PRIOR PRINTER'S NO. 235 PRINTER'S NO. 654
No. 330 Session of 2001
INTRODUCED BY HOLL, MADIGAN, THOMPSON, COSTA, MUSTO, M. WHITE,
WENGER, ROBBINS, CORMAN, MOWERY, WAGNER, LEMMOND AND FUMO,
FEBRUARY 2, 2001
SENATOR TILGHMAN, APPROPRIATIONS, RE-REPORTED AS AMENDED,
MARCH 12, 2001
AN ACT
1 Amending Titles 12 (Commerce and Trade), 13 (Commercial Code),
2 15 (Corporations and Unincorporated Associations), 30 (Fish),
3 42 (Judiciary and Judicial Procedure), 66 (Public Utilities)
4 and 75 (Vehicles) of the Pennsylvania Consolidated Statutes,
5 extensively revising provisions on secured transactions;
6 revising provisions on letters of credit; making editorial
7 changes; and making repeals.
8 The General Assembly of the Commonwealth of Pennsylvania
9 hereby enacts as follows:
10 Section 1. This amendatory act shall be known and may be
11 cited as the Uniform Commercial Code Modernization Act of 2001.
12 Section 2. Section 5108(e) of Title 12 of the Pennsylvania
13 Consolidated Statutes is amended to read:
14 § 5108. Defenses, liability and protection of transferee.
15 * * *
16 (e) Certain transfers not fraudulent.--A transfer is not
17 fraudulent under section 5104(a)(2) or 5105 (relating to
18 transfers fraudulent as to present creditors) if the transfer
19 results from:
1 (1) termination of a lease upon default by the debtor
2 when the termination is pursuant to the lease and applicable
3 law; or
4 (2) enforcement of a security interest in compliance
5 with 13 Pa.C.S. Div. 9 (relating to secured transactions),
6 [other than a retention of collateral under 13 Pa.C.S. §
7 9505(b) (relating to acceptance of collateral as discharge of
8 obligation).] other than an acceptance of collateral in full
9 or partial satisfaction of the obligations it secures under
10 13 Pa.C.S. § 9620 (relating to acceptance of collateral in
11 full or partial satisfaction of obligation; compulsory
12 disposition of collateral).
13 The references to 13 Pa.C.S. Div. 9 and 13 Pa.C.S. [§ 9505(b)] §
14 9620 in paragraph (2) shall also be deemed to refer to the
15 corresponding provisions of the Uniform Commercial Code as in
16 effect in any other jurisdiction.
17 Section 3. Title 12 is amended by adding a chapter to read:
18 CHAPTER 98
19 ASSEMBLED INDUSTRIAL PLANT DOCTRINE
20 Sec.
21 9801. Assembled industrial plant doctrine abolished.
22 § 9801. Assembled industrial plant doctrine abolished.
23 (a) General rule.--The assembled industrial plant doctrine,
24 sometimes referred to as the integrated industrial plant
25 doctrine or the integrated industrial mortgage doctrine, is
26 abolished. Whether personal property placed or installed in an
27 industrial, commercial or other establishment is a fixture shall
28 be determined by other law.
29 (b) Eminent domain not affected.--Subsection (a) shall not
30 be construed to affect the application of the assembled economic
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1 unit doctrine in the context of eminent domain.
2 (c) Applicability.--This section shall not apply to actions
3 or proceedings commenced before the effective date of this
4 section, nor shall it affect construction of a mortgage or other
5 instrument creating an interest in real estate entered into
6 before the effective date of this section. Subsection (a) shall
7 not be construed to affirm the continuing applicability or scope
8 of the assembled industrial plant doctrine before the effective
9 date of this section.
10 Section 4. Section 1105(b) of Title 13 is amended to read:
11 § 1105. Territorial application of title; power of parties to
12 choose applicable law.
13 * * *
14 (b) Limitations on power of parties to choose applicable
15 law.--Where one of the following provisions of this title
16 specifies the applicable law, that provision governs and a
17 contrary agreement is effective only to the extent permitted by
18 the law (including the conflict of laws rules) so specified:
19 Section 2402 (relating to rights of creditors of seller
20 against sold goods).
21 Sections 2A105 (relating to territorial application of
22 division to goods covered by certificate of title) and 2A106
23 (relating to limitation on power of parties to consumer lease
24 to choose applicable law and judicial forum).
25 Section 4102 (relating to applicability of division on
26 bank deposits and collections).
27 Section 4A507 (relating to choice of law).
28 Section 5116 (relating to choice of law and forum).
29 Section 8110 (relating to applicability; choice of law).
30 [Section 9103 (relating to perfection provisions of
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1 division on secured transactions).]
2 Subchapter A of Chapter 93 (relating to law governing
3 perfection and priority).
4 Section 5. The definitions of "buyer in ordinary course of
5 business," "buying," "purchase" and "security interest" in
6 section 1201 of Title 13 are amended to read:
7 § 1201. General definitions.
8 Subject to additional definitions contained in the subsequent
9 provisions of this title which are applicable to specific
10 provisions of this title, the following words and phrases when
11 used in this title shall have, unless the context clearly
12 indicates otherwise, the meanings given to them in this section:
13 * * *
14 "Buyer in ordinary course of business." A person [who in
15 good faith and without knowledge that the sale to him is in
16 violation of the ownership rights or security interest of a
17 third party in the goods buys in ordinary course from a person
18 in the business of selling goods of that kind but does not
19 include a pawnbroker. All persons who sell minerals or the like
20 (including oil and gas) at wellhead or minehead shall be deemed
21 to be persons in the business of selling goods of that kind.
22 "Buying." Buying may be for cash or by exchange of other
23 property or on secured or unsecured credit and includes
24 receiving goods or documents of title under a preexisting
25 contract for sale but does not include a transfer in bulk or as
26 security for or in total or partial satisfaction of a money
27 debt.] that buys goods in good faith, without knowledge that the
28 sale violates the rights of another person in the goods, and in
29 the ordinary course from a person, other than a pawnbroker, in
30 the business of selling goods of that kind. A person buys goods
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1 in the ordinary course if the sale to the person comports with
2 the usual or customary practices in the kind of business in
3 which the seller is engaged or with the seller's own usual or
4 customary practices. A person that sells oil, gas or other
5 minerals at the wellhead or minehead is a person in the business
6 of selling goods of that kind. A buyer in ordinary course of
7 business may buy for cash, by exchange of other property or on
8 secured or unsecured credit, and may acquire goods or documents
9 of title under a preexisting contract for sale. Only a buyer
10 that takes possession of the goods or has a right to recover the
11 goods from the seller under Division 2 (relating to sales) may
12 be a buyer in ordinary course of business. A person that
13 acquires goods in a transfer in bulk or as security for or in
14 total or partial satisfaction of a money debt is not a buyer in
15 ordinary course of business.
16 * * *
17 "Purchase." Includes taking by sale, discount, negotiation,
18 mortgage, pledge, lien, security interest, issue or reissue,
19 gift or any other voluntary transaction creating an interest in
20 property.
21 * * *
22 "Security interest."
23 (1) General definition.--A security interest means an
24 interest in personal property or fixtures which secures
25 payment or performance of an obligation.
26 (2) [Retention or reservation of title to delivered
27 goods.--The retention or reservation of title by a seller of
28 goods notwithstanding shipment or delivery to the buyer
29 (section 2401) is limited in effect to a reservation of a
30 "security interest."
20010S0330B0654 - 5 -
1 (3) Buyers of accounts or chattel paper] Interest of
2 consignor or buyer under Division 9.--The term "security
3 interest" also includes any interest of a consignor and a
4 buyer of accounts [or], chattel paper [which], a payment
5 intangible or a promissory note in a transaction that is
6 subject to Division 9 (relating to secured transactions).
7 [(4)] (3) Buyer's interest in identified goods.--The
8 special property interest of a buyer of goods on
9 identification of those goods to a contract for sale under
10 section 2401 (relating to passing of title; reservation for
11 security; limited application of section) is not a "security
12 interest," but a buyer may also acquire a "security interest"
13 by complying with Division 9.
14 (4) Sellers and lessors of goods.--Except as otherwise
15 provided in section 2505 (relating to shipment by seller
16 under reservation), the right of a seller or lessor of goods
17 under Division 2 (relating to sales) or 2A (relating to
18 leases) to retain or acquire possession of the goods is not a
19 "security interest," but a seller or lessor may also acquire
20 a "security interest" by complying with Division 9. The
21 retention or reservation of title by a seller of goods
22 notwithstanding shipment or delivery to the buyer (section
23 2401) is limited in effect to a reservation of a "security
24 interest."
25 (5) [Consignments.--Unless a consignment is intended as
26 security, reservation of title thereunder is not a "security
27 interest," but a consignment in any event is subject to the
28 provisions on consignment sales (section 2326).
29 (6)] Determination of lease or security interest.--
30 Whether a transaction creates a lease or security interest is
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1 determined by the facts of each case; however:
2 (i) A transaction creates a security interest if the
3 consideration the lessee is to pay the lessor for the
4 right to possession and use of the goods is an obligation
5 for the term of the lease not subject to termination by
6 the lessee and:
7 (A) the original term of the lease is equal to
8 or greater than the remaining economic life of the
9 goods;
10 (B) the lessee is bound to renew the lease for
11 the remaining economic life of the goods or is bound
12 to become the owner of the goods;
13 (C) the lessee has an option to renew the lease
14 for the remaining economic life of the goods for no
15 additional consideration or nominal additional
16 consideration upon compliance with the lease
17 agreement; or
18 (D) the lessee has an option to become the owner
19 of the goods for no additional consideration or
20 nominal additional consideration upon compliance with
21 the lease agreement.
22 (ii) A transaction does not create a security
23 interest merely because it provides that:
24 (A) the present value of the consideration the
25 lessee is obligated to pay the lessor for the right
26 to possession and use of the goods is substantially
27 equal to or is greater than the fair market value of
28 the goods at the time the lease is entered into;
29 (B) the lessee assumes risk of loss of the
30 goods, or agrees to pay taxes, insurance, filing,
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1 recording or registration fees, or service or
2 maintenance costs with respect to the goods;
3 (C) the lessee has an option to renew the lease
4 or to become the owner of the goods;
5 (D) the lessee has an option to renew the lease
6 for a fixed rent that is equal to or greater than the
7 reasonably predictable fair market rent for the use
8 of the goods for the term of the renewal at the time
9 the option is to be performed; or
10 (E) the lessee has an option to become the owner
11 of the goods for a fixed price that is equal to or
12 greater than the reasonably predictable fair market
13 value of the goods at the time the option is to be
14 performed.
15 (iii) For purposes of determining whether the
16 transaction is a lease or a security interest:
17 (A) Additional consideration is not nominal if:
18 (I) when the option to renew the lease is
19 granted to the lessee, the rent is stated to be
20 the fair market rent for the use of the goods for
21 the term of the renewal determined at the time
22 the option is to be performed; or
23 (II) when the option to become the owner of
24 the goods is granted to the lessee, the price is
25 stated to be the fair market value of the goods
26 determined at the time the option is to be
27 performed.
28 Additional consideration is nominal if it is less
29 than the lessee's reasonably predictable cost of
30 performing under the lease agreement if the option is
20010S0330B0654 - 8 -
1 not exercised.
2 (B) "Reasonably predictable" and "remaining
3 economic life of the goods" are to be determined with
4 reference to the facts and circumstances at the time
5 the transaction is entered into.
6 (C) "Present value" means the amount as of a
7 date certain of one or more sums payable in the
8 future, discounted to the date certain. The discount
9 is determined by the interest rate specified by the
10 parties if the rate is not manifestly unreasonable at
11 the time the transaction is entered into; otherwise,
12 the discount is determined by a commercially
13 reasonable rate that takes into account the facts and
14 circumstances of each case at the time the
15 transaction was entered into.
16 * * *
17 Section 6. Section 1206(c) of Title 13 is amended by adding
18 a paragraph to read:
19 § 1206. Statute of frauds for kinds of personal property not
20 otherwise covered.
21 * * *
22 (c) Qualified financial contracts.--
23 * * *
24 (6) Nothing in this subsection or in section 2201(d)
25 shall be construed to affect or limit the application to a
26 qualified financial contract of any other law validating
27 records, signatures or transactions made or evidenced by
28 nontraditional media.
29 Section 7. Sections 2103(c) and 2104 of Title 13 are amended
30 to read:
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1 § 2103. Definitions and index of definitions.
2 * * *
3 (c) Index of definitions in other divisions.--The following
4 definitions in other divisions apply to this division:
5 "Check." Section 3104.
6 "Consignee." Section 7102.
7 "Consignor." Section 7102.
8 "Consumer goods." Section [9109] 9102.
9 "Dishonor." Section 3502.
10 "Draft." Section 3104.
11 * * *
12 § 2104. Definitions: "merchant"; "between merchants";
13 "financing agency."
14 The following words and phrases when used in this division
15 shall have[, unless the context clearly indicates otherwise,]
16 the meanings given to them in this section:
17 "Between merchants." Between merchants means in any
18 transaction with respect to which both parties are chargeable
19 with the knowledge or skill of merchants.
20 "Financing agency." A bank, finance company, or other person
21 who in the ordinary course of business makes advances against
22 goods or documents of title or who by arrangement with either
23 the seller or the buyer intervenes in ordinary course to make or
24 collect payment due or claimed under the contract for sale, as
25 by purchasing or paying the draft of the seller or making
26 advances against it or by merely taking it for collection
27 whether or not documents of title accompany the draft.
28 "Financing agency" includes also a bank or other person who
29 similarly intervenes between persons who are in the position of
30 seller and buyer in respect to the goods (see section 2707).
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1 "Merchant." A person who:
2 (1) deals in goods of the kind; or
3 (2) otherwise by his occupation holds himself out as
4 having knowledge or skill peculiar to the practices or goods
5 involved in the transaction or to whom such knowledge or
6 skill may be attributed by his employment of an agent or
7 broker or other intermediary who by his occupation holds
8 himself out as having such knowledge or skill.
9 Section 8. Section 2210(b) and the headings of subsections
10 (c), (d) and (e) of Title 13 are amended and the section is
11 amended by adding a subsection to read:
12 § 2210. Delegation of performance; assignment of rights.
13 * * *
14 (b) Assignment of rights.--[Unless] Except as otherwise
15 provided in section 9406 (relating to discharge of account
16 debtor; notification of assignment; identification and proof of
17 assignment; restrictions on assignment of accounts, chattel
18 paper, payment intangibles and promissory notes ineffective),
19 unless otherwise agreed, all rights of either seller or buyer
20 can be assigned except where the assignment would materially
21 change the duty of the other party, increase materially the
22 burden or risk imposed on him by his contract, or impair
23 materially his chance of obtaining return performance. A right
24 to damages for breach of the whole contract or a right arising
25 out of due performance by the assignor of his entire obligation
26 can be assigned despite agreement otherwise.
27 (c) Effect of security interest.--The creation, attachment,
28 perfection or enforcement of a security interest in the seller's
29 interest under a contract is not a transfer that materially
30 changes the duty of or increases materially the burden or risk
20010S0330B0654 - 11 -
1 imposed on the buyer or impairs materially the buyer's chance of
2 obtaining return performance within the purview of subsection
3 (b) unless, and then only to the extent that, enforcement
4 actually results in a delegation of material performance of the
5 seller. Even in that event, the creation, attachment, perfection
6 and enforcement of the security interest remain effective, but:
7 (1) the seller is liable to the buyer for damages caused
8 by the delegation to the extent that the damages could not
9 reasonably be prevented by the buyer; and
10 (2) a court having jurisdiction may grant other
11 appropriate relief, including cancellation of the contract
12 for sale or an injunction against enforcement of the security
13 interest or consummation of the enforcement.
14 [(c)] (d) Assignment prohibition limited to performance.--*
15 * *
16 [(d)] (e) Effect and enforceability of general assignment.--
17 * * *
18 [(e)] (f) Security for assignment delegating performance.--*
19 * *
20 Section 9. Section 2326 heading, (b), (c) and (d) of Title
21 13 are amended to read:
22 § 2326. Sale on approval and sale or return; [consignment sales
23 and] rights of creditors.
24 * * *
25 (b) Rights of creditors of buyer generally.--[Except as
26 provided in subsection (c), goods] Goods held on approval are
27 not subject to the claims of the creditors of the buyer until
28 acceptance; goods held on sale or return are subject to such
29 claims while in the possession of the buyer.
30 [(c) Consignment sales.--Where goods are delivered to a
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1 person for sale and such person maintains a place of business at
2 which he deals in goods of the kind involved, under a name other
3 than the name of the person making delivery, then with respect
4 to claims of creditors of the person conducting the business the
5 goods are deemed to be on sale or return. The provisions of this
6 subsection are applicable even though an agreement purports to
7 reserve title to the person making delivery until payment or
8 resale or uses such words as "on consignment" or "on
9 memorandum." However, this subsection is not applicable if the
10 person making delivery:
11 (1) complies with an applicable law providing for the
12 interest of a consignor or the like to be evidenced by a
13 sign;
14 (2) establishes that the person conducting the business
15 is generally known by his creditors to be substantially
16 engaged in selling the goods of others; or
17 (3) complies with the filing provisions of Division 9
18 (relating to secured transactions).
19 (d)] (c) Treatment of "or return" term.--* * *
20 Section 10. Section 2502 heading, (a) and (b) heading of
21 Title 13 are amended and the section is amended by adding a
22 subsection to read:
23 § 2502. Right of buyer to goods on repudiation, failure to
24 deliver or insolvency of seller.
25 (a) General rule.--Subject to [subsection (b)] subsections
26 (b) and (c) and even though the goods have not been shipped a
27 buyer who has paid a part or all of the price of goods in which
28 he has a special property under the provisions of section 2501
29 (relating to insurable interest in goods; manner of
30 identification of goods) may on making and keeping good a tender
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1 of any unpaid portion of their price recover them from the
2 seller if:
3 (1) in the case of goods bought for personal, family or
4 household purposes, the seller repudiates or fails to deliver
5 as required by the contract; or
6 (2) in all cases, the seller becomes insolvent within
7 ten days after receipt of the first installment on their
8 price.
9 (b) Vesting.--The buyer's right to recover the goods under
10 subsection (a)(1) vests upon acquisition of a special property,
11 even if the seller had not then repudiated or failed to deliver.
12 [(b)] (c) Identification made by buyer.--* * *
13 Section 11. Sections 2512(a)(2), 2716(c), 2A103(c),
14 2A303(a), (b), (c), (d), (e), (f) heading, (g) heading and (h)
15 heading, 2A307, 2A309(a), 3103(a) introductory paragraph, 4105
16 introductory paragraph, 4210(c), 4A103(a) introductory paragraph
17 and 4A105(a) introductory paragraph of Title 13 are amended to
18 read:
19 § 2512. Payment by buyer before inspection.
20 (a) General rule.--Where the contract requires payment
21 before inspection nonconformity of the goods does not excuse the
22 buyer from so making payment unless:
23 * * *
24 (2) despite tender of the required documents the
25 circumstances would justify injunction against honor under
26 [the provisions of] this title [(section 5114 (relating to
27 duty and privilege of issuer to honor; right to
28 reimbursement))], INCLUDING (section 5109(b) (relating to <--
29 conditions for injunction)). <--
30 * * *
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1 § 2716. Right of buyer to specific performance or replevin.
2 * * *
3 (c) Replevin.--The buyer has a right of replevin for goods
4 identified to the contract if after reasonable effort he is
5 unable to effect cover for such goods or the circumstances
6 reasonably indicate that such effort will be unavailing, or if
7 the goods have been shipped under reservation and satisfaction
8 of the security interest in them has been made or tendered. In
9 the case of goods bought for personal, family or household
10 purposes, the buyer's right of replevin vests upon acquisition
11 of a special property, even if the seller had not then
12 repudiated or failed to deliver.
13 § 2A103. Definitions and index of definitions.
14 * * *
15 (c) Index of definitions in other divisions.--The following
16 definitions in other divisions apply to this division:
17 "Account." Section [9106] 9102(a).
18 "Between merchants." Section 2104.
19 "Buyer." Section 2103(a).
20 "Chattel paper." Section [9105(a)] 9102(a).
21 "Consumer goods." Section [9109(1)] 9102(a).
22 "Document." Section [9105(a)] 9102(a).
23 "Entrusting." Section 2403(c).
24 "General [intangibles." Section 9106.] intangible." Section
25 9102(a).
26 "Good faith." Section 2103(a).
27 "Instrument." Section [9105(a)] 9102(a).
28 "Merchant." Section 2104.
29 "Mortgage." Section [9105(a)] 9102(a).
30 "Pursuant to commitment." Section [9105(a)] 9102(a).
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1 "Receipt." Section 2103(a).
2 "Sale." Section 2106(a).
3 "Sale on approval." Section 2326.
4 "Sale or return." Section 2326.
5 "Seller." Section 2103(a).
6 * * *
7 § 2A303. Alienability of party's interest under lease contract
8 or of lessor's residual interest in goods; delegation
9 of performance; transfer of rights.
10 (a) Definition.--As used in this section, the term "creation
11 of a security interest" includes the sale of a lease contract
12 that is subject to Division 9 (relating to secured transactions)
13 by reason of section [9102(a)(2) (relating to policy and subject
14 matter of division)] 9109(a)(3) (relating to scope).
15 (b) General rule.--Except as provided in [subsections (c)
16 and (d),] subsection (c) and section 9407 (relating to
17 restrictions on creation or enforcement of security interest in
18 leasehold interest or in lessor's residual interest), a
19 provision in a lease agreement which:
20 (1) prohibits the voluntary or involuntary transfer,
21 including a transfer by sale, sublease, creation or
22 enforcement of a security interest, or attachment, levy or
23 other judicial process, of an interest of a party under the
24 lease contract or of the lessor's residual interest in the
25 goods; or
26 (2) makes such a transfer an event of default;
27 gives rise to the rights and remedies provided in subsection
28 [(e)] (d), but a transfer that is prohibited or is an event of
29 default under the lease agreement is otherwise effective.
30 [(c) Certain provisions in lease agreement not
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1 enforceable.--A provision in a lease agreement which prohibits
2 the creation or enforcement of a security interest in an
3 interest of a party under the lease contract or in the lessor's
4 residual interest in the goods, or makes such a transfer an
5 event of default, is not enforceable unless, and then only to
6 the extent that, there is an actual transfer by the lessee of
7 the lessee's right of possession or use of the goods in
8 violation of the provision or an actual delegation of a material
9 performance of either party to the lease contract in violation
10 of the provision. Neither the granting nor the enforcement of a
11 security interest in the lessor's interest under the lease
12 contract or the lessor's residual interest in the goods is a
13 transfer that materially impairs the prospect of obtaining
14 return performance by, materially changes the duty of or
15 materially increases the burden or risk imposed on the lessee
16 within the purview of subsection (e) unless, and then only to
17 the extent that, there is an actual delegation of a material
18 performance of the lessor.
19 (d)] (c) Transfer of right to damages.--A provision in a
20 lease agreement which:
21 (1) prohibits a transfer of a right to damages for
22 default with respect to the whole lease contract or of a
23 right to payment arising out of the transferor's due
24 performance of the transferor's entire obligation; or
25 (2) makes such a transfer an event of default;
26 is not enforceable, and such a transfer is not a transfer that
27 materially impairs the prospect of obtaining return performance
28 by, materially changes the duty of or materially increases the
29 burden or risk imposed on the other party to the lease contract
30 within the purview of subsection [(e).] (d).
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1 [(e)] (d) Certain rights and remedies.--Subject to
2 [subsections (c) and (d):] subsection (c) and section 9407:
3 (1) If a transfer is made which is made an event of
4 default under a lease agreement, the party to the lease
5 contract not making the transfer, unless that party waives
6 the default or otherwise agrees, has the rights and remedies
7 described in section 2A501(b) (relating to default:
8 procedure).
9 (2) If paragraph (1) is not applicable and if a transfer
10 is made that is prohibited under a lease agreement or
11 materially impairs the prospect of obtaining return
12 performance by, materially changes the duty of or materially
13 increases the burden or risk imposed on the other party to
14 the lease contract, unless the party not making the transfer
15 agrees at any time to the transfer in the lease contract or
16 otherwise, then, except as limited by contract, the
17 transferor is liable to the party not making the transfer for
18 damages caused by the transfer to the extent that the damages
19 could not reasonably be prevented by the party not making the
20 transfer and a court having jurisdiction may grant other
21 appropriate relief, including cancellation of the lease
22 contract or an injunction against the transfer.
23 [(f)] (e) Effect and enforceability of general transfer.--*
24 * *
25 [(g)] (f) Effect of delegation of performance.--* * *
26 [(h)] (g) Requirements for [written] prohibition of transfer
27 in consumer lease.--* * *
28 § 2A307. Priority of liens arising by attachment or levy on,
29 security interests in, and other claims to goods.
30 (a) Creditor of lessee.--Except as otherwise provided in
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1 section 2A306 (relating to priority of certain liens arising by
2 operation of law), a creditor of a lessee takes subject to the
3 lease contract.
4 (b) Creditor of lessor.--Except as otherwise provided in
5 [subsections (c) and (d)] subsection (c) and in sections 2A306
6 and 2A308 (relating to special rights of creditors), a creditor
7 of a lessor takes subject to the lease contract unless[:
8 (1)] the creditor holds a lien that attached to the goods
9 before the lease contract became enforceable[;].
10 [(2) the creditor holds a security interest in the goods
11 and the lessee did not give value and receive delivery of the
12 goods without knowledge of the security interest; or
13 (3) the creditor holds a security interest in the goods
14 which was perfected (section 9303) before the lease contract
15 became enforceable.
16 (c) Lessee in ordinary course of business.--A lessee in the
17 ordinary course of business takes the leasehold interest free of
18 a security interest in the goods created by the lessor even
19 though the security interest is perfected (section 9303) and the
20 lessee knows of its existence.
21 (d) Lessee not in ordinary course of business.--A lessee
22 other than a lessee in the ordinary course of business takes the
23 leasehold interest free of a security interest to the extent
24 that it secures future advances made after the secured party
25 acquires knowledge of the lease or more than 45 days after the
26 lease contract becomes enforceable, whichever first occurs,
27 unless the future advances are made pursuant to a commitment
28 entered into without knowledge of the lease and before the
29 expiration of the 45-day period.]
30 (c) Lessee.--Except as otherwise provided in sections 9317
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1 (relating to interests which take priority over or take free of
2 security interest or agricultural lien), 9321 (relating to
3 licensee of general intangible and lessee of goods in ordinary
4 course of business) and 9323 (relating to future advances), a
5 lessee takes a leasehold interest subject to a security interest
6 held by a creditor of the lessor.
7 § 2A309. Lessor's and lessee's rights when goods become
8 fixtures.
9 (a) Definitions.--As used in this section, the following
10 words and phrases shall have the meanings given to them in this
11 subsection:
12 "Construction mortgage." A mortgage is a construction
13 mortgage to the extent it secures an obligation incurred for the
14 construction of an improvement on land, including the
15 acquisition cost of the land, if the recorded writing so
16 indicates.
17 "Encumbrance." Includes real estate mortgages and other
18 liens on real estate and all other rights in real estate that
19 are not ownership interests.
20 "Fixture filing." The filing, in the office where a record
21 of a mortgage on the real estate would be filed or recorded, of
22 a financing statement covering goods that are or are to become
23 fixtures and conforming to the requirements of section [9402(e)
24 (relating to formal requisites of financing statement;
25 amendments; mortgage as financing statement).] 9502(a) and (b)
26 (relating to contents of financing statement; record of mortgage
27 as financing statement; time of filing financing statement).
28 "Fixtures." Goods are fixtures when they become so related
29 to particular real estate that an interest in them arises under
30 real estate law.
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1 "Purchase money lease." A lease is a purchase money lease
2 unless the lessee has possession or use of the goods or the
3 right to possession or use of the goods before the lease
4 agreement is enforceable.
5 * * *
6 § 3103. Definitions and index of definitions.
7 (a) Definitions.--The following words and phrases when used
8 in this division shall have[, unless the context clearly
9 indicates otherwise,] the meanings given to them in this
10 subsection:
11 * * *
12 § 4105. "Bank"; "depositary bank"; "intermediary bank";
13 "collecting bank"; "payor bank"; "presenting bank."
14 The following words and phrases when used in this division
15 shall have[, unless the context clearly indicates otherwise,]
16 the meanings given to them in this section:
17 * * *
18 § 4210. Security interest of collecting bank in items,
19 accompanying documents and proceeds.
20 * * *
21 (c) Satisfaction and continuation of security interest.--
22 Receipt by a collecting bank of a final settlement for an item
23 is a realization on its security interest in the item,
24 accompanying documents and proceeds. So long as the bank does
25 not receive final settlement for the item or give up possession
26 of the item or accompanying documents for purposes other than
27 collection, the security interest continues to that extent and
28 is subject to Division 9 (relating to secured transactions),
29 but:
30 (1) no security agreement is necessary to make the
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1 security interest enforceable (section 9203[(a)(1)](b)(3)(i)
2 (relating to attachment and enforceability of security
3 interest; proceeds[,]; supporting obligations; formal
4 requisites));
5 (2) no filing is required to perfect the security
6 interest; and
7 (3) the security interest has priority over conflicting
8 perfected security interests in the item, accompanying
9 documents or proceeds.
10 § 4A103. Payment order; definitions.
11 (a) Definition of "payment order" and related terms.--The
12 following words and phrases when used in this division shall
13 have[, unless the context clearly indicates otherwise,] the
14 meanings given to them in this subsection:
15 * * *
16 § 4A105. Other definitions.
17 (a) Definitions.--The following words and phrases when used
18 in this division shall have[, unless the context clearly
19 indicates otherwise,] the meanings given to them in this
20 subsection:
21 * * *
22 Section 12. Division 5 of Title 13 is repealed.
23 Section 13. Title 13 is amended by adding a division to
24 read:
25 DIVISION 5
26 LETTERS OF CREDIT
27 Chapter
28 51. Letters of Credit
29 CHAPTER 51
30 LETTERS OF CREDIT
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1 Sec.
2 5101. Short title of division.
3 5102. Definitions.
4 5103. Scope.
5 5104. Formal requirements.
6 5105. Consideration.
7 5106. Issuance, amendment, cancellation and duration.
8 5107. Confirmer, nominated person and adviser.
9 5108. Issuer's rights and obligations.
10 5109. Fraud and forgery.
11 5110. Warranties.
12 5111. Remedies.
13 5112. Transfer of letter of credit.
14 5113. Transfer by operation of law.
15 5114. Assignment of proceeds.
16 5115. Statute of limitations.
17 5116. Choice of law and forum.
18 5117. Subrogation of issuer, applicant and nominated person.
19 5118. Security interest of issuer or nominated person.
20 § 5101. Short title of division.
21 This division shall be known and may be cited as the Uniform
22 Commercial Code, Article 5, Letters of Credit.
23 § 5102. Definitions.
24 (a) Definitions.--The following words and phrases when used
25 in this division shall have the meanings given to them in this
26 subsection:
27 "Adviser." A person who, at the request of the issuer, a
28 confirmer or another adviser, notifies or requests another
29 adviser to notify the beneficiary that a letter of credit has
30 been issued, confirmed or amended.
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1 "Applicant." A person at whose request or for whose account
2 a letter of credit is issued. The term includes a person who
3 requests an issuer to issue a letter of credit on behalf of
4 another if the person making the request undertakes an
5 obligation to reimburse the issuer.
6 "Beneficiary." A person who under the terms of a letter of
7 credit is entitled to have its complying presentation honored.
8 The term includes a person to whom drawing rights have been
9 transferred under a transferable letter of credit.
10 "Confirmer." A nominated person who undertakes, at the
11 request or with the consent of the issuer, to honor a
12 presentation under a letter of credit issued by another.
13 "Dishonor (of a letter of credit)." Failure timely to honor
14 or to take an interim action, such as acceptance of a draft,
15 that may be required by the letter of credit.
16 "Document." A draft or other demand, document of title,
17 investment security, certificate, invoice or other record,
18 statement or representation of fact, law, right or opinion which
19 is:
20 (1) presented in a written or other medium permitted by
21 the letter of credit or, unless prohibited by the letter of
22 credit, by the standard practice referred to in section
23 5108(e) (relating to standard practice and role of court);
24 and
25 (2) capable of being examined for compliance with the
26 terms and conditions of the letter of credit.
27 A document may not be oral.
28 "Good faith." Honesty in fact in the conduct or transaction
29 concerned.
30 "Honor (of a letter of credit)." Performance of the issuer's
20010S0330B0654 - 24 -
1 undertaking in the letter of credit to pay or deliver an item of
2 value. Unless the letter of credit otherwise provides, "honor"
3 occurs:
4 (1) upon payment;
5 (2) if the letter of credit provides for acceptance,
6 upon acceptance of a draft and, at maturity, its payment; or
7 (3) if the letter of credit provides for incurring a
8 deferred obligation, upon incurring the obligation and, at
9 maturity, its performance.
10 "Issuer." A bank or other person that issues a letter of
11 credit, but does not include an individual who makes an
12 engagement for personal, family or household purposes.
13 "Letter of credit." A definite undertaking that satisfies
14 the requirements of section 5104 (relating to formal
15 requirements) by an issuer to a beneficiary at the request or
16 for the account of an applicant or, in the case of a financial
17 institution, to itself or for its own account, to honor a
18 documentary presentation by payment or delivery of an item of
19 value.
20 "Nominated person." A person whom the issuer:
21 (1) designates or authorizes to pay, accept, negotiate
22 or otherwise give value under a letter of credit; and
23 (2) undertakes by agreement or custom and practice to
24 reimburse.
25 "Presentation." Delivery of a document to an issuer or
26 nominated person for honor or giving of value under a letter of
27 credit.
28 "Presenter." A person making a presentation as or on behalf
29 of a beneficiary or nominated person.
30 "Record." Information that is inscribed on a tangible
20010S0330B0654 - 25 -
1 medium, or that is stored in an electronic or other medium and
2 is retrievable in perceivable form.
3 "Successor of a beneficiary." A person who succeeds to
4 substantially all of the rights of a beneficiary by operation of
5 law, including a corporation with or into which the beneficiary
6 has been merged or consolidated, an administrator, executor,
7 personal representative, trustee in bankruptcy, debtor in
8 possession, liquidator and receiver.
9 (b) Index of other definitions.--Definitions in other
10 divisions applying to this division and the sections in which
11 they appear are:
12 "Accept" or "acceptance." Section 3409 (relating to
13 acceptance of draft; certified check).
14 "Value." Sections 3303 (relating to value and consideration)
15 and 4211 (relating to when bank gives value for purposes of
16 holder in due course).
17 (c) Applicability of general definitions and principles.--
18 Division 1 (relating to general provisions) contains certain
19 additional general definitions and principles of construction
20 and interpretation applicable throughout this division.
21 § 5103. Scope.
22 (a) Applicability of division.--This division applies to
23 letters of credit and to certain rights and obligations arising
24 out of transactions involving letters of credit.
25 (b) Effect of statement of rule in this division.--The
26 statement of a rule in this division does not by itself require,
27 imply or negate application of the same or a different rule to a
28 situation not provided for, or to a person not specified, in
29 this division.
30 (c) Variation by agreement or undertaking.--With the
20010S0330B0654 - 26 -
1 exception of this subsection, subsections (a) and (d), the
2 definitions of "issuer" and "letter of credit" under section
3 5102(a) (relating to definitions) and sections 5106(d) (relating
4 to perpetual letters of credit) and 5114(d) (relating to consent
5 to assignment of proceeds), and except to the extent prohibited
6 under sections 1102(c) (relating to variation of title by
7 agreement) and 5117(d) (relating to time at which subrogation
8 rights arise), the effect of this division may be varied by
9 agreement or by a provision stated or incorporated by reference
10 in an undertaking. A term in an agreement or undertaking
11 generally excusing liability or generally limiting remedies for
12 failure to perform obligations is not sufficient to vary
13 obligations prescribed by this division.
14 (d) Independence of rights and obligations of issuer.--
15 Rights and obligations of an issuer to a beneficiary or a
16 nominated person under a letter of credit are independent of the
17 existence, performance or nonperformance of a contract or
18 arrangement out of which the letter of credit arises or which
19 underlies it, including contracts or arrangements between the
20 issuer and the applicant and between the applicant and the
21 beneficiary.
22 § 5104. Formal requirements.
23 A letter of credit, confirmation, advice, transfer, amendment
24 or cancellation may be issued in any form that is a record and
25 is authenticated:
26 (1) by a signature; or
27 (2) in accordance with the agreement of the parties or
28 the standard practice referred to in section 5108(e)
29 (relating to standard practice and role of court).
30 § 5105. Consideration.
20010S0330B0654 - 27 -
1 Consideration is not required to issue, amend, transfer or
2 cancel a letter of credit, advice or confirmation.
3 § 5106. Issuance, amendment, cancellation and duration.
4 (a) Issuance; revocability.--A letter of credit is issued
5 and becomes enforceable according to its terms against the
6 issuer when the issuer sends or otherwise transmits it to the
7 person requested to advise or to the beneficiary. A letter of
8 credit is revocable only if it so provides.
9 (b) Effect of amendment or cancellation in certain
10 circumstances.--After a letter of credit is issued, rights and
11 obligations of a beneficiary, applicant, confirmer and issuer
12 are not affected by an amendment or cancellation to which that
13 person has not consented except to the extent the letter of
14 credit provides that it is revocable or that the issuer may
15 amend or cancel the letter of credit without that consent.
16 (c) No stated expiration date.--If there is no stated
17 expiration date or other provision that determines its duration,
18 a letter of credit expires one year after its stated date of
19 issuance or, if none is stated, after the date on which it is
20 issued.
21 (d) Perpetual letters of credit.--A letter of credit that
22 states that it is perpetual expires five years after its stated
23 date of issuance or, if none is stated, after the date on which
24 it is issued.
25 § 5107. Confirmer, nominated person and adviser.
26 (a) Rights and obligations of a confirmer.--A confirmer is
27 directly obligated on a letter of credit and has the rights and
28 obligations of an issuer to the extent of its confirmation. The
29 confirmer also has rights against and obligations to the issuer
30 as if the issuer were an applicant and the confirmer had issued
20010S0330B0654 - 28 -
1 the letter of credit at the request and for the account of the
2 issuer.
3 (b) Nominated person.--A nominated person who is not a
4 confirmer is not obligated to honor or otherwise give value for
5 a presentation.
6 (c) Advisers.--A person requested to advise may decline to
7 act as an adviser. An adviser that is not a confirmer is not
8 obligated to honor or give value for a presentation. An adviser
9 undertakes to the issuer and to the beneficiary accurately to
10 advise the terms of the letter of credit, confirmation,
11 amendment or advice received by that person and undertakes to
12 the beneficiary to check the apparent authenticity of the
13 request to advise. Even if the advice is inaccurate, the letter
14 of credit, confirmation or amendment is enforceable as issued.
15 (d) Notice to transferee beneficiary.--A person who notifies
16 a transferee beneficiary of the terms of a letter of credit,
17 confirmation, amendment or advice has the rights and obligations
18 of an adviser under subsection (c). The terms in the notice to
19 the transferee beneficiary may differ from the terms in any
20 notice to the transferor beneficiary to the extent permitted by
21 the letter of credit, confirmation, amendment or advice received
22 by the person who so notifies.
23 § 5108. Issuer's rights and obligations.
24 (a) Duty to honor, dishonor.--Except as otherwise provided
25 in section 5109 (relating to fraud and forgery), an issuer shall
26 honor a presentation that, as determined by the standard
27 practice referred to in subsection (e), appears on its face
28 strictly to comply with the terms and conditions of the letter
29 of credit. Except as otherwise provided in section 5113
30 (relating to transfer by operation of law) and unless otherwise
20010S0330B0654 - 29 -
1 agreed with the applicant, an issuer shall dishonor a
2 presentation that does not appear so to comply.
3 (b) Time for honor, etc.--An issuer has a reasonable time
4 after presentation, but not beyond the end of the seventh
5 business day of the issuer after the day of its receipt of
6 documents:
7 (1) to honor;
8 (2) if the letter of credit provides for honor to be
9 completed more than seven business days after presentation,
10 to accept a draft or incur a deferred obligation; or
11 (3) to give notice to the presenter of discrepancies in
12 the presentation.
13 (c) Preclusion, generally.--Except as otherwise provided in
14 subsection (d), an issuer is precluded from asserting as a basis
15 for dishonor any discrepancy if timely notice is not given, or
16 any discrepancy not stated in the notice if timely notice is
17 given.
18 (d) Preclusion for fraud, forgery or expiration.--Failure to
19 give the notice specified in subsection (b) or to mention fraud,
20 forgery or expiration in the notice does not preclude the issuer
21 from asserting as a basis for dishonor fraud or forgery as
22 described in section 5109(a) or expiration of the letter of
23 credit before presentation.
24 (e) Standard practice.--An issuer shall observe standard
25 practice of financial institutions that regularly issue letters
26 of credit.
27 (f) Issuer not responsible for certain matters.--An issuer
28 is not responsible for:
29 (1) the performance or nonperformance of the underlying
30 contract, arrangement or transaction;
20010S0330B0654 - 30 -
1 (2) an act or omission of others; or
2 (3) observance or knowledge of the usage of a particular
3 trade other than standard practice referred to in subsection
4 (e).
5 (g) Nondocumentary conditions.--If an undertaking
6 constituting a letter of credit under the definition of "letter
7 of credit" under section 5102(a) (relating to definitions)
8 contains nondocumentary conditions, an issuer shall disregard
9 the nondocumentary conditions and treat them as if they were not
10 stated.
11 (h) Disposition of documents following dishonor.--An issuer
12 that has dishonored a presentation shall return the documents or
13 hold them at the disposal of, and send advice to that effect to,
14 the presenter.
15 (i) Certain consequences of honor.--An issuer that has
16 honored a presentation as permitted or required by this
17 division:
18 (1) is entitled to be reimbursed by the applicant in
19 immediately available funds not later than the date of its
20 payment of funds;
21 (2) takes the documents free of claims of the
22 beneficiary or presenter;
23 (3) is precluded from asserting a right of recourse on a
24 draft under sections 3414 (relating to obligation of drawer)
25 and 3415 (relating to obligation of indorser);
26 (4) except as otherwise provided in sections 5110
27 (relating to warranties) and 5117 (relating to subrogation of
28 issuer, applicant and nominated person), is precluded from
29 restitution of money paid or other value given by the mistake <--
30 to the extent the mistake concerns discrepancies in the
20010S0330B0654 - 31 -
1 documents or tender which are apparent on the face of the
2 presentation; and
3 (5) is discharged to the extent of its performance under
4 the letter of credit.
5 § 5109. Fraud and forgery.
6 (a) Fraud and forgery generally.--If a presentation is made
7 that appears on its face strictly to comply with the terms and
8 conditions of the letter of credit, but a required document is
9 forged or materially fraudulent, or honor of the presentation
10 would facilitate a material fraud by the beneficiary on the
11 issuer or applicant:
12 (1) the issuer shall honor the presentation, if honor is
13 demanded by:
14 (i) a nominated person who has given value in good
15 faith and without notice of forgery or material fraud;
16 (ii) a confirmer who has honored its confirmation in
17 good faith;
18 (iii) a holder in due course of a draft drawn under
19 the letter of credit which was taken after acceptance by
20 the issuer or nominated person; or
21 (iv) an assignee of the issuer's or nominated
22 person's deferred obligation that was taken for value and
23 without notice of forgery or material fraud after the
24 obligation was incurred by the issuer or nominated
25 person; and
26 (2) the issuer, acting in good faith, may honor or
27 dishonor the presentation in any other case.
28 (b) Conditions for injunction.--If an applicant claims that
29 a required document is forged or materially fraudulent or that
30 honor of the presentation would facilitate a material fraud by
20010S0330B0654 - 32 -
1 the beneficiary on the issuer or applicant, a court of competent
2 jurisdiction may temporarily or permanently enjoin the issuer
3 from honoring a presentation or grant similar relief against the
4 issuer or other persons only if the court finds that:
5 (1) the relief is not prohibited under the law
6 applicable to an accepted draft or deferred obligation
7 incurred by the issuer;
8 (2) a beneficiary, issuer or nominated person who may be
9 adversely affected is adequately protected against loss that
10 it may suffer because the relief is granted;
11 (3) all of the conditions to entitle a person to the
12 relief under the law of this Commonwealth have been met; and
13 (4) on the basis of the information submitted to the
14 court, the applicant is more likely than not to succeed under
15 its claim of forgery or material fraud and the person
16 demanding honor does not qualify for protection under
17 subsection (a)(1).
18 § 5110. Warranties.
19 (a) Warranties generally.--If its presentation is honored,
20 the beneficiary warrants:
21 (1) to the issuer, any other person to whom presentation
22 is made and the applicant that there is no fraud or forgery
23 of the kind described in section 5109(a) (relating to fraud
24 and forgery generally); and
25 (2) to the applicant that the drawing does not violate
26 any agreement between the applicant and beneficiary or any
27 other agreement intended by them to be augmented by the
28 letter of credit.
29 (b) Warranties arising under other divisions.--The
30 warranties in subsection (a) are in addition to warranties
20010S0330B0654 - 33 -
1 arising under Divisions 3 (relating to negotiable instruments),
2 4 (relating to bank deposits and collections), 7 (relating to
3 warehouse receipts, bills of lading and other documents of
4 title) and 8 (relating to investment securities) because of the
5 presentation or transfer of documents covered by any of those
6 divisions.
7 § 5111. Remedies.
8 (a) Wrongful dishonor or repudiation before presentation.--
9 If an issuer wrongfully dishonors or repudiates its obligation
10 to pay money under a letter of credit before presentation, the
11 beneficiary, successor or nominated person presenting on its own
12 behalf may recover from the issuer the amount that is the
13 subject of the dishonor or repudiation. If the issuer's
14 obligation under the letter of credit is not for the payment of
15 money, the claimant may obtain specific performance or, at the
16 claimant's election, recover an amount equal to the value of
17 performance from the issuer. In either case, the claimant may
18 also recover incidental but not consequential damages. The
19 claimant is not obligated to take action to avoid damages that
20 might be due from the issuer under this subsection. If, although
21 not obligated to do so, the claimant avoids damages, the
22 claimant's recovery from the issuer must be reduced by the
23 amount of damages avoided. The issuer has the burden of proving
24 the amount of damages avoided. In the case of repudiation the
25 claimant need not present any document.
26 (b) Wrongful dishonor upon presentation; wrongful honor.--If
27 an issuer wrongfully dishonors a draft or demand presented under
28 a letter of credit or honors a draft or demand in breach of its
29 obligation to the applicant, the applicant may recover damages
30 resulting from the breach, including incidental but not
20010S0330B0654 - 34 -
1 consequential damages, less any amount saved as a result of the
2 breach.
3 (c) Certain other breaches.--If an adviser or nominated
4 person other than a confirmer breaches an obligation under this
5 division or an issuer breaches an obligation not covered in
6 subsection (a) or (b), a person to whom the obligation is owed
7 may recover damages resulting from the breach, including
8 incidental but not consequential damages, less any amount saved
9 as a result of the breach. To the extent of the confirmation, a
10 confirmer has the liability of an issuer specified in this
11 subsection and subsections (a) and (b).
12 (d) Interest.--An issuer, nominated person or advisor who is
13 found liable under subsection (a), (b) or (c) shall pay interest
14 on the amount owed thereunder from the date of wrongful dishonor
15 or other appropriate date.
16 (e) Attorney fees.--Reasonable attorney fees and other
17 expenses of litigation may be awarded to the prevailing party in
18 an action in which a remedy is sought under this division.
19 (f) Liquidated damages.--Damages that would otherwise be
20 payable by a party for breach of an obligation under this
21 division may be liquidated by agreement or undertaking, but only
22 in an amount or by a formula that is reasonable in light of the
23 harm anticipated.
24 § 5112. Transfer of letter of credit.
25 (a) Transfer generally.--Except as otherwise provided in
26 section 5113 (relating to transfer by operation of law), unless
27 a letter of credit provides that it is transferable, the right
28 of a beneficiary to draw or otherwise demand performance under a
29 letter of credit may not be transferred.
30 (b) Limitations on duty to recognize or carry out a
20010S0330B0654 - 35 -
1 transfer.--Even if a letter of credit provides that it is
2 transferable, the issuer may refuse to recognize or carry out a
3 transfer if:
4 (1) the transfer would violate applicable law; or
5 (2) the transferor or transferee has failed to comply
6 with any requirement stated in the letter of credit or any
7 other requirement relating to transfer imposed by the issuer
8 which is within the standard practice referred to in section
9 5108(e) (relating to standard practice and role of court) or
10 is otherwise reasonable under the circumstances.
11 § 5113. Transfer by operation of law.
12 (a) Undisclosed successor.--A successor of a beneficiary may
13 consent to amendments, sign and present documents and receive
14 payment or other items of value in the name of the beneficiary
15 without disclosing its status as a successor.
16 (b) Disclosed successor.--A successor of a beneficiary may
17 consent to amendments, sign and present documents and receive
18 payment or other items of value in its own name as the disclosed
19 successor of the beneficiary. Except as otherwise provided in
20 subsection (e), an issuer shall recognize a disclosed successor
21 of a beneficiary as beneficiary in full substitution for its
22 predecessor upon compliance with the requirements for
23 recognition by the issuer of a transfer of drawing rights by
24 operation of law under the standard practice referred to in
25 section 5108(e) (relating to standard practice and role of
26 court) or, in the absence of such a practice, compliance with
27 other reasonable procedures sufficient to protect the issuer.
28 (c) Determination of successor status, signature.--An issuer
29 is not obliged to determine whether a purported successor is a
30 successor of a beneficiary or whether the signature of a
20010S0330B0654 - 36 -
1 purported successor is genuine or authorized.
2 (d) Effect of honor of presentation by purported
3 successor.--Honor of a purported successor's apparently
4 complying presentation under subsection (a) or (b) has the
5 consequences specified in section 5108(i) (relating to certain
6 consequences of honor) even if the purported successor is not
7 the successor of a beneficiary. Documents signed in the name of
8 the beneficiary or of a disclosed successor by a person who is
9 neither the beneficiary nor the successor of the beneficiary are
10 forged documents for the purposes of section 5109 (relating to
11 fraud and forgery).
12 (e) Right to decline to recognize presentation.--An issuer
13 whose rights of reimbursement are not covered by subsection (d)
14 or substantially similar law and any confirmer or nominated
15 person may decline to recognize a presentation under subsection
16 (b).
17 (f) Change of name.--A beneficiary whose name is changed
18 after the issuance of a letter of credit has the same rights and
19 obligations as a successor of a beneficiary under this section.
20 § 5114. Assignment of proceeds.
21 (a) Definition.--As used in this section, the term "proceeds
22 of a letter of credit" means the cash, check, accepted draft or
23 other item of value paid or delivered upon honor or giving of
24 value by the issuer or any nominated person under the letter of
25 credit. The term does not include a beneficiary's drawing rights
26 or documents presented by the beneficiary.
27 (b) Beneficiary's right to assign proceeds.--A beneficiary
28 may assign its right to part or all of the proceeds of a letter
29 of credit. The beneficiary may do so before presentation as a
30 present assignment of its right to receive proceeds contingent
20010S0330B0654 - 37 -
1 upon its compliance with the terms and conditions of the letter
2 of credit.
3 (c) Recognition of assignment of proceeds.--An issuer or
4 nominated person need not recognize an assignment of proceeds of
5 a letter of credit until it consents to the assignment.
6 (d) Consent to assignment of proceeds.--An issuer or
7 nominated person has no obligation to give or withhold its
8 consent to an assignment of proceeds of a letter of credit, but
9 consent may not be unreasonably withheld if the assignee
10 possesses and exhibits the letter of credit and presentation of
11 the letter of credit is a condition to honor.
12 (e) Rights of transferee beneficiary or nominated person.--
13 Rights of a transferee beneficiary or nominated person are
14 independent of the beneficiary's assignment of the proceeds of a
15 letter of credit and are superior to the assignee's right to the
16 proceeds.
17 (f) Certain rights not affected; relationship to Division
18 9.--Neither the rights recognized by this section between an
19 assignee and an issuer, transferee beneficiary or nominated
20 person nor the issuer's or nominated person's payment of
21 proceeds to an assignee or a third person affect the rights
22 between the assignee and any person other than the issuer,
23 transferee beneficiary or nominated person. The mode of creating
24 and perfecting a security interest in or granting an assignment
25 of a beneficiary's right to proceeds is governed by Division 9
26 (relating to secured transactions; sales of accounts, contract
27 rights and chattel paper) or other law. Against persons other
28 than the issuer, transferee beneficiary or nominated person, the
29 rights and obligations arising upon the creation of a security
30 interest or other assignment of a beneficiary's right to
20010S0330B0654 - 38 -
1 proceeds and its perfection are governed by Division 9 or other
2 law.
3 § 5115. Statute of limitations.
4 An action to enforce a right or obligation arising under this
5 division must be commenced within one year after the expiration
6 date of the relevant letter of credit or one year after the
7 cause of action accrues, whichever occurs later. A cause of
8 action accrues when the breach occurs, regardless of the
9 aggrieved party's lack of knowledge of the breach, except that,
10 in the event of a fraud or forgery adversely affecting the
11 aggrieved party, a cause of action accrues on the earlier of the
12 date on which the fraud or forgery was discovered by the
13 aggrieved party or the date on which the fraud or forgery could
14 have been discovered by the aggrieved party by the exercise of
15 reasonable diligence.
16 § 5116. Choice of law and forum.
17 (a) Express choice of law.--The liability of an issuer,
18 nominated person or advisor for action or omission is governed
19 by the law of the jurisdiction chosen by an agreement in the
20 form of a record signed or otherwise authenticated by the
21 affected parties in the manner provided in section 5104
22 (relating to formal requirements) or by a provision in the
23 person's letter of credit, confirmation or other undertaking.
24 The jurisdiction whose law is chosen need not bear any relation
25 to the transaction.
26 (b) Governing law otherwise.--Unless subsection (a) applies,
27 the liability of an issuer, nominated person or adviser for
28 action or omission is governed by the law of the jurisdiction in
29 which the person is located. The person is considered to be
30 located at the address indicated in the person's undertaking. If
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1 more than one address is indicated, the person is considered to
2 be located at the address from which the person's undertaking
3 was issued. For the purpose of jurisdiction, choice of law and
4 recognition of interbranch letters of credit, but not
5 enforcement of a judgment, all branches of a bank are considered
6 separate juridical entities and a bank is considered to be
7 located at the place where its relevant branch is considered to
8 be located under this subsection.
9 (c) Role of custom or practice.--Except as otherwise
10 provided in this subsection, the liability of an issuer,
11 nominated person or adviser is governed by any rules of custom
12 or practice, such as the Uniform Customs and Practice for
13 Documentary Credits, to which the letter of credit, confirmation
14 or other undertaking is expressly made subject. If:
15 (1) this division would govern the liability of an
16 issuer, nominated person or adviser under subsection (a) or
17 (b);
18 (2) the relevant undertaking incorporates rules of
19 custom or practice; and
20 (3) there is conflict between this division and those
21 rules as applied to that undertaking;
22 those rules govern except to the extent of any conflict with the
23 nonvariable provisions specified in section 5103(c) (relating to
24 variation by agreement or undertaking).
25 (d) Conflict with certain other divisions.--If there is
26 conflict between this division and Division 3 (relating to
27 negotiable instruments), 4 (relating to bank deposits and
28 collections), 4A (relating to funds transfers) or 9 (relating to
29 secured transactions; sales of accounts, contract rights and
30 chattel paper), this division governs.
20010S0330B0654 - 40 -
1 (e) Forum.--The forum for settling disputes arising out of
2 an undertaking within this division may be chosen in the manner
3 and with the binding effect that governing law may be chosen in
4 accordance with subsection (a).
5 § 5117. Subrogation of issuer, applicant and nominated person.
6 (a) Subrogation rights of issuer.--An issuer that honors a
7 beneficiary's presentation is subrogated to the rights of the
8 beneficiary to the same extent as if the issuer were a secondary
9 obligor of the underlying obligation owed to the beneficiary and
10 of the applicant to the same extent as if the issuer were the
11 secondary obligor of the underlying obligation owed to the
12 applicant.
13 (b) Subrogation rights of applicant.--An applicant that
14 reimburses an issuer is subrogated to the rights of the issuer
15 against any beneficiary, presenter or nominated person to the
16 same extent as if the applicant were the secondary obligor of
17 the obligations owed to the issuer and has the rights of
18 subrogation of the issuer to the rights of the beneficiary
19 stated in subsection (a).
20 (c) Subrogation rights of nominated person.--A nominated
21 person who pays or gives value against a draft or demand
22 presented under a letter of credit is subrogated to the rights
23 of:
24 (1) the issuer against the applicant to the same extent
25 as if the nominated person were a secondary obligor of the
26 obligation owed to the issuer by the applicant;
27 (2) the beneficiary to the same extent as if the
28 nominated person were a secondary obligor of the underlying
29 obligation owed to the beneficiary; and
30 (3) the applicant to the same extent as if the nominated
20010S0330B0654 - 41 -
1 person were a secondary obligor of the underlying obligation
2 owed to the applicant.
3 (d) Time at which subrogation rights arise.--Notwithstanding
4 any agreement or term to the contrary, the rights of subrogation
5 stated in subsections (a) and (b) do not arise until the issuer
6 honors the letter of credit or otherwise pays and the rights in
7 subsection (c) do not arise until the nominated person pays or
8 otherwise gives value. Until then, the issuer, nominated person
9 and the applicant do not derive under this section present or
10 prospective rights forming the basis of a claim, defense or
11 excuse.
12 § 5118. Security interest of issuer or nominated person.
13 (a) General rule.--An issuer or nominated person has a
14 security interest in a document presented under a letter of
15 credit to the extent that the issuer or nominated person honors
16 or gives value for the presentation.
17 (b) Duration.--So long as and to the extent that an issuer
18 or nominated person has not been reimbursed or has not otherwise
19 recovered the value given with respect to a security interest in
20 a document under subsection (a), the security interest continues
21 and is subject to Division 9 (relating to secured transactions),
22 but:
23 (1) a security agreement is not necessary to make the
24 security interest enforceable under section 9203(b)(3)
25 (relating to attachment and enforceability of security
26 interest; proceeds; supporting obligations; formal
27 requisites);
28 (2) if the document is presented in a medium other than
29 a written or other tangible medium, the security interest is
30 perfected; and
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1 (3) if the document is presented in a written or other
2 tangible medium and is not a certificated security, chattel
3 paper, a document of title, an instrument or a letter of
4 credit, the security interest is perfected and has priority
5 over a conflicting security interest in the document so long
6 as the debtor does not have possession of the document.
7 Section 14. Sections 7503(a)(1), 8102(a) introductory
8 paragraph, 8103(f), 8106(d) and (f), 8110(e), 8301(a)(3),
9 8302(a) and 8510 of Title 13 are amended to read:
10 § 7503. Document of title to goods defeated in certain cases.
11 (a) Prior legal or perfected security interest.--A document
12 of title confers no right in goods against a person who before
13 issuance of the document had a legal interest or a perfected
14 security interest in them and who neither:
15 (1) delivered or entrusted them or any document of title
16 covering them to the bailor or his nominee with actual or
17 apparent authority to ship, store or sell or with power to
18 obtain delivery under this division (section 7403 (relating
19 to obligation of warehouseman or carrier to deliver; excuse))
20 or with power of disposition under this title (section 2403
21 (relating to power to transfer; good faith purchase of goods;
22 "entrusting") and section [9307] 9320 (relating to
23 [protection of buyers] buyer of goods)) or other statute or
24 rule of law; nor
25 * * *
26 § 8102. Definitions.
27 (a) Definitions.--The following words and phrases when used
28 in this division shall have[, unless the context clearly
29 indicates otherwise,] the meanings given to them in this
30 subsection:
20010S0330B0654 - 43 -
1 * * *
2 § 8103. Rules for determining whether certain obligations and
3 interests are securities or financial assets.
4 * * *
5 (f) Commodity contract.--A commodity contract, as defined in
6 section [9115 (relating to investment property)] 9102(a)
7 (relating to definitions and index of definitions), is not a
8 security or a financial asset.
9 § 8106. Control.
10 * * *
11 (d) "Control" of security entitlement.--A purchaser has
12 "control" of a security entitlement if:
13 (1) the purchaser becomes the entitlement holder; [or]
14 (2) the securities intermediary has agreed that it will
15 comply with entitlement orders originated by the purchaser
16 without further consent by the entitlement holder[.]; or
17 (3) another person has control of the security
18 entitlement on behalf of the purchaser or, having previously
19 acquired control of the security entitlement, acknowledges
20 that it has control on behalf of the purchaser.
21 * * *
22 (f) Purchaser under subsection (c)[(2)] or (d)[(2)].--A
23 purchaser who has satisfied the requirements of subsection
24 (c)[(2)] or (d)[(2)] has control even if the registered owner in
25 the case of subsection (c)[(2)] or the entitlement holder in the
26 case of subsection (d)[(2)] retains the right to make
27 substitutions for the uncertificated security or security
28 entitlement, to originate instructions or entitlement orders to
29 the issuer or securities intermediary or otherwise to deal with
30 the uncertificated security or security entitlement.
20010S0330B0654 - 44 -
1 * * *
2 § 8110. Applicability; choice of law.
3 * * *
4 (e) Determination of "securities intermediary's
5 jurisdiction".--The following rules determine a "securities
6 intermediary's jurisdiction" for purposes of this section:
7 (1) If an agreement between the securities intermediary
8 and its entitlement holder [specifies that it is governed by
9 the law of a particular jurisdiction, that jurisdiction is
10 the securities intermediary's jurisdiction.
11 (2) If] governing the securities account expressly
12 provides that a particular jurisdiction is the securities
13 intermediary's jurisdiction for purposes of this chapter,
14 this division, or this title, that jurisdiction is the
15 securities intermediary's jurisdiction.
16 (2) If paragraph (1) does not apply and an agreement
17 between the securities intermediary and its entitlement
18 holder governing the securities account expressly provides
19 that the agreement is governed by the law of a particular
20 jurisdiction, that jurisdiction is the securities
21 intermediary's jurisdiction.
22 (3) If neither paragraph (1) nor paragraph (2) applies
23 and an agreement between the securities intermediary and its
24 entitlement holder [does not specify the governing law as
25 provided in paragraph (1), but expressly specifies] governing
26 the securities account expressly provides that the securities
27 account is maintained at an office in a particular
28 jurisdiction, that jurisdiction is the securities
29 intermediary's jurisdiction.
30 [(3) If an agreement between the securities intermediary
20010S0330B0654 - 45 -
1 and its entitlement holder does not specify a jurisdiction as
2 provided in paragraph (1) or (2)] (4) If none of the
3 preceding paragraphs applies, the securities intermediary's
4 jurisdiction is the jurisdiction in which [is located] the
5 office identified in an account statement as the office
6 serving the entitlement holder's account is located.
7 [(4) If an agreement between the securities intermediary
8 and its entitlement holder does not specify a jurisdiction as
9 provided in paragraph (1) or (2) and an account statement
10 does not identify an office serving the entitlement holder's
11 account as provided in paragraph (3)] (5) If none of the
12 preceding paragraphs applies, the securities intermediary's
13 jurisdiction is the jurisdiction in which [is located] the
14 chief executive office of the securities intermediary is
15 located.
16 * * *
17 § 8301. Delivery.
18 (a) Delivery of certificated security.--Delivery of a
19 certificated security to a purchaser occurs when:
20 * * *
21 (3) a securities intermediary acting on behalf of the
22 purchaser acquires possession of the security certificate,
23 only if the certificate is in registered form and [has been
24 specially indorsed to the purchaser by an effective
25 indorsement.] is:
26 (i) registered in the name of the purchaser;
27 (ii) payable to the order of the purchaser; or
28 (iii) specially indorsed to the purchaser by an
29 effective indorsement and has not been indorsed to the
30 securities intermediary or in blank.
20010S0330B0654 - 46 -
1 * * *
2 § 8302. Rights of purchaser.
3 (a) Rights acquired by purchaser.--Except as otherwise
4 provided in subsections (b) and (c), [upon delivery] a purchaser
5 of a certificated or uncertificated security [to a purchaser,
6 the purchaser] acquires all rights in the security that the
7 transferor had or had power to transfer.
8 * * *
9 § 8510. Rights of purchaser of security entitlement from
10 entitlement holder.
11 (a) Action based on adverse claim to financial asset or
12 security entitlement.--[An] In a case not covered by the
13 priority rules in Division 9 (relating to secured transactions)
14 or the rules stated in subsection (c), an action based on an
15 adverse claim to a financial asset or security entitlement,
16 whether framed in conversion, replevin, constructive trust,
17 equitable lien or other theory, may not be asserted against a
18 person who purchases a security entitlement, or an interest
19 therein, from an entitlement holder if the purchaser gives
20 value, does not have notice of the adverse claim and obtains
21 control.
22 (b) When adverse claim cannot be asserted.--If an adverse
23 claim could not have been asserted against an entitlement holder
24 under section 8502 (relating to assertion of adverse claim
25 against entitlement holder), the adverse claim cannot be
26 asserted against a person who purchases a security entitlement,
27 or an interest therein, from the entitlement holder.
28 (c) Rules of priority.--In a case not covered by the
29 priority rules in Division 9 [(relating to secured transactions;
30 sales of accounts, contract rights and chattel paper)], a
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1 purchaser for value of a security entitlement, or an interest
2 therein, who obtains control has priority over a purchaser of a
3 security entitlement, or an interest therein, who does not
4 obtain control. [Purchasers] Except as otherwise provided in
5 subsection (d), purchasers who have control rank [equally,
6 except that a] according to priority in time of:
7 (1) the purchaser's becoming the person for whom the
8 securities account, in which the security entitlement is
9 carried, is maintained, if the purchaser obtained control
10 under section 8106(d)(1) (relating to control);
11 (2) the securities intermediary's agreement to comply
12 with the purchaser's entitlement orders with respect to
13 security entitlements carried or to be carried in the
14 securities account in which the security entitlement is
15 carried, if the purchaser obtained control under section
16 8106(d)(2); or
17 (3) if the purchaser obtained control through another
18 person under section 8106(d)(3), the time on which priority
19 would be based under this subsection if the other person were
20 the secured party.
21 (d) Securities intermediary.--A securities intermediary as
22 purchaser has priority over a conflicting purchaser who has
23 control unless otherwise agreed by the securities intermediary.
24 Section 15. Division 9 of Title 13 is repealed.
25 Section 16. Title 13 is amended by adding a division to
26 read:
27 DIVISION 9
28 SECURED TRANSACTIONS
29 CHAPTER 91
30 GENERAL PROVISIONS
20010S0330B0654 - 48 -
1 Subchapter
2 A. Short Title, Definitions and General Concepts
3 B. Applicability of Division
4 SUBCHAPTER A
5 SHORT TITLE, DEFINITIONS AND GENERAL CONCEPTS
6 Sec.
7 9101. Short title of division.
8 9102. Definitions and index of definitions.
9 9103. Purchase-money security interest; application of
10 payments; burden of establishing.
11 9104. Control of deposit account.
12 9105. Control of electronic chattel paper.
13 9106. Control of investment property.
14 9107. Control of letter-of-credit right.
15 9108. Sufficiency of description.
16 § 9101. Short title of division.
17 This division shall be known and may be cited as the Uniform
18 Commercial Code, Division 9, Secured Transactions.
19 § 9102. Definitions and index of definitions.
20 (a) Division 9 definitions.--The following words and phrases
21 when used in this division shall have the meanings given to them
22 in this subsection:
23 "Accession." Goods which are physically united with other
24 goods in such a manner that the identity of the original goods
25 is not lost.
26 "Account."
27 (1) Except as used in "account for," a right to payment
28 of a monetary obligation, whether or not earned by
29 performance:
30 (i) for property which has been or is to be sold,
20010S0330B0654 - 49 -
1 leased, licensed, assigned or otherwise disposed of;
2 (ii) for services rendered or to be rendered;
3 (iii) for a policy of insurance issued or to be
4 issued;
5 (iv) for a secondary obligation incurred or to be
6 incurred;
7 (v) for energy provided or to be provided;
8 (vi) for the use or hire of a vessel under a charter
9 or other contract;
10 (vii) arising out of the use of a credit or charge
11 card or information contained on or for use with the
12 card; or
13 (viii) as winnings in a lottery or other game of
14 chance operated or sponsored by a state, governmental
15 unit of a state or person licensed or authorized to
16 operate the game by a state or governmental unit of a
17 state.
18 (2) The term includes health-care-insurance receivables.
19 (3) The term does not include:
20 (i) rights to payment evidenced by chattel paper or
21 an instrument;
22 (ii) commercial tort claims;
23 (iii) deposit accounts;
24 (iv) investment property;
25 (v) letter-of-credit right or letters of credit; or
26 (vi) rights to payment for money or funds advanced
27 or sold, other than rights arising out of the use of a
28 credit or charge card or information contained on or for
29 use with the card.
30 "Account debtor." A person obligated on an account, chattel
20010S0330B0654 - 50 -
1 paper or general intangible. The term does not include persons
2 obligated to pay a negotiable instrument, even if the instrument
3 constitutes part of chattel paper.
4 "Accounting." Except as used in "accounting for," a record:
5 (1) authenticated by a secured party;
6 (2) indicating the aggregate unpaid secured obligations
7 as of a date not more than 35 days earlier or 35 days later
8 than the date of the record; and
9 (3) identifying the components of the obligations in
10 reasonable detail.
11 "Agricultural lien." An interest, other than a security
12 interest, in farm products:
13 (1) which secures payment or performance of an
14 obligation for:
15 (i) goods or services furnished in connection with a
16 debtor's farming operation; or
17 (ii) rent on real property leased by a debtor in
18 connection with its farming operation;
19 (2) which is created by statute in favor of a person
20 that:
21 (i) in the ordinary course of its business furnished
22 goods or services to a debtor in connection with a
23 debtor's farming operation; or
24 (ii) leased real property to a debtor in connection
25 with the debtor's farming operation; and
26 (3) whose effectiveness does not depend on the person's
27 possession of the personal property.
28 "As-extracted collateral." Any of the following:
29 (1) Oil, gas or other minerals which are subject to a
30 security interest which:
20010S0330B0654 - 51 -
1 (i) is created by a debtor having an interest in the
2 minerals before extraction; and
3 (ii) attaches to the minerals as extracted.
4 (2) Accounts arising out of the sale at the wellhead or
5 minehead of oil, gas or other minerals in which the debtor
6 had an interest before extraction.
7 "Authenticate." To:
8 (i) sign; or
9 (ii) execute or otherwise adopt a symbol, or encrypt
10 or similarly process a record in whole or in part, with
11 the present intent of the authenticating person to
12 identify the person and adopt or accept a record.
13 "Bank." An organization which is engaged in the business of
14 banking. The term includes any savings bank, savings and loan
15 association, credit union or trust company.
16 "Cash proceeds." Proceeds which are money, checks, deposit
17 accounts or the like.
18 "Certificate of title." A certificate of title with respect
19 to which a statute provides for the security interest in
20 question to be indicated on the certificate as a condition or
21 result of the security interest's obtaining priority over the
22 rights of a lien creditor with respect to the collateral.
23 "Chattel paper." A record or records which evidence both a
24 monetary obligation and a security interest in specific goods, a
25 security interest in specific goods and software used in the
26 goods, a security interest in specific goods and license of
27 software used in the goods, a lease of specific goods, or a
28 lease of specific goods and license of software used in the
29 goods. In this definition, "monetary obligation" means a
30 monetary obligation secured by the goods or owed under a lease
20010S0330B0654 - 52 -
1 of the goods and includes a monetary obligation with respect to
2 software used in the goods. The term does not include charters
3 or other contracts involving the use or hire of a vessel or
4 records which evidence a right to payment arising out of the use
5 of a credit or charge card or information contained on or for
6 use with the card. If a transaction is evidenced by records that
7 include an instrument or series of instruments, the group of
8 records taken together constitutes chattel paper.
9 "Collateral." The property subject to a security interest or
10 agricultural lien. The term includes:
11 (1) proceeds to which a security interest attaches;
12 (2) accounts, chattel paper, payment intangibles and
13 promissory notes which have been sold; and
14 (3) goods which are the subject of a consignment.
15 "Commercial tort claim." A claim arising in tort with
16 respect to which:
17 (1) the claimant is an organization; or
18 (2) the claimant is an individual and the claim:
19 (i) arose in the course of the claimant's business
20 or profession; and
21 (ii) does not include damages arising out of
22 personal injury to or the death of an individual.
23 "Commodity account." An account maintained by a commodity
24 intermediary in which a commodity contract is carried for a
25 commodity customer.
26 "Commodity contract." A commodity futures contract, an
27 option on a commodity futures contract, a commodity option or
28 another contract, if the contract or option is:
29 (1) traded on or subject to the rules of a board of
30 trade which has been designated as a contract market for such
20010S0330B0654 - 53 -
1 a contract pursuant to Federal commodities laws; or
2 (2) traded on a foreign commodity board of trade,
3 exchange or market, and carried on the books of a commodity
4 intermediary for a commodity customer.
5 "Commodity customer." A person for whom or which a commodity
6 intermediary carries a commodity contract on its books.
7 "Commodity intermediary." A person that:
8 (1) is registered as a futures commission merchant under
9 Federal commodities law; or
10 (2) in the ordinary course of its business provides
11 clearance or settlement services for a board of trade which
12 has been designated as a contract market pursuant to Federal
13 commodities law.
14 "Communicate." Any of the following:
15 (1) To send a written or other tangible record.
16 (2) To transmit a record by any means agreed upon by the
17 persons sending and receiving the record.
18 (3) In the case of transmission of a record to or by a
19 filing office, to transmit a record by any means prescribed
20 by filing-office rule.
21 "Consignee." A merchant to whom or which goods are delivered
22 in a consignment.
23 "Consignment." A transaction, regardless of its form, in
24 which a person delivers goods to a merchant for the purpose of
25 sale and all of the following apply:
26 (1) The merchant:
27 (i) deals in goods of that kind under a name other
28 than the name of the person making delivery;
29 (ii) is not an auctioneer; and
30 (iii) is not generally known by its creditors to be
20010S0330B0654 - 54 -
1 substantially engaged in selling the goods of others.
2 (2) With respect to each delivery, the aggregate value
3 of the goods is $1,000 or more at the time of delivery.
4 (3) The goods are not consumer goods immediately before
5 delivery.
6 (4) The transaction does not create a security interest
7 which secures an obligation.
8 "Consignor." A person that delivers goods to a consignee in
9 a consignment.
10 "Consumer debtor." A debtor in a consumer transaction.
11 "Consumer goods." Goods which are used or bought for use
12 primarily for personal, family or household purposes.
13 "Consumer-goods transaction." A consumer transaction in
14 which:
15 (1) an individual incurs an obligation primarily for
16 personal, family or household purposes; and
17 (2) a security interest in consumer goods secures the
18 obligation.
19 "Consumer obligor." An obligor who:
20 (1) is an individual; and
21 (2) incurred the obligation as part of a transaction
22 entered into primarily for personal, family or household
23 purposes.
24 "Consumer transaction." A transaction in which:
25 (1) an individual incurs an obligation primarily for
26 personal, family or household purposes;
27 (2) a security interest secures the obligation; and
28 (3) the collateral is held or acquired primarily for
29 personal, family or household purposes.
30 The term includes consumer-goods transactions.
20010S0330B0654 - 55 -
1 "Continuation statement." An amendment of a financing
2 statement which:
3 (1) identifies, by its file number, the initial
4 financing statement to which it relates; and
5 (2) indicates that it is a continuation statement for,
6 or that it is filed to continue the effectiveness of, the
7 identified financing statement.
8 "Debtor." A:
9 (1) person having an interest, other than a security
10 interest or other lien, in the collateral, whether or not the
11 person is an obligor;
12 (2) seller of accounts, chattel paper, payment
13 intangibles or promissory notes; or
14 (3) consignee.
15 "Deposit account." A demand, time, savings, passbook or
16 similar account maintained with a bank. The term does not
17 include investment property or accounts evidenced by an
18 instrument.
19 "Document." A document of title or a receipt of the type
20 described in section 7201(b) (relating to storage under
21 government bond).
22 "Electronic chattel paper." Chattel paper evidenced by a
23 record consisting of information stored in an electronic medium.
24 "Encumbrance." A right, other than an ownership interest, in
25 real property. The term includes a mortgage and any other lien
26 on real property.
27 "Equipment." Goods other than inventory, farm products or
28 consumer goods.
29 "Farm products." Goods, other than standing timber, with
30 respect to which the debtor is engaged in a farming operation
20010S0330B0654 - 56 -
1 and which are any of the following:
2 (1) Crops grown, growing or to be grown, including:
3 (i) crops produced on trees, vines and bushes; and
4 (ii) aquatic goods produced in aquacultural
5 operations.
6 (2) Livestock, born or unborn, including aquatic goods
7 produced in aquacultural operations.
8 (3) Supplies used or produced in a farming operation.
9 (4) Products of crops or livestock in their
10 unmanufactured states.
11 "Farming operation." Raising, cultivating, propagating,
12 fattening or grazing or any other farming, livestock or
13 aquacultural operation.
14 "File number." The number assigned to an initial financing
15 statement pursuant to section 9519(a) (relating to filing office
16 duties).
17 "Filing office." An office designated in section 9501
18 (relating to filing office) as the place to file a financing
19 statement.
20 "Filing-office rule." A rule adopted pursuant to section
21 9526 (relating to filing-office rules).
22 "Financing statement." A record or records composed of an
23 initial financing statement and any filed record relating to the
24 initial financing statement.
25 "Fixture filing." The filing of a financing statement:
26 (1) covering goods which are or are to become fixtures;
27 and
28 (2) satisfying section 9502(a) (relating to sufficiency
29 of financing statement) and (b) (relating to real-property-
30 related financing statements).
20010S0330B0654 - 57 -
1 The term includes the filing of a financing statement covering
2 goods of a transmitting utility which are or are to become
3 fixtures.
4 "Fixtures." Goods which have become so related to particular
5 real property that an interest in them arises under real
6 property law.
7 "General intangible." Any personal property, including
8 things in action, other than accounts, chattel paper, commercial
9 tort claims, deposit accounts, documents, goods, instruments,
10 investment property, letter-of-credit rights, letters of credit,
11 money and oil, gas or other minerals before extraction. The term
12 includes payment intangibles and software.
13 "Good faith." Honesty in fact and the observance of
14 reasonable commercial standards of fair dealing.
15 "Goods." All things which are movable when a security
16 interest attaches.
17 (1) The term includes all of the following:
18 (i) Fixtures.
19 (ii) Standing timber which is to be cut and removed
20 under a conveyance or contract for sale.
21 (iii) The unborn young of animals.
22 (iv) Crops grown, growing or to be grown, even if
23 the crops are produced on trees, vines or bushes.
24 (v) Manufactured homes.
25 (vi) A computer program embedded in goods and any
26 supporting information provided in connection with a
27 transaction relating to the program if:
28 (A) the program is associated with the goods in
29 such a manner that it customarily is considered part
30 of the goods; or
20010S0330B0654 - 58 -
1 (B) by becoming the owner of the goods, a person
2 acquires a right to use the program in connection
3 with the goods.
4 The term does not include a computer program embedded in
5 goods which consist solely of the medium in which the program
6 is embedded.
7 (2) The term does not include accounts, chattel paper,
8 commercial tort claims, deposit accounts, documents, general
9 intangibles, instruments, investment property, letter-of-
10 credit rights, letters of credit, money or oil, gas or other
11 minerals before extraction.
12 "Governmental unit." A subdivision, agency, department,
13 county, parish, municipality or other unit of the government of
14 the United States, a state or a foreign country. The term
15 includes an organization having a separate corporate existence
16 if the organization is eligible to issue debt on which interest
17 is exempt from income taxation under the laws of the United
18 States.
19 "Health-care-insurance receivable." An interest in or claim
20 under a policy of insurance which is a right to payment of a
21 monetary obligation for health-care goods or services provided.
22 "Instrument." A negotiable instrument or any other writing
23 which evidences a right to the payment of a monetary obligation,
24 is not itself a security agreement or lease and is of a type
25 which in ordinary course of business is transferred by delivery
26 with any necessary indorsement or assignment. The term does not
27 include:
28 (1) investment property;
29 (2) letters of credit; or
30 (3) writings which evidence a right to payment arising
20010S0330B0654 - 59 -
1 out of the use of a credit or charge card or information
2 contained on or for use with the card.
3 "Inventory." Goods, other than farm products, which:
4 (1) are leased by a person as lessor;
5 (2) are held by a person for sale or lease or to be
6 furnished under a contract of service;
7 (3) are furnished by a person under a contract of
8 service; or
9 (4) consist of raw materials, work in process or
10 materials used or consumed in a business.
11 "Investment property." A security, whether certificated or
12 uncertificated; security entitlement; securities account;
13 commodity contract; or commodity account.
14 "Jurisdiction of organization." With respect to a registered
15 organization, the jurisdiction under whose law the organization
16 is organized.
17 "Letter-of-credit right." A right to payment or performance
18 under a letter of credit, whether or not the beneficiary has
19 demanded or is at the time entitled to demand payment or
20 performance. The term does not include the right of a
21 beneficiary to demand payment or performance under a letter of
22 credit.
23 "Lien creditor." Any of the following:
24 (1) A creditor that has acquired a lien on the property
25 involved by attachment, levy or the like.
26 (2) An assignee for benefit of creditors from the time
27 of assignment.
28 (3) A trustee in bankruptcy from the date of the filing
29 of the petition.
30 (4) A receiver in equity from the time of appointment.
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1 "Manufactured home." A structure, transportable in one or
2 more sections, which, in the traveling mode, is eight body feet
3 or more in width or 40 body feet or more in length, or, when
4 erected on site, is 320 or more square feet, and which is built
5 on a permanent chassis and designed to be used as a dwelling
6 with or without a permanent foundation when connected to the
7 required utilities, and includes the plumbing, heating, air-
8 conditioning, and electrical systems contained therein. The term
9 includes any structure that meets all of the requirements of
10 this paragraph except the size requirements and with respect to
11 which the manufacturer voluntarily files a certification
12 required by the United States Secretary of Housing and Urban
13 Development and complies with the standards established under 42
14 U.S.C. (relating to public health and welfare).
15 "Manufactured-home transaction." A secured transaction:
16 (1) which creates a purchase-money security interest in
17 a manufactured home, other than a manufactured home held as
18 inventory; or
19 (2) in which a manufactured home, other than a
20 manufactured home held as inventory, is the primary
21 collateral.
22 "Mortgage." A consensual interest in real property,
23 including fixtures, which secures payment or performance of an
24 obligation.
25 "New debtor." A person that becomes bound as debtor under
26 section 9203(d) (relating to when person becomes bound by
27 another person's security agreement) by a security agreement
28 previously entered into by another person.
29 "New value." Any of the following:
30 (1) Money.
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1 (2) Money's worth in property, services or new credit.
2 (3) Release by a transferee of an interest in property
3 previously transferred to the transferee.
4 The term does not include an obligation substituted for another
5 obligation.
6 "Noncash proceeds." Proceeds other than cash proceeds.
7 "Obligor." A person that, with respect to an obligation
8 secured by a security interest in or an agricultural lien on the
9 collateral:
10 (1) owes payment or other performance of the obligation;
11 (2) has provided property other than the collateral to
12 secure payment or other performance of the obligation; or
13 (3) is otherwise accountable in whole or in part for
14 payment or other performance of the obligation.
15 The term does not include any issuer or nominated person under a
16 letter of credit.
17 "Original debtor." Except as used in section 9310(c)
18 (relating to assignment of perfected security interest), a
19 person that, as debtor, entered into a security agreement to
20 which a new debtor has become bound under section 9203(d)
21 (relating to when person becomes bound by another person's
22 security agreement).
23 "Payment intangible." A general intangible under which the
24 account debtor's principal obligation is a monetary obligation.
25 "Person related to." One of the following:
26 (1) With respect to an individual:
27 (i) the spouse of the individual;
28 (ii) a brother, brother-in-law, sister or sister-in-
29 law of the individual;
30 (iii) an ancestor or lineal descendant of the
20010S0330B0654 - 62 -
1 individual or the individual's spouse; or
2 (iv) any other relative, by blood or marriage, of
3 the individual or the individual's spouse, who shares the
4 same home with the individual.
5 (2) With respect to an organization:
6 (i) a person directly or indirectly controlling,
7 controlled by or under common control with the
8 organization;
9 (ii) an officer or director of or a person
10 performing similar functions with respect to the
11 organization;
12 (iii) an officer or director of or a person
13 performing similar functions with respect to a person
14 described in subparagraph (i);
15 (iv) the spouse of an individual described in
16 subparagraph (i), (ii) or (iii); or
17 (v) an individual related by blood or marriage to an
18 individual described in subparagraph (i), (ii), (iii) or
19 (iv) who shares the same home with the individual.
20 "Proceeds." Except as used in section 9609(b) (relating to
21 secured party's right to take possession after default), the
22 following property:
23 (1) Whatever is acquired upon the sale, lease, license,
24 exchange or other disposition of collateral.
25 (2) Whatever is collected on or distributed on account
26 of collateral.
27 (3) Rights arising out of collateral.
28 (4) To the extent of the value of collateral, claims
29 arising out of:
30 (i) loss of the collateral;
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1 (ii) nonconformity or interference with the use of <--
2 THE COLLATERAL; <--
3 (III) INTERFERENCE WITH THE USE OF the collateral;
4 (iii) defects or infringement of rights in the <--
5 (IV) DEFECTS IN THE COLLATERAL; <--
6 (V) INFRINGEMENT OF RIGHTS IN THE collateral; or
7 (iv) (VI) damage to the collateral. <--
8 (5) To the extent of the value of collateral and to the
9 extent payable to the debtor or the secured party, insurance
10 payable by reason of:
11 (i) loss of the collateral;
12 (ii) nonconformity or interference with the use of <--
13 the collateral;
14 (iii) defects or infringement of rights in the <--
15 collateral; or <--
16 (IV) INFRINGEMENT OF RIGHTS IN THE COLLATERAL; OR <--
17 (iv) (V) damage to the collateral. <--
18 "Promissory note." An instrument which:
19 (1) evidences a promise to pay a monetary obligation;
20 (2) does not evidence an order to pay; and
21 (3) does not contain an acknowledgment by a bank that
22 the bank has received for deposit a sum of money or funds.
23 "Proposal." A record authenticated by a secured party which
24 includes the terms on which the secured party is willing to
25 accept collateral in full or partial satisfaction of the
26 obligation it secures under sections 9620 (relating to
27 acceptance of collateral in full or partial satisfaction of
28 obligation; compulsory disposition of collateral), 9621
29 (relating to notification of proposal to accept collateral) and
30 9622 (relating to effect of acceptance of collateral).
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1 "Public-finance transaction." A secured transaction in
2 connection with which all of the following apply:
3 (1) Debt securities are issued.
4 (2) All or a portion of the securities issued have an
5 initial stated maturity of at least 20 years.
6 (3) Any of the following is a state or a governmental
7 unit of a state:
8 (i) The debtor.
9 (ii) The obligor.
10 (iii) The secured party.
11 (iv) The account debtor or other person obligated on
12 collateral.
13 (v) The assignor or assignee of a secured
14 obligation.
15 (vi) The assignor or assignee of a security
16 interest.
17 "Pursuant to commitment." With respect to an advance made or
18 other value given by a secured party, pursuant to the secured
19 party's obligation, whether or not a subsequent event of default
20 or other event not within the secured party's control has
21 relieved or may relieve the secured party from its obligation.
22 "Record." Except as used in "for record," "of record,"
23 "record or legal title" or "record owner," either of the
24 following:
25 (1) Information which is inscribed on a tangible medium.
26 (2) Information which is:
27 (i) stored in an electronic or other medium; and
28 (ii) retrievable in perceivable form.
29 "Registered organization." An organization organized solely
30 under the law of a single state or the United States and as to
20010S0330B0654 - 65 -
1 which the state or the United States must maintain a public
2 record showing the organization to have been organized.
3 "Secondary obligor." An obligor to the extent that:
4 (1) the obligor's obligation is secondary; or
5 (2) the obligor has a right of recourse with respect to
6 an obligation secured by collateral against the debtor or
7 another obligor or property of either.
8 "Secured party." Any of the following:
9 (1) A person in whose favor a security interest is
10 created or provided for under a security agreement, whether
11 or not any obligation to be secured is outstanding.
12 (2) A person that holds an agricultural lien.
13 (3) A consignor.
14 (4) A person to whom or which accounts, chattel paper,
15 payment intangibles or promissory notes have been sold.
16 (5) A trustee, indenture trustee, agent, collateral
17 agent or other representative in whose favor a security
18 interest or agricultural lien is created or provided for.
19 (6) A person that holds a security interest arising
20 under section 2401 (relating to passing of title; reservation
21 for security; limited application of section), 2505 (relating
22 to shipment by seller under reservation), 2711(c) (relating
23 to security interest of buyer in rejected goods), 2A508(e)
24 (relating to security interest in goods in lessee's
25 possession), 4210 (relating to security interest of
26 collecting bank in items, accompanying documents and
27 proceeds) or 5118 (relating to security interest of issuer or
28 nominated person).
29 "Security agreement." An agreement which creates or provides
30 for a security interest.
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1 "Send." In connection with a record or notification:
2 (1) to deposit in the mail, deliver for transmission or
3 transmit by any other usual means of communication, with
4 postage or cost of transmission provided for, addressed to
5 any address reasonable under the circumstances; or
6 (2) to cause the record or notification to be received
7 within the time which it would have been received if properly
8 sent under paragraph (1).
9 "Software." A computer program and any supporting
10 information provided in connection with a transaction relating
11 to the program. The term does not include a computer program
12 which is included in the definition of goods.
13 "State." A state of the United States, the District of
14 Columbia, Puerto Rico, the United States Virgin Islands or any
15 territory or insular possession subject to the jurisdiction of
16 the United States.
17 "Supporting obligation." A letter-of-credit right or
18 secondary obligation which supports the payment or performance
19 of an account, chattel paper, a document, a general intangible,
20 an instrument or investment property.
21 "Tangible chattel paper." Chattel paper evidenced by a
22 record or records consisting of information which is inscribed
23 on a tangible medium.
24 "Termination statement." An amendment of a financing
25 statement which:
26 (1) identifies, by its file number, the initial
27 financing statement to which it relates; and
28 (2) indicates either that it is a termination statement
29 or that the identified financing statement is no longer
30 effective.
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1 "Transmitting utility." A person primarily engaged in the
2 business of:
3 (1) operating a railroad, subway, street railway or
4 trolley bus;
5 (2) transmitting communications electrically,
6 electromagnetically or by light;
7 (3) transmitting goods by pipeline or sewer; or
8 (4) transmitting or producing and transmitting
9 electricity, steam, gas or water.
10 (b) Definitions in other divisions.--The following
11 definitions in other divisions apply to this division:
12 "Applicant." Section 5102.
13 "Beneficiary." Section 5102.
14 "Broker." Section 8102.
15 "Certificated security." Section 8102.
16 "Check." Section 3104.
17 "Clearing corporation." Section 8102.
18 "Contract for sale." Section 2106.
19 "Customer." Section 4104.
20 "Entitlement holder." Section 8102.
21 "Financial asset." Section 8102.
22 "Holder in due course." Section 3302.
23 "Issuer." With respect to a letter of credit or letter-of-
24 credit right, section 5102.
25 "Issuer." With respect to a security, section 8201.
26 "Lease." Section 2A103.
27 "Lease agreement." Section 2A103.
28 "Lease contract." Section 2A103.
29 "Leasehold interest." Section 2A103.
30 "Lessee." Section 2A103.
20010S0330B0654 - 68 -
1 "Lessee in ordinary course of business." Section 2A103.
2 "Lessor." Section 2A103.
3 "Lessor's residual interest." Section 2A103.
4 "Letter of credit." Section 5102.
5 "Merchant." Section 2104.
6 "Negotiable instrument." Section 3104.
7 "Nominated person." Section 5102.
8 "Note." Section 3104.
9 "Proceeds of a letter of credit." Section 5114.
10 "Prove." Section 3103.
11 "Sale." Section 2106.
12 "Securities account." Section 8501.
13 "Securities intermediary." Section 8102.
14 "Security." Section 8102.
15 "Security certificate." Section 8102.
16 "Security entitlement." Section 8102.
17 "Uncertificated security." Section 8102.
18 (c) Division 1 definitions and principles.--Division 1
19 (relating to general provisions) contains general definitions
20 and principles of construction and interpretation applicable
21 throughout this division.
22 § 9103. Purchase-money security interest; application of
23 payments; burden of establishing.
24 (a) Definitions.--As used in this section, the following
25 words and phrases shall have the meanings given to them in this
26 subsection:
27 "Purchase-money collateral." Goods or software which secures
28 a purchase-money obligation incurred with respect to that
29 collateral.
30 "Purchase-money obligation." An obligation of an obligor
20010S0330B0654 - 69 -
1 incurred as all or part of the price of the collateral or for
2 value given to enable the debtor to acquire rights in or the use
3 of the collateral if the value is in fact so used.
4 (b) Purchase-money security interest in goods.--A security
5 interest in goods is a purchase-money security interest:
6 (1) to the extent that the goods are purchase-money
7 collateral with respect to that security interest;
8 (2) if the security interest is in inventory which is or
9 was purchase-money collateral, also to the extent that the
10 security interest secures a purchase-money obligation
11 incurred with respect to other inventory in which the secured
12 party holds or held a purchase-money security interest; and
13 (3) also to the extent that the security interest
14 secures a purchase-money obligation incurred with respect to
15 software in which the secured party holds or held a purchase-
16 money security interest.
17 (c) Purchase-money security interest in software.--A
18 security interest in software is a purchase-money security
19 interest to the extent that the security interest also secures a
20 purchase-money obligation incurred with respect to goods in
21 which the secured party holds or held a purchase-money security
22 interest if:
23 (1) the debtor acquired its interest in the software in
24 an integrated transaction in which it acquired an interest in
25 the goods; and
26 (2) the debtor acquired its interest in the software for
27 the principal purpose of using the software in the goods.
28 (d) Consignor's inventory purchase-money security
29 interest.--The security interest of a consignor in goods which
30 are the subject of a consignment is a purchase-money security
20010S0330B0654 - 70 -
1 interest in inventory.
2 (e) Application of payment in nonconsumer-goods
3 transaction.--In a transaction other than a consumer-goods
4 transaction, if the extent to which a security interest is a
5 purchase-money security interest depends on the application of a
6 payment to a particular obligation, the payment must be applied:
7 (1) in accordance with any reasonable method of
8 application to which the parties agree;
9 (2) in the absence of the parties' agreement to a
10 reasonable method, in accordance with any intention of the
11 obligor manifested at or before the time of payment; or
12 (3) in the absence of an agreement to a reasonable
13 method and a timely manifestation of the obligor's intention,
14 in the following order:
15 (i) to obligations which are not secured; and
16 (ii) if more than one obligation is secured, to
17 obligations secured by purchase-money security interests
18 in the order in which those obligations were incurred.
19 (f) No loss of status of purchase-money security interest in
20 nonconsumer-goods transaction.--In a transaction other than a
21 consumer-goods transaction, a purchase-money security interest
22 does not lose its status as such even if:
23 (1) the purchase-money collateral also secures an
24 obligation which is not a purchase-money obligation;
25 (2) collateral which is not purchase-money collateral
26 also secures the purchase-money obligation; or
27 (3) the purchase-money obligation has been renewed,
28 refinanced, consolidated or restructured.
29 (g) Burden of proof in nonconsumer-goods transaction.--In a
30 transaction other than a consumer-goods transaction, a secured
20010S0330B0654 - 71 -
1 party claiming a purchase-money security interest has the burden
2 of establishing the extent to which the security interest is a
3 purchase-money security interest.
4 (h) Nonconsumer-goods transactions; no inference.--The
5 limitation of the rules in subsections (e), (f) and (g) to
6 transactions other than consumer-goods transactions is intended
7 to leave to the court the determination of the proper rules in
8 consumer-goods transactions. The court may not infer from that
9 limitation the nature of the proper rule in consumer-goods
10 transactions and may continue to apply established approaches.
11 § 9104. Control of deposit account.
12 (a) Requirements for control.--A secured party has control
13 of a deposit account if:
14 (1) the secured party is the bank with which the deposit
15 account is maintained;
16 (2) the debtor, secured party and bank have agreed in an
17 authenticated record that the bank will comply with
18 instructions originated by the secured party directing
19 disposition of the funds in the deposit account without
20 further consent by the debtor; or
21 (3) the secured party becomes the bank's customer with
22 respect to the deposit account.
23 (b) Debtor's right to direct disposition.--A secured party
24 that has satisfied subsection (a) has control, even if the
25 debtor retains the right to direct the disposition of funds from
26 the deposit account.
27 § 9105. Control of electronic chattel paper.
28 A secured party has control of electronic chattel paper if
29 the record or records comprising the chattel paper are created,
30 stored and assigned in such a manner that all of the following <--
20010S0330B0654 - 72 -
1 apply:
2 (1) A A single authoritative copy of the record or <--
3 records exists which is unique, identifiable and, except as
4 otherwise provided in paragraphs (4), (5) and (6),
5 unalterable;
6 (2) The THE authoritative copy identifies the secured <--
7 party as the assignee of the record or records;
8 (3) The THE authoritative copy is communicated to and <--
9 maintained by the secured party or its designated custodian;
10 (4) Copies COPIES or revisions which add or change an <--
11 identified assignee of the authoritative copy can be made
12 only with the participation of the secured party;
13 (5) Each EACH copy of the authoritative copy and any <--
14 copy of a copy is readily identifiable as a copy which is not
15 the authoritative copy; AND <--
16 (6) Any ANY revision of the authoritative copy is <--
17 readily identifiable as an authorized or unauthorized
18 revision.
19 § 9106. Control of investment property.
20 (a) Control under section 8106.--A person has control of a
21 certificated security, an uncertificated security or a security
22 entitlement as provided in section 8106 (relating to control).
23 (b) Control of commodity contract.--A secured party has
24 control of a commodity contract if:
25 (1) the secured party is the commodity intermediary with
26 which the commodity contract is carried; or
27 (2) the commodity customer, secured party and commodity
28 intermediary have agreed that the commodity intermediary will
29 apply any value distributed on account of the commodity
30 contract as directed by the secured party without further
20010S0330B0654 - 73 -
1 consent by the commodity customer.
2 (c) Effect of control of securities account or commodity
3 account.--A secured party having control of all security
4 entitlements or commodity contracts carried in a securities
5 account or commodity account has control over the securities
6 account or commodity account.
7 § 9107. Control of letter-of-credit right.
8 A secured party has control of a letter-of-credit right to
9 the extent of any right to payment or performance by the issuer
10 or any nominated person if the issuer or nominated person has
11 consented to an assignment of proceeds of the letter of credit
12 under section 5114(c) (relating to recognition of assignment of
13 proceeds) or otherwise applicable law or practice.
14 § 9108. Sufficiency of description.
15 (a) Sufficiency of description.--Except as otherwise
16 provided in subsections (c), (d) and (e), a description of
17 personal or real property is sufficient, whether or not it is
18 specific, if it reasonably identifies what is described.
19 (b) Examples of reasonable identification.--Except as
20 otherwise provided in subsection (d), a description of
21 collateral reasonably identifies the collateral if it identifies
22 the collateral by:
23 (1) specific listing;
24 (2) category;
25 (3) except as otherwise provided in subsection (e), a
26 type of collateral defined in this title;
27 (4) quantity;
28 (5) computational or allocational formula or procedure;
29 or
30 (6) except as otherwise provided in subsection (c), any
20010S0330B0654 - 74 -
1 other method, if the identity of the collateral is
2 objectively determinable.
3 (c) Supergeneric description not sufficient.--A description
4 of collateral as "all the debtor's assets" or "all the debtor's
5 personal property" or using words of similar import does not
6 reasonably identify the collateral.
7 (d) Investment property.--Except as otherwise provided in
8 subsection (e), a description of a security entitlement,
9 securities account or commodity account is sufficient if it
10 describes:
11 (1) the collateral by those terms or as investment
12 property; or
13 (2) the underlying financial asset or commodity
14 contract.
15 (e) When description by type insufficient.--A description
16 only by type of collateral defined in this title is an
17 insufficient description of:
18 (1) a commercial tort claim; or
19 (2) in a consumer transaction, consumer goods, a
20 security entitlement, a securities account or a commodity
21 account.
22 SUBCHAPTER B
23 APPLICABILITY OF DIVISION
24 Sec.
25 9109. Scope.
26 9110. Security interests arising under Division 2 or 2A.
27 § 9109. Scope.
28 (a) General scope of division.--Except as otherwise provided
29 in subsections (c) and (d), this division applies to:
30 (1) a transaction, regardless of its form, which creates
20010S0330B0654 - 75 -
1 a security interest in personal property or fixtures by
2 contract;
3 (2) an agricultural lien;
4 (3) a sale of accounts, chattel paper, payment
5 intangibles or promissory notes;
6 (4) a consignment;
7 (5) a security interest arising under section 2401
8 (relating to passing of title; reservation for security;
9 limited application of section), 2505 (relating to shipment
10 by seller under reservation), 2711(c) (relating to security
11 interest of buyer in rejected goods) or 2A508(e) (relating to
12 security interest in goods in lessee's possession), as
13 provided in section 9110 (relating to security interests
14 arising under Division 2 or 2A); and
15 (6) a security interest arising under section 4210
16 (relating to security interest of collecting bank in items,
17 accompanying documents and proceeds) or 5118 (relating to
18 security interest of issuer or nominated person).
19 (b) Security interest in secured obligation.--The
20 application of this division to a security interest in a secured
21 obligation is not affected by the fact that the obligation is
22 itself secured by a transaction or interest to which this
23 division does not apply.
24 (c) Extent to which division does not apply.--This division
25 does not apply to the extent that:
26 (1) a statute, regulation or treaty of the United States
27 preempts this division;
28 (2) another statute of this Commonwealth expressly
29 governs the creation, perfection, priority or enforcement of
30 a security interest created by the Commonwealth or a
20010S0330B0654 - 76 -
1 governmental unit of the Commonwealth;
2 (3) a statute of another state, a foreign country or a
3 governmental unit of another state or a foreign country,
4 other than a statute generally applicable to security
5 interests, expressly governs creation, perfection, priority
6 or enforcement of a security interest created by the state,
7 country or governmental unit; or
8 (4) the rights of a transferee beneficiary or nominated
9 person under a letter of credit are independent and superior
10 under section 5114 (relating to assignment of proceeds).
11 (d) Inapplicability of division.--This division does not
12 apply to any of the following:
13 (1) A landlord's lien other than an agricultural lien.
14 (2) A lien, other than an agricultural lien, given by
15 statute or other rule of law for services or materials.
16 Section 9333 (relating to priority of certain liens arising
17 by operation of law) applies with respect to priority of the
18 lien.
19 (3) An assignment of a claim for wages, salary or other
20 compensation of an employee.
21 (4) A sale of accounts, chattel paper, payment
22 intangibles or promissory notes as part of a sale of the
23 business out of which they arose.
24 (5) An assignment of accounts, chattel paper, payment
25 intangibles or promissory notes which is for the purpose of
26 collection only.
27 (6) An assignment of a right to payment under a contract
28 to an assignee that is also obligated to perform under the
29 contract.
30 (7) An assignment of a single account, payment
20010S0330B0654 - 77 -
1 intangible or promissory note to an assignee in full or
2 partial satisfaction of a preexisting indebtedness.
3 (8) A transfer of an interest in or an assignment of a
4 claim under a policy of insurance, other than an assignment
5 by or to a health-care provider of a health-care-insurance
6 receivable and any subsequent assignment of the right to
7 payment. Sections 9315 (relating to secured party's rights on
8 disposition of collateral and in proceeds) and 9322 (relating
9 to priorities among conflicting security interests in and
10 agricultural liens on same collateral) apply with respect to
11 proceeds and priorities in proceeds.
12 (9) An assignment of a right represented by a judgment,
13 other than a judgment taken on a right to payment which was
14 collateral.
15 (10) A right of recoupment or set-off. However:
16 (i) section 9340 (relating to effectiveness of right
17 of recoupment or set-off against deposit account) applies
18 with respect to the effectiveness of rights of recoupment
19 or set-off against deposit accounts; and
20 (ii) section 9404 (relating to rights acquired by
21 assignee; claims and defenses against assignee) applies
22 with respect to defenses or claims of an account debtor.
23 (11) The creation or transfer of an interest in or lien
24 on real property, including a lease or rents thereunder,
25 except to the extent that provision is made for:
26 (i) liens on real property in sections 9203
27 (relating to attachment and enforceability of security
28 interest; proceeds; supporting obligations; formal
29 requisites) and 9308 (relating to when security interest
30 or agricultural lien is perfected; continuity of
20010S0330B0654 - 78 -
1 perfection);
2 (ii) fixtures in section 9334 (relating to priority
3 of security interests in fixtures and crops);
4 (iii) fixture filings in sections 9501 (relating to
5 filing office), 9502 (relating to contents of financing
6 statement; record of mortgage as financing statement;
7 time of filing financing statement), 9512 (relating to
8 amendment of financing statement), 9516 (relating to what
9 constitutes filing; effectiveness of filing) and 9519
10 (relating to numbering, maintaining and indexing records;
11 communicating information provided in records); and
12 (iv) security agreements covering personal and real
13 property in section 9604 (relating to procedure if
14 security agreement covers real property or fixtures).
15 (12) An assignment of a claim arising in tort, other
16 than a commercial tort claim. Sections 9315 and 9322 apply
17 with respect to proceeds and priorities in proceeds.
18 (13) An assignment of a deposit account in a consumer
19 transaction. Sections 9315 and 9322 apply with respect to
20 proceeds and priorities in proceeds.
21 (14) A security interest in intangible transition
22 property, as defined in 66 Pa.C.S. § 2812(g) (relating to
23 approval of transition bonds), to the extent that such
24 security interest is governed by 66 Pa.C.S. § 2812 rather
25 than by this title.
26 § 9110. Security interests arising under Division 2 or 2A.
27 A security interest arising under section 2401 (relating to
28 passing of title; reservation for security; limited application
29 of section), 2505 (relating to shipment by seller under
30 reservation), 2711(c) (relating to security interest of buyer in
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1 rejected goods) or 2A508(e) (relating to security interest in
2 goods in lessee's possession) is subject to this division.
3 However, until the debtor obtains possession of the goods:
4 (1) the security interest is enforceable, even if
5 section 9203(b)(3) (relating to enforceability) has not been
6 satisfied;
7 (2) filing is not required to perfect the security
8 interest;
9 (3) the rights of the secured party after default by the
10 debtor are governed by Division 2 (relating to sales) or 2A
11 (relating to leases); and
12 (4) the security interest has priority over a
13 conflicting security interest created by the debtor.
14 CHAPTER 92
15 EFFECTIVENESS OF SECURITY AGREEMENT, ATTACHMENT OF SECURITY
16 INTEREST AND RIGHTS OF PARTIES TO SECURITY AGREEMENT
17 Subchapter
18 A. Effectiveness and Attachment
19 B. Rights and Duties
20 SUBCHAPTER A
21 EFFECTIVENESS AND ATTACHMENT
22 Sec.
23 9201. General effectiveness of security agreement.
24 9202. Title to collateral immaterial.
25 9203. Attachment and enforceability of security interest;
26 proceeds; supporting obligations; formal requisites.
27 9204. After-acquired property; future advances.
28 9205. Use or disposition of collateral permissible.
29 9206. Security interest arising in purchase or delivery of
30 financial asset.
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1 § 9201. General effectiveness of security agreement.
2 (a) General effectiveness.--Except as otherwise provided in
3 this title, a security agreement is effective according to its
4 terms between the parties, against purchasers of the collateral
5 and against creditors.
6 (b) Applicable consumer laws and other law.--A transaction
7 subject to this division is subject to:
8 (1) any applicable rule of law which establishes a
9 different rule for consumers;
10 (2) any other statute or regulation of the Commonwealth
11 which regulates the rates, charges, agreements and practices
12 for loans, credit sales or other extensions of credit; and
13 (3) any consumer protection statute or regulation of the
14 Commonwealth.
15 (c) Other applicable law controls.--In case of conflict
16 between this division and a rule of law, statute or regulation
17 described in subsection (b), the rule of law, statute or
18 regulation controls. Failure to comply with a statute or
19 regulation described in subsection (b) has only the effect the
20 statute or regulation specifies.
21 (d) Further deference to other applicable law.--This
22 division does not:
23 (1) validate any rate, charge, agreement or practice
24 which violates a rule of law, statute or regulation described
25 in subsection (b); or
26 (2) extend the application of the rule of law, statute
27 or regulation to a transaction not otherwise subject to it.
28 § 9202. Title to collateral immaterial.
29 Except as otherwise provided with respect to consignments or
30 sales of accounts, chattel paper, payment intangibles or
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1 promissory notes, the provisions of this division with regard to
2 rights and obligations apply whether title to collateral is in
3 the secured party or the debtor.
4 § 9203. Attachment and enforceability of security interest;
5 proceeds; supporting obligations; formal requisites.
6 (a) Attachment.--A security interest attaches to collateral
7 when it becomes enforceable against the debtor with respect to
8 the collateral unless an agreement expressly postpones the time
9 of attachment.
10 (b) Enforceability.--Except as otherwise provided in
11 subsections (c) through (i), a security interest is enforceable
12 against the debtor and third parties with respect to the
13 collateral only if all of the following apply:
14 (1) Value has been given.
15 (2) The debtor has rights in the collateral or the power
16 to transfer rights in the collateral to a secured party.
17 (3) One of the following conditions is met:
18 (i) The debtor has authenticated a security
19 agreement which provides a description of the collateral
20 and, if the security interest covers timber to be cut, a
21 description of the land concerned.
22 (ii) The collateral is not a certificated security
23 and is in the possession of the secured party under
24 section 9313 (relating to when possession by or delivery
25 to secured party perfects security interest without
26 filing) pursuant to the debtor's security agreement.
27 (iii) The collateral is a certificated security in
28 registered form and the security certificate has been
29 delivered to the secured party under section 8301
30 (relating to delivery) pursuant to the debtor's security
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1 agreement.
2 (iv) The collateral is deposit accounts, electronic
3 chattel paper, investment property or letter-of-credit
4 rights, and the secured party has control under section
5 9104 (relating to control of deposit account), 9105
6 (relating to control of electronic chattel paper), 9106
7 (relating to control of investment property) or 9107
8 (relating to control of letter-of-credit right) pursuant
9 to the debtor's security agreement.
10 (c) Other Title 13 provisions.--Subsection (b) is subject to
11 sections 4210 (relating to security interest of collecting bank
12 in items, accompanying documents and proceeds), 5118 (relating
13 to security interest of issuer or nominated person), 9110
14 (relating to security interests arising under Division 2 or 2A)
15 and 9206 (relating to security interest arising in purchase or
16 delivery of financial asset).
17 (d) When person becomes bound by another person's security
18 agreement.--A person becomes bound as debtor by a security
19 agreement entered into by another person if, by operation of law
20 other than this division or by contract:
21 (1) the security agreement becomes effective to create a
22 security interest in the person's property; or
23 (2) the person becomes generally obligated for the
24 obligations of the other person, including the obligation
25 secured under the security agreement, and acquires or
26 succeeds to all or substantially all of the assets of the
27 other person.
28 (e) Effect of new debtor becoming bound.--If a new debtor
29 becomes bound as debtor by a security agreement entered into by
30 another person:
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1 (1) the agreement satisfies subsection (b)(3) with
2 respect to existing or after-acquired property of the new
3 debtor to the extent the property is described in the
4 agreement; and
5 (2) another agreement is not necessary to make a
6 security interest in the property enforceable.
7 (f) Proceeds and supporting obligations.--The attachment of
8 a security interest in collateral gives the secured party the
9 rights to proceeds provided by section 9315 (relating to secured
10 party's rights on disposition of collateral and in proceeds) and
11 is also attachment of a security interest in a supporting
12 obligation for the collateral.
13 (g) Lien securing right to payment.--The attachment of a
14 security interest in a right to payment or performance secured
15 by a security interest or other lien on personal or real
16 property is also attachment of a security interest in the
17 security interest, mortgage or other lien.
18 (h) Security entitlement carried in securities account.--The
19 attachment of a security interest in a securities account is
20 also attachment of a security interest in the security
21 entitlements carried in the securities account.
22 (i) Commodity contracts carried in commodity account.--The
23 attachment of a security interest in a commodity account is also
24 attachment of a security interest in the commodity contracts
25 carried in the commodity account.
26 § 9204. After-acquired property; future advances.
27 (a) After-acquired collateral.--Except as otherwise provided
28 in subsection (b), a security agreement may create or provide
29 for a security interest in after-acquired collateral.
30 (b) When after-acquired property clause not effective.--A
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1 security interest does not attach under a term constituting an
2 after-acquired property clause to:
3 (1) consumer goods, other than an accession when given
4 as additional security, unless the debtor acquires rights in
5 them within ten days after the secured party gives value; or
6 (2) a commercial tort claim.
7 (c) Future advances and other value.--A security agreement
8 may provide that collateral secures, or that accounts, chattel
9 paper, payment intangibles or promissory notes are sold in
10 connection with, future advances or other value, whether or not
11 the advances or value are given pursuant to commitment.
12 § 9205. Use or disposition of collateral permissible.
13 (a) When security interest not invalid or fraudulent.--A
14 security interest is not invalid or fraudulent against creditors
15 solely because any of the following apply:
16 (1) The debtor has the right or ability to:
17 (i) use, commingle or dispose of all or part of the
18 collateral, including returned or repossessed goods;
19 (ii) collect, compromise, enforce or otherwise deal
20 with collateral;
21 (iii) accept the return of collateral or make
22 repossessions; or
23 (iv) use, commingle or dispose of proceeds.
24 (2) The secured party fails to require the debtor to
25 account for proceeds or replace collateral.
26 (b) Requirements of possession not relaxed.--This section
27 does not relax the requirements of possession if attachment,
28 perfection or enforcement of a security interest depends upon
29 possession of the collateral by the secured party.
30 § 9206. Security interest arising in purchase or delivery of
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1 financial asset.
2 (a) Security interest when person buys through securities
3 intermediary.--A security interest in favor of a securities
4 intermediary attaches to a person's security entitlement if:
5 (1) the person buys a financial asset through the
6 securities intermediary in a transaction in which the person
7 is obligated to pay the purchase price to the securities
8 intermediary at the time of the purchase; and
9 (2) the securities intermediary credits the financial
10 asset to the buyer's securities account before the buyer pays
11 the securities intermediary.
12 (b) Security interest secures obligation to pay for
13 financial asset.--The security interest described in subsection
14 (a) secures the person's obligation to pay for the financial
15 asset.
16 (c) Security interest in payment against delivery
17 transaction.--A security interest in favor of a person that
18 delivers a certificated security or other financial asset
19 represented by a writing attaches to the security or other
20 financial asset if all of the following apply:
21 (1) The security or other financial asset:
22 (i) in the ordinary course of business is
23 transferred by delivery with any necessary indorsement or
24 assignment; and
25 (ii) is delivered under an agreement between persons
26 in the business of dealing with such securities or
27 financial assets.
28 (2) The agreement calls for delivery against payment.
29 (d) Security interest secures obligation to pay for
30 delivery.--The security interest described in subsection (c)
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1 secures the obligation to make payment for the delivery.
2 SUBCHAPTER B
3 RIGHTS AND DUTIES
4 Sec.
5 9207. Rights and duties of secured party having possession or
6 control of collateral.
7 9208. Additional duties of secured party having control of
8 collateral.
9 9209. Duties of secured party if account debtor has been
10 notified of assignment.
11 9210. Request for accounting; request regarding list of
12 collateral or statement of account.
13 § 9207. Rights and duties of secured party having possession or
14 control of collateral.
15 (a) Duty of care when secured party in possession.--Except
16 as otherwise provided in subsection (d), a secured party shall
17 use reasonable care in the custody and preservation of
18 collateral in the secured party's possession. In the case of
19 chattel paper or an instrument, reasonable care includes taking
20 necessary steps to preserve rights against prior parties unless
21 otherwise agreed.
22 (b) Expenses, risks, duties and rights when secured party in
23 possession.--Except as otherwise provided in subsection (d), if
24 a secured party has possession of collateral:
25 (1) Reasonable expenses, including the cost of insurance
26 and payment of taxes or other charges, incurred in the
27 custody, preservation, use or operation of the collateral are
28 chargeable to the debtor and are secured by the collateral.
29 (2) The risk of accidental loss or damage is on the
30 debtor to the extent of a deficiency in any effective
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1 insurance coverage.
2 (3) The secured party shall keep the collateral
3 identifiable, but fungible collateral may be commingled.
4 (4) The secured party may use or operate the collateral:
5 (i) for the purpose of preserving the collateral or
6 its value;
7 (ii) as permitted by an order of a court having
8 competent jurisdiction; or
9 (iii) except in the case of consumer goods, in the
10 manner and to the extent agreed by the debtor.
11 (c) Duties and rights when secured party in possession or
12 control.--Except as otherwise provided in subsection (d), a
13 secured party having possession of collateral or control of
14 collateral under section 9104 (relating to control of deposit
15 account), 9105 (relating to control of electronic chattel
16 paper), 9106 (relating to control of investment property) or
17 9107 (relating to control of letter-of-credit right):
18 (1) may hold as additional security any proceeds, except
19 money or funds, received from the collateral;
20 (2) shall apply money or funds received from the
21 collateral to reduce the secured obligation, unless remitted
22 to the debtor; and
23 (3) may create a security interest in the collateral.
24 (d) Buyer of certain rights to payment.--If the secured
25 party is a buyer of accounts, chattel paper, payment intangibles
26 or promissory notes or a consignor:
27 (1) Subsection (a) does not apply unless the secured
28 party is entitled under an agreement:
29 (i) to charge back uncollected collateral; or
30 (ii) otherwise to full or limited recourse against
20010S0330B0654 - 88 -
1 the debtor or a secondary obligor based on the nonpayment
2 or other default of an account debtor or other obligor on
3 the collateral.
4 (2) Subsections (b) and (c) do not apply.
5 § 9208. Additional duties of secured party having control of
6 collateral.
7 (a) Applicability of section.--This section applies to cases
8 in which there is no outstanding secured obligation and the
9 secured party is not committed to make advances, incur
10 obligations or otherwise give value.
11 (b) Duties of secured party after receiving demand from
12 debtor.--Within ten days after receiving an authenticated demand
13 by the debtor:
14 (1) A secured party having control of a deposit account
15 under section 9104(a)(2) (relating to control of deposit
16 account) shall send to the bank with which the deposit
17 account is maintained an authenticated statement which
18 releases the bank from any further obligation to comply with
19 instructions originated by the secured party.
20 (2) A secured party having control of a deposit account
21 under section 9104(a)(3) shall:
22 (i) pay the debtor the balance on deposit in the
23 deposit account; or
24 (ii) transfer the balance on deposit into a deposit
25 account in the debtor's name.
26 (3) A secured party, other than a buyer, having control
27 of electronic chattel paper under section 9105 (relating to
28 control of electronic chattel paper) shall:
29 (i) communicate the authoritative copy of the
30 electronic chattel paper to the debtor or its designated
20010S0330B0654 - 89 -
1 custodian;
2 (ii) if the debtor designates a custodian that is
3 the designated custodian with whom or which the
4 authoritative copy of the electronic chattel paper is
5 maintained for the secured party, communicate to the
6 custodian an authenticated record releasing the
7 designated custodian from any further obligation to
8 comply with instructions originated by the secured party
9 and instructing the custodian to comply with instructions
10 originated by the debtor; and
11 (iii) take appropriate action to enable the debtor
12 or its designated custodian to make copies of or
13 revisions to the authoritative copy which add or change
14 an identified assignee of the authoritative copy without
15 the consent of the secured party.
16 (4) A secured party having control of investment
17 property under section 8106(d)(2) (relating to control of
18 security entitlement) or 9106(b) (relating to control of
19 commodity contract) shall send to the securities intermediary
20 or commodity intermediary with which the security entitlement
21 or commodity contract is maintained an authenticated record
22 which releases the securities intermediary or commodity
23 intermediary from any further obligation to comply with
24 entitlement orders or directions originated by the secured
25 party.
26 (5) A secured party having control of a letter-of-credit
27 right under section 9107 (relating to control of letter-of-
28 credit right) shall send to each person having an unfulfilled
29 obligation to pay or deliver proceeds of the letter of credit
30 to the secured party an authenticated release from any
20010S0330B0654 - 90 -
1 further obligation to pay or deliver proceeds of the letter
2 of credit to the secured party.
3 § 9209. Duties of secured party if account debtor has been
4 notified of assignment.
5 (a) Applicability of section.--Except as otherwise provided
6 in subsection (c), this section applies if:
7 (1) there is no outstanding secured obligation; and
8 (2) the secured party is not committed to make advances,
9 incur obligations or otherwise give value.
10 (b) Duties of secured party after receiving demand from
11 debtor.--Within ten days after receiving an authenticated demand
12 by the debtor, a secured party shall send to an account debtor
13 that has received notification of an assignment to the secured
14 party as assignee under section 9406(a) (relating to discharge
15 of account debtor; effect of notification) an authenticated
16 record which releases the account debtor from any further
17 obligation to the secured party.
18 (c) Inapplicability to sales.--This section does not apply
19 to an assignment constituting the sale of an account, chattel
20 paper or payment intangible.
21 § 9210. Request for accounting; request regarding list of
22 collateral or statement of account.
23 (a) Definitions.--As used in this section, the following
24 words and phrases shall have the meanings given to them in this
25 subsection:
26 "Request." A:
27 (1) request for an accounting;
28 (2) request regarding a list of collateral; or
29 (3) request regarding a statement of account.
30 "Request for an accounting." A record authenticated by a
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1 debtor requesting that the recipient provide an accounting of
2 the unpaid obligations secured by collateral and reasonably
3 identifying the transaction or relationship which is the subject
4 of the request.
5 "Request regarding a list of collateral." A record
6 authenticated by a debtor requesting that the recipient approve
7 or correct a list of what the debtor believes to be the
8 collateral securing an obligation and reasonably identifying the
9 transaction or relationship which is the subject of the request.
10 "Request regarding a statement of account." A record
11 authenticated by a debtor requesting that the recipient approve
12 or correct a statement indicating what the debtor believes to be
13 the aggregate amount of unpaid obligations secured by collateral
14 as of a specified date and reasonably identifying the
15 transaction or relationship which is the subject of the request.
16 (b) Duty to respond to requests.--Subject to subsections
17 (c), (d), (e) and (f), a secured party, other than a buyer of
18 accounts, chattel paper, payment intangibles or promissory notes
19 or a consignor, shall comply with a request within 14 days after
20 receipt:
21 (1) in the case of a request for an accounting, by
22 authenticating and sending to the debtor an accounting; and
23 (2) in the case of a request regarding a list of
24 collateral or a request regarding a statement of account, by
25 authenticating and sending to the debtor an approval or
26 correction.
27 (c) Request regarding list of collateral; statement
28 concerning type of collateral.--A secured party that claims a
29 security interest in all of a particular type of collateral
30 owned by the debtor may comply with a request regarding a list
20010S0330B0654 - 92 -
1 of collateral by sending to the debtor an authenticated record
2 including a statement to that effect within 14 days after
3 receipt.
4 (d) Request regarding list of collateral; no interest
5 claimed.--A person that receives a request regarding a list of
6 collateral, claims no interest in the collateral when it
7 receives the request and claimed an interest in the collateral
8 at an earlier time shall comply with the request within 14 days
9 after receipt by sending to the debtor an authenticated record:
10 (1) disclaiming any interest in the collateral; and
11 (2) if known to the recipient, providing the name and
12 mailing address of any assignee of or successor to the
13 recipient's interest in the collateral.
14 (e) Request for accounting or regarding statement of
15 account; no interest in obligation claimed.--A person that
16 receives a request for an accounting or a request regarding a
17 statement of account, claims no interest in the obligations when
18 it receives the request and claimed an interest in the
19 obligations at an earlier time shall comply with the request
20 within 14 days after receipt by sending to the debtor an
21 authenticated record:
22 (1) disclaiming any interest in the obligations; and
23 (2) if known to the recipient, providing the name and
24 mailing address of any assignee of or successor to the
25 recipient's interest in the obligations.
26 (f) Charges for responses.--A debtor is entitled without
27 charge to one response to a request under this section during
28 any six-month period. The secured party may require payment of a
29 charge not exceeding $25 for each additional response.
30 CHAPTER 93
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1 PERFECTION AND PRIORITY
2 Subchapter
3 A. Law Governing Perfection and Priority
4 B. Perfection
5 C. Priority
6 D. Rights of Bank
7 SUBCHAPTER A
8 LAW GOVERNING PERFECTION AND PRIORITY
9 Sec.
10 9301. Law governing perfection and priority of security
11 interests.
12 9302. Law governing perfection and priority of agricultural
13 liens.
14 9303. Law governing perfection and priority of security
15 interests in goods covered by certificate of title.
16 9304. Law governing perfection and priority of security
17 interests in deposit accounts.
18 9305. Law governing perfection and priority of security
19 interests in investment property.
20 9306. Law governing perfection and priority of security
21 interests in letter-of-credit rights.
22 9307. Location of debtor.
23 § 9301. Law governing perfection and priority of security
24 interests.
25 (a) General rule; location of debtor.--Except as otherwise
26 provided in this section, while a debtor is located in a
27 jurisdiction, the local law of that jurisdiction governs
28 perfection, the effect of perfection or nonperfection and the
29 priority of a security interest in collateral.
30 (b) Possessory security interests; location of collateral.--
20010S0330B0654 - 94 -
1 While collateral is located in a jurisdiction, the local law of
2 that jurisdiction governs perfection, the effect of perfection
3 or nonperfection and the priority of a possessory security
4 interest in that collateral.
5 (c) Fixture filings, timber to be cut, priority of
6 nonpossessory tangible personal property security interests;
7 location of collateral.--Except as otherwise provided in
8 subsection (d), while collateral is located in a jurisdiction,
9 the local law of that jurisdiction governs:
10 (1) perfection of a security interest in goods by filing
11 a fixture filing;
12 (2) perfection of a security interest in timber to be
13 cut; and
14 (3) the effect of perfection or nonperfection and the
15 priority of a nonpossessory security interest in negotiable
16 documents, goods, instruments, money or tangible chattel
17 paper.
18 (d) As-extracted collateral; location of wellhead or
19 minehead.--The local law of the jurisdiction in which the
20 wellhead or minehead is located governs perfection, the effect
21 of perfection or nonperfection and the priority of a security
22 interest in as-extracted collateral.
23 (e) Other exceptions.--The rules of this section are subject
24 to:
25 (1) Section 9303 (relating to law governing perfection
26 and priority of security interests in goods covered by
27 certificate of title).
28 (2) Section 9304 (relating to law governing perfection
29 and priority of security interests in deposit accounts).
30 (3) Section 9305 (relating to law governing perfection
20010S0330B0654 - 95 -
1 and priority of security interests in investment property).
2 (4) Section 9306 (relating to law governing perfection
3 and priority of security interests in letter-of-credit
4 rights).
5 § 9302. Law governing perfection and priority of agricultural
6 liens.
7 While farm products are located in a jurisdiction, the local
8 law of that jurisdiction governs perfection, the effect of
9 perfection or nonperfection and the priority of an agricultural
10 lien on the farm products.
11 § 9303. Law governing perfection and priority of security
12 interests in goods covered by certificate of title.
13 (a) Applicability of section.--This section applies to goods
14 covered by a certificate of title, even if there is no other
15 relationship between the jurisdiction under whose certificate of
16 title the goods are covered and the goods or the debtor.
17 (b) When goods covered by certificate of title.--Goods
18 become covered by a certificate of title when a valid
19 application for the certificate of title and the applicable fee
20 are delivered to the appropriate authority. Goods cease to be
21 covered by a certificate of title at the earlier of the time the
22 certificate of title ceases to be effective under the law of the
23 issuing jurisdiction or the time the goods become covered
24 subsequently by a certificate of title issued by another
25 jurisdiction.
26 (c) Applicable law.--The local law of the jurisdiction under
27 whose certificate of title the goods are covered governs
28 perfection, the effect of perfection or nonperfection and the
29 priority of a security interest in goods covered by a
30 certificate of title from the time the goods become covered by
20010S0330B0654 - 96 -
1 the certificate of title until the goods cease to be covered by
2 the certificate of title.
3 § 9304. Law governing perfection and priority of security
4 interests in deposit accounts.
5 (a) Law of bank's jurisdiction governs.--The local law of a
6 bank's jurisdiction governs perfection, the effect of perfection
7 or nonperfection and the priority of a security interest in a
8 deposit account maintained with that bank.
9 (b) Bank's jurisdiction.--The following rules determine a
10 bank's jurisdiction for purposes of this chapter:
11 (1) If an agreement between the bank and the debtor
12 governing the deposit account expressly provides that a
13 particular jurisdiction is the bank's jurisdiction for
14 purposes of this chapter, this division or this title, that
15 jurisdiction is the bank's jurisdiction.
16 (2) If paragraph (1) does not apply and an agreement
17 between the bank and its customer governing the deposit
18 account expressly provides that the agreement is governed by
19 the law of a particular jurisdiction, that jurisdiction is
20 the bank's jurisdiction.
21 (3) If neither paragraph (1) nor paragraph (2) applies
22 and an agreement between the bank and its customer governing
23 the deposit account expressly provides that the deposit
24 account is maintained at an office in a particular
25 jurisdiction, that jurisdiction is the bank's jurisdiction.
26 (4) If none of the preceding paragraphs applies, the
27 bank's jurisdiction is the jurisdiction in which the office
28 identified in an account statement as the office serving the
29 customer's account is located.
30 (5) If none of the preceding paragraphs applies, the
20010S0330B0654 - 97 -
1 bank's jurisdiction is the jurisdiction in which the chief
2 executive office of the bank is located.
3 § 9305. Law governing perfection and priority of security
4 interests in investment property.
5 (a) Governing law; general rules.--Except as otherwise
6 provided in subsection (c), the following rules apply:
7 (1) Certificated security. While a security certificate <--
8 is located in a jurisdiction, the local law of that
9 jurisdiction governs perfection, the effect of perfection or
10 nonperfection and the priority of a security interest in the
11 certificated security represented thereby.
12 (2) Uncertificated security. The local law of the <--
13 issuer's jurisdiction as specified in section 8110(d)
14 (relating to applicability; choice of law) governs
15 perfection, the effect of perfection or nonperfection and the
16 priority of a security interest in an uncertificated
17 security.
18 (3) Security entitlement or securities account. The <--
19 local law of the securities intermediary's jurisdiction as
20 specified in section 8110(e) governs perfection, the effect
21 of perfection or nonperfection and the priority of a security
22 interest in a security entitlement or securities account.
23 (4) Commodity contract or commodity account. The local <--
24 law of the commodity intermediary's jurisdiction governs
25 perfection, the effect of perfection or nonperfection and the
26 priority of a security interest in a commodity contract or
27 commodity account.
28 (b) Commodity intermediary's jurisdiction.--The following
29 rules determine a commodity intermediary's jurisdiction for
30 purposes of this part:
20010S0330B0654 - 98 -
1 (1) If an agreement between the commodity intermediary
2 and commodity customer governing the commodity account
3 expressly provides that a particular jurisdiction is the
4 commodity intermediary's jurisdiction for purposes of this
5 chapter, this division or this title, that jurisdiction is
6 the commodity intermediary's jurisdiction.
7 (2) If paragraph (1) does not apply and an agreement
8 between the commodity intermediary and commodity customer
9 governing the commodity account expressly provides that the
10 agreement is governed by the law of a particular
11 jurisdiction, that jurisdiction is the commodity
12 intermediary's jurisdiction.
13 (3) If neither paragraph (1) nor paragraph (2) applies
14 and an agreement between the commodity intermediary and
15 commodity customer governing the commodity account expressly
16 provides that the commodity account is maintained at an
17 office in a particular jurisdiction, that jurisdiction is the
18 commodity intermediary's jurisdiction.
19 (4) If none of the preceding paragraphs applies, the
20 commodity intermediary's jurisdiction is the jurisdiction in
21 which the office identified in an account statement as the
22 office serving the commodity customer's account is located.
23 (5) If none of the preceding paragraphs applies, the
24 commodity intermediary's jurisdiction is the jurisdiction in
25 which the chief executive office of the commodity
26 intermediary is located.
27 (c) When perfection governed by law of jurisdiction where
28 debtor located.--The local law of the jurisdiction in which the
29 debtor is located governs:
30 (1) perfection of a security interest in investment
20010S0330B0654 - 99 -
1 property by filing;
2 (2) automatic perfection of a security interest in
3 investment property created by a broker or securities
4 intermediary; and
5 (3) automatic perfection of a security interest in a
6 commodity contract or commodity account created by a
7 commodity intermediary.
8 § 9306. Law governing perfection and priority of security
9 interests in letter-of-credit rights.
10 (a) Governing law; issuer's or nominated person's
11 jurisdiction.--Subject to subsection (c), the local law of the
12 issuer's jurisdiction or a nominated person's jurisdiction
13 governs perfection, the effect of perfection or nonperfection
14 and the priority of a security interest in a letter-of-credit
15 right if the issuer's jurisdiction or nominated person's
16 jurisdiction is a state.
17 (b) Issuer's or nominated person's jurisdiction.--For
18 purposes of this chapter, an issuer's jurisdiction or nominated
19 person's jurisdiction is the jurisdiction whose law governs the
20 liability of the issuer or nominated person with respect to the
21 letter-of-credit right as provided in section 5116 (relating to
22 choice of law and forum).
23 (c) When section not applicable.--This section does not
24 apply to a security interest which is perfected only under
25 section 9308(d) (relating to supporting obligation).
26 § 9307. Location of debtor.
27 (a) Place of business.--As used in this section, the term
28 "place of business" means a place where a debtor conducts its
29 affairs.
30 (b) Debtor's location: general rules.--Except as otherwise
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1 provided in this section, the following rules determine a
2 debtor's location:
3 (1) A debtor who is an individual is located at the
4 individual's principal residence.
5 (2) A debtor which is an organization and has only one
6 place of business is located at its place of business.
7 (3) A debtor which is an organization and has more than
8 one place of business is located at its chief executive
9 office.
10 (c) Limitation of applicability of subsection (b).--
11 Subsection (b) applies only if a debtor's residence, place of
12 business or chief executive office, as applicable, is located in
13 a jurisdiction whose law generally requires information
14 concerning the existence of a nonpossessory security interest to
15 be made generally available in a filing, recording or
16 registration system as a condition or result of the security
17 interest's obtaining priority over the rights of a lien creditor
18 with respect to the collateral. If subsection (b) does not
19 apply, the debtor is located in the District of Columbia.
20 (d) Continuation of location: cessation of existence, etc.--
21 A person that ceases to exist, ceases to have a residence or
22 ceases to have a place of business continues to be located in
23 the jurisdiction specified by subsections (b) and (c).
24 (e) Location of registered organization organized under
25 state law.--A registered organization which is organized under
26 the law of a state is located in that state.
27 (f) Location of registered organization organized under
28 Federal law; bank branches and agencies.--Except as otherwise
29 provided in subsection (i), a registered organization which is
30 organized under the law of the United States and a branch or
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1 agency of a bank which is not organized under the law of the
2 United States or a state are located:
3 (1) in the state which the law of the United States
4 designates, if the law designates a state of location;
5 (2) in the state which the registered organization,
6 branch or agency designates, if the law of the United States
7 authorizes the registered organization, branch or agency to
8 designate its state of location; or
9 (3) in the District of Columbia, if neither paragraph
10 (1) nor paragraph (2) applies.
11 (g) Continuation of location: change in status of registered
12 organization.--A registered organization continues to be located
13 in the jurisdiction specified by subsection (e) or (f)
14 notwithstanding:
15 (1) the suspension, revocation, forfeiture or lapse of
16 the registered organization's status as such in its
17 jurisdiction of organization; or
18 (2) the dissolution, winding up or cancellation of the
19 existence of the registered organization.
20 (h) Location of United States.--The location of the United
21 States is the District of Columbia.
22 (i) Location of foreign bank branch or agency if licensed in
23 only one state.--A branch or agency of a bank which is not
24 organized under the law of the United States or a state is
25 located in the state in which the branch or agency is licensed,
26 if all branches and agencies of the bank are licensed in only
27 one state.
28 (j) Location of foreign air carrier.--A foreign air carrier
29 under the Federal Aviation Act of 1958 (Public Law 85-726, 72
30 Stat. 731), as amended, is located at the designated office of
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1 the agent upon which service of process may be made on behalf of
2 the carrier.
3 (k) Section applies only to this chapter.--This section
4 applies only for purposes of this chapter.
5 SUBCHAPTER B
6 PERFECTION
7 Sec.
8 9308. When security interest or agricultural lien is perfected;
9 continuity of perfection.
10 9309. Security interest perfected upon attachment.
11 9310. When filing required to perfect security interest or
12 agricultural lien; security interests and agricultural
13 liens to which filing provisions do not apply.
14 9311. Perfection of security interests in property subject to
15 certain statutes, regulations and treaties.
16 9312. Perfection of security interests in chattel paper, deposit
17 accounts, documents, goods covered by documents,
18 instruments, investment property, letter-of-credit rights
19 and money; perfection by permissive filing; temporary
20 perfection without filing or transfer of possession.
21 9313. When possession by or delivery to secured party perfects
22 security interest without filing.
23 9314. Perfection by control.
24 9315. Secured party's rights on disposition of collateral and
25 in proceeds.
26 9316. Continued perfection of security interest following
27 change in governing law.
28 § 9308. When security interest or agricultural lien is
29 perfected; continuity of perfection.
30 (a) Perfection of security interest.--Except as otherwise
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1 provided in this section and section 9309 (relating to security
2 interest perfected upon attachment), a security interest is
3 perfected if it has attached and all of the applicable
4 requirements for perfection in sections 9310 (relating to when
5 filing required to perfect security interest or agricultural
6 lien; security interests and agricultural liens to which filing
7 provisions do not apply) through 9316 (relating to continued
8 perfection of security interest following change in governing
9 law) have been satisfied. A security interest is perfected when
10 it attaches if the applicable requirements are satisfied before
11 the security interest attaches.
12 (b) Perfection of agricultural lien.--An agricultural lien
13 is perfected if it has become effective and all of the
14 applicable requirements for perfection in section 9310 have been
15 satisfied. An agricultural lien is perfected when it becomes
16 effective if the applicable requirements are satisfied before
17 the agricultural lien becomes effective.
18 (c) Continuous perfection; perfection by different
19 methods.--A security interest or agricultural lien is perfected
20 continuously if it is originally perfected by one method under
21 this division and is later perfected by another method under
22 this division without an intermediate period when it was
23 unperfected.
24 (d) Supporting obligation.--Perfection of a security
25 interest in collateral also perfects a security interest in a
26 supporting obligation for the collateral.
27 (e) Lien securing right to payment.--Perfection of a
28 security interest in a right to payment or performance also
29 perfects a security interest in a security interest, mortgage or
30 other lien on personal or real property securing the right.
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1 (f) Security entitlement carried in securities account.--
2 Perfection of a security interest in a securities account also
3 perfects a security interest in the security entitlements
4 carried in the securities account.
5 (g) Commodity contract carried in commodity account.--
6 Perfection of a security interest in a commodity account also
7 perfects a security interest in the commodity contracts carried
8 in the commodity account.
9 § 9309. Security interest perfected upon attachment.
10 The following security interests are perfected when they
11 attach:
12 (1) A purchase-money security interest in consumer
13 goods, except as otherwise provided in section 9311(b)
14 (relating to perfection of security interests in property
15 subject to certain statutes, regulations and treaties) with
16 respect to consumer goods which are subject to a statute or
17 treaty described in section 9311(a).
18 (2) An assignment of accounts or payment intangibles
19 which does not by itself or in conjunction with other
20 assignments to the same assignee transfer a significant part
21 of the assignor's outstanding accounts or payment
22 intangibles.
23 (3) A sale of a payment intangible.
24 (4) A sale of a promissory note.
25 (5) A security interest created by the assignment of a
26 health-care-insurance receivable to the provider of the
27 health-care goods or services.
28 (6) A security interest arising under section 2401
29 (relating to passing of title; reservation for security;
30 limited application of section), 2505 (relating to shipment
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1 by seller under reservation), 2711(c) (relating to security
2 interest of buyer in rejected goods) or 2A508(e) (relating to
3 security interest in goods in lessee's possession), until the
4 debtor obtains possession of the collateral.
5 (7) A security interest of a collecting bank arising
6 under section 4210 (relating to security interest of
7 collecting bank in items, accompanying documents and
8 proceeds).
9 (8) A security interest of an issuer or nominated person
10 arising under section 5118 (relating to security interest of
11 issuer or nominated person).
12 (9) A security interest arising in the delivery of a
13 financial asset under section 9206(c) (relating to security
14 interest in payment against delivery transaction).
15 (10) A security interest in investment property created
16 by a broker or securities intermediary.
17 (11) A security interest in a commodity contract or a
18 commodity account created by a commodity intermediary.
19 (12) An assignment for the benefit of all creditors of
20 the transferor and subsequent transfers by the assignee
21 thereunder.
22 (13) A security interest created by an assignment of a
23 beneficial interest in a decedent's estate.
24 § 9310. When filing required to perfect security interest or
25 agricultural lien; security interests and
26 agricultural liens to which filing provisions do not
27 apply.
28 (a) General rule: perfection by filing.--Except as otherwise
29 provided in subsection (b) and section 9312(b) (relating to
30 control or possession of certain collateral), a financing
20010S0330B0654 - 106 -
1 statement must be filed to perfect all security interests and
2 agricultural liens.
3 (b) Exceptions: filing not necessary.--The filing of a
4 financing statement is not necessary to perfect a security
5 interest:
6 (1) which is perfected under section:
7 (i) 9308(d) (relating to supporting obligation);
8 (ii) 9308(e) (relating to lien securing right to
9 payment);
10 (iii) 9308(f) (relating to security entitlement
11 carried in securities account); or
12 (iv) 9308(g) (relating to commodity contract carried
13 in commodity account);
14 (2) which is perfected under section 9309 (relating to
15 security interest perfected upon attachment) when it
16 attaches;
17 (3) in property subject to a statute, regulation or
18 treaty described in section 9311(a) (relating to perfection
19 of security interests in property subject to certain
20 statutes, regulations and treaties);
21 (4) in goods in possession of a bailee which is
22 perfected under section 9312(d)(1) or (2) (relating to goods
23 covered by nonnegotiable document);
24 (5) in certificated securities, documents, goods or
25 instruments which is perfected without filing or possession
26 under section:
27 (i) 9312(e) (relating to temporary perfection: new
28 value);
29 (ii) 9312(f) (relating to temporary perfection:
30 goods or documents made available to debtor); or
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1 (iii) 9312(g) (relating to temporary perfection:
2 delivery of security certificate or instrument to
3 debtor);
4 (6) in collateral in the secured party's possession
5 under section 9313 (relating to when possession by or
6 delivery to secured party perfects security interest without
7 filing);
8 (7) in a certificated security which is perfected by
9 delivery of the security certificate to the secured party
10 under section 9313;
11 (8) in deposit accounts, electronic chattel paper,
12 investment property or letter-of-credit rights which is
13 perfected by control under section 9314 (relating to
14 perfection by control);
15 (9) in proceeds which is perfected under section 9315
16 (relating to secured party's rights on disposition of
17 collateral and in proceeds); or
18 (10) which is perfected under section 9316 (relating to
19 continued perfection of security interest following change in
20 governing law).
21 (c) Assignment of perfected security interest.--If a secured
22 party assigns a perfected security interest or agricultural
23 lien, a filing under this division is not required to continue
24 the perfected status of the security interest against creditors
25 of and transferees from the original debtor.
26 § 9311. Perfection of security interests in property subject to
27 certain statutes, regulations and treaties.
28 (a) Security interest subject to other law.--Except as
29 otherwise provided in subsection (d), the filing of a financing
30 statement is not necessary or effective to perfect a security
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1 interest in property subject to:
2 (1) a statute, regulation or treaty of the United States
3 whose requirements for a security interest's obtaining
4 priority over the rights of a lien creditor with respect to
5 the property preempt section 9310(a) (relating to when filing
6 required to perfect security interest or agricultural lien;
7 security interests and agricultural liens to which filing
8 provisions do not apply);
9 (2) a certificate-of-title statute of this Commonwealth
10 or regulations promulgated thereunder, to the extent such
11 statute or regulations provide for a security interest to be
12 indicated on the certificate as a condition or result of
13 perfection; or
14 (3) a certificate-of-title statute of another
15 jurisdiction which provides for a security interest to be
16 indicated on the certificate as a condition or result of the
17 security interest's obtaining priority over the rights of a
18 lien creditor with respect to the property.
19 (b) Compliance with other law.--Compliance with the
20 requirements of a statute, regulation or treaty described in
21 subsection (a) for obtaining priority over the rights of a lien
22 creditor is equivalent to the filing of a financing statement
23 under this division. Except as otherwise provided in subsection
24 (d) and sections 9313 (relating to when possession by or
25 delivery to secured party perfects security interest without
26 filing) and 9316(d) and (e) (relating to continued perfection of
27 security interest following change in governing law) for goods
28 covered by a certificate of title, a security interest in
29 property subject to a statute, regulation or treaty described in
30 subsection (a) may be perfected only by compliance with those
20010S0330B0654 - 109 -
1 requirements, and a security interest so perfected remains
2 perfected notwithstanding a change in the use or transfer of
3 possession of the collateral.
4 (c) Duration and renewal of perfection.--Except as otherwise
5 provided in subsection (d) and section 9316(d) and (e), duration
6 and renewal of perfection of a security interest perfected by
7 compliance with the requirements prescribed by a statute,
8 regulation or treaty described in subsection (a) are governed by
9 the statute, regulation or treaty. In other respects, the
10 security interest is subject to this division.
11 (d) Inapplicability to certain inventory.--During any period
12 in which collateral subject to a statute specified in subsection
13 (a)(2) is inventory held for sale or lease by a person or leased
14 by that person as lessor and that person is in the business of
15 selling goods of that kind, this section does not apply to a
16 security interest in that collateral created by that person.
17 § 9312. Perfection of security interests in chattel paper,
18 deposit accounts, documents, goods covered by
19 documents, instruments, investment property, letter-
20 of-credit rights and money; perfection by permissive
21 filing; temporary perfection without filing or
22 transfer of possession.
23 (a) Perfection by filing permitted.--A security interest in
24 chattel paper, negotiable documents, instruments or investment
25 property may be perfected by filing.
26 (b) Control or possession of certain collateral.--Except as
27 otherwise provided in section 9315(c) (relating to perfection of
28 security interest in proceeds) and (d) (relating to continuation
29 of perfection) for proceeds:
30 (1) a security interest in a deposit account may be
20010S0330B0654 - 110 -
1 perfected only by control under section 9314 (relating to
2 perfection by control); and <--
3 (2) except as otherwise provided in section 9308(d)
4 (relating to supporting obligation), a security interest in a
5 letter-of-credit right may be perfected only by control under
6 section 9314; and
7 (3) a security interest in money may be perfected only
8 by the secured party's taking possession under section 9313
9 (relating to when possession by or delivery to secured party
10 perfects security interest without filing).
11 (c) Goods covered by negotiable document.--While goods are
12 in the possession of a bailee that has issued a negotiable
13 document covering the goods:
14 (1) a security interest in the goods may be perfected by
15 perfecting a security interest in the document; and
16 (2) a security interest perfected in the document has
17 priority over any security interest which becomes perfected
18 in the goods by another method during that time.
19 (d) Goods covered by nonnegotiable document.--While goods
20 are in the possession of a bailee that has issued a
21 nonnegotiable document covering the goods, a security interest
22 in the goods may be perfected by:
23 (1) issuance of a document in the name of the secured
24 party;
25 (2) the bailee's receipt of notification of the secured
26 party's interest; or
27 (3) filing as to the goods.
28 (e) Temporary perfection: new value.--A security interest in
29 certificated securities, negotiable documents or instruments is
30 perfected without filing or the taking of possession for a
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1 period of 20 days from the time it attaches to the extent that
2 it arises for new value given under an authenticated security
3 agreement.
4 (f) Temporary perfection: goods or documents made available
5 to debtor.--A perfected security interest in a negotiable
6 document or goods in possession of a bailee, other than one that
7 has issued a negotiable document for the goods, remains
8 perfected for 20 days without filing if the secured party makes
9 available to the debtor the goods or documents representing the
10 goods for the purpose of:
11 (1) ultimate sale or exchange; or
12 (2) loading, unloading, storing, shipping,
13 transshipping, manufacturing, processing or otherwise dealing
14 with them in a manner preliminary to their sale or exchange.
15 (g) Temporary perfection: delivery of security certificate
16 or instrument to debtor.--A perfected security interest in a
17 certificated security or instrument remains perfected for 20
18 days without filing if the secured party delivers the security
19 certificate or instrument to the debtor for the purpose of:
20 (1) ultimate sale or exchange; or
21 (2) presentation, collection, enforcement, renewal or
22 registration of transfer.
23 (h) Expiration of temporary perfection.--After the 20-day
24 period specified in subsection (e), (f) or (g) expires,
25 perfection depends upon compliance with this division.
26 § 9313. When possession by or delivery to secured party
27 perfects security interest without filing.
28 (a) Perfection by possession or delivery.--Except as
29 otherwise provided in subsection (b), a secured party may
30 perfect a security interest in negotiable documents, goods,
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1 instruments, money or tangible chattel paper by taking
2 possession of the collateral. A secured party may perfect a
3 security interest in certificated securities by taking delivery
4 under section 8301 (relating to delivery).
5 (b) Goods covered by certificate of title.--With respect to
6 goods covered by a certificate of title issued by the
7 Commonwealth, a secured party may perfect a security interest in
8 the goods by taking possession of the goods only in the
9 circumstances described in section 9316(d) (relating to
10 continued perfection of security interest following change in
11 governing law).
12 (c) Collateral in possession of person other than debtor.--
13 With respect to collateral other than certificated securities
14 and goods covered by a document, a secured party takes
15 possession of collateral in the possession of a person other
16 than the debtor, the secured party or a lessee of the collateral
17 from the debtor in the ordinary course of the debtor's business,
18 when:
19 (1) the person in possession authenticates a record
20 acknowledging that the person holds possession of the
21 collateral for the secured party's benefit; or
22 (2) the person takes possession of the collateral after
23 having authenticated a record acknowledging that the person
24 will hold possession of the collateral for the secured
25 party's benefit.
26 (d) Time of perfection by possession; continuation of
27 perfection.--If perfection of a security interest depends upon
28 possession of the collateral by a secured party, perfection
29 occurs no earlier than the time the secured party takes
30 possession and continues only while the secured party retains
20010S0330B0654 - 113 -
1 possession.
2 (e) Time of perfection by delivery; continuation of
3 perfection.--A security interest in a certificated security in
4 registered form is perfected by delivery when delivery of the
5 certificated security occurs under section 8301 and remains
6 perfected by delivery until the debtor obtains possession of the
7 security certificate.
8 (f) Acknowledgment not required.--A person in possession of
9 collateral is not required to acknowledge that the person holds
10 possession for a secured party's benefit.
11 (g) Effectiveness of acknowledgment; no duties or
12 confirmation.--If a person acknowledges that the person holds
13 possession for the secured party's benefit:
14 (1) the acknowledgment is effective under subsection (c)
15 or section 8301(a) (relating to delivery of certificated
16 security), even if the acknowledgment violates the rights of
17 a debtor; and
18 (2) unless the person otherwise agrees or law other than
19 this division otherwise provides, the person does not owe any
20 duty to the secured party and is not required to confirm the
21 acknowledgment to another person.
22 (h) Secured party's delivery to person other than debtor.--A
23 secured party having possession of collateral does not
24 relinquish possession by delivering the collateral to a person
25 other than the debtor or a lessee of the collateral from the
26 debtor in the ordinary course of the debtor's business if the
27 person was instructed before the delivery or is instructed
28 contemporaneously with the delivery:
29 (1) to hold possession of the collateral for the secured
30 party's benefit; or
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1 (2) to redeliver the collateral to the secured party.
2 (i) Effect of delivery under subsection (h); no duties or
3 confirmation.--A secured party does not relinquish possession,
4 even if a delivery under subsection (h) violates the rights of a
5 debtor. A person to which collateral is delivered under
6 subsection (h) does not owe any duty to the secured party and is
7 not required to confirm the delivery to another person unless
8 the person otherwise agrees or law other than this division
9 otherwise provides.
10 § 9314. Perfection by control.
11 (a) Perfection by control.--A security interest in
12 investment property, deposit accounts, letter-of-credit rights
13 or electronic chattel paper may be perfected by control of the
14 collateral under section 9104 (relating to control of deposit
15 account), 9105 (relating to control of electronic chattel
16 paper), 9106 (relating to control of investment property) or
17 9107 (relating to control of letter-of-credit right).
18 (b) Specified collateral: time of perfection by control;
19 continuation of perfection.--A security interest in deposit
20 accounts, electronic chattel paper or letter-of-credit rights is
21 perfected by control under section 9104, 9105 or 9107 when the
22 secured party obtains control and remains perfected by control
23 only while the secured party retains control.
24 (c) Investment property: time of perfection by control;
25 continuation of perfection.--A security interest in investment
26 property is perfected by control under section 9106 from the
27 time the secured party obtains control and remains perfected by
28 control until both of the following paragraphs apply:
29 (1) The secured party does not have control.
30 (2) One of the following occurs:
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1 (i) If the collateral is a certificated security,
2 the debtor has or acquires possession of the security
3 certificate.
4 (ii) If the collateral is an uncertificated
5 security, the issuer has registered or registers the
6 debtor as the registered owner.
7 (iii) If the collateral is a security entitlement,
8 the debtor is or becomes the entitlement holder.
9 § 9315. Secured party's rights on disposition of collateral and
10 in proceeds.
11 (a) Disposition of collateral: continuation of security
12 interest or agricultural lien; proceeds.--Except as otherwise
13 provided in this division and in section 2403(b) (relating to
14 transfer by merchant entrusted with possession of goods):
15 (1) a security interest or agricultural lien continues
16 in collateral notwithstanding sale, lease, license, exchange
17 or other disposition thereof unless the secured party
18 authorized the disposition free of the security interest or
19 agricultural lien; and
20 (2) a security interest attaches to any identifiable
21 proceeds of collateral.
22 (b) When commingled proceeds identifiable.--Proceeds which
23 are commingled with other property are identifiable proceeds:
24 (1) if the proceeds are goods, to the extent provided by
25 section 9336 (relating to commingled goods); and
26 (2) if the proceeds are not goods, to the extent that
27 the secured party identifies the proceeds by a method of
28 tracing, including application of equitable principles, that
29 is permitted under law other than this division with respect
30 to commingled property of the type involved.
20010S0330B0654 - 116 -
1 (c) Perfection of security interest in proceeds.--A security
2 interest in proceeds is a perfected security interest if the
3 security interest in the original collateral was perfected.
4 (d) Continuation of perfection.--A perfected security
5 interest in proceeds becomes unperfected on the 21st day after
6 the security interest attaches to the proceeds unless one of the
7 following paragraphs applies:
8 (1) The conditions set forth in all of the following
9 subparagraphs are satisfied:
10 (i) A filed financing statement covers the original
11 collateral.
12 (ii) The proceeds are collateral in which a security
13 interest may be perfected by filing in the office in
14 which the financing statement has been filed.
15 (iii) The proceeds are not acquired with cash
16 proceeds.
17 (2) The proceeds are identifiable cash proceeds.
18 (3) The security interest in the proceeds is perfected
19 other than under subsection (c) when the security interest
20 attaches to the proceeds or within 20 days thereafter.
21 (e) When perfected security interest in proceeds becomes
22 unperfected.--If a filed financing statement covers the original
23 collateral, a security interest in proceeds which remains
24 perfected under subsection (d)(1) becomes unperfected at the
25 later of:
26 (1) when the effectiveness of the filed financing
27 statement lapses under section 9515 (relating to duration and
28 effectiveness of financing statement; effect of lapsed
29 financing statement) or is terminated under section 9513
30 (relating to termination statement); or
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1 (2) the 21st day after the security interest attaches to
2 the proceeds.
3 § 9316. Continued perfection of security interest following
4 change in governing law.
5 (a) General rule: effect on perfection of change in
6 governing law.--A security interest perfected pursuant to the
7 law of the jurisdiction designated in section 9301(a) (relating
8 to general rule: location of debtor) or 9305(c) (relating to
9 when perfection governed by law of jurisdiction where debtor
10 located) remains perfected until the earliest of:
11 (1) the time perfection would have ceased under the law
12 of that jurisdiction;
13 (2) the expiration of four months after a change of the
14 debtor's location to another jurisdiction; or
15 (3) the expiration of one year after a transfer of
16 collateral to a person that thereby becomes a debtor and is
17 located in another jurisdiction.
18 (b) Security interest perfected or unperfected under law of
19 new jurisdiction.--If a security interest described in
20 subsection (a) becomes perfected under the law of the other
21 jurisdiction before the earliest time or event described in that
22 subsection, it remains perfected thereafter. If the security
23 interest does not become perfected under the law of the other
24 jurisdiction before the earliest time or event, it becomes
25 unperfected and is deemed never to have been perfected as
26 against a purchaser of the collateral for value.
27 (c) Possessory security interest in collateral moved to new
28 jurisdiction.--A possessory security interest in collateral,
29 other than goods covered by a certificate of title and as-
30 extracted collateral consisting of goods, remains continuously
20010S0330B0654 - 118 -
1 perfected if:
2 (1) the collateral is located in one jurisdiction and
3 subject to a security interest perfected under the law of
4 that jurisdiction;
5 (2) thereafter the collateral is brought into another
6 jurisdiction; and
7 (3) upon entry into the other jurisdiction, the security
8 interest is perfected under the law of the other
9 jurisdiction.
10 (d) Goods covered by certificate of title from the
11 Commonwealth.--Except as otherwise provided in subsection (e), a
12 security interest in goods covered by a certificate of title
13 which is perfected by any method under the law of another
14 jurisdiction when the goods become covered by a certificate of
15 title from the Commonwealth remains perfected until the security
16 interest would have become unperfected under the law of the
17 other jurisdiction had the goods not become so covered.
18 (e) When subsection (d) security interest becomes
19 unperfected against purchasers.--A security interest described
20 in subsection (d) becomes unperfected as against a purchaser of
21 the goods for value and is deemed never to have been perfected
22 as against a purchaser of the goods for value if the applicable
23 requirements for perfection under section 9311(b) (relating to
24 perfection of security interests in property subject to certain
25 statutes, regulations and treaties) or 9313 (relating to when
26 possession by or delivery to secured party perfects security
27 interest without filing) are not satisfied before the earlier
28 of:
29 (1) the time the security interest would have become
30 unperfected under the law of the other jurisdiction had the
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1 goods not become covered by a certificate of title from the
2 Commonwealth; or
3 (2) the expiration of four months after the goods had
4 become so covered.
5 (f) Change in jurisdiction of bank, issuer, nominated
6 person, securities intermediary or commodity intermediary.--A
7 security interest in deposit accounts, letter-of-credit rights
8 or investment property which is perfected under the law of the
9 bank's jurisdiction, the issuer's jurisdiction, a nominated
10 person's jurisdiction, the securities intermediary's
11 jurisdiction or the commodity intermediary's jurisdiction, as
12 applicable, remains perfected until the earlier of:
13 (1) the time the security interest would have become
14 unperfected under the law of that jurisdiction; or
15 (2) the expiration of four months after a change of the
16 applicable jurisdiction to another jurisdiction.
17 (g) Subsection (f) security interest perfected or
18 unperfected under law of new jurisdiction.--If a security
19 interest described in subsection (f) becomes perfected under the
20 law of the other jurisdiction before the earlier of the time or
21 the end of the period described in that subsection, it remains
22 perfected thereafter. If the security interest does not become
23 perfected under the law of the other jurisdiction before the
24 earlier of that time or the end of that period, it becomes
25 unperfected and is deemed never to have been perfected as
26 against a purchaser of the collateral for value.
27 SUBCHAPTER C
28 PRIORITY
29 Sec.
30 9317. Interests which take priority over or take free of
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1 security interest or agricultural lien.
2 9318. No interest retained in right to payment which is sold;
3 rights and title of seller of account or chattel paper
4 with respect to creditors and purchasers.
5 9319. Rights and title of consignee with respect to creditors
6 and purchasers.
7 9320. Buyer of goods.
8 9321. Licensee of general intangible and lessee of goods in
9 ordinary course of business.
10 9322. Priorities among conflicting security interests in and
11 agricultural liens on same collateral.
12 9323. Future advances.
13 9324. Priority of purchase-money security interests.
14 9325. Priority of security interests in transferred collateral.
15 9326. Priority of security interests created by new debtor.
16 9327. Priority of security interests in deposit account.
17 9328. Priority of security interests in investment property.
18 9329. Priority of security interests in letter-of-credit right.
19 9330. Priority of purchaser of chattel paper or instrument.
20 9331. Priority of rights of purchasers of instruments,
21 documents and securities under other divisions; priority
22 of interests in financial assets and security entitlements
23 under Division 8.
24 9332. Transfer of money; transfer of funds from deposit account.
25 9333. Priority of certain liens arising by operation of law.
26 9334. Priority of security interests in fixtures and crops.
27 9335. Accessions.
28 9336. Commingled goods.
29 9337. Priority of security interests in goods covered by
30 certificate of title.
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1 9338. Priority of security interest or agricultural lien
2 perfected by filed financing statement providing certain
3 incorrect information.
4 9339. Priority subject to subordination.
5 § 9317. Interests which take priority over or take free of
6 security interest or agricultural lien.
7 (a) Conflicting security interests and rights of lien
8 creditors.--A security interest or agricultural lien is
9 subordinate to the rights of all of the following:
10 (1) A person entitled to priority under section 9322
11 (relating to priorities among conflicting security interests
12 in and agricultural liens on same collateral).
13 (2) Except as otherwise provided in subsection (e), a
14 person that becomes a lien creditor before the earlier of the
15 time:
16 (i) the security interest or agricultural lien is
17 perfected; or
18 (ii) one of the conditions specified in section
19 9203(b)(3) (relating to enforceability) is met and a
20 financing statement covering the collateral is filed.
21 (b) Buyers that receive delivery.--Except as otherwise
22 provided in subsection (e), a buyer, other than a secured party,
23 of tangible chattel paper, documents, goods, instruments or a
24 security certificate takes free of a security interest or
25 agricultural lien if the buyer gives value and receives delivery
26 of the collateral without knowledge of the security interest or
27 agricultural lien and before it is perfected.
28 (c) Lessees that receive delivery.-- Except as otherwise
29 provided in subsection (e), a lessee of goods takes free of a
30 security interest or agricultural lien if the lessee gives value
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1 and receives delivery of the collateral without knowledge of the
2 security interest or agricultural lien and before it is
3 perfected.
4 (d) Licensees and buyers of certain collateral.-- A licensee
5 of a general intangible or a buyer, other than a secured party,
6 of accounts, electronic chattel paper, general intangibles or
7 investment property other than a certificated security takes
8 free of a security interest if the licensee or buyer gives value
9 without knowledge of the security interest and before it is
10 perfected.
11 (e) Purchase-money security interest.--Except as otherwise
12 provided in sections 9320 (relating to buyer of goods) and 9321
13 (relating to licensee of general intangible and lessee of goods
14 in ordinary course of business), if a person files a financing
15 statement with respect to a purchase-money security interest
16 before or within 20 days after the debtor receives delivery of
17 the collateral, the security interest takes priority over the
18 rights of a buyer, lessee or lien creditor which arise between
19 the time the security interest attaches and the time of filing.
20 § 9318. No interest retained in right to payment which is sold;
21 rights and title of seller of account or chattel
22 paper with respect to creditors and purchasers.
23 (a) Seller retains no interest.--A debtor that has sold an
24 account, chattel paper, payment intangible or promissory note
25 does not retain a legal or equitable interest in the collateral
26 sold.
27 (b) Deemed rights of debtor if buyer's security interest
28 unperfected.--For purposes of determining the rights of
29 creditors of and purchasers for value of an account or chattel
30 paper from a debtor that has sold an account or chattel paper,
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1 while the buyer's security interest is unperfected, the debtor
2 is deemed to have rights and title to the account or chattel
3 paper identical to those the debtor sold.
4 § 9319. Rights and title of consignee with respect to creditors
5 and purchasers.
6 (a) Consignee has consignor's rights.--Except as otherwise
7 provided in subsection (b), for purposes of determining the
8 rights of creditors of and purchasers for value of goods from a
9 consignee, while the goods are in the possession of the
10 consignee, the consignee is deemed to have rights and title to
11 the goods identical to those the consignor had or had power to
12 transfer.
13 (b) Applicability of other law.--For purposes of determining
14 the rights of a creditor of a consignee, law other than this
15 division determines the rights and title of a consignee while
16 goods are in the consignee's possession if, under this chapter,
17 a perfected security interest held by the consignor would have
18 priority over the rights of the creditor.
19 § 9320. Buyer of goods.
20 (a) Buyer in ordinary course of business.--Except as
21 otherwise provided in subsection (e), a buyer in ordinary course
22 of business, other than a person buying farm products from a
23 person engaged in farming operations, takes free of a security
24 interest created by the buyer's seller, even if the security
25 interest is perfected and the buyer knows of its existence.
26 (b) Buyer of consumer goods.--Except as otherwise provided
27 in subsection (e), a buyer of goods from a person who used or
28 bought the goods for use primarily for personal, family or
29 household purposes takes free of a security interest, even if
30 perfected, if the buyer buys:
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1 (1) without knowledge of the security interest;
2 (2) for value;
3 (3) primarily for the buyer's personal, family or
4 household purposes; and
5 (4) before the filing of a financing statement covering
6 the goods.
7 (c) Effectiveness of filing for subsection (b).--To the
8 extent that it affects the priority of a security interest over
9 a buyer of goods under subsection (b), the period of
10 effectiveness of a filing made in the jurisdiction in which the
11 seller is located is governed by section 9316(a) and (b)
12 (relating to continued perfection of security interest following
13 change in governing law).
14 (d) Buyer in ordinary course of business at wellhead or
15 minehead.--A buyer in ordinary course of business buying oil,
16 gas or other minerals at the wellhead or minehead or after
17 extraction takes free of an interest arising out of an
18 encumbrance.
19 (e) Possessory security interest not affected.--Subsections
20 (a) and (b) do not affect a security interest in goods in the
21 possession of the secured party under section 9313 (relating to
22 when possession by or delivery to secured party perfects
23 security interest without filing).
24 § 9321. Licensee of general intangible and lessee of goods in
25 ordinary course of business.
26 (a) Licensee in ordinary course of business.--As used in
27 this section, the term "licensee in ordinary course of business"
28 means a person that becomes a licensee of a general intangible
29 in good faith, without knowledge that the license violates the
30 rights of another person in the general intangible, and in the
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1 ordinary course from a person in the business of licensing
2 general intangibles of that kind. A person becomes a licensee in
3 the ordinary course if the license to the person comports with
4 the usual or customary practices in the kind of business in
5 which the licensor is engaged or with the licensor's own usual
6 or customary practices.
7 (b) Rights of licensee in ordinary course of business.--A
8 licensee in ordinary course of business takes its rights under a
9 nonexclusive license free of a security interest in the general
10 intangible created by the licensor, even if the security
11 interest is perfected and the licensee knows of its existence.
12 (c) Rights of lessee in ordinary course of business.--A
13 lessee in ordinary course of business takes its leasehold
14 interest free of a security interest in the goods created by the
15 lessor, even if the security interest is perfected and the
16 lessee knows of its existence.
17 § 9322. Priorities among conflicting security interests in and
18 agricultural liens on same collateral.
19 (a) General priority rules.--Except as otherwise provided in
20 this section, priority among conflicting security interests and
21 agricultural liens in the same collateral is determined
22 according to the following rules:
23 (1) Conflicting perfected security interests and
24 agricultural liens rank according to priority in time of
25 filing or perfection. Priority dates from the earlier of the
26 time a filing covering the collateral is first made or the
27 security interest or agricultural lien is first perfected, if
28 there is no period thereafter when there is neither filing
29 nor perfection.
30 (2) A perfected security interest or agricultural lien
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1 has priority over a conflicting unperfected security interest
2 or agricultural lien.
3 (3) The first security interest or agricultural lien to
4 attach or become effective has priority if conflicting
5 security interests and agricultural liens are unperfected.
6 (b) Time of perfection: proceeds and supporting
7 obligations.--For the purposes of subsection (a)(1):
8 (1) the time of filing or perfection as to a security
9 interest in collateral is also the time of filing or
10 perfection as to a security interest in proceeds; and
11 (2) the time of filing or perfection as to a security
12 interest in collateral supported by a supporting obligation
13 is also the time of filing or perfection as to a security
14 interest in the supporting obligation.
15 (c) Special priority rules: proceeds and supporting
16 obligations.--Except as otherwise provided in subsection (f), a
17 security interest in collateral which qualifies for priority
18 over a conflicting security interest under section 9327
19 (relating to priority of security interests in deposit account),
20 9328 (relating to priority of security interests in investment
21 property), 9329 (relating to priority of security interests in
22 letter-of-credit right), 9330 (relating to priority of purchaser
23 of chattel paper or instrument) or 9331 (relating to priority of
24 rights of purchasers of instruments, documents and securities
25 under other divisions; priority of interests in financial assets
26 and security entitlements under Division 8) also has priority
27 over a conflicting security interest in all of the following:
28 (1) Any supporting obligation for the collateral.
29 (2) Proceeds of the collateral if:
30 (i) the security interest in proceeds is perfected;
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1 (ii) the proceeds are cash proceeds or of the same
2 type as the collateral; and
3 (iii) in the case of proceeds which are proceeds of
4 proceeds, all intervening proceeds are:
5 (A) cash proceeds;
6 (B) proceeds of the same type as the collateral;
7 or
8 (C) an account relating to the collateral.
9 (d) First-to-file priority rule for certain collateral.--
10 Subject to subsection (e) and except as otherwise provided in
11 subsection (f), if a security interest in chattel paper, deposit
12 accounts, negotiable documents, instruments, investment property
13 or letter-of-credit rights is perfected by a method other than
14 filing, conflicting perfected security interests in proceeds of
15 the collateral rank according to priority in time of filing.
16 (e) Applicability of subsection (d).--Subsection (d) applies
17 only if the proceeds of the collateral are not cash proceeds,
18 chattel paper, negotiable documents, instruments, investment
19 property or letter-of-credit rights.
20 (f) Limitations on subsections (a) through (e).--Subsections
21 (a) through (e) are subject to:
22 (1) subsection (g) and the other provisions of this
23 chapter;
24 (2) section 4210 (relating to security interest of
25 collecting bank in items, accompanying documents and
26 proceeds) with respect to a security interest of a collecting <--
27 bank;
28 (3) section 5118 (relating to security interest of
29 issuer or nominated person) with respect to a security <--
30 interest of an issuer or nominated person; and
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1 (4) section 9110 (relating to security interests arising
2 under Division 2 or 2A).
3 (g) Priority under agricultural lien statute.--A perfected
4 agricultural lien on collateral has priority over a conflicting
5 security interest in or agricultural lien on the same collateral
6 if the statute creating the agricultural lien so provides.
7 § 9323. Future advances.
8 (a) When priority based on time of advance.--Except as
9 otherwise provided in subsection (c), for purposes of
10 determining the priority of a perfected security interest under
11 section 9322(a)(1) (relating to general priority rules),
12 perfection of the security interest dates from the time an
13 advance is made to the extent that the security interest secures
14 an advance which:
15 (1) is made while the security interest is perfected
16 only:
17 (i) under section 9309 (relating to security
18 interest perfected upon attachment) when it attaches; or
19 (ii) temporarily under any of the following
20 sections:
21 (A) 9312(e) (relating to temporary perfection:
22 new value);
23 (B) 9312(f) (relating to temporary perfection:
24 goods or documents made available to debtor); or
25 (C) 9312(g) (relating to temporary perfection:
26 delivery of security certificate or instrument to
27 debtor); and
28 (2) is not made pursuant to a commitment entered into
29 before or while the security interest is perfected by a
30 method other than under section 9309 or 9312(e), (f) or (g).
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1 (b) Lien creditor.--Except as otherwise provided in
2 subsection (c), a security interest is subordinate to the rights
3 of a person that becomes a lien creditor to the extent that the
4 security interest secures an advance made more than 45 days
5 after the person becomes a lien creditor unless the advance is
6 made:
7 (1) without knowledge of the lien; or
8 (2) pursuant to a commitment entered into without
9 knowledge of the lien.
10 (c) Buyer of receivables.--Subsections (a) and (b) do not
11 apply to a security interest held by a secured party that is a
12 buyer of accounts, chattel paper, payment intangibles or
13 promissory notes or a consignor.
14 (d) Buyer of goods.--Except as otherwise provided in
15 subsection (e), a buyer of goods other than a buyer in ordinary
16 course of business takes free of a security interest to the
17 extent that it secures advances made after the earlier of:
18 (1) the time the secured party acquires knowledge of the
19 buyer's purchase; or
20 (2) 45 days after the purchase.
21 (e) Advances made pursuant to commitment: priority of buyer
22 of goods.--Subsection (d) does not apply if the advance is made
23 pursuant to a commitment entered into without knowledge of the
24 buyer's purchase and before the expiration of the 45-day period.
25 (f) Lessee of goods.--Except as otherwise provided in
26 subsection (g), a lessee of goods, other than a lessee in
27 ordinary course of business, takes the leasehold interest free
28 of a security interest to the extent that it secures advances
29 made after the earlier of:
30 (1) the time the secured party acquires knowledge of the
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1 lease; or
2 (2) 45 days after the lease contract becomes
3 enforceable.
4 (g) Advances made pursuant to commitment: priority of lessee
5 of goods.--Subsection (f) does not apply if the advance is made
6 pursuant to a commitment entered into without knowledge of the
7 lease and before the expiration of the 45-day period.
8 § 9324. Priority of purchase-money security interests.
9 (a) General rule: purchase-money priority.--Except as
10 otherwise provided in subsection (g), a perfected purchase-money
11 security interest in goods other than inventory or livestock has
12 priority over a conflicting security interest in the same goods,
13 and, except as otherwise provided in section 9327 (relating to
14 priority of security interests in deposit account), a perfected
15 security interest in its identifiable proceeds also has
16 priority, if the purchase-money security interest is perfected
17 when the debtor receives possession of the collateral or within
18 20 days thereafter.
19 (b) Inventory purchase-money priority.--Subject to
20 subsection (c) and except as otherwise provided in subsection
21 (g), a perfected purchase-money security interest in inventory
22 has priority over a conflicting security interest in the same
23 inventory; has priority over a conflicting security interest in
24 chattel paper or an instrument constituting proceeds of the
25 inventory and in proceeds of the chattel paper if so provided in
26 section 9330 (relating to priority of purchaser of chattel paper
27 or instrument); and, except as otherwise provided in section
28 9327, also has priority in identifiable cash proceeds of the
29 inventory to the extent the identifiable cash proceeds are
30 received on or before the delivery of the inventory to a buyer,
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1 if:
2 (1) the purchase-money security interest is perfected
3 when the debtor receives possession of the inventory;
4 (2) the purchase-money secured party sends an
5 authenticated notification to the holder of the conflicting
6 security interest;
7 (3) the holder of the conflicting security interest
8 receives the notification within five years before the debtor
9 receives possession of the inventory; and
10 (4) the notification states that the person sending the
11 notification has or expects to acquire a purchase-money
12 security interest in inventory of the debtor and describes
13 the inventory.
14 (c) Holders of conflicting inventory security interests to
15 be notified.--Subsection (b)(2) through (4) apply only if the
16 holder of the conflicting security interest had filed a
17 financing statement covering the same types of inventory:
18 (1) if the purchase-money security interest is perfected
19 by filing, before the date of the filing; or
20 (2) if the purchase-money security interest is
21 temporarily perfected without filing or possession under
22 section 9312(f) (relating to temporary perfection: goods or
23 documents made available to debtor), before the beginning of
24 the 20-day period thereunder.
25 (d) Livestock purchase-money priority.--Subject to
26 subsection (e) and except as otherwise provided in subsection
27 (g), a perfected purchase-money security interest in livestock
28 which are farm products has priority over a conflicting security
29 interest in the same livestock; and, except as otherwise
30 provided in section 9327, a perfected security interest in their
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1 identifiable proceeds and identifiable products in their
2 unmanufactured state also has priority, if:
3 (1) the purchase-money security interest is perfected
4 when the debtor receives possession of the livestock;
5 (2) the purchase-money secured party sends an
6 authenticated notification to the holder of the conflicting
7 security interest;
8 (3) the holder of the conflicting security interest
9 receives the notification within six months before the debtor
10 receives possession of the livestock; and
11 (4) the notification states that the person sending the
12 notification has or expects to acquire a purchase-money
13 security interest in livestock of the debtor and describes
14 the livestock.
15 (e) Holders of conflicting livestock security interests to
16 be notified.--Subsection (d)(2) through (4) apply only if the
17 holder of the conflicting security interest had filed a
18 financing statement covering the same types of livestock:
19 (1) if the purchase-money security interest is perfected
20 by filing, before the date of the filing; or
21 (2) if the purchase-money security interest is
22 temporarily perfected without filing or possession under
23 section 9312(f), before the beginning of the 20-day period
24 thereunder.
25 (f) Software purchase-money priority.--Except as otherwise
26 provided in subsection (g), a perfected purchase-money security
27 interest in software has priority over a conflicting security
28 interest in the same collateral; and, except as otherwise
29 provided in section 9327, a perfected security interest in its
30 identifiable proceeds also has priority, to the extent that the
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1 purchase-money security interest in the goods in which the
2 software was acquired for use has priority in the goods and
3 proceeds of the goods under this section.
4 (g) Conflicting purchase-money security interests.--If more
5 than one security interest qualifies for priority in the same
6 collateral under subsection (a), (b), (d) or (f):
7 (1) a security interest securing an obligation incurred
8 as all or part of the price of the collateral has priority
9 over a security interest securing an obligation incurred for
10 value given to enable the debtor to acquire rights in or the
11 use of collateral; and
12 (2) in all other cases, section 9322(a) (relating to
13 general priority rules) applies to the qualifying security
14 interests.
15 § 9325. Priority of security interests in transferred
16 collateral.
17 (a) Subordination of security interest in transferred
18 collateral.--Except as otherwise provided in subsection (b), a
19 security interest created by a debtor is subordinate to a
20 security interest in the same collateral created by another
21 person if:
22 (1) the debtor acquired the collateral subject to the
23 security interest created by the other person;
24 (2) the security interest created by the other person
25 was perfected when the debtor acquired the collateral; and
26 (3) there is no period thereafter when the security
27 interest is unperfected.
28 (b) Limitation of subsection (a) subordination.--Subsection
29 (a) subordinates a security interest only if the security
30 interest:
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1 (1) otherwise would have priority solely under section
2 9322(a) (relating to general priority rules) or 9324
3 (relating to priority of purchase-money security interests);
4 or
5 (2) arose solely under section 2711(c) (relating to
6 security interest of buyer in rejected goods) or 2A508(e)
7 (relating to security interest in goods in lessee's
8 possession).
9 § 9326. Priority of security interests created by new debtor.
10 (a) Subordination of security interest created by new
11 debtor.--Subject to subsection (b), a security interest created
12 by a new debtor which is perfected by a filed financing
13 statement which is effective solely under section 9508 (relating
14 to effectiveness of financing statement if new debtor becomes
15 bound by security agreement) in collateral in which a new debtor
16 has or acquires rights is subordinate to a security interest in
17 the same collateral which is perfected other than by a filed
18 financing statement which is effective solely under section
19 9508.
20 (b) Priority under other provisions; multiple original
21 debtors.--The other provisions of this chapter determine the
22 priority among conflicting security interests in the same
23 collateral perfected by filed financing statements which are
24 effective solely under section 9508. However, if the security
25 agreements to which a new debtor became bound as debtor were not
26 entered into by the same original debtor, the conflicting
27 security interests rank according to priority in time of the new
28 debtor's having become bound.
29 § 9327. Priority of security interests in deposit account.
30 The following rules govern priority among conflicting
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1 security interests in the same deposit account:
2 (1) A security interest held by a secured party having
3 control of the deposit account under section 9104 (relating
4 to control of deposit account) has priority over a
5 conflicting security interest held by a secured party that
6 does not have control.
7 (2) Except as otherwise provided in paragraphs (3) and
8 (4), security interests perfected by control under section
9 9314 (relating to perfection by control) rank according to
10 priority in time of obtaining control.
11 (3) Except as otherwise provided in paragraph (4), a
12 security interest held by the bank with which the deposit
13 account is maintained has priority over a conflicting
14 security interest held by another secured party.
15 (4) A security interest perfected by control under
16 section 9104(a)(3) has priority over a security interest held
17 by the bank with which the deposit account is maintained.
18 § 9328. Priority of security interests in investment property.
19 (a) Priority of perfection by control.--A security interest <--
20 THE FOLLOWING RULES GOVERN PRIORITY AMONG CONFLICTING SECURITY <--
21 INTERESTS IN THE SAME INVESTMENT PROPERTY:
22 (1) A SECURITY INTEREST of a secured party having
23 control of investment property under section 9106 (relating
24 to control of investment property) has priority over a
25 security interest of a secured party that does not have
26 control over the investment property.
27 (b) Rank according to priority in time where both secured <--
28 parties have control.--Except as otherwise provided in
29 subsections (c) and (d)
30 (2) EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPHS (3) AND <--
20010S0330B0654 - 136 -
1 (4), conflicting security interests held by secured parties
2 each of which has control under section 9106 rank according
3 to priority in time of:
4 (1) (I) if the collateral is a security, obtaining <--
5 control;
6 (2) (II) if the collateral is a security entitlement <--
7 carried in a securities account and:
8 (A) if the secured party obtained control under
9 section 8106(d)(1) (relating to control), the secured
10 party's becoming the person for which the securities
11 account is maintained;
12 (B) if the secured party obtained control under
13 section 8106(d)(2), the securities intermediary's
14 agreement to comply with the secured party's
15 entitlement orders with respect to security
16 entitlements carried or to be carried in the
17 securities account; or
18 (C) if the secured party obtained control
19 through another person under section 8106(d)(3), the
20 time on which priority would be based under this
21 subsection if the other person were the secured
22 party; or
23 (3) (III) if the collateral is a commodity contract <--
24 carried with a commodity intermediary, the satisfaction
25 of the requirement for control specified in section
26 9106(b)(2) with respect to commodity contracts carried or
27 to be carried with the commodity intermediary.
28 (c) Security interest held by a securities intermediary.--A <--
29 (3) A security interest held by a securities <--
30 intermediary in a security entitlement or a securities
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1 account maintained with the securities intermediary has
2 priority over a conflicting security interest held by another
3 secured party.
4 (d) Security interest held by a commodity intermediary.--A <--
5 (4) A security interest held by a commodity intermediary <--
6 in a commodity contract or a commodity account maintained
7 with the commodity intermediary has priority over a
8 conflicting security interest held by another secured party.
9 (e) Perfection by taking delivery of a certificated security <--
10 in registered form.--A security interest in a certificated
11 (5) A SECURITY INTEREST IN A CERTIFICATED security in <--
12 registered form which is perfected by taking delivery under
13 section 9313(a) (relating to perfection by possession or
14 delivery) and not by control under section 9314 (relating to
15 perfection by control) has priority over a conflicting
16 security interest perfected by a method other than control.
17 (f) Perfection without control.--Conflicting security <--
18 (6) CONFLICTING SECURITY interests created by a broker, <--
19 securities intermediary or commodity intermediary which are
20 perfected without control under section 9106 rank equally.
21 (g) Security interests in investment property: other <--
22 cases.--In all other cases, priority among conflicting security
23 (7) IN ALL OTHER CASES, PRIORITY AMONG CONFLICTING <--
24 SECURITY interests in investment property is governed by
25 sections 9322 (relating to priorities among conflicting
26 security interests in and agricultural liens on same
27 collateral) and 9323 (relating to future advances).
28 § 9329. Priority of security interests in letter-of-credit
29 right.
30 The following rules govern priority among conflicting
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1 security interests in the same letter-of-credit right:
2 (1) A security interest held by a secured party having
3 control of the letter-of-credit right under section 9107
4 (relating to control of letter-of-credit right) has priority
5 to the extent of its control over a conflicting security
6 interest held by a secured party that does not have control.
7 (2) Security interests perfected by control under
8 section 9314 (relating to perfection by control) rank
9 according to priority in time of obtaining control.
10 § 9330. Priority of purchaser of chattel paper or instrument.
11 (a) Purchaser's priority: security interest claimed merely
12 as proceeds.--A purchaser of chattel paper has priority over a
13 security interest in the chattel paper which is claimed merely
14 as proceeds of inventory subject to a security interest if:
15 (1) in good faith and in the ordinary course of the
16 purchaser's business, the purchaser gives new value and takes
17 possession of the chattel paper or obtains control of the
18 chattel paper under section 9105 (relating to control of
19 electronic chattel paper); and
20 (2) the chattel paper does not indicate that it has been
21 assigned to an identified assignee other than the purchaser.
22 (b) Purchaser's priority: other security interests.--A
23 purchaser of chattel paper has priority over a security interest
24 in the chattel paper which is claimed other than merely as
25 proceeds of inventory subject to a security interest if the
26 purchaser gives new value and takes possession of the chattel
27 paper or obtains control of the chattel paper under section 9105
28 in good faith, in the ordinary course of the purchaser's
29 business and without knowledge that the purchase violates the
30 rights of the secured party.
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1 (c) Chattel paper purchaser's priority in proceeds.--Except
2 as otherwise provided in section 9327 (relating to priority of
3 security interests in deposit account), a purchaser having
4 priority in chattel paper under subsection (a) or (b) also has
5 priority in proceeds of the chattel paper to the extent that:
6 (1) section 9322 (relating to priorities among
7 conflicting security interests in and agricultural liens on
8 same collateral) provides for priority in the proceeds; or
9 (2) the proceeds consist of the specific goods covered
10 by the chattel paper or cash proceeds of the specific goods,
11 even if the purchaser's security interest in the proceeds is
12 unperfected.
13 (d) Instrument purchaser's priority.--Except as otherwise
14 provided in section 9331(a) (relating to rights under Divisions
15 3, 7 and 8 not limited), a purchaser of an instrument has
16 priority over a security interest in the instrument perfected by
17 a method other than possession if the purchaser gives value and
18 takes possession of the instrument in good faith and without
19 knowledge that the purchase violates the rights of the secured
20 party.
21 (e) Holder of purchase-money security interest gives new
22 value.--For purposes of subsections (a) and (b), the holder of a
23 purchase-money security interest in inventory gives new value
24 for chattel paper constituting proceeds of the inventory.
25 (f) Indication of assignment gives knowledge.--For purposes
26 of subsections (b) and (d), if chattel paper or an instrument
27 indicates that it has been assigned to an identified secured
28 party other than the purchaser, a purchaser of the chattel paper
29 or instrument has knowledge that the purchase violates the
30 rights of the secured party.
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1 § 9331. Priority of rights of purchasers of instruments,
2 documents and securities under other divisions;
3 priority of interests in financial assets and
4 security entitlements under Division 8.
5 (a) Rights under Divisions 3, 7 and 8 not limited.--This
6 division does not limit the rights of a holder in due course of
7 a negotiable instrument, a holder to which a negotiable document
8 of title has been duly negotiated or a protected purchaser of a
9 security. These holders or purchasers take priority over an
10 earlier security interest, even if perfected, to the extent
11 provided in Divisions 3 (relating to negotiable instruments), 7
12 (relating to warehouse receipts, bills of lading and other
13 documents of title) and 8 (relating to investment securities).
14 (b) Protection under Division 8.--This division does not
15 limit the rights of or impose liability on a person to the
16 extent that the person is protected against the assertion of a
17 claim under Division 8.
18 (c) Filing not notice.--Filing under this division does not
19 constitute notice of a claim or defense to the holders,
20 purchasers or persons described in subsections (a) and (b).
21 § 9332. Transfer of money; transfer of funds from deposit
22 account.
23 (a) Transferee of money.--A transferee of money takes the
24 money free of a security interest unless the transferee acts in
25 collusion with the debtor in violating the rights of the secured
26 party.
27 (b) Transferee of funds from deposit account.--A transferee
28 of funds from a deposit account takes the funds free of a
29 security interest in the deposit account unless the transferee
30 acts in collusion with the debtor in violating the rights of the
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1 secured party.
2 § 9333. Priority of certain liens arising by operation of law.
3 (a) Possessory lien.--As used in this section, the term
4 "possessory lien" means an interest, other than a security
5 interest or an agricultural lien:
6 (1) which secures payment or performance of an
7 obligation for services or materials furnished with respect
8 to goods by a person in the ordinary course of the person's
9 business;
10 (2) which is created by statute or rule of law in favor
11 of the person; and
12 (3) whose effectiveness depends on the person's
13 possession of the goods.
14 (b) Priority of possessory lien.--A possessory lien on goods
15 has priority over a security interest in the goods unless the
16 lien is created by a statute which expressly provides otherwise.
17 § 9334. Priority of security interests in fixtures and crops.
18 (a) Security interest in fixtures under this division.--A
19 security interest under this division may be created in goods
20 which are fixtures or may continue in goods which become
21 fixtures. A security interest does not exist under this division
22 in ordinary building materials incorporated into an improvement
23 on land.
24 (b) Security interest in fixtures under real property law.--
25 This division does not prevent creation of an encumbrance upon
26 fixtures under real property law.
27 (c) General rule: subordination of security interest in
28 fixtures.--In cases not governed by subsections (d) through (h),
29 a security interest in fixtures is subordinate to a conflicting
30 interest of an encumbrancer or owner of the related real
20010S0330B0654 - 142 -
1 property other than the debtor.
2 (d) Fixtures purchase-money priority.--Except as otherwise
3 provided in subsection (h), a perfected security interest in
4 fixtures has priority over a conflicting interest of an
5 encumbrancer or owner of the real property if the debtor has an
6 interest of record in or is in possession of the real property
7 and:
8 (1) the security interest is a purchase-money security
9 interest;
10 (2) the interest of the encumbrancer or owner arises
11 before the goods become fixtures; and
12 (3) the security interest is perfected by a fixture
13 filing before the goods become fixtures or within 20 days
14 thereafter.
15 (e) Priority of security interest in fixtures over interests
16 in real property.--A perfected security interest in fixtures has
17 priority over a conflicting interest of an encumbrancer or owner
18 of the real property if any of the following paragraphs apply:
19 (1) The debtor has an interest of record in the real
20 property or is in possession of the real property and the
21 security interest:
22 (i) is perfected by a fixture filing before the
23 interest of the encumbrancer or owner is of record; and
24 (ii) has priority over any conflicting interest of a
25 predecessor in title of the encumbrancer or owner.
26 (2) Before the goods become fixtures, the security
27 interest is perfected by any method permitted by this
28 division and the fixtures are readily removable:
29 (i) factory or office machines;
30 (ii) equipment which is not primarily used or leased
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1 for use in the operation of the real property; or
2 (iii) replacements of domestic appliances which are
3 consumer goods.
4 (3) The conflicting interest is a lien on the real
5 property obtained by legal or equitable proceedings after the
6 security interest was perfected by any method permitted by
7 this division.
8 (4) The security interest is:
9 (i) created in a manufactured home in a
10 manufactured-home transaction; and
11 (ii) perfected pursuant to a statute described in
12 section 9311(a)(2) (relating to perfection of security
13 interests in property subject to certain statutes,
14 regulations and treaties).
15 (f) Priority based on consent, disclaimer or right to
16 remove.--A security interest in fixtures, whether or not
17 perfected, has priority over a conflicting interest of an
18 encumbrancer or owner of the real property if:
19 (1) the encumbrancer or owner has, in an authenticated
20 record, consented to the security interest or disclaimed an
21 interest in the goods as fixtures; or
22 (2) the debtor has a right to remove the goods as
23 against the encumbrancer or owner.
24 (g) Continuation of subsection (f)(2) priority.--The
25 priority of the security interest under subsection (f)(2)
26 continues for a reasonable time if the debtor's right to remove
27 the goods as against the encumbrancer or owner terminates.
28 (h) Priority of construction mortgage.--A mortgage is a
29 construction mortgage to the extent that it secures an
30 obligation incurred for the construction of an improvement on
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1 land, including the acquisition cost of the land, if a recorded
2 record of the mortgage so indicates. Except as otherwise
3 provided in subsections (e) and (f), a security interest in
4 fixtures is subordinate to a construction mortgage if a record
5 of the mortgage is recorded before the goods become fixtures and
6 the goods become fixtures before the completion of the
7 construction. A mortgage has this priority to the same extent as
8 a construction mortgage to the extent that it is given to
9 refinance a construction mortgage.
10 (i) Priority of security interest in crops.--A perfected
11 security interest in crops growing on real property has priority
12 over a conflicting interest of an encumbrancer or owner of the
13 real property if the debtor has an interest of record in or is
14 in possession of the real property.
15 § 9335. Accessions.
16 (a) Creation of security interest in accession.--A security
17 interest may be created in an accession and continues in
18 collateral which becomes an accession.
19 (b) Perfection of security interest.--If a security interest
20 is perfected when the collateral becomes an accession, the
21 security interest remains perfected in the collateral.
22 (c) Priority of security interest.--Except as otherwise
23 provided in subsection (d), the other provisions of this chapter
24 determine the priority of a security interest in an accession.
25 (d) Compliance with certificate-of-title statute.--A
26 security interest in an accession is subordinate to a security
27 interest in the whole which is perfected by compliance with the
28 requirements of a certificate-of-title statute under section
29 9311(b) (relating to perfection of security interests in
30 property subject to certain statutes, regulations and treaties).
20010S0330B0654 - 145 -
1 (e) Removal of accession after default.--After default,
2 subject to Chapter 96 (relating to default), a secured party may
3 remove an accession from other goods if the security interest in
4 the accession has priority over the claims of every person
5 having an interest in the whole.
6 (f) Reimbursement following removal.--A secured party that
7 removes an accession from other goods under subsection (e) shall
8 promptly reimburse any holder of a security interest or other
9 lien on, or owner of, the whole or of the other goods, other
10 than the debtor, for the cost of repair of any physical injury
11 to the whole or the other goods. The secured party need not
12 reimburse the holder or owner for any diminution in value of the
13 whole or the other goods caused by the absence of the accession
14 removed or by any necessity for replacing it. A person entitled
15 to reimbursement may refuse permission to remove until the
16 secured party gives adequate assurance for the performance of
17 the obligation to reimburse.
18 § 9336. Commingled goods.
19 (a) Commingled goods.--As used in this section, the term
20 "commingled goods" means goods which are physically united with
21 other goods in such a manner that their identity is lost in a
22 product or mass.
23 (b) No security interest in commingled goods as such.--A
24 security interest does not exist in commingled goods as such.
25 However, a security interest may attach to a product or mass
26 which results when goods become commingled goods.
27 (c) Attachment of security interest to product or mass.--If
28 collateral becomes commingled goods, a security interest
29 attaches to the product or mass.
30 (d) Perfection of security interest.--If a security interest
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1 in collateral is perfected before the collateral becomes
2 commingled goods, the security interest which attaches to the
3 product or mass under subsection (c) is perfected.
4 (e) Priority of security interest.--Except as otherwise
5 provided in subsection (f), the other provisions of this chapter
6 determine the priority of a security interest which attaches to
7 the product or mass under subsection (c).
8 (f) Conflicting security interests in product or mass.--If
9 more than one security interest attaches to the product or mass
10 under subsection (c), the following rules determine priority:
11 (1) A security interest which is perfected under
12 subsection (d) has priority over a security interest which is
13 unperfected at the time the collateral becomes commingled
14 goods.
15 (2) If more than one security interest is perfected
16 under subsection (d), the security interests rank equally in
17 proportion to the value of the collateral at the time it
18 became commingled goods.
19 § 9337. Priority of security interests in goods covered by
20 certificate of title.
21 If, while a security interest in goods is perfected by any
22 method under the law of another jurisdiction, the Commonwealth
23 issues a certificate of title which does not show that the goods
24 are subject to the security interest or contain a statement that
25 they may be subject to security interests not shown on the
26 certificate:
27 (1) a buyer of the goods, other than a person in the
28 business of selling goods of that kind, takes free of the
29 security interest if the buyer gives value and receives
30 delivery of the goods after issuance of the certificate and
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1 without knowledge of the security interest; and
2 (2) the security interest is subordinate to a
3 conflicting security interest in the goods which attaches,
4 and is perfected under section 9311(b) (relating to
5 perfection of security interests in property subject to
6 certain statutes, regulations and treaties), after issuance
7 of the certificate and without the conflicting secured
8 party's knowledge of the security interest.
9 § 9338. Priority of security interest or agricultural lien
10 perfected by filed financing statement providing
11 certain incorrect information.
12 If a security interest or agricultural lien is perfected by a
13 filed financing statement providing information described in
14 section 9516(b)(5) (relating to what constitutes filing;
15 effectiveness of filing) which is incorrect at the time the
16 financing statement is filed:
17 (1) the security interest or agricultural lien is
18 subordinate to a conflicting perfected security interest in
19 the collateral to the extent that the holder of the
20 conflicting security interest gives value in reasonable
21 reliance upon the incorrect information; and
22 (2) a purchaser, other than a secured party, of the
23 collateral takes free of the security interest or
24 agricultural lien to the extent that, in reasonable reliance
25 upon the incorrect information, the purchaser gives value
26 and, in the case of chattel paper, documents, goods,
27 instruments or a security certificate, receives delivery of
28 the collateral.
29 § 9339. Priority subject to subordination.
30 This division does not preclude subordination by agreement by
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1 a person entitled to priority.
2 SUBCHAPTER D
3 RIGHTS OF BANK
4 Sec.
5 9340. Effectiveness of right of recoupment or set-off against
6 deposit account.
7 9341. Bank's rights and duties with respect to deposit
8 account.
9 9342. Bank's right to refuse to enter into or disclose
10 existence of control agreement.
11 § 9340. Effectiveness of right of recoupment or set-off against
12 deposit account.
13 (a) Exercise of recoupment or set-off.--Except as otherwise
14 provided in subsection (c), a bank with which a deposit account
15 is maintained may exercise any right of recoupment or set-off
16 against a secured party that holds a security interest in the
17 deposit account.
18 (b) Recoupment or set-off not affected by security
19 interest.--Except as otherwise provided in subsection (c), the
20 application of this division to a security interest in a deposit
21 account does not affect a right of recoupment or set-off of the
22 secured party as to a deposit account maintained with the
23 secured party.
24 (c) When set-off ineffective.--The exercise by a bank of a
25 set-off against a deposit account is ineffective against a
26 secured party that holds a security interest in the deposit
27 account which is perfected by control under section 9104(a)(3)
28 (relating to requirements for control) if the set-off is based
29 on a claim against the debtor.
30 § 9341. Bank's rights and duties with respect to deposit
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1 account.
2 Except as otherwise provided in section 9340(c) (relating to
3 when set-off ineffective) and unless the bank otherwise agrees
4 in an authenticated record, a bank's rights and duties with
5 respect to a deposit account maintained with the bank are not
6 terminated, suspended or modified by:
7 (1) the creation, attachment or perfection of a security
8 interest in the deposit account;
9 (2) the bank's knowledge of the security interest; or
10 (3) the bank's receipt of instructions from the secured
11 party.
12 § 9342. Bank's right to refuse to enter into or disclose
13 existence of control agreement.
14 This division does not require a bank to enter into an
15 agreement of the kind described in section 9104(a)(2) (relating
16 to requirements for control) even if its customer so requests or
17 directs. A bank which has entered into such an agreement is not
18 required to confirm the existence of the agreement to another
19 person unless requested to do so by its customer.
20 CHAPTER 94
21 RIGHTS OF THIRD PARTIES
22 Sec.
23 9401. Alienability of debtor's rights.
24 9402. Secured party not obligated on contract of debtor or in
25 tort.
26 9403. Agreement not to assert defenses against assignee.
27 9404. Rights acquired by assignee; claims and defenses against
28 assignee.
29 9405. Modification of assigned contract.
30 9406. Discharge of account debtor; notification of
20010S0330B0654 - 150 -
1 assignment; identification and proof of assignment;
2 restrictions on assignment of accounts, chattel paper,
3 payment intangibles and promissory notes ineffective.
4 9407. Restrictions on creation or enforcement of security
5 interest in leasehold interest or in lessors residual
6 interest.
7 9408. Restrictions on assignment of promissory notes,
8 health-care-insurance receivables and certain general
9 intangibles ineffective.
10 9409. Restrictions on assignment of letter-of-credit rights
11 ineffective.
12 § 9401. Alienability of debtor's rights.
13 (a) Other law governs alienability; exceptions.--Except as
14 otherwise provided in subsections (b) and (c), whether a
15 debtor's rights in collateral may be voluntarily or
16 involuntarily transferred is governed by law other than this
17 division.
18 (b) Agreement does not prevent transfer.--An agreement
19 between the debtor and secured party which prohibits a transfer
20 of the debtor's rights in collateral or makes the transfer a
21 default does not prevent the transfer from taking effect.
22 (c) Exceptions.--Subsection (a) is also subject to the
23 following:
24 (1) section 9406 (relating to discharge of account
25 debtor; notification of assignment; identification and proof
26 of assignment; restrictions on assignment of accounts,
27 chattel paper, payment intangibles and promissory notes
28 ineffective);
29 (2) section 9407 (relating to restrictions on creation
30 or enforcement of security interest in leasehold interest or
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1 in lessor's residual interest);
2 (3) section 9408 (relating to restrictions on assignment
3 of promissory notes, health-care-insurance receivables and
4 certain general intangibles ineffective); and
5 (4) section 9409 (relating to restrictions on assignment
6 of letter-of-credit rights ineffective).
7 § 9402. Secured party not obligated on contract of debtor or in
8 tort.
9 The existence of a security interest, agricultural lien or
10 authority given to a debtor to dispose of or use collateral,
11 without more, does not subject a secured party to liability in
12 contract or tort for the debtor's acts or omissions.
13 § 9403. Agreement not to assert defenses against assignee.
14 (a) Value.--As used in this section, the term "value" has
15 the meaning provided in section 3303(a) (relating to value).
16 (b) Agreement not to assert claim or defense.--Except as
17 otherwise provided in this section, an agreement between an
18 account debtor and an assignor not to assert against an assignee
19 any claim or defense which the account debtor may have against
20 the assignor is enforceable by an assignee that takes an
21 assignment:
22 (1) for value;
23 (2) in good faith;
24 (3) without notice of a claim of a property or
25 possessory right to the property assigned; and
26 (4) without notice of a defense or claim in recoupment
27 of the type which may be asserted against a person entitled
28 to enforce a negotiable instrument under section 3305(a)
29 (relating to defenses and claims in recoupment).
30 (c) When subsection (b) not applicable.--Subsection (b) does
20010S0330B0654 - 152 -
1 not apply to defenses of a type which may be asserted against a
2 holder in due course of a negotiable instrument under section
3 3305(b).
4 (d) Omission of required statement in consumer
5 transaction.--In a consumer transaction, if a record evidences
6 the account debtor's obligation, law other than this division
7 requires that the record include a statement to the effect that
8 the rights of an assignee are subject to claims or defenses
9 which the account debtor could assert against the original
10 obligee and the record does not include such a statement:
11 (1) the record has the same effect as if the record
12 included such a statement; and
13 (2) the account debtor may assert against an assignee
14 those claims and defenses which would have been available if
15 the record included such a statement.
16 (e) Rule for individual under other law.--This section is
17 subject to law other than this division which establishes a
18 different rule for an account debtor who is an individual and
19 who incurred the obligation primarily for personal, family or
20 household purposes.
21 (f) Other law not displaced.--Except as otherwise provided
22 in subsection (d), this section does not displace law other than
23 this division which gives effect to an agreement by an account
24 debtor not to assert a claim or defense against an assignee.
25 § 9404. Rights acquired by assignee; claims and defenses
26 against assignee.
27 (a) Assignee's rights subject to terms, claims and defenses;
28 exceptions.--Unless an account debtor has made an enforceable
29 agreement not to assert defenses or claims, and subject to
30 subsections (b) through (e), the rights of an assignee are
20010S0330B0654 - 153 -
1 subject to:
2 (1) all terms of the agreement between the account
3 debtor and assignor and any defense or claim in recoupment
4 arising from the transaction which gave rise to the contract;
5 and
6 (2) any other defense or claim of the account debtor
7 against the assignor which accrues before the account debtor
8 receives a notification of the assignment authenticated by
9 the assignor or the assignee.
10 (b) Account debtor's claim reduces amount owed to
11 assignee.--Subject to subsection (c) and except as otherwise
12 provided in subsection (d), the claim of an account debtor
13 against an assignor may be asserted against an assignee under
14 subsection (a) only to reduce the amount the account debtor
15 owes.
16 (c) Rule for individual under other law.--This section is
17 subject to law other than this division which establishes a
18 different rule for an account debtor who is an individual and
19 who incurred the obligation primarily for personal, family or
20 household purposes.
21 (d) Omission of required statement in consumer
22 transaction.--In a consumer transaction, if a record evidences
23 the account debtor's obligation, law other than this division
24 requires that the record include a statement to the effect that
25 the account debtor's recovery against an assignee with respect
26 to claims and defenses against the assignor may not exceed
27 amounts paid by the account debtor under the record, and the
28 record does not include such a statement, the extent to which a
29 claim of an account debtor against the assignor may be asserted
30 against an assignee is determined as if the record included such
20010S0330B0654 - 154 -
1 a statement.
2 (e) Inapplicability to health-care-insurance receivable.--
3 This section does not apply to an assignment of a health-care-
4 insurance receivable.
5 § 9405. Modification of assigned contract.
6 (a) Effect of modification on assignee.--A modification of
7 or substitution for an assigned contract is effective against an
8 assignee if made in good faith. The assignee acquires
9 corresponding rights under the modified or substituted contract.
10 The assignment may provide that the modification or substitution
11 is a breach of contract by the assignor. This subsection is
12 subject to subsections (b) through (d).
13 (b) Applicability of subsection (a).--Subsection (a) applies
14 to the extent that:
15 (1) the right to payment or a part thereof under an
16 assigned contract has not been fully earned by performance;
17 or
18 (2) the right to payment or a part thereof has been
19 fully earned by performance and the account debtor has not
20 received notification of the assignment under section 9406(a)
21 (relating to discharge of account debtor; effect of
22 notification).
23 (c) Rule for individual under other law.--This section is
24 subject to law other than this division which establishes a
25 different rule for an account debtor who is an individual and
26 who incurred the obligation primarily for personal, family or
27 household purposes.
28 (d) Inapplicability to health-care-insurance receivable.--
29 This section does not apply to an assignment of a health-care-
30 insurance receivable.
20010S0330B0654 - 155 -
1 § 9406. Discharge of account debtor; notification of
2 assignment; identification and proof of assignment;
3 restrictions on assignment of accounts, chattel
4 paper, payment intangibles and promissory notes
5 ineffective.
6 (a) Discharge of account debtor; effect of notification.--
7 Subject to subsections (b) through (i), an account debtor on an
8 account, chattel paper or a payment intangible may discharge its
9 obligation by paying the assignor until, but not after, the
10 account debtor receives a notification, authenticated by the
11 assignor or the assignee, that the amount due or to become due
12 has been assigned and that payment is to be made to the
13 assignee. After receipt of the notification, the account debtor
14 may discharge its obligation by paying the assignee and may not
15 discharge the obligation by paying the assignor.
16 (b) When notification ineffective.--Subject to subsection
17 (h), notification is ineffective under subsection (a):
18 (1) If it does not reasonably identify the rights
19 assigned.
20 (2) To the extent that an agreement between an account
21 debtor and a seller of a payment intangible limits the
22 account debtor's duty to pay a person other than the seller
23 and the limitation is effective under law other than this
24 division.
25 (3) At the option of an account debtor, if the
26 notification notifies the account debtor to make less than
27 the full amount of any installment or other periodic payment
28 to the assignee, even if:
29 (i) only a portion of the account, chattel paper or
30 payment intangible has been assigned to that assignee;
20010S0330B0654 - 156 -
1 (ii) a portion has been assigned to another
2 assignee; or
3 (iii) the account debtor knows that the assignment
4 to that assignee is limited.
5 (c) Proof of assignment.--Subject to subsection (h), if
6 requested by the account debtor, an assignee shall seasonably
7 furnish reasonable proof that the assignment has been made.
8 Unless the assignee complies, the account debtor may discharge
9 its obligation by paying the assignor, even if the account
10 debtor has received a notification under subsection (a).
11 (d) Term restricting assignment generally ineffective.--
12 Except as otherwise provided in subsection (e) SUBSECTIONS (E) <--
13 AND (J) and sections 2A303 (relating to alienability of party's
14 interest under lease contract or of lessor's residual interest
15 in goods; delegation of performance; transfer of rights) and
16 9407 (relating to restrictions on creation or enforcement of
17 security interest in leasehold interest or in lessor's residual
18 interest), and subject to subsection (h), a term in an agreement
19 between an account debtor and an assignor or in a promissory
20 note is ineffective to the extent that it:
21 (1) prohibits, restricts or requires the consent of the
22 account debtor or person obligated on the promissory note to
23 the assignment or transfer of, or the creation, attachment,
24 perfection or enforcement of a security interest in, the
25 account, chattel paper, payment intangible or promissory
26 note; or
27 (2) provides that the assignment or transfer or the
28 creation, attachment, perfection or enforcement of the
29 security interest may give rise to a default, breach, right
30 of recoupment, claim, defense, termination, right of
20010S0330B0654 - 157 -
1 termination or remedy under the account, chattel paper,
2 payment intangible or promissory note.
3 (e) Inapplicability of subsection (d) to certain sales.--
4 Subsection (d) does not apply to the sale of a payment
5 intangible or promissory note.
6 (f) Legal restrictions on assignment generally
7 ineffective.--Except as otherwise provided in SUBSECTION (J) AND <--
8 sections 2A303 and 9407 and subject to subsections (h) and (i),
9 a rule of law, statute or regulation which prohibits, restricts
10 or requires the consent of a government, governmental body or
11 official or account debtor to the assignment or transfer of, or
12 creation of a security interest in, an account or chattel paper
13 is ineffective to the extent that the rule of law, statute or
14 regulation:
15 (1) prohibits, restricts or requires the consent of the
16 government, governmental body or official or account debtor
17 to the assignment or transfer of, or the creation,
18 attachment, perfection or enforcement of a security interest
19 in, the account or chattel paper; or
20 (2) provides that the assignment or transfer or the
21 creation, attachment, perfection or enforcement of the
22 security interest may give rise to a default, breach, right
23 of recoupment, claim, defense, termination, right of
24 termination or remedy under the account or chattel paper.
25 (g) Subsection (b)(3) not waivable.--Subject to subsection
26 (h), an account debtor may not waive or vary its option under
27 subsection (b)(3).
28 (h) Rule for individual under other law.--This section is
29 subject to law other than this division which establishes a
30 different rule for an account debtor who is an individual and
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1 who incurred the obligation primarily for personal, family or
2 household purposes.
3 (i) Inapplicability to health-care-insurance receivable.--
4 This section does not apply to an assignment of a health-care-
5 insurance receivable.
6 (j) Section prevails over inconsistent law.--
7 (1) Except as set forth in paragraph (2) PARAGRAPHS (2), <--
8 (3) AND (4), this section prevails over any inconsistent
9 provision of any existing or future statute, rule or <--
10 regulation of the Commonwealth, unless the provision is
11 contained in a statute of the Commonwealth, refers expressly
12 to this section and states that the provision prevails over
13 this section.
14 (2) Subsections (d) and (f) do not apply to the <--
15 (2) SUBSECTION (F) DOES NOT APPLY TO AN ACCOUNT OR <--
16 CHATTEL PAPER IF THE ACCOUNT DEBTOR IS THE COMMONWEALTH.
17 (3) SUBSECTION (F) DOES NOT APPLY TO THE following:
18 (i) Section 318 of A CLAIM OR RIGHT TO RECEIVE <--
19 BENEFITS UNDER A WORKERS' COMPENSATION ACT AS
20 COMPENSATION FOR PERSONAL INJURY OR SICKNESS, INCLUDING A
21 CLAIM OR RIGHT TO RECEIVE BENEFITS UNDER the act of June
22 2, 1915 (P.L.736, No.338), known as the Workers'
23 Compensation Act.
24 (ii) Section 3189 of the THE act of June 21, 1939 <--
25 (P.L.566, No.284), known as The Pennsylvania Occupational
26 Disease Act.
27 (iii) Section 306 of the act of August 26, 1971
28 (P.L.351, No.91), known as the State Lottery Law.
29 (iv) Sections 3 and 6 of the act of February 11, <--
30 2000 (P.L.1, No.1), known as the Structured Settlement
20010S0330B0654 - 159 -
1 Protection Act.
2 (v) A claim or right to receive amounts under a
3 workers' compensation act as compensation for personal
4 injury or sickness.
5 (vi) (IV) A claim or right to receive amounts, <--
6 whether by suit or agreement and whether as lump sums or
7 as periodic payments, as damages, other than punitive
8 damages, on account of personal physical injuries or
9 physical sickness. <--
10 (vii) A claim or right to receive benefits from a
11 SICKNESS, INCLUDING A CLAIM OR RIGHT TO RECEIVE AMOUNTS <--
12 UNDER THE ACT OF FEBRUARY 11, 2000 (P.L.1, NO.1), KNOWN
13 AS THE STRUCTURED SETTLEMENT PROTECTION ACT.
14 (4) SUBSECTIONS (D) AND (F) DO NOT APPLY TO A CLAIM OR
15 RIGHT TO RECEIVE BENEFITS FROM A special needs trust
16 described in section 1917(d)(4) of the Social Security Act
17 (49 Stat. 620, 42 U.S.C. § 1396R(d)(4)).
18 § 9407. Restrictions on creation or enforcement of security
19 interest in leasehold interest or in lessor's
20 residual interest.
21 (a) Term restricting assignment generally ineffective.--
22 Except as otherwise provided in subsection (b), a term in a
23 lease agreement is ineffective to the extent that it:
24 (1) prohibits, restricts or requires the consent of a
25 party to the lease to the assignment or transfer of, or the
26 creation, attachment, perfection or enforcement of a security
27 interest in, an interest of a party under the lease contract
28 or in the lessor's residual interest in the goods; or
29 (2) provides that the assignment or transfer or the
30 creation, attachment, perfection or enforcement of the
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1 security interest may give rise to a default, breach, right
2 of recoupment, claim, defense, termination, right of
3 termination or remedy under the lease.
4 (b) Effectiveness of certain terms.--Except as otherwise
5 provided in section 2A303(g) (relating to requirements for
6 prohibition of transfer in consumer lease), a term described in
7 subsection (a)(2) is effective to the extent that there is:
8 (1) a transfer by the lessee of the lessee's right of
9 possession or use of the goods in violation of the term; or
10 (2) a delegation of a material performance of either
11 party to the lease contract in violation of the term.
12 (c) Security interest not material impairment.--The
13 creation, attachment, perfection or enforcement of a security
14 interest in the lessor's interest under the lease contract or
15 the lessor's residual interest in the goods is not a transfer
16 which materially impairs the lessee's prospect of obtaining
17 return performance or materially changes the duty of or
18 materially increases the burden or risk imposed on the lessee
19 within the purview of section 2A303(d) (relating to certain
20 rights and remedies) unless, and then only to the extent that,
21 enforcement actually results in a delegation of material
22 performance of the lessor.
23 § 9408. Restrictions on assignment of promissory notes, health-
24 care-insurance receivables and certain general
25 intangibles ineffective.
26 (a) Term restricting assignment generally ineffective.--
27 Except as otherwise provided in subsection (b) SUBSECTIONS (B) <--
28 AND (E), a term in a promissory note or in an agreement between
29 an account debtor and a debtor which relates to a health-care-
30 insurance receivable or a general intangible, including a
20010S0330B0654 - 161 -
1 contract, permit, license or franchise, and which term
2 prohibits, restricts or requires the consent of the person
3 obligated on the promissory note or the account debtor to, the
4 assignment or transfer of, or creation, attachment or perfection
5 of a security interest in, the promissory note, health-care-
6 insurance receivable or general intangible, is ineffective to
7 the extent that the term:
8 (1) would impair the creation, attachment or perfection
9 of a security interest; or
10 (2) provides that the assignment or transfer or the
11 creation, attachment or perfection of the security interest
12 may give rise to a default, breach, right of recoupment,
13 claim, defense, termination, right of termination or remedy
14 under the promissory note, health-care-insurance receivable
15 or general intangible.
16 (b) Applicability of subsection (a) to sales of certain
17 rights to payment.--Subsection (a) applies to a security
18 interest in a payment intangible or promissory note only if the
19 security interest arises out of a sale of the payment intangible
20 or promissory note.
21 (c) Legal restrictions on assignment generally
22 ineffective.--A EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (E), <--
23 A rule of law, statute or regulation which prohibits, restricts
24 or requires the consent of a government, governmental body or
25 official, person obligated on a promissory note or account
26 debtor to the assignment or transfer of, or creation of a
27 security interest in, a promissory note, health-care-insurance
28 receivable or general intangible, including a contract, permit,
29 license or franchise between an account debtor and a debtor, is
30 ineffective to the extent that the rule of law, statute or
20010S0330B0654 - 162 -
1 regulation:
2 (1) would impair the creation, attachment or perfection
3 of a security interest; or
4 (2) provides that the assignment or transfer or the
5 creation, attachment or perfection of the security interest
6 may give rise to a default, breach, right of recoupment,
7 claim, defense, termination, right of termination or remedy
8 under the promissory note, health-care-insurance receivable
9 or general intangible.
10 (d) Limitation on ineffectiveness under subsections (a) and
11 (c).--To the extent that a term in a promissory note or in an
12 agreement between an account debtor and a debtor which relates
13 to a health-care-insurance receivable or general intangible or a
14 rule of law, statute or regulation described in subsection (c)
15 would be effective under law other than this division but is
16 ineffective under subsection (a) or (c), the creation,
17 attachment or perfection of a security interest in the
18 promissory note, health-care-insurance receivable or general
19 intangible:
20 (1) is not enforceable against the person obligated on
21 the promissory note or the account debtor;
22 (2) does not impose a duty or obligation on the person
23 obligated on the promissory note or the account debtor;
24 (3) does not require the person obligated on the
25 promissory note or the account debtor to recognize the
26 security interest, pay or render performance to the secured
27 party or accept payment or performance from the secured
28 party;
29 (4) does not entitle the secured party to use or assign
30 the debtor's rights under the promissory note, health-care-
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1 insurance receivable or general intangible, including any
2 related information or materials furnished to the debtor in
3 the transaction giving rise to the promissory note, health-
4 care-insurance receivable or general intangible;
5 (5) does not entitle the secured party to use, assign,
6 possess or have access to any trade secrets or confidential
7 information of the person obligated on the promissory note or
8 the account debtor; and
9 (6) does not entitle the secured party to enforce the
10 security interest in the promissory note, health-care-
11 insurance receivable or general intangible.
12 (e) Section prevails over inconsistent law.--
13 (1) Except as set forth in paragraph (2) PARAGRAPHS (2) <--
14 AND (3), this section prevails over any inconsistent
15 provision of any existing or future statute, rule or <--
16 regulation of the Commonwealth, unless the provision is
17 contained in a statute of the Commonwealth, refers expressly
18 to this section and states that the provision prevails over
19 this section.
20 (2) Subsections (a) and (c) do SUBSECTION (C) DOES not <--
21 apply to the provisions, claims and rights listed in section
22 9406(j)(2) 9406(J)(3) (relating to discharge of account <--
23 debtor; notification of assignment; identification and proof
24 of assignment; restrictions on assignment of accounts,
25 chattel paper, payment intangibles and promissory notes
26 ineffective).
27 (3) SUBSECTIONS (A) AND (C) DO NOT APPLY TO THE CLAIMS <--
28 AND RIGHTS DESCRIBED IN SECTION 9406(J)(4).
29 § 9409. Restrictions on assignment of letter-of-credit rights
30 ineffective.
20010S0330B0654 - 164 -
1 (a) Term or law restricting assignment generally
2 ineffective.--A term in a letter of credit or a rule of law,
3 statute, regulation, custom or practice applicable to the letter
4 of credit which prohibits, restricts or requires the consent of
5 an applicant, issuer or nominated person to a beneficiary's
6 assignment of or creation of a security interest in a letter-of-
7 credit right is ineffective to the extent that the term or rule
8 of law, statute, regulation, custom or practice:
9 (1) would impair the creation, attachment or perfection
10 of a security interest in the letter-of-credit right; or
11 (2) provides that the assignment or the creation,
12 attachment or perfection of the security interest may give
13 rise to a default, breach, right of recoupment, claim,
14 defense, termination, right of termination or remedy under
15 the letter-of-credit right.
16 (b) Limitation on ineffectiveness under subsection (a).--To
17 the extent that a term in a letter of credit is ineffective
18 under subsection (a) but would be effective under law other than
19 this division or a custom or practice applicable to the letter
20 of credit, to the transfer of a right to draw or otherwise
21 demand performance under the letter of credit or to the
22 assignment of a right to proceeds of the letter of credit, the
23 creation, attachment or perfection of a security interest in the
24 letter-of-credit right:
25 (1) is not enforceable against the applicant, issuer,
26 nominated person or transferee beneficiary;
27 (2) imposes no duties or obligations on the applicant,
28 issuer, nominated person or transferee beneficiary; and
29 (3) does not require the applicant, issuer, nominated
30 person or transferee beneficiary to recognize the security
20010S0330B0654 - 165 -
1 interest, pay or render performance to the secured party or
2 accept payment or other performance from the secured party.
3 CHAPTER 95
4 FILING
5 Subchapter
6 A. Filing Office; Contents and Effectiveness of Financing
7 Statement
8 B. Duties and Operation of Filing Office
9 SUBCHAPTER A
10 FILING OFFICE; CONTENTS AND
11 EFFECTIVENESS OF FINANCING STATEMENT
12 Sec.
13 9501. Filing office.
14 9502. Contents of financing statement; record of mortgage as
15 financing statement; time of filing financing statement.
16 9503. Name of debtor and secured party.
17 9504. Indication of collateral.
18 9505. Filing and compliance with other statutes and treaties for
19 consignments, leases, other bailments and other
20 transactions.
21 9506. Effect of errors or omissions.
22 9507. Effect of certain events on effectiveness of financing
23 statement.
24 9508. Effectiveness of financing statement if new debtor
25 becomes bound by security agreement.
26 9509. Persons entitled to file a record.
27 9510. Effectiveness of filed record.
28 9511. Secured party of record.
29 9512. Amendment of financing statement.
30 9513. Termination statement.
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1 9514. Assignment of powers of secured party of record.
2 9515. Duration and effectiveness of financing statement; effect
3 of lapsed financing statement.
4 9516. What constitutes filing; effectiveness of filing.
5 9517. Effect of indexing errors.
6 9518. Claim concerning inaccurate or wrongfully filed record.
7 § 9501. Filing office.
8 (a) Filing offices.--Except as otherwise provided in
9 subsection (b), if the local law of this Commonwealth governs
10 perfection of a security interest or agricultural lien, the
11 office in which to file a financing statement to perfect the
12 security interest or agricultural lien is one of the following:
13 (1) The office designated for the filing or recording of
14 a record of a mortgage on the related real property, if:
15 (i) the collateral is as-extracted collateral or
16 timber to be cut; or
17 (ii) the financing statement is filed as a fixture
18 filing and the collateral is goods which are or are to
19 become fixtures.
20 (2) The office of the Secretary of the Commonwealth in
21 all other cases, including a case in which the collateral is
22 goods which are or are to become fixtures and the financing
23 statement is not filed as a fixture filing.
24 (b) Filing office for transmitting utilities.--The office in
25 which to file a financing statement to perfect a security
26 interest in collateral, including fixtures, of a transmitting
27 utility is the office of the Secretary of the Commonwealth. The
28 financing statement also constitutes a fixture filing as to the
29 collateral indicated in the financing statement which is or is
30 to become fixtures.
20010S0330B0654 - 167 -
1 § 9502. Contents of financing statement; record of mortgage as
2 financing statement; time of filing financing
3 statement.
4 (a) Sufficiency of financing statement.--Subject to
5 subsection (b), a financing statement is sufficient only if it:
6 (1) provides the name of the debtor;
7 (2) provides the name of the secured party or a
8 representative of the secured party; and
9 (3) indicates the collateral covered by the financing
10 statement.
11 (b) Real-property-related financing statements.--Except as
12 otherwise provided in section 9501(b) (relating to filing office
13 for transmitting utilities), to be sufficient, a financing
14 statement which covers as-extracted collateral or timber to be
15 cut or which is filed as a fixture filing and covers goods which
16 are or are to become fixtures must satisfy subsection (a) and
17 also:
18 (1) indicate that it covers this type of collateral;
19 (2) indicate that it is to be filed in the real property
20 records;
21 (3) provide a description of the real property to which
22 the collateral is related; and
23 (4) if the debtor does not have an interest of record in
24 the real property, provide the name of a record owner.
25 (c) Record of mortgage as financing statement.--A record of
26 a mortgage is effective, from the date of recording, as a
27 financing statement filed as a fixture filing or as a financing
28 statement covering as-extracted collateral or timber to be cut
29 only if:
30 (1) the record indicates the goods or accounts which it
20010S0330B0654 - 168 -
1 covers;
2 (2) the goods are or are to become fixtures related to
3 the real property described in the record or the collateral
4 is related to the real property described in the record and
5 is as-extracted collateral or timber to be cut;
6 (3) the record satisfies the requirements for a
7 financing statement in this section other than an indication
8 that it is to be filed in the real property records; and
9 (4) the record is duly recorded.
10 (d) Filing before security agreement or attachment.--A
11 financing statement may be filed before a security agreement is
12 made or a security interest otherwise attaches.
13 § 9503. Name of debtor and secured party.
14 (a) Sufficiency of debtor's name.--A financing statement
15 sufficiently provides the name of the debtor:
16 (1) If the debtor is a registered organization, only if
17 the financing statement provides the name of the debtor
18 indicated on the public record of the debtor's jurisdiction
19 of organization which shows the debtor to have been
20 organized.
21 (2) If the debtor is a decedent's estate, only if the
22 financing statement provides the name of the decedent and
23 indicates that the debtor is an estate.
24 (3) If the debtor is a trust or a trustee acting with
25 respect to property held in trust, only if the financing
26 statement:
27 (i) provides the name specified for the trust in its
28 organic documents or, if no name is specified, provides
29 the name of the settlor and additional information
30 sufficient to distinguish the debtor from other trusts
20010S0330B0654 - 169 -
1 having one or more of the same settlors; and
2 (ii) indicates, in the debtor's name or otherwise,
3 that the debtor is a trust or is a trustee acting with
4 respect to property held in trust; and
5 (4) In other cases:
6 (i) if the debtor has a name, only if it provides
7 the individual or organizational name of the debtor; and
8 (ii) if the debtor does not have a name, only if it
9 provides the names of the partners, members, associates
10 or other persons comprising the debtor.
11 (b) Additional debtor-related information.--A financing
12 statement which provides the name of the debtor in accordance
13 with subsection (a) is not rendered ineffective by the absence
14 of:
15 (1) a trade name or other name of the debtor; or
16 (2) unless required under subsection (a)(4)(ii), names
17 of partners, members, associates or other persons comprising
18 the debtor.
19 (c) Debtor's trade name insufficient.--A financing statement
20 which provides only the debtor's trade name does not
21 sufficiently provide the name of the debtor.
22 (d) Representative capacity.--Failure to indicate the
23 representative capacity of a secured party or representative of
24 a secured party does not affect the sufficiency of a financing
25 statement.
26 (e) Multiple debtors and secured parties.--A financing
27 statement may provide the name of more than one debtor and the
28 name of more than one secured party.
29 § 9504. Indication of collateral.
30 A financing statement sufficiently indicates the collateral
20010S0330B0654 - 170 -
1 which it covers if the financing statement provides:
2 (1) a description of the collateral pursuant to section
3 9108 (relating to sufficiency of description); or
4 (2) an indication that the financing statement covers
5 all assets or all personal property.
6 § 9505. Filing and compliance with other statutes and treaties
7 for consignments, leases, other bailments and other
8 transactions.
9 (a) Use of terms other than "debtor" and "secured party".--A
10 consignor, lessor or other bailor of goods, a licensor or a
11 buyer of a payment intangible or promissory note may file a
12 financing statement or may comply with a statute or treaty
13 described in section 9311(a) (relating to perfection of security
14 interests in property subject to certain statutes, regulations
15 and treaties), using the terms "consignor," "consignee,"
16 "lessor," "lessee," "bailor," "bailee," "licensor," "licensee,"
17 "owner," "registered owner," "buyer," "seller" or words of
18 similar import, instead of the terms "secured party" and
19 "debtor."
20 (b) Effect of financing statement under subsection (a).--
21 This chapter applies to the filing of a financing statement
22 under subsection (a) and, as appropriate, to compliance which is
23 equivalent to filing a financing statement under section
24 9311(b), but the filing or compliance is not of itself a factor
25 in determining whether the collateral secures an obligation. If
26 it is determined for another reason that the collateral secures
27 an obligation, a security interest held by the consignor,
28 lessor, bailor, licensor, owner or buyer which attaches to the
29 collateral is perfected by the filing or compliance.
30 § 9506. Effect of errors or omissions.
20010S0330B0654 - 171 -
1 (a) Minor errors and omissions.--A financing statement
2 substantially satisfying the requirements of this chapter is
3 effective even if it has minor errors or omissions, unless the
4 errors or omissions make the financing statement seriously
5 misleading.
6 (b) Financing statement seriously misleading.--Except as
7 otherwise provided in subsection (c), a financing statement
8 which fails sufficiently to provide the name of the debtor in
9 accordance with section 9503(a) (relating to sufficiency of
10 debtor's name) is seriously misleading.
11 (c) Financing statement not seriously misleading.--If a
12 search of the records of the filing office under the debtor's
13 correct name, using the filing office's standard search logic,
14 if any, would disclose a financing statement which fails
15 sufficiently to provide the name of the debtor in accordance
16 with section 9503(a), the name provided does not make the
17 financing statement seriously misleading.
18 (d) Debtor's correct name.--For purposes of section 9508(b)
19 (relating to effectiveness of financing statement if new debtor
20 becomes bound by security agreement), the "debtor's correct
21 name" in subsection (c) means the correct name of the new
22 debtor.
23 § 9507. Effect of certain events on effectiveness of financing
24 statement.
25 (a) Disposition.--A filed financing statement remains
26 effective with respect to collateral which is sold, exchanged,
27 leased, licensed or otherwise disposed of and in which a
28 security interest or agricultural lien continues, even if the
29 secured party knows of or consents to the disposition.
30 (b) Information becoming seriously misleading.--Except as
20010S0330B0654 - 172 -
1 otherwise provided in subsection (c) and section 9508 (relating
2 to effectiveness of financing statement if new debtor becomes
3 bound by security agreement), a financing statement is not
4 rendered ineffective if, after the financing statement is filed,
5 the information provided in the financing statement becomes
6 seriously misleading under section 9506 (relating to effect of
7 errors or omissions).
8 (c) Change in debtor's name.--If a debtor so changes its
9 name that a filed financing statement becomes seriously
10 misleading under section 9506:
11 (1) the financing statement is effective to perfect a
12 security interest in collateral acquired by the debtor before
13 or within four months after the change; and
14 (2) the financing statement is not effective to perfect
15 a security interest in collateral acquired by the debtor more
16 than four months after the change unless an amendment to the
17 financing statement which renders the financing statement not
18 seriously misleading is filed within four months after the
19 change.
20 § 9508. Effectiveness of financing statement if new debtor
21 becomes bound by security agreement.
22 (a) Financing statement naming original debtor.--Except as
23 otherwise provided in this section, a filed financing statement
24 naming an original debtor is effective to perfect a security
25 interest in collateral in which a new debtor has or acquires
26 rights to the extent that the financing statement would have
27 been effective had the original debtor acquired rights in the
28 collateral.
29 (b) Financing statement becoming seriously misleading.--If
30 the difference between the name of the original debtor and that
20010S0330B0654 - 173 -
1 of the new debtor causes a filed financing statement which is
2 effective under subsection (a) to be seriously misleading under
3 section 9506 (relating to effect of errors or omissions):
4 (1) the financing statement is effective to perfect a
5 security interest in collateral acquired by the new debtor
6 before and within four months after the new debtor becomes
7 bound under section 9203(d) (relating to when person becomes
8 bound by another person's security agreement); and
9 (2) the financing statement is not effective to perfect
10 a security interest in collateral acquired by the new debtor
11 more than four months after the new debtor becomes bound
12 under section 9203(d) unless an initial financing statement
13 providing the name of the new debtor is filed before the
14 expiration of that time.
15 (c) When section not applicable.--This section does not
16 apply to collateral as to which a filed financing statement
17 remains effective against the new debtor under section 9507(a)
18 (relating to disposition).
19 § 9509. Persons entitled to file a record.
20 (a) Person entitled to file record.--A person may file an
21 initial financing statement, amendment which adds collateral
22 covered by a financing statement or amendment which adds a
23 debtor to a financing statement only if:
24 (1) the debtor authorizes the filing in an authenticated
25 record or pursuant to subsection (b) or (c); or
26 (2) the person holds an agricultural lien which has
27 become effective at the time of filing and the financing
28 statement covers only collateral in which the person holds an
29 agricultural lien.
30 (b) Security agreement as authorization.--By authenticating
20010S0330B0654 - 174 -
1 or becoming bound as debtor by a security agreement, a debtor or
2 new debtor authorizes the filing of an initial financing
3 statement and an amendment covering:
4 (1) the collateral described in the security agreement;
5 and
6 (2) property which becomes collateral under section
7 9315(a)(2) (relating to secured party's rights on disposition
8 of collateral and in proceeds), whether or not the security
9 agreement expressly covers proceeds.
10 (c) Acquisition of collateral as authorization.--By
11 acquiring collateral in which a security interest or
12 agricultural lien continues under section 9315(a)(1), a debtor
13 authorizes the filing of an initial financing statement and an
14 amendment covering the collateral and property which becomes
15 collateral under section 9315(a)(2).
16 (d) Person entitled to file certain amendments.--A person
17 may file an amendment other than an amendment which adds
18 collateral covered by a financing statement or an amendment
19 which adds a debtor to a financing statement only if:
20 (1) the secured party of record authorizes the filing;
21 or
22 (2) the amendment is a termination statement for a
23 financing statement as to which the secured party of record
24 has failed to file or send a termination statement as
25 required by section 9513(a) or (c) (relating to termination
26 statement), the debtor authorizes the filing and the
27 termination statement indicates that the debtor authorized it
28 to be filed.
29 (e) Multiple secured parties of record.--If there is more
30 than one secured party of record for a financing statement, each
20010S0330B0654 - 175 -
1 secured party of record may authorize the filing of an amendment
2 under subsection (d).
3 § 9510. Effectiveness of filed record.
4 (a) Filed record effective if authorized.--A filed record is
5 effective only to the extent that it was filed by a person that
6 may file it under section 9509 (relating to persons entitled to
7 file a record).
8 (b) Authorization by one secured party of record.--A record
9 authorized by one secured party of record does not affect the
10 financing statement with respect to another secured party of
11 record.
12 (c) Continuation statement not timely filed.--A continuation
13 statement which is not filed within the six-month period
14 prescribed by section 9515(d) (relating to when continuation
15 statement may be filed) is ineffective.
16 § 9511. Secured party of record.
17 (a) Secured party of record.--A secured party of record with
18 respect to a financing statement is a person whose name is
19 provided as the name of the secured party or a representative of
20 the secured party in an initial financing statement which has
21 been filed. If an initial financing statement is filed under
22 section 9514(a) (relating to assignment reflected on initial
23 financing statement), the assignee named in the initial
24 financing statement is the secured party of record with respect
25 to the financing statement.
26 (b) Amendment naming secured party of record.--If an
27 amendment of a financing statement which provides the name of a
28 person as a secured party or a representative of a secured party
29 is filed, the person named in the amendment is a secured party
30 of record. If an amendment is filed under section 9514(b), the
20010S0330B0654 - 176 -
1 assignee named in the amendment is a secured party of record.
2 (c) Amendment deleting secured party of record.--A person
3 remains a secured party of record until the filing of an
4 amendment of the financing statement which deletes the person.
5 § 9512. Amendment of financing statement.
6 (a) Amendment of information in financing statement.--
7 Subject to section 9509 (relating to persons entitled to file a
8 record), a person may add or delete collateral covered by,
9 continue or terminate the effectiveness of or, subject to
10 subsection (e), otherwise amend the information provided in a
11 financing statement by filing an amendment which:
12 (1) identifies by its file number the initial financing
13 statement to which the amendment relates; and
14 (2) if the amendment relates to an initial financing
15 statement filed in a filing office described in section
16 9501(a)(1) (relating to filing offices), provides the
17 information specified in section 9502(b) (relating to real-
18 property-related financing statements).
19 (b) Period of effectiveness not affected.--Except as
20 otherwise provided in section 9515 (relating to duration and
21 effectiveness of financing statement; effect of lapsed financing
22 statement), the filing of an amendment does not extend the
23 period of effectiveness of the financing statement.
24 (c) Effectiveness of amendment adding collateral.--A
25 financing statement which is amended by an amendment which adds
26 collateral is effective as to the added collateral only from the
27 date of the filing of the amendment.
28 (d) Effectiveness of amendment adding debtor.--A financing
29 statement which is amended by an amendment which adds a debtor
30 is effective as to the added debtor only from the date of the
20010S0330B0654 - 177 -
1 filing of the amendment.
2 (e) Certain amendments ineffective.--An amendment is
3 ineffective to the extent it:
4 (1) purports to delete all debtors and fails to provide
5 the name of a debtor to be covered by the financing
6 statement; or
7 (2) purports to delete all secured parties of record and
8 fails to provide the name of a new secured party of record.
9 § 9513. Termination statement.
10 (a) Consumer goods.--A secured party shall cause the secured
11 party of record for a financing statement to file a termination
12 statement for the financing statement if the financing statement
13 covers consumer goods and:
14 (1) there is no obligation secured by the collateral
15 covered by the financing statement and no commitment to make
16 an advance, incur an obligation or otherwise give value; or
17 (2) the debtor did not authorize the filing of the
18 initial financing statement.
19 (b) Time for compliance with subsection (a).--To comply with
20 subsection (a), a secured party shall cause the secured party of
21 record to file the termination statement:
22 (1) within one month after there is no obligation
23 secured by the collateral covered by the financing statement
24 and no commitment to make an advance, incur an obligation or
25 otherwise give value; or
26 (2) if earlier, within 20 days after the secured party
27 receives an authenticated demand from a debtor.
28 (c) Other collateral.--In cases not governed by subsection
29 (a), within 20 days after a secured party receives an
30 authenticated demand from a debtor, the secured party shall
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1 cause the secured party of record for a financing statement to
2 send to the debtor a termination statement for the financing
3 statement or file the termination statement in the filing office
4 if:
5 (1) except in the case of a financing statement covering
6 accounts or chattel paper which has been sold or goods which
7 are the subject of a consignment, there is no obligation
8 secured by the collateral covered by the financing statement
9 and no commitment to make an advance, incur an obligation or
10 otherwise give value;
11 (2) the financing statement covers accounts or chattel
12 paper which has been sold but as to which the account debtor
13 or other person obligated has discharged its obligation;
14 (3) the financing statement covers goods which were the
15 subject of a consignment to the debtor but are not in the
16 debtor's possession; or
17 (4) the debtor did not authorize the filing of the
18 initial financing statement.
19 (d) Effect of filing termination statement.--Except as
20 otherwise provided in section 9510 (relating to effectiveness of
21 filed record), upon the filing of a termination statement with
22 the filing office, the financing statement to which the
23 termination statement relates ceases to be effective. Except as
24 otherwise provided in section 9510, for purposes of sections
25 9519(g) (relating to removal of debtor's name), 9522(a)
26 (relating to post-lapse maintenance and retrieval of
27 information) and 9523(c) (relating to communication of requested
28 information), the filing with the filing office of a termination
29 statement relating to a financing statement that WHICH indicates <--
30 that the debtor is a transmitting utility also causes the
20010S0330B0654 - 179 -
1 effectiveness of the financing statement to lapse.
2 § 9514. Assignment of powers of secured party of record.
3 (a) Assignment reflected on initial financing statement.--
4 Except as otherwise provided in subsection (c), an initial
5 financing statement may reflect an assignment of all of the
6 secured party's power to authorize an amendment to the financing
7 statement by providing the name and mailing address of the
8 assignee as the name and address of the secured party.
9 (b) Assignment of filed financing statement.--Except as
10 otherwise provided in subsection (c), a secured party of record
11 may assign of record all or part of its power to authorize an
12 amendment to a financing statement by filing in the filing
13 office an amendment of the financing statement which:
14 (1) identifies by its file number the initial financing
15 statement to which it relates;
16 (2) provides the name of the assignor; and
17 (3) provides the name and mailing address of the
18 assignee.
19 (c) Assignment of record of mortgage.--An assignment of
20 record of a security interest in a fixture covered by a record
21 of a mortgage which is effective as a financing statement filed
22 as a fixture filing under section 9502(c) (relating to record of
23 mortgage as financing statement) may be made only by an
24 assignment of record of the mortgage in the manner provided by
25 law of this Commonwealth other than this title.
26 § 9515. Duration and effectiveness of financing statement;
27 effect of lapsed financing statement.
28 (a) Five-year effectiveness.--Except as otherwise provided
29 in subsections (b), (e), (f) and (g), a filed financing
30 statement is effective for a period of five years after the date
20010S0330B0654 - 180 -
1 of filing.
2 (b) Public-finance or manufactured-home transaction.--Except
3 as otherwise provided in subsections (e), (f) and (g), an
4 initial financing statement filed in connection with a public-
5 finance transaction or manufactured-home transaction is
6 effective for a period of 30 years after the date of filing if
7 it indicates that it is filed in connection with a public-
8 finance transaction or manufactured-home transaction.
9 (c) Lapse and continuation of financing statement.--The
10 effectiveness of a filed financing statement lapses on the
11 expiration of the period of its effectiveness unless before the
12 lapse a continuation statement is filed pursuant to subsection
13 (d). Upon lapse, a financing statement ceases to be effective
14 and any security interest or agricultural lien which was
15 perfected by the financing statement becomes unperfected unless
16 the security interest is perfected otherwise. If the security
17 interest or agricultural lien becomes unperfected upon lapse, it
18 is deemed never to have been perfected as against a purchaser of
19 the collateral for value.
20 (d) When continuation statement may be filed.--A
21 continuation statement may be filed only within six months
22 before the expiration of the five-year period specified in
23 subsection (a) or the 30-year period specified in subsection
24 (b), whichever is applicable.
25 (e) Effect of filing continuation statement.--Except as
26 otherwise provided in section 9510 (relating to effectiveness of
27 filed record), upon timely filing of a continuation statement,
28 the effectiveness of the initial financing statement continues
29 for a period of five years commencing on the day on which the
30 financing statement would have become ineffective in the absence
20010S0330B0654 - 181 -
1 of the filing. Upon the expiration of the five-year period, the
2 financing statement lapses in the same manner as provided in
3 subsection (c) unless, before the lapse, another continuation
4 statement is filed pursuant to subsection (d). Succeeding
5 continuation statements may be filed in the same manner to
6 continue the effectiveness of the initial financing statement.
7 (f) Transmitting utility financing statement.--If a debtor
8 is a transmitting utility and a filed financing statement so
9 indicates, the financing statement is effective until a
10 termination statement is filed.
11 (g) Record of mortgage as financing statement.--A record of
12 a mortgage which is effective as a financing statement filed as
13 a fixture filing under section 9502(c) (relating to record of
14 mortgage as financing statement) remains effective as a
15 financing statement filed as a fixture filing until the mortgage
16 is released or satisfied of record or its effectiveness
17 otherwise terminates as to the real property.
18 § 9516. What constitutes filing; effectiveness of filing.
19 (a) What constitutes filing.--Except as otherwise provided
20 in subsection (b), communication of a record to a filing office
21 and tender of the filing fee or acceptance of the record by the
22 filing office constitutes filing.
23 (b) Refusal to accept record; filing does not occur.--Filing
24 does not occur with respect to a record which a filing office
25 refuses to accept because one of the following paragraphs
26 applies:
27 (1) The record is not communicated by a method or medium
28 of communication authorized by the filing office.
29 (2) An amount equal to or greater than the applicable
30 filing fee is not tendered.
20010S0330B0654 - 182 -
1 (3) The filing office is unable to index the record
2 because of a reason stated in one of the following
3 subparagraphs:
4 (i) In the case of an initial financing statement,
5 the record does not provide a name for the debtor.
6 (ii) In the case of an amendment or correction
7 statement, the record:
8 (A) does not identify the initial financing
9 statement as required by section 9512 (relating to
10 amendment of financing statement) or 9518 (relating
11 to claim concerning inaccurate or wrongfully filed
12 record), as applicable; or
13 (B) identifies an initial financing statement
14 whose effectiveness has lapsed under section 9515
15 (relating to duration and effectiveness of financing
16 statement; effect of lapsed financing statement).
17 (iii) In the case of an initial financing statement
18 which provides the name of a debtor identified as an
19 individual or an amendment which provides a name of a
20 debtor identified as an individual which was not
21 previously provided in the financing statement to which
22 the record relates, the record does not identify the
23 debtor's last name.
24 (iv) In the case of a record filed in the filing
25 office described in section 9501(a)(1) (relating to
26 filing offices), the record does not provide a sufficient
27 description of the real property to which it relates.
28 (4) In the case of an initial financing statement or an
29 amendment which adds a secured party of record, the record
30 does not provide a name and mailing address for the secured
20010S0330B0654 - 183 -
1 party of record.
2 (5) In the case of an initial financing statement or an
3 amendment which provides a name of a debtor which was not
4 previously provided in the financing statement to which the
5 amendment relates, the record does not do one or more of the
6 following:
7 (i) Provide a mailing address for the debtor.
8 (ii) Indicate whether the debtor is an individual or
9 an organization.
10 (iii) If the financing statement indicates that the
11 debtor is an organization, provide:
12 (A) a type of organization for the debtor;
13 (B) a jurisdiction of organization for the
14 debtor; or
15 (C) an organizational identification number for
16 the debtor or indicate that the debtor has none.
17 (6) In the case of an assignment reflected in an initial
18 financing statement under section 9514(a) (relating to
19 assignment reflected on initial financing statement) or an
20 amendment filed under section 9514(b) (relating to assignment
21 of filed financing statement), the record does not provide a
22 name and mailing address for the assignee.
23 (7) In the case of a continuation statement, the record
24 is not filed within the six-month period prescribed by
25 section 9515(d) (relating to when continuation statement may
26 be filed).
27 (c) Rules applicable to subsection (b).--For purposes of
28 subsection (b):
29 (1) a record does not provide information if the filing
30 office is unable to read or decipher the information; and
20010S0330B0654 - 184 -
1 (2) a record which does not indicate that it is an
2 amendment or identify an initial financing statement to which
3 it relates, as required by section 9512, 9514 or 9518, is an
4 initial financing statement.
5 (d) Refusal to accept record; record effective as filed
6 record.--A record which is communicated to the filing office
7 with tender of the filing fee, but which the filing office
8 refuses to accept for a reason other than one set forth in
9 subsection (b), is effective as a filed record except as against
10 a purchaser of the collateral that gives value in reasonable
11 reliance upon the absence of the record from the files.
12 § 9517. Effect of indexing errors.
13 The failure of the filing office to index a record correctly
14 does not affect the effectiveness of the filed record.
15 § 9518. Claim concerning inaccurate or wrongfully filed record.
16 (a) Correction statement.--A person may file in the filing
17 office a correction statement with respect to a record indexed
18 there under the person's name if the person believes that the
19 record is inaccurate or was wrongfully filed.
20 (b) Sufficiency of correction statement.--A correction
21 statement must:
22 (1) identify the record to which it relates by the file
23 number assigned to the initial financing statement to which
24 the record relates;
25 (2) indicate that it is a correction statement; and
26 (3) provide the basis for the person's belief that the
27 record is inaccurate and indicate the manner in which the
28 person believes the record should be amended to cure any
29 inaccuracy or provide the basis for the person's belief that
30 the record was wrongfully filed.
20010S0330B0654 - 185 -
1 (c) Record not affected by correction statement.--Except as
2 provided in subsection (d), the filing of a correction statement
3 does not affect the effectiveness of an initial financing
4 statement or other filed record.
5 (d) Fraudulent financing statements.--
6 (1) The Department of State may conduct an
7 administrative hearing to determine if an initial financing
8 statement was fraudulently filed in accordance with the
9 following:
10 (i) The hearing shall be conducted in accordance
11 with 2 Pa.C.S. (relating to Administrative Law and
12 Procedure). The department shall determine the initial
13 financing statement to be fraudulently filed for purposes
14 of this subsection if it determines that no rational
15 basis exists under section 9509 (relating to persons
16 entitled to file a record), entitling the person to file
17 the initial financing statement and it appears that the
18 person filed the initial financing statement with intent
19 to annoy, harass or harm the debtor.
20 (ii) If the department determines that the initial
21 financing statement was fraudulently filed and no timely
22 appeal of the determination was filed, the department
23 shall file a correction statement with respect to the
24 initial financing statement indexed there. In addition to
25 complying with the requirements of subsection (b), the
26 correction statement filed by the department under this
27 paragraph shall state all of the following:
28 (A) the correction statement was filed by the
29 department under this subsection;
30 (B) the department has determined that the
20010S0330B0654 - 186 -
1 initial filing FINANCING statement was fraudulently <--
2 filed and that the person had the right to appeal the
3 decision to a court of competent jurisdiction;
4 (C) the initial filing FINANCING statement found <--
5 to be fraudulently filed may be ineffective; and
6 (D) the reasons why the department found the
7 initial filing FINANCING statement to have been <--
8 fraudulently filed.
9 (iii) A correction statement filed by the department
10 in accordance with paragraph (ii) creates a rebuttable
11 presumption that the initial filing FINANCING statement <--
12 found to be fraudulently filed is ineffective.
13 (iv) A person adversely affected by a determination
14 of the department under paragraph (i) may appeal the
15 determination in accordance with 2 Pa.C.S. § 702
16 (relating to appeals).
17 (v) If the department determines that the initial
18 financing statement was fraudulently filed and the
19 determination is appealed to Commonwealth Court, the
20 department shall file a correction statement with respect
21 to the initial financing statement indexed there only
22 upon affirmation by the court of its determination. In
23 addition to complying with the requirements of subsection
24 (b), the correction statement shall state all of the
25 following:
26 (A) the correction statement was filed by the
27 department under this subsection;
28 (B) the department has determined that the
29 initial filing FINANCING statement was fraudulently <--
30 filed and that the person had the right to appeal the
20010S0330B0654 - 187 -
1 decision to a court of competent jurisdiction;
2 (C) the initial filing FINANCING statement found <--
3 to be fraudulently is ineffective; and
4 (D) the reasons why the department found the
5 initial filing FINANCING statement to have been <--
6 fraudulently filed.
7 (vi) If the department files a correction statement
8 with respect to the initial financing statement indexed
9 there under this subsection, it shall refer the matter
10 for criminal prosecution to the Office of Attorney
11 General pursuant to 18 Pa.C.S. § 4911 (relating to
12 tampering with public records or information).
13 (2) Nothing in this subsection limits the rights or
14 remedies the debtor may have with respect to an initial
15 financing statement that has been fraudulently filed. Nothing
16 in this subsection limits the effectiveness of a termination
17 or correction statement filed by a debtor under sections
18 9509(d)(2) and 9513 (relating to termination statement), or
19 the rights of a debtor under section 9625 (relating to
20 remedies for secured party's failure to comply with
21 division).
22 SUBCHAPTER B
23 DUTIES AND OPERATION OF FILING OFFICE
24 Sec.
25 9519. Numbering, maintaining and indexing records;
26 communicating information provided in records.
27 9520. Acceptance and refusal to accept record.
28 9521. Uniform form of written financing statement and
29 amendment.
30 9522. Maintenance and destruction of records.
20010S0330B0654 - 188 -
1 9523. Information from filing office; sale or license of
2 records.
3 9524. Delay by filing office.
4 9525. Fees.
5 9526. Filing-office rules.
6 9527. Duty to report.
7 § 9519. Numbering, maintaining and indexing records;
8 communicating information provided in records.
9 (a) Filing office duties.--For each record filed in a filing
10 office, the filing office shall:
11 (1) assign a unique number to the filed record;
12 (2) create a record which bears the number assigned to
13 the filed record and the date and time of filing;
14 (3) maintain the filed record for public inspection; and
15 (4) index the filed record in accordance with
16 subsections (c), (d) and (e).
17 (b) File number.--Except as provided in subsection (i), a
18 file number assigned after January 1, 2002, must include a digit
19 which:
20 (1) is mathematically derived from or related to the
21 other digits of the file number; and
22 (2) aids the filing office in determining whether a
23 number communicated as the file number includes a single
24 digit or transpositional error.
25 (c) Indexing: general.--Except as otherwise provided in
26 subsections (d) and (e), the filing office shall:
27 (1) index an initial financing statement according to
28 the name of the debtor and index all filed records relating
29 to the initial financing statement in a manner which
30 associates with one another an initial financing statement
20010S0330B0654 - 189 -
1 and all filed records relating to the initial financing
2 statement; and
3 (2) index a record which provides a name of a debtor
4 which was not previously provided in the financing statement
5 to which the record relates also according to the name which
6 was not previously provided.
7 (d) Indexing: real-property-related financing statement.--If
8 a financing statement is filed as a fixture filing or covers as-
9 extracted collateral or timber to be cut, the filing office
10 shall index it:
11 (1) under the names of the debtor and of each owner of
12 record shown on the financing statement as if they were the
13 mortgagors under a mortgage of the real property described;
14 and
15 (2) to the extent that the law of this Commonwealth
16 provides for indexing of records of mortgages under the name
17 of the mortgagee, under the name of the secured party as if
18 the secured party were the mortgagee thereunder or, if
19 indexing is by description, as if the financing statement
20 were a record of a mortgage of the real property described.
21 (e) Indexing: real-property-related assignment.--If a
22 financing statement is filed as a fixture filing or covers as-
23 extracted collateral or timber to be cut, the filing office
24 shall index an assignment filed under section 9514(a) (relating
25 to assignment reflected on initial financing statement) or an
26 amendment filed under section 9514(b) (relating to assignment of
27 filed financing statement):
28 (1) under the name of the assignor as grantor; and
29 (2) to the extent that the law of this Commonwealth
30 provides for indexing a record of the assignment of a
20010S0330B0654 - 190 -
1 mortgage under the name of the assignee, under the name of
2 the assignee.
3 (f) Retrieval and association capability.--The filing office
4 shall maintain a capability:
5 (1) to retrieve a record by the name of the debtor and
6 by the file number assigned to the initial financing
7 statement to which the record relates; and
8 (2) to associate and retrieve with one another an initial
9 financing statement and each filed record relating to the
10 initial financing statement.
11 (g) Removal of debtor's name.--The filing office may not
12 remove a debtor's name from the index until one year after the
13 effectiveness of a financing statement naming the debtor lapses
14 under section 9515 (relating to duration and effectiveness of
15 financing statement; effect of lapsed financing statement) with
16 respect to all secured parties of record.
17 (h) Timeliness of filing office performance.--Except as
18 provided in subsection (i), the filing office shall perform the
19 acts required by subsections (a) through (e) at the time and in
20 the manner prescribed by filing-office rule, but not later than
21 two business days after the filing office receives the record in
22 question.
23 (i) Inapplicability to real-property-related filing
24 office.--Subsections (b) and (h) do not apply to a filing office
25 described in section 9501(a)(1) (relating to filing offices).
26 § 9520. Acceptance and refusal to accept record.
27 (a) Mandatory refusal to accept record.--A filing office
28 shall refuse to accept a record for filing for a reason set
29 forth in section 9516(b) (relating to refusal to accept record;
30 filing does not occur) and may refuse to accept a record for
20010S0330B0654 - 191 -
1 filing only for a reason set forth in section 9516(b).
2 (b) Communication concerning refusal.--If a filing office
3 refuses to accept a record for filing, it shall communicate to
4 the person that presented the record the fact of and reason for
5 the refusal and the date and time the record would have been
6 filed had the filing office accepted it. The communication must
7 be made at the time and in the manner prescribed by filing-
8 office rule but, in the case of a filing office described in
9 section 9501(a)(2) (relating to filing offices), in no event
10 more than two business days after the filing office receives the
11 record.
12 (c) When filed financing statement effective.--A filed
13 financing statement satisfying section 9502(a) and (b) (relating
14 to contents of financing statement; record of mortgage as
15 financing statement; time of filing financing statement) is
16 effective, even if the filing office is required to refuse to
17 accept it for filing under subsection (a). However, section 9338
18 (relating to priority of security interest or agricultural lien
19 perfected by filed financing statement providing certain
20 incorrect information) applies to a filed financing statement
21 providing information described in section 9516(b)(5) which is
22 incorrect at the time the financing statement is filed.
23 (d) Separate application to multiple debtors.--If a record
24 communicated to a filing office provides information which
25 relates to more than one debtor, this chapter applies as to each
26 debtor separately.
27 § 9521. Uniform form of written financing statement and
28 amendment.
29 (a) Initial financing statement form.--A filing office which
30 accepts written records may not refuse to accept a written
20010S0330B0654 - 192 -
1 initial financing statement in the form and format set forth in
2 the final official text of the 1999 revisions to Article 9 of
3 the Uniform Commercial Code promulgated by The American Law
4 Institute and the National Conference of Commissioners on
5 Uniform State Laws, except for a reason set forth in section
6 9516(b) (relating to refusal to accept record; filing does not
7 occur).
8 (b) Amendment form.--A filing office which accepts written
9 records may not refuse to accept a written record in the form
10 and format set forth in the final official text of the 1999
11 revisions to Article 9 of the Uniform Commercial Code
12 promulgated by The American Law Institute and the National
13 Conference of Commissioners on Uniform State Laws, except for a
14 reason set forth in section 9516(b).
15 § 9522. Maintenance and destruction of records.
16 (a) Post-lapse maintenance and retrieval of information.--
17 The filing office shall maintain a record of the information
18 provided in a filed financing statement for at least one year
19 after the effectiveness of the financing statement has lapsed
20 under section 9515 (relating to duration and effectiveness of
21 financing statement; effect of lapsed financing statement) with
22 respect to all secured parties of record. The record must be
23 retrievable by using the name of the debtor and by using the
24 file number assigned to the initial financing statement to which
25 the record relates.
26 (b) Destruction of written records.--Except to the extent
27 that a statute governing disposition of public records provides
28 otherwise, the filing office immediately may destroy any written
29 record evidencing a financing statement. However, if the filing
30 office destroys a written record, it shall maintain another
20010S0330B0654 - 193 -
1 record of the financing statement which complies with subsection
2 (a).
3 § 9523. Information from filing office; sale or license of
4 records.
5 (a) Acknowledgment of filing written record.--If a person
6 that files a written record requests an acknowledgment of the
7 filing, the filing office shall send to the person an image of
8 the record showing the number assigned to the record pursuant to
9 section 9519(a)(1) (relating to numbering, maintaining and
10 indexing records; communicating information provided in records)
11 and the date and time of the filing of the record. However, if
12 the person furnishes a copy of the record to the filing office,
13 the filing office may instead:
14 (1) note upon the copy the number assigned to the record
15 pursuant to section 9519(a)(1) and the date and time of the
16 filing of the record; and
17 (2) send the copy to the person.
18 (b) Acknowledgment of filing other record.--If a person
19 files a record other than a written record, the filing office
20 shall communicate to the person an acknowledgment which
21 provides:
22 (1) the information in the record;
23 (2) the number assigned to the record pursuant to
24 section 9519(a)(1); and
25 (3) the date and time of the filing of the record.
26 (c) Communication of requested information.--The filing
27 office shall communicate or otherwise make available in a record
28 the following information to any person that requests it:
29 (1) Whether there is on file on a date and time
30 specified by the filing office, but not a date earlier than
20010S0330B0654 - 194 -
1 three business days before the filing office receives the
2 request, any financing statement which:
3 (i) designates a particular debtor or, if the
4 request so states, designates a particular debtor at the
5 address specified in the request;
6 (ii) has not lapsed under section 9515 (relating to
7 duration and effectiveness of financing statement; effect
8 of lapsed financing statement) with respect to all
9 secured parties of record; and
10 (iii) if the request so states, has lapsed under
11 section 9515 and a record of which is maintained by the
12 filing office under section 9522(a) (relating to post-
13 lapse maintenance and retrieval of information).
14 (2) The date and time of filing of each financing
15 statement.
16 (3) The information provided in each financing
17 statement.
18 (d) Medium for communicating information.--In complying with
19 its duty under subsection (c), the filing office may communicate
20 information in any medium. However, if requested, the filing
21 office shall communicate information by issuing its written
22 certificate.
23 (e) Timeliness of filing office performance.--
24 (1) Except as set forth in paragraph (2), the filing
25 office shall perform the acts required by subsections (a)
26 through (d) at the time and in the manner prescribed by
27 filing-office rule.
28 (2) A filing office described in section 9501(a)(2)
29 (relating to filing offices) shall perform the acts required
30 by subsections (a) through (d) not later than two FIVE <--
20010S0330B0654 - 195 -
1 business days after the filing office receives the request.
2 (f) Public availability of records.--At least weekly, the
3 filing office described in section 9501(a)(2) shall offer to
4 sell or license to the public on a nonexclusive basis, in bulk,
5 copies of all records filed in it under this chapter, in every
6 medium from time to time available to the filing office.
7 § 9524. Delay by filing office.
8 Delay by the filing office beyond a time limit prescribed by
9 this chapter is excused if:
10 (1) the delay is caused by interruption of communication
11 or computer facilities, war, emergency conditions, failure of
12 equipment or other circumstances beyond control of the filing
13 office; and
14 (2) the filing office exercises reasonable diligence
15 under the circumstances.
16 § 9525. Fees.
17 (a) Initial financing statement or other record.--Except as
18 otherwise provided in subsections (c) and (d):
19 (1) The fee for filing and indexing a record under this
20 chapter shall be as follows:
21 (i) For a record communicated to a filing office
22 described in section 9501(a)(1) (relating to filing
23 office), $48.
24 (ii) For a record communicated to a filing office
25 described in section 9501(a)(2), $12.
26 (2) The amount of the fee for filing and indexing the
27 record is not affected by the number of names to be indexed
28 or the number of pages in the record.
29 (b) Response to information request.--Except as otherwise
30 provided in subsection (d), the fee for responding to a request
20010S0330B0654 - 196 -
1 for information from the filing office, including for issuing a
2 certificate showing whether there is on file any financing
3 statement naming a particular debtor shall be as follows:
4 (1) The basic charge is $12.
5 (2) If the filing office responds to the request in
6 writing, there is an additional charge of:
7 (i) no charge per record found;
8 (ii) $2 per page of copies; and
9 (iii) if certification is requested, $28.
10 (c) Record of mortgage.--This section does not require a fee
11 with respect to a record of a mortgage which is effective as a
12 financing statement filed as a fixture filing or as a financing
13 statement covering as-extracted collateral or timber to be cut
14 under section 9502(c) (relating to record of mortgage as
15 financing statement). However, the recording and satisfaction
16 fees that otherwise would be applicable to the record of the
17 mortgage apply.
18 (d) Variation by regulation.--Within 90 days of the
19 effective date of this subsection, the Department of State shall
20 promulgate regulations regarding the fees required by
21 subsections (a) and (b). The department shall establish fees
22 required by subsection (a)(1)(i) that generate revenue
23 equivalent to the amount collected from UCC filing fees by all
24 counties during calendar year 1999 2000. The department shall <--
25 establish fees required by subsection (a)(1)(ii) which generate
26 revenue equivalent to the amount collected from UCC filing fees
27 and deposited in the General Fund and the Corporation Bureau
28 Restricted Account during fiscal year 1999-2000. Changes in the
29 fees shall be promulgated as a final-form regulation with
30 proposed rulemaking omitted in accordance with the act of June
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1 25, 1982 (P.L.633, No.181), known as the Regulatory Review Act.
2 After July 1, 2001, the department may promulgate regulations in
3 accordance with the Regulatory Review Act regarding the fees
4 required by subsections (a) and (b) for services rendered by the
5 department. Fee regulations promulgated by the department under
6 this subsection shall supersede the fees listed in subsections
7 (a) and (b).
8 § 9526. Filing-office rules.
9 (a) Adoption of filing-office rules.--The Department of
10 State shall promulgate rules to implement this division. The
11 filing-office rules must be consistent with this division.
12 (b) Harmonization of rules.--To keep the filing-office rules
13 and practices of the filing office in harmony with the rules and
14 practices of filing offices in other jurisdictions which enact
15 substantially this chapter and to keep the technology used by
16 the filing office compatible with the technology used by filing
17 offices in other jurisdictions which enact substantially this
18 chapter, the department, so far as is consistent with the
19 purposes, policies and provisions of this division, in
20 promulgating filing-office rules, shall:
21 (1) consult with filing offices in other jurisdictions
22 which enact substantially this chapter; and <--
23 (2) consult the most recent version of the Model Rules
24 promulgated by the International Association of Corporate
25 Administrators or any successor organization; and
26 (3) take into consideration the rules and practices of
27 and the technology used by filing offices in other
28 jurisdictions which enact substantially this chapter.
29 § 9527. Duty to report.
30 The Department of State shall report by June 30 OCTOBER 31 of <--
20010S0330B0654 - 198 -
1 every even-numbered year to the Governor and the General
2 Assembly on the operation of the filing office. The report must
3 contain a statement of the extent to which:
4 (1) the filing-office rules are not in harmony with the
5 rules of filing offices in other jurisdictions which enact
6 substantially this chapter and the reasons for these
7 variations; and
8 (2) the filing-office rules are not in harmony with the
9 most recent version of the Model Rules promulgated by the
10 International Association of Corporate Administrators or any
11 successor organization and the reasons for these variations.
12 CHAPTER 96
13 DEFAULT
14 Subchapter
15 A. Default and Enforcement of Security Interest
16 B. Noncompliance with Division
17 SUBCHAPTER A
18 DEFAULT AND ENFORCEMENT OF SECURITY INTEREST
19 Sec.
20 9601. Rights after default; judicial enforcement; consignor or
21 buyer of accounts, chattel paper, payment intangibles or
22 promissory notes.
23 9602. Waiver and variance of rights and duties.
24 9603. Agreement on standards concerning rights and duties.
25 9604. Procedure if security agreement covers real property or
26 fixtures.
27 9605. Unknown debtor or secondary obligor.
28 9606. Time of default for agricultural lien.
29 9607. Collection and enforcement by secured party.
30 9608. Application of proceeds of collection or enforcement;
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1 liability for deficiency and right to surplus.
2 9609. Secured party's right to take possession after default.
3 9610. Disposition of collateral after default.
4 9611. Notification before disposition of collateral.
5 9612. Timeliness of notification before disposition of
6 collateral.
7 9613. Contents and form of notification before disposition of
8 collateral: general.
9 9614. Contents and form of notification before disposition of
10 collateral: consumer-goods transaction.
11 9615. Application of proceeds of disposition; liability for
12 deficiency and right to surplus.
13 9616. Explanation of calculation of surplus or deficiency.
14 9617. Rights of transferee of collateral.
15 9618. Rights and duties of certain secondary obligors.
16 9619. Transfer of record or legal title.
17 9620. Acceptance of collateral in full or partial satisfaction
18 of obligation; compulsory disposition of collateral.
19 9621. Notification of proposal to accept collateral.
20 9622. Effect of acceptance of collateral.
21 9623. Right to redeem collateral.
22 9624. Waiver.
23 § 9601. Rights after default; judicial enforcement; consignor
24 or buyer of accounts, chattel paper, payment
25 intangibles or promissory notes.
26 (a) Rights of secured party after default.--After default, a
27 secured party has the rights provided in this chapter and,
28 except as otherwise provided in section 9602 (relating to waiver
29 and variance of rights and duties), those provided by agreement
30 of the parties. A secured party:
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1 (1) may reduce a claim to judgment, foreclose or
2 otherwise enforce the claim, security interest or
3 agricultural lien by any available judicial procedure; and
4 (2) if the collateral is documents, may proceed either
5 as to the documents or as to the goods they cover.
6 (b) Rights and duties of secured party in possession or
7 control.--A secured party in possession of collateral or control
8 of collateral under section 9104 (relating to control of deposit
9 account), 9105 (relating to control of electronic chattel
10 paper), 9106 (relating to control of investment property) or
11 9107 (relating to control of letter-of-credit right) has the
12 rights and duties provided in section 9207 (relating to rights
13 and duties of secured party having possession or control of
14 collateral).
15 (c) Rights cumulative; simultaneous exercise.--The rights
16 under subsections (a) and (b) are cumulative and may be
17 exercised simultaneously.
18 (d) Rights of debtor and obligor.--Except as otherwise
19 provided in subsection (g) and section 9605 (relating to unknown
20 debtor or secondary obligor), after default, a debtor and an
21 obligor have the rights provided in this chapter and by
22 agreement of the parties.
23 (e) Lien of levy after judgment.--If a secured party has
24 reduced its claim to judgment, the lien of any levy which may be
25 made upon the collateral by virtue of an execution based upon
26 the judgment relates back to the earliest of:
27 (1) the date of perfection of the security interest or
28 agricultural lien in the collateral;
29 (2) the date of filing a financing statement covering
30 the collateral; or
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1 (3) any date specified in a statute under which the
2 agricultural lien was created.
3 (f) Execution sale.--A sale pursuant to an execution is a
4 foreclosure of the security interest or agricultural lien by
5 judicial procedure within the meaning of this section. A secured
6 party may purchase at the sale and thereafter hold the
7 collateral free of any other requirements of this division.
8 (g) Consignor or buyer of certain rights to payment.--Except
9 as otherwise provided in section 9607(c) (relating to
10 commercially reasonable collection and enforcement), this
11 chapter imposes no duties upon a secured party that is a
12 consignor or is a buyer of accounts, chattel paper, payment
13 intangibles or promissory notes.
14 § 9602. Waiver and variance of rights and duties.
15 Except as otherwise provided in section 9624 (relating to
16 waiver), to the extent that they give rights to a debtor or
17 obligor and impose duties on a secured party, the debtor or
18 obligor may not waive or vary the rules stated in the following <--
19 listed sections:
20 (1) Section SECTION 9207(b)(4)(iii) (relating to <--
21 expenses, risks, duties and rights when secured party in
22 possession);
23 (2) Section SECTION 9210 (relating to request for <--
24 accounting; request regarding list of collateral or statement
25 of account);
26 (3) Section SECTION 9607(c) (relating to commercially <--
27 reasonable collection and enforcement);
28 (4) Sections SECTIONS 9608(a) (relating to application <--
29 of proceeds, surplus and deficiency if obligation secured)
30 and 9615(c) (relating to application of noncash proceeds) to
20010S0330B0654 - 202 -
1 the extent that they deal with application or payment of
2 noncash proceeds of collection, enforcement or disposition;
3 (5) Sections SECTIONS 9608(a) and 9615(d) (relating to <--
4 surplus or deficiency if obligation secured) to the extent
5 that they require accounting for or payment of surplus
6 proceeds of collateral;
7 (6) Section SECTION 9609 (relating to secured party's <--
8 right to take possession after default) to the extent that it
9 imposes upon a secured party that takes possession of
10 collateral without judicial process the duty to do so without
11 breach of the peace;
12 (7) Sections SECTIONS 9610(b) (relating to commercially <--
13 reasonable disposition), 9611 (relating to notification
14 before disposition of collateral), 9613 (relating to contents
15 and form of notification before disposition of collateral:
16 general) and 9614 (relating to contents and form of
17 notification before disposition of collateral: consumer-goods
18 transaction);
19 (8) Section SECTION 9615(f) (relating to calculation of <--
20 surplus or deficiency in disposition to person related to
21 secured party);
22 (9) Section SECTION 9616 (relating to explanation of <--
23 calculation of surplus or deficiency);
24 (10) Sections SECTIONS 9620 (relating to acceptance of <--
25 collateral in full or partial satisfaction of obligation;
26 compulsory disposition of collateral), 9621 (relating to
27 notification of proposal to accept collateral) and 9622
28 (relating to effect of acceptance of collateral);
29 (11) Section SECTION 9623 (relating to right to redeem <--
30 collateral);
20010S0330B0654 - 203 -
1 (12) Section SECTION 9624 (relating to waiver); AND <--
2 (13) Sections SECTIONS 9625 (relating to remedies for <--
3 secured party's failure to comply with division) and 9626
4 (relating to action in which deficiency or surplus is in
5 issue).
6 § 9603. Agreement on standards concerning rights and duties.
7 (a) Agreed standards.--The parties may determine by
8 agreement the standards measuring the fulfillment of the rights
9 of a debtor or obligor and the duties of a secured party under a
10 rule stated in section 9602 (relating to waiver and variance of
11 rights and duties) if the standards are not manifestly
12 unreasonable.
13 (b) Agreed standards inapplicable to breach of peace.--
14 Subsection (a) does not apply to the duty under section 9609
15 (relating to secured party's right to take possession after
16 default) to refrain from breaching the peace.
17 § 9604. Procedure if security agreement covers real property or
18 fixtures.
19 (a) Enforcement: personal and real property.--If a security
20 agreement covers both personal and real property, a secured
21 party may proceed:
22 (1) under this chapter as to the personal property
23 without prejudicing any rights with respect to the real
24 property; or
25 (2) as to both the personal property and the real
26 property in accordance with the rights with respect to the
27 real property, in which case the other provisions of this
28 chapter do not apply.
29 (b) Enforcement: fixtures.--Subject to subsection (c), if a
30 security agreement covers goods which are or become fixtures, a
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1 secured party may proceed:
2 (1) under this chapter; or
3 (2) in accordance with the rights with respect to real
4 property, in which case the other provisions of this chapter
5 do not apply.
6 (c) Removal of fixtures.--Subject to the other provisions of
7 this chapter, if a secured party holding a security interest in
8 fixtures has priority over all owners and encumbrancers of the
9 real property, the secured party, after default, may remove the
10 collateral from the real property.
11 (d) Injury caused by removal.--A secured party that removes
12 collateral shall promptly reimburse any encumbrancer or owner of
13 the real property, other than the debtor, for the cost of repair
14 of any physical injury caused by the removal. The secured party
15 need not reimburse the encumbrancer or owner for any diminution
16 in value of the real property caused by the absence of the goods
17 removed or by any necessity of replacing them. A person entitled
18 to reimbursement may refuse permission to remove until the
19 secured party gives adequate assurance for the performance of
20 the obligation to reimburse.
21 § 9605. Unknown debtor or secondary obligor.
22 A secured party does not owe a duty based on its status as
23 secured party to any of the following:
24 (1) A person that is a debtor or obligor, unless the
25 secured party knows:
26 (i) that the person is a debtor or obligor;
27 (ii) the identity of the person; and
28 (iii) how to communicate with the person.
29 (2) A secured party or lienholder that has filed a
30 financing statement against a person, unless the secured
20010S0330B0654 - 205 -
1 party knows:
2 (i) that the person is a debtor; and
3 (ii) the identity of the person.
4 § 9606. Time of default for agricultural lien.
5 For purposes of this chapter, a default occurs in connection
6 with an agricultural lien at the time the secured party becomes
7 entitled to enforce the lien in accordance with the statute
8 under which it was created.
9 § 9607. Collection and enforcement by secured party.
10 (a) Collection and enforcement generally.--If so agreed, and <--
11 in any event after default the, A secured party: <--
12 (1) may notify an account debtor or other person
13 obligated on collateral to make payment or otherwise render
14 performance to or for the benefit of the secured party;
15 (2) may take any proceeds to which the secured party is
16 entitled under section 9315 (relating to secured party's
17 rights on disposition of collateral and in proceeds);
18 (3) may enforce the obligations of an account debtor or
19 other person obligated on collateral and exercise the rights
20 of the debtor with respect to the obligation of the account
21 debtor or other person obligated on collateral to make
22 payment or otherwise render performance to the debtor and
23 with respect to any property which secures the obligations of
24 the account debtor or other person obligated on the
25 collateral;
26 (4) if the secured party holds a security interest in a
27 deposit account perfected by control under section 9104(a)(1)
28 (relating to requirements for control), may apply the balance
29 of the deposit account to the obligation secured by the
30 deposit account; and
20010S0330B0654 - 206 -
1 (5) if the secured party holds a security interest in a
2 deposit account perfected by control under section 9104(a)(2)
3 or (3), may instruct the bank to pay the balance of the
4 deposit account to or for the benefit of the secured party.
5 (b) Nonjudicial enforcement of mortgage.--If necessary to
6 enable a secured party to exercise under subsection (a)(3) the
7 right of a debtor to enforce a mortgage nonjudicially, the
8 secured party may record in the office in which a record of the
9 mortgage is recorded:
10 (1) A copy of the security agreement which creates or
11 provides for a security interest in the obligation secured by
12 the mortgage.
13 (2) The secured party's sworn affidavit in recordable
14 form stating that:
15 (i) a default has occurred; and
16 (ii) the secured party is entitled to enforce the
17 mortgage nonjudicially.
18 (c) Commercially reasonable collection and enforcement.--A
19 secured party shall proceed in a commercially reasonable manner
20 if the secured party:
21 (1) undertakes to collect from or enforce an obligation
22 of an account debtor or other person obligated on collateral;
23 and
24 (2) is entitled to charge back uncollected collateral or
25 otherwise to full or limited recourse against the debtor or a
26 secondary obligor.
27 (d) Expenses of collection and enforcement.--A secured party
28 may deduct from the collections made pursuant to subsection (c)
29 reasonable expenses of collection and enforcement, including
30 reasonable attorney fees and legal expenses incurred by the
20010S0330B0654 - 207 -
1 secured party.
2 (e) Duties to secured party not affected.--This section does
3 not determine whether an account debtor, bank or other person
4 obligated on collateral owes a duty to a secured party.
5 § 9608. Application of proceeds of collection or enforcement;
6 liability for deficiency and right to surplus.
7 (a) Application of proceeds, surplus and deficiency if
8 obligation secured.--If a security interest or agricultural lien
9 secures payment or performance of an obligation, the following
10 rules apply:
11 (1) A secured party shall apply or pay over for
12 application the cash proceeds of collection or enforcement
13 under section 9607 (relating to collection and enforcement by
14 secured party) in the following order to:
15 (i) the reasonable expenses of collection and
16 enforcement and, to the extent provided for by agreement
17 and not prohibited by law, reasonable attorney fees and
18 legal expenses incurred by the secured party;
19 (ii) the satisfaction of obligations secured by the
20 security interest or agricultural lien under which the
21 collection or enforcement is made; and
22 (iii) the satisfaction of obligations secured by any
23 subordinate security interest in or other lien on the
24 collateral subject to the security interest or
25 agricultural lien under which the collection or
26 enforcement is made if the secured party receives an
27 authenticated demand for proceeds before distribution of
28 the proceeds is completed.
29 (2) If requested by a secured party, a holder of a
30 subordinate security interest or other lien shall furnish
20010S0330B0654 - 208 -
1 reasonable proof of the interest or lien within a reasonable
2 time. Unless the holder complies, the secured party need not
3 comply with the holder's demand under paragraph (1)(iii).
4 (3) A secured party need not apply or pay over for
5 application noncash proceeds of collection and enforcement
6 under section 9607 unless the failure to do so would be
7 commercially unreasonable. A secured party that applies or
8 pays over for application noncash proceeds shall do so in a
9 commercially reasonable manner.
10 (4) A secured party shall account to and pay a debtor
11 for any surplus, and the obligor is liable for any
12 deficiency.
13 (b) No surplus or deficiency in sales of certain rights to
14 payment.--If the underlying transaction is a sale of accounts,
15 chattel paper, payment intangibles or promissory notes, the
16 debtor is not entitled to any surplus and the obligor is not
17 liable for any deficiency.
18 § 9609. Secured party's right to take possession after default.
19 (a) Possession; rendering equipment unusable; disposition on
20 debtor's premises.--After default, a secured party:
21 (1) may take possession of the collateral; and
22 (2) without removal, may render equipment unusable and
23 dispose of collateral on a debtor's premises under section
24 9610 (relating to disposition of collateral after default).
25 (b) Judicial and nonjudicial process.--A secured party may
26 proceed under subsection (a):
27 (1) pursuant to judicial process; or
28 (2) without judicial process, if it proceeds without
29 breach of the peace.
30 (c) Assembly of collateral.--If so agreed, and in any event <--
20010S0330B0654 - 209 -
1 after default, a secured party may require the debtor to
2 assemble the collateral and make it available to the secured
3 party at a place to be designated by the secured party which is
4 reasonably convenient to both parties.
5 § 9610. Disposition of collateral after default.
6 (a) Disposition after default.--After default, a secured
7 party may sell, lease, license or otherwise dispose of any or
8 all of the collateral in its present condition or following any
9 commercially reasonable preparation or processing.
10 (b) Commercially reasonable disposition.-- Every aspect of a
11 disposition of collateral, including the method, manner, time,
12 place and other terms, must be commercially reasonable. If
13 commercially reasonable, a secured party may dispose of
14 collateral by public or private proceedings, by one or more
15 contracts, as a unit or in parcels and at any time and place and
16 on any terms.
17 (c) Purchase by secured party.--A secured party may purchase
18 collateral:
19 (1) at a public disposition; or
20 (2) at a private disposition only if the collateral is
21 of a kind which is customarily sold on a recognized market or
22 the subject of widely distributed standard price quotations.
23 (d) Warranties on disposition.--A contract for sale, lease,
24 license or other disposition includes the warranties relating to
25 title, possession, quiet enjoyment and the like which by
26 operation of law accompany a voluntary disposition of property
27 of the kind subject to the contract.
28 (e) Disclaimer of warranties.--A secured party may disclaim
29 or modify warranties under subsection (d):
30 (1) in a manner which would be effective to disclaim or
20010S0330B0654 - 210 -
1 modify the warranties in a voluntary disposition of property
2 of the kind subject to the contract of disposition; or
3 (2) by communicating to the purchaser a record
4 evidencing the contract for disposition and including an
5 express disclaimer or modification of the warranties.
6 (f) Record sufficient to disclaim warranties.--A record is
7 sufficient to disclaim warranties under subsection (e) if it
8 indicates "There is no warranty relating to title, possession,
9 quiet enjoyment or the like in this disposition" or uses words
10 of similar import.
11 § 9611. Notification before disposition of collateral.
12 (a) Notification date.--As used in this section, the term
13 "notification date" means the earlier of the date on which:
14 (1) a secured party sends to the debtor and any
15 secondary obligor an authenticated notification of
16 disposition; or
17 (2) the debtor and any secondary obligor waive the right
18 to notification.
19 (b) Notification of disposition required.--Except as
20 otherwise provided in subsection (d), a secured party that
21 disposes of collateral under section 9610 (relating to
22 disposition of collateral after default) shall send to the
23 persons specified in subsection (c) a reasonable authenticated
24 notification of disposition.
25 (c) Persons to be notified.--To comply with subsection (b),
26 the secured party shall send an authenticated notification of
27 disposition to all of the following:
28 (1) The debtor.
29 (2) Any secondary obligor.
30 (3) If the collateral is other than consumer goods, all
20010S0330B0654 - 211 -
1 of the following:
2 (i) Any other person from which the secured party
3 has received, before the notification date, an
4 authenticated notification of a claim of an interest in
5 the collateral.
6 (ii) Any other secured party or lienholder that, ten
7 days before the notification date, held a security
8 interest in or other lien on the collateral perfected by
9 the filing of a financing statement which:
10 (A) identified the collateral;
11 (B) was indexed under the debtor's name as of
12 that date; and
13 (C) was filed in the office in which to file a
14 financing statement against the debtor covering the
15 collateral as of that date.
16 (iii) Any other secured party that, ten days before
17 the notification date, held a security interest in the
18 collateral perfected by compliance with a statute,
19 regulation or treaty described in section 9311(a)
20 (relating to security interest subject to other law).
21 (d) Subsection (b) inapplicable: perishable collateral;
22 recognized market.--Subsection (b) does not apply if the
23 collateral is perishable or threatens to decline speedily in
24 value or is of a type customarily sold on a recognized market.
25 (e) Compliance with subsection (c)(3)(ii).--A secured party
26 complies with the requirement for notification prescribed by
27 subsection (c)(3)(ii) if both of the following paragraphs apply:
28 (1) Not later than 20 days or earlier than 30 days
29 before the notification date, the secured party requests, in
30 a commercially reasonable manner, information concerning
20010S0330B0654 - 212 -
1 financing statements indexed under the debtor's name in the
2 office indicated in subsection (c)(3)(ii).
3 (2) Before the notification date, the secured party:
4 (i) did not receive a response to the request for
5 information; or
6 (ii) received a response to the request for
7 information and sent an authenticated notification of
8 disposition to each secured party or other lienholder
9 named in that response whose financing statement covered
10 the collateral.
11 § 9612. Timeliness of notification before disposition of
12 collateral.
13 (a) Reasonable time is question of fact.--Except as
14 otherwise provided in subsection (b), whether a notification is
15 sent within a reasonable time is a question of fact.
16 (b) Ten-day period sufficient in nonconsumer transaction.--
17 In a transaction other than a consumer transaction, a
18 notification of disposition sent after default and ten days or
19 more before the earliest time of disposition set forth in the
20 notification is sent within a reasonable time before the
21 disposition.
22 § 9613. Contents and form of notification before disposition of
23 collateral: general.
24 Except in a consumer-goods transaction, the following rules
25 apply:
26 (1) The contents of a notification of disposition are
27 sufficient if the notification:
28 (i) describes the debtor and the secured party;
29 (ii) describes the collateral which is the subject
30 of the intended disposition;
20010S0330B0654 - 213 -
1 (iii) states the method of intended disposition;
2 (iv) states that the debtor is entitled to an
3 accounting of the unpaid indebtedness and states the
4 charge, if any, for an accounting; and
5 (v) states the time and place of a public
6 disposition or the time after which any other disposition
7 is to be made.
8 (2) Whether the contents of a notification which lacks
9 any of the information specified in paragraph (1) are
10 nevertheless sufficient is a question of fact.
11 (3) The contents of a notification providing
12 substantially the information specified in paragraph (1) are
13 sufficient even if the notification includes:
14 (i) information not specified by that paragraph; or
15 (ii) minor errors which are not seriously
16 misleading.
17 (4) A particular phrasing of the notification is not
18 required.
19 (5) The following form of notification and the form
20 appearing in section 9614(3) (relating to contents and form
21 of notification before disposition of collateral: consumer-
22 goods transaction), when completed, each provides sufficient
23 information:
24 NOTIFICATION OF DISPOSITION OF COLLATERAL
25 To: ____________________ (Name of debtor, obligor or
26 other person to which the notification is sent)
27 From: ____________________ (Name, address and telephone
28 number of secured party)
29 Name of Debtor(s): ____________________ (include only if
30 debtor(s) are not an addressee)
20010S0330B0654 - 214 -
1 (For a public disposition:)
2 We will sell (or lease or license, as applicable) the
3 ____________________ (describe collateral) (to the highest
4 qualified bidder) in public as follows:
5 Day and Date:____________________
6 Time:____________________
7 Place:____________________. <--
8 (For a private disposition:)
9 We will sell (or lease or license, as applicable) the
10 ____________________ (describe collateral) privately sometime
11 after ____________________ (day and date).
12 You are entitled to an accounting of the unpaid
13 indebtedness secured by the property that we intend to sell
14 (or lease or license, as applicable) (for a charge of
15 $_______). You may request an accounting by calling us at
16 ____________________ (telephone number). <--
17 (End of Form)
18 § 9614. Contents and form of notification before disposition of
19 collateral: consumer-goods transaction.
20 In a consumer-goods transaction, the following rules apply:
21 (1) A notification of disposition must provide the
22 following information:
23 (i) the information specified in section 9613(1)
24 (relating to contents and form of notification before
25 disposition of collateral: general);
26 (ii) a description of any liability for a deficiency
27 of the person to which the notification is sent;
28 (iii) a telephone number from which the amount which
29 must be paid to the secured party to redeem the
30 collateral under section 9623 (relating to right to
20010S0330B0654 - 215 -
1 redeem collateral) is available; and
2 (iv) a telephone number or mailing address from
3 which additional information concerning the disposition
4 and the obligation secured is available.
5 (2) A particular phrasing of the notification is not
6 required.
7 (3) The following form of notification, when completed,
8 provides sufficient information:
9 ____________________ (Name and address of secured party)
10 ____________________ (Date)
11 NOTICE OF OUR PLAN TO SELL PROPERTY
12 ____________________ (Name and address of any obligor who
13 is also a debtor)
14 Subject: ____________________ (Identification of
15 Transaction)
16 We have your _____________________ (describe
17 collateral), because you broke promises in our agreement.
18 (For a public disposition:)
19 We will sell ____________________ (describe
20 collateral) at public sale. A sale could include a lease
21 or license. The sale will be held as follows:
22 Date:__________________
23 Time:__________________
24 Place:____________________. <--
25 You may attend the sale and bring bidders if you
26 want.
27 (For a private disposition:)
28 We will sell ____________________ (describe
29 collateral) at private sale sometime after
30 ____________________ (date). A sale could include a lease
20010S0330B0654 - 216 -
1 or license. The money that we get from the sale (after
2 paying our costs) will reduce the amount you owe. If we
3 get less money than you owe, you (will or will not, as
4 applicable) still owe us the difference. If we get more
5 money than you owe, you will get the extra money, unless
6 we must pay it to someone else. You can get the property
7 back at any time before we sell it by paying us the full
8 amount you owe (not just the past due payments),
9 including our expenses. To learn the exact amount you
10 must pay, call us at ____________________ (telephone
11 number). If you want us to explain to you in writing how
12 we have figured the amount that you owe us, you may call
13 us at ____________________ (telephone number) (or write
14 us at ____________________ (secured party's address)) and
15 request a written explanation. (We will charge you
16 $________ for the explanation if we sent you another
17 written explanation of the amount you owe us within the
18 last six months.) If you need more information about the
19 sale call us at ____________________ (telephone number)
20 (or write us at ______________________ (secured party's
21 address)). We are sending this notice to the following
22 other people who have an interest in ____________________
23 (describe collateral) or who owe money under your
24 agreement: ____________________ (Names of all other
25 debtors and obligors, if any)
26 (End of Form)
27 (4) A notification in the form of paragraph (3) is
28 sufficient even if additional information appears at the end
29 of the form.
30 (5) A notification in the form of paragraph (3) is
20010S0330B0654 - 217 -
1 sufficient even if it includes errors in information not
2 required by paragraph (1) unless the error is misleading with
3 respect to rights arising under this division.
4 (6) If a notification under this section is not in the
5 form of paragraph (3), law other than this division
6 determines the effect of including information not required
7 by paragraph (1).
8 § 9615. Application of proceeds of disposition; liability for
9 deficiency and right to surplus.
10 (a) Application of proceeds.--A secured party shall apply or
11 pay over for application the cash proceeds of disposition under
12 section 9610 (relating to disposition of collateral after
13 default) in the following order to:
14 (1) The reasonable expenses of retaking, holding,
15 preparing for disposition, processing and disposing and, to
16 the extent provided for by agreement and not prohibited by
17 law, reasonable attorney fees and legal expenses incurred by
18 the secured party.
19 (2) The satisfaction of obligations secured by the
20 security interest or agricultural lien under which the
21 disposition is made.
22 (3) The satisfaction of obligations secured by any
23 subordinate security interest in or other subordinate lien on
24 the collateral if:
25 (i) the secured party receives from the holder of
26 the subordinate security interest or other lien an
27 authenticated demand for proceeds before distribution of
28 the proceeds is completed; and
29 (ii) in a case in which a consignor has an interest
30 in the collateral, the subordinate security interest or
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1 other lien is senior to the interest of the consignor.
2 (4) A secured party that is a consignor of the
3 collateral if the secured party receives from the consignor
4 an authenticated demand for proceeds before distribution of
5 the proceeds is completed.
6 (b) Proof of subordinate interest.--If requested by a
7 secured party, a holder of a subordinate security interest or
8 other lien shall furnish reasonable proof of the interest or
9 lien within a reasonable time. Unless the holder does so, the
10 secured party need not comply with the holder's demand under
11 subsection (a)(3).
12 (c) Application of noncash proceeds.--A secured party need
13 not apply or pay over for application noncash proceeds of
14 disposition under section 9610 unless the failure to do so would
15 be commercially unreasonable. A secured party that applies or
16 pays over for application noncash proceeds shall do so in a
17 commercially reasonable manner.
18 (d) Surplus or deficiency if obligation secured.--If the
19 security interest under which a disposition is made secures
20 payment or performance of an obligation, after making the
21 payments and applications required by subsection (a) and
22 permitted by subsection (c):
23 (1) unless subsection (a)(4) requires the secured party
24 to apply or pay over cash proceeds to a consignor, the
25 secured party shall account to and pay a debtor for any
26 surplus; and
27 (2) the obligor is liable for any deficiency.
28 (e) No surplus or deficiency in sales of certain rights to
29 payment.--If the underlying transaction is a sale of accounts,
30 chattel paper, payment intangibles or promissory notes:
20010S0330B0654 - 219 -
1 (1) the debtor is not entitled to any surplus; and
2 (2) the obligor is not liable for any deficiency.
3 (f) Calculation of surplus or deficiency in disposition to
4 person related to secured party.--The surplus or deficiency
5 following a disposition is calculated based on the amount of
6 proceeds which would have been realized in a disposition
7 complying with this chapter to a transferee other than the
8 secured party, a person related to the secured party or a
9 secondary obligor if:
10 (1) the transferee in the disposition is the secured
11 party, a person related to the secured party or a secondary
12 obligor; and
13 (2) the amount of proceeds of the disposition is
14 significantly below the range of proceeds which a complying
15 disposition to a person other than the secured party, a
16 person related to the secured party or a secondary obligor
17 would have brought.
18 (g) Cash proceeds received by junior secured party.--A
19 secured party that receives cash proceeds of a disposition in
20 good faith and without knowledge that the receipt violates the
21 rights of the holder of a security interest or other lien which
22 is not subordinate to the security interest or agricultural lien
23 under which the disposition is made:
24 (1) takes the cash proceeds free of the security
25 interest or other lien;
26 (2) is not obligated to apply the proceeds of the
27 disposition to the satisfaction of obligations secured by the
28 security interest or other lien; and
29 (3) is not obligated to account to or pay the holder of
30 the security interest or other lien for any surplus.
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1 § 9616. Explanation of calculation of surplus or deficiency.
2 (a) Definitions.--As used in this section, the following
3 words and phrases shall have the meanings given to them in this
4 subsection:
5 "Explanation." A writing which:
6 (1) states the amount of the surplus or deficiency;
7 (2) provides an explanation in accordance with
8 subsection (c) of how the secured party calculated the
9 surplus or deficiency;
10 (3) states, if applicable, that future debits, credits,
11 charges, including additional credit service charges or
12 interest, rebates and expenses may affect the amount of the
13 surplus or deficiency; and
14 (4) provides a telephone number or mailing address from
15 which additional information concerning the transaction is
16 available.
17 "Request." A record:
18 (1) authenticated by a debtor or consumer obligor;
19 (2) requesting that the recipient provide an
20 explanation; and
21 (3) sent after disposition of the collateral under
22 section 9610 (relating to disposition of collateral after
23 default).
24 (b) Explanation of calculation.--In a consumer-goods
25 transaction in which the debtor is entitled to a surplus or a
26 consumer obligor is liable for a deficiency under section 9615
27 (relating to application of proceeds of disposition; liability
28 for deficiency and right to surplus), the secured party shall
29 comply with one of the following paragraphs:
30 (1) Send an explanation to the debtor or consumer
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1 obligor, as applicable, after the disposition and:
2 (i) before or when the secured party accounts to the
3 debtor and pays any surplus or first makes written demand
4 on the consumer obligor after the disposition for payment
5 of the deficiency; and
6 (ii) within 14 days after receipt of a request.
7 (2) In the case of a consumer obligor who is liable for
8 a deficiency, within 14 days after receipt of a request, send
9 to the consumer obligor a record waiving the secured party's
10 right to a deficiency.
11 (c) Required information.--To comply with paragraph (2) of
12 the definition of the term "explanation" in subsection (a), a
13 writing must provide the following information in the following
14 order:
15 (1) The aggregate amount of obligations secured by the
16 security interest under which the disposition was made and,
17 if the amount reflects a rebate of unearned interest or
18 credit service charge, an indication of that fact, calculated
19 as of a specified date:
20 (i) if the secured party takes or receives
21 possession of the collateral after default, not more than
22 35 days before the secured party takes or receives
23 possession; or
24 (ii) if the secured party takes or receives
25 possession of the collateral before default or does not
26 take possession of the collateral, not more than 35 days
27 before the disposition.
28 (2) The amount of proceeds of the disposition.
29 (3) The aggregate amount of the obligations after
30 deducting the amount of proceeds.
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1 (4) The amount, in the aggregate or by type, and types
2 of expenses, including expenses of retaking, holding,
3 preparing for disposition, processing and disposing of the
4 collateral and attorney fees secured by the collateral which
5 are known to the secured party and relate to the current
6 disposition.
7 (5) The amount, in the aggregate or by type and types of
8 credits, including rebates of interest or credit service
9 charges, to which the obligor is known to be entitled and
10 which are not reflected in the amount in paragraph (1).
11 (6) The amount of the surplus or deficiency.
12 (d) Substantial compliance.--A particular phrasing of the
13 explanation is not required. An explanation complying
14 substantially with the requirements of subsection (a) is
15 sufficient even if it includes minor errors which are not
16 seriously misleading.
17 (e) Charges for responses.--A debtor or consumer obligor is
18 entitled without charge to one response to a request under this
19 section during any six-month period in which the secured party
20 did not send to the debtor or consumer obligor an explanation
21 pursuant to subsection (b)(1). The secured party may require
22 payment of a charge not exceeding $25 for each additional
23 response.
24 § 9617. Rights of transferee of collateral.
25 (a) Effects of disposition.--A secured party's disposition
26 of collateral after default:
27 (1) transfers to a transferee for value all of the
28 debtor's rights in the collateral;
29 (2) discharges the security interest under which the
30 disposition is made; and
20010S0330B0654 - 223 -
1 (3) discharges any subordinate security interest or
2 other subordinate lien.
3 (b) Rights of good-faith transferee.--A transferee that acts
4 in good faith takes free of the rights and interests described
5 in subsection (a) even if the secured party fails to comply with
6 this division or the requirements of any judicial proceeding.
7 (c) Rights of other transferee.--If a transferee does not
8 take free of the rights and interests described in subsection
9 (a), the transferee takes the collateral subject to:
10 (1) the debtor's rights in the collateral;
11 (2) the security interest or agricultural lien under
12 which the disposition is made; and
13 (3) any other security interest or other lien.
14 § 9618. Rights and duties of certain secondary obligors.
15 (a) Rights and duties of secondary obligor.--A secondary
16 obligor acquires the rights and becomes obligated to perform the
17 duties of the secured party after the secondary obligor:
18 (1) receives an assignment of a secured obligation from
19 the secured party;
20 (2) receives a transfer of collateral from the secured
21 party and agrees to accept the rights and assume the duties
22 of the secured party; or
23 (3) is subrogated to the rights of a secured party with
24 respect to collateral.
25 (b) Effect of assignment, transfer or subrogation.--An
26 assignment, transfer or subrogation described in subsection (a):
27 (1) is not a disposition of collateral under section
28 9610 (relating to disposition of collateral after default);
29 and
30 (2) relieves the secured party of further duties under
20010S0330B0654 - 224 -
1 this division.
2 § 9619. Transfer of record or legal title.
3 (a) Transfer statement.--As used in this section, the term
4 "transfer statement" means a record authenticated by a secured
5 party stating:
6 (1) that the debtor has defaulted in connection with an
7 obligation secured by specified collateral;
8 (2) that the secured party has exercised its postdefault
9 remedies with respect to the collateral;
10 (3) that, by reason of the exercise, a transferee has
11 acquired the rights of the debtor in the collateral; and
12 (4) the name and mailing address of the secured party,
13 debtor and transferee.
14 (b) Effect of transfer statement.--A transfer statement
15 entitles the transferee to the transfer of record of all rights
16 of the debtor in the collateral specified in the statement in
17 any official filing, recording, registration or certificate-of-
18 title system covering the collateral. If a transfer statement is
19 presented with the applicable fee and request form to the
20 official or office responsible for maintaining the system, the
21 official or office shall:
22 (1) accept the transfer statement;
23 (2) promptly amend its records to reflect the transfer;
24 and
25 (3) if applicable, issue a new appropriate certificate
26 of title in the name of the transferee.
27 (c) Transfer not a disposition; no relief of secured party's
28 duties.--A transfer of the record or legal title to collateral
29 to a secured party under subsection (b) or otherwise is not of
30 itself a disposition of collateral under this division and does
20010S0330B0654 - 225 -
1 not of itself relieve the secured party of its duties under this
2 division.
3 § 9620. Acceptance of collateral in full or partial
4 satisfaction of obligation; compulsory disposition of
5 collateral.
6 (a) Conditions to acceptance in satisfaction.--Except as
7 otherwise provided in subsection (g), a secured party may accept
8 collateral in full or partial satisfaction of the obligation it
9 secures only if all of the following paragraphs apply:
10 (1) The debtor consents to the acceptance under
11 subsection (c).
12 (2) The secured party does not receive, within the time
13 set forth in subsection (d), a notification of objection to
14 the proposal authenticated by:
15 (i) a person to which the secured party was required
16 to send a proposal under section 9621 (relating to
17 notification of proposal to accept collateral); or
18 (ii) any other person, other than the debtor,
19 holding an interest in the collateral subordinate to the
20 security interest which is the subject of the proposal.
21 (3) If the collateral is consumer goods, the collateral
22 is not in the possession of the debtor when the debtor
23 consents to the acceptance.
24 (4) Subsection (e) does not require the secured party to
25 dispose of the collateral or the debtor waives the
26 requirement pursuant to section 9624 (relating to waiver).
27 (b) Purported acceptance ineffective.--A purported or
28 apparent acceptance of collateral under this section is
29 ineffective unless:
30 (1) the secured party consents to the acceptance in an
20010S0330B0654 - 226 -
1 authenticated record or sends a proposal to the debtor; and
2 (2) the conditions of subsection (a) are met.
3 (c) Debtor's consent.--For purposes of this section:
4 (1) A debtor consents to an acceptance of collateral in
5 partial satisfaction of the obligation it secures only if the
6 debtor agrees to the terms of the acceptance in a record
7 authenticated after default.
8 (2) A debtor consents to an acceptance of collateral in
9 full satisfaction of the obligation it secures only if the
10 debtor agrees to the terms of the acceptance in a record
11 authenticated after default or the secured party:
12 (i) sends to the debtor after default a proposal
13 which is unconditional or subject only to a condition
14 that collateral not in the possession of the secured
15 party be preserved or maintained;
16 (ii) in the proposal, proposes to accept collateral
17 in full satisfaction of the obligation it secures; and
18 (iii) does not receive a notification of objection
19 authenticated by the debtor within 20 days after the
20 proposal is sent.
21 (d) Effectiveness of notification.--To be effective under
22 subsection (a)(2), a notification of objection must be received
23 by the secured party:
24 (1) In the case of a person to which the proposal was
25 sent pursuant to section 9621, within 20 days after
26 notification was sent to that person.
27 (2) In other cases:
28 (i) within 20 days after the last notification was
29 sent pursuant to section 9621; or
30 (ii) if a notification was not sent, before the
20010S0330B0654 - 227 -
1 debtor consents to the acceptance under subsection (c).
2 (e) Mandatory disposition of consumer goods.--A secured
3 party that has taken possession of collateral shall dispose of
4 the collateral pursuant to section 9610 (relating to disposition
5 of collateral after default) within the time specified in
6 subsection (f) if:
7 (1) 60% of the cash price has been paid in the case of a
8 purchase-money security interest in consumer goods; or
9 (2) 60% of the principal amount of the obligation
10 secured has been paid in the case of a nonpurchase-money
11 security interest in consumer goods.
12 (f) Compliance with mandatory disposition requirement.--To
13 comply with subsection (e), the secured party shall dispose of
14 the collateral:
15 (1) within 90 days after taking possession; or
16 (2) within any longer period to which the debtor and all
17 secondary obligors have agreed in an agreement to that effect
18 entered into and authenticated after default.
19 (g) No partial satisfaction in consumer transaction.--In a
20 consumer transaction, a secured party may not accept collateral
21 in partial satisfaction of the obligation it secures.
22 § 9621. Notification of proposal to accept collateral.
23 (a) Persons to which proposal to be sent.--A secured party
24 that desires to accept collateral in full or partial
25 satisfaction of the obligation it secures shall send its
26 proposal to all of the following:
27 (1) Any person from which the secured party has
28 received, before the debtor consented to the acceptance, an
29 authenticated notification of a claim of an interest in the
30 collateral.
20010S0330B0654 - 228 -
1 (2) Any other secured party or lienholder that, ten days
2 before the debtor consented to the acceptance, held a
3 security interest in or other lien on the collateral
4 perfected by the filing of a financing statement which:
5 (i) identified the collateral;
6 (ii) was indexed under the debtor's name as of that
7 date; and
8 (iii) was filed in the office or offices in which to
9 file a financing statement against the debtor covering
10 the collateral as of that date.
11 (3) Any other secured party that, ten days before the
12 debtor consented to the acceptance, held a security interest
13 in the collateral perfected by compliance with a statute,
14 regulation or treaty described in section 9311(a) (relating
15 to security interest subject to other law).
16 (b) Proposal to be sent to secondary obligor in partial
17 satisfaction.--A secured party that desires to accept collateral
18 in partial satisfaction of the obligation it secures shall send
19 its proposal to any secondary obligor in addition to the persons
20 described in subsection (a).
21 § 9622. Effect of acceptance of collateral.
22 (a) Effect of acceptance.--A secured party's acceptance of
23 collateral in full or partial satisfaction of the obligation it
24 secures:
25 (1) discharges the obligation to the extent consented to
26 by the debtor;
27 (2) transfers to the secured party all of a debtor's
28 rights in the collateral;
29 (3) discharges the security interest or agricultural
30 lien which is the subject of the debtor's consent and any
20010S0330B0654 - 229 -
1 subordinate security interest or other subordinate lien; and
2 (4) terminates any other subordinate interest.
3 (b) Discharge of subordinate interest notwithstanding
4 noncompliance.--A subordinate interest is discharged or
5 terminated under subsection (a) even if the secured party fails
6 to comply with this division.
7 § 9623. Right to redeem collateral.
8 (a) Persons that may redeem.--A debtor, any secondary
9 obligor or any other secured party or lienholder may redeem
10 collateral.
11 (b) Requirements for redemption.--To redeem collateral, a
12 person shall tender:
13 (1) fulfillment of all obligations secured by the
14 collateral; and
15 (2) the reasonable expenses and attorney fees described
16 in section 9615(a)(1) (relating to application of proceeds).
17 (c) When redemption may occur.--A redemption may occur at
18 any time before a secured party:
19 (1) has collected collateral under section 9607
20 (relating to collection and enforcement by secured party);
21 (2) has disposed of collateral or entered into a
22 contract for its disposition under section 9610 (relating to
23 disposition of collateral after default); or
24 (3) has accepted collateral in full or partial
25 satisfaction of the obligation it secures under section 9622
26 (relating to effect of acceptance of collateral).
27 § 9624. Waiver.
28 (a) Waiver of disposition notification.--A debtor or
29 secondary obligor may waive the right to notification of
30 disposition of collateral under section 9611 (relating to
20010S0330B0654 - 230 -
1 notification before disposition of collateral) only by an
2 agreement to that effect entered into and authenticated after
3 default.
4 (b) Waiver of mandatory disposition.--A debtor may waive the
5 right to require disposition of collateral under section 9620(e)
6 (relating to mandatory disposition of consumer goods) only by an
7 agreement to that effect entered into and authenticated after
8 default.
9 (c) Waiver of redemption right.--Except in a consumer-goods
10 transaction, a debtor or secondary obligor may waive the right
11 to redeem collateral under section 9623 (relating to right to
12 redeem collateral) only by an agreement to that effect entered
13 into and authenticated after default.
14 SUBCHAPTER B
15 NONCOMPLIANCE WITH DIVISION
16 Sec.
17 9625. Remedies for secured party's failure to comply with
18 division.
19 9626. Action in which deficiency or surplus is in issue.
20 9627. Determination of whether conduct was commercially
21 reasonable.
22 9628. Nonliability and limitation on liability of secured
23 party; liability of secondary obligor.
24 § 9625. Remedies for secured party's failure to comply with
25 division.
26 (a) Judicial orders concerning noncompliance.--If it is
27 established that a secured party is not proceeding in accordance
28 with this division, a court may order or restrain collection,
29 enforcement or disposition of collateral on appropriate terms
30 and conditions.
20010S0330B0654 - 231 -
1 (b) Damages for noncompliance.--Subject to subsections (c),
2 (d) and (f), a person is liable for damages in the amount of any
3 loss caused by a failure to comply with this division. Loss
4 caused by a failure to comply may include loss resulting from
5 the debtor's inability to obtain or increased costs of
6 alternative financing.
7 (c) Persons entitled to recover damages; statutory damages
8 in consumer-goods transaction.--Except as otherwise provided in
9 section 9628 (relating to nonliability and limitation on
10 liability of secured party; liability of secondary obligor):
11 (1) a person that, at the time of the failure, was a
12 debtor, was an obligor or held a security interest in or
13 other lien on the collateral may recover damages under
14 subsection (b) for its loss; and
15 (2) if the collateral is consumer goods, a person that
16 was a debtor or a secondary obligor at the time a secured
17 party failed to comply with this chapter may recover for that
18 failure in any event an amount not less than the credit
19 service charge plus 10% of the principal amount of the
20 obligation or the time price differential plus 10% of the
21 cash price.
22 (d) Recovery when deficiency eliminated or reduced.--A
23 debtor whose deficiency is eliminated under section 9626
24 (relating to action in which deficiency or surplus is in issue)
25 may recover damages for the loss of any surplus. However, a
26 debtor or secondary obligor whose deficiency is eliminated or
27 reduced under section 9626 may not otherwise recover under
28 subsection (b) for noncompliance with the provisions of this
29 chapter relating to collection, enforcement, disposition or
30 acceptance.
20010S0330B0654 - 232 -
1 (e) Statutory damages: noncompliance with specified
2 provisions.--In addition to any damages recoverable under
3 subsection (b), the debtor, consumer obligor or person named as
4 a debtor in a filed record, as applicable, may recover $500 from
5 a person in each of the following cases THAT: <--
6 (1) A person fails to comply with section 9208 (relating <--
7 to additional duties of secured party having control of
8 collateral);
9 (2) A person fails to comply with section 9209 (relating <--
10 to duties of secured party if account debtor has been
11 notified of assignment);
12 (3) A person files a record which the person is not <--
13 entitled to file under section 9509(a) (relating to person
14 entitled to file record);
15 (4) A person fails to cause the secured party of record <--
16 to file or send a termination statement as required by
17 section 9513(a) or (c) (relating to termination statement);
18 (5) A person fails to comply with section 9616(b)(1) <--
19 (relating to explanation of calculation of surplus or
20 deficiency), and the failure is part of a pattern or
21 consistent with a practice of noncompliance; OR <--
22 (6) A person fails to comply with section 9616(b)(2). <--
23 (f) Statutory damages: noncompliance with section 9210.--A
24 debtor or consumer obligor may recover damages under subsection
25 (b) and, in addition, $500 in each case from a person that,
26 without reasonable cause, fails to comply with a request under
27 section 9210. A recipient of a request under section 9210 which
28 never claimed an interest in the collateral or obligations which
29 are the subject of a request under that section has a reasonable
30 excuse for failure to comply with the request within the meaning
20010S0330B0654 - 233 -
1 of this subsection.
2 (g) Limitation of security interest: noncompliance with
3 section 9210.--If a secured party fails to comply with a request
4 regarding a list of collateral or a statement of account under
5 section 9210, the secured party may claim a security interest
6 only as shown in the list or statement included in the request
7 as against a person that is reasonably misled by the failure.
8 § 9626. Action in which deficiency or surplus is in issue.
9 (a) Applicable rules if amount of deficiency or surplus in
10 issue.--In an action arising from a transaction, other than a
11 consumer transaction, in which the amount of a deficiency or
12 surplus is in issue, the following rules apply:
13 (1) A secured party need not prove compliance with the
14 provisions of this chapter relating to collection,
15 enforcement, disposition or acceptance unless the debtor or a
16 secondary obligor places the secured party's compliance in
17 issue.
18 (2) If the secured party's compliance is placed in
19 issue, the secured party has the burden of establishing that
20 the collection, enforcement, disposition or acceptance was
21 conducted in accordance with this chapter.
22 (3) Except as otherwise provided in section 9628
23 (relating to nonliability and limitation on liability of
24 secured party; liability of secondary obligor), if a secured
25 party fails to prove that the collection, enforcement,
26 disposition or acceptance was conducted in accordance with
27 the provisions of this chapter relating to collection,
28 enforcement, disposition or acceptance, the liability of a
29 debtor or a secondary obligor for a deficiency is limited to
30 an amount by which the sum of the secured obligation,
20010S0330B0654 - 234 -
1 expenses and attorney fees exceeds the greater of:
2 (i) the proceeds of the collection, enforcement,
3 disposition or acceptance; or
4 (ii) the amount of proceeds which would have been
5 realized had the noncomplying secured party proceeded in
6 accordance with the provisions of this chapter relating
7 to collection, enforcement, disposition or acceptance.
8 (4) For purposes of paragraph (3)(ii), the amount of
9 proceeds which would have been realized is equal to the sum
10 of the secured obligation, expenses and attorney fees unless
11 the secured party proves that the amount is less than that
12 sum.
13 (5) If a deficiency or surplus is calculated under
14 section 9615(f) (relating to calculation of surplus or
15 deficiency in disposition to person related to secured
16 party), the debtor or obligor has the burden of establishing
17 that the amount of proceeds of the disposition is
18 significantly below the range of prices which a complying
19 disposition to a person other than the secured party, a
20 person related to the secured party or a secondary obligor
21 would have brought.
22 (b) Nonconsumer transactions; no inference.--The limitation
23 of the rules in subsection (a) to transactions other than
24 consumer transactions is intended to leave to the court the
25 determination of the proper rules in consumer transactions. The
26 court may not infer from that limitation the nature of the
27 proper rule in consumer transactions and may continue to apply
28 established approaches.
29 § 9627. Determination of whether conduct was commercially
30 reasonable.
20010S0330B0654 - 235 -
1 (a) Greater amount obtainable under other circumstances; no
2 preclusion of commercial reasonableness.--The fact that a
3 greater amount could have been obtained by a collection,
4 enforcement, disposition or acceptance at a different time or in
5 a different method from that selected by the secured party is
6 not of itself sufficient to preclude the secured party from
7 establishing that the collection, enforcement, disposition or
8 acceptance was made in a commercially reasonable manner.
9 (b) Dispositions which are commercially reasonable.--A
10 disposition of collateral is made in a commercially reasonable
11 manner if the disposition is made:
12 (1) in the usual manner on any recognized market;
13 (2) at the price current in any recognized market at the
14 time of the disposition; or
15 (3) otherwise in conformity with reasonable commercial
16 practices among dealers in the type of property which was the
17 subject of the disposition.
18 (c) Approval by court or on behalf of creditors.--A
19 collection, enforcement, disposition or acceptance is
20 commercially reasonable if it has been approved:
21 (1) in a judicial proceeding;
22 (2) by a bona fide creditors' committee;
23 (3) by a representative of creditors; or
24 (4) by an assignee for the benefit of creditors.
25 (d) Approval under subsection (c) not necessary; absence of
26 approval has no effect.--Approval under subsection (c) need not
27 be obtained and lack of approval does not mean that the
28 collection, enforcement, disposition or acceptance is not
29 commercially reasonable.
30 § 9628. Nonliability and limitation on liability of secured
20010S0330B0654 - 236 -
1 party; liability of secondary obligor.
2 (a) Limitation of liability of secured party for
3 noncompliance with article DIVISION.--Unless a secured party <--
4 knows that a person is a debtor or obligor, knows the identity
5 of the person and knows how to communicate with the person:
6 (1) the secured party is not liable to the person or to
7 a secured party or lienholder that has filed a financing
8 statement against the person for failure to comply with this
9 division; and
10 (2) the secured party's failure to comply with this
11 division does not affect the liability of the person for a
12 deficiency.
13 (b) Limitation of liability based on status as secured
14 party.--A secured party is not liable because of its status as
15 secured party to any of the following:
16 (1) A person that is a debtor or obligor, unless the
17 secured party knows:
18 (i) that the person is a debtor or obligor;
19 (ii) the identity of the person; and
20 (iii) how to communicate with the person.
21 (2) A secured party or lienholder that has filed a
22 financing statement against a person, unless the secured
23 party knows:
24 (i) that the person is a debtor; and
25 (ii) the identity of the person.
26 (c) Limitation of liability if reasonable belief that
27 transaction not a consumer-goods transaction or consumer
28 transaction.--A secured party is not liable to any person, and a
29 person's liability for a deficiency is not affected, because of
30 any act or omission arising out of the secured party's
20010S0330B0654 - 237 -
1 reasonable belief that a transaction is not a consumer-goods
2 transaction or a consumer transaction or that goods are not
3 consumer goods, if the secured party's belief is based on its
4 reasonable reliance on:
5 (1) a debtor's representation concerning the purpose for
6 which collateral was to be used, acquired or held; or
7 (2) an obligor's representation concerning the purpose
8 for which a secured obligation was incurred.
9 (d) Limitation of liability for statutory damages.--A
10 secured party is not liable to any person under section
11 9625(c)(2) (relating to remedies for secured party's failure to
12 comply with division) for its failure to comply with section
13 9616 (relating to explanation of calculation of surplus or
14 deficiency).
15 (e) Limitation of multiple liability for statutory
16 damages.--A secured party is not liable under section 9625(c)(2)
17 more than once with respect to any one secured obligation.
18 CHAPTER 97
19 TRANSITION PROVISIONS
20 Sec.
21 9700. Definitions.
22 9701. Effective date.
23 9702. Savings clause.
24 9703. Security interest perfected before effective date.
25 9704. Security interest unperfected before effective date.
26 9705. Effectiveness of action taken before effective date.
27 9706. When initial financing statement suffices to continue
28 effectiveness of financing statement.
29 9707. Amendment of pre-effective-date financing statement.
30 9708. Persons entitled to file initial financing statement or
20010S0330B0654 - 238 -
1 continuation statement.
2 9709. Priority.
3 9710. Operations of prothonotaries' offices after effective
4 date.
5 § 9700. Definitions.
6 The following words and terms when used in this chapter shall
7 have the meanings given to them in this section:
8 "Former Division 9." The provisions of this title, other
9 than Division 5 (relating to letters of credit), as in effect
10 before the effective date of Revised Division 9.
11 "Revised Division 9." The provisions of this title, other
12 than sections 5101 (relating to short title of division) through
13 5117 (relating to subrogation of issuer, applicant and nominated
14 person), as amended by the Uniform Commercial Code Modernization
15 Act of 2001 and as they may be further amended.
16 § 9701. Effective date.
17 Revised Division 9 takes effect on July 1, 2001.
18 § 9702. Savings clause.
19 (a) Pre-effective-date transactions or liens.--Except as
20 otherwise provided in this chapter, Revised Division 9 applies
21 to a transaction or lien within its scope, even if the
22 transaction or lien was entered into or created before the
23 effective date of Revised Division 9.
24 (b) Continuing validity.--Except as otherwise provided in
25 subsection (c) and sections 9703 (relating to security interest
26 perfected before effective date) through 9709 (relating to
27 priority) of Revised Division 9:
28 (1) Transactions TRANSACTIONS and liens which were not <--
29 governed by Former Division 9, were validly entered into or
30 created before the effective date of Revised Division 9 and
20010S0330B0654 - 239 -
1 would be subject to Revised Division 9 if they had been
2 entered into or created after the effective date of Revised
3 Division 9 and the rights, duties and interests flowing from
4 those transactions and liens remain valid after the effective
5 date of Revised Division 9; AND <--
6 (2) The transactions and liens may be terminated, <--
7 completed, consummated and enforced as required or permitted
8 by Revised Division 9 or by the law which otherwise would
9 apply if Revised Division 9 had not taken effect.
10 (c) Pre-effective-date proceedings.--Revised Division 9 does
11 not affect an action, case or proceeding commenced before the
12 effective date of Revised Division 9.
13 § 9703. Security interest perfected before effective date.
14 (a) Continuing priority over lien creditor: perfection
15 requirements satisfied.--A security interest which is
16 enforceable immediately before the effective date of Revised
17 Division 9 and would have priority over the rights of a person
18 that becomes a lien creditor at that time is a perfected
19 security interest under Revised Division 9 if, when Revised
20 Division 9 takes effect, the applicable requirements for
21 enforceability and perfection under Revised Division 9 are
22 satisfied without further action.
23 (b) Continuing priority over lien creditor: perfection
24 requirements not satisfied.--Except as otherwise provided in
25 section 9705 of Revised Division 9 (relating to effectiveness of
26 action taken before effective date), if, immediately before
27 Revised Division 9 takes effect, a security interest is
28 enforceable and would have priority over the rights of a person
29 that becomes a lien creditor at that time, but the applicable
30 requirements for enforceability or perfection under Revised
20010S0330B0654 - 240 -
1 Division 9 are not satisfied when Revised Division 9 takes
2 effect, the security interest:
3 (1) is a perfected security interest for one year after
4 Revised Division 9 takes effect;
5 (2) remains enforceable thereafter only if the security
6 interest becomes enforceable under section 9203 of Revised
7 Division 9 (relating to attachment and enforceability of
8 security interest; proceeds; supporting obligations; formal
9 requisites) before the year expires; and
10 (3) remains perfected thereafter only if the applicable
11 requirements for perfection under Revised Division 9 are
12 satisfied before the year expires.
13 § 9704. Security interest unperfected before effective date.
14 A security interest which is enforceable immediately before
15 Revised Division 9 takes effect but which would be subordinate
16 to the rights of a person that becomes a lien creditor at that
17 time:
18 (1) Remains an enforceable security interest for one
19 year after Revised Division 9 takes effect.
20 (2) Remains enforceable thereafter if the security
21 interest becomes enforceable under section 9203 of Revised
22 Division 9 (relating to attachment and enforceability of
23 security interest; proceeds; supporting obligations; formal
24 requisites) when Revised Division 9 takes effect or within
25 one year thereafter.
26 (3) Becomes perfected:
27 (i) without further action, when Revised Division 9
28 takes effect if the applicable requirements for
29 perfection under Revised Division 9 are satisfied before
30 or at that time; or
20010S0330B0654 - 241 -
1 (ii) when the applicable requirements for perfection
2 are satisfied if the requirements are satisfied after
3 that time.
4 § 9705. Effectiveness of action taken before effective date.
5 (a) Pre-effective-date action; one-year perfection period
6 unless reperfected.--If action, other than the filing of a
7 financing statement, is taken before Revised Division 9 takes
8 effect and the action would have resulted in priority of a
9 security interest over the rights of a person that becomes a
10 lien creditor had the security interest become enforceable
11 before Revised Division 9 takes effect, the action is effective
12 to perfect a security interest which attaches under Revised
13 Division 9 within one year after Revised Division 9 takes
14 effect. An attached security interest becomes unperfected one
15 year after Revised Division 9 takes effect unless the security
16 interest becomes a perfected security interest under Revised
17 Division 9 before the expiration of that period.
18 (b) Pre-effective-date filing.--The filing of a financing
19 statement before Revised Division 9 takes effect is effective to
20 perfect a security interest to the extent the filing would
21 satisfy the applicable requirements for perfection under Revised
22 Division 9.
23 (c) Pre-effective-date filing in jurisdiction formerly
24 governing perfection.--Revised Division 9 does not render
25 ineffective an effective financing statement which, before
26 Revised Division 9 takes effect, is filed and satisfies the
27 applicable requirements for perfection under the law of the
28 jurisdiction governing perfection as provided in section 9103 of
29 Former Division 9 (relating to perfection of security interests
30 in multiple state transactions). However, except as otherwise
20010S0330B0654 - 242 -
1 provided in subsections (d) and (e) and section 9706 of Revised
2 Division 9 (relating to when initial financing statement
3 suffices to continue effectiveness of financing statement), the
4 financing statement ceases to be effective at the earlier of:
5 (1) The THE time the financing statement would have <--
6 ceased to be effective under the law of the jurisdiction in
7 which it is filed; OR <--
8 (2) June 30, 2006.
9 (d) Continuation statement.--The filing of a continuation
10 statement after Revised Division 9 takes effect does not
11 continue the effectiveness of the financing statement filed
12 before Revised Division 9 takes effect. However, upon the timely
13 filing of a continuation statement after Revised Division 9
14 takes effect and in accordance with the law of the jurisdiction
15 governing perfection as provided in Chapter 93 of Revised
16 Division 9 (relating to perfection and priority), the
17 effectiveness of a financing statement filed in the same office
18 in that jurisdiction before Revised Division 9 takes effect
19 continues for the period provided by the law of that
20 jurisdiction.
21 (e) Application of subsection (c)(2) to transmitting utility
22 financing statement.--Subsection (c)(2) applies to a financing
23 statement which, before Revised Division 9 takes effect, is
24 filed against a transmitting utility and satisfies the
25 applicable requirements for perfection under the law of the
26 jurisdiction governing perfection as provided in section 9103 of
27 Former Division 9 only to the extent that Chapter 93 of Revised
28 Division 9 provides that the law of a jurisdiction other than
29 the jurisdiction in which the financing statement is filed
30 governs perfection of a security interest in collateral covered
20010S0330B0654 - 243 -
1 by the financing statement.
2 (f) Application of Chapter 95.--A financing statement which
3 includes a financing statement filed before Revised Division 9
4 takes effect and a continuation statement filed after Revised
5 Division 9 takes effect is effective only to the extent that it
6 satisfies the requirements of Chapter 95 of Revised Division 9
7 (relating to filing) for an initial financing statement.
8 § 9706. When initial financing statement suffices to continue
9 effectiveness of financing statement.
10 (a) Initial financing statement in lieu of continuation
11 statement.--The filing of an initial financing statement in the
12 office specified in section 9501 of Revised Division 9 (relating
13 to filing office) continues the effectiveness of a financing
14 statement filed before Revised Division 9 takes effect if:
15 (1) the filing of an initial financing statement in that
16 office would be effective to perfect a security interest
17 under Revised Division 9;
18 (2) the pre-effective-date financing statement was filed
19 in an office in another state or another office in this
20 Commonwealth; and
21 (3) the initial financing statement satisfies subsection
22 (c).
23 (b) Period of continued effectiveness.--The filing of an
24 initial financing statement under subsection (a) continues the
25 effectiveness of the pre-effective-date financing statement:
26 (1) if the initial financing statement is filed before
27 Revised Division 9 takes effect, for the period provided in
28 section 9403 of Former Division 9 (relating to what
29 constitutes filing; duration of filing; effect of lapsed
30 filing; duties of filing officer) with respect to a financing
20010S0330B0654 - 244 -
1 statement; and
2 (2) if the initial financing statement is filed after
3 Revised Division 9 takes effect, for the period provided in
4 section 9515 of Revised Division 9 (relating to duration and
5 effectiveness of financing statement; effect of lapsed
6 financing statement) with respect to an initial financing
7 statement.
8 (c) Requirements for initial financing statement under
9 subsection (a).--To be effective for purposes of subsection (a),
10 an initial financing statement must:
11 (1) satisfy the requirements of Chapter 95 of Revised
12 Division 9 (relating to filing) for an initial financing
13 statement;
14 (2) identify the pre-effective-date financing statement
15 by indicating the office in which the financing statement was
16 filed and providing the dates of filing and file numbers, if
17 any, of the financing statement and of the most recent
18 continuation statement filed with respect to the financing
19 statement; and
20 (3) indicate that the pre-effective-date financing
21 statement remains effective.
22 § 9707. Amendment of pre-effective-date financing statement.
23 (a) Pre-effective-date financing statement.--In this
24 section, "pre-effective-date financing statement" means a
25 financing statement filed before Revised Division 9 takes
26 effect.
27 (b) Applicable law.--After Revised Division 9 takes effect,
28 a person may add or delete collateral covered by, continue or
29 terminate the effectiveness of, or otherwise amend the
30 information provided in, a pre-effective-date financing
20010S0330B0654 - 245 -
1 statement only in accordance with the law of the jurisdiction
2 governing perfection as provided in Chapter 93 of Revised
3 Division 9 (relating to perfection and priority). However, the
4 effectiveness of a pre-effective-date financing statement also
5 may be terminated in accordance with the law of the jurisdiction
6 in which the financing statement is filed.
7 (c) Method of amending: general rule.--Except as otherwise
8 provided in subsection (d), if the law of this Commonwealth
9 governs perfection of a security interest, the information in a
10 pre-effective-date financing statement may be amended after
11 Revised Division 9 takes effect only if:
12 (1) the pre-effective-date financing statement and an
13 amendment are filed in the office specified in section 9501
14 of Revised Division 9 (relating to filing office);
15 (2) an amendment is filed in the office specified in
16 section 9501 of Revised Division 9 concurrently with, or
17 after the filing in that office of, an initial financing
18 statement that satisfies section 9706(c) of Revised Division
19 9 (relating to when initial financing statement suffices to
20 continue effectiveness of financing statement); or
21 (3) an initial financing statement that provides the
22 information as amended and satisfies section 9706(c) of
23 Revised Division 9 is filed in the office specified in
24 section 9501 of Revised Division 9.
25 (d) Method of amending: continuation.--If the law of this
26 Commonwealth governs perfection of a security interest, the
27 effectiveness of a pre-effective-date financing statement may be
28 continued only under section 9705(d) and (f) of Revised Division
29 9 (relating to effectiveness of action taken before effective
30 date) or section 9706 of Revised Division 9.
20010S0330B0654 - 246 -
1 (e) Methods of amending: additional termination rule.--
2 Whether or not the law of this Commonwealth governs perfection
3 of a security interest, the effectiveness of a pre-effective-
4 date financing statement filed in this Commonwealth may be
5 terminated after Revised Division 9 takes effect by filing a
6 termination statement in the office in which the pre-effective-
7 date financing statement is filed, unless one or both of the
8 following conditions apply:
9 (1) An initial financing statement that satisfies
10 section 9706(c) of Revised Division 9 has been filed in the
11 office specified by the law of the jurisdiction governing
12 perfection as provided in Chapter 93 of Revised Division 9 as
13 the office in which to file a financing statement.
14 (2) The pre-effective-date financing statement is filed
15 in the office of a prothonotary of a county of this
16 Commonwealth.
17 § 9708. Persons entitled to file initial financing statement or
18 continuation statement.
19 A person may file an initial financing statement or a
20 continuation statement under this part CHAPTER if all of the <--
21 following paragraphs apply:
22 (1) The secured party of record authorizes the filing.
23 (2) The filing is necessary under this part CHAPTER: <--
24 (i) to continue the effectiveness of a financing
25 statement filed before Revised Division 9 takes effect;
26 or
27 (ii) to perfect or continue the perfection of a
28 security interest.
29 § 9709. Priority.
30 (a) Law governing priority.--Revised Division 9 determines
20010S0330B0654 - 247 -
1 the priority of conflicting claims to collateral. However, if
2 the relative priorities of the claims were established before
3 Revised Division 9 takes effect, Former Division 9 determines
4 priority.
5 (b) Priority if security interest becomes enforceable under
6 section 9203 OF REVISED DIVISION 9.--For purposes of section <--
7 9322(a) of Revised Division 9 (relating to general priority
8 rules), the priority of a security interest which becomes
9 enforceable under section 9203 of Revised Division 9 (relating
10 to attachment and enforceability of security interest; proceeds;
11 supporting obligations; formal requisites) dates from the time
12 Revised Division 9 takes effect if the security interest is
13 perfected under Revised Division 9 by the filing of a financing
14 statement before Revised Division 9 takes effect which financing
15 statement would not have been effective to perfect the security
16 interest under Former Division 9. This subsection does not apply
17 to conflicting security interests each of which is perfected by
18 the filing of such a financing statement.
19 § 9710. Operations of prothonotaries' offices after effective
20 date.
21 (a) Definitions.--As used in this section, the following
22 words and phrases shall have the meanings given to them in this
23 subsection:
24 "Former Division 9 records." The following records:
25 (1) Financing statements and other records that have
26 been filed in a prothonotary's office pursuant to Former
27 Division 9 before July 1, 2001, and that are, or upon
28 processing and indexing will be, reflected in the index
29 maintained, as of June 30, 2001, by the prothonotary's office
30 for financing statements and other records filed in the
20010S0330B0654 - 248 -
1 prothonotary's office before July 1, 2001.
2 (2) The index as of June 30, 2001.
3 The term does not include records presented to a prothonotary's
4 office for filing after June 30, 2001, whether or not the
5 records relate to financing statements filed in the
6 prothonotary's office before July 1, 2001.
7 "Prothonotary's office." The office of a prothonotary of a
8 county of this Commonwealth.
9 (b) No records to be accepted after June 30, 2001.--A
10 prothonotary's office must not accept for filing a record
11 presented after June 30, 2001, whether or not the record relates
12 to a financing statement filed in the prothonotary's office
13 before July 1, 2001.
14 (c) Maintenance of Former Division 9 records.--Until July 1,
15 2008, each prothonotary's office must maintain all Former
16 Division 9 records in accordance with Former Division 9. A
17 Former Division 9 record that is not reflected on the index
18 maintained at June 30, 2001, by the prothonotary's office must
19 be processed and indexed, and reflected on the index as of June
20 30, 2001, as soon as practicable but in any event no later than
21 July 30, 2001.
22 (d) Response to information requests.--Until June 30, 2008,
23 each prothonotary's office shall respond to requests for
24 information with respect to Former Division 9 records relating
25 to a debtor and issue certificates, in accordance with Former
26 Division 9. The fees charged for responding to requests for
27 information relating to a debtor and issuing certificates with
28 respect to Former Division 9 records must be the fees in effect
29 under Former Division 9 on June 30, 2001, unless a different fee
30 is established by regulation issued by the Department of State
20010S0330B0654 - 249 -
1 pursuant to section 9525 of Revised Division 9 (relating to
2 fees).
3 (e) Removal and destruction of Former Division 9 records.--
4 After June 30, 2008, each prothonotary's office may remove and
5 destroy, in accordance with any then applicable record retention
6 law of this Commonwealth, all Former Division 9 records,
7 including the related index.
8 Section 17. The heading of Subchapter C of Chapter 1 of
9 Title 15 is amended to read:
10 SUBCHAPTER C
11 CORPORATION BUREAU [AND UCC] FEES <--
12 Section 18. Section 151(b) of Title 15 is amended to read:
13 § 151. Short title and application of subchapter.
14 * * *
15 (b) Application.--This subchapter contains an enumeration of
16 fees to be charged by the Corporation Bureau of the [Department
17 of State] department for services performed under this title or
18 any other provision of law relating to corporations or
19 associations and under Titles 13 (relating to commercial code),
20 17 (relating to credit unions) and 54 (relating to names)[, and,
21 except as otherwise provided by law, by local filing officers
22 under Title 13].
23 Section 18.1. Section 153(a)(8) of Title 15 is amended and
24 the section is amended by adding a subsection to read:
25 § 153. Fee schedule.
26 (a) General rule.--The fees of the Corporation Bureau of the
27 [Department of State] department, including fees for the public
28 acts and transactions of the Secretary of the Commonwealth
29 administered through the bureau, [and of county filing officers
30 under Title 13 (relating to commercial code),] shall be as
20010S0330B0654 - 250 -
1 follows:
2 * * *
3 (8) Uniform Commercial Code[:]
4 As provided in 13 Pa.C.S. § 9525 (relating
5 to fees).
6 [(i) Financing statement - per debtor
7 name:
8 (A) State fee..................... 12
9 (B) County fee.................... 48
10 (ii) Each ancillary transaction:
11 (A) State fee..................... 12
12 (B) County fee.................... 48
13 (iii) Search - per debtor name:
14 (A) State fee..................... 12
15 (B) County fee.................... 48
16 (iv) Additional fee for each financing
17 statement found and for each statement of
18 assignment reported therein:
19 (A) State fee..................... 1
20 (B) County fee.................... 4
21 (v) For each financing statement or
22 ancillary transaction not filed on standard
23 forms approved by the Department of State,
24 in addition to the fee provided above,
25 there shall be charged a per filing fee of:
26 (A) State fee..................... 28
27 (B) County fee.................... 112
28 (vi) Seventy-five percent of the
29 county fees collected pursuant to
30 subparagraphs (i) through (v) shall be
20010S0330B0654 - 251 -
1 payable to the Commonwealth and shall be
2 deposited in the General Fund.
3 (vii) Beginning on January 1, 1994,
4 and each January 1 thereafter, the county
5 fees under paragraph (8) shall be increased
6 by the percentage of increase in the
7 Consumer Price Index for Urban Workers for
8 the immediate preceding calendar year which
9 shall be published in the Pennsylvania
10 Bulletin annually by the Supreme Court on
11 or before the preceding November 30. This
12 subparagraph shall expire January 1, 2001.]
13 * * *
14 (d) Restriction.--UCC Revenue received by a county recorder
15 of deeds under 13 Pa.C.S. § 9525 (relating to fees) after June
16 30, 2001, shall be restricted for use by the county recorder of
17 deeds and the county prothonotary. The revenue shall be divided <--
18 between CREDITED TO THE OFFICES OF the county recorder of deeds <--
19 and the county prothonotary on the basis of the amount collected
20 in each office in calendar year 2000, excluding any amounts paid
21 to the Commonwealth. Revenue received in excess of the total
22 amount received by each office during the year 2000, excluding
23 amounts paid to the Commonwealth, may be held by the county for <--
24 future use by the county recorder of deeds and the county
25 prothonotary or may be distributed, SHALL BE DISTRIBUTED PRO <--
26 RATA to the county recorder of deeds and the county prothonotary <--
27 as mutually agreed by these offices. If, prior to January 1,
28 2002, a prothonotary or recorder of deeds determines that the
29 revenue received under 13 Pa.C.S. § 9525 on an annual basis will
30 be less than the amount of fees received during the year 2000,
20010S0330B0654 - 252 -
1 excluding amounts paid to the Commonwealth and that the decrease
2 in revenue will prohibit the maintenance of efficient
3 operations, the prothonotary or recorder of deeds may increase
4 the fees it collects, except for poundage, fees charged for the
5 receiving, distributing or handling of money paid into court or
6 fees imposed under 13 Pa.C.S. § 9525, in an amount necessary to
7 offset the decrease in revenue. Each county shall submit to the
8 Legislative Reference Bureau for publication in the Pennsylvania
9 Bulletin and Pennsylvania Code a schedule of all fees imposed by
10 the county recorder of deeds and prothonotary and any changes or
11 modifications to the schedule. A fee increase adopted under this
12 subsection shall terminate July 1, 2006, unless a prothonotary
13 or recorder of deeds determines that the continuation of the fee
14 increase is necessary to pay actual costs and maintain efficient
15 operations. In a county PROTHONOTARY. IN A COUNTY without a <--
16 recorder of deeds or a prothonotary, the provisions of this
17 subsection shall apply to the equivalent county officials.
18 Section 18.2. Sections 154(a) and 155(a) of Title 15 are
19 amended to read:
20 § 154. Enforcement and collection.
21 (a) General rule.--
22 (1) The [Department of State] department shall not be
23 required to receive or file any document or paper unless the
24 same shall be accompanied by the proper fee, but the
25 department may in its discretion permit the filing of any
26 document or paper without first requiring payment of the fee
27 required by this subchapter when satisfied that the fee will
28 be paid promptly. If any such fee is not paid in the manner
29 and within the time prescribed by regulation of the
30 department, the filing to which such fee relates shall become
20010S0330B0654 - 253 -
1 void.
2 (2) With respect to filings under 13 Pa.C.S. Div. 9
3 (relating to secured transactions), paragraph (1) is subject
4 to 13 Pa.C.S. §§ 9516 (relating to what constitutes filing;
5 effectiveness of filing) and 9520 (relating to acceptance and
6 refusal to accept record).
7 * * *
8 § 155. Disposition of funds.
9 (a) Establishment of restricted account.--There is hereby
10 established in the General Fund a restricted account to be known
11 as the Corporation Bureau Restricted Account. This account shall
12 receive 30% of the amount received by the [Department of State]
13 department under this subchapter except for the fees collected
14 under 13 Pa.C.S. § 9525(a)(1)(ii) (relating to fees). This
15 account shall receive 5% of the amount received by the
16 department under section 9525(a)(1)(ii). The balance of the
17 amount received by the [Department of State] department under
18 this subchapter shall be deposited in the General Fund. Funds in
19 the Corporation Bureau Restricted Account shall be used solely
20 for the operation of the Corporation Bureau in the Department of
21 State and for its modernization as may be required for improved
22 operations of the bureau.
23 * * *
24 Section 19. Section 5323(b) of Title 30 is amended to read:
25 § 5323. Content and effect of certificate of title.
26 * * *
27 (b) Certificate as evidence and notice.--A certificate of
28 title issued by the commission is prima facie evidence of the
29 facts appearing on the certificate. [The] Except as otherwise
30 provided in 13 Pa.C.S. §§ 9311(d) (relating to perfection of
20010S0330B0654 - 254 -
1 security interests in property subject to certain statutes,
2 regulations and treaties), 9315(c) and (d) (relating to secured
3 party's right on disposition of collateral and in proceeds) and
4 9316(d) and (e) (relating to continued perfection of security
5 interest following change in governing law), the certificate
6 shall be adequate notice to the Commonwealth, creditors,
7 subsequent lienholders and purchasers that a lien against the
8 boat exists.
9 Section 20. Section 5327 of Title 30 is amended by adding a
10 paragraph to read:
11 § 5327. Fees.
12 The following fees shall be due:
13 * * *
14 (6) The fee for continuing the effectiveness of
15 perfection of a security interest shall be $5.
16 Section 21. Section 1725(c)(2)(ix) of Title 42 is amended to
17 read:
18 § 1725. Establishment of fees and charges.
19 * * *
20 (c) Counties of the first class.--
21 * * *
22 (2) The fees to be received by the Prothonotary of the
23 Trial Division of the Court of Common Pleas and as clerk of
24 the Family Division of said court in counties of the first
25 class shall be as follows:
26 * * *
27 (ix) [Financing statements - U.C.C.'s:
28 The filing of a U.C.C.-1 statement
29 or any initial filing under the]
30 Uniform Commercial Code[............... $50.00
20010S0330B0654 - 255 -
1 Includes continuation statement and
2 termination.] as provided in 13 Pa.C.S. §
3 9525 (relating to fees).
4 * * *
5 Section 22. Section 2812(d)(1) of Title 66 is amended to
6 read:
7 § 2812. Approval of transition bonds.
8 * * *
9 (d) Security interests in intangible transition property.--
10 (1) Neither intangible transition property nor any
11 right, title or interest of a utility or assignee described
12 in paragraph (1) of the definition of "intangible transition
13 property" in subsection (g), whether before or after the
14 issuance of the qualified rate order, shall constitute "an
15 account" or "general intangibles" under 13 Pa.C.S. [§ 9106
16 (relating to definitions: "account"; "general intangibles")]
17 § 9102 (relating to definitions and index of definitions) nor
18 shall any such right, title or interest pertaining to a
19 qualified rate order, including the associated intangible
20 transition property and any revenues, collections, claims,
21 payments, money or proceeds of or arising from intangible
22 transition charges pursuant to such order, be deemed proceeds
23 of any right or interest other than in the order and the
24 intangible transition property arising from the order.
25 * * *
26 Section 23. Sections 1131(3), 1132, 1133, 1134, 1135(a)(2)
27 and (b)(2), 1137 and 1138 of Title 75 are amended to read:
28 § 1131. Applicability of subchapter.
29 This subchapter does not apply to or affect:
30 * * *
20010S0330B0654 - 256 -
1 (3) A security interest in a vehicle [created by a
2 manufacturer or dealer who holds the vehicle for sale]
3 described in 13 Pa.C.S. § 9311(d) (relating to perfection of
4 security interests in property subject to certain statutes,
5 regulations and treaties).
6 * * *
7 § 1132. Perfection of security interest in vehicle to be titled
8 by Commonwealth.
9 [(a) Validity of unperfected interest.--Unless perfected as
10 provided in this subchapter or excepted by section 1131
11 (relating to applicability of subchapter), a security interest
12 in a vehicle of a type for which a certificate of title is
13 required is not valid against any person as to whose rights an
14 unperfected security interest is subordinate under the
15 provisions of Title 13 (relating to commercial code).
16 (b) Method of perfection.--A security interest is perfected
17 at the time an application for a certificate of title is
18 received or date stamped by the department. In order to obtain
19 such notation the lienholder shall deliver to the department the
20 existing certificate of title, if any; an application for a
21 certificate of title upon a form prescribed by the department
22 containing the name and address of the lienholder; and any other
23 information regarding the security interest as may be reasonably
24 required and the required fee.
25 (c) Prior security interest in vehicle from another
26 jurisdiction.--If a vehicle is subject to a security interest
27 when brought into this Commonwealth, the validity of the
28 security interest is determined by the law of the jurisdiction
29 where the vehicle was located when the security interest
30 attached subject to the following:
20010S0330B0654 - 257 -
1 (1) If the parties understood at the time the security
2 interest attached that the vehicle would be kept in this
3 Commonwealth and it was brought into this Commonwealth within
4 30 days thereafter for purposes other than transportation
5 through this Commonwealth, the validity of the security
6 interest in this Commonwealth is determined by the law of
7 this Commonwealth.
8 (2) If the security interest was perfected under the law
9 of the jurisdiction where the vehicle was located when the
10 security interest attached, the following rules apply:
11 (i) If the name of the lienholder is shown on an
12 existing certificate of title issued by the jurisdiction,
13 the security interest continues perfected in this
14 Commonwealth.
15 (ii) If the name of the lienholder is not shown on
16 an existing certificate of title issued by that
17 jurisdiction, the security interest continues perfected
18 in this Commonwealth for four months after a first
19 certificate of title of the vehicle is issued in this
20 Commonwealth, and, thereafter if, within the four-month
21 period, it is perfected in this Commonwealth. The
22 security interest may also be perfected in this
23 Commonwealth after the expiration of the four-month
24 period in which case perfection dates from the time of
25 perfection in this Commonwealth.
26 (3) If the security interest was not perfected under the
27 law of the jurisdiction where the vehicle was located when
28 the security interest attached, it may be perfected in this
29 Commonwealth in which case perfection dates from the time of
30 perfection in this Commonwealth.
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1 (4) A security interest may be perfected under paragraph
2 (2)(ii) or paragraph (3) either as provided in subsection (b)
3 or by the lienholder delivering to the department a notice of
4 security interest in the form the department prescribes
5 together with the required fee.]
6 A security interest in a vehicle for which a Commonwealth
7 certificate of title is to be issued is perfected at the time
8 the department receives from the lienholder, or the owner at the
9 lienholder's request, all of the following:
10 (1) Any certificate of title that may then be in
11 existence with respect to the subject vehicle.
12 (2) An application upon a form prescribed by the
13 department specifying the lienholder's name and address.
14 (3) An amount equal to or greater than the required fee.
15 A security interest is perfected at the time the department
16 receives all of the items in paragraphs (1), (2) and (3) and
17 date stamping shall conclusively evidence such receipt. Upon
18 receipt of any certificate of title that may then be in
19 existence with respect to the subject vehicle, an application
20 upon a form prescribed by the department specifying the
21 lienholder's name and address, and an amount equal to or greater
22 than the required fee, the department shall endorse on the
23 certificate of title to be issued the name and address of all
24 lienholders and shall mail the certificate of title to be issued
25 to the first lienholder named in the certificate of title.
26 § 1133. Creation of security interest for titled vehicle.
27 (a) Application by owner.--If an owner creates a security
28 interest in a vehicle for which a certificate of title has been
29 issued by the Commonwealth, the owner, at the request of the
30 lienholder, shall immediately execute an application on a form
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1 prescribed by the department, naming the lienholder on the
2 certificate, showing the name and address of the lienholder and
3 the date of the security agreement. The certificate of title,
4 together with the application and the required fee, shall be
5 mailed or delivered to the department.
6 (b) Where certificate of title is in possession of
7 lienholder.--Upon request of the owner or subordinate
8 lienholder, a lienholder in possession of the certificate of
9 title shall mail or deliver the certificate to the department
10 or, upon receipt from the subordinate lienholder of the
11 application of the owner and the required fee, mail or deliver
12 them to the department with the certificate of title. The
13 delivery of the certificate of title does not affect the rights
14 of the first lienholder under his security agreement.
15 (c) Endorsement and delivery of certificate.--The security
16 interest is perfected when the certificate of title, a valid
17 application and an amount equal to or greater than the required
18 fee is received by the department. Date stamping shall
19 constitute conclusive evidence of such receipt. Upon receipt of
20 the certificate of title, application and the required fees, the
21 department shall endorse on the existing certificate of title,
22 or on a new certificate which it then issues, the name and
23 address of all [secured parties] lienholders and shall mail the
24 certificate of title to the first lienholder named in the
25 certificate of title.
26 § 1134. Assignment by lienholder of security interest.
27 (a) General rule.--A lienholder may assign, absolutely or
28 otherwise, his security interest in the vehicle to a person
29 other than the owner without affecting the interest of the owner
30 or the validity or perfection of the security interest but any
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1 person without notice of the assignment is protected in dealing
2 with the lienholder as the holder of the security interest and
3 the lienholder remains liable for any obligations as lienholder
4 under this chapter until the assignee is named as lienholder on
5 the certificate of title.
6 (b) Duty of assignee.--[The] If the assignee desires to
7 become the lienholder of record, the assignee shall deliver to
8 the department the certificate of title and an assignment by the
9 lienholder named in the certificate of title on a form
10 prescribed and furnished by the department and accompanied by
11 the required fee.
12 (c) Division 9.--The provisions of this subchapter are
13 subject to 13 Pa.C.S. § 9308(e) (relating to when security
14 interest or agricultural lien is perfected; continuity of
15 perfection).
16 § 1135. Satisfaction of security interest.
17 (a) Absence of subsequent liens.--Where there are no
18 subsequent liens upon a vehicle, the following rules apply upon
19 the satisfaction of a security interest in the vehicle:
20 * * *
21 (2) The owner may mail or deliver the certificate of
22 title with proper evidence of satisfaction of the security
23 interest to the department which shall issue a corrected
24 certificate of title without a statement of liens or
25 encumbrances. The corrected certificate of title may also be
26 issued when the outstanding certificate of title cannot be
27 returned and proper evidence is produced that all recorded
28 security interests have been satisfied.
29 (b) Prior or subsequent liens.--Where there are subsequent
30 liens upon a vehicle or the lien to be released is not a first
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1 lien, the following rules apply upon the satisfaction of a
2 security interest in the vehicle:
3 * * *
4 (2) Upon the satisfaction of a security interest in a
5 vehicle for which the certificate of title is in the
6 possession of a prior lienholder, the lienholder whose
7 security interest is satisfied shall, immediately upon
8 satisfaction, mail or deliver to the owner proper evidence of
9 the satisfaction and release of the security interest. Upon
10 request of the owner and receipt of the release, the
11 lienholder in possession of the certificate of title shall
12 mail or deliver the certificate of title together with the
13 release to the department. The department shall issue a
14 corrected certificate of title which shall be mailed to the
15 first lienholder. Delivery of the certificate of title does
16 not affect the rights of the prior lienholder under the
17 security agreement of that lienholder.
18 * * *
19 § 1137. Subchapter exclusive for perfecting security interest.
20 The method provided in this subchapter for perfecting and
21 giving notice of security interests is exclusive[.], except as
22 otherwise provided in 13 Pa.C.S. §§ 9311(d) (relating to
23 perfection of security interests in property subject to certain
24 statutes, regulations and treaties), 9315 (relating to secured
25 party's rights on disposition of collateral and in proceeds) and
26 9316(d) and (e) (relating to continued perfection of security
27 interest following change in governing law).
28 § 1138. Duration of [lien recorded on certificate of title]
29 perfection.
30 (a) General rule.--[A] Perfection of a security interest
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1 [recorded on a certificate of title] is effective for a period
2 of 15 years in the case of a mobile home or emergency vehicle,
3 eight years in the case of a truck tractor or trailer weighing
4 in excess of 10,000 pounds and six years in all other cases, in
5 each case dating from the time of perfection as provided for in
6 this subchapter and subject to renewal as provided in subsection
7 (b).
8 (b) Renewal [of lien].--The effectiveness of [a lien
9 recorded on the certificate of title] perfection lapses on the
10 expiration of the periods specified in subsection (a) unless a
11 [continuation statement] renewal form is filed within the six
12 months immediately preceding expiration. [The lien] Upon the
13 timely filing of a renewal form, the effectiveness of perfection
14 continues for a period of three years, commencing on the date on
15 which perfection would have become effective in the absence of
16 the filing. Perfection may be renewed for as many three-year
17 periods as may be necessary by the holder of the security
18 interest upon a form furnished by the department, signed by the
19 secured party and accompanied by the fee provided in this title.
20 (c) Corrected certificate when [lien] perfection expires.--A
21 corrected certificate of title without a statement of liens or
22 encumbrances shall be issued by the department, upon the request
23 of the owner, when perfection of the security interests recorded
24 on the certificate of title have expired.
25 Section 24. Title 75 is amended by adding a section to read:
26 § 1140. Cancellation of certificate of title or ownership for
27 mobile home.
28 (a) General rule.--The department may cancel a certificate
29 of title for a mobile home affixed to real property. The person
30 or entity requesting such cancellation shall furnish the
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1 department with an application for such cancellation, which
2 application shall be on such form as the department shall
3 prescribe, and the applicable certificate of title or ownership.
4 When so canceled, interest in the ownership of the mobile home,
5 together with all liens and encumbrances thereon, shall be
6 transferred to and shall encumber the real property to which the
7 mobile home has become affixed.
8 (b) New certificate of title after cancellation.--To obtain
9 a new certificate of title after cancellation of a certificate,
10 the owner of the mobile home shall submit to the department all
11 of the following:
12 (1) An application for a new certificate of title on
13 such forms as the department shall prescribe.
14 (2) A certificate from an attorney or title company that
15 there are no mortgages, judgments or other liens of record
16 against the mobile home, or, if there is a lien, a certified
17 copy of a release of lien executed by the lienholder, which
18 certified copy shall be issued by the recorder of deeds or
19 prothonotary, as appropriate.
20 (3) One of the following:
21 (i) A department form "Receipt for Mobile Home Title
22 Cancellation" which shall have been issued by the owner
23 of the mobile home and properly endorsed by the
24 department.
25 (ii) The deed to the land indicating ownership of
26 the mobile home by the owner who intends to transfer the
27 mobile home.
28 (iii) If neither of the items in subparagraphs (i)
29 and (ii) is available, a bill of sale for the mobile home
30 to be issued to the intended transferee.
20010S0330B0654 - 264 -
1 (4) Such other documents or information as the
2 department shall require.
3 Section 25. Section 7712(c) of Title 75 is amended by adding
4 a paragraph to read:
5 § 7712. Registration of snowmobiles and registration and
6 issuance of certificates of title for ATV's.
7 * * *
8 (c) Fees.--Fees for registration of snowmobiles and
9 registration and issuance of certificates of title for ATV's to
10 be collected by the department under this chapter are as
11 follows:
12 * * *
13 (7) Recording the name of a secured party on a
14 certificate of title, $5.
15 * * *
16 Section 26. Sections 7712.5(a) and 7712.7(c) of Title 75 are
17 amended to read:
18 § 7712.5. Issuance of new certificate following transfer.
19 (a) Voluntary transfer.--The department, upon receipt of a
20 properly assigned certificate of title with an application for a
21 new certificate of title, the required fee and any other
22 required documents and articles, shall issue a new certificate
23 of title in the name of the transferee as owner and mail it to
24 the first [lienholder] secured party named in the certificate
25 or, if none, to the owner.
26 * * *
27 § 7712.7. Application for certificate of title by agent.
28 * * *
29 (c) Persons authorized to hold certificate.--No person shall
30 receive, obtain or hold a certificate of title recorded in the
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1 name of another person for the other person who is not in the
2 regular employ of, or not a member of the family of, the other
3 person, unless the person receiving, obtaining or holding the
4 certificate of title has a valid undischarged [lien] security
5 interest recorded in the department against the ATV represented
6 by the certificate of title.
7 * * *
8 Section 27. Title 75 is amended by adding sections to read:
9 § 7712.8. Perfection of security interest in an ATV.
10 (a) Applicability of section.--Except as otherwise provided
11 in 13 Pa.C.S. §§ 9311(d) (relating to perfection of security
12 interests in property subject to certain statutes, regulations
13 and treaties), 9315(c) and (d) (relating to secured party's
14 rights on disposition of collateral and in proceeds) and 9316(d)
15 and (e) (relating to continued perfection of security interest
16 following change in governing law), this section provides the
17 exclusive method of perfecting a security interest in an ATV for
18 which a certificate of title is required under this subchapter.
19 (b) ATV's without Pennsylvania certificate of title.--If an
20 owner creates a security interest in an ATV for which a
21 certificate of title has not been issued by the department, the
22 owner shall, at the request of the secured party, promptly
23 execute an application for a certificate of title on a form
24 prescribed by the department, showing the name and address of
25 the secured party. The owner shall tender the application, the
26 existing certificate of title, if any, and the required fee to
27 the department. A security interest in an ATV is perfected at
28 the time that such application, existing certificate of title,
29 if any, and required fee are received by the department.
30 (c) ATV's with Pennsylvania certificate of title.--If an
20010S0330B0654 - 266 -
1 owner creates a security interest in an ATV for which a
2 certificate of title has been issued by the department, the
3 owner shall, at the request of the secured party, promptly
4 execute an application on a form prescribed by the department
5 showing the name and address of the secured party. The owner
6 shall tender the certificate of title, together with the
7 application and the required fee, to the department. A security
8 interest in an ATV is perfected at the time such application,
9 certificate of title and required fee are received by the
10 department.
11 (d) Certificate of title in possession of secured party.--
12 Upon request of the owner or a subordinate secured party, a
13 secured party in possession of the certificate of title shall
14 mail or deliver the certificate to the department or, upon
15 receipt from the subordinate secured party of the application of
16 the owner and the required fee, shall mail or deliver them to
17 the department with the certificate of title. The delivery of
18 the certificate to the department does not affect the rights of
19 the first secured party under his security agreement.
20 (e) Indorsement and delivery of certificate of title.--Upon
21 receipt of the application, existing certificate of title, if
22 any, and required fee, the department shall indorse on the
23 existing certificate of title or the new certificate that it
24 issues the names and addresses of all secured parties and shall
25 mail the certificate of title to the first secured party named
26 in the certificate.
27 § 7712.9. Satisfaction of security interest.
28 (a) Satisfaction of secured obligation.--Unless otherwise
29 agreed by the owner, within 15 days of the satisfaction of the
30 obligation secured by a security interest in an ATV, the secured
20010S0330B0654 - 267 -
1 party shall mail or deliver the certificate of title to the
2 owner or to the department with a statement of satisfaction
3 signed by the secured party. Upon receipt of the certificate of
4 title and statement of satisfaction, the department shall issue
5 a corrected certificate of title without an indorsement of such
6 secured party's security interest and mail the same to the
7 holder of the first remaining security interest, or if there is
8 no remaining security interest, the owner.
9 (b) Satisfaction of subordinate secured obligation.--If the
10 certificate of title for an ATV is in the possession of a prior
11 secured party, the subordinate secured party whose obligation is
12 satisfied shall mail or deliver to the owner a signed statement
13 of satisfaction in accordance with subsection (a). Upon request
14 of the owner and receipt of the statement of satisfaction, the
15 secured party in possession of the certificate of title shall
16 mail or deliver the certificate of title together with the
17 statement of satisfaction to the department. Upon receipt of the
18 certificate of title and evidence of satisfaction, the
19 department shall issue a corrected certificate of title without
20 an indorsement of the satisfied security interest and mail the
21 same to the prior secured party.
22 (c) Penalties.--Any person violating the provisions of this
23 section commits of a summary offense and shall, upon conviction,
24 be sentenced to pay a fine of $50.
25 § 7712.10. Release of security interest.
26 A secured party that releases a security interest in an ATV
27 shall mail or deliver the certificate of title to the owner with
28 a statement of release signed by the secured party or the
29 secured party may apply to the department for a corrected
30 certificate of title to be issued in the name of the owner. Upon
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1 receipt of the certificate of title and statement of release,
2 the department shall issue a corrected certificate of title
3 without an indorsement of such secured party and mail the same
4 to the holder of the first remaining security interest, or if
5 there is no remaining secured party, the owner.
6 § 7712.11. Effectiveness of security interests.
7 A security interest perfected in accordance with this
8 subchapter is perfected until the secured party provides written
9 evidence of satisfaction in accordance with section 7712.9
10 (relating to satisfaction of security interest) or release in
11 accordance with section 7712.10 (relating to release of security
12 interest) and the indorsement of the security interest is
13 removed by the department pursuant to section 7712.9 or 7712.10.
14 § 7712.12. Assignment by secured party of security interest.
15 (a) General rule.--A secured party may assign, absolutely or
16 otherwise, his security interest in an ATV to a person other
17 than the owner without affecting the interest of the owner or
18 the validity or perfection of the security interest.
19 (b) Duty of assignee.--An assignee who desires to become the
20 secured party of record shall mail or deliver to the department
21 the certificate of title and an assignment by the secured party
22 named on the certificate of title on a form prescribed by the
23 department accompanied by the required fee. Upon receipt of the
24 certificate of title, assignment and fee, the department shall
25 issue a corrected certificate of title naming the assignee as
26 secured party.
27 (c) Division 9.--The provisions of this section are subject
28 to 13 Pa.C.S. § 9308(e) (relating to when security interest or
29 agricultural lien is perfected; continuity of perfection).
30 § 7712.13. Exemptions.
20010S0330B0654 - 269 -
1 The provisions of this subchapter relating to procedures for
2 perfecting, assigning and satisfying security interests do not
3 apply to:
4 (1) a lien given by statute or rule of law to a supplier
5 of services or materials for the ATV;
6 (2) a lien given by statute to the United States, the
7 Commonwealth or any political subdivision of the
8 Commonwealth;
9 (3) a security interest in an ATV described in 13
10 Pa.C.S. § 9311(d) (relating to perfection of security
11 interests in property subject to certain statutes,
12 regulations and treaties); or
13 (4) an ATV for which a certificate of title is not
14 required under this subchapter.
15 Section 28. The following transitional provisions apply only
16 to the addition of 13 Pa.C.S. §§ 5101 through 5117:
17 (1) A transaction arising out of or associated with a
18 letter of credit that was issued before the effective date of
19 this act and the rights, obligations and interests flowing
20 from that transaction are governed by any statute or other
21 law amended or repealed by this act as if repeal or amendment
22 had not occurred and may be terminated, completed,
23 consummated or enforced under that statute or other law.
24 (2) This act applies to a letter of credit that is
25 issued on or after the effective date of this act. This act
26 does not apply to a transaction, event, obligation or duty
27 arising out of or associated with a letter of credit that was
28 issued before the effective date of this act.
29 Section 29. (a) The following acts and parts of acts are
30 repealed to the extent specified:
20010S0330B0654 - 270 -
1 Act of April 5, 1853 (P.L.295, No.198), entitled "An act to
2 authorize mortgages of Coal Leases in Schuylkill county,"
3 absolutely.
4 Act of March 22, 1861 (P.L.185, No.181), entitled "A
5 supplement to an act to authorize Mortgages of Coal Leases in
6 Schuylkill county, approved the fifth day of April, Anno Domini
7 one thousand eight hundred and fifty-three," absolutely.
8 Act of April 12, 1872 (P.L.60, No.47), entitled "An act to
9 regulate the execution and transfer of notes given for patent
10 rights," absolutely.
11 Penultimate paragraph setting fees in section 1 of the act of
12 June 12, 1919 (P.L.476, No.240), referred to as the Second Class
13 County Recorder of Deeds Fee Law, insofar as inconsistent with
14 13 Pa.C.S. § 9525.
15 Act of March 28, 1931 (P.L.11, No.9), entitled "An act to
16 enable the farmers of the Commonwealth of Pennsylvania, as an
17 emergency measure, to borrow money from the United States of
18 America under the provisions of the Joint Resolution of
19 Congress, approved the twentieth day of December one thousand
20 nine hundred and thirty (Public Resolution, Number one hundred
21 twelve, Seventy-first Congress), as amended, for the relief of
22 farmers in the drought and storm-stricken areas of the United
23 States; authorizing the execution and recording of chattel
24 mortgages unto the United States of America on crops already
25 planted or to be planted; and designating the nature of the lien
26 operation and effect of such mortgages," absolutely.
27 Act of July 15, 1936 (1st Sp.Sess., P.L.47, No.22) entitled
28 "An act to enable persons, associations, partnerships, and
29 corporations to borrow money and secure the repayment thereof by
30 the execution and recordation of chattel mortgages on any
20010S0330B0654 - 271 -
1 chattels of any kind or description; providing for bonds with
2 confessions of judgments; regulating the assignment and release
3 of such mortgages; and designating the operation and effect of
4 the lien of such mortgages," absolutely.
5 Tenth paragraph setting fees in section 1 of the act of April
6 20, 1949 (P.L.644, No.143), entitled "An act to regulate and
7 establish the fees to be charged and collected by the recorders
8 of deeds in counties of the first class," insofar as
9 inconsistent with 13 Pa.C.S. § 9525.
10 Act of January 24, 1956 (1955 P.L.931, No.288), entitled "An
11 act relating to chattel mortgages executed and filed prior to
12 July one, one thousand nine hundred fifty-four, regulating the
13 assignment, release, satisfaction and extension of the lien of
14 mortgages, and the filing, indexing and docketing thereof in
15 prothonotaries' offices; prescribing methods of foreclosure;
16 defining defaults and violations; prescribing prothonotaries'
17 fees; and fixing penalties," absolutely.
18 Act of February 28, 1956 (1955 P.L.1147, No.358), entitled
19 "An act relating to conditional sales made prior to July one,
20 one thousand nine hundred fifty-four," absolutely.
21 Act of July 25, 1977 (P.L.95, No.35), known as the Mobile
22 Home Titling Act, absolutely.
23 Section 2(10)(i) and (ii) and (23)(iii) and (v) of the act of
24 April 8, 1982 (P.L.303, No.85), known as the Second Class County
25 Prothonotary Fee Act, absolutely.
26 As much as relates to finance statements, including
27 assignment or release, continuation, secured transaction and
28 termination, and to searches, including financial statements and
29 additional fees for financing statements, of section 1 of the
30 act of April 8, 1982 (P.L.310, No.87), referred to as the
20010S0330B0654 - 272 -
1 Recorder of Deeds Fee Law, insofar as inconsistent with 13
2 Pa.C.S. § 9525.
3 (b) All acts and parts of acts are repealed insofar as they
4 are inconsistent with this act.
5 Section 30. This act shall take effect as follows:
6 (1) The following provisions shall take effect
7 immediately:
8 (i) The addition of 13 Pa.C.S. § 9525(d).
9 (ii) This section.
10 (2) The addition of 15 Pa.C.S. § 153(d) shall take
11 effect in 90 days.
12 (3) The remainder of this act shall take effect July 1,
13 2001.
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