONFORMITY WITH COMMERCIALLY REASONABLE PRACTICES AMONG DEALERS  IN  THE
TYPE OF GOODS SOLD. A SALE OF MORE GOODS THAN APPARENTLY NECESSARY TO BE
OFFERED  TO  ENSURE  SATISFACTION  OF THE OBLIGATION IS NOT COMMERCIALLY
REASONABLE, EXCEPT IN CASES COVERED BY THE PRECEDING SENTENCE.
  (B) A WAREHOUSE MAY ENFORCE ITS LIEN ON GOODS, OTHER THAN GOODS STORED
BY A MERCHANT IN THE COURSE OF  ITS  BUSINESS,  ONLY  IF  THE  FOLLOWING
REQUIREMENTS ARE SATISFIED:
  (1)  ALL PERSONS KNOWN TO CLAIM AN INTEREST IN THE GOODS MUST BE NOTI-
FIED.
  (2) THE NOTIFICATION MUST INCLUDE AN ITEMIZED STATEMENT OF THE  CLAIM,
A  DESCRIPTION  OF  THE  GOODS SUBJECT TO THE LIEN, A DEMAND FOR PAYMENT
WITHIN A SPECIFIED TIME NOT LESS THAN TEN  DAYS  AFTER  RECEIPT  OF  THE
NOTIFICATION,  AND A CONSPICUOUS STATEMENT THAT UNLESS THE CLAIM IS PAID
WITHIN THAT TIME THE GOODS WILL BE  ADVERTISED  FOR  SALE  AND  SOLD  BY
AUCTION AT A SPECIFIED TIME AND PLACE.
  (3) THE SALE MUST CONFORM TO THE TERMS OF THE NOTIFICATION.
  (4)  THE  SALE MUST BE HELD AT THE NEAREST SUITABLE PLACE TO WHERE THE
GOODS ARE HELD OR STORED.
  (5) AFTER THE EXPIRATION OF THE TIME GIVEN  IN  THE  NOTIFICATION,  AN
ADVERTISEMENT  OF  THE  SALE MUST BE PUBLISHED ONCE A WEEK FOR TWO WEEKS
CONSECUTIVELY IN A NEWSPAPER OF GENERAL CIRCULATION WHERE THE SALE IS TO
BE HELD. THE ADVERTISEMENT MUST INCLUDE A DESCRIPTION OF THE GOODS,  THE
NAME  OF  THE  PERSON ON WHOSE ACCOUNT THE GOODS ARE BEING HELD, AND THE
TIME AND PLACE OF THE SALE. THE SALE MUST TAKE PLACE  AT  LEAST  FIFTEEN
DAYS  AFTER  THE  FIRST PUBLICATION. IF THERE IS NO NEWSPAPER OF GENERAL
CIRCULATION WHERE THE SALE IS TO BE  HELD,  THE  ADVERTISEMENT  MUST  BE
POSTED AT LEAST TEN DAYS BEFORE THE SALE IN NOT FEWER THAN SIX CONSPICU-
OUS PLACES IN THE NEIGHBORHOOD OF THE PROPOSED SALE.
  (C)  BEFORE  ANY  SALE PURSUANT TO THIS SECTION, ANY PERSON CLAIMING A
RIGHT IN THE GOODS MAY PAY THE AMOUNT NECESSARY TO SATISFY THE LIEN  AND

S. 5901                            69

THE REASONABLE EXPENSES INCURRED IN COMPLYING WITH THIS SECTION. IN THAT
EVENT,  THE  GOODS MAY NOT BE SOLD BUT MUST BE RETAINED BY THE WAREHOUSE
SUBJECT TO THE TERMS OF THE RECEIPT AND THIS ARTICLE.
  (D)  A  WAREHOUSE  MAY  BUY  AT  ANY PUBLIC SALE HELD PURSUANT TO THIS
SECTION.
  (E) A PURCHASER IN GOOD FAITH OF GOODS SOLD TO ENFORCE  A  WAREHOUSE'S
LIEN  TAKES  THE  GOODS  FREE OF ANY RIGHTS OF PERSONS AGAINST WHICH THE
LIEN WAS VALID, DESPITE THE WAREHOUSE'S NONCOMPLIANCE WITH THIS SECTION.
  (F) A WAREHOUSE MAY SATISFY ITS LIEN FROM THE  PROCEEDS  OF  ANY  SALE
PURSUANT  TO THIS SECTION BUT SHALL HOLD THE BALANCE, IF ANY, FOR DELIV-
ERY ON DEMAND TO ANY PERSON TO WHICH THE WAREHOUSE WOULD HAVE BEEN BOUND
TO DELIVER THE GOODS.
  (G) THE RIGHTS PROVIDED BY THIS SECTION ARE IN ADDITION TO  ALL  OTHER
RIGHTS ALLOWED BY LAW TO A CREDITOR AGAINST A DEBTOR.
  (H)  IF  A  LIEN IS ON GOODS STORED BY A MERCHANT IN THE COURSE OF ITS
BUSINESS, THE LIEN MAY BE ENFORCED IN ACCORDANCE WITH SUBSECTION (A)  OR
(B).
  (I) A WAREHOUSE IS LIABLE FOR DAMAGES CAUSED BY FAILURE TO COMPLY WITH
THE  REQUIREMENTS  FOR  SALE  UNDER THIS SECTION AND, IN CASE OF WILLFUL
VIOLATION, IS LIABLE FOR CONVERSION.
                                 PART 3
                   BILLS OF LADING: SPECIAL PROVISIONS
SECTION 7--301. LIABILITY FOR NONRECEIPT  OR  MISDESCRIPTION;  "SAID  TO
                  CONTAIN"; "SHIPPER'S WEIGHT, LOAD, AND COUNT"; IMPROP-
                  ER HANDLING.
  (A)  A  CONSIGNEE  OF  A  NONNEGOTIABLE BILL OF LADING WHICH HAS GIVEN
VALUE IN GOOD FAITH, OR A HOLDER TO WHICH A  NEGOTIABLE  BILL  HAS  BEEN
DULY  NEGOTIATED,  RELYING UPON THE DESCRIPTION OF THE GOODS IN THE BILL
OR UPON THE DATE SHOWN IN THE BILL, MAY RECOVER FROM THE ISSUER  DAMAGES
CAUSED  BY THE MISDATING OF THE BILL OR THE NONRECEIPT OR MISDESCRIPTION
OF THE GOODS, EXCEPT TO THE EXTENT THAT  THE  BILL  INDICATES  THAT  THE
ISSUER  DOES  NOT KNOW WHETHER ANY PART OR ALL OF THE GOODS IN FACT WERE
RECEIVED OR CONFORM TO THE DESCRIPTION, SUCH AS IN A CASE IN  WHICH  THE
DESCRIPTION  IS IN TERMS OF MARKS OR LABELS OR KIND, QUANTITY, OR CONDI-
TION OR THE RECEIPT OR DESCRIPTION IS QUALIFIED BY "CONTENTS  OR  CONDI-
TION  OF  CONTENTS  OF  PACKAGES UNKNOWN", "SAID TO CONTAIN", "SHIPPER'S
WEIGHT, LOAD, AND COUNT," OR WORDS OF SIMILAR IMPORT, IF THAT INDICATION
IS TRUE.
  (B) IF GOODS ARE LOADED BY THE ISSUER OF A BILL OF LADING:
  (1) THE ISSUER SHALL COUNT THE PACKAGES OF GOODS IF SHIPPED  IN  PACK-
AGES AND ASCERTAIN THE KIND AND QUANTITY IF SHIPPED IN BULK; AND
  (2)  WORDS  SUCH  AS  "SHIPPER'S WEIGHT, LOAD, AND COUNT," OR WORDS OF
SIMILAR IMPORT INDICATING THAT THE DESCRIPTION WAS MADE BY  THE  SHIPPER
ARE INEFFECTIVE EXCEPT AS TO GOODS CONCEALED IN PACKAGES.
  (C)  IF BULK GOODS ARE LOADED BY A SHIPPER THAT MAKES AVAILABLE TO THE
ISSUER OF A BILL OF LADING ADEQUATE FACILITIES FOR WEIGHING THOSE GOODS,
THE ISSUER SHALL ASCERTAIN THE KIND AND  QUANTITY  WITHIN  A  REASONABLE
TIME AFTER RECEIVING THE SHIPPER'S REQUEST IN A RECORD TO DO SO. IN THAT
CASE, "SHIPPER'S WEIGHT" OR WORDS OF SIMILAR IMPORT ARE INEFFECTIVE.
  (D) THE ISSUER OF A BILL OF LADING, BY INCLUDING IN THE BILL THE WORDS
"SHIPPER'S  WEIGHT,  LOAD,  AND  COUNT," OR WORDS OF SIMILAR IMPORT, MAY
INDICATE THAT THE GOODS WERE LOADED BY THE SHIPPER, AND, IF THAT  STATE-
MENT IS TRUE, THE ISSUER IS NOT LIABLE FOR DAMAGES CAUSED BY THE IMPROP-
ER LOADING. HOWEVER, OMISSION OF SUCH WORDS DOES NOT IMPLY LIABILITY FOR
DAMAGES CAUSED BY IMPROPER LOADING.

S. 5901                            70

  (E)  A  SHIPPER  GUARANTEES  TO  AN ISSUER THE ACCURACY AT THE TIME OF
SHIPMENT OF THE DESCRIPTION,  MARKS,  LABELS,  NUMBER,  KIND,  QUANTITY,
CONDITION,  AND  WEIGHT,  AS  FURNISHED  BY THE SHIPPER, AND THE SHIPPER
SHALL INDEMNIFY THE ISSUER AGAINST  DAMAGE  CAUSED  BY  INACCURACIES  IN
THOSE  PARTICULARS.  THIS RIGHT OF INDEMNITY DOES NOT LIMIT THE ISSUER'S
RESPONSIBILITY OR LIABILITY UNDER THE CONTRACT OF CARRIAGE TO ANY PERSON
OTHER THAN THE SHIPPER.
SECTION 7--302. THROUGH BILLS OF LADING AND SIMILAR DOCUMENTS OF TITLE.
  (A) THE ISSUER OF A THROUGH BILL OF LADING, OR OTHER DOCUMENT OF TITLE
EMBODYING AN UNDERTAKING TO BE PERFORMED IN PART BY A PERSON  ACTING  AS
ITS  AGENT  OR BY A PERFORMING CARRIER, IS LIABLE TO ANY PERSON ENTITLED
TO RECOVER ON THE BILL OR OTHER DOCUMENT FOR ANY  BREACH  BY  THE  OTHER
PERSON  OR  THE  PERFORMING  CARRIER OF ITS OBLIGATION UNDER THE BILL OR
OTHER DOCUMENT. HOWEVER, TO THE EXTENT THAT THE BILL OR  OTHER  DOCUMENT
COVERS  AN  UNDERTAKING  TO  BE  PERFORMED  OVERSEAS OR IN TERRITORY NOT
CONTIGUOUS TO THE CONTINENTAL UNITED STATES OR AN UNDERTAKING  INCLUDING
MATTERS  OTHER  THAN  TRANSPORTATION,  THIS  LIABILITY FOR BREACH BY THE
OTHER PERSON OR THE PERFORMING CARRIER MAY BE VARIED BY AGREEMENT OF THE
PARTIES.
  (B) IF GOODS COVERED BY A THROUGH BILL OF LADING OR OTHER DOCUMENT  OF
TITLE EMBODYING AN UNDERTAKING TO BE PERFORMED IN PART BY A PERSON OTHER
THAN THE ISSUER ARE RECEIVED BY THAT PERSON, THE PERSON IS SUBJECT, WITH
RESPECT TO ITS OWN PERFORMANCE WHILE THE GOODS ARE IN ITS POSSESSION, TO
THE  OBLIGATION  OF THE ISSUER. THE PERSON'S OBLIGATION IS DISCHARGED BY
DELIVERY OF THE GOODS TO ANOTHER PERSON PURSUANT TO THE  BILL  OR  OTHER
DOCUMENT  AND  DOES NOT INCLUDE LIABILITY FOR BREACH BY ANY OTHER PERSON
OR BY THE ISSUER.
  (C) THE ISSUER OF A THROUGH BILL OF LADING OR OTHER DOCUMENT OF  TITLE
DESCRIBED  IN  SUBSECTION (A) IS ENTITLED TO RECOVER FROM THE PERFORMING
CARRIER, OR OTHER PERSON IN POSSESSION OF THE GOODS WHEN THE  BREACH  OF
THE OBLIGATION UNDER THE BILL OR OTHER DOCUMENT OCCURRED:
  (1)  THE  AMOUNT  IT  MAY BE REQUIRED TO PAY TO ANY PERSON ENTITLED TO
RECOVER ON THE BILL  OR  OTHER  DOCUMENT  FOR  THE  BREACH,  AS  MAY  BE
EVIDENCED BY ANY RECEIPT, JUDGMENT, OR TRANSCRIPT OF JUDGMENT; AND
  (2)  THE  AMOUNT  OF  ANY EXPENSE REASONABLY INCURRED BY THE ISSUER IN
DEFENDING ANY ACTION COMMENCED BY ANY PERSON ENTITLED TO RECOVER ON  THE
BILL OR OTHER DOCUMENT FOR THE BREACH.
SECTION 7--303. DIVERSION; RECONSIGNMENT; CHANGE OF INSTRUCTIONS.
  (A) UNLESS THE BILL OF LADING OTHERWISE PROVIDES, A CARRIER MAY DELIV-
ER  THE  GOODS  TO A PERSON OR DESTINATION OTHER THAN THAT STATED IN THE
BILL OR MAY OTHERWISE DISPOSE OF THE GOODS, WITHOUT LIABILITY FOR MISDE-
LIVERY, ON INSTRUCTIONS FROM:
  (1) THE HOLDER OF A NEGOTIABLE BILL;
  (2) THE CONSIGNOR ON A NONNEGOTIABLE BILL, EVEN IF THE  CONSIGNEE  HAS
GIVEN CONTRARY INSTRUCTIONS;
  (3)  THE  CONSIGNEE ON A NONNEGOTIABLE BILL IN THE ABSENCE OF CONTRARY
INSTRUCTIONS FROM THE CONSIGNOR, IF THE GOODS HAVE ARRIVED AT THE BILLED
DESTINATION OR IF THE CONSIGNEE IS IN POSSESSION OF THE TANGIBLE BILL OR
IN CONTROL OF THE ELECTRONIC BILL; OR
  (4) THE CONSIGNEE ON A NONNEGOTIABLE BILL, IF THE CONSIGNEE  IS  ENTI-
TLED AS AGAINST THE CONSIGNOR TO DISPOSE OF THE GOODS.
  (B)  UNLESS INSTRUCTIONS DESCRIBED IN SUBSECTION (A) ARE INCLUDED IN A
NEGOTIABLE BILL OF LADING, A PERSON TO WHICH THE BILL IS DULY NEGOTIATED
MAY HOLD THE BAILEE ACCORDING TO THE ORIGINAL TERMS.
SECTION 7--304. TANGIBLE BILLS OF LADING IN A SET.

S. 5901                            71

  (A) EXCEPT AS CUSTOMARY IN INTERNATIONAL  TRANSPORTATION,  A  TANGIBLE
BILL OF LADING MAY NOT BE ISSUED IN A SET OF PARTS. THE ISSUER IS LIABLE
FOR DAMAGES CAUSED BY VIOLATION OF THIS SUBSECTION.
  (B) IF A TANGIBLE BILL OF LADING IS LAWFULLY ISSUED IN A SET OF PARTS,
EACH  OF  WHICH  CONTAINS  AN IDENTIFICATION CODE AND IS EXPRESSED TO BE
VALID ONLY IF THE GOODS HAVE NOT BEEN DELIVERED AGAINST ANY OTHER  PART,
THE WHOLE OF THE PARTS CONSTITUTES ONE BILL.
  (C)  IF  A  TANGIBLE NEGOTIABLE BILL OF LADING IS LAWFULLY ISSUED IN A
SET OF PARTS AND DIFFERENT PARTS ARE NEGOTIATED  TO  DIFFERENT  PERSONS,
THE  TITLE  OF  THE  HOLDER  TO  WHICH THE FIRST DUE NEGOTIATION IS MADE
PREVAILS AS TO BOTH THE DOCUMENT OF TITLE AND  THE  GOODS  EVEN  IF  ANY
LATER  HOLDER MAY HAVE RECEIVED THE GOODS FROM THE CARRIER IN GOOD FAITH
AND DISCHARGED THE CARRIER'S OBLIGATION BY SURRENDERING ITS PART.
  (D) A PERSON THAT NEGOTIATES OR TRANSFERS A SINGLE PART OF A  TANGIBLE
BILL  OF  LADING ISSUED IN A SET IS LIABLE TO HOLDERS OF THAT PART AS IF
IT WERE THE WHOLE SET.
  (E) THE BAILEE SHALL DELIVER IN ACCORDANCE WITH PART 4 OF THIS ARTICLE
AGAINST THE FIRST PRESENTED PART OF A TANGIBLE BILL OF  LADING  LAWFULLY
ISSUED  IN  A SET. DELIVERY IN THIS MANNER DISCHARGES THE BAILEE'S OBLI-
GATION ON THE WHOLE BILL.
SECTION 7--305. DESTINATION BILLS.
  (A) INSTEAD OF ISSUING A BILL OF LADING TO THE CONSIGNOR AT THE  PLACE
OF SHIPMENT, A CARRIER, AT THE REQUEST OF THE CONSIGNOR, MAY PROCURE THE
BILL TO BE ISSUED AT DESTINATION OR AT ANY OTHER PLACE DESIGNATED IN THE
REQUEST.
  (B)  UPON  REQUEST  OF  ANY  PERSON  ENTITLED  AS AGAINST A CARRIER TO
CONTROL THE GOODS WHILE IN TRANSIT AND ON  SURRENDER  OF  POSSESSION  OR
CONTROL  OF ANY OUTSTANDING BILL OF LADING OR OTHER RECEIPT COVERING THE
GOODS, THE ISSUER, SUBJECT TO SECTION 7--105, MAY PROCURE  A  SUBSTITUTE
BILL TO BE ISSUED AT ANY PLACE DESIGNATED IN THE REQUEST.
SECTION 7--306. ALTERED BILLS OF LADING.
  AN  UNAUTHORIZED  ALTERATION  OR  FILLING  IN  OF A BLANK IN A BILL OF
LADING LEAVES THE BILL ENFORCEABLE ACCORDING TO ITS ORIGINAL TENOR.
SECTION 7--307. LIEN OF CARRIER.
  (A) A CARRIER HAS A LIEN ON THE GOODS COVERED BY A BILL OF  LADING  OR
ON  THE PROCEEDS THEREOF IN ITS POSSESSION FOR CHARGES AFTER THE DATE OF
THE CARRIER'S RECEIPT  OF  THE  GOODS  FOR  STORAGE  OR  TRANSPORTATION,
INCLUDING DEMURRAGE AND TERMINAL CHARGES, AND FOR EXPENSES NECESSARY FOR
PRESERVATION OF THE GOODS INCIDENT TO THEIR TRANSPORTATION OR REASONABLY
INCURRED IN THEIR SALE PURSUANT TO LAW. HOWEVER, AGAINST A PURCHASER FOR
VALUE  OF  A  NEGOTIABLE  BILL OF LADING, A CARRIER'S LIEN IS LIMITED TO
CHARGES STATED IN THE BILL OR THE APPLICABLE TARIFFS OR, IF  NO  CHARGES
ARE STATED, A REASONABLE CHARGE.
  (B) A LIEN FOR CHARGES AND EXPENSES UNDER SUBSECTION (A) ON GOODS THAT
THE  CARRIER WAS REQUIRED BY LAW TO RECEIVE FOR TRANSPORTATION IS EFFEC-
TIVE AGAINST THE CONSIGNOR OR ANY PERSON ENTITLED TO  THE  GOODS  UNLESS
THE  CARRIER  HAD  NOTICE THAT THE CONSIGNOR LACKED AUTHORITY TO SUBJECT
THE GOODS  TO  THOSE  CHARGES  AND  EXPENSES.    ANY  OTHER  LIEN  UNDER
SUBSECTION  (A)  IS  EFFECTIVE AGAINST THE CONSIGNOR AND ANY PERSON THAT
PERMITTED THE BAILOR TO HAVE CONTROL OR POSSESSION OF THE  GOODS  UNLESS
THE CARRIER HAD NOTICE THAT THE BAILOR LACKED AUTHORITY.
  (C) A CARRIER LOSES ITS LIEN ON ANY GOODS THAT IT VOLUNTARILY DELIVERS
OR UNJUSTIFIABLY REFUSES TO DELIVER.
SECTION 7--308. ENFORCEMENT OF CARRIER'S LIEN.
  (A)  A  CARRIER'S  LIEN  ON GOODS MAY BE ENFORCED BY PUBLIC OR PRIVATE
SALE OF THE GOODS, IN BULK OR IN PACKAGES, AT ANY TIME OR PLACE  AND  ON

S. 5901                            72

ANY  TERMS THAT ARE COMMERCIALLY REASONABLE, AFTER NOTIFYING ALL PERSONS
KNOWN TO CLAIM AN INTEREST IN THE GOODS. THE NOTIFICATION MUST INCLUDE A
STATEMENT OF THE AMOUNT DUE, THE NATURE OF THE PROPOSED  SALE,  AND  THE
TIME  AND  PLACE  OF ANY PUBLIC SALE. THE FACT THAT A BETTER PRICE COULD
HAVE BEEN OBTAINED BY A SALE AT A DIFFERENT TIME OR IN A METHOD  DIFFER-
ENT  FROM  THAT  SELECTED  BY THE CARRIER IS NOT OF ITSELF SUFFICIENT TO
ESTABLISH THAT THE SALE  WAS  NOT  MADE  IN  A  COMMERCIALLY  REASONABLE
MANNER.  THE  CARRIER SELLS GOODS IN A COMMERCIALLY REASONABLE MANNER IF
THE CARRIER SELLS THE GOODS IN THE USUAL MANNER IN ANY RECOGNIZED MARKET
THEREFOR, SELLS AT THE PRICE CURRENT IN THAT MARKET AT THE TIME  OF  THE
SALE,  OR  OTHERWISE  SELLS  IN  CONFORMITY WITH COMMERCIALLY REASONABLE
PRACTICES AMONG DEALERS IN THE TYPE OF GOODS SOLD. A SALE OF MORE  GOODS
THAN  APPARENTLY  NECESSARY  TO BE OFFERED TO ENSURE SATISFACTION OF THE
OBLIGATION IS NOT COMMERCIALLY REASONABLE, EXCEPT IN  CASES  COVERED  BY
THE PRECEDING SENTENCE.
  (B)  BEFORE  ANY  SALE PURSUANT TO THIS SECTION, ANY PERSON CLAIMING A
RIGHT IN THE GOODS MAY PAY THE AMOUNT NECESSARY TO SATISFY THE LIEN  AND
THE REASONABLE EXPENSES INCURRED IN COMPLYING WITH THIS SECTION. IN THAT
EVENT,  THE  GOODS  MAY NOT BE SOLD BUT MUST BE RETAINED BY THE CARRIER,
SUBJECT TO THE TERMS OF THE BILL OF LADING AND THIS ARTICLE.
  (C) A CARRIER MAY BUY AT ANY PUBLIC SALE PURSUANT TO THIS SECTION.
  (D) A PURCHASER IN GOOD FAITH OF GOODS SOLD  TO  ENFORCE  A  CARRIER'S
LIEN  TAKES  THE  GOODS  FREE OF ANY RIGHTS OF PERSONS AGAINST WHICH THE
LIEN WAS VALID, DESPITE THE CARRIER'S NONCOMPLIANCE WITH THIS SECTION.
  (E) A CARRIER MAY SATISFY ITS LIEN  FROM  THE  PROCEEDS  OF  ANY  SALE
PURSUANT  TO THIS SECTION BUT SHALL HOLD THE BALANCE, IF ANY, FOR DELIV-
ERY ON DEMAND TO ANY PERSON TO WHICH THE CARRIER WOULD HAVE  BEEN  BOUND
TO DELIVER THE GOODS.
  (F)  THE  RIGHTS PROVIDED BY THIS SECTION ARE IN ADDITION TO ALL OTHER
RIGHTS ALLOWED BY LAW TO A CREDITOR AGAINST A DEBTOR.
  (G) A CARRIER'S LIEN MAY BE ENFORCED PURSUANT TO EITHER SUBSECTION (A)
OR THE PROCEDURE SET FORTH IN SECTION 7--210(B).
  (H) A CARRIER IS LIABLE FOR DAMAGES CAUSED BY FAILURE TO  COMPLY  WITH
THE  REQUIREMENTS  FOR  SALE  UNDER THIS SECTION AND, IN CASE OF WILLFUL
VIOLATION, IS LIABLE FOR CONVERSION.
SECTION 7--309. DUTY  OF  CARE;  CONTRACTUAL  LIMITATION  OF   CARRIER'S
                  LIABILITY.
  (A)  A  CARRIER  THAT  ISSUES  A BILL OF LADING, WHETHER NEGOTIABLE OR
NONNEGOTIABLE, SHALL EXERCISE THE DEGREE OF  CARE  IN  RELATION  TO  THE
GOODS  WHICH  A  REASONABLY  CAREFUL PERSON WOULD EXERCISE UNDER SIMILAR
CIRCUMSTANCES. THIS SUBSECTION DOES NOT AFFECT ANY STATUTE,  REGULATION,
OR  RULE OF LAW THAT IMPOSES LIABILITY UPON A COMMON CARRIER FOR DAMAGES
NOT CAUSED BY ITS NEGLIGENCE.
  (B) DAMAGES MAY BE LIMITED BY A TERM IN THE BILL OF  LADING  OR  IN  A
TRANSPORTATION  AGREEMENT  THAT THE CARRIER'S LIABILITY MAY NOT EXCEED A
VALUE STATED IN THE BILL OR TRANSPORTATION AGREEMENT  IF  THE  CARRIER'S
RATES ARE DEPENDENT UPON VALUE AND THE CONSIGNOR IS AFFORDED AN OPPORTU-
NITY  TO  DECLARE  A  HIGHER  VALUE  AND THE CONSIGNOR IS ADVISED OF THE
OPPORTUNITY. HOWEVER, SUCH A LIMITATION IS NOT EFFECTIVE WITH RESPECT TO
THE CARRIER'S LIABILITY FOR CONVERSION TO ITS OWN USE.
  (C) REASONABLE PROVISIONS AS TO THE  TIME  AND  MANNER  OF  PRESENTING
CLAIMS AND COMMENCING ACTIONS BASED ON THE SHIPMENT MAY BE INCLUDED IN A
BILL OF LADING OR A TRANSPORTATION AGREEMENT.
                                 PART 4
       WAREHOUSE RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS

S. 5901                            73

SECTION 7--401. IRREGULARITIES IN ISSUE OF RECEIPT OR BILL OR CONDUCT OF
                  ISSUER.
  THE  OBLIGATIONS IMPOSED BY THIS ARTICLE ON AN ISSUER APPLY TO A DOCU-
MENT OF TITLE EVEN IF:
  (1) THE DOCUMENT DOES NOT COMPLY WITH THE REQUIREMENTS OF THIS ARTICLE
OR OF ANY OTHER STATUTE, RULE, OR  REGULATION  REGARDING  ITS  ISSUANCE,
FORM, OR CONTENT;
  (2) THE ISSUER VIOLATED LAWS REGULATING THE CONDUCT OF ITS BUSINESS;
  (3)  THE  GOODS  COVERED BY THE DOCUMENT WERE OWNED BY THE BAILEE WHEN
THE DOCUMENT WAS ISSUED; OR
  (4) THE PERSON ISSUING THE DOCUMENT IS NOT A WAREHOUSE BUT  THE  DOCU-
MENT PURPORTS TO BE A WAREHOUSE RECEIPT.
SECTION 7--402. DUPLICATE DOCUMENT OF TITLE; OVERISSUE.
  A  DUPLICATE  OR ANY OTHER DOCUMENT OF TITLE PURPORTING TO COVER GOODS
ALREADY REPRESENTED BY AN OUTSTANDING DOCUMENT OF THE SAME  ISSUER  DOES
NOT  CONFER  ANY  RIGHT  IN THE GOODS, EXCEPT AS PROVIDED IN THE CASE OF
TANGIBLE BILLS OF LADING IN A SET OF PARTS, OVERISSUE OF  DOCUMENTS  FOR
FUNGIBLE GOODS, SUBSTITUTES FOR LOST, STOLEN, OR DESTROYED DOCUMENTS, OR
SUBSTITUTE  DOCUMENTS  ISSUED  PURSUANT TO SECTION 7--105. THE ISSUER IS
LIABLE FOR DAMAGES CAUSED BY ITS OVERISSUE  OR  FAILURE  TO  IDENTIFY  A
DUPLICATE DOCUMENT BY A CONSPICUOUS NOTATION.
SECTION 7--403. OBLIGATION OF BAILEE TO DELIVER; EXCUSE.
  (A)  A  BAILEE  SHALL  DELIVER  THE GOODS TO A PERSON ENTITLED UNDER A
DOCUMENT OF TITLE IF THE PERSON COMPLIES WITH SUBSECTIONS (B)  AND  (C),
UNLESS  AND TO THE EXTENT THAT THE BAILEE ESTABLISHES ANY OF THE FOLLOW-
ING:
  (1) DELIVERY OF THE GOODS TO A PERSON WHOSE RECEIPT  WAS  RIGHTFUL  AS
AGAINST THE CLAIMANT;
  (2)  DAMAGE  TO  OR DELAY, LOSS, OR DESTRUCTION OF THE GOODS FOR WHICH
THE BAILEE IS NOT LIABLE;
  (3) PREVIOUS SALE OR OTHER DISPOSITION OF THE GOODS IN LAWFUL ENFORCE-
MENT OF A LIEN OR ON A WAREHOUSE'S LAWFUL TERMINATION OF STORAGE;
  (4) THE EXERCISE BY A SELLER OF ITS RIGHT TO STOP DELIVERY PURSUANT TO
SECTION 2--705 OR BY A LESSOR OF ITS RIGHT TO STOP DELIVERY PURSUANT  TO
SECTION 2-A--526;
  (5)  A  DIVERSION,  RECONSIGNMENT,  OR  OTHER  DISPOSITION PURSUANT TO
SECTION 7--303;
  (6) RELEASE, SATISFACTION, OR ANY OTHER PERSONAL DEFENSE  AGAINST  THE
CLAIMANT; OR
  (7) ANY OTHER LAWFUL EXCUSE.
  (B)  A  PERSON  CLAIMING  GOODS  COVERED  BY A DOCUMENT OF TITLE SHALL
SATISFY THE BAILEE'S LIEN IF THE BAILEE SO REQUESTS OR IF THE BAILEE  IS
PROHIBITED BY LAW FROM DELIVERING THE GOODS UNTIL THE CHARGES ARE PAID.
  (C)  UNLESS  A PERSON CLAIMING THE GOODS IS A PERSON AGAINST WHICH THE
DOCUMENT OF TITLE DOES NOT CONFER A RIGHT UNDER SECTION 7--503(A):
  (1) THE PERSON CLAIMING UNDER A DOCUMENT SHALL SURRENDER POSSESSION OR
CONTROL OF ANY OUTSTANDING NEGOTIABLE DOCUMENT COVERING  THE  GOODS  FOR
CANCELLATION OR INDICATION OF PARTIAL DELIVERIES; AND
  (2)  THE BAILEE SHALL CANCEL THE DOCUMENT OR CONSPICUOUSLY INDICATE IN
THE DOCUMENT THE PARTIAL DELIVERY OR THE BAILEE IS LIABLE TO ANY  PERSON
TO WHICH THE DOCUMENT IS DULY NEGOTIATED.
SECTION 7--404. NO  LIABILITY  FOR GOOD-FAITH DELIVERY PURSUANT TO DOCU-
                  MENT OF TITLE.
  A BAILEE THAT IN GOOD FAITH HAS RECEIVED GOODS AND DELIVERED OR OTHER-
WISE DISPOSED OF THE GOODS ACCORDING TO THE TERMS OF A DOCUMENT OF TITLE
OR PURSUANT TO THIS ARTICLE IS NOT LIABLE FOR THE GOODS EVEN IF:

S. 5901                            74

  (1) THE PERSON FROM WHICH THE BAILEE RECEIVED THE GOODS DID  NOT  HAVE
AUTHORITY TO PROCURE THE DOCUMENT OR TO DISPOSE OF THE GOODS; OR
  (2)  THE  PERSON  TO WHICH THE BAILEE DELIVERED THE GOODS DID NOT HAVE
AUTHORITY TO RECEIVE THE GOODS.
                                 PART 5
    WAREHOUSE RECEIPTS AND BILLS OF LADING: NEGOTIATION AND TRANSFER
SECTION 7--501. FORM OF NEGOTIATION AND REQUIREMENTS OF DUE NEGOTIATION.
  (A) THE FOLLOWING RULES APPLY TO A  NEGOTIABLE  TANGIBLE  DOCUMENT  OF
TITLE:
  (1)  IF  THE  DOCUMENT'S  ORIGINAL  TERMS  RUN TO THE ORDER OF A NAMED
PERSON, THE DOCUMENT IS NEGOTIATED BY THE NAMED PERSON'S INDORSEMENT AND
DELIVERY. AFTER THE NAMED PERSON'S INDORSEMENT IN BLANK  OR  TO  BEARER,
ANY PERSON MAY NEGOTIATE THE DOCUMENT BY DELIVERY ALONE.
  (2)  IF  THE DOCUMENT'S ORIGINAL TERMS RUN TO BEARER, IT IS NEGOTIATED
BY DELIVERY ALONE.
  (3) IF THE DOCUMENT'S ORIGINAL TERMS RUN  TO  THE  ORDER  OF  A  NAMED
PERSON  AND  IT IS DELIVERED TO THE NAMED PERSON, THE EFFECT IS THE SAME
AS IF THE DOCUMENT HAD BEEN NEGOTIATED.
  (4) NEGOTIATION OF THE DOCUMENT AFTER IT HAS BEEN INDORSED TO A  NAMED
PERSON REQUIRES INDORSEMENT BY THE NAMED PERSON AND DELIVERY.
  (5)  A  DOCUMENT  IS DULY NEGOTIATED IF IT IS NEGOTIATED IN THE MANNER
STATED IN THIS SUBSECTION TO A HOLDER THAT PURCHASES IT IN  GOOD  FAITH,
WITHOUT  NOTICE OF ANY DEFENSE AGAINST OR CLAIM TO IT ON THE PART OF ANY
PERSON, AND FOR VALUE, UNLESS IT IS ESTABLISHED THAT THE NEGOTIATION  IS
NOT IN THE REGULAR COURSE OF BUSINESS OR FINANCING OR INVOLVES RECEIVING
THE DOCUMENT IN SETTLEMENT OR PAYMENT OF A MONETARY OBLIGATION.
  (B)  THE  FOLLOWING RULES APPLY TO A NEGOTIABLE ELECTRONIC DOCUMENT OF
TITLE:
  (1) IF THE DOCUMENT'S ORIGINAL TERMS RUN  TO  THE  ORDER  OF  A  NAMED
PERSON OR TO BEARER, THE DOCUMENT IS NEGOTIATED BY DELIVERY OF THE DOCU-
MENT  TO ANOTHER PERSON. INDORSEMENT BY THE NAMED PERSON IS NOT REQUIRED
TO NEGOTIATE THE DOCUMENT.
  (2) IF THE DOCUMENT'S ORIGINAL TERMS RUN  TO  THE  ORDER  OF  A  NAMED
PERSON  AND  THE NAMED PERSON HAS CONTROL OF THE DOCUMENT, THE EFFECT IS
THE SAME AS IF THE DOCUMENT HAD BEEN NEGOTIATED.
  (3) A DOCUMENT IS DULY NEGOTIATED IF IT IS NEGOTIATED  IN  THE  MANNER
STATED  IN  THIS SUBSECTION TO A HOLDER THAT PURCHASES IT IN GOOD FAITH,
WITHOUT NOTICE OF ANY DEFENSE AGAINST OR CLAIM TO IT ON THE PART OF  ANY
PERSON,  AND FOR VALUE, UNLESS IT IS ESTABLISHED THAT THE NEGOTIATION IS
NOT IN THE REGULAR COURSE OF BUSINESS OR FINANCING  OR  INVOLVES  TAKING
DELIVERY  OF  THE  DOCUMENT IN SETTLEMENT OR PAYMENT OF A MONETARY OBLI-
GATION.
  (C) INDORSEMENT OF A NONNEGOTIABLE DOCUMENT OF TITLE NEITHER MAKES  IT
NEGOTIABLE NOR ADDS TO THE TRANSFEREE'S RIGHTS.
  (D)  THE NAMING IN A NEGOTIABLE BILL OF LADING OF A PERSON TO BE NOTI-
FIED OF THE ARRIVAL OF THE GOODS DOES NOT LIMIT THE NEGOTIABILITY OF THE
BILL OR CONSTITUTE NOTICE TO A PURCHASER OF THE BILL OF ANY INTEREST  OF
THAT PERSON IN THE GOODS.
SECTION 7--502. RIGHTS ACQUIRED BY DUE NEGOTIATION.
  (A) SUBJECT TO SECTIONS 7--205 AND 7--503, A HOLDER TO WHICH A NEGOTI-
ABLE DOCUMENT OF TITLE HAS BEEN DULY NEGOTIATED ACQUIRES THEREBY:
  (1) TITLE TO THE DOCUMENT;
  (2) TITLE TO THE GOODS;
  (3) ALL RIGHTS ACCRUING UNDER THE LAW OF AGENCY OR ESTOPPEL, INCLUDING
RIGHTS  TO  GOODS DELIVERED TO THE BAILEE AFTER THE DOCUMENT WAS ISSUED;
AND

S. 5901                            75

  (4) THE DIRECT OBLIGATION OF THE ISSUER TO HOLD OR DELIVER  THE  GOODS
ACCORDING  TO  THE TERMS OF THE DOCUMENT FREE OF ANY DEFENSE OR CLAIM BY
THE ISSUER EXCEPT THOSE ARISING UNDER THE TERMS OF THE DOCUMENT OR UNDER
THIS ARTICLE, BUT IN THE CASE OF A DELIVERY ORDER,  THE  BAILEE'S  OBLI-
GATION  ACCRUES  ONLY UPON THE BAILEE'S ACCEPTANCE OF THE DELIVERY ORDER
AND THE OBLIGATION ACQUIRED BY THE HOLDER IS THAT  THE  ISSUER  AND  ANY
INDORSER WILL PROCURE THE ACCEPTANCE OF THE BAILEE.
  (B)  SUBJECT TO SECTION 7--503, TITLE AND RIGHTS ACQUIRED BY DUE NEGO-
TIATION ARE NOT DEFEATED BY ANY STOPPAGE OF THE GOODS REPRESENTED BY THE
DOCUMENT OF TITLE OR BY SURRENDER OF THE GOODS BY THE BAILEE AND ARE NOT
IMPAIRED EVEN IF:
  (1) THE DUE NEGOTIATION OR ANY PRIOR  DUE  NEGOTIATION  CONSTITUTED  A
BREACH OF DUTY;
  (2)  ANY PERSON HAS BEEN DEPRIVED OF POSSESSION OF A NEGOTIABLE TANGI-
BLE DOCUMENT OR CONTROL OF A NEGOTIABLE ELECTRONIC DOCUMENT BY MISREPRE-
SENTATION, FRAUD, ACCIDENT, MISTAKE, DURESS, LOSS, THEFT, OR CONVERSION;
OR
  (3) A PREVIOUS SALE OR OTHER TRANSFER OF THE  GOODS  OR  DOCUMENT  HAS
BEEN MADE TO A THIRD PERSON.
SECTION 7--503. DOCUMENT OF TITLE TO GOODS DEFEATED IN CERTAIN CASES.
  (A)  A  DOCUMENT  OF  TITLE CONFERS NO RIGHT IN GOODS AGAINST A PERSON
THAT BEFORE ISSUANCE OF THE DOCUMENT HAD A LEGAL INTEREST OR A PERFECTED
SECURITY INTEREST IN THE GOODS AND THAT DID NOT:
  (1) DELIVER OR ENTRUST THE GOODS OR ANY DOCUMENT OF TITLE COVERING THE
GOODS TO THE BAILOR OR THE BAILOR'S NOMINEE WITH:
  (A) ACTUAL OR APPARENT AUTHORITY TO SHIP, STORE, OR SELL;
  (B) POWER TO OBTAIN DELIVERY UNDER SECTION 7--403; OR
  (C)  POWER  OF  DISPOSITION   UNDER   SECTION   2--403,   2-A--304(2),
2-A--305(2), 9--320, OR 9--321(C) OR OTHER STATUTE OR RULE OF LAW; OR
  (2)  ACQUIESCE  IN THE PROCUREMENT BY THE BAILOR OR ITS NOMINEE OF ANY
DOCUMENT.
  (B) TITLE TO GOODS BASED UPON AN UNACCEPTED DELIVERY ORDER IS  SUBJECT
TO  THE  RIGHTS OF ANY PERSON TO WHICH A NEGOTIABLE WAREHOUSE RECEIPT OR
BILL OF LADING COVERING THE GOODS HAS BEEN DULY NEGOTIATED.  THAT  TITLE
MAY BE DEFEATED UNDER SECTION 7--504 TO THE SAME EXTENT AS THE RIGHTS OF
THE ISSUER OR A TRANSFEREE FROM THE ISSUER.
  (C)  TITLE  TO  GOODS  BASED UPON A BILL OF LADING ISSUED TO A FREIGHT
FORWARDER IS SUBJECT TO THE RIGHTS OF ANY PERSON TO WHICH A BILL  ISSUED
BY  THE  FREIGHT  FORWARDER IS DULY NEGOTIATED. HOWEVER, DELIVERY BY THE
CARRIER IN ACCORDANCE WITH PART 4 OF THIS ARTICLE PURSUANT  TO  ITS  OWN
BILL OF LADING DISCHARGES THE CARRIER'S OBLIGATION TO DELIVER.
SECTION 7--504. RIGHTS ACQUIRED IN ABSENCE OF DUE NEGOTIATION; EFFECT OF
                  DIVERSION; STOPPAGE OF DELIVERY.
  (A)  A TRANSFEREE OF A DOCUMENT OF TITLE, WHETHER NEGOTIABLE OR NONNE-
GOTIABLE, TO WHICH THE DOCUMENT HAS BEEN DELIVERED BUT NOT DULY  NEGOTI-
ATED, ACQUIRES THE TITLE AND RIGHTS THAT ITS TRANSFEROR HAD OR HAD ACTU-
AL AUTHORITY TO CONVEY.
  (B)  IN  THE  CASE OF A TRANSFER OF A NONNEGOTIABLE DOCUMENT OF TITLE,
UNTIL BUT NOT AFTER THE BAILEE RECEIVES  NOTICE  OF  THE  TRANSFER,  THE
RIGHTS OF THE TRANSFEREE MAY BE DEFEATED:
  (1)  BY THOSE CREDITORS OF THE TRANSFEROR WHICH COULD TREAT THE TRANS-
FER AS VOID UNDER SECTION 2--402 OR 2-A--308;
  (2) BY A BUYER FROM THE TRANSFEROR IN ORDINARY COURSE OF  BUSINESS  IF
THE BAILEE HAS DELIVERED THE GOODS TO THE BUYER OR RECEIVED NOTIFICATION
OF THE BUYER'S RIGHTS;

S. 5901                            76

  (3)  BY A LESSEE FROM THE TRANSFEROR IN ORDINARY COURSE OF BUSINESS IF
THE BAILEE HAS DELIVERED THE GOODS TO THE LESSEE OR  RECEIVED  NOTIFICA-
TION OF THE LESSEE'S RIGHTS; OR
  (4)  AS  AGAINST THE BAILEE, BY GOOD-FAITH DEALINGS OF THE BAILEE WITH
THE TRANSFEROR.
  (C) A DIVERSION OR  OTHER  CHANGE  OF  SHIPPING  INSTRUCTIONS  BY  THE
CONSIGNOR  IN A NONNEGOTIABLE BILL OF LADING WHICH CAUSES THE BAILEE NOT
TO DELIVER THE GOODS TO THE CONSIGNEE DEFEATS THE CONSIGNEE'S  TITLE  TO
THE GOODS IF THE GOODS HAVE BEEN DELIVERED TO A BUYER IN ORDINARY COURSE
OF  BUSINESS  OR  A  LESSEE  IN  ORDINARY COURSE OF BUSINESS AND, IN ANY
EVENT, DEFEATS THE CONSIGNEE'S RIGHTS AGAINST THE BAILEE.
  (D) DELIVERY OF THE GOODS PURSUANT  TO  A  NONNEGOTIABLE  DOCUMENT  OF
TITLE  MAY BE STOPPED BY A SELLER UNDER SECTION 2--705 OR A LESSOR UNDER
SECTION 2-A--526, SUBJECT TO THE REQUIREMENTS  OF  DUE  NOTIFICATION  IN
THOSE   SECTIONS.   A  BAILEE  THAT  HONORS  THE  SELLER'S  OR  LESSOR'S
INSTRUCTIONS IS ENTITLED TO BE  INDEMNIFIED  BY  THE  SELLER  OR  LESSOR
AGAINST ANY RESULTING LOSS OR EXPENSE.
SECTION 7--505. INDORSER NOT GUARANTOR FOR OTHER PARTIES.
  THE  INDORSEMENT  OF  A  TANGIBLE DOCUMENT OF TITLE ISSUED BY A BAILEE
DOES NOT MAKE THE INDORSER LIABLE FOR  ANY  DEFAULT  BY  THE  BAILEE  OR
PREVIOUS INDORSERS.
SECTION 7--506. DELIVERY  WITHOUT  INDORSEMENT: RIGHT TO COMPEL INDORSE-
                  MENT.
  THE TRANSFEREE OF A  NEGOTIABLE  TANGIBLE  DOCUMENT  OF  TITLE  HAS  A
SPECIFICALLY  ENFORCEABLE RIGHT TO HAVE ITS TRANSFEROR SUPPLY ANY NECES-
SARY INDORSEMENT, BUT THE TRANSFER BECOMES A NEGOTIATION ONLY AS OF  THE
TIME THE INDORSEMENT IS SUPPLIED.
SECTION 7--507. WARRANTIES  ON  NEGOTIATION  OR  DELIVERY OF DOCUMENT OF
                  TITLE.
  IF A PERSON NEGOTIATES OR DELIVERS A  DOCUMENT  OF  TITLE  FOR  VALUE,
OTHERWISE  THAN  AS  A  MERE  INTERMEDIARY  UNDER SECTION 7--508, UNLESS
OTHERWISE AGREED, THE TRANSFEROR, IN ADDITION TO ANY  WARRANTY  MADE  IN
SELLING  OR  LEASING THE GOODS, WARRANTS TO ITS IMMEDIATE PURCHASER ONLY
THAT:
  (1) THE DOCUMENT IS GENUINE;
  (2) THE TRANSFEROR DOES NOT HAVE KNOWLEDGE  OF  ANY  FACT  THAT  WOULD
IMPAIR THE DOCUMENT'S VALIDITY OR WORTH; AND
  (3)  THE  NEGOTIATION OR DELIVERY IS RIGHTFUL AND FULLY EFFECTIVE WITH
RESPECT TO THE TITLE TO THE DOCUMENT AND THE GOODS IT REPRESENTS.
SECTION 7--508. WARRANTIES OF COLLECTING BANK AS TO DOCUMENTS OF TITLE.
  A COLLECTING BANK OR OTHER INTERMEDIARY KNOWN  TO  BE  ENTRUSTED  WITH
DOCUMENTS OF TITLE ON BEHALF OF ANOTHER OR WITH COLLECTION OF A DRAFT OR
OTHER  CLAIM  AGAINST  DELIVERY OF DOCUMENTS WARRANTS BY THE DELIVERY OF
THE DOCUMENTS ONLY ITS OWN GOOD FAITH AND AUTHORITY EVEN IF THE COLLECT-
ING BANK OR OTHER INTERMEDIARY HAS PURCHASED OR  MADE  ADVANCES  AGAINST
THE CLAIM OR DRAFT TO BE COLLECTED.
SECTION 7--509. ADEQUATE COMPLIANCE WITH COMMERCIAL CONTRACT.
  WHETHER  A DOCUMENT OF TITLE IS ADEQUATE TO FULFILL THE OBLIGATIONS OF
A CONTRACT FOR SALE, A CONTRACT FOR LEASE, OR THE CONDITIONS OF A LETTER
OF CREDIT IS DETERMINED BY ARTICLE 2, 2-A, OR 5.
                                 PART 6
                 WAREHOUSE RECEIPTS AND BILLS OF LADING:
                        MISCELLANEOUS PROVISIONS
SECTION 7--601. LOST, STOLEN, OR DESTROYED DOCUMENTS OF TITLE.
  (A) IF A DOCUMENT OF TITLE IS LOST, STOLEN, OR DESTROYED, A COURT  MAY
ORDER DELIVERY OF THE GOODS OR ISSUANCE OF A SUBSTITUTE DOCUMENT AND THE

S. 5901                            77

BAILEE  MAY  WITHOUT  LIABILITY TO ANY PERSON COMPLY WITH THE ORDER.  IF
THE DOCUMENT WAS NEGOTIABLE, A COURT MAY NOT ORDER DELIVERY OF THE GOODS
OR ISSUANCE OF A SUBSTITUTE  DOCUMENT  WITHOUT  THE  CLAIMANT'S  POSTING
SECURITY  UNLESS  IT  FINDS  THAT  ANY  PERSON THAT MAY SUFFER LOSS AS A
RESULT OF NONSURRENDER OF POSSESSION  OR  CONTROL  OF  THE  DOCUMENT  IS
ADEQUATELY  PROTECTED  AGAINST  THE LOSS. IF THE DOCUMENT WAS NONNEGOTI-
ABLE, THE COURT MAY REQUIRE SECURITY. THE COURT MAY ALSO  ORDER  PAYMENT
OF THE BAILEE'S REASONABLE COSTS AND ATTORNEY'S FEES IN ANY ACTION UNDER
THIS SUBSECTION.
  (B)  A  BAILEE THAT, WITHOUT A COURT ORDER, DELIVERS GOODS TO A PERSON
CLAIMING UNDER A MISSING NEGOTIABLE DOCUMENT OF TITLE IS LIABLE  TO  ANY
PERSON INJURED THEREBY. IF THE DELIVERY IS NOT IN GOOD FAITH, THE BAILEE
IS  LIABLE  FOR  CONVERSION. DELIVERY IN GOOD FAITH IS NOT CONVERSION IF
THE CLAIMANT POSTS SECURITY WITH THE BAILEE IN AN AMOUNT AT LEAST DOUBLE
THE VALUE OF THE GOODS AT THE TIME OF POSTING TO  INDEMNIFY  ANY  PERSON
INJURED  BY  THE  DELIVERY WHICH FILES A NOTICE OF CLAIM WITHIN ONE YEAR
AFTER THE DELIVERY.
SECTION 7--602. JUDICIAL PROCESS AGAINST  GOODS  COVERED  BY  NEGOTIABLE
                 DOCUMENT OF TITLE.
  UNLESS  A DOCUMENT OF TITLE WAS ORIGINALLY ISSUED UPON DELIVERY OF THE
GOODS BY A PERSON THAT DID NOT HAVE POWER TO DISPOSE  OF  THEM,  A  LIEN
DOES  NOT  ATTACH  BY  VIRTUE  OF  ANY  JUDICIAL PROCESS TO GOODS IN THE
POSSESSION OF A BAILEE FOR WHICH  A  NEGOTIABLE  DOCUMENT  OF  TITLE  IS
OUTSTANDING  UNLESS  POSSESSION  OR  CONTROL  OF  THE  DOCUMENT IS FIRST
SURRENDERED TO THE BAILEE OR THE DOCUMENT'S NEGOTIATION IS ENJOINED. THE
BAILEE MAY NOT BE COMPELLED TO DELIVER THE  GOODS  PURSUANT  TO  PROCESS
UNTIL POSSESSION OR CONTROL OF THE DOCUMENT IS SURRENDERED TO THE BAILEE
OR TO THE COURT. A PURCHASER OF THE DOCUMENT FOR VALUE WITHOUT NOTICE OF
THE  PROCESS  OR  INJUNCTION  TAKES FREE OF THE LIEN IMPOSED BY JUDICIAL
PROCESS.
SECTION 7--603. CONFLICTING CLAIMS; INTERPLEADER.
  IF MORE THAN ONE PERSON CLAIMS TITLE TO OR POSSESSION  OF  THE  GOODS,
THE  BAILEE  IS  EXCUSED FROM DELIVERY UNTIL THE BAILEE HAS A REASONABLE
TIME TO ASCERTAIN THE VALIDITY OF THE ADVERSE CLAIMS OR TO  COMMENCE  AN
ACTION FOR INTERPLEADER. THE BAILEE MAY ASSERT AN INTERPLEADER EITHER IN
DEFENDING AN ACTION FOR NONDELIVERY OF THE GOODS OR BY ORIGINAL ACTION.
  S  33.  Section  8--103  of  the uniform commercial code is amended by
adding two new subsections (g) and (h) to read as follows:
  (G) A DOCUMENT OF TITLE  IS  NOT  A  FINANCIAL  ASSET  UNLESS  SECTION
8--102(A)(9)(III) APPLIES.
  (H)  AN OBLIGATION, SHARE, PARTICIPATION, OR INTEREST DOES NOT SATISFY
SECTION 8--102(A)(13)(II) OR 8--102(A)(15)(I) MERELY BECAUSE THE  ISSUER
OR A PERSON ACTING ON ITS BEHALF:
  (1)  MAINTAINS  RECORDS  OF THE OWNER THEREOF FOR A PURPOSE OTHER THAN
REGISTRATION OF TRANSFER; OR
  (2) COULD, BUT DOES NOT, MAINTAIN BOOKS FOR THE PURPOSE  OF  REGISTRA-
TION OF TRANSFER.
  S  34.  Section  8--106  of  the uniform commercial code is amended by
adding two new subsections (h) and (i) to read as follows:
  (H) UNDER SUBSECTION (C)(2) OR (D)(2), AUTHENTICATION OF A RECORD DOES
NOT IMPOSE UPON THE ISSUER  OR  SECURITIES  INTERMEDIARY  ANY  DUTY  NOT
EXPRESSLY  AGREED  TO  BY  THE  ISSUER OR SECURITIES INTERMEDIARY IN THE
RECORD.
  (I) A PURCHASER HAS "CONTROL" UNDER SUBSECTION (C)(2) OR  (D)(2)  EVEN
IF  ANY DUTY OF THE ISSUER OR THE SECURITIES INTERMEDIARY TO COMPLY WITH
INSTRUCTIONS OR  ENTITLEMENT  ORDERS  ORIGINATED  BY  THE  PURCHASER  IS

S. 5901                            78

SUBJECT  TO  ANY  CONDITION OR CONDITIONS (OTHER THAN FURTHER CONSENT BY
THE REGISTERED OWNER OR THE ENTITLEMENT HOLDER).
  S 35. Section 9--102 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--102. Definitions And Index of Definitions.
  (a) Article 9 definitions. In this article:
       (1) "Accession" means goods that are physically united with other
           goods  in  such  a  manner  that the identity of the original
           goods is not lost.
       (2) "Account", except as used in "account for", means a right  to
           payment  of  a  monetary obligation, whether or not earned by
           performance, (i) for property that has been or is to be sold,
           leased, licensed, assigned, or otherwise  disposed  of,  (ii)
           for  services  rendered or to be rendered, (iii) for a policy
           of insurance issued or to be issued,  (iv)  for  a  secondary
           obligation  incurred  or  to  be  incurred,  (v)  for  energy
           provided or to be provided, (vi) for the use  or  hire  of  a
           vessel  under  a charter or other contract, (vii) arising out
           of the  use  of  a  credit  or  charge  card  or  information
           contained  on or for use with the card, or (viii) as winnings
           in a lottery or other game of chance operated or sponsored by
           a state, governmental unit of a State, or person licensed  or
           authorized  to  operate  the  game by a State or governmental
           unit of a  State.  The  term  includes  health-care-insurance
           receivables.  The term does not include (i) rights to payment
           evidenced by chattel paper or an instrument, (ii)  commercial
           tort  claims, (iii) deposit accounts, (iv) investment proper-
           ty, (v) letter-of-credit rights or letters of credit, or (vi)
           rights to payment for money or funds advanced or sold,  other
           than rights arising out of the use of a credit or charge card
           or information contained on or for use with the card.
       (3) "Account  debtor"  means  a  person  obligated on an account,
           chattel paper, or  general  intangible.  The  term  does  not
           include  persons  obligated  to  pay a negotiable instrument,
           even if the instrument constitutes part of chattel paper.
       (4) "Accounting", except as used in  "accounting  for",  means  a
           record:
           (A) authenticated by a secured party;
           (B) indicating the aggregate unpaid secured obligations as of
               a  date  not  more  than 35 days earlier or 35 days later
               than the date of the record; and
           (C) identifying the components of the obligations in  reason-
               able detail.
       (5) "Agricultural lien" means an interest[, other than a security
           interest,] in farm products:
           (A) which  secures  payment  or  performance of an obligation
               for:
               (i) goods or services  furnished  in  connection  with  a
                   debtor's farming operation; or
               (ii) rent   on  real  property  leased  by  a  debtor  in
                    connection with its farming operation; and
           (B) which is created by statute in favor of a person that:
               (i) in the ordinary  course  of  its  business  furnished
                   goods  or  services  to a debtor in connection with a
                   debtor's farming operation; or

S. 5901                            79

               (ii) leased real property to a debtor in connection  with
                    the debtor's farming operation; and
           (C) whose  effectiveness  does  not  depend  on  the person's
               possession of the personal property.
       (6) "As-extracted collateral" means:
           (A) oil, gas, or other minerals that are subject to a securi-
               ty interest that:
               (i) is created by a debtor  having  an  interest  in  the
                   minerals before extraction; and
               (ii) attaches to the minerals as extracted; or
           (B) accounts arising out of the sale at the wellhead or mine-
               head  of  oil, gas, or other minerals in which the debtor
               had an interest before extraction.
       (7) "Authenticate" means:
           (A) to sign; or
           (B) [to execute or otherwise adopt a symbol,  or  encrypt  or
               similarly  process a record in whole or in part, with the
               present intent of the authenticating person  to  identify
               the  person  and  adopt  or accept a record] WITH PRESENT
               INTENT TO ADOPT OR ACCEPT  A  RECORD,  TO  ATTACH  TO  OR
               LOGICALLY  ASSOCIATE WITH THE RECORD AN ELECTRONIC SOUND,
               SYMBOL, OR PROCESS.
       (8) "Bank" means an organization that is engaged in the  business
           of banking. The term includes savings banks, savings and loan
           associations, credit unions, and trust companies.
       (9) "Cash proceeds" means proceeds that are money, checks, depos-
           it accounts, or the like.
       (10) "Certificate  of  title"  means  a certificate of title with
            respect to which a statute provides for the security  inter-
            est  in  question  to  be  indicated on the certificate as a
            condition or result of  the  security  interest's  obtaining
            priority  over the rights of a lien creditor with respect to
            the collateral.   SUCH TERM INCLUDES  ANOTHER  RECORD  MAIN-
            TAINED  AS  AN  ALTERNATIVE TO A CERTIFICATE OF TITLE BY THE
            GOVERNMENTAL UNIT THAT ISSUES CERTIFICATES  OF  TITLE  IF  A
            STATUTE  PERMITS  THE  SECURITY  INTEREST  IN QUESTION TO BE
            INDICATED ON THE RECORD AS A  CONDITION  OR  RESULT  OF  THE
            SECURITY  INTEREST'S OBTAINING PRIORITY OVER THE RIGHTS OF A
            LIEN CREDITOR WITH RESPECT TO THE COLLATERAL.
       (11) "Chattel paper" means a record or records that evidence both
            a monetary obligation and a security  interest  in  specific
            goods,  a  security  interest in specific goods and software
            used in the goods, a security interest in specific goods and
            license of software used in the goods, a lease  of  specific
            goods,  or a lease of specific goods and license of software
            used in the goods. In this paragraph, "monetary  obligation"
            means  a  monetary  obligation  secured by the goods or owed
            under a lease of the goods and  includes  a  monetary  obli-
            gation  with respect to software used in the goods. The term
            does not include (i) charters or other  contracts  involving
            the  use or hire of a vessel or (ii) records that evidence a
            right to payment arising out of  the  use  of  a  credit  or
            charge  card or information contained on or for use with the
            card. If a transaction is evidenced by records that  include
            an instrument or series of instruments, the group of records
            taken together constitutes chattel paper.

S. 5901                            80

       (11-a) "Check" means (i) a draft, other than a documentary draft,
              payable  on demand and drawn on a bank or (ii) a cashier's
              check or a teller's check. An instrument may  be  a  check
              even  though  it is described on its face by another term,
              such as "money order". An instrument that (i) meets all of
              the requirements stated in Article 3 of this chapter to be
              a  negotiable  instrument  other  than  stating that it is
              payable to order or bearer and (ii) otherwise qualifies as
              a check is a negotiable instrument and a check.
       (12) "Collateral" means the property subject to a security inter-
            est or agricultural lien. The term includes:
           (A) proceeds to which a security interest attaches;
           (B) accounts, chattel paper, payment intangibles, and promis-
               sory notes that have been sold; and
           (C) goods that are the subject of a consignment.
       (13) "Commercial tort claim" means a claim arising in  tort  with
            respect to which:
           (A) the claimant is an organization; or
           (B) the claimant is an individual and the claim:
               (i) arose  in  the  course  of the claimant's business or
                   profession; and
               (ii) does not include damages  arising  out  of  personal
                    injury to or the death of an individual.
       (14) "Commodity account" means an account maintained by a commod-
            ity  intermediary  in  which a commodity contract is carried
            for a commodity customer.
       (15) "Commodity contract" means a commodity futures contract,  an
            option  on a commodity futures contract, a commodity option,
            or another contract if the contract or option is:
           (A) traded on or subject to the rules of  a  board  of  trade
               that  has been designated as a contract market for such a
               contract pursuant to federal commodities laws; or
           (B) traded on a foreign commodity board of  trade,  exchange,
               or  market,  and  is  carried on the books of a commodity
               intermediary for a commodity customer.
       (16) "Commodity customer" means a person for  which  a  commodity
            intermediary carries a commodity contract on its books.
       (17) "Commodity intermediary" means a person that:
           (A) is  registered  as  a  futures  commission merchant under
               federal commodities law; or
           (B) in the ordinary course of its business provides clearance
               or settlement services for a board of trade that has been
               designated as  a  contract  market  pursuant  to  federal
               commodities law.
       (18) "Communicate" means:
           (A) to send a written or other tangible record;
           (B) to  transmit  a  record  by  any means agreed upon by the
               persons sending and receiving the record; or
           (C) in the case of transmission of a record to or by a filing
               office, to transmit a record by any means  prescribed  by
               filing-office rule.
       (19) "Consignee" means a merchant to which goods are delivered in
            a consignment.
       (20) "Consignment"  means  a transaction, regardless of its form,
            in which a person delivers  goods  to  a  merchant  for  the
            purpose of sale and:

S. 5901                            81

           (A) the merchant:
               (i) deals  in  goods of that kind under a name other than
                   the name of the person making delivery;
               (ii) is not an auctioneer; and
               (iii) is not generally  known  by  its  creditors  to  be
                     substantially  engaged  in  selling  the  goods  of
                     others;
           (B) with respect to each delivery, the aggregate value of the
               goods is $1,000 or more at the time of delivery;
           (C) the goods  are  not  consumer  goods  immediately  before
               delivery; and
           (D) the  transaction does not create a security interest that
               secures an obligation.
       (21) "Consignor"  means  a  person  that  delivers  goods  to   a
            consignee in a consignment.
       (22) "Consumer debtor" means a debtor in a consumer transaction.
       (23) "Consumer goods" means goods that are used or bought for use
            primarily for personal, family, or household purposes.
       (24) "Consumer-goods transaction" means a consumer transaction in
            which:
           (A) an   individual   incurs   an  obligation  primarily  for
               personal, family, or household purposes; and
           (B) a security interest in consumer goods secures  the  obli-
               gation.
       (25) "Consumer obligor" means an obligor who is an individual and
            who incurred the obligation as part of a transaction entered
            into primarily for personal, family, or household purposes.
       (26) "Consumer  transaction"  means a transaction in which (i) an
            individual incurs  an  obligation  primarily  for  personal,
            family,  or  household  purposes,  (ii)  a security interest
            secures the obligation, and (iii) the collateral is held  or
            acquired   primarily  for  personal,  family,  or  household
            purposes. The term includes consumer-goods transactions.
       (27) "Continuation statement" means an amendment of  a  financing
            statement which:
           (A) identifies,  by  its  file  number, the initial financing
               statement to which it relates; and
           (B) indicates that it is a  continuation  statement  for,  or
               that  it  is  filed to continue the effectiveness of, the
               identified financing statement.
       (27-a) "Cooperative  addendum"  means  a  record  that  satisfies
              Section 9--502(e).
       (27-b) "Cooperative  interest"  means  an ownership interest in a
              cooperative organization, which interest, when created, is
              coupled with possessory rights of a proprietary nature  in
              identified  physical  space  belonging  to the cooperative
              organization. A subsequent termination of  the  possessory
              rights  shall  not  cause  an  ownership interest to cease
              being a cooperative interest.
       (27-c) "Cooperative organization" means an organization which has
              as its principal asset an interest  in  real  property  in
              this  state and in which organization all ownership inter-
              ests are cooperative interests.
       (27-d) "Cooperative organization security interest" means a secu-
              rity interest which is in a cooperative  interest,  is  in
              favor  of  the cooperative organization, is created by the

S. 5901                            82

              cooperative record, and secures only obligations  incident
              to ownership of that cooperative interest.
       (27-e) "Cooperative  record"  means  those  records  which,  as a
              whole, evidence cooperative interests and define the mutu-
              al rights and obligations of the owners of the cooperative
              interests and the cooperative organization.
       (27-f) "Cooperative unit" means  the  physical  space  associated
              with a cooperative interest.
       (28) "Debtor" means:
           (A) a person having an interest, other than a security inter-
               est  or other lien, in the collateral, whether or not the
               person is an obligor;
           (B) a seller of accounts, chattel paper, payment intangibles,
               or promissory notes; or
           (C) a consignee.
       (29) "Deposit account" means a demand, time,  savings,  passbook,
            or similar account maintained with a bank. The term does not
            include  investment  property  or  accounts  evidenced by an
            instrument.
       (30) "Document" means a document of title or  a  receipt  of  the
            type described in Section 7--201[(2)] (B).
       (31) "Electronic  chattel paper" means chattel paper evidenced by
            a record or records consisting of information stored  in  an
            electronic medium.
       (32) "Encumbrance"  means a right, other than an ownership inter-
            est, in real property. The term includes mortgages and other
            liens on real property.
       (33) "Equipment" means goods other than inventory, farm products,
            or consumer goods.
       (34) "Farm products" means goods,  other  than  standing  timber,
            with  respect  to  which  the debtor is engaged in a farming
            operation and which are:
           (A) crops grown, growing, or to be grown, including:
               (i) crops produced on trees, vines, and bushes; and
               (ii) aquatic goods produced in aquacultural operations;
           (B) livestock,  born  or  unborn,  including  aquatic   goods
               produced in aquacultural operations;
           (C) supplies used or produced in a farming operation; or
           (D) products  of  crops  or livestock in their unmanufactured
               states.
       (35) "Farming operation" means raising, cultivating, propagating,
            fattening, grazing, or  any  other  farming,  livestock,  or
            aquacultural operation.
       (36) "File  number"  means  the  number  assigned  to  an initial
            financing statement pursuant to Section 9--519(a).
       (37) "Filing office" means an office designated in Section 9--501
            as the place to file a financing statement.
       (38) "Filing-office  rule"  means  a  rule  adopted  pursuant  to
            Section 9--526.
       (39) "Financing  statement" means a record or records composed of
            an initial financing statement and any filed record relating
            to the initial financing statement.
       (40) "Fixture filing" means the filing of a  financing  statement
            covering goods that are or are to become fixtures and satis-
            fying  Section  9--502(a)  and  (b).  The  term includes the

S. 5901                            83

            filing of a financing statement covering goods of  a  trans-
            mitting utility which are or are to become fixtures.
       (41) "Fixtures"  means  goods  that  have  become  so  related to
            particular real property that an  interest  in  them  arises
            under real property law.
       (42) "General  intangible" means any personal property, including
            things  in  action,  other  than  accounts,  chattel  paper,
            commercial  tort claims, deposit accounts, documents, goods,
            instruments, investment property,  letter-of-credit  rights,
            letters  of  credit,  money, and oil, gas, or other minerals
            before extraction. The term includes payment intangibles and
            software.
       (43) "Good faith" means honesty in fact  and  the  observance  of
            reasonable commercial standards of fair dealing.
       (44) "Goods"  means  all  things that are movable when a security
            interest attaches. The  term  includes  (i)  fixtures,  (ii)
            standing  timber  that  is  to  be  cut  and removed under a
            conveyance or contract for sale, (iii) the unborn  young  of
            animals,  (iv) crops grown, growing, or to be grown, even if
            the crops are produced on trees, vines, or bushes,  and  (v)
            manufactured  homes.  The  term  also  includes  a  computer
            program embedded in goods  and  any  supporting  information
            provided  in  connection  with a transaction relating to the
            program if (i) the program is associated with the  goods  in
            such  a manner that it customarily is considered part of the
            goods, or (ii) by becoming the owner of the goods, a  person
            acquires  a  right to use the program in connection with the
            goods. The term does not include a computer program embedded
            in goods that consists solely of the  medium  in  which  the
            program   is  embedded.  The  term  also  does  not  include
            accounts, chattel paper,  commercial  tort  claims,  deposit
            accounts,   documents,   general  intangibles,  instruments,
            investment property,  letter-of-credit  rights,  letters  of
            credit,  money,  or  oil,  gas,  or  other  minerals  before
            extraction.
       (45) "Governmental unit" means a subdivision, agency, department,
            county, parish, municipality, or other unit of  the  govern-
            ment  of  the  United States, a state, or a foreign country.
            The term includes an organization having a  separate  corpo-
            rate existence if the organization is eligible to issue debt
            on  which  interest is exempt from income taxation under the
            laws of the United States.
       (46) "Health-care-insurance receivable" means an interest  in  or
            claim  under  a  policy  of  insurance  which  is a right to
            payment of a monetary obligation for  health-care  goods  or
            services provided OR TO BE PROVIDED.
       (47) "Instrument"  means  a  negotiable  instrument  or any other
            writing that evidences a right to the payment of a  monetary
            obligation, is not itself a security agreement or lease, and
            is  of  a type that in ordinary course of business is trans-
            ferred by delivery with any necessary indorsement or assign-
            ment. The term does not  include  (i)  investment  property,
            (ii)  letters  of  credit, or (iii) writings that evidence a
            right to payment arising out of  the  use  of  a  credit  or
            charge  card or information contained on or for use with the
            card.

S. 5901                            84

       (48) "Inventory" means goods, other than farm products, which:
           (A) are leased by a person as lessor;
           (B) are held by a person for sale or lease or to be furnished
               under a contract of service;
           (C) are furnished by a person under a contract of service; or
           (D) consist  of  raw materials, work in process, or materials
               used or consumed in a business.
       (49) "Investment property" means a security, whether certificated
            or uncertificated, security entitlement, securities account,
            commodity contract, or commodity account.
       (50) "Jurisdiction of organization", with respect to a registered
            organization, means the jurisdiction  under  whose  law  the
            organization is FORMED OR organized.
       (51) "Letter-of-credit   right"  means  a  right  to  payment  or
            performance under a letter of credit,  whether  or  not  the
            beneficiary  has  demanded  or  is  at  the time entitled to
            demand payment or performance. The term does not include the
            right of a beneficiary  to  demand  payment  or  performance
            under a letter of credit.
       (52) "Lien creditor" means:
           (A) a  creditor  that  has  acquired  a  lien on the property
               involved by attachment, levy, or the like;
           (B) an assignee for benefit of creditors  from  the  time  of
               assignment;
           (C) a  trustee  in  bankruptcy from the date of the filing of
               the petition; or
           (D) a receiver in equity from the time of appointment.
       (53) "Manufactured home" means a structure, transportable in  one
            or  more  sections,  which,  in the traveling mode, is eight
            body feet or more in width  or  40  body  feet  or  more  in
            length,  or,  when  erected  on  site, is 320 or more square
            feet, and which is built on a permanent chassis and designed
            to be used as a dwelling with or without a permanent founda-
            tion when connected to the required utilities, and  includes
            the  plumbing,  heating,  air-conditioning,  and  electrical
            systems contained therein. The term includes  any  structure
            that  meets all of the requirements of this paragraph except
            the size requirements and with respect to which the manufac-
            turer voluntarily files  a  certification  required  by  the
            United States Secretary of Housing and Urban Development and
            complies  with  the  standards established under Title 42 of
            the United States Code.
       (54) "Manufactured-home transaction" means a secured transaction:
           (A) that creates a  purchase-money  security  interest  in  a
               manufactured home, other than a manufactured home held as
               inventory; or
           (B) in  which  a manufactured home, other than a manufactured
               home held as inventory, is the primary collateral.
       (55) "Mortgage" means a consensual  interest  in  real  property,
            including  fixtures, which secures payment or performance of
            an obligation.
       (56) "New debtor" means a person that  becomes  bound  as  debtor
            under  Section  9--203(d) by a security agreement previously
            entered into by another person.
       (57) "New value" means (i) money, (ii) money's worth in property,
            services, or new credit, or (iii) release by a transferee of

S. 5901                            85

            an interest in property previously transferred to the trans-
            feree. The term does not include an  obligation  substituted
            for another obligation.
       (58) "Noncash proceeds" means proceeds other than cash proceeds.
       (59) "Obligor" means a person that, with respect to an obligation
            secured by a security interest in or an agricultural lien on
            the collateral, (i) owes payment or other performance of the
            obligation, (ii) has provided property other than the colla-
            teral  to  secure  payment or other performance of the obli-
            gation, or (iii) is otherwise accountable  in  whole  or  in
            part for payment or other performance of the obligation. The
            term  does  not include issuers or nominated persons under a
            letter of credit.
       (60) "Original debtor", except  as  used  in  Section  9--310(c),
            means  a  person  that,  as  debtor, entered into a security
            agreement to which a  new  debtor  has  become  bound  under
            Section 9--203(d).
       (61) "Payment  intangible" means a general intangible under which
            the account debtor's  principal  obligation  is  a  monetary
            obligation.
       (62) "Person related to", with respect to an individual, means:
           (A) the spouse of the individual;
           (B) a  brother,  brother-in-law,  sister, or sister-in-law of
               the individual;
           (C) an ancestor or lineal descendant of the individual or the
               individual's spouse; or
           (D) any other relative, by blood or marriage, of the individ-
               ual or the individual's spouse who shares the  same  home
               with the individual.
       (63) "Person related to", with respect to an organization, means:
           (A) a  person  directly or indirectly controlling, controlled
               by, or under common control with the organization;
           (B) an officer or director of, or a person performing similar
               functions with respect to, the organization;
           (C) an officer or director of, or a person performing similar
               functions with respect to, a person described in subpara-
               graph (A);
           (D) the spouse of an  individual  described  in  subparagraph
               (A), (B), or (C); or
           (E) an  individual  who is related by blood or marriage to an
               individual described in subparagraph (A),  (B),  (C),  or
               (D) and shares the same home with the individual.
       (64) "Proceeds",  except  as used in Section 9--609(b), means the
            following property:
           (A) Whatever is  acquired  upon  the  sale,  lease,  license,
               exchange, or other disposition of collateral;
           (B) whatever  is  collected on, or distributed on account of,
               collateral;
           (C) rights arising out of collateral;
           (D) to the extent of the value of collateral, claims  arising
               out  of the loss, nonconformity, or interference with the
               use of, defects or infringement of rights in,  or  damage
               to, the collateral; or
           (E) to  the  extent  of  the  value  of collateral and to the
               extent payable to the debtor or the secured party, insur-
               ance payable by reason of the loss or  nonconformity  of,

S. 5901                            86

               defects  or  infringement of rights in, or damage to, the
               collateral.
       (65) "Promissory note" means an instrument that evidences a prom-
            ise to pay a monetary obligation, does not evidence an order
            to  pay,  and  does  not contain an acknowledgment by a bank
            that the bank has received for deposit a  sum  of  money  or
            funds.
       (66) "Proposal"  means  a record authenticated by a secured party
            which includes the terms on which the secured party is will-
            ing to accept collateral in full or partial satisfaction  of
            the  obligation  it  secures  pursuant  to  Sections 9--620,
            9--621, and 9--622.
       (66-a) "Prove" with respect to a fact means to meet the burden of
              establishing the fact (Section 1-201(8)).
       (67) "Public-finance transaction" means a secured transaction  in
            connection with which:
           (A) debt securities are issued;
           (B) all or a portion of the securities issued have an initial
               stated maturity of at least 20 years; and
           (C) the  debtor,  obligor,  secured  party, account debtor or
               other person obligated on collateral, assignor or  assig-
               nee of a secured obligation, or assignor or assignee of a
               security  interest is a state or a governmental unit of a
               state.
       (68) "PUBLIC ORGANIC RECORD" MEANS A RECORD THAT IS AVAILABLE  TO
            THE PUBLIC FOR INSPECTION AND IS:
           (A) A RECORD CONSISTING OF THE RECORD INITIALLY FILED WITH OR
               ISSUED  BY A STATE OR THE UNITED STATES TO FORM OR ORGAN-
               IZE AN ORGANIZATION AND ANY RECORD FILED WITH  OR  ISSUED
               BY  THE  STATE  OR  THE  UNITED  STATES  WHICH  AMENDS OR
               RESTATES THE INITIAL RECORD;
           (B) AN ORGANIC RECORD OF A BUSINESS TRUST CONSISTING  OF  THE
               RECORD  INITIALLY FILED WITH A STATE AND ANY RECORD FILED
               WITH THE STATE  WHICH  AMENDS  OR  RESTATES  THE  INITIAL
               RECORD,  IF  A  STATUTE  OF  THE STATE GOVERNING BUSINESS
               TRUSTS REQUIRES THAT THE RECORD BE FILED WITH THE  STATE;
               OR
           (C)  A RECORD CONSISTING OF LEGISLATION ENACTED BY THE LEGIS-
               LATURE OF A STATE OR THE CONGRESS OF  THE  UNITED  STATES
               WHICH  FORMS  OR  ORGANIZES  AN  ORGANIZATION, ANY RECORD
               AMENDING THE LEGISLATION, AND ANY RECORD  FILED  WITH  OR
               ISSUED  BY THE STATE OR THE UNITED STATES WHICH AMENDS OR
               RESTATES THE NAME OF THE ORGANIZATION.
       (69) "Pursuant to commitment", with respect to an advance made or
            other value given by a secured party, means pursuant to  the
            secured  party's  obligation,  whether  or  not a subsequent
            event of default or  other  event  not  within  the  secured
            party's  control  has  relieved  or  may relieve the secured
            party from its obligation.
       [(69)]  (70) "Record",  except  as  used  in  "for  record",  "of
            record",  "record or legal title", and "record owner", means
            information that is inscribed on a tangible medium or  which
            is  stored in an electronic or other medium and is retrieva-
            ble in perceivable form.
       [(70)] (71)  "Registered  organization"  means  an   organization
            FORMED  OR  organized solely under the law of a single state

S. 5901                            87

            or the United States [and as  to  which  the  state  or  the
            United  States  must  maintain  a  public record showing the
            organization to have been organized]  BY  THE  FILING  OF  A
            PUBLIC ORGANIC RECORD WITH, THE ISSUANCE OF A PUBLIC ORGANIC
            RECORD  BY,  OR THE ENACTMENT OF LEGISLATION BY THE STATE OR
            THE UNITED STATES. THE TERM INCLUDES A BUSINESS  TRUST  THAT
            IS  FORMED OR ORGANIZED UNDER THE LAW OF A SINGLE STATE IF A
            STATUTE OF THE STATE GOVERNING BUSINESS TRUSTS REQUIRES THAT
            THE BUSINESS TRUST'S ORGANIC RECORD BE FILED WITH THE STATE.
       [(71)] (72) "Secondary obligor" means an obligor  to  the  extent
            that:
           (A) the obligor's obligation is secondary; or
           (B) the  obligor  has  a right of recourse with respect to an
               obligation secured  by  collateral  against  the  debtor,
               another obligor, or property of either.
       [(72)] (73) "Secured party" means:
           (A) a person in whose favor a security interest is created or
               provided  for  under a security agreement, whether or not
               any obligation to be secured is outstanding;
           (B) a person that holds an agricultural lien;
           (C) a consignor;
           (D) a person to which accounts, chattel paper, payment intan-
               gibles, or promissory notes have been sold;
           (E) a trustee, indenture trustee, agent, collateral agent, or
               other representative in whose favor a  security  interest
               or agricultural lien is created or provided for; or
           (F) a  person  that  holds  a security interest arising under
               Section 2--401, 2--505, 2--711(3), 2-A-508(5), 4--210, or
               5--118.
       [(73)] (74) "Security agreement" means an agreement that  creates
            or  provides  for  a security interest. A cooperative record
            that provides that the owner of a cooperative  interest  has
            an obligation to pay amounts to the cooperative organization
            incident to ownership of that cooperative interest and which
            states that the cooperative organization has a direct remedy
            against  that  cooperative  interest if such amounts are not
            paid is a security agreement creating a  cooperative  organ-
            ization security interest.
       [(74)] (75)  "Send", in connection with a record or notification,
            means:
           (A) to deposit in the  mail,  deliver  for  transmission,  or
               transmit  by any other usual means of communication, with
               postage or cost of transmission provided  for,  addressed
               to any address reasonable under the circumstances; or
           (B) to cause the record or notification to be received within
               the  time  that  it  would have been received if properly
               sent under subparagraph (A).
       [(75)] (76) "Software" means a computer program and any  support-
            ing  information  provided  in connection with a transaction
            relating to the program. The term does not include a comput-
            er program that is included in the definition of goods.
       [(76)] (77) "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.

S. 5901                            88

       [(77)]  (78) "Supporting  obligation"  means  a  letter-of-credit
            right or secondary obligation that supports the  payment  or
            performance  of  an  account,  chattel  paper, a document, a
            general intangible, an instrument, or investment property.
       [(78)] (79)   "Tangible   chattel   paper"  means  chattel  paper
            evidenced by a record or records consisting  of  information
            that is inscribed on a tangible medium.
       [(79)] (80)  "Termination  statement"  means  an  amendment  of a
            financing statement which:
           (A) identifies, by its file  number,  the  initial  financing
               statement to which it relates; and
           (B) indicates  either  that  it is a termination statement or
               that the identified  financing  statement  is  no  longer
               effective.
       [(80)] (81)  "Transmitting  utility"  means  a  person  primarily
            engaged in the business of:
           (A) operating a railroad, subway, street railway, or  trolley
               bus;
           (B) transmitting communications electrically, electromagneti-
               cally, or by light;
           (C) transmitting goods by pipeline or sewer; or
           (D) transmitting  or  producing and transmitting electricity,
               steam, gas, or water.
  (b) Definitions in other articles. The following definitions in  other
articles apply to this article:

     "Applicant"                                  Section 5--102.
     "Beneficiary"                                Section 5--102.
     "Broker"                                     Section 8--102.
     "Certificated security"                      Section 8--102.
     "Clearing corporation"                       Section 8--102.
     "Contract for sale"                          Section 2--106.
     "CONTROL" (WITH RESPECT TO A DOCUMENT        SECTION 7--106.
                 OF TITLE)
     "Customer"                                   Section 4--104.
     "Entitlement holder"                         Section 8--102.
     "Financial asset"                            Section 8--102.
     "Holder in due course"                       Section 3--302.
     "Issuer" (with respect to a letter of
        credit or letter-of-credit right)         Section 5--102.
     "Issuer" (with respect to a security)        Section 8--201.
     "ISSUER" (WITH RESPECT TO DOCUMENT OF TITLE) SECTION 7--102.
     "Lease"                                      Section 2-A-103.
     "Lease agreement"                            Section 2-A-103.
     "Lease contract"                             Section 2-A-103.
     "Leasehold interest"                         Section 2-A-103.
     "Lessee"                                     Section 2-A-103.
     "Lessee in ordinary course of business"      Section 2-A-103.
     "Lessor"                                     Section 2-A-103.
     "Lessor's residual interest"                 Section 2-A-103.
     "Letter of credit"                           Section 5--102.
     "Merchant"                                   Section 2--104.
     "Negotiable instrument"                      Section 3--104.
     "Nominated person"                           Section 5--102.
     "Note"                                       Section 3--104.
     "Proceeds of a letter of credit"             Section 5--114.

S. 5901                            89

     "PROVE"                                      SECTION 3--103.
     "Sale"                                       Section 2--106.
     "Securities account"                         Section 8--501.
     "Securities intermediary"                    Section 8--102.
     "Security"                                   Section 8--102.
     "Security certificate"                       Section 8--102.
     "Security entitlement"                       Section 8--102.
     "Uncertificated security"                    Section 8--102.
  (c) Article  1  definitions and principles. Article 1 contains general
definitions and principles of construction and interpretation applicable
throughout this article.
  S 36. Section 9--104 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--104. Control of Deposit Account.
  (a) Requirements for control. A secured party has control of a deposit
account if:
       (1) the secured party is the bank with which the deposit  account
           is maintained;
       (2) the debtor, secured party, and bank have agreed in an authen-
           ticated  record  that  the bank will comply with instructions
           originated by the secured party directing disposition of  the
           funds  in  the deposit account without further consent by the
           debtor; [or]
       (3) the secured party becomes the bank's customer with respect to
           the deposit account;
       (4) THE NAME ON THE DEPOSIT ACCOUNT IS THE NAME  OF  THE  SECURED
           PARTY  OR  INDICATES  THAT  THE  SECURED PARTY HAS A SECURITY
           INTEREST IN THE DEPOSIT ACCOUNT; OR
       (5) ANOTHER PERSON HAS CONTROL OF THE DEPOSIT ACCOUNT  ON  BEHALF
           OF  THE  SECURED PARTY OR, HAVING PREVIOUSLY ACQUIRED CONTROL
           OF THE DEPOSIT ACCOUNT, ACKNOWLEDGES THAT IT HAS  CONTROL  ON
           BEHALF OF THE SECURED PARTY.
  (b) Debtor's  right  to  direct  disposition. A secured party that has
satisfied subsection (a) has control, even if  the  debtor  retains  the
right to direct the disposition of funds from the deposit account.
  (C)  NO  IMPLIED DUTIES OF BANK. THE AUTHENTICATION OF A RECORD BY THE
BANK UNDER SUBSECTION (A)(2) DOES NOT IMPOSE UPON THE BANK ANY DUTY  NOT
EXPRESSLY AGREED TO BY THE BANK IN THE RECORD. THE NAMING OF THE DEPOSIT
ACCOUNT  IN THE NAME OF THE SECURED PARTY OR WITH AN INDICATION THAT THE
SECURED PARTY HAS A SECURITY  INTEREST  IN  THE  DEPOSIT  ACCOUNT  UNDER
SUBSECTION  (A)(4)  DOES NOT IMPOSE UPON THE BANK ANY DUTY NOT EXPRESSLY
AGREED TO BY THE BANK.
  (D) CONDITIONS  NOT  RELEVANT.  A  SECURED  PARTY  HAS  CONTROL  UNDER
SUBSECTION  (A)(2)  EVEN  IF  ANY  DUTY  OF  THE  BANK  TO  COMPLY  WITH
INSTRUCTIONS ORIGINATED BY THE SECURED PARTY  DIRECTING  DISPOSITION  OF
THE  FUNDS  IN THE DEPOSIT ACCOUNT IS SUBJECT TO ANY CONDITION OR CONDI-
TIONS (OTHER THAN FURTHER CONSENT BY THE DEBTOR).
  (E) NO INFERENCES.  THE  PROCEDURES  AND  REQUIREMENTS  OF  SUBSECTION
(A)(4) AVAILABLE TO OBTAIN CONTROL SHALL NOT BE USED IN INTERPRETING THE
SUFFICIENCY  OF  A  SECURED  PARTY'S  COMPLIANCE WITH THE PROCEDURES AND
REQUIREMENTS OF SUBSECTION (A)(1), (A)(2) OR (A)(3) TO  OBTAIN  CONTROL.
THE  PROVISIONS OF SUBSECTION (A)(4) SHALL CREATE NO INFERENCE REGARDING
THE REQUIREMENTS  FOR  COMPLIANCE  WITH  SUBSECTION  (A)(1),  (A)(2)  OR
(A)(3).
  S 37. Section 9--105 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:

S. 5901                            90

Section 9--105. Control of Electronic Chattel Paper.
  (A) GENERAL RULE: CONTROL OF ELECTRONIC CHATTEL PAPER. A secured party
has  control  of  electronic  chattel  paper  if  A  SYSTEM EMPLOYED FOR
EVIDENCING THE TRANSFER OF  INTERESTS  IN  THE  CHATTEL  PAPER  RELIABLY
ESTABLISHES  THE  SECURED PARTY AS THE PERSON TO WHICH THE CHATTEL PAPER
WAS ASSIGNED.
  (B) SPECIFIC FACTS GIVING CONTROL. A SYSTEM SATISFIES  SUBSECTION  (A)
IF  the  record  or  records  comprising  the chattel paper are created,
stored, and assigned in such a manner that:
       (1) a single authoritative copy of the record or  records  exists
           which  is  unique,  identifiable  and,  except  as  otherwise
           provided in paragraphs (4), (5), and (6), unalterable;
       (2) the authoritative copy identifies the secured  party  as  the
           assignee of the record or records;
       (3) the  authoritative  copy is communicated to and maintained by
           the secured party or its designated custodian;
       (4) copies or [revisions] AMENDMENTS that add or change an  iden-
           tified  assignee  of  the authoritative copy can be made only
           with the [participation] CONSENT of the secured party;
       (5) each copy of the authoritative copy and any copy of a copy is
           readily identifiable as a copy that is not the  authoritative
           copy; and
       (6) any [revision] AMENDMENT of the authoritative copy is readily
           identifiable as [an] authorized or unauthorized [revision].
  S  38.  Subparagraph  (D)  of paragraph 3 of subsection (b) of section
9--203 of the uniform commercial code, as added by  chapter  84  of  the
laws of 2001, is amended to read as follows:
           (D) the  collateral  is  deposit accounts, electronic chattel
               paper, investment property, [or] letter-of-credit rights,
               OR  ELECTRONIC  DOCUMENTS,  and  the  secured  party  has
               control  under Section 7--106, 9--104, 9--105, 9--106, or
               9--107 pursuant to the debtor's security agreement.
  S 39. Subsection (c) of section 9--207 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (c) Duties  and  rights  when  secured party in possession or control.
Except as otherwise provided in subsection (d), a secured  party  having
possession  of collateral or control of collateral under Section 7--106,
9--104, 9--105, 9--106, or 9--107:
       (1) may hold as additional security any proceeds, except money or
           funds, received from the collateral;
       (2) shall apply money or funds received from  the  collateral  to
           reduce the secured obligation, unless remitted to the debtor;
           and
       (3) may create a security interest in the collateral.
  S  40.  Paragraphs  4 and 5 of subsection (b) of section 9--208 of the
uniform commercial code, as added by chapter 84 of the laws of 2001, are
amended, and a new paragraph 6 is added to read as follows:
       (4) a secured party having control of investment  property  under
           Section  8--106(d)(2)  or 9--106(b) shall send to the securi-
           ties intermediary or commodity intermediary  with  which  the
           security  entitlement  or commodity contract is maintained an
           authenticated record that releases  the  securities  interme-
           diary  or  commodity intermediary from any further obligation
           to comply with entitlement orders or directions originated by
           the secured party; [and]

S. 5901                            91

       (5) a secured party having control of  a  letter-of-credit  right
           under  Section  9--107  shall  send  to each person having an
           unfulfilled obligation to pay  or  deliver  proceeds  of  the
           letter-of-credit   to  the  secured  party  an  authenticated
           release  from  any  further  obligation  to  pay  or  deliver
           proceeds of the letter-of-credit to the secured party; AND
       (6) A SECURED PARTY HAVING  CONTROL  OF  AN  ELECTRONIC  DOCUMENT
           SHALL:
           (A)  GIVE CONTROL OF THE ELECTRONIC DOCUMENT TO THE DEBTOR OR
               ITS DESIGNATED CUSTODIAN;
           (B) IF THE DEBTOR DESIGNATES A CUSTODIAN THAT IS  THE  DESIG-
               NATED  CUSTODIAN WITH WHICH THE AUTHORITATIVE COPY OF THE
               ELECTRONIC DOCUMENT IS MAINTAINED FOR THE SECURED  PARTY,
               COMMUNICATE  TO  THE  CUSTODIAN  AN  AUTHENTICATED RECORD
               RELEASING THE DESIGNATED CUSTODIAN FROM ANY FURTHER OBLI-
               GATION TO COMPLY  WITH  INSTRUCTIONS  ORIGINATED  BY  THE
               SECURED  PARTY  AND  INSTRUCTING  THE CUSTODIAN TO COMPLY
               WITH INSTRUCTIONS ORIGINATED BY THE DEBTOR; AND
           (C) TAKE APPROPRIATE ACTION  TO  ENABLE  THE  DEBTOR  OR  ITS
               DESIGNATED  CUSTODIAN  TO  MAKE COPIES OF OR REVISIONS TO
               THE AUTHORITATIVE COPY WHICH ADD OR CHANGE AN  IDENTIFIED
               ASSIGNEE OF THE AUTHORITATIVE COPY WITHOUT THE CONSENT OF
               THE SECURED PARTY.
  S  41.  Subsection  (c) of section 9--301 of of the uniform commercial
code, as added by chapter 84 of the laws of 2001, is amended to read  as
follows:
  (c) Except  as otherwise provided in [paragraph] SUBSECTION (d), while
TANGIBLE negotiable documents, goods, instruments,  money,  or  tangible
chattel paper is located in a jurisdiction, the local law of that juris-
diction governs:
       (1) perfection  of  a  security interest in the goods by filing a
           fixture filing;
       (2) perfection of a security interest in timber to be cut; and
       (3) the effect of perfection or nonperfection and the priority of
           a nonpossessory security interest in the collateral.
  S 42. Paragraph 1 of subsection (b) of Section 9--304 of  the  uniform
commercial  code, as added by chapter 84 of the laws of 2001, is amended
to read as follows:
       (1) If an agreement between the bank and [the debtor] ITS CUSTOM-
           ER governing the deposit account expressly  provides  that  a
           particular   jurisdiction  is  the  bank's  jurisdiction  for
           purposes of this part, this article, or  this  chapter,  that
           jurisdiction is the bank's jurisdiction.
  S  43.  Paragraph 2 of subsection (f) of section 9--307 of the uniform
commercial code, as added by chapter 84 of the laws of 2001, is  amended
to read as follows:
       (2) in  the  state  that  the registered organization, branch, or
           agency designates, if the law of the United States authorizes
           the registered organization, branch, or agency  to  designate
           its  state  of  location,  INCLUDING  BY DESIGNATING ITS MAIN
           OFFICE, HOME OFFICE, OR OTHER COMPARABLE OFFICE; or
  S 44. Subsections 12 and 13 of section 9--309 of the  uniform  commer-
cial  code, as added by chapter 84 of the laws of 2001, are amended, and
a new subsection 14 is added to read as follows:
  (12) an assignment for the benefit of all creditors of the  transferor
and subsequent transfers by the assignee thereunder; [and]

S. 5901                            92

  (13) a  security  interest  created  by  an assignment of a beneficial
interest in a decedent's estate; AND
  (14)  A SALE BY AN INDIVIDUAL OF AN ACCOUNT THAT IS A RIGHT TO PAYMENT
OF WINNINGS IN A LOTTERY OR OTHER GAME OF CHANCE.
  S 45. Section (b) of section 9--310 of the uniform commercial code, as
added by chapter 84 of the laws of  2001, is amended to read as follows:
  (b) Exceptions: filing not necessary. Except as provided in subsection
(d), the filing of a financing statement is not necessary to  perfect  a
security interest:
       (1) that is perfected under Section 9--308(d), (e), (f), or (g);
       (2) that is perfected under Section 9--309 when it attaches;
       (3) in  property  subject  to  a  statute,  regulation, or treaty
           described in Section 9--311(a);
       (4) in goods in possession of a bailee which is  perfected  under
           Section 9--312(d)(1) or (2);
       (5) in  certificated securities, documents, goods, or instruments
           which is perfected without  filing,  CONTROL,  or  possession
           under Section 9--312(e), (f), or (g);
       (6) in collateral in the secured party's possession under Section
           9--313;
       (7) in  a certificated security which is perfected by delivery of
           the security certificate to the secured party  under  Section
           9--313;
       (8) in  deposit  accounts,  electronic  chattel paper, ELECTRONIC
           DOCUMENTS, investment property,  or  letter-of-credit  rights
           which is perfected by control under Section 9--314;
       (9) in proceeds which is perfected under Section 9--315;
       (10) that is perfected under Section 9--316; or
       (11) that is a cooperative organization security interest.
  S  46.  Paragraph 3 of subsection (a) of section 9--311 of the uniform
commercial code, as added by chapter 84 of the laws of 2001, is  amended
to read as follows:
           (3) a  [certificate-of-title] statute of another jurisdiction
               which provides for a security interest to be indicated on
               [the] A certificate OF TITLE as a condition or result  of
               the  security  interest's  obtaining  priority  over  the
               rights of a lien creditor with respect to the property.
  S 47. Subsection (e) of section 9--312 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (e) Temporary  perfection:  new  value. A security interest in certif-
icated securities, negotiable documents,  or  instruments  is  perfected
without filing or the taking of possession OR CONTROL for a period of 20
days  from  the  time  it  attaches to the extent that it arises for new
value given under an authenticated security agreement.
  S 48. Subsection (a) of section 9--313 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (a) Perfection by possession or delivery. Except as otherwise provided
in  subsection  (b),  a secured party may perfect a security interest in
TANGIBLE negotiable documents, goods, instruments,  money,  or  tangible
chattel  paper  by  taking possession of the collateral. A secured party
may perfect a security interest in  certificated  securities  by  taking
delivery of the certificated securities under Section 8--301.

S. 5901                            93

  S 49. Subsections (a) and (b) of section 9--314 of the uniform commer-
cial  code,  as  added by chapter 84 of the laws of 2001, are amended to
read as follows:
  (a) Perfection by control. A security interest in investment property,
deposit  accounts,  letter-of-credit  rights,  [or]  electronic  chattel
paper, OR ELECTRONIC DOCUMENTS may be perfected by control of the colla-
teral under Section 7--106, 9--104, 9--105, 9--106, or 9--107.
  (b) Specified collateral: time of perfection by control;  continuation
of perfection. A security interest in deposit accounts, electronic chat-
tel  paper,  [or]  letter-of-credit  rights,  OR ELECTRONIC DOCUMENTS is
perfected by control under Section 7--106,  9--104,  9--105,  or  9--107
when  the secured party obtains control and remains perfected by control
only while the secured party retains control.
  S 50. The section heading of section 9--316 of the uniform  commercial
code, as added by chapter 84 of the laws of 2001, is amended and two new
subsections (h) and (i) are added to read as follows:
Section 9--316. [Continued  Perfection  of  Security Interest Following]
                  EFFECT OF Change in Governing Law.
  (H) EFFECT ON FILED FINANCING STATEMENT OF CHANGE  IN  GOVERNING  LAW.
THE  FOLLOWING  RULES  APPLY  TO COLLATERAL TO WHICH A SECURITY INTEREST
ATTACHES WITHIN FOUR MONTHS AFTER THE DEBTOR  CHANGES  ITS  LOCATION  TO
ANOTHER JURISDICTION:
       (1) A FINANCING STATEMENT FILED BEFORE THE CHANGE PURSUANT TO THE
           LAW  OF  THE  JURISDICTION DESIGNATED IN SECTION 9--301(A) OR
           9--305(C) IS EFFECTIVE TO PERFECT A SECURITY INTEREST IN  THE
           COLLATERAL  IF THE FINANCING STATEMENT WOULD HAVE BEEN EFFEC-
           TIVE TO PERFECT A SECURITY INTEREST IN THE COLLATERAL HAD THE
           DEBTOR NOT CHANGED ITS LOCATION.
       (2) IF A SECURITY INTEREST PERFECTED  BY  A  FINANCING  STATEMENT
           THAT IS EFFECTIVE UNDER PARAGRAPH (1) BECOMES PERFECTED UNDER
           THE  LAW  OF THE OTHER JURISDICTION BEFORE THE EARLIER OF THE
           TIME THE FINANCING STATEMENT WOULD  HAVE  BECOME  INEFFECTIVE
           UNDER  THE  LAW  OF  THE  JURISDICTION  DESIGNATED IN SECTION
           9--301(A) OR 9--305(C) OR THE EXPIRATION  OF  THE  FOUR-MONTH
           PERIOD,  IT  REMAINS  PERFECTED  THEREAFTER.  IF THE SECURITY
           INTEREST DOES NOT BECOME PERFECTED UNDER THE LAW OF THE OTHER
           JURISDICTION BEFORE THE EARLIER TIME  OR  EVENT,  IT  BECOMES
           UNPERFECTED  AND  IS  DEEMED  NEVER TO HAVE BEEN PERFECTED AS
           AGAINST A PURCHASER OF THE COLLATERAL FOR VALUE.
             (I) EFFECT OF CHANGE IN GOVERNING LAW ON  FINANCING  STATE-
           MENT  FILED AGAINST ORIGINAL DEBTOR. IF A FINANCING STATEMENT
           NAMING AN ORIGINAL DEBTOR IS FILED PURSUANT TO THE LAW OF THE
           JURISDICTION DESIGNATED IN SECTION 9--301(A) OR 9--305(C) AND
           THE NEW  DEBTOR  IS  LOCATED  IN  ANOTHER  JURISDICTION,  THE
           FOLLOWING RULES APPLY:
       (1)  THE  FINANCING  STATEMENT IS EFFECTIVE TO PERFECT A SECURITY
           INTEREST IN  COLLATERAL  IN  WHICH  THE  NEW  DEBTOR  HAS  OR
           ACQUIRES  RIGHTS  BEFORE  OR WITHIN FOUR MONTHS AFTER THE NEW
           DEBTOR BECOMES BOUND UNDER SECTION 9--203(D), IF THE  FINANC-
           ING STATEMENT WOULD HAVE BEEN EFFECTIVE TO PERFECT A SECURITY
           INTEREST  IN  THE COLLATERAL HAD THE COLLATERAL BEEN ACQUIRED
           BY THE ORIGINAL DEBTOR.
       (2) A SECURITY INTEREST THAT IS PERFECTED BY THE FINANCING STATE-
           MENT AND WHICH BECOMES PERFECTED UNDER THE LAW OF  THE  OTHER
           JURISDICTION BEFORE THE EARLIER OF THE EXPIRATION OF THE FOUR
           MONTH  PERIOD  OR THE TIME THE FINANCING STATEMENT WOULD HAVE

S. 5901                            94

           BECOME INEFFECTIVE UNDER THE LAW OF THE  JURISDICTION  DESIG-
           NATED  IN  SECTION  9--301(A)  OR 9--305(C) REMAINS PERFECTED
           THEREAFTER. A SECURITY INTEREST  THAT  IS  PERFECTED  BY  THE
           FINANCING STATEMENT BUT WHICH DOES NOT BECOME PERFECTED UNDER
           THE  LAW OF THE OTHER JURISDICTION BEFORE THE EARLIER TIME OR
           EVENT BECOMES UNPERFECTED AND IS DEEMED NEVER  TO  HAVE  BEEN
           PERFECTED AS AGAINST A PURCHASER OF THE COLLATERAL FOR VALUE.
  S 51. Subsections (b) and (d) of section 9--317 of the uniform commer-
cial  code,  as  added by chapter 84 of the laws of 2001, are amended to
read as follows:
  (b) Buyers that receive delivery.  Except  as  otherwise  provided  in
subsection (e), a buyer, other than a secured party, of tangible chattel
paper,  TANGIBLE  documents,  goods, instruments, or a [security certif-
icate] CERTIFICATED SECURITY takes free of a security interest or  agri-
cultural  lien  if  the  buyer  gives value and receives delivery of the
collateral without knowledge of the security  interest  or  agricultural
lien and before it is perfected.
  (d) Licensees and buyers of certain collateral. A licensee of a gener-
al intangible or a buyer, other than a secured party, of accounts, elec-
tronic  chattel  paper,  ELECTRONIC  DOCUMENTS,  general intangibles, or
investment property other than a certificated security takes free  of  a
security interest if the licensee or buyer gives value without knowledge
of the security interest and before it is perfected.
  S 52. Section 9--326 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--326. Priority of Security Interests Created by New Debtor.
  (a) Subordination  of security interest created by new debtor. Subject
to subsection (b), a security interest THAT IS created by a  new  debtor
[which  is] IN COLLATERAL IN WHICH THE NEW DEBTOR HAS OR ACQUIRES RIGHTS
AND IS perfected SOLELY by a filed financing statement that  [is  effec-
tive solely under Section 9--508 in collateral in which a new debtor has
or  acquires rights] WOULD BE INEFFECTIVE TO PERFECT THE SECURITY INTER-
EST BUT FOR THE APPLICATION OF SECTION 9--316(I)(1) OR 9--508 is  subor-
dinate  to a security interest in the same collateral which is perfected
other than by SUCH a filed financing statement [that is effective solely
under Section 9--508].
  (b) Priority under other provisions; multiple  original  debtors.  The
other  provisions  of this part determine the priority among conflicting
security interests in the same collateral perfected by  filed  financing
statements [that are effective solely under Section 9--508] DESCRIBED IN
SUBSECTION  (A).  However,  if  the  security  agreements to which a new
debtor became bound as debtor were not entered into by the same original
debtor, the conflicting security interests rank according to priority in
time of the new debtor's having become bound.
  S 53. Section 9--338 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--338. Priority  of  Security  Interest  or  Agricultural  Lien
                  Perfected   by  Filed  Financing  Statement  Providing
                  Certain Incorrect Information.
  If a security interest or agricultural lien is perfected  by  a  filed
financing   statement   providing   information   described  in  Section
9--516(b)(5) which is incorrect at the time the financing  statement  is
filed:
  [(a)](1) the  security interest or agricultural lien is subordinate to
a conflicting perfected security  interest  in  the  collateral  to  the

S. 5901                            95

extent  that the holder of the conflicting security interest gives value
in reasonable reliance upon the incorrect information; and
  [(b)](2) a  purchaser,  other  than a secured party, of the collateral
takes free of the security interest or agricultural lien to  the  extent
that,  in  reasonable  reliance  upon  the  incorrect  information,  the
purchaser gives value and, in the case of TANGIBLE chattel paper, TANGI-
BLE documents, goods, instruments, or a security  certificate,  receives
delivery of the collateral.
  S 54. Subsection (e) of section 9--406 of the uniform commercial code,
as  added  by  chapter  84  of  the  laws of 2001, is amended to read as
follows:
  (e) Inapplicability of subsection (d) to certain sales. Subsection (d)
does not apply to the sale of a payment intangible or  promissory  note,
OTHER  THAN  A SALE PURSUANT TO A DISPOSITION UNDER SECTION 9--610 OR AN
ACCEPTANCE OF COLLATERAL UNDER SECTION 9--620.
  S 55. Subsection (b) of section 9--408 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (b) Applicability  of  subsection  (a)  to  sales of certain rights to
payment. Subsection (a) applies to a  security  interest  in  a  payment
intangible  or  promissory note only if the security interest arises out
of a sale of the payment intangible or promissory  note,  OTHER  THAN  A
SALE  PURSUANT TO A DISPOSITION UNDER SECTION 9--610 OR AN ACCEPTANCE OF
COLLATERAL UNDER SECTION 9--620.
  S 56. Subsection (c) of section 9--502 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (c) Record  of mortgage as financing statement. A record of a mortgage
is effective, from the date of recording, as a financing statement filed
as a fixture filing or as a financing  statement  covering  as-extracted
collateral or timber to be cut only if:
       (1) the record indicates the goods or accounts that it covers;
       (2) the  goods  are or are to become fixtures related to the real
           property described in the record or the collateral is related
           to the real property described in the record  and  is  as-ex-
           tracted collateral or timber to be cut;
       (3) the  record satisfies the requirements for a financing state-
           ment in this section [other than an indication], BUT:
           (A) THE RECORD NEED NOT INDICATE that it is to  be  filed  in
               the real property records; and
           (B) THE RECORD SUFFICIENTLY PROVIDES THE NAME OF A DEBTOR WHO
               IS  AN  INDIVIDUAL  IF IT PROVIDES THE INDIVIDUAL NAME OF
               THE DEBTOR OR THE SURNAME AND FIRST PERSONAL NAME OF  THE
               DEBTOR,  EVEN  IF  THE  DEBTOR  IS  AN INDIVIDUAL TO WHOM
               SECTION 9--503(A)(4) APPLIES; AND
       (4) the record is duly recorded.
  S 57. Section 9--503 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--503. Name of Debtor and Secured Party.
  (a) Sufficiency of debtor's name. A financing  statement  sufficiently
provides the name of the debtor:
       (1) EXCEPT  AS OTHERWISE PROVIDED IN PARAGRAPH (3), if the debtor
           is a registered organization OR THE COLLATERAL IS HELD  IN  A
           TRUST  THAT IS A REGISTERED ORGANIZATION, only if the financ-
           ing statement provides the name  [of  the  debtor  indicated]
           THAT  IS  STATED  TO BE THE REGISTERED ORGANIZATION'S NAME on

S. 5901                            96

           the public ORGANIC record [of] MOST RECENTLY  FILED  WITH  OR
           ISSUED OR ENACTED BY the [debtor's] REGISTERED ORGANIZATION'S
           jurisdiction  of organization which [shows the debtor to have
           been  organized]  PURPORTS  TO  STATE,  AMEND, OR RESTATE THE
           REGISTERED ORGANIZATION'S NAME;
       (2) SUBJECT TO SUBSECTION (F), if the  [debtor  is  a  decedent's
           estate]  COLLATERAL  IS  BEING  ADMINISTERED  BY THE PERSONAL
           REPRESENTATIVE OF A DECEDENT, only if the financing statement
           provides, AS THE NAME OF THE DEBTOR, the name of the decedent
           and, IN A SEPARATE PART OF THE FINANCING STATEMENT, indicates
           that the [debtor is an estate] COLLATERAL IS  BEING  ADMINIS-
           TERED BY A PERSONAL REPRESENTATIVE;
       (3) if the [debtor is a trust or a trustee acting with respect to
           property  held  in  trust,  only  if the financing statement]
           COLLATERAL IS HELD IN A TRUST THAT IS NOT A REGISTERED ORGAN-
           IZATION, ONLY IF THE FINANCING STATEMENT:
           (A) [provides the name specified for the trust in its organic
               documents or, if no name is specified, provides the  name
               of  the  settlor and additional information sufficient to
               distinguish the debtor from other trusts  having  one  or
               more  of the same settlors; and] PROVIDES, AS THE NAME OF
               THE DEBTOR:
               (I) IF THE ORGANIC RECORD OF THE TRUST SPECIFIES  A  NAME
                   FOR THE TRUST, THE NAME SPECIFIED; OR
               (II)  IF THE ORGANIC RECORD OF THE TRUST DOES NOT SPECIFY
                    A NAME FOR THE TRUST, THE NAME  OF  THE  SETTLOR  OR
                    TESTATOR; AND
           (B) [indicates,  in  the debtor's name or otherwise, that the
               debtor is a trust or is a trustee acting with respect  to
               property  held  in  trust;]  IN  A  SEPARATE  PART OF THE
               FINANCING STATEMENT:
               (I) IF THE NAME IS PROVIDED IN ACCORDANCE  WITH  SUBPARA-
                   GRAPH  (A)(I),  INDICATES THAT THE COLLATERAL IS HELD
                   IN A TRUST; OR
               (II) IF THE NAME IS PROVIDED IN ACCORDANCE WITH  SUBPARA-
                    GRAPH   (A)(II),   PROVIDES  ADDITIONAL  INFORMATION
                    SUFFICIENT  TO  DISTINGUISH  THE  TRUST  FROM  OTHER
                    TRUSTS  HAVING  ONE  OR MORE OF THE SAME SETTLORS OR
                    THE SAME TESTATOR AND INDICATES THAT THE  COLLATERAL
                    IS  HELD  IN A TRUST, UNLESS THE ADDITIONAL INFORMA-
                    TION SO INDICATES;
       (4) SUBJECT TO SUBSECTION (G), IF THE DEBTOR IS AN INDIVIDUAL  TO
           WHOM  THIS  STATE HAS ISSUED A DRIVER'S LICENSE OR NON-DRIVER
           PHOTO IDENTIFICATION CARD THAT HAS NOT EXPIRED, ONLY  IF  THE
           FINANCING STATEMENT PROVIDES THE NAME OF THE INDIVIDUAL WHICH
           IS  INDICATED  ON  THE  DRIVER'S  LICENSE OR NON-DRIVER PHOTO
           IDENTIFICATION CARD;
       (5) IF THE DEBTOR IS AN INDIVIDUAL TO WHOM PARAGRAPH (4) DOES NOT
           APPLY, ONLY IF THE FINANCING STATEMENT PROVIDES THE  INDIVID-
           UAL NAME OF THE DEBTOR OR THE SURNAME AND FIRST PERSONAL NAME
           OF THE DEBTOR; AND
       (6) in other cases:
           (A) if  the  debtor  has  a  name, only if [it] THE FINANCING
               STATEMENT provides  the  [individual  or]  organizational
               name of the debtor; and

S. 5901                            97

           (B) if  the  debtor does not have a name, only if it provides
               the names of the partners, members, associates, or  other
               persons comprising the debtor, IN A MANNER THAT EACH NAME
               PROVIDED WOULD BE SUFFICIENT IF THE PERSON NAMED WERE THE
               DEBTOR.
  (b) Additional  debtor-related information. A financing statement that
provides the name of the debtor in accordance with subsection (a) is not
rendered ineffective by the absence of:
       (1) a trade name or other name of the debtor; or
       (2) unless required under subsection [(a)(4)(B)] (A)(6)(B), names
           of partners, members, associates, or other persons comprising
           the debtor.
  (c) Debtor's trade  name  insufficient.  A  financing  statement  that
provides  only the debtor's trade name does not sufficiently provide the
name of the debtor.
  (d) Representative capacity. Failure to  indicate  the  representative
capacity  of  a  secured party or representative of a secured party does
not affect the sufficiency of a financing statement.
  (e) Multiple debtors and secured parties. A  financing  statement  may
provide  the  name of more than one debtor and the name of more than one
secured party.
  (F) NAME OF DECEDENT. THE NAME OF THE DECEDENT INDICATED ON THE  ORDER
APPOINTING  THE  PERSONAL  REPRESENTATIVE  OF THE DECEDENT ISSUED BY THE
COURT HAVING JURISDICTION OVER THE COLLATERAL IS SUFFICIENT AS THE "NAME
OF THE DECEDENT" UNDER SUBSECTION (A)(2).
  (G) MULTIPLE DRIVER'S LICENSES. IF THIS STATE HAS ISSUED TO  AN  INDI-
VIDUAL MORE THAN ONE DRIVER'S LICENSE OR NON-DRIVER PHOTO IDENTIFICATION
CARD  OF  A KIND DESCRIBED IN SUBSECTION (A)(4), THE ONE THAT WAS ISSUED
MOST RECENTLY IS THE ONE TO WHICH SUBSECTION (A)(4) REFERS.
  (H) DEFINITION. IN THIS SECTION, THE "NAME OF THE SETTLOR OR TESTATOR"
MEANS:
       (1) IF THE SETTLOR IS A REGISTERED ORGANIZATION, THE NAME THAT IS
           STATED TO BE THE SETTLOR'S NAME ON THE PUBLIC ORGANIC  RECORD
           MOST  RECENTLY  FILED  WITH  OR  ISSUED  OR  ENACTED  BY  THE
           SETTLOR'S JURISDICTION  OF  ORGANIZATION  WHICH  PURPORTS  TO
           STATE, AMEND, OR RESTATE THE SETTLOR'S NAME; OR
       (2) IN OTHER CASES, THE NAME OF THE SETTLOR OR TESTATOR INDICATED
           IN THE TRUST'S ORGANIC RECORD.
  S 58. Subsection (c) of section 9--507 of the uniform commercial code,
as  added  by  chapter  84  of  the  laws of 2001, is amended to read as
follows:
  (c) Change in debtor's name. If [a debtor so  changes  its]  THE  name
that  a filed financing statement PROVIDES FOR A DEBTOR becomes INSUFFI-
CIENT AS THE NAME OF THE DEBTOR UNDER  SECTION  9--503(A)  SO  THAT  THE
FINANCING STATEMENT BECOMES seriously misleading under Section 9--506:
       (1) the  financing  statement  is effective to perfect a security
           interest in collateral acquired  by  the  debtor  before,  or
           within four months after, the [change] FILED FINANCING STATE-
           MENT BECOMES SERIOUSLY MISLEADING; and
       (2) the financing statement is not effective to perfect a securi-
           ty  interest  in  collateral acquired by the debtor more than
           four months after  the  [change]  FILED  FINANCING  STATEMENT
           BECOMES  SERIOUSLY  MISLEADING,  unless  an  amendment to the
           financing statement which renders the financing statement not
           seriously misleading is filed within four months  after  [the
           change] THE FINANCING STATEMENT BECAME SERIOUSLY MISLEADING.

S. 5901                            98

  S 59. Subsection (f) of section 9--515 of the uniform commercial code,
as  added  by  chapter  84  of  the  laws of 2001, is amended to read as
follows:
  (f) Transmitting  utility financing statement. If a debtor is a trans-
mitting utility and a filed INITIAL financing  statement  so  indicates,
the  financing  statement  is effective until a termination statement is
filed.
  S 60. Section 9--516 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--516. What Constitutes Filing; Effectiveness of Filing.
  (a) What  constitutes  filing.  Except  as   otherwise   provided   in
subsection  (b), communication of a record to a filing office and tender
of the filing fee or acceptance of  the  record  by  the  filing  office
constitutes filing.
  (b) Refusal  to  accept record; filing does not occur. Filing does not
occur with respect to a record that a filing office  refuses  to  accept
because:
       (1) the  record  is  not  communicated  by  a method or medium of
           communication authorized by the filing office;
       (2) an amount equal to or greater than the applicable filing  fee
           is not tendered;
       (3) the filing office is unable to index the record because:
           (A) in the case of an initial financing statement, the record
               does not provide a name for the debtor;
           (B) in  the  case of an amendment or [correction] INFORMATION
               statement, the record:
               (i) does not identify the initial financing statement  as
                   required  by Section 9--512 or 9--518, as applicable;
                   or
               (ii) identifies  an  initial  financing  statement  whose
                    effectiveness has lapsed under Section 9--515;
           (C) in  the  case  of  an  initial  financing  statement that
               provides the name of a debtor identified as an individual
               or an amendment that provides a name of a debtor  identi-
               fied  as  an individual which was not previously provided
               in the financing statement to which the  record  relates,
               the  record  does  not  identify the debtor's [last name]
               SURNAME; or
           (D) in the case of  a  record  filed  in  the  filing  office
               described  in Section 9--501 (a) (1), the record does not
               provide a sufficient description of the real property  to
               which it relates;
       (4) in the case of an initial financing statement or an amendment
           that  adds  a  secured  party  of record, the record does not
           provide a name and mailing address for the secured  party  of
           record;
       (5) in the case of an initial financing statement or an amendment
           that  provides  a  name  of a debtor which was not previously
           provided in the financing statement to  which  the  amendment
           relates, the record does not:
           (A) provide a mailing address for the debtor; or
           (B) indicate  whether  the  NAME  PROVIDED AS THE NAME OF THE
               debtor is THE NAME OF an individual or an organization;
           [(C) if the financing statement indicates that the debtor  is
               an organization, provide:
               (i) a type of organization for the debtor, or

S. 5901                            99

               (ii) a jurisdiction of organization for the debtor; or]
       (6) in  the case of an assignment reflected in an initial financ-
           ing statement under Section 9--514(a) or an  amendment  filed
           under  Section  9--514(b), the record does not provide a name
           and mailing address for the assignee; or
       (7) in the case of a continuation statement, the  record  is  not
           filed  within  the  six-month  period  prescribed  by Section
           9--515(d).
  (c) Rules applicable to subsection (b).  For  purposes  of  subsection
(b):
       (1) a record does not provide information if the filing office is
           unable to read or decipher the information; and
       (2) a  record  that  does not indicate that it is an amendment or
           identify an initial financing statement to which it  relates,
           as  required  by  Section  9--512,  9--514,  or 9--518, is an
           initial financing statement.
  (d) Refusal to accept record; record  effective  as  filed  record.  A
record  that  is  communicated  to  the filing office with tender of the
filing fee, but which the filing office refuses to accept for  a  reason
other  than  one  set  forth  in subsection (b), is effective as a filed
record except as against a purchaser of the collateral which gives value
in reasonable reliance upon the absence of the record from the files.
  (e) Special  rule  for  cooperative  interests;  record  effective  as
notice.   A filing that includes a cooperative addendum covering a coop-
erative interest constitutes notice of the  existence  of  the  security
interest in the cooperative interest as of the date of the filing of the
cooperative  addendum,  except  as against a purchaser of the collateral
which gives value in reasonable reliance upon the absence of the  record
from the files.
  S 61. Section 9--518 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--518. Claim Concerning Inaccurate or Wrongfully Filed Record.
  (a) [Correction  statement]  STATEMENT  WITH RESPECT TO RECORD INDEXED
UNDER PERSON'S  NAME.  A  person  may  file  in  the  filing  office  [a
correction]  AN  INFORMATION  statement with respect to a record indexed
there under the person's name if the person believes that the record  is
inaccurate or was wrongfully filed.
  (b) [Sufficiency]  CONTENTS of [correction] statement UNDER SUBSECTION
(A). [A correction] AN INFORMATION statement UNDER SUBSECTION (A) must:
       (1) identify the record to which it relates by:
           (A) the file number assigned to the initial financing  state-
               ment to which the record relates; and
           (B) if  the  [correction]  INFORMATION statement relates to a
               record filed in a  filing  office  described  in  Section
               9--501(a)(1),  the date and time that the initial financ-
               ing statement was filed and the information specified  in
               Section 9--502(b);
       (2) indicate  that it is [a correction] AN INFORMATION statement;
           and
       (3) provide the basis for the person's belief that the record  is
           inaccurate  and  indicate  the  manner  in  which  the person
           believes the record should be amended to cure any  inaccuracy
           or  provide the basis for the person's belief that the record
           was wrongfully filed.
  (c) STATEMENT BY SECURED PARTY OF RECORD. A PERSON  MAY  FILE  IN  THE
FILING  OFFICE  AN  INFORMATION STATEMENT WITH RESPECT TO A RECORD FILED

S. 5901                            100

THERE IF THE PERSON IS A SECURED PARTY OF RECORD  WITH  RESPECT  TO  THE
FINANCING  STATEMENT  TO  WHICH THE RECORD RELATES AND BELIEVES THAT THE
PERSON THAT FILED THE RECORD WAS NOT ENTITLED TO  DO  SO  UNDER  SECTION
9--509(D).
  (D)  CONTENTS OF STATEMENT UNDER SUBSECTION (C). AN INFORMATION STATE-
MENT UNDER SUBSECTION (C) MUST:
       (1) IDENTIFY THE RECORD TO WHICH IT RELATES BY:
           (A) THE FILE NUMBER ASSIGNED TO THE INITIAL FINANCING  STATE-
               MENT TO WHICH THE RECORD RELATES; AND
           (B) IF THE INFORMATION STATEMENT RELATES TO A RECORD FILED IN
               A  FILING  OFFICE  DESCRIBED IN SECTION 9--501(A)(1), THE
               DATE THAT THE INITIAL FINANCING STATEMENT WAS  FILED  AND
               THE INFORMATION SPECIFIED IN SECTION 9--502(B);
       (2) INDICATE THAT IT IS AN INFORMATION STATEMENT; AND
       (3) PROVIDE  THE  BASIS  FOR  THE PERSON'S BELIEF THAT THE PERSON
           THAT FILED THE RECORD WAS NOT ENTITLED TO DO SO UNDER SECTION
           9--509(D).
  (E) Record not affected by  [correction]  INFORMATION  statement.  The
filing  of  a  [correction] AN INFORMATION statement does not affect the
effectiveness of an initial financing statement or other filed record.
  S 62. Section 9--521 of the uniform commercial code, as added by chap-
ter 84 of the laws of 2001, is amended to read as follows:
Section 9--521. Uniform Form of Written Financing Statement;  Amendment;
                  and Cooperative Addendum.
  (a) [Initial  financing  statement  form. A filing office that accepts
written records may not refuse to accept  a  written  initial  financing
statement  in the form promulgated by the department of state except for
a reason as set forth in Section 9--516(b).
  (b) Amendment form. A filing office that accepts written  records  may
not refuse to accept a written financing statement amendment in the form
promulgated  by  the  department  of state] A FILING OFFICE THAT ACCEPTS
WRITTEN RECORDS MAY NOT REFUSE TO ACCEPT A WRITTEN RECORD  IN  THE  FORM
AND  FORMAT SET FORTH AS FORM UCC3 AND FORM UCC3AD IN THE FINAL OFFICIAL
TEXT OF THE 2010 AMENDMENTS TO ARTICLE 9 OF THE UNIFORM COMMERCIAL  CODE
PROMULGATED BY THE AMERICAN LAW INSTITUTE AND THE NATIONAL CONFERENCE OF
COMMISSIONERS ON UNIFORM STATE LAWS, except for a reason as set forth in
Section 9--516 (b).
  [(c)]  (B) Cooperative  addendum  form.  A  filing office that accepts
written records may not refuse to accept a written cooperative  addendum
in  the  form promulgated by the department of state except for a reason
as set forth in Section 9--516 (b).
  S 63. Subsection (b) of section 9--601 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:
  (b) Rights  and  duties  of  secured party in possession or control. A
secured party in possession of collateral or control of collateral under
Section 7--106, 9--104, 9--105, 9--106, or 9--107  has  the  rights  and
duties provided in Section 9--207.
  S  64.  Subparagraph  (A)  of paragraph 2 of subsection (b) of section
9--607 of the uniform commercial code, as added by  chapter  84  of  the
laws of 2001, is amended to read as follows:
           (A) a  default  has  occurred  WITH RESPECT TO THE OBLIGATION
               SECURED BY THE MORTGAGE; and
  S 65. Subsection (c) of section 9--625 of the uniform commercial code,
as added by chapter 84 of the laws  of  2001,  is  amended  to  read  as
follows:

S. 5901                            101

  (c) Persons entitled to recover damages; statutory damages [in consum-
er-goods  transaction] IF COLLATERAL IS CONSUMER GOODS. Except as other-
wise provided in Section 9--628:
       (1) a  person that, at the time of the failure, was a debtor, was
           an obligor, or held a security interest in or other  lien  on
           the  collateral  may recover damages under subsection (b) for
           its loss; and
       (2) if the collateral is consumer goods,  a  person  that  was  a
           debtor  or  a  secondary  obligor at the time a secured party
           failed to comply with this part may recover for that  failure
           in  any  event  an  amount  not  less than the credit service
           charge plus 10 percent of the principal amount of  the  obli-
           gation  or the time-price differential plus 10 percent of the
           cash price.
  S 66. Article 9 of the uniform commercial code is amended by adding  a
new Part 8 to read as follows:
                                 PART 8
                TRANSITION PROVISIONS FOR 2012 AMENDMENTS
SECTION 9--801. SAVINGS CLAUSE.
  (A) AS USED IN THIS PART, THE TERM "OMNIBUS ACT" MEANS THAT CHAPTER OF
THE  LAWS  OF  2013 WHICH REPEALED FORMER ARTICLES 1, 3, 4 AND 7 OF THIS
CODE, ADDED THIS PART TO THIS ARTICLE, AND MADE CONFORMING AMENDMENTS TO
PROVISIONS OF OTHER ARTICLES OF THIS CODE.
  (B) PRE-EFFECTIVE-DATE TRANSACTIONS  OR  LIENS.  EXCEPT  AS  OTHERWISE
PROVIDED IN THIS PART, THIS OMNIBUS ACT APPLIES TO A TRANSACTION OR LIEN
WITHIN  ITS  SCOPE,  EVEN IF THE TRANSACTION OR LIEN WAS ENTERED INTO OR
CREATED BEFORE THIS OMNIBUS ACT TAKES EFFECT.
  (C) PRE-EFFECTIVE-DATE PROCEEDINGS. THIS OMNIBUS ACT DOES  NOT  AFFECT
AN  ACTION,  CASE, OR PROCEEDING COMMENCED BEFORE THIS OMNIBUS ACT TAKES
EFFECT.
SECTION 9--802. SECURITY INTEREST PERFECTED BEFORE EFFECTIVE DATE.
  (A) CONTINUING PERFECTION: PERFECTION REQUIREMENTS SATISFIED. A  SECU-
RITY  INTEREST  THAT IS A PERFECTED SECURITY INTEREST IMMEDIATELY BEFORE
THIS OMNIBUS ACT TAKES EFFECT IS A  PERFECTED  SECURITY  INTEREST  UNDER
ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT IF, WHEN THIS OMNI-
BUS  ACT  TAKES  EFFECT,  THE APPLICABLE REQUIREMENTS FOR ATTACHMENT AND
PERFECTION UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY  THIS  OMNIBUS  ACT
ARE SATISFIED WITHOUT FURTHER ACTION.
  (B)  CONTINUING  PERFECTION:  PERFECTION  REQUIREMENTS  NOT SATISFIED.
EXCEPT AS OTHERWISE PROVIDED IN SECTION 9--804, IF,  IMMEDIATELY  BEFORE
THIS  OMNIBUS ACT TAKES EFFECT, A SECURITY INTEREST IS A PERFECTED SECU-
RITY INTEREST, BUT THE  APPLICABLE  REQUIREMENTS  FOR  PERFECTION  UNDER
ARTICLE  9  OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT ARE NOT SATISFIED
WHEN THIS OMNIBUS  ACT  TAKES  EFFECT,  THE  SECURITY  INTEREST  REMAINS
PERFECTED  THEREAFTER ONLY IF THE APPLICABLE REQUIREMENTS FOR PERFECTION
UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT ARE SATISFIED
WITHIN ONE YEAR AFTER THIS OMNIBUS ACT TAKES EFFECT.
SECTION 9--803. SECURITY INTEREST UNPERFECTED BEFORE EFFECTIVE DATE.
  A SECURITY INTEREST THAT IS AN  UNPERFECTED  SECURITY  INTEREST  IMME-
DIATELY BEFORE THIS OMNIBUS ACT TAKES EFFECT BECOMES A PERFECTED SECURI-
TY INTEREST:
  (A)  WITHOUT FURTHER ACTION, WHEN THIS OMNIBUS ACT TAKES EFFECT IF THE
APPLICABLE REQUIREMENTS FOR PERFECTION UNDER ARTICLE 9 OF  THIS  ACT  AS
AMENDED BY THIS OMNIBUS ACT ARE SATISFIED BEFORE OR AT THAT TIME; OR
  (B)  WHEN  THE APPLICABLE REQUIREMENTS FOR PERFECTION ARE SATISFIED IF
THE REQUIREMENTS ARE SATISFIED AFTER THAT TIME.

S. 5901                            102

SECTION 9--804. EFFECTIVENESS OF ACTION TAKEN BEFORE EFFECTIVE DATE.
  (A)  PRE-EFFECTIVE-DATE  FILING  EFFECTIVE.  THE FILING OF A FINANCING
STATEMENT BEFORE THIS OMNIBUS ACT TAKES EFFECT IS EFFECTIVE TO PERFECT A
SECURITY INTEREST TO THE EXTENT THE FILING WOULD SATISFY THE  APPLICABLE
REQUIREMENTS  FOR  PERFECTION  UNDER ARTICLE 9 OF THIS ACT AS AMENDED BY
THIS OMNIBUS ACT.
  (B) WHEN PRE-EFFECTIVE-DATE FILING BECOMES INEFFECTIVE.  THIS  OMNIBUS
ACT  DOES  NOT RENDER INEFFECTIVE AN EFFECTIVE FINANCING STATEMENT THAT,
BEFORE THIS OMNIBUS ACT TAKES EFFECT, IS FILED AND SATISFIES THE  APPLI-
CABLE  REQUIREMENTS  FOR  PERFECTION  UNDER  THE LAW OF THE JURISDICTION
GOVERNING PERFECTION AS PROVIDED IN ARTICLE 9 OF THIS ACT AS IT  EXISTED
BEFORE  THIS  OMNIBUS  ACT  TOOK  EFFECT.  HOWEVER,  EXCEPT AS OTHERWISE
PROVIDED IN SUBSECTIONS (C) AND  (D)  OF  THIS  SECTION,  THE  FINANCING
STATEMENT CEASES TO BE EFFECTIVE:
       (1)  IF  THE  FINANCING  STATEMENT IS FILED IN THIS STATE, AT THE
           TIME THE FINANCING STATEMENT WOULD HAVE CEASED TO  BE  EFFEC-
           TIVE HAD THIS OMNIBUS ACT NOT TAKEN EFFECT; OR
       (2)  IF THE FINANCING STATEMENT IS FILED IN ANOTHER JURISDICTION,
           AT THE EARLIER OF:
           (A) THE TIME THE FINANCING STATEMENT WOULD HAVE CEASED TO  BE
               EFFECTIVE UNDER THE LAW OF THAT JURISDICTION; OR
           (B) JUNE 30, 2018.
  (C)  CONTINUATION  STATEMENT.  THE  FILING OF A CONTINUATION STATEMENT
AFTER THIS OMNIBUS ACT TAKES EFFECT DOES NOT CONTINUE THE  EFFECTIVENESS
OF  A  FINANCING  STATEMENT  FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT.
HOWEVER, UPON THE TIMELY FILING OF A CONTINUATION STATEMENT  AFTER  THIS
OMNIBUS ACT TAKES EFFECT AND IN ACCORDANCE WITH THE LAW OF THE JURISDIC-
TION  GOVERNING  PERFECTION  AS  PROVIDED  IN  ARTICLE  9 OF THIS ACT AS
AMENDED BY THIS OMNIBUS ACT, THE EFFECTIVENESS OF A FINANCING  STATEMENT
FILED  IN  THE  SAME OFFICE IN THAT JURISDICTION BEFORE THIS OMNIBUS ACT
TAKES EFFECT CONTINUES FOR THE PERIOD PROVIDED BY THE LAW OF THAT JURIS-
DICTION.
  (D) APPLICATION OF SUBPARAGRAPH (B) OF PARAGRAPH 2 OF  SUBSECTION  (B)
OF  THIS  SECTION  TO TRANSMITTING UTILITY FINANCING STATEMENT. SUBPARA-
GRAPH (B) OF PARAGRAPH 2 OF SUBSECTION (B) OF THIS SECTION APPLIES TO  A
FINANCING STATEMENT THAT, BEFORE THIS OMNIBUS ACT TAKES EFFECT, IS FILED
AGAINST A TRANSMITTING UTILITY AND SATISFIES THE APPLICABLE REQUIREMENTS
FOR PERFECTION UNDER THE LAW OF THE JURISDICTION GOVERNING PERFECTION AS
PROVIDED  IN ARTICLE 9 OF THIS ACT AS IT EXISTED BEFORE THIS OMNIBUS ACT
TOOK EFFECT, ONLY TO THE EXTENT THAT ARTICLE 9 OF THIS ACT AS AMENDED BY
THIS OMNIBUS ACT PROVIDES THAT THE LAW OF A JURISDICTION OTHER THAN  THE
JURISDICTION   IN   WHICH  THE  FINANCING  STATEMENT  IS  FILED  GOVERNS
PERFECTION OF A SECURITY INTEREST IN COLLATERAL COVERED BY THE FINANCING
STATEMENT.
  (E) APPLICATION OF PART 5.  A  FINANCING  STATEMENT  THAT  INCLUDES  A
FINANCING  STATEMENT  FILED  BEFORE  THIS OMNIBUS ACT TAKES EFFECT AND A
CONTINUATION STATEMENT FILED AFTER THIS  OMNIBUS  ACT  TAKES  EFFECT  IS
EFFECTIVE  ONLY TO THE EXTENT THAT IT SATISFIES THE REQUIREMENTS OF PART
5 OF ARTICLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT FOR AN INITIAL
FINANCING STATEMENT. A  FINANCING  STATEMENT  THAT  INDICATES  THAT  THE
DEBTOR  IS  A  DECEDENT'S  ESTATE INDICATES THAT THE COLLATERAL IS BEING
ADMINISTERED BY A PERSONAL REPRESENTATIVE WITHIN THE  MEANING  OF  PARA-
GRAPH  2  OF SUBSECTION (A) OF SECTION 9--503 AS AMENDED BY THIS OMNIBUS
ACT. A FINANCING STATEMENT THAT INDICATES THAT THE DEBTOR IS A TRUST  OR
IS  A  TRUSTEE  ACTING  WITH RESPECT TO PROPERTY HELD IN TRUST INDICATES

S. 5901                            103

THAT THE COLLATERAL IS HELD IN A TRUST WITHIN THE MEANING OF PARAGRAPH 3
OF SUBSECTION (A) OF SECTION 9--503 AS AMENDED BY THIS OMNIBUS ACT.
SECTION 9--805. WHEN  INITIAL  FINANCING  STATEMENT SUFFICES TO CONTINUE
                  EFFECTIVENESS OF FINANCING STATEMENT.
  (A) INITIAL FINANCING STATEMENT IN  LIEU  OF  CONTINUATION  STATEMENT.
THE  FILING OF AN INITIAL FINANCING STATEMENT IN THE OFFICE SPECIFIED IN
SECTION 9--501 CONTINUES THE  EFFECTIVENESS  OF  A  FINANCING  STATEMENT
FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT IF:
       (1)  THE  FILING OF AN INITIAL FINANCING STATEMENT IN THAT OFFICE
           WOULD BE EFFECTIVE TO PERFECT A SECURITY INTEREST UNDER ARTI-
           CLE 9 OF THIS ACT AS AMENDED BY THIS OMNIBUS ACT;
       (2) THE PRE-EFFECTIVE-DATE FINANCING STATEMENT WAS  FILED  IN  AN
           OFFICE IN ANOTHER STATE; AND
       (3)  THE  INITIAL FINANCING STATEMENT SATISFIES SUBSECTION (C) OF
           THIS SECTION.
  (B) PERIOD OF  CONTINUED  EFFECTIVENESS.  THE  FILING  OF  AN  INITIAL
FINANCING  STATEMENT  UNDER SUBSECTION (A) OF THIS SECTION CONTINUES THE
EFFECTIVENESS OF THE PRE-EFFECTIVE-DATE FINANCING STATEMENT:
       (1) IF THE INITIAL FINANCING STATEMENT IS FILED BEFORE THIS OMNI-
           BUS ACT TAKES EFFECT, FOR  THE  PERIOD  PROVIDED  IN  SECTION
           9--515  OF ARTICLE 9 OF THIS ACT BEFORE THIS OMNIBUS ACT TOOK
           EFFECT WITH RESPECT TO AN INITIAL FINANCING STATEMENT; AND
       (2) IF THE INITIAL FINANCING STATEMENT IS FILED AFTER THIS  OMNI-
           BUS  ACT  TAKES  EFFECT,  FOR  THE PERIOD PROVIDED IN SECTION
           9--515 OF ARTICLE 9 OF THIS ACT AS AMENDED  BY  THIS  OMNIBUS
           ACT WITH RESPECT TO AN INITIAL FINANCING STATEMENT.
             (C)  REQUIREMENTS  FOR  INITIAL  FINANCING  STATEMENT UNDER
           SUBSECTION (A) OF THIS SECTION. TO BE EFFECTIVE FOR  PURPOSES
           OF SUCH SUBSECTION (A), AN INITIAL FINANCING STATEMENT MUST:
       (1)  SATISFY  THE REQUIREMENTS OF PART 5 OF ARTICLE 9 OF THIS ACT
           AS AMENDED BY THIS  OMNIBUS  ACT  FOR  AN  INITIAL  FINANCING
           STATEMENT;
       (2)  IDENTIFY THE PRE-EFFECTIVE-DATE FINANCING STATEMENT BY INDI-
           CATING THE OFFICE IN WHICH THE FINANCING STATEMENT WAS  FILED
           AND  PROVIDING  THE DATES OF FILING AND FILE NUMBERS, IF ANY,
           OF THE FINANCING STATEMENT AND OF THE MOST  RECENT  CONTINUA-
           TION STATEMENT FILED WITH RESPECT TO THE FINANCING STATEMENT;
           AND
             (3)  INDICATE  THAT THE PRE-EFFECTIVE-DATE FINANCING STATE-
           MENT REMAINS EFFECTIVE.
SECTION 9--806. AMENDMENT OF PRE-EFFECTIVE-DATE FINANCING STATEMENT.
  (A)  "PRE-EFFECTIVE-DATE  FINANCING  STATEMENT".  IN   THIS   SECTION,
"PRE-EFFECTIVE-DATE  FINANCING  STATEMENT"  MEANS  A FINANCING STATEMENT
FILED BEFORE THIS OMNIBUS ACT TAKES EFFECT.
  (B) APPLICABLE LAW. AFTER THIS OMNIBUS ACT TAKES EFFECT, A PERSON  MAY
ADD  OR  DELETE  COLLATERAL COVERED BY, CONTINUE OR TERMINATE THE EFFEC-
TIVENESS OF, OR OTHERWISE AMEND THE INFORMATION PROVIDED IN,  A  PRE-EF-
FECTIVE-DATE  FINANCING STATEMENT ONLY IN ACCORDANCE WITH THE LAW OF THE
JURISDICTION GOVERNING PERFECTION AS PROVIDED IN ARTICLE 9 OF  THIS  ACT
AS AMENDED BY THIS OMNIBUS ACT.  HOWEVER, THE EFFECTIVENESS OF A PRE-EF-
FECTIVE-DATE  FINANCING  STATEMENT  ALSO MAY BE TERMINATED IN ACCORDANCE
WITH THE LAW OF THE JURISDICTION IN WHICH  THE  FINANCING  STATEMENT  IS
FILED.
  (C)  METHOD OF AMENDING: GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN
SUBSECTION (D) OF THIS  SECTION,  IF  THE  LAW  OF  THIS  STATE  GOVERNS
PERFECTION    OF   A   SECURITY   INTEREST,   THE   INFORMATION   IN   A

S. 5901                            104

PRE-EFFECTIVE-DATE FINANCING STATEMENT MAY BE AMENDED AFTER THIS OMNIBUS
ACT TAKES EFFECT ONLY IF:
  (1)  THE  PRE-EFFECTIVE-DATE  FINANCING STATEMENT AND AN AMENDMENT ARE
FILED IN THE OFFICE SPECIFIED IN SECTION 9--501;
  (2) AN AMENDMENT IS FILED IN THE OFFICE SPECIFIED  IN  SECTION  9--501
CONCURRENTLY  WITH,  OR  AFTER  THE FILING IN THAT OFFICE OF, AN INITIAL
FINANCING STATEMENT THAT SATISFIES SUBSECTION (C) OF SECTION 9--806; OR
  (3) AN INITIAL FINANCING STATEMENT THAT PROVIDES  THE  INFORMATION  AS
AMENDED  AND  SATISFIES SUBSECTION (C) OF SECTION 9--805 IS FILED IN THE
OFFICE SPECIFIED IN SECTION 9--501.
  (D) METHOD OF AMENDING: CONTINUATION. IF THE LAW OF THIS STATE GOVERNS
PERFECTION OF A SECURITY INTEREST, THE  EFFECTIVENESS  OF  A  PRE-EFFEC-
TIVE-DATE  FINANCING  STATEMENT  MAY BE CONTINUED ONLY UNDER SUBSECTIONS
(C) AND (E) OF SECTION 9--804 OR SECTION 9--805.
  (E) METHOD OF AMENDING: ADDITIONAL TERMINATION RULE.  WHETHER  OR  NOT
THE  LAW  OF  THIS  STATE GOVERNS PERFECTION OF A SECURITY INTEREST, THE
EFFECTIVENESS OF A PRE-EFFECTIVE-DATE FINANCING STATEMENT FILED IN  THIS
STATE  MAY BE TERMINATED AFTER THIS OMNIBUS ACT TAKES EFFECT BY FILING A
TERMINATION STATEMENT IN THE  OFFICE  IN  WHICH  THE  PRE-EFFECTIVE-DATE
FINANCING STATEMENT IS FILED, UNLESS AN INITIAL FINANCING STATEMENT THAT
SATISFIES  SUBSECTION (C) OF SECTION 9--805 HAS BEEN FILED IN THE OFFICE
SPECIFIED BY  THE  LAW  OF  THE  JURISDICTION  GOVERNING  PERFECTION  AS
PROVIDED  IN  ARTICLE  9 AS AMENDED BY THIS OMNIBUS ACT AS THE OFFICE IN
WHICH TO FILE A FINANCING STATEMENT.
SECTION 9--807. PERSON ENTITLED TO FILE INITIAL FINANCING  STATEMENT  OR
                  CONTINUATION STATEMENT.
  A  PERSON  MAY  FILE  AN INITIAL FINANCING STATEMENT OR A CONTINUATION
STATEMENT UNDER THIS PART IF:
  (A) THE SECURED PARTY OF RECORD AUTHORIZES THE FILING; AND
  (B) THE FILING IS NECESSARY UNDER THIS PART:
       (1) TO CONTINUE THE EFFECTIVENESS OF A FINANCING STATEMENT  FILED
           BEFORE THIS OMNIBUS ACT TAKES EFFECT; OR
       (2) TO PERFECT OR CONTINUE THE PERFECTION OF A SECURITY INTEREST.
SECTION 9--808. PRIORITY.
  THIS  OMNIBUS  ACT  DETERMINES  THE  PRIORITY OF CONFLICTING CLAIMS TO
COLLATERAL. HOWEVER, IF THE  RELATIVE  PRIORITIES  OF  THE  CLAIMS  WERE
ESTABLISHED  BEFORE THIS OMNIBUS ACT TAKES EFFECT, ARTICLE 9 OF THIS ACT
AS IT EXISTED BEFORE THIS OMNIBUS ACT TOOK EFFECT DETERMINES PRIORITY.
  S 67. This act shall take effect July 1, 2013; provided, however,
  (a) The applicability of Article 9 of the Uniform Commercial Code,  as
amended by sections thirty-five through sixty-six of this act, is deter-
mined by Sections 9--801 through 9--808 of such Article 9.
  (b)  The  applicability of Articles 3, 4, and 7 of the Uniform Commer-
cial Code, as added by sections twenty-six, twenty-seven, and thirty-two
of this act, is determined by the following rules:
  (1) Such Articles 3, 4, and 7 of the Uniform Commercial Code apply  to
a negotiable instrument, item, or document of title that is issued, or a
bailment  that  arises, on or after the effective date of this act. Such
Articles 3, 4, and 7 of the Uniform Commercial Code, as  added  by  this
act, do not apply to a negotiable instrument, item, or document of title
that  is  issued  or a bailment that arises before the effective date of
this act even if the negotiable instrument, item, or document  of  title
or  bailment would be subject to such articles if the negotiable instru-
ment, item, or document of title had been issued or bailment had  arisen
on or after the effective date of this act.

S. 5901                            105

  (2)  Such  Articles  3, 4, and 7 of the Uniform Commercial Code do not
apply to a right of action that has accrued before the effective date of
this Act.
  (3)  Except  to  the  extent  that Article 9 of the Uniform Commercial
Code, as amended by sections thirty-five through sixty-six of this  act,
is  applicable  as  provided  in  Sections 9--801 through 9--808 of such
Article 9, a negotiable instrument, item or document of title issued  or
a  bailment  that  arises  before the effective date of this act and the
rights, obligations, and interests flowing from that negotiable  instru-
ment  or  document or bailment are governed by any statute or other rule
amended or repealed by this act  as  if  amendment  or  repeal  had  not
occurred  and  may  be  terminated,  completed, consummated, or enforced
under that statute or other rule.

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Sponsored By

Hugh T. Farley

Archive: Last Bill Status - In Senate Committee Judiciary Committee

Actions

2013-S5901 (ACTIVE) - Details

2013-S5901 (ACTIVE) - Summary

2013-S5901 (ACTIVE) - Sponsor Memo

2013-S5901 (ACTIVE) - Bill Text download pdf

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