630

77 STAT.]

Public Law 88-24.3

t:ieeembu 30, 1963
53
_:_H_._R_._ _3_8 _l-

PART I -

AN ACT
To flltl<t tilt> rulform <'Ullllllt'"l'(iltl Code for thf' Uii<tr!Pt or ("ohtmbin. lllld for

28:1-101
This sub
mercial Co
28:1,-:-100

other purpol'IE'll.

Oitrlct of
Columbia.
Unifo.-.n Commercial Code.

Be it etw<'ted b!J the Senate and House of llepre1Je1lfttffre.'J of thf'.

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

(1) Thii
its underly
(2) UnC:
(a)

SUBTITLE I-UNIFORM COMMERCIAL

CODE
ARTJCLE

1.
2.

mercia
(b)
thrOUJi
(c)
(3) The

NECrro:v

GE:"!EB...\L PBO\'ISlO~S-----------------------------------------

28: 1-101

SALES------------------------------------~------------------ 28: 2--101

3.
Coinn:acuL PAPEB------------------------------------------- 28: 3--101
4. BA:-i'K DEPOSITS AND COLl.ECTI0$8 _____________________________ 28: 4-101

ment, ex<..-e\
obligutiom
by this sul
may by ap;:
of such ob
festl,y unr:
(4) The
"unless otl
that thee
under sub~
(5) Int

5. LETTEB& OF CltEDlT------------------------------------------ 28: 5--101

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

ri
l

01' 'rlTT.E--~----------------------------------------------- 28: 1~101

8. l.NVE&TYENT
SEC\'RITIE'.8-------------------------------------- 28: 8-101

9. SECt:'UI> TBA:O.SACTIONS; SALES OF ..\.COOCXTS, CO:ll'TRACT. RIGHTS

10.

AND CKATl'EL PAPER---------------------------------------- 28: 9--101

LA\\'"8----------------------------- 28:10-101

C'ol'll'ITR.t7CTIO!S' WITH OTHER

ARTICLE I-GENERAL PROVISIONS

. (a)

the pl
(b)
ueute1
may1

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

See.
28 :1-101 . Short title.
~ :1-102. Purposes; rules of construction; nrlatlon by agreement.
28 :1-103. Supplementary general principles of law appllcable.
28 :1-104. Construction against implicit repeal.
28:1-105. Territorial application of this subtitle; parties' power to choose
applicable law.
28 :1-106. Remedies to be liberally administered.
:m :1-107. Waiver or renunciation of claim or right after hreach.
28 :1-108. Set'erabillty.

28:1-10
Un:less 1
principles
t-elative t ..
misreprest
va,lidn.tin~

2R :1-109. Section captions.

28:1-1(;
Thissul

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

28 :1-201.
:28 :1-202.
28 :l-203.
28 :1-204.
28 :1-265..
28 :1-206.

General de1lnltions.
Prima faeie evidence by third party docu1nents.
Obligation of good faith.
Time; reasonable time; "seasonably".
Course of dealing and usage of trade.
Statute of frauds for kinds of personal property not otherwise

subj1!Ct m:
by subsec:
a.voided.

28:1-IC

eovered.

28 :l-207. Performance or acceptance under reservation of rights.

28 :1-208. Option to accelerate at will.

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

re.a.tion tc
(2) W1

the a.ppli(

is effectiv
ftictofla''
.,....

77 STAT.)

631
"TRUCTION, APPLICA
MATTER

28:1-101. Short title

This subtitle shall be known and may be cited as 'Lniform Com
ll)ercial Code.
.
28:1-102. Purposes; rules of construction; variation by agree-

citatlorl orntte.

ment
( 1) This subtitle shall be liberally construed and applied to promote
its underlying purposes and policies. (2) Underlying purposes a.nd policies of this subtitle are

(a) to simplify, clariiy a.nd modernize the faw go'eming commercial transactions;
(b) to pennit the continued expansion of commercial practices L . - .1f, Ct:i; -& .a)
through custom, usage and agreement of the parties;
Ft~J71i tft . /J/:fi
.
(c) to m~ke uniform the law among the various jurisdictions.r-5'foJC-.;f'
~,i)v
(3) The effect of proYisions of this subtitle may be varied by agreeli .fl . mentl.-et'cept as otherwise provided in this subtitle a~~;G~t that the
~
/
; V"
;;ibbligations of _g_ood faith, diligence, reasonableness !L
reseribed
c.....-~,,.IJ/'tr'-~

c,J::;.iJ by this subtitle mav not be disclaimett_bv agreell}ent but t 1e parties

/~
-.
tfl
may by agreement determme the standards by which the perfonnance
J a-) 1 //<
of such obl!gations .is to be measu~ if~.
c i standards are not mani~
festly unrel\sonahle.
SC ~/./
~c:t"
i
(4) The presence in certain provision of this subtitle of the words
t~i l
~'unless otherwise agreed" or words of similnr import does not imply
1.. :
tl1at the effect of other provisions may not be nrierl by agreement
/ t~! ~
under subsection ( 3) .
f
(5) In this subtitle unless the context otherwise requires
/ .., .:::l k .
~ 5'~
(a) words in the singular number include the plural, and in !;:;!:r~ .
the plural include the singular;
~

/' [
.~::
(b) words of the masculine gender include the feminine and the /[)";, ~d~,J ~ 7
!;~:
neuter, and when the sense so indicntes words oft he neuter gender
.
;t:z,i\.
may refer to any gender.
. f _ / tJ )

7
28:1-103. Supplementary general principles of law. applicablg
?Y j)C. ~ ~~)
t7nless displaced by the particular provisions of this subtitle, tl1e
~ '1.;' -rf~~ 1
.principles of law and equity, including the law merchant and t.he law
t 7 .,,~ '
re}ative to
acit to contract, l?rincipa.l and a~ent, estoppel, fraud.
&'

.1msrepresent
n, uress, coercion, m1stake.,nkruptcv, or otl1er c:P;;~~.t.J L..._J
i
)~datmg or i~ validating cau~- shall supplement its provisions.
a ..,,,.l'/ ;-;;j/;_f" ~ ,,,..J
.
: ,iJ .r 28 :1-104. Constructionagainst implicit repeal
~ s ~ >'"' c;;, .,,,..,/
This subtitle being a general act intended as n unified coverage of it~
b 0 iP/
.,,
subj1!Ct matter, no J?art of it shall be deemed to be impliedly repealed
'
by subsequent legislation if such construction can reasonably be
twoided.

/TT/ /4

ft

'j/.

/IV

,.pr

28:1-105.

Te::::::a::~::::,1: r:~hls

subtitle; parties' power

(1) Except as provided hereafter in this section, when ransaction

bears Q.Basonable relation to the District and also to , sta. s.or nat.ion

1.~~
e.JdvJ

. 1V(}<pi/l.:,t.
.

lP

i ~. the parties m.ay agree that tliela\\;eitner of the District or o such

i

1
, 1J

1'

'"I
r:

, ..

'.state or nation shall govern their rights and duties. Failing sue~
?ngreement this subtitle applies to transactions bearing an appropriate
relation to the District.
(2) Where one of the following provisions of this subtit.le specifies
the applicable la.w, that prmision go''ems and a contrary agreement
is eft'ective only to the extent permitted by the la". (including the conHict of laws rules) so specified:
Rights of creditors against sold goods. Section 28 :2-402.
A:pplicability of the article on bauk deposits and collections.
Section 28 :~102.

LP

'/} .J-

fV r.,
U"J /~ ~)" ~-<'!.
/ v- 'ti ') ( . '7

/1

,;;{r-?-,,.

Pi'

L;,, (

.)
1

,r ~

pl .
}I/

(J. 'J, '>

PUBLIC LAW 88-243-DEC. 30, 1963

(77

77

STAT.

Bulk trnusfers subject to the nrticle on bnlk ti-ansfet'S. Section

28:6-102.
Applicability of the article on in\"estment securities. Section.
28:8-106.
Policy and scope of the article on secured transactions. Sections 28 :9-102 and 28 :9-103.
28 :1-106. Remedies to be liberally administered
( 1) The remedies provided by this subtitle shall be liberally ndministe~ to t~e end that the aggrieved party may be put in as good a
positI!>n as if tl~e other party had fully performed but neither consequen~ial ~r s~ml n<?rfenaJ damages may be had except as specifically
provided m this subt1t e or ;y: other rule of Jal\.
(2) Any right or obligatlond'eciared by this subtitle is enforceable
~y ;flCtion unless the provision declaring it. specifies a different and
hm1ted effect.
28:17107. Waiver or renunciation of claim or right after breach
.Any c~aim or rig~t arising out of a1~ alle~ed breael1 can be 9J~
l'harggd 11! w_bole _or m part w1t!1out consideration by a written waiver
or renu11c1atlon signed and gtlivered by the aggrieved party.

28:1-108. Severability

If any provision or clause of this subtitle or application thereof to

any person or cir!!t~mstances is }1el~ invalidi ~uch myalidity sball not
a!fect other p1'0\1s1ons or apphca.t1ons of t us subtitle which can be
given effect without the imalid pro\ision or applic1.ttion and to this
end the provisions of this subtitle are declared to be sev~rable.
28 :1-109. Section captions
Section captions are parts of this subtitle.

PART 2-GENERAL DEFINITIONS AND PRINCIPLES OF

INTERPRETATION
28 :1-201. General definitions

~ 28:1-103). (Cc>mpare "Contract".)

~ (4) "Bank" means any person engaged in the business of banking.

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

PUB

(7) "Branch'' inclml

of a. bank.
(8) "Burden of establ
the triers of fa.et that ti
its non-uistence.
( 9) "Buyer in ordina
good faith and without
of the ownership right~
goods buys in ordinary 1
~of that kind but d
be for cash or by exc
unsecured credit and in
under a. preexisting con
in bulk or as secunty fo
debt.
( 10) "Conspicuous'':
written that a reasom\b:
to ha.ve noticed it.

NEGOTL\BLE BILL OF LA:

of a. form is "conspicuot
or color. But in a. t

Subject to additional definitions contained in the subsequent articles

of this subtitle which are applicable to specific articles or pa.rts thereof,
nnd unless the context otherwise requires, in this subtitle:
(1) "Action" in the sense of a judicial proceeding includes recoupme~t, ~unterelaim, set-o~, suit in equity and any other proceedings m
-......_which risrhts are determme<l.
/
.......... (2) "Aggrieved garty" means a party entitled o resort to a remedy. ./ Sa.f?;/"
(3) ".Agreement' means the bargain o
e parties in fact as found
in their Ja1~~ or by implication from other circumstances including
course of dea:bng or usage of trade or course of performance as provided in this subtitle (sections 28:1-205 and 2-208). Whether an
agreement has legal consequences is determined by the provisions of
t.his subtitle, if applicable; otherwise by the law of contracts (section

STAT.]

\Vhether a term or dal

the court.
( 11) "Conh-acf' mea
from the parties' agreeu
applicable rules of law.
(12) "Creditor'' inch
a lien creditor and a.n
assignee for the benefit <
in equity and an execm
. or assignor's estate.
(18) "Defendant" in
in a cross-action or cour
(14) "Delivery" witl
cl1attel paper or securi
(14a) "District" me
includes the District.
( 15) "Document of
(lock receipt, warehous1
and also a.11y other doc.t
or financing is treatOO.
possession of it is entitlE
und the goods it covers.
purport to be issued by
goods in the bailee's I
fungible portions of an
(16) "Fault" means
(11) "Ftingible" wit
or securit.ies of which :
equhalent of any other
be deemed fungible for
lUlder a particular agre
equivalents.
(18) "Genuine" mea:
(19) "Good faith." m
tion concerned.
(20) "Holder" mean
of title or nn instrumei
indorsecl to him or to h

t7 STAT.]

~~~LAW 88-2-~, DEC. 30, 199~

{ji) "Branch.. i1wlmlr1' it 81:'p1n1ttely incorpon1tecl .fot'@ign lmmch

of a bank.
""-' c tu ...t-::.ii

..__ (S) "Burden of eshiblishing n fac..'t filenns the hm<len of >et-sttaclin

theitders of f~tl't thnt the existerwe of the fa t is mo
o 1 le t ,
its non-ex1s ence.
G9) "Buyer in ordinnry course of lmsiness.. means a person who in
gajd faitl1 and without knowledge that. the sale to him 1s in iolation
of '.f;he .Q._wnershRI rights or secm1iy interest of a third pa1ty in the
g<>Rds buys m C! mary comse f.rom a person in the business ?f selling
~oOds of that kmd but does not. nulude a pawnbroker. 1Buymg'' may
be ! for cash or 2l exdut~ of other property or on secured or
Ul1~e<:mred credit ana mdues recehing goods or documents of title
miller a preexisting contract for ~tle but does not include a transfer
in;~mlk or as security for or in total or paitfol s.i.tisfaction of a money
debt.
:(10) "Conspicuous'~: A tenu or clause is conspicuous when it is so
w~itten that a reasonnble person 1tgni11st whom it is to operate gght /,&>-f;i:_,d
to hase noticed it. A printed heading iu c4tpitals (ns: - .. o!iS';oTIABLE BILL OF L.rnnm) is conspicuous. Language in the body
of;a form is "con;;picuous'! if it is in larger or othei: contmstipg ~
orf color. But m a. telegram a;11:y stated term is ''conspJC.uous .
Wjhether a term or dnuse is "conspicuous" or not is fot decision by
~b~court.

. .
.
;(11) "Contmct.' menus the total legal obhgatlon '"'luch results
frpm the parties' agreement as affected by this subtitle and nny other
..
applicable rules of law. (C'ompare "Agreement''.)
.
, Uii i)(.12) "C'r~ditor'' includes a genera} creditor.
secll:red et;editm.:..4u S
rlo~,{) ._!;.;
a.} hen creditor and 1iny re~1-esentat1ve of creditors, mdudmg an
,,,
l"'i ft.. ~ "-"' <
~$igm;e for the benefit of creaitors? a. trustee in ban~ruptey, a receh~er
-'"
f"}
11t. eq~1ty a_nd an exeeutor or ndnumstrntor of an msoh-ent debtor's
....r. _,,_.'" t1
or assignors estate.
.
. y ".;/I
c~ .
..._._.-j(13) "Def~ndnnt .. includes.n person in the. position of defendant
-P
~~
in a. cross-act.ion or counterchum.
L
e_,,.-,,,.;.v> "''.ti:
- ) (14) "Deli\'ery" with tespect to instrwnents, doouments of title, i.l'? 7d.u ~,,,.
c:patt.el pa~r <?r securities means .:rnluntary transfey of possession. { // 4 ..si 0 ..J ,
~; (14a.} "Dist!1ct:' means the D1str1ct of COlumbia; and "state" .-r J.d ,...,.,,..1'
1l1c1udes the Dtstrict.
~AT
.__ (15) "J?oeument of title" _includes bill of lading,, dock \\anint,
f ~
tlock receipt, warehouse 1ece1pt or order fot the dehvery of goods" -'.:l D ~'(I_ rreA'lJ'
:
~d also any 9ther document which in the regular course of busmess
.
'
or financmg is treated as ndequately evidencing t11at the persou. in . , .
' ,
, . ". . : -_, -. ,
possession of it is entitled to recehe,.boJ.d and, clis.Jx.>80 of the document
,, . ..._, ~ ,
l}nd t~.~--ws }t cede~. To be a document ?f title a. document must
~
purport t6 e issu
y or addressed !O a batleE! and purp01t to cover
#;oods in the bailee's ~ession which n.re ~ither. identified or_a~ c./~,- / ..,,_,, /_-; .. -:- ..
.fungible portions of an identified mnss.
--:::-::-:-:: ~
~ "Fault" means wrongful act, omission or breach.
.
V ; 1'1 ''Fungible'' wit11 respect to goods or securities means good.;;
or
urities of which any unit is, by nature or usage of trade, the
f<iuh-aleut of a~v other like unit. Goods ~hich ~re not fungible shall
be deemed fungible for the purposes of tlus subtitle to the extent t11nt
,under a particula1 agreement or doomnent unlike units are treated a$
iequivalents.
T (18) "Genuiue" means free of forgery or counterfeiting.
:; (19} "Good faithn means honesty in fact in the conduct or trausac.....__ition concerned.
(~} "Hold~r" means a perso!l 'vho is in p~ssion of a <!ocwnent
.of title or an instrument or an m>estment secunty drawn, tsSUed or
Hndorsecl to him or to his order or to bearer or in blank.

:i

;-.,-r

Afa-.13

r::-

In

p ;

,A

i . /

__ .,,,,.,.-

PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

77 STAT.)

PUBLIC

..........._ (21) To ':honor~! is to p~tv or to accept nn.d pay, or where a credit

s6 engages .to purchase or cliscow1t a. draft complying with the terms
of the credit.
. J:i4
(22) "Insok~ncy proceedings'' includes any assigrunent for the
;j_ sir<..:--- henefir _of creditors or othe1 procee.dings intencted to liquidate or
' rJ . rehab1htate the ~tat~ Of the eerson 1;I1VOlved.
v~ .t-.
. ::.'~M. (:!3) A llerson is "msoh-ent:: who either has censed.to pay his debts
;
m the ordinary. ci;>urse of bn~m~ or cann<?t pay lus del:)t.s as they
.
become due or is msohent w1thm the mea.mng of the federal hank-

(3a) n.... 1ut'St."11tnthe~ ilu

01 as.<;oeiation, atul a tl'tlstee.
any other person empowe1-e<i
(:16) "Ri~hts~' includes r(
(:ii) '"Security iutel'est'~
lixtul'es whirh secures paym
retention or reservation of
,.
shipment 01 (lelivery to the I
to a reser\ution of a "secnr
interest of a buyer of accoui
ii;; subject to artiele 9. Th
s
means a medium of exchange authorized or adopted -'jf /V
~oods on identifica.tion of

b~mestic or fore~~l ~m:ernment as a part of its currency.

I' l.
:1e<'tion 28 :2-401 is not a
.["-..
il.J (2a) Apersonhasnohce'ofa.factwhen
7'rU
11<'<1nire a "security interest
/)pL
(a) he has actual knowledge of it; or
i fPnse or eonsi~ri1ment is inte
j
{ b) he has received. a notice or notification of it; or
under is not. a "security in

. . from ~11 the facts and circumstances ~own to him at the /

t.1me m question he has renson to know that it exists.
- ./~,
,:ubject to tbe prOlisions '
1.
'
\Yhether a lease is intended
.\ person "kn!>ws!'. 01: hns "kno,>1
" of a fact when he has.~ct.yal
of each ease; however, (a)
kngwledi;m of J.t.. '"Discove or "learn or a. wo1d or phrase of s1m1 a.r
.
1~ot of itself mnke the lease
import. refers to knowledge rather tha.11 to reason to know. The time

ment. that upon complinnc<

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

1ulditionnl considerntion 01
;; f)/J /,., (26 >.A person ..notifies or "gives a notice o~ not1fi~at1011 to anothei
lease one intended for
' _ r !Y tak~ng such. step~ as may be reasonably requned to mfol"m the othel"
(38) ..Send'~ in ('Otmecl
1
Ill ~rdmary course w~eth~r 01 n?f; such ot;her actmilly comes to know
deposit in the mnil or de

of n. .\ person 'recel\es .. a notice or notification when

means of communi('ation w
(it) it comes to his attention ; or
for nud properly nddress1
(b) it is duly delhered at the place of business through which
1uldress specified thereon
the contract was made or at any other place held out by him as
any address reasonable un
the place for receipt of such comm.uniea.tions.
writing or notice wit.bin t
(z7) Xoti<'P., knowledge or a notice or not.ification :received by a.n
properly sent has the effec
organizntion is etfect.ive for a (larticula.r transaction from the time
(39) "Signed"' includes
when it .is brought to t-he attention of the individual conducting that
with present. intention to r
t r1111si1ctlon, and in any e,ent from the tim.e when it \\'ould have been
( 40) "Surety" includes
bt'OU~ht to his attention if the organization had exerc.ised due diligence.
( 41) "Telegram" incluc
.\.u orgm1izatio11 ex 'ses due dili nee if it. maintains
e
1~able, any mechanical met
routines for communicating significant m ormatlon o e person con( 42) "Term" means tha
<luctin- the transaction and there is reasonable compliance with the
particular matter.
routines. Due diligence does not require an individual acting for the
(43) "Unauthori2;ed" :
orbranization to communicate information unless such information is
"ithout actual, implied 01
purt of his regular duties or unless he has reason to know of the trans( 44) "Value". Except
act-ion ancl that the transaction would be matel'ially affected by thr
tiable instruments and Ila
infonuation.
and 28 :4-209) a. person
C28) 'Or~1mization" includes a corporation, government or govem..:
'I
5
(a) in return for
!nentnl subdnision or.~' blJ.Smess f rust, !S.1tn.te,..trust, partnershin ? 7.-..
-;!..for the extension of
, . .,. . ...- )
or nssocut t ion, t wo or more ~rsons liavmg a JOm t Qr common mterest 2
drawn upon and wlu
01 any other Ie~al or commercial entity.
'
the event of difficulti
(29) "Party', as distinct. from "third party", means a person who
(b) as security fo
has engaged in a. transaction or made an agreement within this subtitle.
existing claim; or
(30) 'Person" includes an indhidual or an organization (see sec( c) by accepting
t ion 28:1-102).
for purchase; or
'.'""')
(31) ;'Presumption" or "presumed" means that the trier of fact
( d) ~nerally, in 1
,
fl' must find tbe existence of the fact presumed unless and until evidence
port a simple contra
'
1s mttoduced which would support a finding of its nonexistence.
( 45) "\Vs.rehouse rece
(32) "Purchase" includes ta.king- by sale, discount, negotiation,
~aged in the business of :
..
mortgage, pied~, lien, issue or re-issue, gift or a.ny other voluntary
~ (-16) "Written" or "w
rnnsaction creatin~ an interest in pro~rty.
_. ft.
..,.
other intentional reducti
( 33) "Purchasel7' means a person w takes by purchase. ,_/,,..,.'" c
S
7;ke-z
.
(34) "Remedyn means any remedial right to which an aggrieved C.r"4/.
i
party is entitled with or without resort to tribunal

?.~ 1::-:M~neY:'

J-

seeu

7 ST~'r.

PUBLIC LAW 88-24f"'Ec. 30, 1963

(3J} "Ut>ptest'llfnthe.. i1wludes 1111 agent, an officer of 1\ c01ponltiou

rr a::;!#x.httion. and a trmdel', exe<.utor or :ulministrntor of an estnte,
o~her

Ol'

pel'8oll Pmpowt"led to :wt for imother.

.. i :1)) Ri~hts includes remedies.
. ( :n) S~urity intere:<t .. means an interest in J.>ersona.l prope!:!U!'
1xtut"fS wlmh secun>S p11yme11t or >trformance 6 an oblt<71lfl0n,/"The
:l'tent;ion or reserYation of title by n sel er o ~ooc s notw1t 1standin:?
hipnlent 01 deli,erv to the buver (section 28 :2-101) is limited iu effect
w a t;eser,ation of "se<.urity . ~rnsf\ The term also mdmles any
interest of a buyer of account c fattel a er 01 contract ri<7hfs whieh
i!'t su~ject to article 9. The spec 1u J!t'operty interest o a uyer of
~o<xl$ on identificn.tion of such goodS to a contract for sale under
,;ec-tiqn iR :2--401 is not 1\ "securitv inte1-est'\ but a buye1 may also
im1u.i)-e u ''security interest" hY coinplying with article 9. {;n1ess a
ltn8(>;m consigument is intended ns security, rese1,ntion of title thereumlej is not n ..secnritv interesf' but a ronsignment is in any e\ent
:<ubject to the prmisioi1s on consignment sales (section 28 :2-320).
Whether n lease is intended as security is to be determined by the facts
of et~:t'h case; howe,er, (a) the inclusion of nn option to purchase does
1~ot ~i itse)f make the lease one intended for security, and ( b) 1111 ngreemen~ that u1l011 compliance with the terms of the lense the lessee shall
lietoiue or hns the option to become the owner of the property for no
.1dditionnl considerntion or for a nominal considen1tion does make the
len~ one intended for security.
~
( :18) 'Send'~ in eonnection with any writing or notice means to
i~; 1..
depqsit iu the nmi1 or delher for tmnsmission by any othel" usual
1,.:
me1tns of communication with postage or cost of transmission proYided
:;:: ~
forn nd prop~i-ly addressed and in. the case of a1~ instrument to an
~
~ I
ndch-ess specdiecl thereon or otherwise agreed, or 1f there be none to
, ,
imy:~1~dress ieitsonable unde1 the circumstances. The receipt of any
. / ,{
:~
wri~inp: or notice within the time at which. it would ha\e 1trrived if
.. ) ,cu

pmperly sent has the effeet of a proper send mg.

pw
- (:~9) "Signed'~ includes any symbol executed or adopted by 1\ party'
witl1 present intention t<> authenticate a writing.
.-..,.., -1.- uSIJt.'
(40) "Surety" includes guarantor.
(/r. /J
(41) "Telegram" includes a. message transmitted by radio, teletype, fo, 1-/ol.r/L/
1:ahle, any mecbani<'al method of transmission, or the like.
J'31
(~2) "Term" means that portion of an agreement whicl1 relates to a......._

patj:icular matter.
J-~
(:-13) "Unauthorized" signature or indorsement means one made
witfhout actual, implied or apparent authority and includes a forgery.
(4:4) "Value". Except as otherwise provided with respect to negotiable instruments and 'bank collections (sections 28:3-:{03, 28 :4-208
anij 28 :4-~09) a person ght;S "~alue'' for. rights if he acquires ~hem /2.'P.,u1, j
l
(a) m retu~\ for .a. b!nqmg comnptment to. extend c1-ed1t or ~ _ ,,,, #.;
~ for the extension of 1mmedmtely aYa1lable credit whether or not
&?
drawn upon and whether or not a charge-back is provided for in
the event of difficulties in collection; or
..
,
(b) as security fol" or in total or partial satisfaction of a pre- !fad,, f ~ ?.c..I ~ J
]
existing claim ; ur
_
(c) by accepting delivery pursuant to a pre-existing contract ;:r,..,,e/:e:.f P""'J
;
' for purchase; or
:
( d) generally, in return fol" any consideration sufficient to sup.; port a simple contract.
~ S..A;( 45). "Wareb~use receipt'~ means a receipt issued by a person en- / ,,,.,/1: (?.,.,~hhre.;f;"'
gt).~ed m the business of stormp; goods for lure.
:H46) "l\.,.l'itten" or "~iting'' includes printing, typewriting or any
--:/~
otl1er i~n~l reduction to tangible form.
if '
Ill\'

/!:::?

t.R"'r ,

PUBLIC LAW 88243-DEC. 30. 1963

28 :1-202. Prima f

77

(17 STAT.

28:1-207. Performance
rights

e evidence by third party documents

form 1~11~p<Jrt i!llf' to. Le 11. oill of !:!ding. ,.u._olie\"

' _.\ d<?<:lllllt'llt i1_1 \It'

f.,l'5(_
or certtfit-ate of llll"IU'lllll't>. oftw1nl we1:he1 s 01 lllS()(:><'tor s certilfoate C t ' consular in\oice, or :iuy otlwr d<.~f..ument n111 ho1ize<l or r~quired by r .t. <::::the coutrnct to be il'l.'iHetl l>\' a I hll'd"Pnrtv ~hnil he 1rimn fi1<1e endence
9J 1tS own authentidt_,. aiid bre1111i11enei>s am o t 1e acts st11t mt 1e
document by the tlurd party.

A party wbo with explici

ises performance or assenb

or offered by the other pa1

resened. Such words as "'
like are sufficient.

28:1-208. Option to ace

28 :l-203. Obligation of good faith

:r:very contract. or duty within this suotitle. imposes an obligation of
good fnith in its perform111we 01 enforcement.

28:1-2o.t. Time; reasonable time; "seasonably"

.-:'").&- ~-.,_,./...
/

a.-o ,,::,

(1) "'hene\er this subtitle requires any nttion to be taken within

be fixed by a~reeme1it. C-a 1.)-1-,....:, , ./:-'
~
(2) ,'\.lmt ts a re11so1mble time for taking nny i1ctiou depends on th~
nature, purpose ancl d1"l'llll1Sta11ces of such nct1011.
(3) .:\n action is tnkeu "sensomtbJy!! when it. is tnken at or within
the time ngt'l'ed or if no time is agreed at or within a rei1s01mble time.

A term providing that o

.1accelerate nayment or perf(
collateral 'tat will" or "whe:
similar import shall be co1
to do so only if be in good :
or performance is impairee

..r/V'f

n. reasonable time. an> time which is not nmnifesth- tmreasonaole may

i /!:
Iii; 4

PUBLIC

STAT.]

faith is on the llarty a.ga

AR'I
l

v 2 #'JO(-d.,.

28:1-205. Course of_de~ling and usage of t~ade

PART 1-snou.T TITr.E, n

Sec.

(1) -\course of d~nlmg is :l seq1~euce of p1:eno~1s conclnct between

28 :2-10'.?. Scope; eertllin sect
/!C -y
the parties to :t p1nt1cnlar trimsiwtwn wl11eh is fairly to be regarded
article.
28 :2-103. Definitions and ind
rf;ifl .d.J"' as estab.Iishing n tommon bnsis of understanding for interpreting their
28 :2-l<H. Delinltions: "Merel
IJ,/.,. ex1;>ress1ous and other cmHlu<-t.
28 :2-100. Definitions: transf
(i
(2) .\. usa,_,re of tmde is auv pmdice or m\!'thotl of dealing havina
Dlerelal unit".

such reguhl!ity of o~ser~irnce 111 il pince, 'Y<.'1ttion or trade as to just~fy

,,,;;f 28 :2-100. Definitions: "contr
.e "'
~present sale";
.
an expectation that it w1J he ( Pned with rt>speet to the tnmsact1ou ;:. 12.
cellatlon".
1
in es 1011.
he ex1ste11ee and scope of such ll us:t~e
be provetD c')?
;,fi as nctis., If it is established thnt s1wh n usage is em 1ed ma w1nten
.
... A,../ 28 :2-107. Goods to be severe.
PART 2-FOB.ll, FoJll)
') rll'f)..
tra e cooe 01'..:'iimilnr writing the interpretation of the writ~g_ji;;_~ Jvl"'1~
.r
1
.,. r
Uie comt.
'1
,,.,,._,,
28 :2-201. Formal requireme1
/ / .1..~
{3) X course of dealing between parties nncl :m./'usi1ge'lof trade in
28 :2-202. Final written e:x::pl'I
,/i/t . . the vocation or t111de i!l which .they are eniplged o~'<if which they are
28 :2-203. Seals inoperative.
28 :2-204. Formation In gene
'Ls~;!/ Or should be llWlll'e gl\'e partlclll:tr meanmg to Ulld SUpplement Or
28 :2-205. Firm oilers.
7}. 4t
qualifv tet'lns of an agreement.
28 :2-206. Olfer and aceepta1
1/1, .
(4) .The express terms of nn agreement and au applicable eourse of
28 :2-207. Additional terms ii
'
dealing or usnge of trade shall be tonstrned wherever 1ensonable 11s
28 :2-208. Course of perform
28 :2-209. llodification, rescl
consistent with ench other: but when such construction is unreason28 :2-210. Delegation of per1
able express terms control hoth <om-se of dealing and usage of trade
and course of dealiug controls usage oft rade.

P .ABT 3-GSNEB..U. 01
.
( 5) An applicable usn;e of trn<le iu the place where any piut of
28 :2-301. General obltgatlo1
,perfornrnnee is to oecur shall he used in interpreting the abrreement
28 :2-302. Unconscionable cc
yr1'). lf1s to thnt purt of the perfommnce.
/ ,
28 :2-303. Allocation or dlvi
\(; ol' (6) EY1<lem.'e of a relernllt U~l~e of trade offered by one ri~n,:!.y is 'J. o~ ~a? ..a!8 :2-304. Price payable in n:
:2-305. Open price term.
;; ,tlt.... J 'r
not ndmissible nnle;s nud until he has ,riwn the other pnrty suc1 notice 1~ I~? l"'C ~ /'1 28
28 :2-306. Output, requiremt
I .J!!.. \',
iis the <'ot!l't tinds suflkiem to prennt uufair surprise ro th~ latter.-l""~ '
28 :2-307. Delivery in single

28 :2-101. Short title.

jA:

tp

f;

vl

r./

fJ

,. .

'

i.

28.:2-308. Absence of specifi

28 :2-309. Absence of speclfi
~ IJ 28 :2-310. Open time for pa:
}'f
reservation.
28 :2-311. Options and ooop
28:2-312. Warranty of tit
against lnfrlngt
28 :2--313. Express warrant
28 :2-314. Implied warrant:
28 :2-315. Implied warrant
28 :~16. Exclusion or m01
28 :2-317. Cumulation and

28:1-206. Statute of frauds for kinds of personal property not

otherwise covered
(1) Except in the cases described in subsection(:!) of this section
a eontr~wt fort he sale of persounl prope1tv is not enforceable by way
of action or defense beyond fhe thousand ~dollars in nmount or value
of remedy unless there is some writing which indicntes thnt it contract
for sale hns been miu.le. between the parties nt n defined or stuted price,
reasonably identifies the subject matter, nml is signed by the pa.tty
against whom enforcement is sou~ht or by his nut horized a.gent.
(2) Subsection (1) of this section does uot apply to co11t1-acts for
the sale of goods (sect ion :l8 ::l-:W I ). nor of securities (section 28 :8- . /.
;ll9) nor to seeurity llbrreements (section ~8:9-203). i e ~J,,~.. ry

<?"r'

eii&

t'-

f
-

,,...,...,,_
77 STAT,]

PUBLIC LAW 88-24 : .EC. 30, 1963

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

rights
A party who with ex licit reservation of ri hts edorms or rom~
ises performance or assen s o pe ormance m a manner eman e
or offered by the other part:r does not thereb
ie udiee. the ri hts
reserYed. S~ch words as .. without pteJU ice .. ~ .. mu er prote:<t' or the
bke are sufficient.

28 :1-208. Option to accelerate at will

Atenn providing that one party or his successor in interest may
accelerate P-ayment or performance or ~uire collateral or additional
collateral' at will" or ''whe e deems himself insecure" or in words of
similar import shall be constru to mean that he shall have power
to do_ so only if he in good faith believes that the p1ospect of pafment
or performance is impaired. The burden of estaolishmg lack o ~ood
faith is on the. party agiUnst whom the powe1 hl\s been exercised.

ARTICLE 2-SALES
. PART

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

Sec.

28 :2-101. Short title.

28 :2-10"2. Scope; certain security and other tro.uAA.r:tions excluded fron1 this
article.
28 :2-103. Definitions and index of deflnitions.
28 :2-104. Detinltlons: "}lerchant"; "between merchants"; ..financing agency".
28 :2-105. Definitions: transferabilit.T; "goods"; "'future" goods; "lot"; "commercial unit".
28 :2-106. Definitions: "contract"; "agreement": "contract for sale" ; '"sale";
"present sale": "conforming" to contract; "termination" : "cancellation".
28 :2-107. Goods to be severed from realty: recording.
PA.BT

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

28 :2-201. Formal requirements ; stature of frauds.

28 :2.......202.
28 :2-203.
28 :2-204.
28 :2-205.
28 :2-206.
28 :2--2111.
. 28 :2-208.
28 :2-209.
28 :2-210.

Final written expression; parol or extrinsic evidence.

Seals inoperative.
Formation in general.
Firm off~rs.
Offer and acceptance in formation of contract.
Additioual terms in aeceptance or confirmation.
Course of performance or practical construction.
Modification, rescission and waiver.
Delegation of performanee: assignment of rights.

PART 3-Gi.:..'iEBAL 0BLIGATIOY AND

Co:s:snucrto:<r OF

CoNTRACT

28 :2-301. General obligations of parties.

28 :2-302. Unconscionable contract or clause.
28:2--303. Allocation or dil"islon of risks.
28 ;2-004. Price payable in money, goochl, real ts. or otherwise.
:?8 :2-305. Open price term.
28;2-306. Output, requirements and exclusive dealings.
28:2-307. Delivery in single lot or &e\eral lots.
28::2-308. Absence of specified place for delinry.
28.:2-309. Absence of specific time pro\"isions; notice of termination.
28:2-310. Open time for payment or running of credit; authority to ship under
reservation.
28:2-311. Options and cooperation respecting performance.
28 :2-312. Warranty of title and against infringement; buyer's obligation
against infringement.
28 :2-313. Express warranties by affirmation, promise. description, sample.
:?B :2-314. Implied warranty: merchantability ; usage of t.-ade.
28 :2-315. Implied warranty: fitness for particular purpose.
28 :2-316. Exclusion or modification of warranties.
28 ;2-317. Cnmulation and conftict of warranties express or Implied.

i
,11!:.
! .
ft i t.
,.. ! .

.....,,,-'"....' ''

i38

PUBLIC LAW 88-243-DEC. 30, 1963

[77STAT.

77 STAT.]

PUBL

ARTICL:E

ARTICLE 2-SALES-Continued
p A.RT 3-GF.SER.\L OBLIGATION A:s'D. CO:l"STRUCTION OF CONTRACT-Continued
Se~.

!lee.

28 :2-318.
28 :2-319.
28 :2-320.
28 :2-321.
28 :2-322.
28 :2-323.
28 :2-324.
28 :2-325.
28:2-326.
28 :2-327.
28 :2-328.

Third party beneficiaries of warranties express or implied.

F.O.B. and F.A.S. terms.
C.I.F. and C. & F. terms.
C.I.F. or C. & F.: "net landed weights"; "payment on arrival''; warnmty of condition on arrival.
Delivery "ex-ship".
Form of bill of lading required in overseas shipment; "overseas".
"No arrival, no sale" term.
"Letter of credit" term ; "confirmed credit".
Sale on approval and sale or return; consignment sales and rights
of creditors.
Special incidents of sale on approval and sale or return.
Sale by auction.
PART 4--Trru:, CREDITORS AND GOOD FAITH PURCHASERS

28 :t-401. Passing of title; reservation for security; limited application of this

section.
28 :2-402. Rights of seller's creditors against sold goods.
28 :2-403. rower to transfer; good faith purchase of goods; "entrusting".
PART 5--PERFORMANCE
28 :2-aOl.
28 :2-502.
<!8 :2-503.
:!8 :2-561..
28 :2~505.
28 :2-l'iOO.
:.!8 :2-507.
28 :2-508.
28 :2-509.
28 :2-510.
28.:2-511.
28 :2-512.
28 !2-513.
28 :2-51-1:.
28 :2-515.

b1surable interest in goods: manner of identifkntion of goo<ls.

right to goods on seller's insol\"ency.
Manner of seller's tender of deli\ery.
Shipment by seller.
Seller's shipment under reservation.
Rights of financing agency.
Effect of seller's tender: delivery on condition.
Cure by seller of improper tender or deli\"ery ; replacement.
Risk of los:,; in the absence of breach.
Etrect of breach on risk of loss.
Tender of payment.by buyer; payment by check.
Payment by buyer before inspection.
Buyer's right to inspection of goods.
When documents deliverable on acceptance; when 011 payment.
Preser'ring e'rldence of goods in dispute.

28 :2-601.
2l.h2-602.
28 :2--603.
28 :2-004.
28 :2-605.
28 :2-606.
28 :2-607.

Buye1's rights on Improper delivery.

Manner .and etrect of rightful rejection. , .
l!erchant buyer's duties as to rightfully rejected goods.
Buyer's options as to salvage of rightfully rejected goods.
Waiver of buyer's objections by failure to particularize.
What constitutes acceptance of goods.
Effect of acceptanc.-e ; notice of breach ; burden of establishing breach
after acceptance ; notice of claim or litigation to person answerable
over.
Revocation of acceptaure in whole or in part.
Right to adequate assurance of performance.
Anticipatory repudiation.
Retraction of anticipatory repudiation.
"Installment contract"; breach.
Casualty to identified goods.
Substituted performance,
Excuse by failure of presupposed conditions.
Procedure on notice claiming excuse.

Bu~er':,;

PART 6-BREACH, REPUDIATION

28 :2-608.
28 :2-609.
28 :2-610.
28 :2-611.
28 :2-612.
28 :2---613.
28 :2---614.
28 :2-615.
28 :2-616.

AND

EXCUSE

P.ART 7-REMEDIES
28 :2-701.
28 :2-702.
28 :2-703.
28 :2-704.

Remedies for breach of collateral contracts not impaired.

Seller's remedies on discovery of buyer's insolvency.
Seller's remedies in general.
Seller's right to identify goods to the contract notwithstanding breach
or to sal\'age. unfinished goods.

28 :2-70G.
28 :2-706.
28 :2-707.
28 :2-708.
28 :2-709.
28 :2-710.
28 :-2-711.
28 :2-712.
28 :2-713.
28 :2-714.
28 :2-715.
28 :2-716.
28 :2-717.
28 :2-718.
28 :2-719.
28 :2-720.
28 :2-721.
28 :2-722.
28 :2-723.
28:2-724.
28 :2-725.

~eller's 11t.01>page 1
Seller't1 resale Inc
"Person in the po~
Seller's damages l
Action for the pri
Seller's lnddenta
Buyer's remedie;
goods.
cover"; buyer's
Buyer's damages
Buyer's damages
Buyer's incident.a
Buyer's right to 11
Deduction of dam
Liquidation or Un
Contracted n1o4it
Eft'ect of ca nee
breach.
Remedies for frn
Who can sue thlr
Proof of market I
Admissibility of 1
Statute of limit.al

PART 1-SHORT Tl'J

~

28 :2-101. Short title

This article shall be k
cial Code-Sales.
28:2-102. Scope; ce
exclude(
Unless the context otl
actions in goods; it does
in the form of an unc(
intended to operate only
impair or repeal any sta
other specified classes of
28 :2-103. Definition:
( 1} In this article unl
(a} "Buyer" me
goods.
(b} "Good faith'
fact and the obser
fair dealing in the t
(c} "Receipt" o:
them.
d) "Seller" mea
goods.
(2) Other definition~
thereof, and the sections
"Acceptance". ~
"Banker's credit'
"Between meroht
"Cancellation".
"Commercial uni
"Con.firmed creel:
"Conforming to <

77 STAT.]

PUBLIC LAW 88243-

.C. 30, 1963

ARTICLE 2-SALES-Continued
l' AH.T i-IlEMEDIES--C'ontillUt'd
Sel!.

28 :2-i05. ::leller's ><top1iage of delinry in tm11,.it or otherni><t'.

28 :2-706.. Seller's re,;:ale induding toutralt for re:<ale.
28 :2-707...Person in the position of a l'o(>llE'r".
28 :2-708. Seller's damages for non-ac<'t"ptanc't" or repudi11tion.
28 :2-709. Action for the pri<.'t'.
28 :2-710. SellE'r's ineid('ntal damagE's.
28 :Z.-711. Buyer'i.; rE'mE'dies iu gE'neral: l!nyE'r's sE'Curity iutt>re,;t in rf'jt'ltt~cl
goods.
28 :2-712. "CoTer'' : huyE'r's 1>rolUrement of substitute good,;.
28 :Z.-713. Buyer's damag('s for 11011-deliTery or rE'pudintion.
28 :2-714. Buyer's damagE'S for breach in n>gnrd to aeee-pted gomk
28 :2-715. Buyer's Incidental and ron.sequE'ntlal damages.
28 :Z.-716. Buyer's right to i-ipeciftc performam't" or rE'11lcffill.
28 :2-717. De-duc-tion of damages from the. 1>riee.
28 :2-718. Liquidation or limitation of damages: clepositi-i.
28 :Z.-719. Contra<-ted modification or limitat.ion of remedy.
28 :2-720. Effect of "c-ancellation" or "resl'ii<.'-'iou" on daim>< fur antt><"t'dc'nt
I
breaeh.
5
28:2-721. Remedies for fraud.
'{!'/
28 :2-722. Who c-an sue third pa1ties for injury to iruod:<.
ff { '
28:2-723. Proof of market price: t:ilueand plaeE'.
~.,r.I'
28 :Z.-724. Admissibility of market quotations.
,{) ~'
~~I _
28 :2-725. Statute of li1111tatio11s in eontracts for i-i1lle.
:J:/

//./

%
.
1%:

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I.

'P'

;;J,/r
/'- ."
jh(, t" ...Jl

'f

PART 1-SHORT TITLE, GENERAL CONSTRUCTION AND

SUBJECT MATTER

/~

28 :2-101. Short title

This article shall be known and may be cited 1\S Fnifonn Commer-

,.-.,

,~

Citation of a ....

cial Code-Sales.
Hele.
28:2-102. Scope; certain security and other transactions
excluded from this article
.
Unless the context otherwise requires, this a1ticle applies to t.rans.actions in goods; it does not apply to any trausaetiou whieh although~,..,- _t
I
_ in the {onn of an unconditional rontral'f to SJ!H or present sale is ,fl)? ., ~ G.- < \_ ~nded to operate only as a security transaction nor does this article
~v ...d ~/ l.7
{
pair or repeal any statu~ulatmg sales t onsmuen; armers or
-:i ,v~
4 , ...,
othe!' specified classes of buyers. ""'-r(Jll.c,kl..e4r ~ -1, ,n1,ee r"'-'
28:2-103. Definitions and index of definitions
~r
( 1) In this article unless the context otherwise requires
(a) "Buye1" means a person who buys or contracts to buy
goods.
. /'"
(b) "Good faith!' in the case of a merchant means honesty in ~
fact and the obserYanre of reasonable commercial stnndards of
fair dealing in the trade.
(c) "Receipt" of goods means taking physical pos.<>ession of
them.
d) "Seller'! means a . person who sells or contracts to sell - (!~

d,ctJ

goods.

(2) Other definitions applying to this article or to specified parts

thereof, and the sections in which they appear are: ..J4
"Acceptance". Section 28 :2--606.
~
~
"Banker's credit". Section ~8 :2-325.
1-~ IJ1 e./C' J:~,,.,f
"Between merchants". Section 28 :2--104.
"Cancellation". Section 28 :2--106 ( 4).

/.;..,Aj .t'!-.J
"Commercial unit". Section 28 :2--105:--"Confinned credit". Section 28 :2--325.
/
.1-//~C/'
"Conforming t-0 contract". Section 28 :2--106. - f,v.e:/...e:~~

..P

/lfe.

.-:;,

... ,

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(2) Other deti11itio11s a.pplyi11g to this atti(ll"! <fr.-{'ont.inued

"Contra.ct for sale''. S<'Ctiou 28 :2-106.
"Cover". Section 28 :2-712 .
........._,'Entrusting". Section 28 :2--i0/'3.
"Financing agency''. :Section 28 :2-10-1.
"F'nture goods". Sect.ion 28 :2-105.
"Goods". Section 28 :2-105.
'-........"Identification~'. Section 28 :2-501.
"Installment contract". 8eetion 28 :2-612.
''Letter of Credit,''. Seel ion 28: 2-::J25.
''Lot". Sert.ion 28: 2-105.
''-"::\[err.lumt". Section 28: 2-104:.
"O,erseas". Section 28: 2-:i2:t
"Person in f>OHition of seller". Stctio11 ~~: 2-iOi.
"Present S.'l e". Section 28: 2-lOfi.
"Sale". Section 28: 2-106.
"Sale on appron1l''. Section 28: 2-:)2fi.
)/
"Sale or return". Soction 28: 2-:126.
/(.,~'Termination~'. Seetion 28: 2-106. (
(:~) .The following clelinitions in other artieh~ apply 10 this a1ticle:
-"Check". Section 28: :l-10-1.
"Consignee". Section 28: 7-102.
"Consignor". Sedion 28: i-102.
/H4 /
"Consumer goods". Section 28: fl-10!>.
1,,f"-(""'..___ . "Dishonor". Section 28: a-iWi.
--''Draft". Section 28: :3-104:.
(4:) In addition article 1 contains geneml definitions and pl'ineiples
of construction and interpretation applicable throughout this article.
28 :2-104. Definitions: "merchant"; "between merchants"; "fi.
nancing agency"
(1) "Merch.irnt" means a person who deals in goods of the kind or
otherwise by his occupation holds himself out i1s luning knowledge or
skill peculiar to the practices or goods involved in the transaction or
to whom such knowledge or skill rnay be attributed by his employment
.,,..,,,of an agent or broker or ot.her intermedinry who by his occupat.i~ J
holds himself out as havin* such knowle<lge or skill.
__-.~,.
(2) "Financing agency' means a hank, finance compnuy or other
f,,.-...u ,J
person who in the ordinary course of business !Hakes nc.lrnnces i1g!linst f'etli' .<i'
l!QQda or .~eut~LPLti~ or who by arrangement with either the
11
seneF"' or tnel:iuyer-intervenes in ordimiry course to make or collect -7 f...i ~ r
payment due or claimed under the contract for sale, as by purchasing
or paying the seller's draft or making advances agninst it or by merely
taking it for collection whether or not documents of title accompany
the draft. "Financing aO'ency" includes i1lso a. bank or other person
who similarl:y intervenesbetween persons who are in the position of
seller and buyer m respect to the goods (section 28: 2-707).
.
( 3) "Bet ween merchants" means in any transaction with respect'-,
to which both parties are chargeable with the knowledge or skill of/
merchants.
28 :2-105. Definitions: transferability; "goods''; "future" goods;
"lot"; "commercial unit"
1) "Goods" means all things (including specially manufactured
IV ~oods) which are movable at the t.iine of identification to the contract
tor sale other than the money in which the price is to be paid, invest-..
~
ment securities (article 8) and things in action. "Goods" also includes~
~, fJI
the unborn young of animals and growing crops and other identified
r7
things attached to realty as described in the section on goods to be
se,ered from realty (section 28 :2-107).

r'"""

l (

77

STAT.]

PUBLIC l

(2) GomlH must be both e:>

in them can pass. Goods \YI
are ''.future~' goods. A purp
auy mterest therein operates
(a) There may be a sale of :
(-1) .\tt undhided share i1
snflirit\ut ly identified to be
is not detNmined. Any :igre
tity thereof agreed upon by
the extent of the seller's inte
then becomes an owner in co
( 5) "Lot" meims a pnrce
mutter of a separate sale or
perform the contract..
( 6) "Commercial unit'~ me
usage is a single whole for
materially impairs its chara
comme.rcinl unit may be u
articles (as a suite of furniti
(as a bale, gross, or carload
rele\'nnt market as a single'
28 :2-106. Definitions: "
sale"; "sale
tract; "terr
(1) Int-his article unless
and "agreement" are.Jimite
sale of goods. "Contract fo
and n eontrn<'f to sell goods
passing of title from the s1
2--101). A "present sale~'
makin~ of the contract.
(2) Goods or conduct ine
forming" or conform-to the
the obligations under the cc
(3) "Termin::i.tion" occu
created by ngreement or lM
for its breach. On "terr
executory on both sides ar
breach or performance sur
( 4) "Cancelhtion" occr
contract for breach by thi:
-'terminntion" except that 1
for breach of the whole co
28:2-107. Goods to be
( 1) A contra.ct for the
structure or its materials
the sale of goods within 1
seller but until seYerance
not effectfre as a transfer
contract to sell.
( 2) A contract for the !
other things . attached to
material harm thereto but
for the sale of goods wit
is to be severed oy the bu)
of the rea.lty at the time c
fication effect a present si
93-02~

0-64-43

77 STAT.]

PUBLIC LAW 88-243

x. 30, 1963

(2) Goods must be Loth existing and identified before any interest
in them can pnss. Goods which are not both existin"' and identified
"' "'Oods or of
are "future., goo<l s. . \ purporte <l prest'nt sale of future
any interest tlierein 01wrafl'!:i as a contract to sell.
"'
(:1) Tliere m:Y. bea ;;ale of.n, par~ inte~est in existing identified goods.
(-!) .\n unchnded share 111 an 1de11ttfied bnlk of fun..,ible "'Oods is
sulliciently identified to he sold although the quantity of tl1e bulk
is not determined. Any agreed propo1tion of such a bulk or any quantity thereof agreed upon by um11ber, weight or other measure may to
the extent of the seller's interest in the bulk be sold to the buyer who
then becomes an owner in common.
.
(5) "Lot" means a parcel or a single article which is the subject
matter of a separate sale or delivery, whether or not it is sufficient to
perform the contract.
(6) "Commercial unit.'~ means snch a unit of goods as by commercial
11sage is a single whole for purposes of sale and division of which
materially impairs its clrnraeter or value on the market or in use. A
<ommercinl unit may be n. single article (as a machine) or a set of
articles (as a suite of furn itnre or an assortment of sizes) or a quantity
(as a b11le, gross, or carload) or any other unit treated in use or in th
relevant market as a single whole.

28 :2-106. Definitions: "contract"; "agreement"; "contract for

sale"; "sale"; "present sale"; "conforming" to contract; "termination"; "cancellation"
(1) In this article unless the context otherwise requires "contract" ,,.and "agreement" are limited to those relating to the present or future r
sale of goods. '"Contract. for snle" includes both a present sale of ~oods
nnd a contract to sell goods at a future time. A ' sale" consists m the
~assin.., of title from the seller to the buyer for a price (section 28:
:0:--101). A ''present sale'' means ti sale which is accomplished by the
makino- of the contract.
(2) l1oods or conduct induding any part of a performance are "conforming" or conformto the contract when they are in accordance with
the oblii?Utions under the contract.
(:~) "Termination" occurs when either party pursuant to a power
created by agreement or law puts an end to the contract otherwise than
for its breach. On "termination" all obligations which are still
executory on both sides are disclu~rged but any right based on prior
breach or performance survives.
( 4) "Cancelhtion" occurs when either party puts an end to the
contra.ct for brea.ch by the other and its effect Is the same as that of
'termination" except that the cancelling party also retains any remedy
for breach of the whole contract or any lmperformed balance.

r ((

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

(1) A. contract for the sale of timber, minerals or the like or a
structure or its materials to be removed :from realty is a contract for
the sale of goods within this article if they are to be severed by the
seller but until se,erance a purported present sale thereof which is
not eft'ectfre as a transfer of an interest in land is effective only as a
contract to sell.
(2) A contract for the sale apart from the land of growing crops or
other things attached to realty and capable of severance without
material harm thereto but not described in subsection (1) is a contract
for the sale of goods within this article whether the subject matter
is to be severed by the buyer or by the seller even though it forms part
of the realty at the time of contracting, and the parties can by identification effe.ct a present snJe before severance.
93-025 0-64-43

.;

r//I I

PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

77

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

PART 2-FORM, FORMATION AND READJUSTMENT OF

CONTRACT
28 :2-201. Formal requirements; statute of frauds
( 1} Except as otherwise provided in this section a contmct for the
/} v,
ilale of goods for the price of $500 or more is not enforceable bv way // 'r
of action or defense unless t~~()!lli: writing.sufficient to indicate
that a contract for sale has oeen made between the parties and si~ned
by the party against whom enforcement is sought or by his authorized
agent or broker. A writing is not insufficient because it omits or
incorrectly states a tenn agreed upon hut the contrnct is not enforceable under this paragr:~ph beyond the quantity of goods shown in
such writing.
(2) Between merchants if within a reasonable time a writing in
confirmation of the contract and sufficie1it against the sender is
received and the party receiving it has reason to know its contents,
it satisfies the requirements of subseetion ( 1) against sueh party
unless written notice of objection to its contents is ginn within
ten days after it is received.
(3) A contract which does not satisfy the requirements of subsection
( 1) btit which is valid in other respects is enforceable.
(a) if the goods are to be specially manufactured for the buyer
and are not suitable for sale to others in t11e ordinary course of
the seller's business and the seller, before notice of repudiation is
received mid under circumstances which reasonably indicifte that
the goods are for the buyer, has made either a subsfantial beginning of their manufacture or commitments fort heir procurement;
or
(h) if the party against whom enforcement is sought admits in
his pleading, test1111ony or otherwise in court that a contrnd for
&'l.le was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
( c) with respect to goods for which payment has been made
and accepted or which have been received and accepted (section
28:2-606).

28 :2-202. Final written expression: parol or extrinsic evidence

/ , /Ji

Terms with respect to which the confirmatory memoranda of the

parties agree or which are otherwise set forth in a writing intended
by the parties as a final expression of their agreement with respect to
such terms as are included therein may not be contradicted by evidence
of any prior agreement or of a contemporaneous oral agreement hut
may be explained or supplemented
(a) by course of dealing or usage of trade (section 28 :1-205)
or by course of performance (section 28 :2-208) ; and
j/
(b) by evidence of consistent additional terms unless the court
1
finds the writing to have been intended also as a complete and
,l ii:.)',.1 /
exclusive statement of the terms of the agreement.

1, 1:

f (

28 :2-203. Seals inoperative

The affixing of a seal to a writing evidenc:ing a contr~c~ for sale or

?aninstrument
offer to buy or sell goods does not constitute the wr1tmg n sealed
and the law with respect to sealed instruments does not

'-n pply to such a contract or offer.

l J

STAT.]

PUBLIC

28 :2-204. Formation ir
( 1) A. contract for sal1
sufficient to show agroome1
recognizes the existence of E
(2) An agreement suffi<
be found even though the r
( 3) Even though one o
sale does not fail for ind1
make a contract and there
appropriate remedy.
28 :2-205. Firm offers
.An offer by a merchant t
by its terms gives assuran<
for lack of consideration, c
for a reasonable time. hut i
excee~ three months; hut
supplied by the otferee mu
28 :2-206. Offer and ac
( 1) lJnless otherwise m
,. i r('umstances
(a) an offer to mal
u~ceptance in any ma
1.1rcumstances;
( b) an order or otl1
shipment shall be coi
prompt promise to sh
<onformmg or non-c
non-conforming good
seller seasonably noti
only as an accommodi
( i) Where the beginni:
able mode of acceptance ~
within a reasonable time :
acceptance.
28 :2-207. Additional 1
( 1) A definite and seas
eonfirmation which is ser
acceptnnce even though it
those offered or agreed
conditional on assent to l
(2) The additional teri
tion to the contract. Bet
the contract unless:
(a) the offer expr
offer;
( h) they materiall
( c) notification of
or is given within :
received.
(3) Conduct by both
contract is sufficient to es1
i ngs of the parties do not
the te1!11.s of the particul
the w~1tmgs of the parti
tenns mcorporated under

77 STAT.}

PUBLIC LAW 88-2iL-OEC. 30. 1963

28 :2-204. Formation in general

( 1) A contract for snle ~f goo?s may be made in anY. maru:er
sufficient to show agreement, mcludmg conduct by both parties which
recognizes the existence of sue h a contract.
(2) ~\n agr~ment sufficient to constitute a contract for sale may
be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for
sale does not fail for indefiniteness if the parties have intended to
make a contract and there is a reasonably certain basis for g1vmg an
nppropriate remedy.
28:2-205. Firm offers
An offer by a merchant to buy or sell goods in a signed writing which
Lv its terms gives assurance that it will be held open is not revocable,
for lack of consideration, during the time stated or if no time is stated
for a reasonable time, but in no event may such period of irrevocability
exceed three months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.
28 :2-206. Offer and acceptance in formation of contract
(1) linless otherwise unambiguously indicated by the language or
l'i r(umstances
(a) an offer to make a contract shall be construed as inviting
acceptance in any manner and by any mediwn reasonable in the
!ircumstances;
.
(b) an order or other offer to buy goods for prompt or current
shipment shall be construed as inviting acceptance either by a
prompt promise to ship or by the prompt or current shipment of
l'Onformmg or non-conforming goods, but such a shipment of
non-conforming goods does not constitute an acceptance if the
seller seasonably notifies the buyer that the shipment is offered
only as an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonnble mode of acceptance an offeror who is not notified of acceptance
within a reasonable time may treat the offer as having lapsed before
acceptance.
28:2-207. Additional terms in acceptance or confirmation
( 1) A definite and seasonable expression of acceptance or a written
eonfirmation which is sent within a reasonable time operates as an
aecepbmce even though it states terms additional to or different from
those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
( 2) The additional terms are to be construed as proposals for addition to the contract. Bet,veen merchants such terms become part of
the contract unless:
(a) the offer expressly limits acceptance to the terms of the
offer;
(b) they materially alter it; or
(~) i~otificat}oi~ of objection to ~hem has already been given
or 1~ given mthm a reasonable time after notice of them is

/1 /i#7

~~~

(3) Conduct by both parties which recognizes the existence of a, /)-'

contract is sufficient. to establish a contract for sale although the writ-
ings of the parties do not otherwise establish a contract. In such case
the terms of the particular contract consist of those terms on which
the writings of the parties agree, together with any sup.Plementary
te11ns incorporated under any other provisions of this subtitle.

..
j,-117
/
,~

.1'1!(.'. .'
1H
t

:?i.

iF~ ~

PUBLIC LAW 88-243-DEC. 30, 1963

(77

77

STAT.

STAT. ]

PUBLIC

promise is e11foreei1ble hy l
vriginal contract.
( 5) The other pnrty m
performance as creatin~ r
without. prejudice to his :
:rnces from the assignee ( se

28:2-208. Course of performance or practical construction

( 1) "here the ont raet for sn IP i nn>he,; re pea te<l oc<':1si<.'11s for
perfornrnuee by l:'itlwr pnrty with k11owledg-e of the 11at111e of the
perfornrn11ee and opportunity fo1 ohje<"ti011 to it hy the other, any
course of perfornrn111e. aceepted or aequie&ed i11 without objertion
shall be 1-elenrnt. to determine the mean inir of the agreeuien-t-.- (2) The express te1'111s of the agTeernent and anv s11eh eonrse of
performirnee. as well as nny <'onrse of dealing an<l m:;age of tmde
shall be construed whene,er reasonable as consistent with ead1 other;
but when such eonstrnetinn is 11nreasonnble, express terms shnll control course of perform a n('e and ('OHI'se of performa nee shn 11 eo11trol
both course of <leali11ir and usag-e of trade ( ,-eetion :!8 :1-:Wn).
,
(3) Subject to the provisions of the next set"tion on modification
and waiYet\ snch eourse of performatH'e shall he relevant to show a
waiver or moditication of am term inconsistent with ,;;ueh ('Ollrse
of performan<'e.

PART 3-GENERAL OE
~

28 :2-301. General obli

The obligation of the s

the buyer is to accept and

") 28 :2-302. Unconsciom

(1) If the court as a, m:
of the contract to have b1
28:2-209. Modification, rescission and waiver
Aet.tf
the court may refuse to .
(1) An agTeement modifying n eontraet within this article needs
J.t/
remaind~r .of the contra~
cl~
may so ltm1t the applicat
no consideration to be binding.
(2) .\.signed agreement whi<h ex<'ludes moditi!'ation 01 reseission
//any unconscionable result.
except by a siirned writing- en111wt he otherwise moditie<l or resC'inded.
. 1
fl)
(2) When it is claime
but exe.ept as between me1t'hnnts Sll!'h a requ ireme11t m1 n form ('ltrA.l
or a.ny clause thereof n
supplied by the rnerthant must he ,.;eparately sig!led by the other t)Y"lf( -")
idfor~led it r~~asonable op]
mercml settmg, purpose
.
. . .
par(ty.
.
f
, .
3) The reqmrements o the statute of frnm 1s se<'l10n of this :ntiele
determination.
(section :28: :!-'.WI) mnst he satisfied if the <'<>ntnwt as modified is
28 :2-303. Allocation
within its provisions.
Where this article allor
(4) Although an attl'mpt at moclifil'ation or 1eseission does not
"unless other wise agreed"
satisfy the requirements of sub.;ection (:.!) or (:\), it can operate as
tion but may also divide
a wniver.
(5) .\ par:.r who hns made a wni,er affedillg an eXl'<'ntory portion
28 :2-304. Price payal
of the rontra<:t may retraet the waiYer hy reasonnhle 11otifientio11
( 1) The price can be 11
received by the other paity that st l'iet performan<'e will he required
pa.yable in whole or in pn
by an:r term wn ived, 11 n les,; the ret rnct ion wo11 l<l he 1111j ust in view of
which he is to transfer.
:t material eha nge of posit ion in rel ia nee 011 the wa i ,er.
(2) E\en though all 01
realty the transfer of the
28 :2-210. Delegation of performance; assignment of rights
ence to them are subject
(1) A pnrty mny perform his duty t!mmgh a del~~tt unless
terest in realty or the tra
otherwise agreed or unless the other party has a s11bstn11trn1 rntere:;t
in having his ori~nnl promiso1 perform or eolltrol the nets reqnire'l
28 :2-305. Open price
hy the cont met. l Xo clell'i,!ation of pe1forma11ee relie\es the party\'__..... ,
( 1) The parties if the
delegating of an.r duty to pC'dom or any liability for hrenrh.
J

tWen though the price is

(2) {;nless otherwise agreed n II 1igltts of l'it her S('ller or buyer
sonable price at the tim<
can be assiglled except where the assignment wonl<l materially challge
(a) nothing is sn
the duty of the other vnrty, or i!lcrease lllat{'l'ially the hmdl'H 01' risk
(b) the price is le
imposed 011 him hy his (011tmet, or impair matPl"ially his chance of
agree; or
,
obtaining ret11111 perfomurnee. .\ right to damages for breach of
(c) the price is tc
the whole contrnl't or a right al"ii-;ing ont of the assiir11or'i-; due perother standard as se
formance of his l'lltire ohligntion can lie assigned despite agreement
it is not so set or re
otherwise.
(2) A priceto be fixe<
(3) l:nless the cir~:umstam:es indicate the contrnry n prohibitio11
him to fix in good faith
of assignment of ''the cont rad., is to ue construed as hn rri11g only
( 3) When a price left
the delegation to the assig-nee of the ns.'iig1101's performance.
parties fails to he fixed
(4) An ussig11llle11t of "the <011tmcf~ or of "nll my rights umler
hi~ option trent the co11
the co11trart'~ or nn-assigmllent. in similar geneml tel'ms is nn assig11price.
roent of rights and 1111 less the hrnguage or the C'il'('lllllstn 11ees (as in an
('4) \Vhere, however,
assignment for secmity) indicate the contrary, it is u delegation of
price be fixed or it.greed
perfornum(e of the duties of the assignor nrnl its aceeptnnce by the
tract. In such a case th<
assign~ <onstitntes a promise by him to perform those duties. This
or if w1nble so to do m

/Vf

77 STAT.]

.>45

PUBLIC LAW 88-:.c43-DEC. 30, 1963

promise is enforceahle hy either the assig1101 or the other partv to the

oriainal contract.

(5) T 11e other party may treat any assignment. which de.lega.tes
performance as creating reasonable grounds for insecurity and may
without prejudice to his ri~hts against tlw assignor demand itssurances from the assignee (sect 1011 28 :~-609).

PART 3-GENERAL OBLIGATION AND CONSTRUCTION OF

CONTRACT

s28 :2-301. General obligations of parties

The obligation of the seller is to transfer and deliver and that of
the buyer is to accept and pay in accordnnce with the contract.
_Jl L
28:2-302. Unconscionable contract or clause
l/.;-uvJ
(1) If the comt its a. matter of law lirnh; the cont rad 01 any clause ( e, j
of t.he contract to ha,e been uncon(jonahle n.t the time it was made I /"/Lthe court 1m1y refuse to enforce the contract, or it. may enforee the
( ...
remainder of the contract. without the unconscionable clause, or it
p
may so limit the application of any unconscionable clause as to amid
,.,,,J.(?
/(
any unconscionable result.
~ r ,,,r/j:e
(2) "rhen it. is claimed or appears to the court that the contrnct
(ll""" , tr ~v- '
or any clause thereof may be unconscionable the parties shall he
~
a.fforded f1, reasonable o) ) t1 1 to re.sent. evidence as to its com,.n,L.,,mercial set mg, pmpose and effect to a1 t 1e court m making- the /} ~ ;;..,v,.r'Y(
determination.
7) v -'f r
28 :2-303. Allocation or division of risks
)
Where this article. allocates a risk or a burden as between the pa1'ties
.:unless otherwise ugreed', the agreement may not onlv shift the a11oc11tion but may also divide the risk or burden.

)'J. _.,,

/l.""'( /'

28 :2-304. Price payable in money, goods, realty, or otherwise

(1) The price can be made payable in money or otherwise. If it is
payable in whole or in part in goods euch party is il seller of the goods
whi<'h he is to tmnsfer.
(2) Enn though aH or part of the iwice is payable in irn interest in
realty the transfer of the goods and the selJer's obligations with reference to them are subject to this nrtiele, hut not the transfer of the interest in realty or the transferors obligations in connection therewith.
28 :2-305. Open price term
(1) The parties if they so intend can conclude a cont.met for sale
eYen though the price is not. sett led. In such a case the p1ice is a re;isonable price at the time for delh,ery if
(a) nothing is said as to price; 01
(b) the price is left to be agreed by the parties and they fail t-0
agree; or
( c) the pri<'e is to be fixed .in terms of some agreed market 01
othe1 standard as set 01 recorded by a third person or ng-ency and
it is not so set or recorded.
( 2) A price t-0 be fixed by the seller or by the buyer means a price for
him to fix in g-ood faith.
( 3) 'Yhen a price left to be fixed otherwise than by agreement of the
pn1ties fails to he fixed through fault of one party the other may at
his option treat the contract :is cancelled or himself fix a reasonable
price.
. .
(4) Where, however, the p_nr!tes mtend 1~ot to be bound ~mless the
price be fixed or iigreed nnd it ts not fixed or agreed there is no ~on
tract. In such ii cnse the buyer must return any goods already r~ce1ved
or if wiable so to do must pny their reasonable value at the time of

/,,.

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

delinry and th!:' ;-;ell!:'1' mu:->t retmn any portion of the pricl:' paid on
ll<'l'Ollllf.

28 :2-306. Output, requirements and exclusive dealings

(1) .\ te!m whieh measures the quantity hy the output of the seller
or the re<1mrenH.'IHS of the buyer means sueh actua I out put or requirements as may o(eur i11 good faith, ex<'ept that no quantity unreasonably disproportionate to any stated estimate or in the absence of a
stnted estimate to any normal or otherwise comparahle prior m1tput
or requi1ements mav be tende1ed or deurnwled.
(:2) A lawful agreement by either the seller or the buyer for exclu$iYe dealing in the kind of goods concerned imposes unles.<> otherwise
agreed an obligation by the seller to use hest efforts to supply the goods
and by the buyer to use best.efforts to promote their sale.
28 :2-307. Delivery in single lot or several lots
r 11 less otherwise agreed a JI goods called for hy a eollt 1a('f for sale
must be tendered in a single deli,ery and payment is due only on
$nch tender but where the circumstitnees gfre either party the right
to make or demand deli\ery in lots the price if it can he ilpportioned
may be. demanded for each lot.
28 :2-308. Absence of specified place for delivery
rnless otherwise agreed
(a) the phwe for delivery of goods is the seller's place of business or if he lrns none his residence: but
(b) in u contract for sale of identified goods which to the
knowledge of the J>nrties at the time of contracting are in some
other place, that pace is the place for their delivery: and
(c) documents of title may be deJi,ered throu~h customary
banking <-luumels.
28 :2-309. Absence of specific time provisions; notice of termi
nation
( 1) The time for shipment or deli,ery or any other action under
a contract if not pro\'ided in this article or agreed upon shnll be a
reusonahle time.
.
(2) \Vhere the contract provides for successi\'e performances but
is indefinite in duration it is ,alid for a reasonable time but unless
otherwise agreed may be terminated at uny time by either party.
(3) Termination of a contract by one pm1y except on the happening of an agreed e\ent requires that reasonable notification be received
by the other party and an agreement dispensing with notification is
invalid if its operation would be unconscionable.
28 :2-310. Open time for payment or running of credit; authority to ship under reservation
T;nless otherwise agreed

(a) payment is due at the tim<' and place at which the buyer is
to receive the goods e,en though the place of shipment is the
place of delhery; and
(b) if the seller is authorized to send the goods he may ~hip
them under reserYation, and may tender the docwnents of title,
but the buyer may inspect the goods after their arrival before
payment is due unless such inspection is inconsistent with the
terms of the contract (section 28 :2-51:3); and
(c) if delivery is authorized and made by way of documents
of title otherwise than by subsection (b) then I?ayment is due at
the time and place at which the buyer is to receive the documents
regardless of where the goods are to be received; and

77

STAT.]

PUBLIC

( d) where the seller

on credit the credit p
post-dating the invoic
mgly delay the startin~
28 :2-311. Options and
(1) .An agreement for!
(subsection (3) of sectior
invalid by the fact that it 11
fled by one of the parties
good faith and within lir
( 2) Unless otherwise a~
the goods are at the buyersubsections ( 1) ( c) and
arrangements relatmg to i
( 3) '\Vbere such specif
party's performance but i
cooperation is necessary t
is not seasonably forthcon
remedies
(a) is excused for
and
(b) may also eitl
manner or after the t
ance treat the failur
failure to deliver or a
28 :2-312. Warranty c
obligatio1
(1) Subject to subsect
ranty by the seller that
{a) the title conv
and
( b) the goods sha
or other lien or enccontracting has no k:
( ~) A warranty unde1
only by specific languag
reason to know that the
or that he is purportin1
third person may have.
(3) Unless otherwise
dealing in goods of the k
free of the rightful clair
or the like but a buyer'
hold the seller harmlel*
compliance with the spe
28 :2-313. Express w
. tion, sar
( 1) Express warrant
(a) Any affi.rmat
buyer wh1ch relate
of the bargain Cl"ef
conform to the affi.1
(b) Any descriJ,=
basis of the barga1
shall conform to tl
( c) Any sample
the bargam create
goods shall confor1

77 STAT.]

PUBLIC LAW 88-24 . . EC. 30, 1963

(d) wliere the seller is required or authorized to ship the goods

on credit the credit period runs from the time of shipment but
post-dating the invoice or delaying its dispatch will correspondmgly delay the starting of the credit period.
28 :2-311. Options and cooperation respecting performance
(1) An agreement for sale which is otherwise sufficiently definite
(subsection (3) of section 28:2-204) to be a contract is not made
invalid by the fact that it leans particulars of performance to be spedfied by one of the parties. Any such specification must be made in
good faith and within limits set b;>: commercial reasonableness.
(2) Unless otherwise a~reed specifications relating to assortment of
the goods are at the buyers option and except as otherwise provided in
subsections (1) (c) and (3) of section 28:2-319 specifications or
arrangements relating to shipment are at the seller's option.
(3) '"'here such specification would materially affect the other
party~s performance but is not seasonably made or where one party~s
cooperation is necessary to the agreed performance of the other but
is not seasonably forthcoming, the other party in addition to all other
remedies
(a) is excused for any resulting delay in his own performance;
and
(b) may also either proceed to .rx;rform in any reasonable
manner or after the time for a material part of his own performance treat the failure to specifv or to cooperate ns a breach by
failure to deliver or accept the gOOds.
28:2-312. Warranty of title and against infringement; buyer's

obligation against infringement

(1) Subject to subsection (2) there is in a contract for sale a war-

ranty by the seller that

(a) the title conveyed shall be good, and its transfer rightful;
and
(b) the goods shnll be delivered free from any security interest
or other lien or encumbrance of which the buyer at the time of
contracting has no knowledge.
(~) A warranty under subsection (1) will be excluded or modified
only by specific language or by circumstances which give the buyer
reason to know that the person selling does not claim title in himself
or that he is purporting to sell only such right or title as he or a
third person mav have.
(3) Unless otherwise agreed a seller who is a merchant re!rularly
dealing in goods of the kind warrants that the goods shall be deiivered
free of the rightful claim of any third person by way of infringement
or the like but a buyer who furnishes specifications to the seller must
hold the seller harmless against any such claim \'l"hich arises out of
compliance with the specifications.
28 :2-313. Express warranties by affirmation, promise, descrip-

tion, sample
(1) Express warranties by the seller are created as follows:
(a) An-, affirmation of fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis
of the bargain creates an express warranty that the goods shall
conform to the affirmation or promise.
(b) Any descriJ?tion of the goods which is made part of the
basis of the bargam creates an express warranty that the goods
shall conform to the description.
(c) Any sample or model which is macle part of the basis of
the bargam creates an express warranty that the whole of the
goods shall conform to the sample or model.

Ii

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

(77

STAT.

77 STAT.]

(2) It is not necessary to the creation of an expre:>s warrant\ that

the seller use formal words such as "wnrranf' or "guarantee o'r tlrnr.
he have a specific intention to make 11 warranty, but an aflim1ation
merely of the Yalue of the iroods or ii statement purporting to be merehthe seller's opinion or rommendation of the goods does not rt'eate ;l
warranty.

28 :2--314. Implied warranty: merchantability; usage of trade

(1) Unless excluded or modified (section 28:2-.'H6), a warranty
that the goods shall be mercluintable is implied in a eontrart for thei'r
sale if t.he seller is a merchnnt with respect. to goods of that kind.
Under this section the serYing for value of food or drink to he (onsumed either on t.lte premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least sneh as
(a) pass without objection in the t mde under the eontmd
description; and
(b} in the case of fungible goods, are of fair anrnge quality
within the description; and
"
( c) are fit for the ordinary purposes for whirh sneh goods are
nsed; and
(d) run, within the rnriations permitted lw the agteement, of
enn kind, quality and qnantity within each imit and among all
units inYohed: :u1d
( e) are adequa.te]~ contained, paekaged. and labeled as the
agreement may reqmre; 1ind
(f) conform to the promises or affirmations of fact made on
the container or label if anv.
(3) rnless excluded or modi"fi.ed (section 28 :2-316), other implied
warmnties mny nrise :from ('OUI'se of <lenling or usage of trade.

28 :2--315. Implied warranty: fitness for particular purpose

PUBL

(b) when the bUY

examined the goods
or has refused to exm
with regard to defect:
stances to ha Ye reveal
( c) an implied wa
course of dealing or ,
( 4) Remedies for brea1
with the prO\isions of thi
~1ges and on contractual
718 and 28:2-719).

28:2--317. Cumulatior.
plied
'\Y'arranties whether e:!:'istent with each other a:
unreasonable the intentic
ranty is dominant. In a:
apply:
(a) Exact or tee!
sample or model or ~
(b) A sample fr
general language of
( c) Express warr
ties other than an i
purpose,
28 :2--318. Third par

implied
.A seller's warranty wl

'Where the seller nt the time of contmcting hns reason to know nm

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

ral person who is in the

guest in his home if it is
consume or be affected I
breach of the warranty.
tion of this section.

28:2--316. Exclusion or modification of warranties

( 1) Unless otherwise
on hoard") at a namecl
with the stated price, is
(a) when the te1
must at that pince :
article (section 28 ::
ting them into the l
(b) when the ter
must at his own e
place and there ter
m this article ( sec1
( c) when under
sel, car or other v
expense and risk le
vessel the buyer mi
the seller must c01~
form of bill of ladi
(2) Unless otherwisE
"free alongside") at a r
with the stated price, i
(a) at his own e
vessel in the mam
and provided by

(1) "\Yords or co11d11ct relevirnt to the nentio11 of an express war.

ranty and words or conduct tendinir to negate or limit warranty
shnll be ronstruecl wherewr rensonnble as <"Onsistent with each othei:.
bnt subject to the provisions of this article on parol or extrinsi~
evidence (section 28 :2--202) negation or limitation is inoperative to
the extent that such construct ion is unreasonable.
(2) Subject to subsectio11 (:l), to exclude or modifr the implied
warr'!-nty of merch~n.tability_ or any part .o.f it the 1;rng-11nge must
ment1011 merchantab1l!ty and ~11 cn~e of a wr1tmg m.ust he <"onspicnons,
and to exe:lude or mochfy any unphed wnrrnntv of fitness the exclusion
~nust. be by a '':'riting and eonspicuons. L~rngnaire to exclude all
unphed wnrrant1es of fitness is sufficient if it states. for example, thilt
~'There are no warranties whieh extend beyond the description on the
face hereof."
(a) Xotwithstanding subseC"tion (2)
(a) u!1less the circnmstanee.<> indicate otherwise, nll implied
warranties are excluded hy expressions like "as is'' "with all
faults~' or other langunge which in common nnderstn;1dinu calls
the. buyer's attention to the exclusion of warrnnties and ~nnkes
plam that there is no implied warranty; and

28 :2--319. F .O.B. an<

77 STAT.]

PUBLIC LAW 88-243-DEC. 30, 1963

(b) when the bmer before entering into the contract has
examined the goods or the snmple or model as full~ as he desired
or has refused to examine the a.-oods there is no implied warranty
with regard to defprts which an examinntion ought in the circumstances to ha Ye renaled to him; and
( c) an implied warranty can also he excluded or modified by
course of dealing or course of performance or usage of trade.
( 4:) Remedies for breach of warranty cnn be limited in accordance
with the prorisions of this article on liquidation or limitation of damages and on contractual modification of remedy (sections 28 :2il8 and 28 :2-719).
28 :2-117. Cumulation and conflict of warranties express or im-

plied

\Yarranties whether express or implied slrnll be construed as con!:'istent with each other and as cumulnt.ive. but if such construction is
unreasonable the intention of the parties shall determine which warranty is domina1it. In nscertaining thnt intention the following rules
:ipply:
(a) Exact or teehnical specifications displace an inconsistent
sample or model or general lan~uage of description.
( b) A sample from an existing bulk displaces inconsistent
.
general language of description.
( c) Express warranties displace inconsistent implied warranv
ties other than an implied warranty of fitness for a particular
purpose.
28 :2-118. Third party beneficiaries of warranties express or

implied
A seller's warranty whether express or implied extends to any natural person who is in the fnmily or household of his buyer or who is a
guest in his home if it is rea:-:onable to expect that such person may use,
consume or be affected hy the goods and who is inj!!red in person by
breach of the warranty. A seller may not exclude or limit the operationof this sec'1i'Oi1:' 28 :2-119. F.O.B. and F.A.S. terms
(1) Unless otherwise agreed the term F.O.B. (which means "free
on 'board") at a named place, eYen though used only in connection
with the stated price, is a delivery term under which
.
(a) when the t~rm is F.0.B. the place of shipment, the seller
must at that place ship the goods in the manner proYided in this
article (section 28 :2-504) and bear the expense and risk of putting them into the possession of the carrier; or
(b) when the term is F.O.B. the place of destination, the seller
must at his own expen!"e and risk transport the goods to that
place and there tender delhery of them in the manner provided
m this article (section 28 :2-503) ;
(c) when under either (a) or (b) the term is also F.O.B. ,essel, car or other ,-ehicle, the seller must in ad<lition at hi:- own
expense and risk load the goo<ls on board. If the term is F.O.B.
vessel the buyer must name the vessel and in an appropdate case
the seller must comply with the pro,isions of this article on the
form of bill of lading (section 28 :8-323).
(2) Unless otherwise ag-reed the term F.A.S. vessel (which means
"free alongside") at a named port, enn though used onlv in connection
with the stated price, is a delivery term under which the seller must
(a) at his own expense and risk deliver the goods alongside the
vessel in the manner usual in that port or on a dock designated
and provided by the buyer; and

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

(Ji) outai11 and kmhr a l'<Weipt for the <'OrnJi-; ill

[77 STAT.
l'X<'.liilll"e

wh~ch the <'arrie1: is under a. duty to issue. 1:'bill of ladiug-. ,...,

(3) { 11less othennse <llfl'el:'d

111

for

1111y <ase falli11g within s11ll8e<'tion

(1) (a) or (e) or subs(<tion (:t) the huyer must senso11nbly give anv
needed instnwtions for making deli,p1y, inchulinl! when the term [.;;
l<'.A.S. or F.O.B. the loatli11g lwrlh of the ,essel and in an appropriate

<'ase its name n11<1 sailing date. The selle1 mav treitt the failure of
needed i11stru<:tions as a fitilnre of 1ooperntio11 1i11<ler this artide (section 28:i-:HI). He lllay also at his optio11 mo,e the goods in imv
reasonable nuu11wr prepnratory lo deJi,e1y or shipment.

(4) l'rnler the term F.O.B. n~ssel or F ..\.S. unless otherwise agreed
the buyer m11st make payment agn inst tender of the requ i1ed clocnments and the selle1 mny 11ot tender 11or the b11ver delllarnl deJi,ery of
the goods in substitution for the doeutllents.

28 :2-320. C.I.F. and C. & F. terms

(1) The term C.I.F. means that the pri<'e includes inn lump sum the
rost of the goo1ls nnd the insurance an<l freii.d1t to fhe 11i1med destination. The term C. & F. or C.F. means that the price so indudes cost
and freight to the named !lest innt ion.
. .
(2) l'nless otherwise al!reed nnd e,en t houg-h nsed only in 1011nection with the slitted price and <lestiw1tiou, the term C.I.J<\ 1lestiuation or its equintlent requires these.Her at his own expense aucl risk to
(a) pnt the goods into the possession of n <'arriei at the port.
for shipment and obtnin it negotiable bill or hills of ht<linrr covering the entire transportaiton to the 1ia111ed destinntion: and
(b) load th~ g0<>~ls nml o.btain n r~ceipt fron! the carrier (wJ:ich
may be contallled Ill the bill of hulmg) showmg that the fre1glit
has been paid 01; pro,i<led for; und

. ( c). obt:1in n poliey or e.e1tificate of insura1we, i11elu<lin1-t any

war risk msurance. of a kmd and on terms then current at the
port of shipment iii the usual amount, in 1he currency of the contract, sho~,1~ to C(ffer the same goods covered by the bill of hiding
:md prondmg for payment of loss to the order of the buyer
. or for the account of whom it may eoncei11; but the seller may
n<ld to the prire tlw amo1111t of the preminm for any such war
risk immrance: and
(d) p1epare an i11voi1e of the l!oocls and procure any otlle1
documents required to etl'eet shipment or to comply with the
contract; and
( e) forward nnd tender with 1omme1'<'iu l p1omptness :tll the
documents in due fo1111 nnd with any i11dorseme11t necessary to
perfect the buyer's ribiol1ts.
(3) Unless otherwise agreed the term C. & F. or its equivalent has
the same effect and imposes upon the seller the same obli~utions and
risks as a C.I.F. term except the oblig-atiou as to insurance.
(4) Under the term C.I.F. or C. & F. unless otherwise agreed the
hu;yer must make payment against tender of the required documents
und the seller m:ty not tender nor the buyer demand delivery of the
goods in substitution for the documents.

28 :2-321. C.I.F. or C. & F.: "net landed weights"; "payment on

on arrival"; warranty of condition on arrival
Under a contract containing a term C.I.F. or C. & F.
(1) Where the price is baied 011 or is to be adjusted according to
"net. landed weights", "delivered weights~', "out turn" quantity or
quality or the like, unless otherwise agreed the seller must reasonably
estimate the price. The payment due on tender of t.he documents
called for by the contract is the amount so estimated, but after final
adjustment of the price a settlement must be made with commercial
promptness.

77

STAT.]

PUB!

(2) .\n agreement de

qu:tlity 01 <'oi1dition oft
risk of ordinary deteric
tion but has no effect <
<ontract for sale or deli
(3) Unless otherwise
ment on or after arriva
allow such preliminary
lost delivery of the doc
should have arrived.

28 :2-322. Delivery '

( 1 ) Unless otherwise
(which means from the
not. restricted to a pa1t
which has reached a p
goods of the kind are m
(2) l!nder such a ter
( u) the seller m
riage and furnish
carrier under a dut
(b) the risk of }
leae the ship's tac:
28 :2-323. Form of I

"overse
( l) Where the cont
tu ins it term C.I.F. or (
wise ll!,rJ:eed must ohta
;.,_J"Qods have been loade
('. & F., received for sh:
( 2) Where in a case
issued in a set of part<
11ot to be sent from ab
set; otherwise only or
l:Yen if the agreemen
(a) due tender
visions of this arti
of section 28 :2-t
(b) even thoug
sent from abroad
nevertheless requi
the buyer in good
(3) A. shipment by
l'hipment is "overseas'
!-iubject to the comme1
i!-itic of international d

28:2-324. "No arri

Under a term "no a
otherwise agreed,
(a) the seller r
arrive by any n
assumes no oblig
ca used the non-ai
(b) where wit
or have so deteri1
arrive after the<
had been casualt;

77 STAT.]

PUBLIC LAW 88-243-DEC. 30, 1963

(2) ~\ n ngTeement. described in subsection ( 1) or any wnrranty of

quality or condition of the ~oocb 011 arrirnl places upon the seller the
risk of orcli11nry detel"iorat1on, shri11kage and the like in transportation but hns no effect on the place 01 time of identili.cation to the
l"Ontract for sale or delivery or on the passing of the risk of loss.
( 3) Unless otherwise agreed where the contract pro,ides for payment on or after arrin1l of the goods the seller must before pay-ment
allow such preliminary inspection as is feasible; but if the goods are
lost delivery of.the documents and pnyment are 1lne when the goods
should have arrived.
28 :2-322. Delivery "ex-ship"
( 1) unless otherwise agreed a term for ilelinry of goods "ex-ship~'
(which means from the carrying vessel) or in equivalent language is
not restricted to a paiticular slup and requil"es delivery from a ship
which has reached a place at the 11a111ed port. of destmation where
goods of the kind are usually discharge~.
(2) "Gnder such a term 1111less otherwise agreed
(a) the seller must discharge all liens arising out. of the carriage and furnish the buyer with a direction which puts the
carrier under a duty to dell\er the goods: and
(b) the risk of loss does not pass to the buyer until the goods
leave the ship's tackle or are otherwise properly unloaded.
28 :2-323. Form of bill of lading required in overseas shipment;
"overseas"
( 1) "There the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise a~reed must obtain a negotiable bill of ladinf(J' stating that the
goods nave been loaded on board or, in the case o a terrn C.I.F. or
C. & F., received for shipment.

( 2) Where in a case within subsection ( 1) a bill of lading has been

issued in a set of parts, unless otherwise agreed if the documents are
11ot to be sent from abroad the buyer may demand tender of the full
set; otherwise only one part of the bill of lading need be tendered.
E\en if the agreement expressly requires a full set
(a) due tender of a single part is acceptable within the provisions of this article on cure of improper delivery (subsection ( 1)
of section 28 :2-508) ; and
(b) even though the full set is demanded, if. the documents are
sent from abroad the person tendering an incomplete set may
nevertheless require _Payment upon furnishing an indemnity which
the buyer in good faith deems adequate.
(3) A shipment by water or by air or a contract contemplating such
!:'hipment is "overseas" insofar as by usage of trade or agreement it is
subject to the commercial, financing or shipping practices characteristic of international deep water commerce.
28:2-324. "No arrival, no sale" term
Under a term "no arrival, no sale~' or terms of like meaning, unless
otherwise agreed,
(a) the seller must properly ship conforming goods and if they
arrhe by any means he must tender them on arrival but he
assumes no obligation that the goods will arrive unless he has
caused the non-arrival; and
(b) where without fault of the seller the goods are in part lost
or have so deteriorated as no longer to conform to the contract or
arrive after the contract time, the buyer may proceed as if there
had been casualty to identified goods (section 28 :2-613).

651

,,

..

52

PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

28 :2-325. "Letter of credit" term; "confirmed credit"

( 1) Failure of the buyer seni,;onably to fumish an agreed letter of
credit is a brendi of the eon tract for sale.

(2) The delirery to sel1er of aproper letter of eredit suspends the

buyers obligation to pay. If the letter of credit is dishonored, the
:>eller may on seasonnble notification to the buyer require payment
directly from him.
(3) Cnless otherwise agreed the term "letter of credit~ or "banker~s
c1edit'' in a contract for sale means an irrevocable credit issued by a
financin~ agency of good repute and, where the shipment is ornrseas,
of good mternational repute. The term "confirmed credit'~ means that
the.credit must also enn'}' the direct obligation of such an agency which
does business in the seller's financial market.
28 :2-326. Sale on approval and sale or return; consignment
sales and rights of creditors
(1) rnless otherwise agreed, if deli\ered goods may be returned by
the buyer emu though they l'Onform to the contract., the transaction is
(a) a ..sale on approya}'' if the goods are deli,ered primarily
for use, and
(b) a "sale or return" if the goods are delirnred primarily
for resale.
(:t) Except as prodded in subsection (3), goods held on approval
are not subject to the claims of the buyer's creditors unti1 acceptance;
goods held on sale or return are subject to such claims while in the
buyer's possession.
(3) \Vhere goods are <lefoered to a person for sale and such person
maintains a place of business at which he deals in goods of the kind
imoked, under a name other than the name of the person making
delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The
provisions of this subsection are applicable even though an agreement
purports to resene title to the person making delivery until paj'ment
or resale or uses such words as "on consignmenC' or "on memorandum".
However, this subsection is not applicable if the person making
delivery
.
.
.
. .
.
.
(a) complies with an applicable law prov1dmg for a consignors
.
.
interest or the like to be e\idenced by a sign, or
( b) establishes that th~ person conductmg the bus mess .1s generally known by his creditors to be substantially engaged m selling the goods of others, or
( c) complies with the filing provisions of the article on secured
transactions (article 9).
( 4) Any "or return" term of a contract for sale is to be treated as .a
separate contract for sale within the statute. o~ frauds section of this
article ~section 28 :2-201) and as contrad1ctmg the sale aspec.t ~f
the contract within the provisions of this article on parol or extrms1c
e\"idence (section 28 :2-202).
28:2-327. Special incidents of sale on approval and sale or
return
(1) Underasaleonapproval unlessotherwiseagreed
.
(a) although the goods are identified t-0 the coi:tract the risk
of loss and the title do not pass to the buyer until acceptance;
and
.
. .
(b) use of the goods consistent with the purpose of tna l is 1;1ot
acceptance but failure seasonably to notify the seller of election
to return the goods is acceptance, a~d if the goods conform t~
the contract acceptance of any part is acceptance of the whole,
and

"'7STAT.]

PUBL

(c) after due notifi

. the seller's risk and ,
any reasonable instru<
(2) Under a sale or retu
(a) the option to re
unit of the goods wh
but must be exercised
(b) the return is at
28 :2-328. Sale by auc
( 1) In a sale by aucti<
:mbject of a separaro sale.
( 2) A sale by auction i
by the fall of the hamn
a bid is made while the
bid the auctioneer may ir
the goods sold under the
(3) Sltch a sale is with
put up without reserve.
may withdraw the good:
of the sale. In an aucti
for bids on an article or
unless no bid is made
bidder may retract his bi
pletion of the sale, bu1
previous bid.
( 4) If the auctioneer l
or the seller makes or I
given that liberty for st
option avoid the sale or
faith bid prior to the er
not apply to any bid at a

PART 4-TITLI

II

!
l

28 :2-401. Passing o1
plicatio1
Each provision of thi
and remedies of the sell
applies irrespective of
refers to such title. In
provisions of this articl
the following rules appl
( 1) Title to goods c
t.heir identification to
otherwise explicitly ag
u special property as lu
vation by the seller c
delivered to the buyer i
interest. Subject to t
article on secured tran
the seller to the buyer i
agreed on by the partiei
(2) Unless otherwiE
the time and place at v
reference to the physi
tion of a security inter

77 STAT.]

PUBLIC LAW 88-2. -DEC. 30, 1963

(c) after due notificatjon of election to return, the return is at

.the seller's risk and expense but a merchant buyer must follow
any rea..,onable instructions.
( 2) Under a sale or return unless otherwise agreed
(a) the option to return extends to the whole or any commercial
unit of the goods while in substantially their original condition,
but must be exercised seasonabll; and

( b) the return is at the buyer s risk and expense.

28 :2-328. Sale by auction
(1) In a sale by auctio11 if goods are put up in lots each lot is the
:,mbject of a separate sale.
(2) A sale by auction is complete when the auctioneer so announces
by the fall of the hammer or in other customary manner. \Vhere
a bid is made while the hammer is falling in acceptance of a prior
bid the auctioneer may in his discretion reopen the bidding or declare
the goods sold under the bid on which the hammer was falling.
(3) Such a sale is with re.serve unless the ~oods are in explicit terms
put up without reserYe. In an auction with reserve the auctioneer
may withdraw the goods at any time until he announces completion
of the sale. In an auction without reserve, after the auctioneer calls
for bids on an article or lot, that article or lot cannot be withdrawn
unless no bid is made within a reasonable time. In either case a
bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any
previous bid.
( 4) If the auctioneer knowingly recehes a bid on the seller's behalf
or the seller makes or procures such a bid, and notice has not been
given that liberty for such bidding is reserved, the bu[er may at his
option avoid the sale or take the goods at the price o the last good
faith bid prior to the completion of the sale. This subsection shall
not apply to any bid at a forced sale.

PART 4-TITLE, CREDITORS AND GOOD FAITH

PURCHASERS
28 :2-401. Passing of title; reservation for security; limited application of this section
Each provision of this article with regard to the rights, obligations
and remedies of the seller, the buyer, pur~r other third parties
applies irrespective of title to the good~vhere the provision
refers tosuch title. Insofar as situations are not cornred by the other
provisions of this article and matters concerning title become material
the following rules a_pply:
( 1) Title to goods cannot pass under a contract for sale prior to
their identificatwn to the contract (section 28:2-501), and unless
otherwise explicitly .agreed the buyer acquires by their j.deutjficatjon
tt.l?Pecial profu:rt~ as limited by this subtitle. .i\ny retention or reserYat1on by t e se ler of the title (property) in goods shipped or
delivered to the buyer is limited in effect to a reservation of a securit
interest. Subject to these provisions an o t ie provis10ns o t e
article on secured transactions (article 9), title to goods passes from
the seller to the buyer in any manner and on any conditions explicitly
a~eed on by the tarties.

2) Unless ot en"'ise explicitly agreed title passes to the buyer at
the time and place at which the seller completes his performance with
reference to the physical delivery of the goods, <spite ani reservation of a security interest and even though a document of t.itle is to be

,kttt1~s.1J
t,;t:C-/

ru/I IA>~t.J~

PUBLIC LAW 88-243-DEC. 30, 1963

[77

delivered at a ditt'Nent time ot phwe: aml in particular am\ dP,.;pitf'

nny resenation of a se(nrity interest hy the. hill of Jading
(a) if t.11e cont met requires or 'irnt 1101'.lz~e;;.!..;;tl;!1e..!!!se~l:Tle!.!.tt=.-;--t1-)-s-e1-117l-t:-h_e_
goods to the buyer but does not require him to deliYer them at
destination, tit le pas54:'s to the buyer at the time a n<l phwe of
shipment; but
(b) if the contraet requires 1lelin>ry at 1le:::ti11ation, title pa:-;ses
on tender there.

(3) rnless otherwi:-;e explieitl~ :~g-1e.e<I \\'here <lelinry is to flt' made

\~jthout moving the goods.
,(a) if tlie seller isto de\i,er a do<:Hrne11t of title, title pa::;ses nt
the time when and the plal'e where he dt>liwrs s11eh <l<H'llllH'nts;'
or
(b) if the goods a1e ut the time of 1011t1ading already identified and no <lve1m1e11h; nre to he deliwre<l, title passes at the time
and place. of 1ont1acting.
(4) A rejection orothe.r refusal hy thf' huyerto rel'ei,e or retain the
goods, whether or not justified, or a justified rerncntion of aecf'ptnnl'e
revests title to the goods in the seller. ~neh l't'\'esting Ol'<'lll'S by
operntion of law and is not a ..sale".

28 :2-402. Rights of seller's creditors against sold goods

( 1) Except as 1no,ided in suhseet ions ( :t) n nd ( ;~), rights of
unsecured creditors of the seller with respect to goods which hine
been identified ton eontraet fo1 sale are subject to the huyers rights
to 1-ecmer the goods maler this nrticle (sections :!R::!-i'lO:! and :!8::!il6).
(i) A aeditm of the seller mav treat il sale 01 an identification of
goods to ll
.. for sale as voi1l if as a ainst \um a retent'
r
.
>OSSeSSiOll b' the lier is fratH 11
Hler any I'll e 0 fiW...Qf the
L~ .-htate w iere the goods are situated, exeept that retention of possession
p
111 goOd faith aml current conrse of tmde by a me.rdrnnt-seller for a.
rommercially reasonable time after a sale or identification is not
fra ndulent.
.
(:-I) Nothing in this artide shall he deemed to impah the rights
of 11editors of the seller
(a) under the prO\isions of the artil'l!' on seenre<I tmnsaeti::?1s
(article 9) ; or
(b) where identification to the eontrnct or delhNy is made
not in current course of trade but in snt isfaction of or as secmity
for a pre-existing claim for money, security or the I ike and is made
nnder circumstances whid1 under nny rule of law of the state
where the goods are situated "onld npart from this article con:-;titute the transnetion n, fraudulent transfer 01 voidable
preference.

nl

/J
~

/
I

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

"entrusting"

l.

( 1) A purchaser of goods acquires all title which his trnusferor had

or had power to trnnsfer except that a purehase1 of n limited interest
aequires riuhts only to the extent of the interest purchased. A person
with ,-oid1:l)le title has power to transfer u good title to u. good faith
purclrnser for value. "'hen goods luwe been delirnred under a.
t rummction of purchase the pur{\rnser has such power e,en though
(a) the t.rnnsferor was deceived as to the identity of the
purchaser, or
( b) the delhery was in e.xdrnnge for a check which is later
<lishonored, or
( c) it wns agreed that, the transaction was to be a "cash sa.le", or
~ (d) the delivery was procmed through fraud punishable as
( ~ larcenous under the criminal Jaw.

tJP}

PUBLIC'

STAT.

(2) .\ny entl'll!:iting of pc

in goods of that kind ghe~
entruster to n buyer in ordir
. (3) 'Entrusting' inC'lud
retention of possessiou reg11
the parties to the <lefoery .
the procurement. of the euti
goods ha ,.e been such as to
. ( 4) The rights of other r
governed by the 1\rticles on
fers (n1t1cle 6) and documi

PART

28 :2-501. Insurable in
of goods
( 1 ) The buyer obtains :
in goods by identification
tract refers even though t
and he has an option to
can be made at any time
the parties. In the absern
(a) when the cont
ah-eady existing and
(b) if the contrnc1
those described in par
or otherwise designa
tract refers;
( c) when the cro1
(rops m the young a
nnbmi.1 young to be
or for the sale of ere
the next normnl ha
longer.
( :l) The seller retains a
or any security interest
identification is by the s1
or notification to the lrn
other goods for those id
(:-1) Nothing in this~
nized under any other st:

28 :2-502. Buyer's ri:

( 1) Subject to subsec
been shipped a buyer w
in which he has a spec
mediately precedin~ sec
of any unpaid port10n
the seller becomes insol
installment on their pri
( 2) If the identifier
made by the buyer he :
they conform to the co1

28 :2-503. Manner o
('l) Tender of deliv
forming goods at the
notification reasonably
manner, time and plac
and this article, and in

77 STAT.]

PUBLIC LAW 88-24.

EC. 30, 1963

(2) .\uy e11tr11sti11g of possession of goods to a 111en:h:111t \\"ho cleals

in goods of that kiu<l gh-es him power to transfer nil rights of the
entruster to a buyer iu oidinary course of business.
(3) 'Entrnsti11g' i1wlmles nuy clefoery nud any a<'qniesrenre in
retention of possession regardless of any conditioll expressed hetweeu
the parties to the clelinry or aequiescelll'e and re~ardless of whether
the procurement of the entrusting or the posses.<;ors disposition of the
goods hn,e been sueh as to he larcenous under the criminal law.
{4) The rights of other purchasers of goods and of lien creditors are
governed by the nrtic1es on secured transactions (article 9), bulk tmnsfers (article 6) and documents of title {article i).
PART 5-PERFORMANCE

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

of goods
(I) The buyer obtains a special property and an iusurable interest
in goods by identification of existing goods as goods to which the contritct refers even though the goods so identified are non-conforming
and he has an option to return or reject them. Such identification
cnn be made at any time and in any manner explicitly agreed to by
the parties. In the absence of explicit a~reement identificittion ocrnrs
(a) when the contract is made if it is for the sale of goods
already existing and identified;
{b) if the contract is for the sale of fntme goods othe1 than
those described in paragraph ( c), when goods are shipped, marked
or otherwise designated by the seller as goods to which the contrnct refers;
(c) when the crops are planted or otheiwise become growing
<'rops or the yon11g are concehed if the contral't is for the sale of
unborn young to he born within tweh-e months after l'ontl':t('ting
or for the snle of crops to be hanested within twelve months or
the next normal hnnest season after C'ontrncting whil'he\er h;
longer.
(~) The seller retaim; an insurable interest in goods so long as tit le to
or nny security interest in the goods remains in him and where the
identification is by the seller alone he may until defnnlt or insolvency
or notification to the huyer thnt the identification is final snbstitnte
other goods for those identified.
(:~) Nothing in this section impnir!'l any insurable interest recognized under any other statute or rule of law.
28:2-502. Buyer's right to goods on seller's insolvency
(1) Subject to subsection (2) and e\en though the ~oods have not
been shipped a buyer who has paid a part or all of the price of goods
in which he has a special property under the provisions of the immediately preceding section may on making and keepini:r good a tender
of any unpaid portion of their price recover them from the seller if
the seller becomes insolvent within ten days after receipt of the first
installment on their price.
(2) If the identificnJion creatin~ his special property has been
made by the buyer he acquires the right to recover the goods only if
they conform to the contract for sale.
28 :2-503. Manner of seller's tender of delivery
(1) Tender of delivery re~uires that the seller put and hold conforming goods at the buyers disposition and iriYe the buyer a.ny
notification reasonably necessary to enable him to tnke delivery. The
manner, time and place for tender nre determined by tht) agreement
and this article, and in particular

~~

PUBLIC LAW 88-243-DEC. 30, 1963

[77 STAT.

(a) tender must lie at a rea:;onahle hour. a11<l if it is of goods

they must. be kept available for f!ie period rea~onnhly necessary
to enable the hnJer to take possession: but
(b) unless otherwise agreed the buyer must furnish facilities
reasonably suited to the receipt of the goods.
(2) "There the case is within the next se<'tio11 respel'ting shipment
tender requires that the seller rnmply with its prmisions.
(3) lrhere the seller is required to deli,ei at a partieular destination tender requires that he <'omply with subseetion ( 1) and also in
:my appropriate cnse tender doeument!:! it:; described in subsections
( 4) and ( 5) of this section.
(4) 'Where goods are in the possession of a lmilee alHl are to be
<lelhered without being moYed
(a) tender requires that the selle1 either tender n negotiable
document of title covering such l?Oo<ls or procure acknowledgement by the ba.ilee of the buyer's rig-ht to possession of the goods;
but.
( b) tender to the buyer of <\ non-negotinble document of title
or of a written direction to the bailee to deliver is suflkient tender
unless the buyer seasonably objects, and reteipt by the bailee of
notification of the buyer's rig'hts tixes those rights as against the
bailee and all third persons: but risk of loss of the goods and
of any failure by the bailee to honor the non-neg-otiable dQ('ument
of tit'le or to obey the direction remains on the seller until the
buyer has had a reasonable time to present the document or
direction, and a refusal by the bililee to honor the document or
to obey the direction defeats the tender.
(5) W'here the contract requires the seller to deli,er documents
(a) hl' must tender all such documents in co1Tect form except
as provided in this arti~le with respect to bills of lading in a set.
(subsection (2) of section 28: 2-a2:l); and
(b) tender through customary banking ehannels is sufficient
and dishonor of a draft ac<'ompanying the documents <'Onstitutes
non-acceptance or rejeetion.

28:2-504. Shipment by seller

Where the seller is required or authorized to send the goods to the
buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must
(a) put the goods in the possession of such a carrier and
make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case ; and
(b) obtain and promptly deliver or tender in due form any
document necessary to enable the buyer to obtain possession of
the goods or otherwise required by the agreement or by usage
of trade; and
(c) promptly notify the buyer of the shipment.
Failure to notify the buyer under paragraph (c) or to make a J?roper
contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.
28:2-505. Seller's shipment under reservation
( 1) 'Vhere the seller has identified goods to the contract by or before
1>hipment:
(a) his procurement of a negotiable bill of ladins to his own
order or otherwise reserves in him a security interest m the goods.
His procurement of the bill to the order of a financing agency or
of the buyer indicates in addition only the seller's expectation of
transferring that interest to the person named.

77 STAT.]

PUBLIC L

(b) a non-negotiable
reserves possession of th
conditional delhery (su
negotiable bill of ladm~
no security interest eve
the bill of lading.
(2) When shipment by
interest is in Yiolation of t
proper contract for transp1
impairs neither the rights ;
tification of the goods to
l 1older of a negotiable docm
28 :2-506. Rights of fini
( 1) A financing itgency
which relates to a shipme
payment or purchase and ii
and any document of title
~oods mcluding the right
have the draft honored by
(2) The right to reimb
in good faith honored or
or authority from the buy
of defects with refere1lC'e t
ently regular on its face.
28:2-507. Effect of sel
( 1) Tender of delhery
the goods and, unless oth
Tender ent.it les the seller
nc<'ording to the oontra~t
(2) Where payment. 1~
hnyer of goo~s or docun
to retain or chspose of tl
ment due.
28 :2-508. Cure by SE

placemer

( 1 ) Where any tende1

nonl'Ollforming and the

seller may seasonably n
may then within the cor
(2) Where the buyer
seller had reasonable gr
without money a.llowan
huyer have a further ren
28:2-509. Risk of lo
(1) Where the. cont1
the goods by c.arr1er
(a) 1f it does rn
destination, the rh
are duly deliv~red
under reservation
(b) if it does l'E
tination and the
possession of the
when the goods nr
to take delivery.
1

93-025 0-64-44

77 STAT.]

PUBLIC LAW 88-24..:.

C. 30, 1963

(b) a non-negotiable bill of lading to himself or his nominee

reserves possession of the goods as security but. except in a case of
conditional delivery (subsection (2) of section 28 :2--507) a nonnegotiable bill of ladmg naming the buyer as consignee reserves
no security intere~t even though the seller retains possession of
the bill of lading.
(2) When shipment by the seller with reservation of a security
interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but
impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a
holder of a negotiable document.
28 :2-506. Rights of financing agency
(1) A. financing agency by paying or purchasing for valne a draft
which relates to a shipment of goods acquires to ffie extent o~ the
payment or purchase and in addition to its own rights under the draft
and any document of title securing it any rights of the shipper in the
goods including the right to stop delinry and the shipper's right to
ham the draft honored by the buyer.
(2) The right to reimbursement of a financing agency which lrns
in good faith honored or purchased the draft. under commitment to
or nuthority from the buyer is not. impaired by subseq.uent discovery
of defects with referen<"e to lllY relernnt document wluch was apparently regular on its face.
28 :2-507. Effect of seller's tender; delivery on condition
(1) Tender of deJi,ery is a eondition to the buyer's duty to accept
the goods and, unless otherwise agreed, to his duty to pay for them.
Tender entitles the seller to acceptanee of the goods and to payment
acC'ording to the contract.

( 2) '\'11ere payment is due a n<l demanded on the deli very to the

huyer of goods 01 dotnments of title, his right as against the seller
to retain or dispose of the'IH is ('OIHlitiorniJ npon his making the payment due.

28:2-508. Cure by seller of improper tender or delivery; replacement

(l) Wliere any tende1 or delher,y by the seller is iejected beeause
11on-eo11formi11g and the time for performance has not yet expired, the
seller may seasonably notify the buyer of his intention to cure and
may then within the contract time niake a eonforming delivery.
(2) Where the buyer rejech; n 1101Honforming tender wluch the.
se.ller had reasonable grounds to believe would be acceptable with or
without money iillowance the seller may if he seasonably notifies the
huyer have a further renson11ble t.in1e to snhstitnte a conforming tender.
28:2-509~ Risk of loss in the absence of breach
(1) where the contmet re1p1ires or authorizes the seller to ship
the goods by carrier
- (a) If it does not require him to clelher them at a particular
destination, the risk of loss pnsses to the buyer when the goods
are duly delhered to the <'arrier even though the shipment is
nuder reserrntion (sedion 28 :2-505); but
(b) if it doe..<> teqnire him to delher them at a/articular destination and the goods nre there clnly tendere while in the
possession of the. <'arrier, the risk of loss passes to the 'buyer
when the l:!Oods me tlwrp <lnly so tendered as to enable the buyer
to take delivery.
93-025 0-64-44

1!111$4'1J<Nr-: .
PUBUC LAW 88-243-DEC. 30, 1963

...,,-

(77

STAT.

(2) "'he1e the oo<ls are held hy a bailee to he (leliwre<l without

lit>ill" mo1e(l. the 1isk of lrn;s pns.<;es to tht> huve1
e (a) on his reet>ipt of a negotiable drn-,ument of title <'01ering
the goods: or
, .
. .
(h) 011 a<'knowled~ment hy the rnulee of the buyers nght to
possession of the goods; or
(c) after his receipt of 11 non-negotiable don1rnent of title or
other written <li1eet1on to <lelh-t>r. as prmicled in ~mhsectiou
( i:) ( b) of sect ion 28 :2-503.
(3) Iu anv case not within subsection (1) or (2). the risk of loss
passes to the~buyer on. his reteipt of the g-oods if the seller i~ a merchant.: otherwise the risk passes to the buyer on tender of delirnry.
( 4) The provisions of this seetion are subject to contrary ag1ee111ent
of the parties :rnd to the pro1isions of this article on sale on approval
(section 28 :2-:~2i) and on effe<'t of breach on l'isk of loss (seetion
~8:2-510).

28 :2-510. Effect of breach on risk of loss

(1) where a tender or deliw1rof g-oods so foils to ronform to the
contract as to p:iYe ll 1il!ht of re]e<:tion the risk of their loss remains
on the seller until cure or nc<eptnnce.
(2) where the buyer rightfull: 1eyokes aeceptanee he may to tl1e
extent of nny delicieney in his effecti1e in:'llll':IJl<'e <'01erage treat the
risk of loss as having l'ested m1 the seller from the heg:i1ming-.
(:~) \Yhere the ln1Yer ns to <'onforming goods nlreadv identified to
the contract for salev repudintes or is othel'wise in brenlh hefore risk
of their loss hns passed to him, the seller may to the extent of nnv
deficiency in his effe<'tiYe insurance covernge trent the risk of loss its
resting on the huyer for a <'Ollllllereinlly rensonnhle time.

28 :2-511. Tender of payment by buyer; payment by check

( 1) l"nless otherwise ng-reed tender of pn:ment is n condition to

the

sellel'~S

dut;y to tender nnd complete any delivery.

(2) Tender of payment is sufficient when mnde by any means 01~

in any manner current in the .ordinary course of business unless the

seller demands payment in legal tender and giws any extension of
time reasonably necessary to p1ocure it.
(~) Subject to the p10Yisions of this subtitle on the effect of nn
i11strument 011 an obligation (section 28 ::i-80:.0, payment by cheek
is conditional nnd is defe11te<l as between the parties h: dishonor of the
check on due presentment.

28 :2-512. Payment by buyer before inspection

q) "\\~here the contract requires pnyment before inspection nonconfornnty of the goods does not ex<use the buyer from so mnking
payment unless
(n) the 11011-conformity a\)pears withont inspeetion: 01
(h) despite tender of t 1e required d0<.'ll11uents the circumstances would justify i11junetion ap:ainst honor under the provisions of this subtitle (section 28 :5-lli:).
( :2) Payment pursuant to subse(tion ( 1) do<>s not 1011stitnte nn ac('eptnn.<'e of goods or impair the huyel's right to inspe<'t or any of his
remedies.
28 :2-513. Buyer,s right to inspection of goods
( 1) rnless otherwise agreed and snbjeet to subseetion (!"J), where
g-oods are teudered or delivered or identified to the <ont11ut for sale.
the bnye1 has a rig-ht before payment or ncceptn1we to inspect them
n,t any ieasonable place and time and in any rensonable maimer. \Vhen
the seller is required or authorized to send the goods to the buyer, the
inspeetion may be after their anirnl.

77

~l

STAT.]

PUBLIC

(2) Expenses of inspect

recornred from the seller i
(8) Unless otherwise a;
article OH ( '.l.F. contrnctE
buyer is not. entitled to irn
when the contract proddi::
(a) for delhery "(
\ b) for payment a~
payme1~t is due only
mspectlon.
( i:) A plaee or methm
sumed to be. exelusi1e but
postpone identification 01
the risk of loss. If comp!
as prOlided in this secti01
intended ns an indispem
contract.

28 :2-514. When docm

payment

rn less otherwise agree

are to be delhered to th
payable more than three
payme11t.

28 :2-515. Preserving
In furthenrnce of the a
(a} either party o
the purpose of aseer
the right to inspect,
them as may be in tl
(h) the parties n
Ye\' to determine the
a:.ree that the fin di
l:ieque11t litigntion o

PART &-BREA<
S 28: 2-601. Buyer,s r'
" S1hject to the provisi(
tra('ts (section 28:2-H
se.ctions on contritctmil :
~8:2-719), if the good
to conform to the rontr
(a.) reject the wl
(b) accept the "
( (') nrcept nny ('

28 : 2-602. Manner

10

(1) Rejection of goo

delivery or tender. It
fies the seller ..
( 2) Subject to the
re jeeted goods (section

(a) nft er reject i

respect. to any cmr
nnd
( b) if the buye1
of goods in which
prO\'isions of this:

77 STAT.)

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

(2) Expenses of i11spertion must be borne hy tl1t liunr lmt 111:1v lw

recovered from tlw :-;elle1 if tlte goo<ls do not co.11forn1 ai1d a1t rejt>t:ted.
(3) Unless otherwise agreed and subjeet to tlw pro1isio11;; ;if this
article. 011 { 'J.F: eolltra~ts (s11bN.'etio11 (:~) of sect io11 :lS ::2-:\:!l ), tht
buyer IS 11ot e11t1t led to mspeet the goods before pa vmellt oft lw price
when the cont raet pr<>l'ide8

( H) fo1 deli 1e11 'C.O.D." or 011 other like terms: or

(b) for.paymeilt against documents of title, exeept where such
payme1.1t is due only after the goods are to heeome available for
mspect1011.
(4) .\. pln<"e or method of inspertion fixed by the parties is presumed to be exclusive but unless otherwise expressh ngree<l it does not
posfJ?Olle ide11tifieatio11 or shift the plare for <leli\ery or for passing
the risk of loss. If romplinnee heromes impossible, i11speetio11 shall he.
as prmided in this section unless the place or rnethc><l lixe<i was denrh
intended as n11 indispensable co11ditton failure of which a voi<ls t lie
contra rt.
28 :2-514. When documents deliverable on acceptance; when on

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

28 :2-515. Preserving evidence of goods in dispute

In furtherance of the adjnstment of any daim or dispute
(n) either party 011 reasonnhle notificntiou to the other nml for
the purpose of as<'ertai11i11g the facts and preseni11g evidence has
the right to i11speet, test n11d sample the goods i11elndi11g snch of
them as mny be in the possession or eo11trol of the other; and
(h) the parties may ngl'ee to a third pa11y inspection or smYeY to detem1ine. the eonformity or condition of tl1e goods a 11d may
ag'ree that the findings shall be binding upon them in nny subsequent litigation or adjustment.

PART &-BREACH, REPUDIATION AND EXCUSE

28: 2-601. Buyer's rights on improper delivery

E'11lJject to the provisions of this article 011 breach in installment eont.m<"ts (section 28 :2-li12) and unless otherwise agl'eed under the
sections on contmctual limitations of remedy (se<"tion,;; :!8 :~--il~ and
~8:2-719), if the goods 01 the tender of delin 1y fail iu any l'espect
to confo11n to the rontmct, the hnyer may
(a) reject the. whole: or
(b) neoopt the whole: or
(r) nrrept any !'OIHmer<'inl unit or units an1l rejeet the rest.
1

28: 2-602. Manner and effect of rightful rejection

(1) Rejection of g-oods mnst be within a reasonal>le time after thei1
delivery or tender. It is inetfectiYe unless the buyer seasonably notifies the seller.

(:l) ~ubjeet to the provisions of the two following sertions on

rejeeted i;roods (sections 28::!-fiO:l and 28:2-60-!),

(a.) nfter rejection any exercise of ownership by the buyer with

respect. to any commercial unit is wrongful as against the seller:
nnd
(b) if the buyer has before rejection taken physical possession
of goods in which he <loes not have it security interest under the
p1ovisions of this arti<"le (subsection ( :~) of seetion 28 ::.!-ill), he

,.,.

~~

;~

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..

'

t;

-:.::!

.~}

77

[77 STAT.

PUBLIC LAW 88-243-DEC. 30, 1963

PUBLIC

STAT.]

(c) does any ad irn

if sneh ad is wrongful
if ratified by him.
( 2) Acceptnnce of n pni
that entire unit.
28 :2-607. Effect of ace

is under a d11t\ a fte1 1<.>jedion to holrl t.hem with reasonahh <are

at the seller's clisposition for a time sufficie11t to permit the seller
to remo,e them: but
(c) the buyer ha;; no further ohligatio11H with rei.ranl to goo<ls
rig-htfully rejected.
.
(3) The seller's rights with respect to goods wrong-fully reJe<'te<l are
"OYe.rned bv
t.11e tlrO\isions of this article on Seller's remedies in
...general
~ .
(seet1on 28 :2-703).
28: 2-603. Merchant buyer's duties as to rightfully rejected

tablishing I
or litigatio

( 1) The buyer must pa~

(2) Acceptance of goo
eoods accepted and if ma1
not. be revoked because of
able assumption that the
hnt acceptance does not oj
this article for non-confo
( 3) 'Where a tender ha!
(a) the buyer mm=
or should have disco'
he barred from any rE
(b) if the claim i~
(3) of section 28 :2a breach he must so r
he recehes notice of
over for liability esta
( 4) The burden is on'
Io the tzoods accepted.
( 5) Where the buyer
gation for which his selle
(a) he may give
the notice states tha1
the seller does not d
by his buyer by nr
litigations, then un
not.Ice does come in :
(b) if the claim
( 3) of section 28 :2ing that his buyer t
ing settlement ore
also agrees to bear
ment, then unless t1
does turn over cont
(6) The provisions
obligation of a buyer ti
or the like (subsection
28 :2-608. Revocatic
( 1) The buyer may
unit whose non-confo1
he has accepted it
(a) on the reaso
be cured and it ha
(b) without di!
was reasonablv in
acceptance or.by
(2) Revocatioi: of .
after the buyer d1scov
and before any substr
not caused by their c
notifies the. seller of it
(3) A buyer wh~
regard to the goods n

goods
(1) Subject to any seeurity interest in the lmyel' (s11l>Heetio11 (:))
of sect ion 28 :2-711), when the seller has 110 ngent orJ>l:t<'e of husines.'i
nt the market of rejection a merchnnt buyer is nn er a duty nfter
rejection of goods in his p0$session or <'Ontrol to follow 1111y remmnable
instructions recei,ed from the seller with respeet to the p:oods nnd in
the u.bsen<'e of su<'h iustrudions to make reaso11able efforts to sell them
for the seller's act'otmt. if they are perishable or threaten to (leeline in
,-n.lue speedily. Ir.struetio11s are not reasonable if 011 (lemand
indemnity for expenses is not forthroming.
\~) \rhen the buyer sells ~oods under subst><tion ( 1), he is l'ntitled
to reimlmr~me1.lt from the selle_r or out of the proreeds for ren~01rnble
expeuses of <a1mir for and sellmg them, and if the expenses mdude
110 sellinir <'Oll11nission then to such commission as is usunl in the trade
1r if there is none to a 1easo11able sum not exceeding ten per <ent on
the ross p1oceeds.
(:~) In tomplyin~ with this section the buyPr is held only to g-oo<l
faith and good faith conduct hereunder is neither a<'ceptance nor
comersion nor the basis of an ad ion for damages.

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

goods
Subject to the prorisions of the immediately preeeding section on
perishables if the seller gives no instructions within a reasonable time
after notifi<"ation of rejeC.tion the buyer mny store the rejeeted goods
for the seller's account or reship them to him or resell them for the
seller's necount. with reimbursement as provided in the preceding
section. Such nction is not acceptance or conversion.

28: 2-605. Waiver of buyer's objections by failure to particularize

(1) The buyer~s failure to state in connection with rejection a par
defect which is nsce11ainable by reasonable inspection predndes him from relying on the unstated defect to justify rejection or
to establish breach
(a) "here the seller rould ha \"e cured it if stated seasonably;
or
(b) between merchants when the seller has after rejection made
ll request in writing for a full and final written statement of all
defects on which t.he buyer proposes to rely.
(2) Payment against documents made without reserrntion of rights
precludes recovery of the payment for defects apparent on the face
of the documents.
I ienlar

28 :2-606. What constitutes acceptance of goods

(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies
to the seller that the goods are conforming or that he will take or
retain them in spite of their nonconformity; or
(b) fails to make a.Il effective rejection (subseetion (1) of section 28:2-602), but such acceptance does not occur until the
bnyer has had a reasonable opportunity to inspect them; or
i

tl \..~.
.

r
77 STAT.]

PUBLIC LAW bo-L43-DEC. 30, 1963

(c) does any act i11co11siste11t with the seller's O\\"llership; but
if sudt ad is wrongful us agn ii.st the !"Pller it is an acceptance only
if atified by him.
(2) .Acceptance of a part of any commercial unit is acceptance of
l hat entire unit.
28 :2-607. Effect of acceptance; notice of breach; burden of establishing breach after acceptance; notice of claim
or litigation to person answerable over
( 1) The buyer must pay at the contract rate for any goods accepted.
(2) Acceptance of goods b,Y the buyer precludes rejection of the
!!;Oods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonnble assumption that the non-conformity would be seasonably cured
hut acceptance does not of itself impair any other remedy provided by
this article for non-conformity.
( 3) Where a tender has been accepted
(a) the buyer must within a reasonable time after he discovers
or should have discovered any breach notify the seller of breach or
be barred from any remedy: nnd
(b) if the claim is one for infringement or the 1ike (subsection
(3) of section 28 :2-312) and the buyer is sued as a result of such
a breach he must so notifv the seller ,\ithin a reasonable time after
he receirns notice of the litigation or be barred from any remedy
over for liability established by the litigation.
( .J) The burden is on the buyer to establish any breach with respect
to the goods accepted.
. ( 5) \Vhere the buyer is sued for breach of a warranty or other obligation for which his seller is answerable 0\-er

(a) he may give his seller written notice of the litigation. If

the notice states that the seller mav come in and defend and that if
the seller does not do so he will be bound in any action against him
by his buyer hy any determmat.lon of fact common to the two
litigations, then unless the seller after seasonable receipt of the
notice does come in and defend he is so bound.
(b) if the c]aim is one for infringement or the like (subsection
(3) of section 28 :2-312) the original seller may demand in writing th.at his buyer turn over to him control of the litigation inc1uding settlement or else be barred from any remedy over and if he
also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand
does turn over control the buyer is so barred.
(6) The prmrisions of subsections (3), (4) and (5) apply to any
obligation of a buyer to ho1d the seller harmless against infringement
or the 1ike (subsection (3) of section 28 :2-312).
28 :2-608. Revocation of acceptance in whole or in part
(1) The buyer may re.voke his acceptnnce of a lot or commercial
unit whose non-conformity substantially impairs its Ynlue to him if
he has accepted it
(a) on the reasonable assumption that its non-conformity would
be cured and it has not been seasonably cured; or
(b) without discmery of such non-conformity if his acceptance
was reasonably induced ~ither by the difficulty of discoYery before
accepllince or by the se11er's assurances.
(2) Revocation of acceptance must occur within a reasonable time
after the buyer discovers or should have discovered the ground for it
nnd before any substantial change in condition of the goods which is
not caused by their mvn defects. It is not effective until the buyer
notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with
regard to the goods involved as if he had rejected them.

661

PUBLIC LAW 88-243-DEC. 30, 1963

(77

STAT.

28:2-609. Right to adequate assurance of perfor~ance

( 1) A. contract for sale imposes an. obligation on each J?,arty that
the other's expectation of receiving du~ perf~rman~ w.111 not be
impaired. "When reasonable grounds for msecur1ty ari~ ~1th respect
to the performance of eit.her party the other may in ,1n1tm~ demand
adequate assurance of due performance and until he receives such
'assurance may d commercially reasonable suspend any performance
for which he has not already received the agreed return.
(2) Between merchants the reasonableness of grounds for ins.ecurity and the adequacy of any assurance offered shall be determmed
according to commercial standards.
(3) Acceptance of any improper delivery or payment does not
prejudice the aggrieved party's right to demand adequate assurance
of future performance.
. .
.
.
. .
( 4) After receipt of a Justified demand failure to provide w1thm
a reasonable time not exceeding thirty days such assurance of due
performance as is adequate under the circumstances of the particular
case is a repudiation of the contract.
28 :2-610. Anticipatory repudiation
when either party repudiates the contract with respect to a. performance not yet due the loss of which wil~ substantially impair
the value of the contract to the other, the af;("gr1eveq party may
(a) for a eommercially reasonable time await performance by
the repudiating party; or
(b) resort to any remedy for breach. (section 28 :2-;-793 or sect.ion 28 :2-711), ernn though he has not 1tied the repud Ill tmg party
that he would awnit the latter's performance and has urged
retraction; '.l.nd
.
( c) in eith~r cnse susp~1~d his owl! per~onnance or pro~ee~ m
accordance with the provis10ns of tlus a~icle on.the sellers right
to identify goods to the contract notwithstandmg breach or to
salYage unfinished goods (section 28 :2-704:).
28:2-611. Retraction of anticipatory repudiation
' ( 1) Until the repudiating party's next .Performance is du~ he can
retract his repudiation unl~ the aggrieve4 pa~:y: has smce ~he
repudiation cancelled ?r materially c~an.ged lus positmn or otherwise
indicated that he considers the repudiat10n .final.
. .
(2) Retraction ma.y be by any.m~thod whic~ clearly mchcates to the
aggrieved party that the repudrntmg party mt ends to perforn:-,. but
must include any assurance justifiably demanded under the provisions
of this article (section 28 :2-609) .
. .
, .
( 3) Retraction reinstates the repud1atmg party s r:ghts under the
contract with due excuse and allowance to the nggriHed })arty for
any delay occasioned by the repudiation.
28 :2-612. "Installment contract"; breach
( 1) An "installment contract" is one which requires or authorizes
the, delivery of goods in separate lots to be separately accepted, even
though the contract contains a clause "each delivery is a separate contract" or its equivalent.
.
(2) The buyer ID:ay reject any inst;allm~nt which is non-conf?rmmg
if the non-conformity substantially impairs the value of that mstallment and cannot be cured or if the non-conf?rmity is tt defect it?- t~e
required documents; but if the non-conformity does not fall w1thm
subsection (3) and the seller gives adequate assurance of its cure the
buyer must accept that installment.
(3) Whenever non-conf?rmit:y or ~efau}t with respect to one or
more installments substantially impairs the value of the whole con-

77

STAT.

PUBLIC l

tract there is a breach of tl

states the contract if he acce
seasonably notifying of ca:
respect only to past mstallrr
installments.
28 :2-613. Casualty to it
Wl1ere the contract requ
when the contract is made, i
of either party before the
proper case under a "no arri
(a) if the loss is tot
(b) if the loss is pa
no longer to conform 1
demand inspection an<
avoided or accept the!
price for the deteriora
out further right agair
28 :2-614. Substituted :
( 1) Where without faul
ing, or unloading facilitie:
unavailable or the agreed
mercially impracticable b
available, such substitute I
( 2) If the agreed mea:
domestic or foreign goven
or stop delivery unless thE
ment which is commercial
already been taken, paymby .the. regul0:ti~n dischar
lat1on is d1scrmunatory, o:
28 :2-615. Excuse by f
Except so far as a selle1
subject to the pre~ding.&
(a) Delay m dehv
seller who complies '
of his duty under a c
been made impractic
non-occurrence of w
contract was made
applicable foreign o
whether or not it late
(b) Where the ca
a part of the ~ll~r's
tion and deliveries
include regular cust
own requirements !1
in any manner whic
(c) The seller rr
will be delay or n<
under paragraph (l
for the buyer.
28 :2-616. Procedure
(1) Where the buyer
<lelay or an allocation
by written notificat~on 1
where the prospective
the whole contract uni

77 STAT.}

PUBLIC LAW 88-243

:c. 30, 1963

tract there is a breach of the whole. But the ag~rieved party reinstates the contract if he accepts a non-conforming mstallment without
seasonably notifying of cancellation or if he bring an action with
respect only to past mstallments or demands performance as to future
installments.
28:2-613. Casualty to identified goods
"\Vhere the contract requires for its performance goods identified
\vhen the contract is made, and the goods suffer casualty without fault
of either party before the risk of loss passes to the buyer, or in a
proper case unaer a "no arrivalhno sale" term (section 28 :2--324) then
(a) if the loss is total t e contract is a voided; and
(b) if the loss is partial or the goods have so deteriorated as
no longer to conform to the contract the buyer may nevertheless
demand inspection and at his option either treat the contract as
avoided or accept the goods with due allowance from the contract
price for the deterioration or the deficiency in quantity but without further right against the seller.
28 :2-614. Substituted performance
(1) where without fault of either party the agreed berthing, loading, or unloading facilities fail or a,n agreed type of carrier becomes
unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is
available, such substitute performance must be tendered and accepted.
(2) If the agreed means or manner of payment fails because of
domestic or foreign governmental regulation, the seller may withhold
or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has
already been taken, payment by the means or in the manner provided
by the r~lation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory.
28:2-615. Excuse by failure of presupposed conditions
Except so far as a seller may have assumed a greater obligation and
suhject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a
seller who complies with paragraphs (b) and ( c) is not a breach
of his duty under a contract for sale if performance as agreed has
been made impracticable by the occurrence of a contingency the
non-occurrence of which was a basic assumption on which the
contract "us made or by compliance in good faith with any
applicable foreign or domestic governmental regulation or order
whether or not it later proves to be invalid.
(h) where the causes mentioned in paragraph (a) affect only
a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option
include regular customers not then under contract as well as his
own requirements for further manufacture. He may so allocate
in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there
will be delay or non-delivery and, when allocation is req_uired
under paragraph (b), of the estimated quota thus made available
for the buyer.
28 :2-616. Procedure on notice claiming excuse
(1) Where the buyer receives notification of a material or indefinite
delay or an allocation justified under the preceding section he may
by written notification to the seller as to any delivery concerned, and
where the prospective deficiency substantially impairs the value of
the whole contract under the provisions of this a.rticle relating to

<1."<:"

,,....

\'. :~.:
'r

'!'.

I.,\

664

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

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

the whole,
(a) terminate and thereby discharge any 1111executed portion
ofthecontract;or
(b) modify the contract by agreeing to takl' his available quota
in substitution.
(2) If after receipt of such notification from tJ1e seller the buyer
fails so to modify the contract within a reasonable time not exceedmr
thirty days the contract fapses with respect to any deliveries affecte<r.
(3) The provisions of this section may not be negated by agreeme11t
except in so far as the seller has assumed a greater obligation under
the preceding section.

PART 7-REMEDIES

,.t
l

if
I

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

impaired
Remedies for brench of all\" obi i;.rat ion m Jm>m ise rollnteral or
ancillary to a contrnct for sale are 11ot impnire by the pl'Ovisions of
this article.
28 :2-702. Seller's remedies on discovery of buyees insolvency
(1) 'Vhere the seller discovers the buyer to be insolvent he may
refuse delivery except for cash including payment for all goods
theretofore delivered under the contract., and stop delivery under this
article (section 28 :2-705).
(2) Where the seller discovers thnt the buyer has received goods
on credit while insolwnt he may reclaim the goods upon demand
made within ten days after the receipt, but if misrepresentation of
solvency has been mnde to the particular seller in writing within three
months before delivery the ten day limitation does not apply. Except
ns provided in this subsection the seller may not base a right to
1eclaim goods on the buyer's fraudulent. or innocent misrepresentntion of solvency or of intent. to pay.
(3) The seller's right to redaim under subsection (2) is subject
to the rights of a buyer i11 ordinary eourse or other good faith purrhaser or lien creditor under this nrtide (sedion 28 :2--tm)). Successful reclmna.tion of goods excludes all other remedies with respect
lo them.
28 :2-703. Seller's remedies in general
'Vhere the buyer wrongfully rejeets or revokes neceptance of goods
or fails to make a payment due on or before delinry or repudiates
with respect to a part or the whole, then with respect to imy goods
directly affected and, if the breach is of the whole contract. (section
28:2-612), then also with respect to the whole undelivered balance,
the aggrieved seller may
(a) withhold delivery of sueh goods;
(b) stop delivery by irny bailee as hereafter provided (section
28:2-705);
(c) proceed under the next section respecting goods still
unidentified to the contract;
(d) resell nnd recowr dnmnges ns hereafter provided (section
28:2-706);
( e) recover damages ~or non-:teceptance (sect.ion 28 :2-7'08)
or ma proper ense the prtee (section 28 :2-709);
(f) cancel.

77

STAT. ]

28 :2-70-1. E
0)

_\ni~g

(a) idt
identified
possessio1
(b) trc
strably h
those goo
(2) Where
exercise of rea
i n:r loss and <
and wholly il
and resell for
able manner.
28:2-705. ~
(1) The se
1arrier or otl
(section :l8 :2
planeload or
repudiates or
other reason 1
(~) As agn
( n) re<
( h) llt'
ex<ept n <
(e)

SUI

111ei1t or n
(cl) ne
tit le (oYe
( :~) ( 11) To
1lie ba1 lee by
( b) After
goods accord i
to the hailee f
( c) If II Ile
l mi lee is not <
tile clo<"ntnent
( d) A (nn

ol1lig:ed to ohe
I he consignor
28 :2-706. :
( 1) ruder
nmiedies, the
balance there<
merdally ren
bet.ween the
incidental dn;
tion28:2-71
breach.
(2} Except
otherwise ag1
Ha.le by way c
existing cont1
imd at any t.i
~:tle indudin1
commercially
us referring

77 STAT. ]

PUBLIC LAW 88-243-

~c.

30, 1963

28:2-i0-1. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods
11) .\n :~ggrieYed seller undel' the prel'P<ling seetion may

(a) identify to the eo11t1n<'t eonfonning- goods not nh-eady

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

(b) trent as the suhjeet of resale good:' whieh hnYe demonstrably been i 11ten<led for the pa rt ic11la1 eontraet t>.nn t hong-h
those goods are unfinished.
(2) 1Yhere the goods nre unfinished an nggl'ie,ed 1;eller mny iu the
txercise of reasonable eommereial judgment for the pnrposes of n\oiding loss and of effecti,e realization either eomplete the numufoeture
:md wholly identify the goods to the ("Olltrnet or eense nurnufacture
:ind resell for scrnp or sah-nge rnlue or p1oceed in any other reasonnble manner.

28:2-705. Seller's stoppage of delivery in transit or otherwise

(1) The selle1; n~ay stop deliw1:y of goods in the posses~ion of a
n1rrier or other bailee when he dtscowrs the buyer to be 111soh'ent.
(section :.:!8 :2-70:.:!) and mny stop deli,ery of earlond, trncklond,
planeload or la~ger shipn1ents of express or freii.rh.t when ~ l~e buyer
repudiiites or fails to make a pnvment dne before <lei nery or 1f for any
other reason the seller has a right to withhold or 1edaim the g:ood,,;.
(:!) As against such buyer tlie seller may Htop deli,e1-.r until
(n) reeeipt of the goods hy the buyer; or
(h) a<'knowledgment to the buyer hy any bailee of the goods
t>xeept a earrier that the lmilee holds the goodR for the buyer; or
(d such acknowledgment to the buyer hy a n1rrier hy reshipme11t or as warehousemirn : or
{d) 11egotintio11 to the buyer of any neg"Otinhle doeument of
tit le eornrinl! the goods.
1a) (n) To stop defoery the seller mnst so notify as to ellahlt>
1l1e ha1lee hy 1eas01inhle diligence to pre,e11t deJi,ery of the goods.
(h) After such notification the bailee must hold and deliYer tht/.!O<xls ncconli11g to the direetions of the seller hut the seller is liable
10 the hailee for any e11s11in:z 1lrnrg-es or damages.
(l') If a negotiahle document of title has been issued for goods the
liailee is not ohlig-ecl to obey a notitieation to Htop until surrender of
the chwnmen t.
( d) .\. earrier who has issue1l 11 no11-11egotinhle bill of lnding is not
ol,Jiged to ohey a 11otilieatio11 to stop recl'ived from a person othe1 than
the eon signor.
28 :2-706. Seller's resale including contract for resale
( 1) l-uder the eonditiow; stnted in ~et ion ~8 :2-7oa 011 selle1s
l"l'meclies, the seller may resell the goo<lH oncerned or the uude}i,el'e<l
Im lance thereof. "'here the resale is made in good faith and in il commercially renso1u~ble manner the seller may reco,er the difference
between the resale priee arnl the eontraet price tog:ethe1 with nnv
incidental dnnmg:es allowed under the provisions of this 11rticle (section 28:~-710)~ hut Jess expenses sa,ed in consequence of the buyer's
brench.
(2) Except as othen\"ise pro,ided in suhl,;ectio11 (3) 01 unless
otherwise ngree<l resale may be at. public or priYate sale including
sale by way of one or more contmcts to sell or of identification t-0 an
existing contract of the seller. Sn le may be as n, unit or in parcels
irnd nt any time and place and on any terms but every aspect of the
s11le including the method, manner, time, place and terms must. be
commercially reasonable. The i-es.'1.le must be r~lsonably identified
ns referring to the broken contract, but it is not nece8sary that the

PUBLIC LAW 88-243-0EC. 30, 1963

(77

STAT.

goods be in existence or that any or all of them have been identified

to the contract before the breach.
(3) Where the resale is at private sale the seller must give the buyer
reasonable notification of his intention to resell.
(-!) Where the resale is at public sale
(a) only identified goods can be sold except where there is a
recognized market for a public sale of futures in goods of the
kind; and
(b) it must be made at a usual place or market for public sale
if one is reasonably a\ailable and except in the case of goods
which are perishable or threaten to decline in value speedily the
!'leller must ghe the buyer reasonable notice of the time and place
of the resale; and
( c) if the goods are not to be within the ,iew of those attending
the sale the notification of sale must state the place where the
goods are located and provide for their reasonable inspection by
prospective bidders; and
( d) the seller may buy..
.
(5) A purchaser who buys m crood faith at a resale takes the goods
free of any rights of the originaf buyer even though the seller fails to
omply with one or more of the requirements of this section.
( 6) The seller is not a~countabl~ ~o the buyer for any profit made
on any resale. A person m the position of a seller (section 28:2-707)
or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security intertst, as hereinafter defined (subsection (3) of section 28 :2-711).
28:2-707. "Person in the position of a seller"
( 1) A "person in the position of a seller" includes as against a prin1ipal an agent who has paid or become responsible for the price of
goods on behalf of his principal or anyone who otherwise holds a
security interest or other right in goods similar to that of a seller.
(2) A person in the position of a seller may as provided in this
article withhold or stop deliYery (section 28 :2-705) and resell (section 28 :2-706) and recover incidental damages (section 28 :2-710).
28:2-708. Seller's damages for non-acceptance or repudiation
(1) Subject to subsection ( 2) and to the provisions of this article
with respect to proof of market price (section 28 :2-723), the measure
of damages for non-acceptance or repudiation bv the buyer is the difference between the market price at the time and. place for tender and
the unpaid contract price together with any incidental damages prodded m this article (section 28 :2-710), but less expenses saved in
consequence of the buyer's breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance woul<l
have done then the measure of damages is the profit (including
reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided
in this article (section 28 :2-710), due allowance for costs reasonably
incurred and due credit for payments or proceeds of resale.
28:2-709. Action for the price
( 1) When the buyer fails to pay the price as it becomes due the
seller may recover, together with any incidental dam.ages under the
next section, the prioo
(a) of goods accepted or of conforming goods lost or damaged
within a commercially reasonable time after risk of their loss has
passed to the buyer; and

77 STAT.]

PUBLIC

(b) of goods identif

after reasonable effort
circumstances reasona
tmavailing.
( 2) '\-'bere the seller sue
a.ny goods which have beer
his control except that if re
:111y time pt'i01 to the C'Olle<'
any such resale must be c
judgment entitles him to a:
( 3) After the buyer ha8
of the goods or has failed
(section 28 :2-610), a selle
this section shall neverthel(
un<ler the preceding sectio1
28 :2-710. Seller's incid
lnci<lentn 1 dnmages to u1
reasona.ble charges, expen
deli very, in the transport!
buyer's breach, in connect
otherwise resulting- from t
28:2-711. Buyer's rem
in rejected
( 1) Where the seller f;
huyer rightfully rejects o
respect to any goods inYo
breach goes to the whole c
cancel and whether or not :
so much of the prioo as ha
(a) "cornr" and ha
the goods affected wh
contract; or
(b) recoYer damag
cle (section 28:2-71:
( 2) '\\'bere the seller f:
also
(a) if the goods lu
in this article ( sectio1
(b) in a proper c
the goods as proYide<
(3) On rightful rejecti
buyer has a security inte1
any payments made on
incurred in their inspecti
and may hold such goc
. nggrieved seller (section
28:2-712. "Cover"; hr
(1) After a breach w
"coer" by making in g0<
reasonable purchase of o
for those due from the se
(2) The buyer may re
ence between the cost of
any incidental or conseq
tion 28 :2-715), but less
breach.
{3) Failure of the bu:
bar him from any other :

77 STAT.]

PUBLIC LAW 88-243

~c.

30, 1963

(b) of goods identified to the contract if the seller is unable

after reasonable effort to resell them at a reasonable price or the
circumstances re.asonably indicnte that such effort will be
unavailing.
(2) '\'11ere the seller sues for the price he must hold for the buyer
:tny goods which ha\e been identified to the contract and are still in
his control e.xcept that if resale becomes possible he may resell them at
:lll v time prior to the <"olled ion of the j 11dgmei1t. The net prn<eeds of
such resale must be credited to the buyer and payment of the
judgment entitles him to any goods not. resold.
(3) After the buyer has wrongfully rejected or revoked acceptance
of the goods or has failed to make a payment due or has repudiated
(section 28 :2-610), a selle.r who is held not entitled to the price under
this sect ion shall nevertheless be awn rded damages for non-acceptance
under the. preceding section.
28 :2-710. Seller's incidental damages
Iucidental damage:; to an ag-~rie,ed seller indmle any eo111me1<'ially
reasorntble charp:es, expenses or commissions iiwurred in stopping
delivery, in the transportatiou, cnre and l'UStody of goods after the
buyer's breach, in connection with retnr11. or re:omle of the goods or
otherwise res11lth1g- from the hread1.
28 :2-711. Buyer's remedies in general ; buyer's security interest

any

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

huyer rightfully rejects or justifiably rernkes ael'eptmwe theu with

respect to any goods inrnhed, and with respect to the whole of the
breach goes to the whole contract (section 28 :2-612), the buyer may
cancel and "-hether or not he has done so may in addition to recovering
so much of the price as has boon paid
(a) "cO\er!' and han damages under the next section as to all
the goods affected whether or not they have been identified to the
contract; or
(b) recover damages for non-delfrery as prodded in this article (section 28 :2-713).
(2) Where the seller fails to deliver or repudiates the buyer may
also
(a) if the goods ha\e been identified recover them as provided
in this article (section 28 :2-502); or
(b) in a proper case obtain specific performance or rep levy
the goods as provided in this article (section 28:2-716).
(3) On rightful rejection or justifiable reYOcation of acceptance a
buyer has a security interest in goods in his possession or control for
nny payments made on their price and any expenses reasonably
incurred in their inspection, rece1pt, transportation, care and custody
and may hold such goods irnd resell them in like manner as an
. aggrieved seller (section 28 :2-706).

28:2-712. "Cover"; buyer's procurement of substitute goods

(1) After a breach within the preceding section the buyer may
"co\er" by making in good faith and without unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution
for those due from the seller.
(2) The buyer may reco\er from the seller as damages the differellee between the cost of co\er and the contract price together with
any incidental or consequential damages as hereinafter defined (section 28 :2-715), but less expenses sased in consequence of the seller's
breach.
(3) Failure of the buyer to effect cowr within this section does not
bar him from any other remedy.

::1
"(I

r.i

PUBLIC LAW 88-243-DEC. 30, 1963

[77 STAT.

2.8 :2-713. Buyer's damages for non-delivery or repudiation

(1) Subjee.~ to the l?''o\is~ons r;_f this a1ticle with respect to proof
of market price (seetwn 2s:2-i:23), the measure of damages for
non-deli,erv or repudiation by the seller is the difference between the
market price at the time when the buyer learned of the breach and
the contritct price together with any incidental and consequential damages prodded in this artic1e (seetion 28 :2-715 ), hut less expenses
saved in consequence of the seller's breach.
(2) :Market price is to be determined as of the place for tender
or, in cases of rejeetion after a1Tirnl or revocation of ncceptance, as of
the pla.ce of arrirnl.
28:2-714. Buyer's damages for breach in regard to accepted
goods
(1) 'Where the huyer has accepted goods and giwn 11otificatio11
(subsection (3) o.f section 28::2-607) he m~y r~cover as ?-amages for
any non-confornuty of tender the loss resultmg m the ordmary course
(1f events from the seller's breach as determined in ilm' manner which

is reasonable.
(2) The measure <)f damages for breach of warrantv is the <liffertnce at the time and plnce of acceptance between the vnli'ie of the goods
accepted and the value the~ would lrn,e had if they had been as warranted, unless special circumstances sho\\ proximllte damages of a
different amount.
(3) In n proper cnse any incidental and consequentinl damages
.
nuder the next section may also be recoYered.
28:2-715. Buyer's incidental and consequential damages
(1) Incidental damages resulting from the seller's breach include
<>xpenses reasonably incurred in inspect.ion, receipt, transportation
:md care and rnstody of goods rightfully rejected, any commercially
reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or
other breach.
(2) Consequential damages resulting from the sellers breach
include
(a) any loss resulting from gen end or particular requirements
and needs of which the seller at the time of contracting had reason
to know a_nd which ecrnld not reasonably be prevented hy co\er
or otherwise: and
(b) injury to person 01 property prox\ma tely resulting from
any breach of \varranty.
28 :2-716. Buyer's right to specific performance or replevin
(1) Specific performanee may be decreed where the goods art
unique or in other proper circmnstances.
(2) The decree for specific performance may include such terms
and conditions as to payment of the price, damages, or other relief as
the court may deem just.
(3) The buyer hns a right. of repleYin for goods identified to the
contract if after reasonable effo1t he is unable to effect cover for such
~oods or the circumstances reasonably indicate t.hat such effort will
oe unavailing or if the goods have been shipped under reservation and
satisfaction of the security interest in them has been made or tendered.
28 :2-717. Deduction of damages from the price
The buyer on notifying the seller of his intention to do so may
deduct all or any pa1t of the damages resulting from any breach of
the contract from any pa1t of the price still due under the snme
contract.

PUBLIC 1

77 STAT.]

28:2-718. Liquidation 01
( 1) Damages for breach
agreement but only at an a:
the anticipated or actual h:
of proof of loss, and the inc
obtaining an adequate rerr.
liquidated damages is void a
( 2) Where the seller just'
of the buyer's breach, the bu
hy which the sum of his pay
(a) the amount to
terms liquidating the
section (1), or
(b) in the absence o
of the total performan
the contract or $500, w
( 3) The buyer's right to
to offset to the extent that ti
(a) a right to reco
article other than subs
(b) the amount or '
directly or indirectly 1:
( 4) Where a seller has 1
value or the proceeds of tl
' the purposes of subsectioi
buyer's breach before reSf
his resale is subject to ti
resale by an aggriHed sell
28 :2-719. Contractual
( 1) Subject to the pro
section and of the precedi
damages,
(a) the agreement
or in substitution fc
limit or alter the m
article, as by limiting
and repaJment of th(
conforming goods or
(b) resort to a r
remedy is expressly r
sole remedy.
( 2) Where circumstan
fail of its essential purp
subtitle.
( 3) Consequential dan
limitation or exclusion is
damages ~or injury. to t
prima fac1~ u~consc10nal
IS commercial IS not.
28:2-720. Effect of"
antecede
Unless the contrary in
cellation" or "rescission'
strued as a. renw1ciatio1
an antecedent breach.

'7 STAT.]

PUBLIC LAW 88-243-;

30, 1963

28 :2-718. Liquidation or limitation of damages; deposits

(1) Damages for breach by either party may be liquidated in the
:igreement but only at an amount which is reasonable in the light of
the anticipated or actual harm caused by the breach, the difficulties
of proof of loss, and the inconvenience or non-feasibility of otherwise
o_bW;ining an adequ.ate ~emedy. A term fixing unreasonably large
liquidated damages is void as a penalty.
-
(2) 'Vhere the seller justifiably withholds deli\'erv of goods because
of the buyer's breach, the buyer is entitled to restitnt"ion of any amount
hy which the sum of his pttyments exceeds
(a) the amount to which the seller is entitled by virtue of
terms liquidating the seller's damages in accordance with subsection ( 1) , or
(b) in the absence of such terms, twenty per cent of the value
of the total performance for which the buyer is obligated under
the contract or $500, whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is subject
to offset to the extent that the seller establishes
(a) a right to recover damages under the provisions of this
article other than subsection ( 1), and
(b) the amount or v11lue of an:v benefits received by the buyer
directly or indirectly by reason of the contract.
( 4) Where a seller has r~eived payment in goods their reasonable
, rnlue or the proceeds of their resale shall be treated as payments for
the purposes of subsection (2) ; but if the seller has notice of the
buyer's breach before reselling uoods received in part performance,
his resale is subject to the eonaitions laid down in this article on
resale by an aggrie,ed seller (section 28 :2-706).
28 :2-719. Contractual modification or limitation of remedy
(1) Subject to the provisions of subsections (2) and (3) of this
section and of the preceding section on liquidation and limitation of
damages,
(a) the agreement may provide for remedies in addition to
or in substitution for those rrovided in this article and may
limit or alter the measure o damages recoverable under this
article, as by limiting the buyer~s remedies to return of the goods
and repayment of the price or to repair and replacement of nonconforming goods or parts; and
(b) resort to a remedy us provided is optional unless the
remedy is expressly agreed to be exclusive, in which case it is the
sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to
fail of its essential purpose, remedy may be had as provided in this
subtitle.
( 3) Consequential damages may be limited or excluded unless the
limitation or exclusion is unconscionable. Limitation of consequential
damages for injury to the person in the ease of consumer goods is
prima facie unconscionable but limitation of damages where the loss
is commercial is not.
28 :2-720. Effect of "cancellation" or "rescission" on claims for
antecedent breach
Unless the contrary intention clearly appears, expressions of "cancellation" or "rescission" of the contract or the like shall not be construed as a renui1ciation or discharge of any claim in damages for
an antecedent breach.

66

' t'.i
'~l

....11

')

t..

PUBLIC LAW 88-243-DEC. 30, 1963

[77STAT.

28 :2-721. Remedies for fraud

Remedies for matl'rial 111isrepresentatio11 or fraud i1clmle a.ll
remedies antilable un<ll'r this artiele fot nonfraudulent breach.
Xeither reseission or a daim for reseissiou of the <ontmct for sale nor
reiection or return of the goods shall bar or be deemed inconsistent
with n clnim for dmunges or other remedy.
28:2-722. Who can sue third parties for injury to goods
"~here a third party so deals with goods whil'h ha\e been identified
to a eontrnct for sale ns to <ause a<'tiounble injury to a party to that
eoutract
(a) a right of adion against the third party is in either party
to the cont met for sale who hns tit le to or a security interest or a
special property or nn insurable interest in the goods; and if the
goods luwe heen destroyed or comerted n right of action is also
in the party who either bore the risk of loss under the contract
for sale or has sinl'e the injury assumed t hnt risk as against the
other;
(b) if at the time of the injury the party plaintiff did not bear
the risk of loss ns against the othl'r pnrty to the contract for sale
and there is no arrangement between them for disposition of the
recovery, his suit or settlement is, subject to his own interest, as
a fiduciary for the other party to the contract;
(c) either pnrty may with the consent of the other sue for the
benefit of whom it may concern.
28 :2-723. Proof of market price: time and place
(1) If an acti011 based on anticipatory repudiation comes to trial
before the tin1e for performnnce with respect to some or all of the
goods, any damages based on market price (section 28 :2-708 or
section 28 :2-713) shall be determined according to the price of such
goods prevailing at the time when the aggrieved party learned of the
repudiation.
(2) If evidence of a price prevailing at the times or places described
in this article is not readily arnilable the price prevailing within any
reasonable time before or after the time described or at any other place
which in commercial judgment or under usage of trade would ser~;e
as a resonable substitute for the one described may be nsed, making
any proper allowance for the cost of transporting the goods to or from
such other place.
(3) Evidence of a relevant price prevailing at a time or place other
than t.he one described in this article offered by one party is not
admissible unless and until he has given the other party such notice
as the comt finds sufficient to prevent unfair surprise.
28:~24. Admissibility of market quotations
\Vhenever the prerniling price or value of any uoods regularly
bought and sold in any established commodity madet is in issue,
reports in official publmttions or trade journals or in newspapers
or periodicals of general circulation published as the reports of such
market shall be admissible in eYidence. The circumstances of the
preparation of such a report may be shown to affect its weight but
not its admissibility.
28:2-725. Statute of limitations in contracts for sale
( 1) An action for breach of any contract for sale must be commenced within four years after the ciwse of action has accrued. Ily
the original agreement the parties may reduce the period of limitation
to not less than one year but may not extend it.
(2) A cause of action accrues when the breach occurs, regardless
of the aggrieved party's lack of knowledge of the breach. A breach

77 STAT.

PUBLIC

of wnrranty occurs when

where :i warranty explici
goods aud discoyery of th
formance the cause of act
ha Ye been discovered.
( 3) Where an action e<.
section ( 1) is so terminate
action for the same breach
the expiration of the tim
termination of the first a
voluntary discontinuance
prosecute.
( 4) This section doe.s t
of limitations nor does it a
before this subtitle hecomi

ARTICLE 3l'AHT 1-~noa:

8ec.

:!H :3-101. ~hort title.

:3-102. Hefinitlons and inc
:!8 :3-10:{. J,imitation.~ on sco
:!8 :3-104. Forlll of negotiabl
deposit'" ; '"note"
:!8 :3-10:). When promi11e or
:!8 :3-106. Suw certailL
:!8 :3-107. Money.
:!8 :3-108. Payable on clemau
:.!8 :3-109. Definite time.
:.!1' :3-110. Payable to order.
:!8 :3-111. Payable t:o bearer
:!8 :3--112. Terms and omisf!i<
:!8 :3-113. Seal.
:!8 :3-114. Date, antedating,
28 :3--115. Incomplete instrn:
28 :3-116. Instruments payal
28 :3--117. Instruments payal
28 :3-118. Ambiguous terms
:!8 :3-119. Other writings af
28 :3-120. lnlltruments "pay:
28 :3-121. Instrument!! payal
:!8 :3--122. Accrual of cause ,
:!~

l'ART 2

28 :3-201.
28 :3-202.
28 :3--203.
28 :3-204.
28 :3-205.
28 :3--206.
28 :3--207.
28 :3-208.

Transfer: right ti
Xegotiation.
Wrong or lllisspel
Special indorsemE
Restrieti'fe indor:
Effect of restricti
Negotiation effect
Reacquisiti<>n.

28 :3--301.
28 :3-302.
28 :3-303.
28 :3-304.
28 :3-300.
28 :3--306.
28 :3--307.

Rights of a holdE
Holder in due co
Taking for value
Notice to purcha:
Rights of a holdE
Rights of one not
Burden of establi

PAl

77 STAT.]

')EC. 30, 1963

PUBLIC LAW 88-2"

of wnrranty occurs when tender of delive~ is made. except that

where :i warranty explicitlj extends to fu ure perfo11nance of the
;.roods and discowry of the Lrearh nrnst await the time of such performance the cause of adion accrues when the breach is or should
ha,e been discovered.
(3) Where a.n action commenced within the time limited by sub:;ection (1) is so tenninated as to leave available a remedy by another
action for the &'\me breach such other action may be commenced after
the expiration of the time limited and within six months after the
termination of the first action unless the termination resulted from
,oluntary discontinuance or from dismissal for failure or neglect to
prosecute.
( 4) This section does not alter the law on tolling of the statute
of ]imitations nor does it apply to causes of action which have accrued
liefore this subtitle becomes pjfecthe.

ARTICLE 3-COMMERCIAL PAPER

l'All'f l-l'l110RT T1n.t:. I!'ORM

.ow

lxn:RPRt:TAnox

i>ec.

:!X :3-101. ~hort titlt>.

:!::; :3-102. I >etinitions 1111tl indt'X of detiuitious.
:!H :3-lo:i. J,imitationi;; on scope of article.
:!8 :3-104. l<'or!ll of nt>gotiable ini<ttumPnts: ''llraft"'; "cbPck"; "certificate of
deposit" ; "note".
:!8 :3-100. When promi~e or or(ler unconditional.
:!8 :3-106. Sum certain.
:!8 :3-107. Money.
:!8 :3-108. l'ayable 011 demaml.
28 :3-109. Definite t.inie.
:!1' :3-110. Payable to order.
:!8 :3-111. Payable to bearer.
:!8 :3-112. Terms and omissioms uot nfft>C'ting nt>gotinbility.
:!8 :3-113. Seal..
28 :3-114. Date, antedating, postdating.
28 :3-115. Incornt)lete iustruments.
28 :3-116. Instruments pa,,able t.o two or more persous.
28 :3-117. Instrwueutg payable with words of description.
28 :3-118. Ambiguous terms and rules of construction.

:.!8 :3-119. Other writings affecting instrument.

28 :3-120. Instruments "payable through" bank.
28 :3-121. lm1truments payable at bank.
28 :3-122. Accrual of cause of action.
l'ART 2-TRANSFER AND :.\'EGOTU'fION

28 :3-201. 'l'ransf.,,: right to imlorsement.

28 :3-202. ~egotiation.

28 :3-203.
28 :3-204.
28 :3-200.
28 :3-206.
28 :3-207.
:!8 :3-208.

Wrong or misspelled name.

Special lndorsement; blank indorsement.
Restrictive indorsements.
Effect of restrictive indorsement.
Xegotiation effective although it may be rescinded.
Rea.cqnisition.
PART 3-BIGHTS OF A

28 :3--801.
28 :3-302.
28 :3-303.
28 :3--804.
28 :3-.~.
28 :3-306.
28 :3-307.

Hor.m:R

Rights of a holder.
Holder in due course.
Taking for value.
:Sotice to purchaser.
Rights of a holder in due course.
Rights of one not holder in due course.
Burden of establishing signatures, llefenses and due course.

'';}

...
:~

'

; .

'
,,'"

.:/

LEASES

[)r sale.

ARTICLE

nenced within
1greement the
year but may

is
for the same
n of the time
action unless
dismissal for
Jf limitations
this subtitle
1; 1973 Ed.,
doctrine of
Under the doct time does not
iscovers, or by
discovered, the
'ord Motor Co

I.

.,

tiff's appeal to
. barred by the
tissed as frivowas initiated
act was made.
pp. D.C., 304
825 F.2d 448
v. Khambata,

LEASES.

Sec.

Part 1. General Prouisions.

~tc.

1rdle.ss of the
trranty occurs
nty explicitly
~breach must
ies when the
~section (1)

2A.

>
-~

:io:2A-101. Short title.

:!K:2A-102. Scope.
.
..
JK2A-103. Definitions and mdex of definitions.
~~;2A-104. Leases subject ~o o~her law..
i;A-105. Territorial apphcation of article to
- goods covered by certificate of title.
28:2A-106. Limitation on power of parties to
consumer lease to choose applicable law and judicial forum.
28:2A-107. Waiver or renunciation of claim or
right after default.
28:2A-108. Unconscionability.
28:2A-109. Option to accelerate at will.

28:2A-304.
28:2A-305.
28:2A-306.
28:2A-307.
28:2A-308.
28:2A-309.
28:2A-310.
28:2A-311.

tion of performance; transfer of

rights.
Subsequent lease of goods by lessor.
Sale or sublease of goods by lessee.
Priority of certain liens arising by
operation of law.
Priority of liens arising by attachment or levy on, security interests
in, and other claims to goods.
Special rights of creditors.
Lessor's and lessee's rights when
goods become fixtures.
Lessor's and lessee's rights when
goods become accessions.
Priority subject to subordination.

Part 4. Performance of Lease Contract:

Repudiated, Substituted, and Excused.

Part 2. Form~tion and Construction of Lease

Contract.
28:2A-201. tatute of frauds.
28:2A-202. Final written expression: parol or
extrinsic evidence.
28:2A-203. Seals inoperative.
28:2A-204. Formation in general.
28:2A-205. Firm offers.
28:2A-206. Offer and acceptance in formation
of lease contract.
28:2A-207. Course of performance or practical
construction.
28:2A-208. Modification,
rescission,
and
waiver..
28:2A-209. Lessee under finance lease as beneficiary of supply contract.
28:2A-210. Express warranties.
28:2A-211. Warranties against interference
and against infringement; lessee's
obligation against infringement.
28:2A-212. Implied warranty of merchantability.
28:2A-213. Implied warranty of fitness for particular purpose.
28:2A-214. Exclusion or modification of warranties.
28:2A-215. Cumulation and conflict of warranties express or implied.
28:2A-216. Third party beneficiaries of express
and implied warranties.
28:2A-217. Identification.
28:2A-218. Insurance and proceeds.
28:2A-219. Risk of loss.
28:2A-220. Effect of default on risk of loss.
28:2A-221. Casualty to identified goods.

Part 3. Effect of Lease Contract.

28:2A-301. Enforceability of lease contract.
28:2A-302. Title to and possession of goods.
28:2A-303. Alienability of party's interest under lease contract or of lessor's
residual interest in goods; delega-

69

28:2A-401. Insecurity: adequate assurance of

performance.
28:2A-402. Anticipatory repudiation.
28:2A-403. Retraction of anticipatory repudiation.
28:2A404. Substituted performance.
28:2A-405. Excused performance.
28:2A-406. Procedure on excused performance.
finance
28:2A-407. Irrevocable promises:
leases.
.~,~
...:~,..::;....

Part 5. Default.
A. In General.

28:2A-501. Default: procedure.

28:2A-502. Notice after default.
28:2A-503. Modification or impairment of
rights and remedies.
28:2A-504. Liquidation of damages.
28:2A-505. Cancellation and termination and
effect of cancellation, termination,
rescission, or fraud on rights and
remedies.
28:2A-506. Statute of limitations.
28:2A-507. Proof of market rent: time and
place.

B. Default by Lessor.
28:2A-508. Lessee's remedies.
28:2A-509. Lessee's rights on improper delivery; rightful rejection.
28:2A-510. Installment lease contracts: rejection and default.
28:2A-511. Merchant lessee's duties as to
rightfully rejected goods.
28:2A-512. Lessee's duties as to rightfully rejected goods.
28:2A-513. Cure by lessor of improper tender
or delivery; replacement.

28:2A-514. Waiver of lessee's objections.

 28:2A-101

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

Sec.
28:2A-515. Acceptance of goods.
28:2A-516. Effect of acceptance of goods; notice
of default; burden of establishing
default after acceptance; notice of
claim or litigation to person answerable over.
28:2A-517. Revocation of acceptance of goods.
28:2A-518. Cover; substitute goods.
28:2A-519. Lessee's damages for nondelivery,
repudiation, default, and breach
of warranty in regard to accepted
goods.
28:2A-520. Lessee's incidental and consequential damages.
28:2A-521. Lessee's right to specific performance or replevin.
28:2A-522. Lessee's right to goods on lessor's
insolvency.

C. Default by Lessee.
Sec.
28:2A-523. Lessor's remedies.
28:2A-524. Lessor's right to identify goods to
lease contract.
28:2A-525. Lessor's right to possession of
.
goods.
28:2A-526. Lessor's stoppage of delivery in
transit or otherwise.
28:2A-527. Lessor's rights to dispose of goods.
28:2A-528. Lessor's damages for nonacceptance, failure to pay, repudiation,
or other default.
28:2A-529. Lessor's action for the rent.
28:2A-530. Lessor's incidental damages.
28:2A-531. Standing to sue third parties for
injury to goods.
28:2A-532. Lessor's rights to residual interest.

Part 1. General Provisions.

28:2A-101. Short title.

This article shall be known and may be cited as the Uniform Commercial
Code - Leases. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - Law
9-128, the "Uniform Commercial Code, Leases,
Act of 1992," was introduced in Council and
assigned Bill No. 9-19, which was referred to
the Committee on Consumer and Regulatory
Affairs. The Bill was adopted on first and

~~

second readings on April 7, 1992, and May 6,

1992, respectively. Signed by the Mayor on May
28, 1992, it was assigned Act No. 9-212 and
transmitted to both Houses of Congress for its
review. D.C. Law 9-128 became effective on
July 22, 1992.

28:2A-102. Scope.

This article applies to any transaction, regardless of form, that creates a

lease. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-103. Definitions and index of definitions.

/,~

(a) In this article unless the context otherwise requires:

(1) "Buyer in ordinary course of business" means a person who in good
faith and without knowledge that the sale to him or her is in violation of the
ownership rights or security interest or leasehold interest of a third party in
the goods buys in ordinary course from a per5on in the business of selling goods
of that kind but does not include a pawnbroker. "Buying'' may be for cash or by
~hange of other property or or(secured.)or u~ecured credit and includes
receiving goods or documents of title under a pre-existing contract f~e but
does not include a transfer in bulk or as security-for or in total or partial
satisfaction of a money debt.

!/.n~

(i

jc

Je

70

(i'.-....11f

LEASES

28:2A103

(2) "Cancellation" occurs when either party: puts an end to the lease
contract for default by the other party.
(3) "Commercial unit" means such a unit of goods as by commercial usage r; d I?)
/
is a single whole for purposes oflease and division of which materially impairs/',_ (
its character or value on the market or in use. A commercial unit may be a
-'single article, as a machine, o(a set of articles) as a suite of furniture or a line
L ..
of machinery, or a quantity, as a gross or carload, or any other unit treated in /~,
use or in the relevant market as a single whole.
U..Sl.
(4) "Conforming" goods or performance under a lease contract means
~/l..
goods or performance that are in accordance with the obligations under the
lease contract.
~ ..._\...e,.> ~ T
(5) "Consumer lease" means a lease that a lessor regularly engaged in the
business of leasing or selling makes to a lessee who is an individual and who
takes under the lease primarily for a personal, family, or household purpose, if
the total payments to be made under the lease contract, excluding payments
for options to renew or buy, do not exceed $25,000.
.
(6) "Fault" means wrongful act, omission, breach, or default.
(7) "Finance lease" means a lease with respect to which:
(
(A) The lessor does not select, manufacture, or supply the goods;
(B) The lessor acquires the goods or the right to possession and use of V'
the goods in connection with the lease; and
(C) One of the following occurs:
(i) The lessee receives a copy of the contract by which the lessor .......acquired the goods or the right to possession and use of the goods before
signing the lease contract;
(ii) The lessee's approval of the contract by which the lessor acquired V
the goods or the right to possession and use of the goods is a condition to ft: l
effectiveness of the lease contract;
(iii) The lessee, before signing the lease contract, receives an accurate
and complete statement desifil!!!ting the pr!:lises and warE!.nties, and ~
disclaimer of vt.arranties, limitations or modifications of remedies, or liquidated damages, including those of a third p:irty, such as the manufacturer of~/
the goods, provided to the. lessor by the person supplying the goods in
connection with or as part of the contract by which the lessor acquired the
goods or the right to possession and use of the goods; or
'(iv) If the lease is not a consumer lease, the lessor, before the lessee
signs the lease contract, informs the lessee in writing of the i~ty of the
person supplying the goods to the lessor, unless the lessee has selected that
person and directed the!essor to acqurre the goods or the right to possession
and use of the goods from that person; that the lessee is entitled under this
article to the promises and warranties, including those of any third party,
provided to the lessor by the person supplying the goods in connection with or
as part of the contract by which the lessor acquired the goods or the right to
possession and use of the goods; and that the lessee may communicate with the
person supplying the goods to the lessor and receive an accurate and complete
statement of those promises and warranties, including any disclaimers and
limitations of them or of remedies.

t!:;:r

e..

/bf

71

 28:2A-103

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

(8) "Goods" means all things that are movable at the time of identification
to the lease contract, or are fixtures ( 28:2A-309), but the term does not
include money, documents, instruments, accounts, chattel paper, general
intangibles, or minerals or the like, including oil and gas, before extraction.
The term also includes the unborn young of animals.
(9) "Installment lease contract" means a lease contract that authorizes or
requires the delivery of goods in separate lots to be separately accepted, even
though the lease contract contains a clause "each delivery is a separate lease"
or its equivalent.
( 10) "Lease" means a transfer of the right to possession and use of goods
for a term in return fqr consideration, but a sale, including a sale on approval
or a sale or return, or retention or creation of a security interest is not a lease.
Unless the context clearly indicates otherwise, the term includes a sublease.
(11) "Lease agreement" means the bargain, with respect to the lease, of
the lessor and the lessee in fact as found in their language or by implication
from other circumstances including course of dealing or usage of trade or
course of performance as 'provided in this article. Unless the context clearly
indicates otherwise, the term includes a sublease agreement.
(12) "Lease contract" means the total legal obligation that results from the
lease agreement as affected by this article and any other applicable rules of
law. Unless the context clearly indicates otherwise, the term includes a
sublease contract.
{13) "Leasehold interest" means the interest of the lessor or the lessee
under a lease contract.
{14) "Lessee" means a person who acquires the right to possession and use
of goods under a lease. Unless the context clearly indicates otherwise, the term
includes a sublessee.
(15) "Lessee in ordinary course of business" means a person who in good
faith and without knowledge that the lease to him or her is in violation of the
ownership rights or security interest or leasehold interest of a third party in
the goods leases in ordinary course from a person in the business of selling or
leasing goods of that kind but does not include a pawnbroker. "Leasing'' may be
for cash or by exchange of other property or on secured or unsecured credit and
includes receiving goods nr documents of title under a pre-existing lease
contract but does nqt include a transfer in bulk or as security for or in total or
partial satisfaction of a money debt.
( 16) "Lessor" means a person who transfers the right to possession and
use of goods under a lease. Unless the context clearly indicates otherwise, the
term includes a sublessor.
(17) "Lessor's residual interest" means the lessor's interest in the goods
after expiration, termination, or cancellation of the lease contract.
{18) "Lien" means a charge against or interest in goods to secure payment
of a debt or performance of an obligation, but the term does not include a
security interest.
(19) "Lot" means a parcel or a single article that is the subject matter of
a separate lease or delivery, whether or not it is sufficient to perform the lease
contract.

72

LEASES

28:2A-103

(20) "Merchant lessee" means a lessee that is a merchant with respect to

goods of the kind subject to the lease.
(21) "Present value" means the amount as of a date certain of one or more
sums payable in the future, discounted to the date certain. The discount is
determined by the interest rate specified by the parties if the rate was not
manifestly unreasonable at the time the transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes
into account the facts and circumstances of each case at the time the
transaction was entered into.
(22) "Purchase" includes taking by sale, lease, mortgage, security interest,
pledge, gift, or any other voluntary transaction creating an interest in goods.
(23) "Sublease" means a lease of goods the right to possession and use of
which was acquired by the lessor as a lessee under an existing lease.
(24) "Supplier" means a person from whom a lessor buys or leases goods
to be leased under a finance lease.
(25) "Supply contract" means a contract under which a lessor buys or
leases goods to be leased.
(26) "Termination" occurs when either party pursuant to a power created
by agreement or law puts an end to the lease contract otherwise than for
default.
(b) Other definitions applying to this article and the sections in which they
appear are:
"Accessions". 28:2A-310(a).
"Construction mortgage". 28:2A-309(a)(4).
"Encumbrance". 28:2A-309(a)(5).
"Fixture filing". 28:2A-309(a)(2).
"Fixtures". 28:2A-309(a)(l).
"Purchase money lease". 28:2A-309(a)(3).
(c) The following definitions in other articles apply to this article:
"Account". 28:9-106.
"Between merchants". 28:2-104(3).
"Buyer". 28:2-103(1)(a).
"Chattel paper". 28:9-105(1)(b).
"Consumer goods". 28:9-109(1).
"Document." 28:9-105(1)().
"Entrusting". 28:2-403(3).
"General intangibles". 28:9-106.
"Good faith". 28:2-103(1)(b).
"Instrument". 28:9-105(l)(i).
"Merchant". 28:2-104(1).
"Mortgage". 28:9-105(1)(j).
"Pursuant to commitment". 28:9-105(1)(k).
"Receipt". 28:2-103(1)(c).
"Sale". 28:2-106(1).
"Sale on approval". 28:2-326.
"Sale or return". 28:2-326.
"Seller". 28:2-103(1)(d).

73

 28:2A-104

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

(d) In addition Article 1 contains general definitions and principles of

construction and interpretation applicable throughout this article. (July 22,
1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
.
Legislative history of Law 9128. note to 28:2A-101.

See

28:2A-104. Leases subject to other law.

(a) A lease, although subject to this article, is also subject to any applicable:
(1) Certificate of title statute of the District;
(2) Certificate of title statute of another jurisdiction( 28:2A-105); or
(3) Consumer protection statute of the District, or :final consumer protection .decision of a court of the District existing on the effective date of this
article.
(b) In case of conflict between this article, other than 28:2A-105, 28:2A304(c), and 28:2A-305(c), and a statute or decision referred to in subsection (a)
of this section, the statute controls.
(c) Failure to comply with an applicable law has only the effect specified
therein. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)

r/

Legislative history of Law 9128. note to 28:2A-101.

See

28:2A-105. Territorial application of article to goods cov-

ered by certificate of title.

Subject to the provisions of 28:2A-304(c) and 28:2A-305(c), with respect to
goods covered by a certificate of title issued under a statute of the District or
of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute are governed by the law (including the
conflict oflaws rules) ofthe,jurisdiction issuing the certificate 1!-ntil the earlier
of (i) surrender of the certificate, or (ii) 4 months after the goods are removed
from that jurisdiction and thereafter until a new certificate of title is issued by
another jurisdiction. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:1-105 and 28:2A-104.

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-106. Limitation on power of parties to consumer

lease to choose applicable law and judicial

forum.
(a) If the law chosen by the parties to a consumer lease is that of a
jurisdiction other than a jurisdiction in which the lessee resides at the time the
lease agreement becomes enforceable or within 30 days thereafter or in which
the goods are to be used, the choice is not enforceable.
(b) If the judicial forum chosen by the parties to a consumer lease is a forum
that would not otherwise have jurisdiction over the lessee, the choice is not
enforceable. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
74

LEASES

Section references. ferred to in 28:1-105.

This section is re-

28:2A-109

Legislative history of Law 9128. - See

note to 28:2A-101.

28:2A-107. Waiver or renunciation of claim or right after

default.
Any claim or right arising out of an alleged default or breach of warranty
may be discharged in whole or in part without consideration by a written
waiver or renunciation signed and delivered by the aggrieved party. (July 22,
1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

28:2A-108. Unconscionability.
(a) If the court as a matter of law finds a lease contract or any clause of a
lease contract to have been unconscionable at the time it was made the court
may refuse to enforce the lease contract, or it may enforce the remainder of the
lease contract without the unconscionable clause, or it may so limit the
application of any unconscionable clause as to avoid any unconscionable result.
(b) With respect to a consumer lease, if the court as a matter oflaw finds
that a lease contract or any clause of a lease contract has been induced by
unconscionable conduct or that unconscionable conduct has occurred in the
collection of a claim arising from a lease contract, the court may grant
appropriate relief.
(c) Before making a finding of unconscionability under subsection (a) or (b)
of this section, the court, on its own motion or that of a party, shall afford the
parties a reasonable opportunity to present evidence as to the setting, purpose,
and effect of the lease contract or clause thereof, or of the conduct.
(d) In an action in which the lessee claims unconscionability with respect to
a consumer lease:
(1) If the court finds unconscionability under subsection (a) or (b) of this
section, the court shall award reasonable attorney's fees to the lessee.
(2) If the court does not find unconscionability and the lessee claiming
unconscionability has brought or maintained an action he or she knew to be
groundless, the court shall award reasonable attorney's fees to the party
against whom the claim is made.
(3) In determining attorney's fees, the amount of the recovery on behalf of
the claimant under subsections (a) and (b) of this section is not controlling.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

28:2Al09. Option to accelerate at will.

(a) A term providing that one party or his or her successor in interest may
accelerate payment or performance or require collateral or additional collateral "at will" or "whe; he ckshe deems himself or herself insecure" or in words

75

 28:2A-201

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

'

'

of similar import must be construed to mean that he or she has power to do so

only if he or she in good faith believes that the prospect of payment or
performance is impaired.
(b) With respect to a consumer lease, the burden of establishing good faith
under subsection (a) of this section is on the party who exercised the power;
otherwise the burden of establishing lack of good faith is on the party against
whom the power has been exercised. (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830.)
Legislative history of Law 9128. note to 28:2A-101.

See

Part 2. Formation and Construction of Lease Contract.

28:2A-201. Statute of frauds.
(a) A lease contract is not enforceable by way of action or defense unless:
(1) The total payments to be made under the lease contract, excluding
payments for options to renew or buy, are lli.ss than $1,000; or
(2) There is a writing, signed by the party against whom enforcement is
sought or by that party's authorized agent, sufficient to indicate that a lease
contract has been made between the parties and to describe the goods leased
and the lease term.
v (b) Any description of leased goods or of the lease term is sufficient and
satisfies subsection (a)(2) of this section, whether or not it is specific, if it
reasonably identifies what is described.
(c) A writing is not insufficient because it omits or incorrectly states a term
agreed upon, but the lease contract is not enforceable under subsection (a)(2)
of this section beyond the lease term and the quantity of goods shown in the
writing.
(d) A lease contract that does not satisfy the requirements of subsection (a)
of this section, but which is valid in other respects, is enforceable:
(1) If the goods are to be specially manufactured or obtained for the lessee
and are not suitable for lease or sale to others in the ordinary course of the
lessor's business, and the lessor, before notice of repudiation is received and
under circumstances that reasonably indicate that the goods are for the lessee,
has made either a substantial beginning of their manufacture or commitments
for their procurement;
(2) If the party against whom enforcement is sought admits in that party's
pleading, testimony, or otherwise in court that a lease contract was made, but
the lease contract is not enforceable under this provision beyond the quantity
of goods admitted; or
(3) With respect to goods that have been received and accepted by the
lessee.
(e) The lease term under a lease contract referred to in subsection (d) of this
section is:
(1) If there is a writing signed by the party against whom enforcement is
sought or by that party's authorized agent specifying the lease term, the term
so specified;

76

LEASES

28:2A-204

(2) If the party against whom enforcement is sought admits in that party's
pleading, testimony, or otherwise in court a lease term, the term so admitted;
or
(3) A reasonable lease term. (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830.)
Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-202. Final written expression: parol or extrinsic

evidence.
Terms with respect to which the confirmatory memoranda of the parties
agree or which are otherwise set forth in a writing intended by the parties as
a final expression of their agreement with respect to such terms as are included
therein may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented:
(1) By course of dealing or usage of trade or by course of performance; and.
(2) By evidence of consistent additional terms unless the court finds the
writing to have been intended also as a complete and exclusive statement of
the terms of the agreement. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references.
ferred to in 28:2A-214.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-203. Seals inoperative.

The affixing of a seal to a writing evidencing a lease contract or an offer to
enter into a lease contract does not render the writing a sealed instrument and
the law with respect to sealed instruments does not apply to the lease contract
or offer. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9128. note to 28:2A-101.

See

28:2A-204. Formation in general.

(a) A lease contract may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of
a lease contract.
(b) An agreement sufficient to constitute a lease contract may be found..........although the moment of its making is undetermined.
(c) Although one or more terms are left open, a lease contract does not fail ..r".
for indefiniteness if the parties have intended to make a lease contract and
there is a reasonably certain basis for giving an appropriate remedy. (July 22,
1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

77

 28:2A-205

COMMERCIAL INSTRUMENTS

AND

ThANSACTIONS

V 28:2A-205. Firm offers.

An offer by a merchant to lease goods to or from another person in a signed
writing that by its terms ~s a!?..fil!rance it will be held open is n~ revocable,
for lack of consideration, during the time stated or, if no time is stated, for a
reasonable time, but in no event may the period of irrevocability exceed 3
months. Any such term of assurance on a form supplied by the offeree must be
separately signed by the offeror. (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830.}
Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-206. Offer and acceptance in formation of lease

contract.
(a) Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed as invi.,.Eng
accepta..nce in any manner and by any medium reasonable in the circumstances.
(b) If the beginning of a requested performance is a reasonable mode of
acceptance, an offeror who is not notified of acceptance within a reasonable
time may treat the offer as having lapsed before acceptance. (July 22, 1992,
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-207. Course of performance or practical construc-

tion.
(a) If a lease contract involves repeated occasions for performance by either
party with knowledge of the nature of the performance arid opportunity for
objection to it by the other, any course of performance accepted or acquiesced
in without objection is relevant to determine the meaning of the lease
agreement.
(b) The express terms of a lease agreement and any course of performance,
as well as any course of dealing and usage of trade, must be construed
whenever reasonable as consistent with each other; but if that construction is
unreasonable, express terms control course of performance, course of performance controls both course of dealing and usage of trade, and course of dealing
controls usage of trade.
(c) Subject to the provisions of 28:2A-208 on modification and waiver,
course of performance is relevant to show a waiver or modification of any term
inconsistent with the course of performance. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Legislative history of Law 9-128. note to 28:2A-101.

See

78

LEASES

28:2A-209

28:2A-208. Modification, rescission, and waiver.

(a) An agreement modifying a lease contract needs no consideration to be
binding.
;,// (b) A signed lease agreement that excludes modification or rescission except
V by a signed writing may not be otherwise modified or rescinded, but, except as
between merchants, such a requirement on a form supplied by a merchant
must be separately signed by the other party.
(c) Although an attempt at modification or rescission does not satisfy the
requirements of subsection (b) of this section, it may operate as a waiver.
(d) A party who has made a waiver affecting an executory portion of a lease
contract may retract the waiver by reasonable notification received by the
other party that strict performance will be required of any term waived, unless
the retraction would be unjust in view of a material change of position in
reliance on the waiver. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-207.

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-209. Lessee under finance lease as beneficiary of

supply contract.
(a) The benefit of a supplier's promises to the lessor under the supply
contract and of all warranties, whether express or implied, including those of
any third party provided in connection with or as part of the supply contract,
extends to the lessee to the extent of the lessee's leasehold interest under a
finance lease related to the supply contract, but is subject to the terms of the
warranty and of the supply contract and all defenses or claims arising
therefrom.
(b) The extension of the benefit of a supplier's promises and of warranties to
the lessee ( 28:2A-209(a}) does not:
{1) Modify the rights and obligations of the parties to the supply contract,
whether arising therefrom or otherwise; or
(2) Impose any duty or liability under the supply contract on the lessee.
(c) Any modification or rescission of the supply contract by the supplier and
the lessor is effective between the supplier and the lessee unless, before the
modification or rescission, the supplier has received notice that the lessee has
entered into a finance lease related to the supply contract. If the modification
or rescission is effective between the supplier and the lessee, the lessor is
deemed to have assumed, in addition to the obligations of the lessor to the
lessee under the lease contract, promises of the supplier to the lessor and
warranties that were so modified or rescinded as they existed and were
available to the lessee before modification or rescission.
(d) In addition to the extension of the benefit of the supplier's promises and
of warranties to the lessee under subsection (a) of this section, the lessee
retains all rights that the lessee may have against the supplier which arise
from an agreement between the lessee and the supplier or under other law.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830; July 25, 1995, D.C. Law
11-30, 7(a), 42 DCR 1547.)
79

 28:2.A-210

COMMERCIAL INSTRUMENTS

Effect of amendments. - D.C. Law 11-30,

in (a), substituted "part of the supplyn for "part
the supply"; and, in the introductory language
of(b}, substituted "benefit of a supplier's promisesn for "benefit a supplier's promisesn and
"(28:2A-209{a))" for "(28:2A-209{1))."
Legislative history of Law 9-128. - See
note to 28:2A-101.
Legislative history of Law 11-30
Law
11-30, the "Technical Amendments Act of1995,"

AND

TRANSACTIONS

was introduced in Council and assigned Bill

No. 11-58, which was referred to the Committee
of the Whole. The Bill was adopted on first and
second readings on February 7, 1995, and
March 7, 1995, respectively. Signed by the
Mayor on March 22, 1995, it was assigned Act
No. 11-32 and transmitted to both Houses of
Congress for its review. D.C. Law 11-30 became
effective on July 25, 1995.

~ 28:2A-210. Express warranties.

(a} Express warranties by the lessor are created as follows:
(1) Any affirmation of fact or promise made by the lessor to the lessee
which relates to the goods and becomes part of the basis of the bargain creates
an express warranty that the goods will conform to the affirmation or promise.
(2) Any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods will conform to the
description.
{3) Any sample or model that is made part of the basis of the bargain
creates an express warranty that the whole of the goods will conform to the
sample or model.
(b) It is not necessary to the creation of an express warranty that the lessor
use formal words, such as "warrant" or "guarantee," or that the lessor have a
specific intention to make a warranty, but an affirmation merely of the value of
the goods or a statement purporting to be merely the lessor's opinion or
commendation of the goods does not create a warranty. (July 22, 1992, D.C.
Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-211. Warranties against interference and against

infringement; lessee's obligation against infringement.

{a) There is in a lease contract a warranty that for the lease term no person
holds a claim to or interest in the goods that arose from an act or omission of
the lessor, other than a claim by way of infringement or the like, which will
interfere with the lessee's enjoyment of its leasehold interest.
{b) Except in a finance lease there is in a lease contract by a lessor who is a
merchant regularly dealing in goods of the kind a warranty that the goods are
delivered free of the rightful claim of any person by way of infringement or the
like.
(c) A lessee who furnishes specifications to a lessor or a supplier shall hold
the lessor and the supplier harmless against any claim by way of infringement
or the like that arises out of compliance with the specifications. (July 22, 1992,
D.C. Law 9-128, 2{b), 39 DCR 3830.)
80

LEASES

Section references. - This section is referred to in 28:2A-214 and 28:2A-516.

28:2A-214

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-212. Implied _warranty of merchantability.

4(

(a) Except in a finance lease, a warranty that the goods will be merchantable is implied in a lease contract if the lessor is a merchant with respect to
goods of that kind.

(b) Goods to be merchantable must:

(1) Pass withqut objection in the trade under the description in the lease
agreement;
(2) In the case of fungible goods, be of fair average quality within the
description;
(3) Be fit for the ordinary purposes for which goods of that type are used;
(4) Run, within the variation permitted by the lease agreement, of even
kind, quality, and quantity within each unit .and among all units involved;
(5) Be adequately contained, packaged, and labeled as the lease agreement may require; and
(6) Conform to any promises or affirmations of fact made on the container
or label.
(c) Other implied warranties may arise from course of dealing or usage of
trade. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

28:2A-213. Implied warranty of fitness for particular

purpose.
Except in a finance lease, if the lessor at the time the lease contract is made
has reason to know of any particular purpose for which the goods are required
and that the lessee is relying on the lessor's skill or judgment to select or
furnish suitable goods, there is in the lease contract an implied warranty that
the goods will be fit for that purpose. (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-214. Exclusion or modification of warranties.

(a) Words or conduct relevant to the creation of an express warranty and
words or conduct tending to negate or limit a warranty must be construed
wherever reasonable as consistent with each other; but, subject to the
provisions of 28:2A-202 on parol or extrinsic evidence, negation or limitation
is inoperative to the extent that the construction is unreasonable.
(b) Subject to subsection (c) of this section, to exclude or modify the implied
warranty of merchantability or any part of it the language must mention
"merchantability", be by a writing, and be conspicuous. Subject to subsection
(c) of this section, to exclude or modify any implied warranty of fitness the
81

 28:2A-215

COMMERCIAL INSTRUMENTS AND 'ThANSACTIONS

exclusion must be by a writing and be conspicuous. Language to exclude all

implied warranties of fitness is sufficient if it is in writing, is conspicuous and
states, for example, "There is no warranty that the goods will be fit for a
particular purpose".
(c) Notwithstanding subsection (b) of this section, but subject to subsection
(d) of this section:
(1) unless the circumstances indicate otherwise, all implied warranties
are excluded by expressions like "as is," or "with all faults," or by other
language that in common understanding calls the lessee's attention to the
exclusion of warranties and makes plain that there is no implied warranty, if
in writing and conspicuous;
(2) if the lessee before entering into the lease contract has examined the
goods or the sample or model as fully as desired or has refused to examine the
goods, there is no implied warranty with regard to defects that an examination
ought in the circumstances to have revealed; and
(3) an implied warranty may also be excluded or modified by course of
dealing, course of performance, or usage of trade.
(d) To exclude or modify a warranty against interference or against infringement( 28:2A-211) or any part of it, the language must be specific, be by a
writing, and be conspicuous, unless the circumstances, including course of
performance, course of dealing, or usage of trade, give the lessee reason to
know that the goods are being leased subject to a claim or interest of any
person. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9128.

See

note to 28:2A-101.

J~I

J 28:2A-215.press
Cumulation and conflict of warranties exor implied.
Warranties, whether express or implied, must be construed as consistent
with each other and as cumulative, but if that construction is unreasonable,
the intention of the parties determines which warranty is dominant. In
ascertaining that intention the following rules apply:
(1) Exact or technical specifications displace an inconsistent sample or
model or general language of description.
(2) A sample from an existing bulk displaces inconsistent general language of description.
l3) Express warranties displace inconsistent implied warranties other
than an implied warranty of fitness for a particular purpose. (July 22, 1992,
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

82

LEASES

28:2A-218

28:2A-216. Third party beneficiaries of express and im-

plied warranties.
A warranty to or for the benefit of a lessee under this article, whether
express or implied, extends to any person who may reasonably be expected to
use, consume, or be affected by the goods and who is injured by breach of the
warranty. The operation of this section may not be excluded, modified, or
limited with respect to injury to the person of an individual to whom the
warranty extends, but an exclusion, modification, or limitation of the warranty,
including any with respect to rights and remedies, effective against the lessee
is also effective against the beneficiary designated under this section. (July 22,
1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-217. Identification.

Identification of goods as goods to which a lease contract refers may be made

at any time and in any manner explicitly agreed to by the parties. In the
absence of explicit agreement, identification occurs:
(1) When the lease contract is made if the lease contract is for a lease of
goods that are existing and identified;
(2) When the goods are shipped, marked, or otherwise designated by the
lessor as goods to which the lease contract refers, if the lease contract is for a
lease of goods that are not existing and identified; or
(3) When the young are conceived, if the lease contract is for a lease of
unborn young of animals. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. ferred to in 28:2A-522.

This section is re-

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-218. Insurance and proceeds.

(a) A lessee obtains an insu~ble interest when existing goods are identified
to the lease contract even though the goods identified are nonconforming and
the lessee has an option to reject them.
(b) If a lessee has an insurable interest only by reason of the lessor's
identification of the goods, the lessor, until default or insolvency or notification
to the lessee that identification is final, may substitute other goods for those
identified.
(c) Notwithstanding a lessee's insurable interest under subsections (a) and
(b) of this section, the lessor retains an insurable interest until an option to buy
has been exercised by the lessee and risk of loss has passed to the lessee.
(d) Nothing in this section impairs any insurable interest recognized under
any other statute or rule of law.
(e) The parties by agreement may determine that one or more parties have
an obligation to obtain and pay for insurance covering the goods and by
83

 28:2A-219

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

agreement may determine the beneficiary of the proceeds of the insurance.

(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-219. Risk of loss.

(a) Except in the case of a finance lease, risk of loss is retained by the lessor
and does not pass to the lessee. In the case of a finance lease, risk ofloss passes
to the lessee.
(b) Subject to the provisions of this article on the effect of default on risk of
loss( 28:2A-220), if risk ofloss is to pass to the lessee and the time of passage
is not stated, the following rules apply:
(1) If the lease contract requires or authorizes the goods to be shipped by
carrier
(A) And it does not require delivery at a particular destination, the risk
ofloss passes to the lessee when the goods are duly delivered to the carrier; but
(B) If it does require delivery at a particular destination and the goods
are there duly tendered while in the possession of the carrier, the risk of loss
passes to the lessee when the goods are there duly so tendered as to enable the
lessee to take delivery.
(2) If the goods are held by a bailee to be delivered without being moved,
the risk of loss passes to the lessee on acknowledgment by the bailee of the
lessee's right to possession of the goods.
(3) In any case not within paragraph (1) or (2) of this subsection, the risk
of loss passes to the lessee on the lessee's receipt of the goods if the lessor, or,
in the case of a finance lease, the supplier, is a merchant; otherwise the risk
passes to the lessee on tender of delivery. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-529.

This section is re-

Legislative history 'of Law 9-128.

note to 28:2A-101.

See

28:2A-220. Effect of default on risk of loss.

(a) Where risk of loss is to pass to the lessee and the time of passage is not
stated:
(1) If a tender or delivery of goods so fails to conform to the lease contract.
as to give a right of rejection, the risk of their loss remains with the lessor, or,
in the case of a finance lease, the supplier, until cure or acceptance.
{2) If the lessee rightfully revokes acceptance, he or she, to the extent of
any deficiency in his or her effective insurance coverage, may treat the risk of
loss as having remained with the lessor from the beginning.
(b) Whether or not risk of loss is to pass to the lessee, if the lessee as to
conforming goods already identified to a lease contract repudiates or is
otherwise in default under the lease contract, the lessor, or, in the case of a
finance lease, the supplier, to the extent of any deficiency in his or her effective
insurance coverage may treat the risk of loss as resting on the lessee for a
84

LEASES

28:2A-302

commercially reasonable time. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. ferred to in 28:2A-219.

This section is re

Legislative history of Law 9128. - See

note to 28:2A-101.

28:2A-221. Casualty to identified goods.

If a lease contract requires goods identified when the lease contract is made,
and the goods suffer casualty without fault of the lessee, the lessor, or the
supplier before delivery, or the goods suffer casualty before risk of loss passes
to the lessee pursuant to the lease agreement or 28:2A-219, then:
(1) If the loss is total, the lease contract is avoided; and
(2) If the loss is partial or the goods have so deteriorated as to no longer
conform to the lease contract, the lessee may nevertheless demand inspection
and at his or her option either treat the lease contract as avoided or, except in
a finance lease that is not a consumer lease, accept the goods with due
allowance from the rent payable for the balance of the lease term for the
deterioration or the deficiency in quantity but without further right against
the lessor. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

Part 3. Effect of Lease Contract.

28:2A-301. Enforceability of lease contract.
Except as otherwise provided in this article, a lease contract is effe~and
enforceable according to its terms between the parties, against purchasers of
the goods and against creditors of the parties. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

28:2A-302. Title to and possession of goods.

Except as otherwise provided in this article, each provision of this article
applies whether the lessor or a third party has title to the goods, and whether
the lessor, the lessee, or a third party has possession of the goods, notwithstanding any statute or rule oflaw that possession or the absence of possession
is fraudulent. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9128. - See
note to 28:2A-101.

85

 28:2A-303

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

28:2A-303. Alienability of party's interest under lease

contract or of lessor's residual interest in

goods; delegation of performance; transfer of
rights.

. . 11

(1~r.,..

~I,

(a) As used in this section, "creation of a security interest" includes the sale
of a lease contract that is subject to Article 9, Secured Transactions, by reason
of 28:9-102(1)(b). ?"4" tl.t:-i ,P.C...~
(b) Except as provided in subsections (c) and (d) of this section, a provision
in a lease agreement which (i) prohibits the voluntary or involuntary transfer,
including a transfer by sale, sublease, creati()l1 or .enforcement ofa security
interes_t, or attachment, levy, or other judicial process~ of an interest of aparty
under the lease contract or of the less.or's_r~!du,aUnterest. in the goods, or (ii)
makes such a transfer an event of default, gives rise to the right and remedies
provided in subsection (e) of this section, but a transfer that is prohibited or is
an event of default under the lease agreement is otherwise effective.
(c) A provision in a lease agreement which (i) prohibits the creation or
enforcement of a security interest in an interest of a party under the lease
contract or in the lessor's residual interest in the goods, or (ii) makes such a
transfer an event or default, is not enforceable unle_ss, and then only to the
extent that, there is an actual transfur by the lessee of the lessee's right of
possession or use of the goods in violation of the provision or an actual
delegation of i:t~l ~r[2rmance of either party to the lease contract in
violation of the provision. Neither the granting .nor the enforcement of a
security interest in (i) the lessor's interest under the lease contract, or (ii) the
lessor's residual interest in the goods is a transfer that materially impairs the
prospect of obtaining return performance by, materially chang,fill_t!i-~..!!l1.!l..of, or
materially increases t~rd.&U._Qr_risk_j:rp.pQ!!ed on,_the . les~ee... within the
purview of subsection (e) unless, and then only to the extent that, there is an
....actual delegation of a material performa~ce_ of the. !~ssor.
(d) A provision in a lease agreemeiifwhich (i) prohibits a transfer of a right
to damages for default with respect to the whole lease contract or of a right to
payment arising out of the transferor's due performance of the transferor's
entire obligation, or (ii) makes such a transfer an event of default, is not
enforceable, and such a transfer is not a transfer that materially impairs the
prospect of obtaining return performance by, materially changes the duty of, or
materially increases the burden or risk imposed on, the other party to the lease
contract within the purview of subsection (d) of this section.
(e) Subject to subsections (c) and (d) of this section:
(1) If a transfer is made which is made an event of default under a lease
agreement, the party to the lease contract not making the transfer, unless that
party waives the default or otherwise agrees, has the rights and remedies
described in 28:2A-501(b);
(2) If paragraph (1) is not applicable and if a transfer is made that (i) is
prohibited under a lease agreement, or (ii) materially impairs the prospect of
obtaining return performance by, materially changes the duty of, or materially
increases the burden or risk imposed on, the other party to the lease contract,

86

LEASES

28:2A-304

unless the party not making the transfer agrees at any time to the transfer in
the lease contract or otherwise, then, except as limited by contract, (i) the
transfer is liable to the party not making the transfer for damages caused by
the transfer to the extent that the damages could not reasonably be prevented
by the party not making the transfer, and (ii) a court having jurisdiction may
grant other appropriate relief, including cancellation of the lease contract or an
injunction against the transfer.
(f) A transfer of"the lease" or of"all my rights under the lease", or a transfer
in similar general terms, is a transfer of rights, and, unless the language or the
circumstances, as in a transfer for security, indicate the contrary, the transfer
is a delegation of duties by the transferor to the transferee. Acceptance by the
transferee constitutes a promise by the transferee to perform those duties. The
promise is enforceable by either the transferor or the other party to the lease
contract.
(g) Unless otherwise agreed by the lessor and the lessee, a delegation of
performance does not relieve the transferor as against the other party of any
duty to perform or of any liability for default.
(h) In a consumer lease, to prohibit the transfer of an interest of a party
under the lease contract or to make a transfer an event of default, the language
must be specific, by a writing, and conspicuous. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830; May 16, 1995, D.C. Law 10-255, 21, 41DCR5193; July
25, 1995, D.C. Law 11-30, 7(b), 42 DCR 1547.)
Section references. - This section is referred to in 28:2A-304 and 28:2A-305.
Effect of amendments. D.C. Law 10-255
validated a previously made section reference
change at the end of (e)(l).
D.C. Law 11-30, in (e)(l), substituted
" 28:2A-50l(b)" for " 28:2A-501"; and, in
(e)(2J(ii),
substituted
"jurisdiction"
for
"jurisdication."
Legislative history of Law 9128. - See
note to 28:2A-101.
Legislative history of Law 10-255. - Law
10-255, the "Technical Amendments Act of

1994," was introduced in Council and assigned

Bill No. 10-673, which was referred to the
Committee of the Whole. The Bill was adopted
on first and second readings on June 21, 1994,
and July 5, 1994, respectively. Signed by the
Mayor on July 25, 1994, it was assigned Act No.
10-302 and transmitted to both Houses ofCongress for its review. D.C. Law 10-255 became
effective on May 16, 1995.
Legislative history of Law 11-30. - See
note to 28:2A-209.

28:2A-304. Subsequent lease of goods by lessor.

e!

(a) Subject to 28:2A-303, a subsequent lessee from a lessor_Qf goods under

an existing lease contract obtains, to the extent of the leasehold interest
transferred, the leasehold interest in the goods that the lessor had or had
power to transfer, and, except as provided in subsection (b) of this section and
28:2A-527(d), takes subject to the existing lease contract. A lessor with
voidable title has power to transfer a good leasehold interest to a good faith
subsequent lessee for value, but only to the extent set forth in the preceding
sentence. If goods have been delivered under a transaction of purchase, the
lessor has that power even though:
(1) The lessor's transferor was deceived as to the identity of the lessor;
(2) The delivery was in exchange for a check which is later dishonored;
(3) It was agreed that the transaction was to be a "cash sale"; or
87

/ }04f.J?.dt.-l'"'~ d,~v;

(~

61

;!jts

. ,
\

 28:2A-305

COMMERCIAL INSTRUMENTS AND 'ThA.NSACTIONS

(4) The delivery was procured through fraud punishable as larcenous

under the criminal law.
(b) A subsequent lessee in the ordinary course of business from a lessor who
is a merchant dealing in goods of that kind to whom the goods were entrusted
by the existing lessee of that lessor before the interest of the subsequent lessee
became enforceable against that lessor obtains, to the extent of the leasehold
interest transferred, all of that lessor's and the existing lessee's rights to the
goods, and takes free of the existing lease contract.
(c) A subsequent lessee from the lessor of goods that are subject to an
existing lease contract and are covered by a certificate of title issued under a
statute of the District or of another jurisdiction takes no greater rights than
those provided both by this and by the certificate of title statute. (July 22, 1992,
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-104 and 28;2A-105.

Legislati"e history of Law 9-128. - See

note to 28;2A-101.

28:2A-305. Sale or sublease of goods by lessee.

{a) Subject to the provisions of 28:2A-303, a buyer or sublessee from the
lessee of goods under an existing lease contract obtains, to the extent of the
interest transferred, the leasehold interest in the goods that the lessee had or
had power to transfer, and except as provided in subsection (b) of this section
and 28:2A-51l(d), takes subject to the existing lease contract. A lessee with
a voidable leasehold interest has power to transfer a good leasehold interest to
a good faith buyer for value or a good faith sublessee for value, but only to the
extent set forth in the preceding sentence. When goods have been delivered
under a transac.tion of lease the lessee has that power even though:
(1) The lessor was deceived as to the identity of the lessee;
(2) The delivery was in exchange for a check which is later dishonored; or
(3) The delivery was procured through fraud punishable as larcenous
under the criminal law.
(b) A buyer in the ordinary course of business or a sublessee in the ordinary
course of business from a lessee who is a merchant dealing in goods of that kind
to whom the goods were entrusted by the lessor obtains, to the extent of the
interest transferred, all of the lessor's and lessee's rights to the goods, and
takes free of the existing lease contract.
(c) A buyer or sublessee from the lessee of goods that are subject to an
existing lease contract and are covered by a certificate of title issued under a
statute of the District of Columbia or of another jurisdiction takes no greater
rights than those provided both by this section and by the certificate of title
statute. (July 22, 1992, D.C. Law 9-128, 2(b), 38 DCR 3830; July 25, 1995,
D.C. Law 11-30, 7(c), 42 DCR 1547.)
Section references.
This section is referred to in 28;2A-104 and 28:2A-105.
Effect of amendments. - D.C. Law 11-30
substituted "subsection (b) of this section" for
"subsection (b)" in the first sentence of (a).

88

Legislative history of Law 9128. - See

note to 28:2A-101.
Legislative history of Law 11-30. - See
note to 28:2A-209.

LEASES

28:2A-308

28:2A-306. Priority of certain liens arising by operation

of law.
If a person in the ordinary course of his or her business furnishes services or
materials with respect to goods subject to a lease contract, a lien upon those
goods in the possession of that person given by statute or rule of law for those
materials or services takes priority over any interest of the lessor or lessee
under the lease contract or this article unless the lien is created by statute and
the statute provides otherwise or unless the lien is created by rule of law and
the rule of law provides otherwise. (July 22, 1992, D.C. Law 9~128, 2(b), 39
DCR 3830.)
Section references.
ferred to in 28:2A-307.

This section is re-

Legislative history of Law l}.128. note to 28:2A-101.

See

28:2A-307. Priority of liens arising by attachment or levy

on, security interests in, and other claims to

goods.
(a) Except as otherwise provided in 28:2A-306, a creditor of a lessee takes
subject to the lease contract.
(b) Except as otherwise provided in subsections (c) and (d) of this section
and in 28:2A-306 and 28:2A-308, a creditor of a lessor takes subject to the
lease contract unless:
(1) The creditor holds a lien that attached to the goods before the lease
contract became enforceable;
(2) The creditor holds a security interest in the goods and the lessee did
not give value and received delivery of the goods without knowledge of the
security interest; or
(3) The creditor holds a security interest in the goods which was perfected
( 28:9-303) before the lease contract became enforceable.
(c) A lessee in the ordinary course of business takes the leasehold interest
free of a security interest in the goods created by the lessor even though the
security interest is perfected and the lessee knows of its existence.
(d) A lessee other than a lessee in the ordinary course of business takes the
leasehold interest free of a security interest to the extent that it secures future
advances made after the secured party acquires knowledge of the lease or more
than 45 days after the lease contract becomes enforceable, whichever first
occurs, unless the future advances are made pursuant to a commitment
entered into without knowledge of the lease and before the expiration of the
45-day period. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

28:2A-308. Special rights of creditors.

---

(a) A creditor of a lessor in possession of goods subject to a lease contract

may treat the lease contract as void if as against the creditor retention of
89

 28:2A-309

COMMERCIAL INSTRUMENTS AND 'TRANSACTIONS

possession by the lessor is fraudulent under any statute or rule of law, but
retention of possession in good faith and current course of trade by the lessor
for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent ..
(b) Nothing in this article impairs the rights of creditors of a lessor if the
lease contract (i) becomes enforceable, not in current course of trade but in
satisfaction of or as security for a preexisting claim for money, security, or the
like, and (ii) is made under circumstances which under any statute or rule of
law apart from this article would constitute the transaction a fraudulent
transfer or voidable preference.
(c) A creditor of a seller may treat a sale or an identification of goods to a
contract for sale as void if as against the creditor retention of possession by the
seller is fraudulent under any statute or rule oflaw, but retention of possession
of the goods pursuant to a lease contract entered into by the seller as lessee and
the buyer as lessor in connection with the sale or identification of the goods is
not fraudulent if the buyer bought for value and in good faith. (July 22, 1992,
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-307.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-309. Lessor's and lessee's rights when goods be

come fixtures.
(a) In this section:
(1) Goods are "fixtures" when they become so related to particular real
estate that an interest in them arises under real estate law;[.]
(2) A "fixture filing" is the filing, in the office where a mortgage on the real
estate would be filed or recorded, of a financing statement covering goods that
are or are to become fixtures and conforming to the requirements of 28:9402(5) .
.I
(3) A lease is a "purchase money lease" unless the lessee has possession or
V use of the goods or the right to possession or use of the goods before the lease
agreement is enforceable.
(4) A mortgage is a "construction mortgage" to the extent it secures an
obligation incurred for the construction of an improvement on land including
the acquisition cost of the land, if the recorded writing so indicates.
(5) "Encumbrance" includes real estate mortgages and other liens on real
estate and all other rights in real estate that are not ownership interests.
(b) Under this article a lease may be of goods that are fixtures or may
continue in goods that become fixtures, but no lease exists under this article of .
ordinary building materials incorporated into an improvement on land.
(c) This article does not prevent creation of a lease of fixtures pursuant to
real estate law.
(d) The perfected interest of a lessor of fixtures has priority over a conflicting
interest of an encumbrancer or owner of the real estate if:
(1) The lease is a purchase money lease, the conflicting interest of the
encumbrancer or owner arises before the goods become fixtures, the interest of
90

LEASES

28:2A-309

the lessor is perfected by a fixture filing before the goods become fixtures or
within 10 days thereafter, and the lessee has an interest of record in the real
estate or is in possession of the real estate; or
(2) The interest of the lessor is perfected by a :fixture filing before the
interest of the encumbrancer or owner is of record, the lessor's interest has
priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or
is in possession of the real estate.
(e) The interest of a lessor of fixtures, whether or not perfected, has priority
over the conflicting interest of an encumbrancer or owner of the real estate if:
(1) The fixtures are readily removable factory or office machines, readily
removable equipment that is not primarily used or leased for use in the
operation of the real estate, or readily removable replacements of domestic
appliances that are goods subject to a consumer lease, and before the goods
become fixtures the lease contract is enforceable;
(2) The conflicting interest is a lien on the real estate obtained by legal or
equitable proceedings after the lease contract is enforceable;
(3) The encumbrancer or owner has consented in writing to the lease or
has disclaimed an interest in the goods as :fixtures; or
(4) The lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the
interest of the lessor continues for a reasonable time.
(f) Notwithstanding subsection (d)(l) of this section but otherwise subject to
subsections (d) and (e) of this section, the interest of a lessor of fixtures,
including the lessor's residual interest, is subordinate to the conflicting
interest of an encumbrancer of the real estate under a construction mortgage
recorded before the goods become fixtures if the goods become fixtures before
the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate
under a mortgage has this priority to the same extent as the encumbrancer of
the real estate under the construction mortgage.
(g) In cases not within the preceding subsections, priority between the
interest of a lessor of fixtures, including the lessor's residual interest, and the
conflicting interest of a encumbrancer or owner of the real estate who is not the
lessee is determined by the priority rules governing conflicting interests in real
estate.
(h) If the interest of a lessor of fixtures, including the lessor's residual
interest, has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may (i) on default,
expiration, termination, or cancellation of the lease agreement but subject to
the lease agreement and this article, or (ii) if necessary to enforce other rights
and remedies of the lessor or lessee under this article, remove the goods from
the real estate, free and clear of all conflicting interests of all owners and
encumbrancers of the real estate, but the lessor or lessee must reimburse any
encumbrancer or owner of the real estate who is not the lessee and who has not
otherwise agreed for the cost of repair of any physical injury, but not for any
diminution in value of the real estate caused by the absence of the goods
91

 28:2A.;310

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives
adequate security for the performance of this obligation.
(i) Even though the lease agreement does not create a security interest, the
interest of a lessor of fixtures, including the lessor's residual interest, is
perfected by filing a financing statement as a fixture filing for leased goods that
are or are to become fixtures in accordance with the relevant provisions of the
Article on Secured Transactions (Article 9). (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-103.

This section is re-

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-310. Lessor's and lessee's rights when goods be-

come accessions.
(a) Goods are "accessions" when they are installed in or affixed to other
goods.
(b) The interest of a lessor or a lessee under a lease contract entered into
before the goods became accessions is superior to all interests in the whole
except as stated in subsection (d) of this section.
(c) The interest of a lessor or a lessee under a lease contract entered into at
the time or after the goods became accessions is superior to all subsequently
acquired interests in the whole except as stated in subsection (d) of this
section, but is subordinate to interests in the whole existing at the time the
lease contract was made unless the holders of such interests in the whole have
in writing consented to the lease or disclaimed an interest in the goods as part
of the whole.
{d) The interest of a lessor or a lessee under a lease contract described in
subsection (b) or (c) of this section is subordinate to the interest of:
(1) A buyer in the ordinary course of business or a lessee in the ordinary
course of business of any interest in the whole acquired after the goods became
accessions; .or
(2) A creditor with a security interest in the whole perfected before the
lease contract was made to the extent that the creditor makes subsequent
advances without knowledge of the lease contract.
(e) When under subsections (b) or (c) and {d) of this section, a lessor or a
lessee of accessions holds an interest that is superior to all interests in the
whole, the lessor or the lessee may (i) on default, expiration, termination, or
cancellation of the lease contract by the other party but subject to the
provisions of the lease contract and this article, or (ii) if necessary to enforce
his or her other rights and remedies under this article, remove the goods from
the whole, free and clear of all interests in the whole, but he or she must
reimburse any holder of an interest in the whole who is not the lessee and who
has not otherwise agreed for the cost of repair of any physical injury but not for
any diminution in value of the whole caused by the absence of the goods
removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal
92

LEASES

28:2A-402

gives adequate security for the performance of this obligation. (July 22, 1992, .
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-103.

This section is re-

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-311. Priority subject to subordination.

Nothing in this article prevents s,ubordination_by agreement by any person
entitled to priority. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

Part 4. Performance of Lease Contract: Repudiated,

Substituted, and Excused.
28:2A-401. Insecurity: adequate assurance of perfc:.:r1 r!

mance.

'/i/

/~

(a) A lease contract imposes an obligation on each party that the other's
expectation of receiving due performance will not be impaired.
;~
(b) If reasonable grounds for insecurity arise with respect to the perfor- -~
mance of either party, the insecure party may demand in writing adequate
assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which he or she has not already received the agreed return.
(c) A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided
to the insecure party within a reasonable time, not to exceed 30 days after
receipt of a demand by the other party.
(d) Between merchants, the reasonableness of grounds for insecurity and
the adequacy of any assurance offered must be determined according to
commercial standards.
(e) Acceptance of any nonconforming delivery or payment does not prejudice
the aggrieved party's right to demand adequate assurance of future performance. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-402 and 28:2A-403.

---

Legislative history of Law 9128. - See

note to 28:2A-101.

28:2A-402. Anticipatory repudiation.

If either party repudiates a lease contract with respect to a performance not
yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party
may:
(1) For a commercially reasonable time, await retraction of repudiation
and performance by the repudiating party;

93

 28:2A-403

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

(2) Make demand pursuant to 28:2A-401 and await assurance offuture

performance adequate under the circumstances of the particular case; or
(3) Resort to any right or remedy upon default under the lease contract or
this article, even though the aggrieved party has notified the repudiating party
that the aggrieved party would await the repudiating party's performance and
assurance and has urged retraction. In addition, whether or not the aggrieved
party is pursuing one of the foregoing remedies, the aggrieved party may
suspend performance or, if the aggrieved party is the lessor, proceed in
accordance with the provisions of this article on the lessor's right to identify
goods to the lease contract notwithstanding default or to salvage unfinished
goods ( 28:2A-524). (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-508 and 28:2A-529.

Legislative history of Law 9128.

note to 28:2A-101.

See

28:2A-403. Retraction of anticip~tory repudiation.

(a) Until the repudiating party's next performance is due, the repudiating
party can retract the repudiation unless, since the repudiation, the aggrieved
party has cancelled the lease contract or materially changed the aggrieved
party's position or otherwise indicated that the aggrieved party considers the
repudiation final.
(b) Retraction may be by any method that clearly indicates to the aggrieved
party that the repudiating party intends to perform under the lease contract
and includes any assurance demanded under 28:2A-40L
(c} Retraction reinstates a repudiating party's rights under a lease contract
with due excuse and allowance to the aggrieved party for any delay occasioned
by the repudiation. (July 22, 1992, D.C. Law 9-128, 2(b}, 39 DCR 3830.)
Legislative history of Law 9128. - See
note to 28:2A-101.

28:2A-404. Substituted performance.

(a) If without fault of the lessee, the lessor and the supplier, the agreed
berthing, loading, or unloading facilities fail or the agreed type of carrier
becomes unavailable or ..the agreed manner ()f delivery otherwise becomes
commercially impractieabl~~ but a comm~;-ci:ill:Yreasonable substitute is
available, the substitute performance must be tendered and accepted~(b) If the agreed means or manner of payment fails because of domestic or
foreign governmental regulation:
(1) The lessor may withhold or stop delivery or cause the supplier to
withhold or stop delivery unless the lessee provides a means or manner of
payment that is commercially a substantial equivalent; and
(2) If delivery has already been taken, payment by the means or in the
manner provided by the regulation discharges the lessee's obligation unless
the regulation is discriminatory, oppressive, or predatory. (July 22, 1992, D.C.
Law 9-128, 2(b), 39 DCR 3830.)
94

LEASES

Section references.
ferred to in 28:2A-405.

This section is re-

28:2A-406

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-405. Excused performance.

Subject to 28:2A-404 on substituted performance, the following rules
apply:
(1) Delay in delivery or nondelivery in whole or in part by a lessor or a
supplier who complies with paragraphs (2) and (3) of this section is not a
default under the lease contract if performance as agreed has been made
impracticable by the occurrence of a contingency the nonoccurrence of which
was a basic assumption on which the lease contract was made or by compliance
in good faith with any applicable foreign or domestic governmental regulation
or order, whether or not the regulation or order later proves to be invalid.
(2) If the causes mentioned in paragraph (1) of this section affect only part
of the lessor's or the supplier's capacity to perform, he or she shall allocate
production and deliveries among his or her customers but at his or her option
may include regular customers, not then under contract for sale or lease as
well as his or her own requirements for further manufacture. He or she may so
allocate in any manner that is fair and reasonable.
(3) The lessor seasonably shall notify the lessee and in the case of a
finance lease the supplier seasonably shall notify the lessor and the lessee, if
known, that there will be delay or nondelivery and, if allocation is required
under paragraph (2) of this section, of the estimated quota thus made available
for the lessee. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-406.

This section is re-

Legislative history of Law 9-128.

note to 28:2A-101.

See

28:2A-406. Procedure on excused performance.

(a) If the lessee receives notification of a material or indefinite delay or an
allocation justified under 28:2A-405, the lessee may by written notification
to the lessor as to any goods involved, and with respect to all of the goods if
under an installment lease contract the value of the whole lease contract is
substantially impaired ( 28:2A-510):
(1) Terminate the lease contract( 28:2A-505(b)); or
(2) Except in a finance lease that is not a consumer lease, modify the lease
contract by accepting the available quota in substitution, with due allowance
from the rent payable for the balance of the lease term for the deficiency but
without further right against the lessor.
(b) If, after receipt of a notification from the lessor under 28:2A-405, the
lessee fails so to modify the lease agreement within a reasonable time not
exceeding 30 days, the lease contract lapses with respect to any deliveries
affected. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. note to 28:2A-101.

See

95

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

28:2A-407. Irrevocable promises: finance leases.

(a) In the case of a finance lease that is not a consumer lease, the lessee's
promises under the lease contract becom~ocable and independent upon
the lessee's acceptance of the goods.
(b) A promise that has become irrevocable and independent under subsection (a) of this section:
(1) Is effective and enforceable between the parties, and by or against
third parties including assignees of the parties, and
(2) Is not subject to cancellation, termination, modification, repudiation,
excuse, or ;ubstitution without the consent of the party to whom the :promise
runs.
(c) This section does not affect the validity under any other law of a covena
in any lease contract making the lessee's promises irrevoc~n mdependent upon the lessee's acceptance of the goods. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-508.

This section is re-

Legislative history of Law 9128.

note to 28:2A-101.

See

Part 5. Default.
A. In General.
28:2A-501. Default: procedure.
(a) Whether the lessor or the lessee is in default under a lease contract is
determined by the lease agreement and this article.
(b) If the lessor or the lessee is in default under the lease contract, the party
seeking enforcement has rights and remedies as provided in this article and,
except as limited by this article, as provided in the lease agreement.
(c) If the lessor or the lessee is in default under the lease contract, the party
seeking enforcement may reduce the party's claim to judgment, or otherwise
enforce the lease contract by self help or any available judicial procedure or
nonjudicial procedure, including administrative proceeding, arbitration, or the
like, in accordance with this article.
(d) Except as otherwise provided in _28:1-106 or this article or the lease
agreement, the rights and remedies referred to in subsections (b) and (c) of this
section are cumulative.
(e) If the lease agreement covers both real property and goods, the party
seeking enforcement may proceed under this part as to the goods, or under
other applicable law as to both the real property and the goods in accordance
with that party's rights and remedies in respect of the real property, in which
case this part does not apply. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830; May 16, 1995, D.C. Law 10-255, 22, 41 DCR 5193; July 25, 1995, D.C.
Law 11-30, 7(d), 42 DCR 1547.)
96

LEASES

Section references. - This section is referred to in 28:2A-303.

Effect of amendments. - D.C. Law 10-255
validated a previously made section reference
change in (d).
D.C. Law 11-30 substituted "of this article"
for "or this article" in (d). However, effect has
not been given to the change by Law 11-30; the
technical correction made to (d) by that act

28:2A-504

would have made an unintended substantive

change in the text.
Legislative history of Law 9-128. - See
note to 28:2A-101.
Legislative history of Law 10-255 - See
note to 28:2A-303.
Legislative history of Law 11-30. - See
note to 28:2A-209.

28:2A-502. Notice after default.

Except as otherwise provided in this article or the lease agreement, the
lessor or lessee in default under the lease contract is not entitled to notice of
default or notice of enforcement from the other party to the lease agreement.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-503. Modification or impairment of rights and

remedies.
(a) Except as otherwise provided in this article, the lease agreement may
include ri_ghts and remedies for default in addition to or in substitution fur
those provided in thisarticle and ipay limit or alter the measure of damages
recoverable under this article.
(b) Resort to a remedy provided under this article or in the lease agreement
is optional unless the remedy is eJillr.essly a~d to be exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or
provision for an exclusive remedy is unconscionable, remedy may be had as
provided in this article.
(c) Consequential damages may be liquidated under 28:2A-504, or may
otherwise be limited, altered, or excluded unless the limitation, alteration, or
exclusion is unconscionable. Limitation, alteration, or exclusion of consequential damages for injury to the person in the case of consumer goods is prima
facie unconscionable, but limitation, alteration, or exclusion of damages where
the loss is commercial is not prima facie unconscionable.
(d) Rights and remedies on default by the lessor or the lessee with respect
to any obligation or promise collateral or ancillary to the lease contract are not
impaired by this article. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-518, 28:2A-519, 28:2A
527, and 28:2A-528.

Legislative history of Law 9-128. note to 28:2A-101.

"

See

28:2A-504. Liquidation of damages.

(a) Damages payable by either party for default, or any other act or
omission, including indemnity for loss or diminution of anticipated tax benefits
or lo'SS or damage to lessor's residual interest, may be liquidated in the lease

'

97

 28:2A-505

CoM:.IERCIAL INSTRUMENTS AND TRANSACTIONS

agreement, but only at an amount or by a formula that is reasonable in light

of the then anticipated harm caused by the default or other act or omission.
(b) If the lease agreement provides for liquidation of damages and the
provision does not comply with subsection (a) of this section, or the provision
is an exclusive or limited remedy that circumstances cause to fail of its
essential purpose, remedy may be had as provided in this article.
(c) If the lessor justifiably withholds or stops delivery of goods because of the
lessee's default or insolvency ( 28:2A-525 or 28:2A-526), the lessee is
entitled to restitution of any amount by which the sum of his or her payments
exceeds:
(1) The amount to which the lessor is entitled by virtue of terms
liquidating the lessor's damages in accordance with subsection (a) of this
section; or
(2) In the absence of those terms, 20 percent of the then present value of
the total rent the lessee was obligated to pay for the balance of the lease term,
or, in the case of a consumer lease, the lesser of the amount or $500.
(d) A lessee's right to restitution under subsection (c) of this section is
subject to offset to the extent the lessor establishes:
(1) A right to recover damages under the provisions of this article other
than subsection (a) of this section; and
(2) The amount or value of any benefits received by the lessee directly or
indirectly by reason of the lease contract. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-503, 28:2A-518, 28:2A519, 28:2A-527, and 28:2A-528.

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-505. Cancellation and termination and effect of

cancellation, termination, rescission, or fraud

on rights and remedies.
(a) On cancellation of the lease contract, all obligations that are still
executory on both sides are discharged, but any right based on prior default or
performance survives, and the cancelling party also retains any remedy for
default of the whole lease contract or any unperformed balance.
(b) On termination of the lease contract, all obligations that are still
executory on both sides are discharged but any right based on prior default or
performance survives.
(c) Unless the contrary intention clearly appears, expressions of "cancellation," "rescission," or the like of the lease GOntract may not be construed as a
renunciation or discharge of any claim in damages for an antecedent default.
(d) Rights and remedies for material misrepresentation or fraud include all
rights and remedies available under this article for default.
(e) Neither rescission nor a claim for rescission of the lease contract nor
rejection or return of the goods may bar or be deemed inconsistent with a claim
for damages or other right or remedy. (July 22, 1992, D.C. Law 9-128, 2(b),
39 DCR 3830.)
98

LEASES

Section references. - This section is referred to in 28:2A-406, 28:2A-508, and

28:2A-523.

28:2A-507

Legislative history of Law 9128. - See

note to 28:2A-101.

28:2A-506. Statute of limitations.

(a) An action for default under a lease contract, including breach of
warranty or indemnity, must be commenced within 4 years after the cause of
action accrued. By the original lease contract the parties may reduce the period
of limitation to not less than 1 year.
(b) A cause of action for default accrues when the act or omission on which
the default or breach of warranty is based is or should have been discovered by
the aggrieved party, or when the default occurs, whichever is later. A cause of
action for indemnity accrues when the act or omission on which the claim for
indemnity is based is or should have been discovered by the indemnified party,
whichever is later.
(c) If an action commenced within the time limited by subsection (a) of this
section is so terminated as to leave available a remedy by another action for
the same default or breach of warranty or indemnity, the other action may be
commenced after the expiration of the time limited and within 6 months after
the termination of the first action unless the termination resulted from
voluntary discontinuance or from dismissal for failure or neglect to prosecute.
(d) This section does not alter the law on tolling of the statute oflimitations
nor does it apply to causes of action that have accrued before this article
becomes effective. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-507. Proof of market rent: time and place.

(a) Damages based on market rent ( i8:2A-519 or 28:2A-528) are
determined according to the rent for the use of the goods concerned for a lease
term identical to the remaining lease term of the original lease agreement and
prevailing at the time of the default.
(b) If evidence of rent for the use of the goods concerned for a lease term
identical to the remaining lease term of the original lease agreement and
prevailing at "the times or places described in this article is not readily
available, the rent prevailing within any reasonable time before or after the
time described or at any other place or for a different lease term which in
commercial judgment or under usage of trade would serve as a reasonable
substitute for the one described may be used, making any proper allowance for
the difference, including the cost of transporting the goods to or from the other
place.
(c) Evidence of a relevant rent prevailing at a time or place or for a lease
term other than the one described in this article offered by one party is not
admissible unless and until he or she has given the other party notice the court
finds sufficient to prevent unfair surprise.
(d) If the prevailing rent or value of any goods regularly leased in any
established market is in issue, reports in official publications or trade journals

99

 28:2A-5Q8

. COMMERCIAL INSTRUMENTS AND TRANSACTIONS

or in newspapers or periodicals of general circulation published as the reports

of that market are admissible in evidence. The circumstances of the preparation of the report may be shown to affect its weight but not its admissibih.t.y.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
11
Legislative history of Law 9-128. - See
note to 28:2A-101.

A-

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

u41,(;_ ~
t

B. Default by Lessor.
28:2A-508. Lessee's remedies.
(a) If a lessor fails to deliver the goods in conformity to the lease contract
( 28:2A-509) or repudiates the lease contract ( 28:2A-402), or a lessee
'}
rightfully rejects the goods( 28:2A-509) or justifiably revokes acceptance of
['/ .
) the goods ( 28:2A-517), then with respect to any goods involved, and with
I respect to all of the goods if under an installment lease contract the value of the
1
r, 1 Pf' whole !ease_.~tra~!!.l:!_~tE:P.ti~1J~yJ.!!!.P.~!red ( 28:2A-510), the lessor is in
lQ Al . default under the lease contract and the lessee may:
iltlrft)
(1) Cancel the lease contract ( 28:2A-505(a));
lif"
(2) Recover so much of the rent and security as has been paid and is just
{ju)
under._the circumstances; or
0., 7
fc3) Cover an.d recover damages as to all goods affected whether or not they
~ f
h~been identified to the lease contract( 28:2A-518 and 28:2A-520), or
'I
recover damages for nondelivery( 28:2A-519 and 28:2A-520).
(b) If a lessor fails to deliver the goods in conformity to the lease contract or
.
Ji
repudiates the lease contract, the lessee may also:
~ _,,,/,,, ll
''
(1) If the goods have been identified, recover them ( 28:2A-522); or ,,..C.C../"''-'2..d 1.J
(2) In a proper case, obtain specific performance or replevy the goods
( 28:2A-521).
(c) If a lessor is otherwise in default under a lease contract, the lessee may /./i) 11,.1/Cr:
exercise the rights and pursue the ~he J~~~e_ !!i>Jl!r.act, p.e 4 c:..e
which may include a right to cancel the lease, and in 28:2A-519(c).
.>ril"'f
(d) If a lessor has breached a warranty, whether express or implif:ld, the
lessee may recover damages ( 28:2A-519(d)).
/i}jal
(e) On rightful rejection or justifiable revocation of acceptance, a lessee has
a security inte~in goods in the lessee's possession or control for any rent and
~ that has been paid and~any expenses reasonably incurred in their
inspection, receipt, transportation, and care and custody and may hold those
goods and dispose of them in good faith and in a commercially reasonable
manner, su1Uect to 28:2A-s21<e>.
(f) Subject to the provisions of 28:2A-407, a lessee, on notifying the lessor
of the lessee's intention to do so, may deduct all or any part of the damages
resulting from any default under the lease contract from any part of the rent
still due under the same lease contract. (July 22, 1992, D.C. Law 9-128, 2(b),
39 DCR 3830.)

'J..If// )

l
t!f f

1'
I

is

100

LEASES

Section references. - This section is referred to in 28:2A-511, 28:2A-512, 28:2A518, and 28:2A-527.

28:2A-511

Legislative history of Law 9128. note to 28:2A-101.

See

28:2A-509. Lessee's rights on improper delivery; rightful

rejection.
(a) Subject to the provisions of 28:2A-510 on default in installment lease
contracts, if the goods or the tender or delivery fail in any respect to conform
to the lease contract, the lessee may reject or accept the goods or accept any
commercial unit or units and reject the rest of the goods.
(b) Rejection of goods is ineffective unless it is within a reasonable time after
tender or delivery of the goods and the lessee seasonably notifies the lessor.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references.
This section is referred to in 28:2A-508 and 28:2A-515.

Legislative history of Law 9-128. note to 28:2A-101.

See .

28:2A-510. Installment lease contracts: rejection and de-

fault.
(a) Under an installment lease contract a lessee may reject any delivery that
is nonconforming if the nonconformity substantially impairs the value of that
delivery and cannot be cured or the nonconformity is a defect in the required
documents; but if the nonconformity does not fall within subsection (b) of this
section and the lessor or the supplier gives adequate assurance of its cure, the
lessee must accept that delivery.
(b) Whenever nonconformity or default with respect to one or more deliveries substantially impairs the value of the installment lease contract as a whole,
there is a default with respect to the whole. But, the aggrieved party reinstates
the installment lease contract as a whole if the aggrieved party accepts a
nonconforming delivery without seasonably notifying of cancellation or brings
an action with respect only to past deliveries or demands performance as to
future deliveries. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-406, 28:2A-508, 28:2A509, and 28:2A-523.

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-511. Merchant lessee's duties as to rightfully re-

jected goods.
(a) Subject to any security interest of a lessee( 28:2A-508(e)), if a lessor or
a supplier has no agent or place of business at the market of rejection, a
merchant lessee, after rejection of goods in his or her possession or control,
shall follow any reasonable instructions received from the lessor or the
supplier with respect to the goods. In the absence of those instructions, a
merchant lessee shall make reasonable efforts to sell, lease, or otherwise
dispose of the goods for the lessor's account if they threaten to decline in value

101

 28:2A-512

COMMERCIAL INSTRUMENTS AND 'TRANSACTIONS

speedily. Instructions are not reasonable if on demand indemnity for expenses

is not forthcoming.
(b) If a merchant lessee (subsection (a) of this section) or any other lessee
( 28:2A-512) disposes of goods, he or she is entitled to reimbursement either
from the lessor or the supplier or out of the proceeds for reasonable expenses
of caring for and disposing of the goods and, if the expenses include no
disposition commission, to such commission as is usual in the trade, or ifthere
is none, to a reasonable sum not exceeding 10% of the gross proceeds.
(c) In complying with this section or 28:2A-512, the lessee is held only to
good faith. Good faith conduct hereunder is neither acceptance or conversion
nor the basis of an action for damages.
(d) A purchaser who purchases in good faith from a lessee pursuant to this
section or 28:2A-512 takes the goods free of any rights of the lessor and the
supplier even though the lessee fails to comply with one or more of the
requirements of this article. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. - This section is referred to in 28:2A-305 and 28:2A-512.

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-512. Lessee's duties as to rightfully rejected goods.

{a) Except as otherwise provided with respect to goods that threaten to
decline in value speedily( 28:2A-511) and subject to any security interest of
a lessee ( 28:2A-508(e)):
( 1) The lessee, after rejection of goods in the lessee's possession, shall hold
them with reasonable care at the lessor's or the supplier's disposition for a
reasonable time after the lessee's seasonable notification of rejection;
(2) If the lessor or the supplier gives no instructions within a reasonable
time after notification of rejection, the lessee may store the rejected goods for
the lessor's or the supplier's account or ship them to the lessor or the supplier
or dispose of them for the lessor's or the supplier's account with reimbursement in the manner provided in 28:2A-511; but
(3) The lessee has no further obligations with regard to goods rightfully
rejected.
(b) Action by the lessee pursuant to subsection (a) of this section is not
acceptance or conversion. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. ferred to in 28:2A-511.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-513. Cure by lessor of improper tender or deliv-

ery; replacement.
{a) If any tender or delivery by the lessor or the supplier is rejected because
nonconforming and the time for performance has not yet expired, the lessor or
the supplier may seasonably notify the lessee of the lessor's or the supplier's
102

LEASES

28:2A-515

intention to cure and may then make a conforming delivery within the time
provided in the lease contract.
(b) If the lessee rejects a nonconforming tender that the lessor .or the
supplier had reasonable grounds to believe would be acceptable with or
without money allowance, the lessor or the supplier may have a further
reasonable time to substitute a conforming tender if he or she seasonably
notifies the lessee. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-514.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-514. Waiver of lessee's objections.

(a) In rejecting goods, a lessee's failure to state a particular defect that is
ascertainable by reasonable inspection precludes the lessee from relying on the
defect to justify rejection or to establish default:
(1) If, stated seasonably, the lessor or the supplier could have cured it
( 28:2A-513); or
(2) Between merchants if the lessor or the supplier after rejection has
made a request in writing for a full and final written statement of all defects
on which the lessee proposes to rely.
(b) A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent on the face of the documents. (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-515. Acceptance of goods.

(a) Acceptance of goods occurs after the lessee has had a reasonable
opportunity to inspect the goods, and
(1) The lessee signifies or acts with respect to the goods in a manner that
signifies to the lessor or the supplier that the goods are conforming or that the
lessee will take or retain them in spite of their nonconformity; or
(2) The lessee fails to make an effective rejection of the goods ( 28:2A509(b)).
(b) Acceptance of a part of any commercial unit is acceptance of that entire
unit. (July 22, 1992, D,C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128.
note to 28:2A-101.

See

103

 28:2A-516

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

28:2A-516. Effect of acceptance of goods; notice of de-

fault; burden of establishing default after acceptance; notice of claim or litigation to person answerable over.
(a) A lessee must pay rent for any goods accepted in accordance with the
lease contract, with due allowance for goods rightfully rejected or not delivered.
(b) A lessee's acceptance of goods precludes rejection of the goods accepted.
In the case of a finance lease, if made with knowledge of a nonconformity,
acceptance cannot be revoked because of it. In any other case, if made with
knowledge of a nonconformity, acceptance cannot be revoked because of it
unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other
remedy provided by this article or the lease agreement for nonconformity.
(c) If a tender has been accepted:
(1) Within a reasonable time after the lessee discovers or should have
discovered any default, the lessee shall notify the lessor and the supplier, if
any, or be barred from any remedy against the party not notified;
(2) Except in the case of a consumer lease, within a reasonable time after
the lessee receives notice of litigation for infringement or the like ( 28:2A211) the lessee shall notify the lessor or be barred from any remedy over for
liability established by the litigation; and
(3) The burden is on the lessee to establish any default.
(d) If a lessee is sued for breach of a warranty or other obligation for which
a lessor or a supplier is answerable over the following apply:
(1) The le.ssee may give the lessor or the supplier, or both, written notice
of the litigation. If the notice states that the person notified may come in and
defend and that if the person notified does not do so, that person will be bound
in any action against that person by the lessee by any determination of fact
common to the 2 litigations, then unless the person notified after seasonable
receipt of the notice does come in and defend, that person is so bound.
(2) The lessor or the supplier may demand in writing that the lessee tum
over control of the litigation including settlement if the claim is one for
infringement or the like( 28:2A-211) or else be barred from any remedy over.
If the demand states that the lessor or the supplier agrees to bear all expense
and to satisfy any adverse judgment, then unless the lessee after seasonable
receipt of the demand does turn over control the lessee is so barred.
(e) Subsections (c) and (d) of this section. apply to any obligation of a lessee
to hold the lessor or the supplier harmless against infringement or the like
( 28:2A-211). (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-519.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

104

See

LEASES

28:2A-518

28:2A-517. Revocation of acceptance of goods.

(a) A lessee may revoke acceptance of a lot or commercial unit whose

nonconformity substantially impairs its value to the lessee if the lessee has
accepted it:
(1) Except in the case of a finance lease, on the reasonable assumption
that its nonconformity would be cured and it has not been seasonably cured; or
(2) Without discovery of the nonconformity if the lessee's acceptances was
reasonably induced either by the lessor's assurances or, except in the case of a
finance lease, by the difficulty of discovery before acceptance.
(b) Except in the case of a financial lease that is not a consumer lease, a
lessee may revoke acceptance of a lot or commercial unit if the lessor defaults
under the lease contract and the default substantially impairs the value of that
lot or commercial unit to the lessee.
(c) If the lease agreement so provides, the lessee may revoke acceptance of
a lot or commercial unit because of other defaults by the lessor.
(d) Revocation of acceptance must occur within a reasonable time after the
lessee discovers or should have discovered the ground for it and before any .
substantial change in condition of the goods which is not caused by the
nonconformity. Revocation is not effective until the lessee notifies the lessor.
(e) A lessee who so revokes has the same rights and duties with regard to
the goods involved as if the lessee had rejected them. (July 22, 1992, D.C. Law
9-128, 2(b), 39 DCR 3830.)
Section references.
ferred to in 28:2A-508.

This section is re-

Legislative history of Law 9-128.

note to 28:2A-101.

See

28:2A-518. Cover; substitute goods.

(a) After default by a lessor under the lease contract of the type described in
28:2A-508(a), or, if agreed, after other default by the lessor, the lessee may

cover by making any purchase or lease of or contract to purchase or lease goods

in substitution for those due from the lessor.
(b) Except as otherwise provided with respect to damages liquidated in the
lease agreement ( 28:2A-504) or otherwise determined pursuant to agreement of the parties( 28:1-102(3) and 28:2A-503), if a lessee's cover is by a
lease agreement substantially similar to the original lease agreement and the
new lease agreement is made in good faith and in a commercially reasonable
manner, the lessee may recover from the lessor as damages (i) the present
value, as of the date of the commencement of the term of the new lease
agreements, of the rent under the new lease agreement applicable to the period
of the new lease which is comparable to the then remaining term of the original
lease agreement minus the present value as of the same date of the total rent
for the then remaining lease term of the original lease agreement, and (ii) any
incidental or consequential damages, less expenses saved in consequence of
the lessor's default.
(c) If a lessee's cover is by lease agreement that for any reason does not
qualify for treatment under subsection (b) of this section, or is by purchase or
otherwise, the lessee may recover from the lessor as if the lessee had elected
105

 28:2A-S19

COMMERCIAL INSTRUMENTS

AND

'TRANSACTIONS

not to cover and 28:2A-519 governs. (July 22, 1992, D.C. Law 9-128, 2(b),
39 DCR 3830.)
Legislative history of Law 9128. note to 28:2A-101.

Section references. - This section is referred to in 28:2A-508 and 28:2A-519.

See

28:2A-519. Lessee's damages for nondelivery, repudia-

tion, default, and breach of warranty in regard

to accepted goods.
(a) Except as otherwise provided with respect to damages liquidated in the
lease agreement ( 28:2A-504) or otherwise determined pursuant to agreement of the parties ( 28:1-102(c) and 28:2A-503), if a lessee elects not to
cover or a lessee elects to cover and the cover is by lease agreement that for any
reason does not qualify for treatment under 28:2A-518(b), or is by purchase
or otherwise, the measure of damages for nondelivery or repudiation by the
lessor or for rejection or revocation of acceptance by the lessee is the present
value as of the date of the default, of the then market rent minus the present
value as of the same date of the original rent, computed for the remaining lease
term of the original lease agreement, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.
(b) Market rent is to be determined as of the place for tender or, in cases of
rejection after arrival or revocation of acceptance, as of the place of arrival.
(c) Except as otherwise agreed, if the lessee has accepted goods and given
notification ( 28:2A-516(c)), the measure of damages for nonconforming
tender or delivery or other default by a lessor is the loss resulting in the
ordinary course of events from the lessor's default as determined in any
manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.
(d) Except as otherwise agreed, the measure of damages for breach of
warranty is the present value at the time and place of acceptance of the
difference between the value of the use of the goods accepted and the value if
they had been as warranted for the lease term, unless special circumstances
show proximate damages of a different amount, together with incidental and
consequential damages, less expenses saved in consequence of the lessor's
default or breach of warranty. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. - This section is referred to in 28:2A-507, 28:2A-508, and
28:2A-518.

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-520. Lessee's incidental and consequential dam-

ages.
(a) Incidental damages resulting from a lessor's default include expenses
reasonably incurred in inspection, receipt, transportation, and care and
custody of goods rightfully rejected or goods the acceptance of which is
justifiably revoked, any commercially reasonable charges, expenses or com106

LEASES

28:2A-523

missions in connection with effecting cover, and any other reasonable expense
incident to the default.
(b) Consequential damages resulting from a lessor's default include:
(1) Any loss resulting from general or particular requirements and needs
of which the lessor at the time of contracting had reason to know and which
could not reasonably be prevented by cover or otherwise; and
(2) Injury to person or property proximately resulting from any breach of
warranty. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references.
ferred to in 28:2A-508.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-521. Lessee's right to specific performance or re-

~ff t'

plevin.

(a) Specific performance may be decreed if the goods are unique or in other
proper circumstances.
(b) A decree for specific performance may include any terms and conditions (..../'"'
as to payment of the rent, damages, or other relief that the court deems just.
(c) A lessee has a right of replevin, detinue, sequestration, claim and
delivery, or the like for goods identified to the lease contract if after reasonable
effort the lessee is unable to effect cover for those gooqs or the circumstances
reasonably indicate that the effort will be unavailing. (July 22, 1992, D.C. Law
9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-508.

This section is re-

Legislative history of Law 9-128. note to 28:2A-101.

See

28:2A-522. Lessee's right to goods on lessor's insolvency.

(a) Subject to subsection (b) of this section and even though the goods have
not been shipped, a lessee who has paid a part or all of the rent and security
for goods identified to a lease contract ( 28:2A-217) on making and keeping
good a tender of any unpaid portion of the rent and security due under the
lease contract may recover the goods identified from the lessor if the lessor
becomes insolvent within 10 days after receipt of the first installment of rent
and security.
(b) A lessee acquires the right to recover goods identified to a lease contract
only if they conform to the lease contract. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-508.

This section is re-

Legislative history of Law 9128. note to 28:2A-101.

See

C. Default by Lessee.
28:2A-523. Lessor's remedies.
(a) If a lessee wrongfully rejects or revokes acceptance of goods or fails to
make a payment when i:lue or repudiates with respect to a part or the whole,
107

 28:2A-524

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

then, with respect to any goods involved, and with respect to all of the goods if
under an installment lease contract the value of the whole lease contract is
substantially impaired( 28:2A-510), the lessee is in default under the lease
contract and the lessor may:
(1) Cancel the lease contract( 28:2A-505(a));
(2) Proceed respecting goods not identified to the lease contract( 28:2A524);
(3) Withhold delivery of the goods and take possession of goods previously
delivered( 28:2A-525);
(4) Stop delivery of the goods by any bailee( 28:2A-526);
(5) Dispose of the goods and recover damages( 28:2A-527), or retain the
goods and recover damages ( 28:2A-528), or in a proper case recover rent
( 28:2A-529); or
(6) Exercise any other rights or pursue any other remedies provided in the
lease contract.
(b) If a lessor does not fully exercise a right or obtain a remedy to which the
lessor is entitled under subsection (a) of this section, the lessor may recover the
loss resulting in the ordinary course of events from the lessee's default as
determined in any reasonable manner, together with incidental damages, less
expenses saved in consequence of the lessee's default.
(c) If a lessee is otherwise in default under a lease contract, the lessor may
exercise the rights and pursue the remedies provided in the lease contract
which may include a right to cancel the lease. In addition, unless otherwise
provided in the lease contract:
(1) If the default substantially impairs the value of the lease contract to
the lessor, the lessor may exercise the rights and pursue the remedies provided
in subsections (a) and (b) of this section; or
(2) If the default does not substantially impair the value of the lease
contract to the lessor, the lessor may recover as provided in subsection (b) of
this section. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-524, 28:2A-525, 28:2A527, 28:2A-528, and 28:2A-529.
Legislative history of Law 9-128. - See
note to 28:2A-101.

Editor's notes. - The word "or," appearing

in D.C. Law 9-128, was deleted from the end of
(a)(4).

28:2A-524. Lessor's right to identify goods to lease con-

tract.

(a) A lessor aggrieved under 28:2A-523(a) may:

(1) Identify to the lease contract conforming goods not already identified
if at the time the lessor learned of the default they were in the lessor's or the
supplier's possession or control; and
(2) Dispose of goods ( 28:2A-527(a)) that d~monstrably have been intended for the particular lease contract even though those goods are unfinished.
(b) If the goods are unfinished, in the exercise of reasonable commercial
judgment for the purposes of avoiding loss and of effective realization, an
108

.LEASES

28:2A-526

aggrieved lessor or the supplier may either complete manufacture and wholly
identify the goods to the lease contract or cease manufacture and lease, sell, or
otherwise dispose of the goods for scrap or salvage value or proceed in any
other reasonable manner. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR
3830.)
Section references. - This section is referred to in 28:2A-402 and 28:2A-523.

Legislative history of Law 9-128.--'" See

note to 28:2A-101.

28:2A-525. Lessor's right to possession of goods.

(a) If a lessor discovers the lessee to be insolvent, the lessor may refuse to
deliver the goods.
(b) After a default by the lessee under the lease contract of the type
described in 28:2A-523(a) or 28:2A-523(c)(l) or, if agreed, after other
default by the lessee, the lessor has the right to take possession of the goods.
If the lease contract so provides, the lessor may require the lessee to assemble
the goods and make them available to the lessor at a place to be designated by
the lessor which is reasonably convenient to both parties. Without removal, the
lessor may render unusable any goods employed in trade or business, and may
dispose of goods on the lessee's premises ( 28:2A-527).
(c) The lessor may proceed under subsection (b) of this section without
judicial process if it can be done without breach of the peace or the lessor may
proceed by action. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830; Apr.
18, 1996, D.C. Law 11-110, 26, 43 DCR 530.)
Section references. - This section is referred to in 28:2A-504, 28:2A-523, and
28:2A-527.
Effect of amendments. -D.C. Law 11-110
substituted "the lessor has the right" for "the
lessee has the right" in the first sentence of (bl.
Legislative history of Law 9-128. - See
note to 28:2A-101.
Legislative history of Law 11-110. - Law
11-110, the "Technical Amendments Act . of

1996," was introduced in Council and assigned

Bill No. 11-485, which was referred to the
Committee of the Whole. The Bill was adopted
on first and second readings on December 5,
1995, and January 4, 1996, respectively. Signed
by the Mayor on January 26, 1996, it was
assigned Act No. 11-199 and transmitted to
both Houses of Congress for its review. D.C.
Law 11-110 became effective on April 18, 1996.

28:2A-526. Lessor's stoppage of delivery in transit or

otherwise.
(a) A lessor may stop delivery of goods in the possession of a carrier or other
bailee ifthe lessor discovers the lessee to be insolvent and may stop delivery of
carload, truckload, planeload, or larger shipments of express or freight if the
lessee repudiates or fails to make a payment due before delivery, whether for
rent, security or otherwise under the lease contract, or for any other reason the
lessor has a right to withhold or take possession of the goods.
(b) In pursuing its remedies under subsection (a) of this section, the lessor
may stop delivery until:
(1) Receipt of the goods by the lessee;
(2) Acknowledgment to the lessee by any bailee of the goods, except a
carrier, that the bailee !lolds the goods for the lessee; or
109

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

(3) Such an acknowledgment to the lessee by a carrier via reshipment or

as warehouseman.
(c)(l) To stop delivery, a lessor shall so notify as to enable the bailee by
reasonable diligence to prevent delivery of the goods.

(2) After notification, the bailee shall hold and deliver the goods according
to the directions of the lessor, but the lessor is liable to the bailee for any
ensuing charges or damages.
(3) A carrier who has issued a nonnegotiable bill oflading is not obliged to
obey a notification to stop received from a person other than the consignor.
(July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-504, 28:2A-523, and
28:2A-527.

Legislative history of Law 9128. - See

note to 28:2A-101.

28:2A-527. Lessor's rights to dispose of goods.

(a) After a default by a lessee under the lease contract of the type described
in 28:2A-523(a) or 28:2A-523(c) or after the lessor refuses to deliver or
takes possession of goods ( 28:2A-525 or 28:2A-526), or, if agreed, after
other default by a lessee, the lessor may dispose of the goods concerned or the
undelivered balance thereof by lease, sale, or otherwise.
(b) Except as otherwise provided with respect to damages liquidated in the
lease agreement ( 28:2A-504) or otherwise determined pursuant to agreement of the parties ( 28:1-102(3) .and 28:2A-503), if the disposition is by
lease agreement substantially similar to the original lease agreement and the
lease agreement is made in good faith and in a commercially reasonable
manner, the lessor may recover from the lessee as damages (i) accrued and
unpaid rent as of the date of the commencement of the term of the new lease
agreement, (ii) the present value, as of the same date, of the total rent for the
then remaining lease term of the original lease agreement minus the present
value, as of the same date, of the rent under the new lease agreement
applicable to that period of the new lease term which is comparable to the then
remaining term of the original lease agreement, and (iii) any incidental
damages allowed under 28:2A-530, less expenses saved in consequence of
the lessee's default.
(c) If the lessor's disposition is by lease agreement that for any reason does
not qualify for treatment under subsection (b) of this section, or is by sale or
otherwise, the lessor may recover from the lessee as if the lessor had elected
not to dispose of the goods and 28:2A-528 governs.
(d) A subsequent buyer or lessee who buys or leases from the lessor in good
faith for value as a result of a disposition under this section takes the goods
free of the original lease contract and any rights of the original lessee even
though the lessor fails to comply with one or more of the requirements of this
article.
(e) The lessor is not accountable to the lessee for any profit made on any
disposition. A lessee who has rightfully rejected or justifiably revoked acceptance shall account to the lessor for any excess over the amount of the lessee's
110

LEASJi;S

28:2A-529

security interest( 28:2A-508(e)). (July 22, 1992, D.C. Law 9-128, 2(b), 39
DCR 3830; July 25, 1995, D.C. Law 11-30, 7(e), 42 DCR 1547.)
"comparable to the then" for" comparable to the
ten" in {b){ii).
Legislative history of Law 9-128. - See
note to 28:2A-101.
Legislative history of Law 11-30. - See
note to 28:2A-209.

Section references. - This section is referred to in 28:2A-304, 28:2A-508, 28:2A~

523, 28:2A-524, 28:2A-525, 28:2A-528, and
28:2A-529.
Effect of amendments. - D.C. Law 11-30
validated a previously made change in the
introductory language of (b) and substituted

28:2A-528. Lessor's damages for nonacceptance, failure

to pay, repudiation, or other default.

(a) Except as otherwise provided with respect to damages liquidated in the
lease agreement ( 28:2A-504) or otherwise determined pursuant to agreement of the parties( 28:1-102(3) and 28:2A-503), if a lessor elects to retain
the goods or a lessor elects to dispose of the goods and the disposition is by
lease agreement that for any reason does not qualify for treatment under
28:2A-527(b), or is by sale or otherwise, the lessor may recover from the
lessee as damages for a default of the type described in 28:2A-523(c)(l), or,
if agreed, for other default of the lessee (i) accrued and unpaid rent as of the
date of default if the lessee has never taken possession of the goods, or, if the
lessee has taken possession of the goods, as of the date the lessor repossesses
the goods or an earlier date on which the lessee makes a tender of the goods to
the lessor, (ii) the present value as of the date determined under clause (i) of
this subsection of the total rent for the then remaining lease term of the
original lease agreement minus the present value as of the same date the
market rent at the place where the goods are located computed for the same
lease term, and (iii) any incidental damages allowed under 28:2A-530, less
expenses saved in consequence of the lessee's default.
(b) If the measure of damages provided in subsection (a) of this section is
inadequate to put a lessor in as good a position as performance would have, the
measure of damages is the present value of the profit, including reasonable
overhead, the lessor would have made from full performance by the lessee,
together with any incidental damages allowed under 28:2A-530, due allowance for costs reasonably incurred and due credit for payments or proceeds of
disposition. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-507, 28:2A-523, 28:2A527, and 28:2A-529.

Legislative history of Law 9-128. - See

note to 28:2A-101.

28:2A-529. Lessor's action for the rent.

(a) After default by the lessee under the lease contract of the type described
in 28:2A-523(a) or 28:2A-523(c) or, if agreed, after other default by the
lessee, if the lessor complies with subsection (b) of this section, the lessor may
recover from the lessee as damages:
(1) For goods accepted by the lessee and not repossessed by or tendered to
the lessor, and for conforming goods lost or damaged within a commercially
111

LEASES

28:2A-532

28:2A-581. Standing to sue third parties for injury to

goods.
(a) If a third party so deals with goods that have been identified to a lease
contract as to cause actionable injury to a party to the lease contract:
(1) The lessor has a right of action against the third party, and
(2) The lessee also has a right of action against the third party if the
lessee:
(A) Has a security interest in the goods;
(B) Has an insurable interest in the goods; or
(C) Bears the risk ofloss under the lease contract or has since the injury
assumed that risk as against the lessor and the goods have been converted or
destroyed.
(b) If at the time of the injury the party plaintiff did not bear the risk of loss
as against the other party to the lease contract and there is no arrangement
between them for disposition of the recovery, his or her suit or settlement,
subject to his or her own interest, is as a fiduciary for the other party to the
lease contract.
(c) Either party with the consent of the other may sue for the benefit of
whom it may concern. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

28:2A-582. Lessor's rights to residual interest.

In addition to any other necessary recovery permitted by this article or other
law, the lessor may recover from the lessee an amount that will fully
compensate the lessor for any loss or damage to the lessor's residual interest
in the goods caused by the default of the lessee. (July 22, 1992, D.C. Law 9-128,
2(b), 39 DCR 3830.)
Legislative history of Law 9-128. - See
note to 28:2A-101.

113

 28:2A-530

COMMERCIAL INSTRUMENTS AND TRANSACTIONS

reasonable time after risk ofloss passes to the lessee( 28:2A-219), (i) accrued
and unpaid rent as of the date of entry of judgment in favor of the lessor, (ii) the
present value as of the same date of the rent for the then remaining lease term
of the lease agreement, and (iii) any incidental damages allowed under section
28:2A-530, less expenses saved in consequence of the lessee's default; and
(2) For goods identified to the lease CQntract if the lessor is unable after
reasonable effort to dispose of them at a reasonable price or the circumstances
reasonably indicate that effort will be unavailing, (i) accrued and unpaid rent
as of the date of default, (ii) the present value as of the date of default of the
rent for the remaining lease term of the lease agreement, and (iii) any
incidental damages allowed under 28:2A-530, less expenses saved in consequence of the lessee's default.
(b) Except as provided in subsection (c) of this section, the lessor shall hold
for the lessee for the remaining lease term of the lease agreement any goods
that have been identified to the lease contract and are in the lessor's control.
(c) The lessor may dispose of the goods at any time before collection of the
judgment for damages obtained pursuant to subsection (a) of this section. If the
disposition is before the end of the remaining lease term of the lease
agreement, the lessor's recovery against the lessee for damages is governed by
28:2A-527 or 28:2A-528, and the lessor will cause an appropriate credit to
be provided against a judgment for damages to the extent that the amount of
the judgment exceeds the recovery available pursuant to 28:2A-527 or
28:2A-528.
(d) Payment of the judgment for damages obtained pursuant to subsection
(a) of this section entitles the lessee to the use and possession of the goods not
then disposed of for the remaining lease term of and in accordance with the
lease agreement.
(e) After a lessee has wrongfully rejected or revoked acceptance of goods, has
failed to pay rent then due, or has repudiated( 28:2A-402), a lessor who is
held not entitled to rent under this section must nevertheless be awarded
damages for nonacceptance under 28:2A-527 and 28:2A-528. (July 22, 1992,
D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. ferred to in 28:2A-523.

This section is re-

Legislative history of Law 9128.. - See

note to 28:2A-101.

28:2A-530. Lessor's incidental damages.

Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the
transportation, care and custody of goods after the lessee's default, iri connection with return or disposition of the goods, or otherwise resulting from the
default. (July 22, 1992, D.C. Law 9-128, 2(b), 39 DCR 3830.)
Section references. - This section is referred to in 28:2A-528 and 28:2A-529.

Legislative history of Law 9-128. - See

note to 28:2A-101.

112

,{'"""\

PUBLIC LAW 88-.:::43-DEC. 30, 1963

[77

STAT.

ARTICLE 3-COMMERCIAL PAPER-Continued

I'.\ HT

4--J.unII.ITY OF

P .\RTIES

Sec.

28 :3-401.
28 :3-402.
28 :3--!0:t
28 :3-404.
28 :3---40rt.
28 :3-406.
28 :3-407.
28 ::~-408.
28 :3-40fl.
28 ::l--410.
28 :3---411.
28 :3-412.
28 :3--lrn.
28 :3-414.
28 :3----n:;.
28 ::l--ll<t
28 ::{-417.
2l'l ::l-418.
28 ::l-41!1.

:-liguat11r1>.

Signtitnre in amhiguons rapacity.

::Signature by 11uthorized representative.
rnauthorlzed signatures.
Imposters: signature in name of payee.
Negligenre C'011tributing to alteration or unauthorized signature.
Alteration.
Considt>rution.
Draft not an assignment.
Definition and 01ieration of acceptance.
Ct>rtiflttHion of a check.
Arreptance varying draft.
('ontract of maker, drawer and aC'Ceptor.
('ontral't of indorser; order of liability.
<'ontrart of nccommodation party.
t'outral't of guarantor.
Warranties 011 presentment and transfer.
1''inality of payment or acceptance.
('omersion of instrument; innocent represeutath-e.

P ..\RT

"

:'t--PRESE.'lT~IE.'lT, XoTICE OF DISHOSOR ASD PRon:sT

28 :H-:".tll. \\'hen presentment, notice of dishonor, ll.Ild protest ne(essary or ~

permissible.
28 ::{-:\02. l'ne:xcused delay; discharge.
28 :3-:;03. Time of prest>ntment.
28 :3-::JO-l. How presentment made.
28 :3-:JO;:J. Rights of party to whom presentment is made. V
28 :3~){)6. Time allowed for acceptance or payment.
28 :3-507. Dii:;hono1; holder's right of recourse; term allowing rt>-pref<eutment. ../
28 :3--:;os. Xotice of dishonor.
28 :3-=>00. Protest; noting for protest.
28 :3-510. J<~,idence of dishonor and notke of dishonor.
:!8 :3-:;11. WahPd or excused presentment, protest or notice of dishonor or
delay therein.
PART 6--DISCHARGE

(
'

28 :3-601.
28 :3-60-l.
28 :3-603.
28 :3-604.
28 :3-605.
28 :~00.

Discharge of parties. V
Effect of discharge against holder in due eourse.
Payment or satis:t'action.
Tender of payment.
Cancellation and renunciation.
Impairment of recourse or of collateral.
PART 7-ADYICE OF INTERNATIONAL SIGHT DRAFT

28 :3-701. Lettt>r of advice of international sight draft.

PAJ!.T 8--MrsCE!.LANEOUS

28 :3-801.
28 :3-802.
28 :3-803.
28 ::l--804.
28 :3-805.

Drafts in a set.
Effect of instrument on obligation for which it is given.
Xotice to third party.
Lost, destroyed or stolen instruments.
Instruments not payable to order or to be.arer.

PART 1-SHORT TITLE, FORM AND INTERPRETATION

Citation of a,....
icle ..

28 :3-101. Short title

This a1ticle shall be known and may be cited as Uniform Commercial Code-Commercial Paper.
28 :3-102. Definitions and index of definitions
(1) In this article unless the context otherwise requires
(a) "Issue" means the first delivery of an instrument to a
holder or a remitter.
(b) An "order" is a direction to paj' and must be more than
an authorization or request. It must identify the person to pay

,
l

77

STAT.]

PUBLIC L

with 1easonable eertaint

such persons jointly or
( c) A "promise'~ is at
than an acknowledgment
( d) "Secondary oarh
(e) "Instrumenf' mer
( ~) Other definitions app
whieh they appear are:
"Acceptance". Sectic
"Accommodation part
"Alteration''. Sectio1
'Certificate of deposit
"Certification''. Sect
"Check". Section 28
"Definite time''. Sec
"Dishonoe'. Section
"Drn ft". Section 28
"Holder in due cours1
"Negotiation". Secti
"Xote". Section 28 ::
"Xotice of dishonor''.
"On demand''. Secf
"Presentmenf'. Sec1
"Protest". Section~
"Restrictive Indorse1
"Signature". Sectio
( 3) The .following definit
"Accounf'. Section
"Banking day". Se
'Clearing house". ~
"Collecting bank".
"Customer". Sectio
"Depositary bank".
"Documentary draft
"Intermediary bank'
"Item". Section 28
"Midnight deadline'
"Payor bank". Sec
(-!) In addition article 1
of eonst.ruction and interp
28:3-103. Limitations 1
( 1) This article does n
i nYestment securities.
( :! ) The provisions of t
the n1ticle on bank depos
transactions (article 9).
28 :3-104. Form of ne1
"certificat
( 1) .Any writing to be
must
(a) be signed by th
(b) contain an un
certain in money and
given by the maker 01
and
(c) bepayableon(
( d) be payable to<
93---025 0-64-4 5

77 STAT.]

PUBLIC LAW

[!43-DEC. 30, 1963

673

with re11so1111ble eertaintv. It 11rnv be adclres~ecl to one 01 mo1e

such persons jointly or in the altemati\e but not in smcession.
( c) A "promise.. is an unde.rtakin~ to pny and nrnst be more
than an acknowledgment of an obligation.
( d) "Secondnry party" means a drawer or endo1"St"1'.
( e) "Instru:~1ent.' means a. negotiable instrument.
1:2) Other definitions applying to this article and the seetio11s iu
which they appear are:
"Acceptance. Section :28 :3---110.
"Accommodation party~~. Section 28:3--U5.
"Alteration~~. Section 28 :3---40i.
"Certificate of deposit". Section 28 :3-10-l.
"Certification~'. Section 28 :3---111.
"Check". Section 28 :3-104.
"Definite time'. Section 28 :3-109.
'-.,J "Dishonor~~. Section 28 ::1-507.
"Draft". Section 28 ::1-104.
"Holder in due course". Section 28 ::3-:30:2.
"Negotiation". Sect ion 28 :3-:202.
"Xote". Section 28 :3-104:.
~ ';Xotice of dishonor~'. Section 28 ::3-308.
"On demand~. Section 28 :3-108.
"PresentmenC. Section 28 :3-504.
"Protesf~. Seetion 28 :3-509.
---i "'Restrictive Indorsemenf'. Section 28 ::3-205.
"Signature". Section 28 :3---101.
i3) The following definitions in other artieles apply to this article.
"Accounf'. Section :28 :-1--10-1.
"Banking day". Section 28 :-1--10-1.
"Clearing house". Section 28 :-1--104.
"Collecting bank'~. Sedion 28 :!--105.
"Customer". Section 28 :-1--104.
"Depositary bank'\ Section 28 :4-105.
"Documentary draft'~. Section 28 :-1--10!.
"Intermediary bank~. Section 28 :-1--105.
"Item". Section 28 :-1--104.
"Midnight deadline". Section 28 :!--104.
"Payor bank". Section 28 :-1--105.
( 4) In addition article 1 contains general definitions apd principles
of construction and interpretation applicab~e throughout this article.
28:3-103. Limitations on scope of article
. (1) This arti~]~ does not apply to money, documents of title or)
mYestment securities.
(2) The provisions of this article are subje('.t to the proYisions of _-.--;.
the article on bank deposits and collections (article 4) nud secured //~u
transactions (article 9).
d /A;S ~
28 :3-104. Form of negotiable instruments; "draft"; "check";
-b
"certificate of deposit"; "note"
( 1) Any writing to be a negotiable instrument within this article
must
(a) be signed by the maker or drawer; and
(b) contain an unconditional promise or order to pay a sum
certain in money a.nd no other promise, order, obligation or power
given by the maker or drawer except as authorized by this article;
and
( c) be payable on demand or at a definite time; and
( d) be payable to order or to bearer.

93-025 0-64-45

/
I
:::::;::..o&.Jc--


PUBLIC LAW 88-243-DEC. 30, 1963

674

[77

STAT.

(2) A writing whid1 eomplies with the reqnireme11ts of this

!.'ection is
(a) a "draff! ("bill of exchange") if it is an order;
(b) a "check'' if it is a draft drawn on n. bank and payable
on demand;
( c) a "certifkate of deposit'' if it is an acknowledgment bv a
J.l ~nk of receipt of money with an engagement to repay it;

IA
d) a "note~ if it is a promise other than a certificate of deposit.
-(3) As used in other articles of t.his subtitle, and us the context.
' //
ma require, the te1ms "draft'\ "check~, "certificate of deposit'' 1md
'/
"note" may refer to instruments which are not negotiable within this

article as well as t-0 instruments whic-h are so negotiable.

28 :3-105. When promise or order unconditional
(1) A promise or order otherwise unconditional is not nrnde c.on~
ditional by the .fact that the instrument

(a) is subject to implied or constructirn eonditions; or

(b) states its co11sider11t.ion, whether performed or promised,
or the transa.ction which gave rise to the instrument, or thnt the
promise or order is made or the instrument matures in nceordance
with or "as per~ such transaction; or
( c) refers to or stntes that it arises out of a separate agreement.
or refers t-0 a sepnrllte agreement for rights as to prepayment
or aeceleration; or

( d) states that it is dm wn undel' a letter of credit; or

..___ (e) states that it is secmed. whether by mortgitge, reservation
of title or otherwise; or

( f) indicates a particular nccount to be debited or nny other

fund or source from which reimbursement is expeeted; or
(g) is limited to payment out of a particular fund or the
proceeds of a particular source, if the instrument is issued by a
gO\'ernment or gmernmental agency or unit; or .
(h) is limited to payment out of the entire assets of n pa1tnership, unincorporated association, trust or estate by or on belrnH of
whieh the instrument is issued.
(2) A promise or order is not unconditional if the instrument
(a) states that it is subject to or gmerned by any other agreement; or
(b} states that it is to he pnid only out of a particular fund
or source except as prodded in this section.

OJ?

@le(

28 :3-106. Sum certain

( 1) The sum payable is n sum ce1iain enn though it is to be paid

la) with stated interest or by stated installments; or
(b) with stated different rates of interest before and after
default or a specified date; or
(c) with a stated discount or addition if paid before or after
the date fixed for payment; or
( d) with exchange or less exchange, whether at a fixed rate or
n.t the current rate; or
( e) with costs of collection or an attorney"s fee or both upon
/1
k default.
v V (2) Nothing in this section shall ntlidate any term which is other/.. ,jfJwise illegal.
28:3-107. Money
.
(1) An instrument is payable in mone~he medium of exchange
in which it is payable is money at the tune the instrument is made.
~\n instrument payable in "currency" or "current funds" is payable
ir: money.

0() V
t,

f\ ~

J r'
~ ~"'
71

'

77

STAT . ]

PUBLl

( 2) .-\. promise or ordE

is for 11 smn certain in m
ment is specified in the
that number of dollars wl
at the buying sight rate
instrument is payable or,
If such an instrument s1
payment the instrument
28 :3-108. Payable OI'
Instruments payable c
on presentation and the
28 :3-109. Definite tiJ
( 1) An instrument is
is payable(a) on or before f
date; or
(b) at a fixed pe1
( c) at a definite
( d) at a definite
holder, or to extens
the maker or accep
act or event.
(2) ~-\.n instrument ~
upon an act or event un
at a definite time even th
28 :3-110. Payable t
(1) An instrument
payable to the order 01
rensonable certainty, 01
ously designated on itf
payee. It may be payal
(a) the maker o
(b) the drawee;
(c) a payee wh
( d) two or mor
( e) an estate, ti
order o:f the repN
successors; or
( f) an office, or
is payable to the I
successors may act
( g) a partnersr
it is payable to
indorsed or trans
(2) An instrument
such 'Words as "pa.ya
indorsed".
( 3) An instrument
payable to order unlE
written.
28 :3-111. Payable
An instrument is p:

to-

(a) bearer or t
(b) a specified
( c) "cash" or t
cloes not purport

'

77

STAT . ]

.~.

PUBLIC LAW 88 .. -ta-DEC. 30, 1963

(2) A promise or order to pay a sum stated in 1\ foreign currency

is for a sum certain in money and, unless a different medium of payment is specified in the instrument, may be satisfied by v.ayment of
that number of dollars which the stated foreign currency will purchase
at the buying sight rate for that currency on the day on which the
instrument is payable or, if P,ayable on demand, on the day of demand.
If such an instrument specifies a foreign currency as the medium of
payment the instrument is payable in that currency.
28 :3-108. Payable on demand
Instruments payable on demand include those payable at sight or
on presentation and those in which no time for payment is stated.
28:3-109. Definite time
(1) An instrument is payable at a definite time if by its terms it
is payable(a) on or before a stated date or nt a fixed period after a stated
date; or
(b) at a fixed period after sight; or
( c) at a definite time subject to any acceleration; or
(d) at a definite time subject to extension at the option of the
holder, or to extension to a further definite time at the option of
the maker or acceptor or automatically upon or after a specified
act or event.
(2) An instrument which by its terms is otherwise payable only
upon an act or event uncertain as to time of occurrence is not payable
at a definite time even though the act or event has occurred.
28 :3-110. Payable to order
(1) An instrument is payable to order when by its terms it is
payable to the order or assigns of any person therein specified with
l'ensonable certainty, or to him or his order, or when it is conspicuously designated on its face as "exchange'' or the like and names a
payee. It may be payable to the order of
U .:;,
(a) the maker or drawer; or
(b) the drawee; or
(c) a payee who is not maker, drawer or drawee; or
(d) two or more payees together or in the alternative; or
( e) an estate, trust or fund, in which case it is payable to the
order of the representative of such estate, trust or fund or his
successors; or
(f) an office, or an officer by his title as such in which case it
is e!Yable t() the princilal but the incumbent of the office or his
successors may act as if ie or they were the holder; or
(g) a partnership or unincorporated association, in which case
it is payable to the partnership or association and may be
indorsed or transferred by any person thereto authorized.
(2) An instrument not payable to order is not made so payable by
~uch words as "payable upon return of this instrument properly
indorsed".
( 3) An instrument made payable both to order and to bearer is
payable to order unless the bearer words are handwritten or type~
written.
,
28:3-111. Payable to bearer
An instrument is payable to bearer when by its terms it is payable
to-

a) bearer or the order of bearer; or

b) a specified person or bearer; or
c) "cash" or tlie order of "cash", or any other indication which
does not purport to designate a specific payee.

:::

::

; :.!
~..
~

"~

.....
.f

-:ii

,_.

,t):''_r' .

PUBLIC L\W 88-2-1-3-DEC. 30, 1963

(77

STAT.

28 :3-112. Terms and omissions not affecting negotiability

( 1) The negotiability of an instrument is not affected by{a) the omission of a statement of any consideration or of the
place where the instrument is drawn or payable; or
(b) a statement that collateral has been siren to secure obligations either on the instrument or otherwise of an obligor on
the instrument or that in the case of default on those obligations
the holder may realize on or dispose of the collateral; or
( c) a promise or power to maintain or protect collateral or to
give additional collateral; or
( d) a term authorizing a confession of judgment on the instrument if it is not paid when due; or
( e) a term purporting to wahe the benefit of any law intended
for the adrnntage or protection of any obligor; or
(f) a term in a draft providing that the payee by indorsing
or cashing it acknowledges full satisfaction of an obligation of
the drawer; or
(g) a statement in a draft drawn in a set of parts (section
28 :3-801) to the effect that the order is effecti,e only if no other
part has been honored.
(2) Nothing in this section shnll rnlidnte any term which is otherwise ille-al.
28 :3-113. Seal
An instrument otherwise neg-otiable is within this article evell
though it is under a seal.
28:3-114. Date, antedating, postdating
(1) The negotiability of an instrument is not affected by the fact
that it is undated, antedated, or postdated.
( 2) 'Where an instrument is antedated or postdated the time when it
is payable is determined by the stated date if the instrument is payable
on demand or at a fixed period after date.
(3) 'Vhere the instrument or any signature thereon is dated, the
date is presumed to be correct.
28 :3-115. Incomplete instruments
(1) "'hen a paper whose contents at the time of signing show that
it is intended to become an instrument is signed while still incomplete
in any necessary respect it cmmot be enforced until completed, but
when it is completed in accordimce with irnthority given it is effective
as completed.
(2) If the completion is unauthorized the rules as to material alteration apply (section 28 :3-407), even though the pape_r ~>as not
delivered by the maker or drawer; but the burden of estabhslung that
nny completion is unauthorized is on the party so asserting.
28 :3-116. Instruments payable to two or more persons
An instrument payable to the order of two or more persons
(a) if in the alternatiYe is payable to any one of them and may
be negotiated, discharged or enforced by any of them who has
possession of it;
(b) if not in the alternative is payable to all of them and may
be negotiated, discharged or enforced only by all of them.
28 :3-117. Instruments payable with words of description
An instrument made payable to a named person with the addition
of words describing him
(a) as agent or officer of a specified person is payable to his
principal but the agent or officer may act as if he were the holder;
(b) as any other fiduciary for a specified person or purpose is

77 SnT.]

PUBLIC LA 1

payable to tl~e payee a

e.nforced by lum;
( c) in any other manr
ally and the additional
pa1t.ies.
28 :3-118. Ambiguous ten
The following rules apply
(a) Where there 1s d
or :t note the holder ma
the drawer is effective a.l'
(b) Handwritten tern
and typewritten control
( c)
ords control fig
ous figures control.
( d) Unles..c; otherwise
i11te1est at. the judgmen1
<late of the. instrument, '
(e) rnless the instr
persons who sign as mr
as a part of ths same tr
eYen though the instrm
to pay~'.
( f) r nless otherwise
a single extension for
con:-ent to extension, exr
ondn r> parties and ace
exercise his option to
of a maker or accepto1
section 28 :3-604 ten(
is due.
28 :3-119. Other writing
(1) As between the oblig
feree the terms of an instr1
other written agreement el'
except that a holder in due
his rights arising out of th
notice of the limitation wh1
(2) A separate agreeme
instrument.
28 :3-120. Instruments
An instrument which sti
the like designates that bar
but does not of itself autho
28 :3-121. Instruments
A note or acceptance wh
equivalent of a draft dra
out of any funds of the mn
wise available for such pa:
28 :3-122. Accrual of c
( 1) A cause of action a,
(a) in the case of a
(b) in the case of :
date is stated, on the
(2) A cause of action
certificate of deposit ace
certificate may not be mac

"r

P)

77 STAT.]
payable
e.nforced
(c) in
ally _:md
parties.

PUBLIC LAW 88-243-D

,' 30, 1963

67'

to the p~tyf'e and may he Jll:'j!Otiated. <lisd1argecl or

bv him:
a'nv othe1 mam1er is pa,able io the pane unconditionIle additioll'll words aie without elfect on !'Hbsequent

28 :3-118. Ambiguous terms and rules of construction

The following- rules apply to Hety instrument:
(a) "'here there is doubt whether the. instrument is n drnft
or a note the holder mav treat it a.s either. ~\. drnft drawn on
the dra.wer is effecti w iis n note.
( b) Handwritten term::- <'ontrol typewritten and printed terms,
nnd type.written control printe.(l.

( c) Words control figures except that if the words nre ambiguous figures control.
( d) rn less otherwise specified a Pl'O\"ision for interest me.ans
interest at. the judgment rnre at the place of pnyment from the
date of the instrument, or if it is undated from the date of issue.
( e) l'nless the instmment. otherwise spet'ifies two or more
persons who sign as maker, ncceptor or drawer or indorser and
ns a part. of tlrn s~une transaction are jointly and sewrally liable
e\en though the instrument contains such words as "I promise
to pay~'.
( f) rn1ess otherwise speeified consent to extension authorizes
a single extension for not longer than the orig'inal period. A
consent to extension, expressed in the instrument, is binding on secondary parties and accommodntion makers. A holder may not
exercise his option to extend an instrument o,er the objection
of a maker or acceptor 01 other party who in nccordance with
section :!B :3-604 ten<l.ers full pn.yment when the instrument
is due.

28 :3-119. Other writings affecting instrument

( 1) As between the obligor nnd his immediate obligee or any trans-

feree the terms of an instrument may be modified or affected by any

other written agreement executed as a part of the same transaction,
except that a holder in due course is not affected by any limitation of
his rights arising out of the separate written agreement if he had no
notice of the limitation when he took the instrument.
(2) A separate agreement does not affect the negotiability of an
instrument.

28 :3-120. Instruments "payable through" bank

An instrument which states that it is "payable through'~ a hank or
the like designates that bank as a collecting bank to make presentment
but does not of itself authorize the bank to pay the instrument.

28:3-121. Instruments payable at bank

A note or acceptance which states that it is pavnble at a bank is the
equirnlent of a draft drawn on the bank payable when it fnlls due
out of any funds of the maker or acceptor in current account or otherwise a,ailable for such payment.

28 :3-122. Accrual of cause

of action

(1) A cause of action against a maker or an acceptor accrues

(a) in the case of a time instrument on the day after maturity;
(b) in the case of a demand instrument upon its date or, if no
date is stated, on the date o:f issue.
(2) A cause of action against the obligor of a demand or time
certificate o:f deposit. accrues upon demand, but demand on a tim~
certificate may not be made until on or after the date of maturity.

~: ~
.. ,

......

'

"

('

PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

(3) A ca use of nction agninst a dm wer of a draft or an indorser

of any instrument accrues upon demand following dishonor of the
instrument. Notice of dishonor is a demand.
( 4) Unless nn instrument provides otherwise, interest runs at the
rate provkled by law for a judgment
(a) in the case of a maker, acceptor or other primary obligor
of a demand instrument, from the date of demand;
( b) in all other cnses from the date of accrual of the ca nse of
action.

PART 2-TRANSFER AND NEGOTIATION

28:3-201. Transfer: right to indorsement
( 1) Transfer of an instrument ,ests in the t1ansferee snch rights
as the transferor has therein, except t hnt a transferee who has himself been a Earty to any fraud or illegality affecting the instrument
or who as a prior holder had notice of a defense or claim against it
canilOf improve his position by taking from a later holder in due
course.
(2) A tra!lsfer of a security int~rest in an instrument vests the foregoing rights in the transferee to the extent of the interest transferred.
(3) l'nless otherwise agreed any transfer for rnlne of an instrument
not then p1tyable to bearer gives the transferee the specifically enforceable right to l11He the unqualified indorsement of the transferor.
Segotiation takes effect only when the indorsement is made and until
that time there is no presumption that the transferee is the owner.
28 :3-202. "S egotiation
( 1) Negotiation is the transfer of an. instrument in such form that -y-./7A--VLA""'
the.,Ygnsferee becomes it holder. If the mstrument 1s ~yahle to order I '
it is negotiated by delivery witli. any necessary indorsement; if payable-~-~
to ~it is negotiated by delhery.
.
(2) An indorsement must be written by or on behalf of the holder
and on the instrument or on a paper so firmly affixed thereto as to
become a part thereof.
(3) An indorsement is effectiYe for negotiation only when it conveys the entire instrument or any unpaid residue. If it p.urports tv 'oe
of less it operates only as n: partial assignment.
(4) '\Vords of assignment, condition, wai,er, guaranty, limitation
or disclaimer of liability nnd the like accompanying an indorsement
do not affect its character as an indorsement.
:3-203. Wrong or misspelled name
W'here im instrument is made payable to a person under a misspelled name or one other than his own he may mdorse in that name
or his own or both; but signature in both names ma ' be r uired b a
person paying or giYing rnlue fort e instrumen .
28 :3-204. Special indorsement; blank indorsement
( 1) A special indorsement specifies the person to whom or to whose
order it makes the instrument payable. Any instrument specially
indorsed becomes payable to the order of the special indorsee and
may .be further negotiated only by his indorsement.
(2) An indorsement in blank specifies no particular indorsee and
may consist of a mere signature. An instrument payable to order
and indorsed in blank becomes payable to bearer and may be negotiated by deli very alone until specially indorsed.
(3) The holder may convert a blank indorsement into a s~ia.1
indorsement by writing over the signature of the indorser in blank
any contract consistent with the character of t.I1e indorsement.

'f2s

77 STAT. ]

PUBLIC L

28 :3-~05. Restrictive fo,

An indorsement is restric1
(a) is conditional; 01
(b) {>Urports to proh
( c) mcludes the wo
any bank", or like term
tion or
(d) otherwise statei
indorser or of another
28 :3-206. Effect of resf
(1) No restrictive indon
at.ion of the instrument.
( 2} An intermediary bar
tary bank, is neither given
tive indorsement of .any pe1
or the person presenting fo1
(3) Except for an intE
indorsement which is cow
tion", "for deposit", "pay_
(a) and (c) of section 28:
by him for or on the seem
indorsement and to the ex
value. In addition such
otherwise complies with tl1
constitutes a holder in due
( 4) The first taker un
indorser or another persm
must pay or apply any '
of the instrument consiste
t hnt he does so he becemei
is a holder in due course
ments of section 28 :3-80'
A later holder for value i
b:y such restrictive indo
fiduciary or other person
action for his own benefi
(2) of section 28 :3-804)
28:3-207. Negotiation
( 1) Negotiation is eft'
the negotiation is
(a) made by an
or any other person
(b) obtained bY. f
(c) part of an illt
( d) made in brea1
(2). ~xcept. as agairn
negotiation ism an appr
tion of a constructive t1
28 :3-208. Reacquisit
Where an instrument
he may cancel any indor
reissue or further negoti
is discharged as against
not in due course and '
charged as against subs1

77 STAT.]

PUBLIC LAW

88-~

_,.-DEC. 30, 1963

28 :3-205. Restrictive indorsements

An indorsement is restrictiYe which either
(a) is conditional ; or
(b) :purports to prohibit further transfer of the instrument; or
( c) mcludes the words "for collection", "for deposit", "pay
rmy bank", or like terms signifying a purpose of deposit or collection or
(d) otherwise states that it is for the benefit or use of the
indorser or of another person.
28 :3-206. Effect of restrictive indorsement
(1) No restrictive indorsement pre\.ents further transfer or negotiation of the instrument.
(2) An intermediary bank, or a payor bank which is not the depositary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the bank's immediate transferor
or the person presanting for payment.
(3) Except for an intermediary bank, any transferee under an
indorsement which is conditional or includes the words "for collection", "for deposit", "pay any bank", or like terms (subpara.graphs
(a) and (c) of section 28 :3-205) must pay or apply any value ~ven
Ju: him for or on the security of the instrument consistently wit the
inaorsement and to the extent that he does so he becomes a holder for
value. In addition such transferee is a holder in due course if he
otherwise complies with the requirements of section 28 :3-302 on what
constitutes a holder in due course.
( 4) The first taker under an indorsement for the benefit of the
indorser or another person (subparagraph ( d) of section 28 :3-205)
must pay or apply any value given b;y him for or on the security
of the instrument consistently with the mdorsement and to the extent
that he does so he becomes n holder for rnlue. In addition such taker
is a holder in due course'ilfie oHierwise complies wlth the requirements of section 28 :3-302 on what constitutes a holder in due course.
A later holder for value is neither given notice nor otherwise affected
by such restrictive indorsement
he has knowledge that n
fiduciary or other person has negotia
the instrument in any transnction for his own benefit or otherwise in breach of clu_!y (subsection
(2) of section 28 :3-304). .,.....
28 :3-207. Negotiation effective although it may be rescinded
(1) Negotia::lon is effective to trnnsfer the instrument although
the negotiation is
(a) made by an infant, n. corporation exceeding its powers,
or any other person without capacity; or
(b) obtained b:r fraud, duress or mistake of any kind; or
( c) part of an illegal transaction; or
( d) made in breach of duty.
(2) Except as against a subsequent holder in due course such
negotiation is in an appropriate case subject to rescission1 the declaration of a constructive trust or any other remedy permitted by la.w.
28 :3-208. Reacquisition
Where an instrument is returned to or reac9uired by a prior party
he may cancel any indorsement which is not necessary to his title and
reh3~Ue or further negotiat!t.ili_e instrument, but any intervening party
is discharged as agaillst the reacqmrmg party and subsequent holders
not in due course and if his indorsement has been cancelled is discharged as against subsequent holders in due course as well.

-079

PUBLIC LAW 88-243-DEC. 30, 1963

[77 STAT,

PART 3-RIGHTS OF A HOLDER

28 :3-301. Rights of a holder
The holder of a.n instrument whether or not he is the owner may
transfer or negotiate it and, exce.pt us otherwise pro,ided in section
~8 :3--603 on payment or satisfaetion, diseharge it or e.nforce piwment
in his '"n name.

28 :3-302. Holder in due course

(1}, A holder in due course is a holder who takes the instrument
. _.J (a) for value; and
~ (b) in good faith; and
( c) without notice that it is oYerdne or has been dishonored
or of any defense against or claim to it on the part of any person.
(2) A payee may be a holder in due course.
(3) A holder does not become a holder in due course of an
instrument:
(a) by purchase of it at judicial snle or hy taking it under
legal process; or
(b) by acquirins- it in taking oYer an estate; or
(c) by purchasmg it. as part of a bulk transaction not in
regular course of business of the transferor.
( ) A purchaser of a limited interest can be a holder in due course
only to the extent of the interest pnrclrnserl.
28 :3-303. Taking for value
A holder takes the instrument for rnlne
(a) to the extent that the agreed eonsideration has been performed or that he acquires a security interest in or a lien on the
instrument otherwise than by legal process; or
( b) when he takes the instrument in payment of or as security
for an antecedent claim against any person whether or not the
claim is due; or
(c) when he giYes n negotiable instrument for it or makes an
irrevocable commitment to a third person.
28:3-304. Notice to purchaser
( 1) The purchaser has notice of a c]aim or defense if
(a) the instrument is so incomplete, bears such visible evidence
of forger;r or alteration, or is otherwise so irregular as to call into
question its validity, terms or ownership or to create an ambiguity
as to the party to pay; or
t/(b) the purchaser !ms notice that the obligation of any party
is rnidable in whole or in part, or that all parties have been
discharged.
(2) The purchaser has notice of a claim against the instrument
when he has knowledge that a fiduciary has negotiated the instrument
in payment of or as security for his own debt or in any transaction for
his own benefit or otherwise in breach of duty.
(3) The purchaser has notice that an instrument is overdue if he
hns reason to know
(a) that any part of the principal amount is overdue or that
there is an u~cured default in payment of another instrument of
the same series; or
_
(b) that acceleration of the instrument has been made; or - - (c) that he is taking a demand instrument after demand has
been made or more than a reasonable length of time after its issue.
A reasonable time for a check drawn and payable within the
sta.tes and territories of the rnited States and the District is

presumed to be thirty days.

77 STAT.]

PUBLIC l

( ) Knowledge of the f,
purchaser notice of a defens
(a) that the instrum
(b) that it was issue
promise or aC(\()mpanie
chaser has notice that a
thereof;
( c) tha,t any party :
{d) that an incomp
the purchaser has noti
( e) that any perso1
fiduciary;
(f) that there has 1
instrument or in paym
the same series.
( 5) The filin~ or recor<
stitute notice within the l
would otherwise be a holde
( 6) To be effective notic
manner as to give a reason:
28:3-305. Rights ot a I
To the extent that a ho
instrument free from
( 1) all claims to it on tl
( 2) all defenses of an~
holder has not dealt excep
(a) infancy, to the
tract; and
( b) such other inci:
action, as renders the
( c) such misrepre~
the instrument with n1
to obtain knowledge<
{d) discharge in ii
( e) any other disc
he takes the instrume
28 :3-306. Rights of 01
Fnless he hns the right
the instrument subject to
(a) all valid claim
( b) all defenses o
a.ction on a simple cc
( c) the defenses (
f ormance of any co
for a special purpose
( d) the defense t
the instrument acqui
tion to such holder
restrictive indorsem
instrument is not ot
liable thereon nnles~
for such party.
28 :3-307. Burden of

course
( 1) lJ nless specificallJ
instrmnent is admitted.
in issue

\?

77

STAT.

PUBLIC LAW 88-2 . .'JEC. 30, 1963

(-!) Knowledge of the following fads dot>fl not of itself gi\e the
purchaser notice of a <lefense 01 claim
(a) that the instrument is antetlated or postdated;
( b) that it was is.5ue<l or negotiated in return for an executory
promise or accompanied by a separate agreement., unless the purchaser has notice that n defeuse or claim hns arisen from the terms
thereof;
( c) that any party has signed for accommodation;
( d) that an incomplete instrument has been completed, unless
the purchaser has notice of any improper completion;
( e) that any person negotrnting the instrument is or was a
fiduciary;
(f) that there has been default in payment. of interest on the
instrument or in pnyment of any other instrument, except one of
the same series.
. ( 5) The. filin~ o_r recording. o.f a docum.ent d?e.s not of itself constitute notice withm the prov1s1ons of tlns article to a person who
would otherwise be a holder in due course.
(6) To be effective notice must be received at such time and in such
manner as to give a reasonable opportunity to act on it.
28 :3-305. Rights of a holder in due course
, /1?/ ~
To the extent that a holder is a holder in due course he takes the
~~Jcru.r
~
instrument. free from
/VI) 12-.e-;t
.
(1) all claims to it on the part of any person; and - - ::: :
(2) all defenses of any party to the instrument with whom the
holder has not dealt except
(a) infancy, to the extent that it is a defense to a simple contract; and
(b) such other incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity; and
,.
( c) such misrepresentation as has mduced the party to sign
'1
the instrument with neither knowledge nor reasonable opportunity
to obtain knowledge of its character or its essential terms; and
. ( d) discharge in insolvency proceedings; and
( e) any other discharge of which the holder has notice when
he takes the instrument.
28 :3-306. Rights of one not holder in due course
Fnless he hast.he rights of 11 holder in due com'l".ie any pe.rson take~
the instrument subject to
(a) all valid claims to it on the part of any person; and t../
(b) all dtlenses of any party which would be available in an
net.ion on 1tsimpfe contract; and
(c) the defenses of want or failure of consideration, nonperformance of any condition precedent. nondelivery, or delivery
for a special purpose (section 28 :3-408): and
(d) the defense that. he or a person through whom he holds
the instrument acquired it by theft, or that payment or satisfaction to sueh holder would be inconsistent with the terms of a
restrictive indorsement. The claim of any third person to the
instrument is not otherwise anlilable ns a defense to any party
liable thereon unless the third person himself defends the action
for such party.
28:3-307. Burden of establishing signatures, defenses and due
course
(1) rnless specifkally denied in the pleadin:,,rs each signature on an
instrument is admitted. " 7 hen tht' etfe<:tin.ness of a signature is put
in issue

682

PUBLIC l

.I 88-243-DEC. 30, 1963

[77 STA.

77 STAT.]

(a) the burden of establishing it is on the party claiming under

the signature; but
(b) the signature is presumed to be genuine or authorized ex.
cept where the action is tQ enforce the obligation of a purported
signer who has died or become incompetent before proof is
required.
(2) 'When signatures are admitted or established, prodm.,"l:ion of the
inst.rument entitles a. holder to recover on it unless the defendant estab.
lishes a defense.
(3) After it is shown that a defense exists a person claiming the
rights of a holder in due course has the burden of establishing that
he- or some person under whom he claims is in all respects a. holder
in due course.

PART 4-LIABILITY OF PARTIES

28 :3-401. Signature
(1) No person is linble on an instrument unless his signut11re
nppears thereon.
.
(2) A signature is made.~x_ use of an 1ame including any trade
or assumed naJne, upon an mstrument, or y nny word or inark used
in Tieu of a written signature.
..
28 :3-402. Signature in ambiguous capacity
Unless the instrumEiint clearly indicates that a si1C111ttme is made
in Some other capacity pt is an indorsement.

28 :3-403. Signature y authorized representative

( 1) A signature may be made by an agent or othei: representative,
und his authority to make it may be established as in other cases of
1>presentation. No J.>a11icu111r form of !Rpointment is necessary to
~stablish such authonty.
.

.
(2) An authorized representntirn who signs his mfn name to an
instrument

_
(a) is personally obligated if the instrument neitl.1er 1~ames
the person represented nor shows that t.he representatne s1g:n.ed
in a representative capacity;
.
(b) except as otherwise established between the immediate
parties, is personally obligated if the instrument names the person
represented but does not.sh''' that the represei1tative signed in a
representative capacity, or if the instrument does not name the
person represen~ed but ~oes show that the representative signed
ma representative capacity.
F~) Jt~xcept as otherwise established the name of nu ?rga~liz~ti?n
preceded or followed by the name and office of an authorized md1vid1111l.is a signature made in a representathe capacity.

./ft: {!,

28:3-404. Unauthorized signatures

(1) Any unauthorized signature is wholly inoperative as that
of the person whose name is signed unless he ratifies it or is precluded
from denying it; but it ope1-ates as the signature of. the unauthorized
:<igner_in favor of any person who in good faith pays the instrument o~
takes it for value.

(2) Any unauthorized signature may be ratified for all purposes of

this article. Such ratificat10n does not of itself affect any rights of
the person ratifying against the actual signer.

PUBLIC

28 :3-405. Impostors;
( 1) An indorsement b
il'l effecthe if
(a) an imposter l
the maker or drawe
federate in the name
(b) a person sigi
intends the payee to
( c) an agent or e1
him with the name
such interest.
( 2) Nothing in this se
'.'of the person so indorsir
28 :3-406. Negligenc
signatur
Any rrson who by l
mnteria alteration of
mututhorized signature
lnck of authority agaim
or other ,payor who r
accordance with the rea:
or. payor's business.
28:3-407. Alteration
(1) Any alteration oi
<'Ontract. of any pai1y
thange in
(a) the number<
(b) an incomple1
as nut hori'zed; or
(c) the writing 1
part of it.
(2) As agninst any J
course
(a) alteration b::
rial discharges any
that party assents
(b) no other all
ment may be enfc
incomplete instrun
( 3) A subsequent he
instrument according 1
instrument has been ~c
28 :3-408. Consider:
'\Vant or failure of c
not having the rights
t:ccept that no. cons~de1
hon thereon gn'en m p
~ation of any kind. }
any statute outside thi
notwithstanding lack
consideration is a defe
ascertained or liquidat
28 :3-409. Draft no
( 1) A check or oth
ment of any funds in
ment, and the drawee:
(2) Nothing in this
or otherwise arising i
i-epresentation which i

77 STAT.]

.>

PUBLIC LAW 88-243

30, 1963

28 :3--405. Impostors; signature in name of payee

( 1) An indorsement by any person iu the name of a JH\lllt><l pnyee
i::-; etfecfoe if
(ii) an imposter by use of the mnils or otherwise has induced
the maker or di-awer to is.<me the instrument to him or his confederate in the name of the payee; or
( b) a person signing as or on beha 1f of a nmker or drawer
intends the payee to have no interest in the instrument; or
(c) an agent or employee of the maker or dmwer has supplied
him with the name of the payee intending the lntter to haYe no
such interest.
(2) Nothing in this section shnll affect the criminal or cidl liability
of the person so in<lorsing.
28 :3--406. Negligence contributing to alteration or unauthorized
signature
Any ferson who by his negligence substantially eontributes to a
mnteria alteration of the instrument or to the making of an
nnauthorized signature is precluded from asserting the alteration or
lnck of authority against a holder in due course 01 aguinst n drawee
or other payo1 who pays the instrument in good faith and in
accordance with the reasonable conuuercial standatds of the drawee's
or payor's business.
28:3--407. Alteration
(1) Any altemtion of an instrument is mnterial which changes the
(ontmct of any party thereto in any respect, including any such
thange in
(a) the number or relations of the parties: or
(b) an incomplete instrument, by completing it otherwise than
ns iiuthorized; or
( c) the writing ns signed, by adding to it or by removing nny
part of it.
(2) As against any pe1son other than a subsequent holder in due
course

(a) alteration by the holder which is both fraudulent and material discharges any party whose contract is thereby changed unless
that party assents or is .Precluded from asserting the defense;
( b) no other alteration discharges any partv and the instrument may be enforced according to its or1ginal tenor, or as to
incomplete instruments according to the authority given.
(3) A subsequent holder in due course may in all cases enforce the
instrument according to its original tenor, and when an incomplete
instrument has been completed, he may enforce it as completed.
28 :3--408. Consideration
\Vant or .
f consideration is a defense as against any person
not ha. ving the rights o a o er m ue course (section 28 :3-305),
except that no consideration is necessary for an instrument or obligation thereon gn-en m payment of or as security for an antecedent obligation of any kind. Nothin~ in this section shalf13'e taken to displace
:my statute outside this subtitle under which a ,,itromise is enfofeahle
notwithstanding lack or failure of consideration. Partial failure of
consideration is a defense pro tanto whether or not the failure is in an
nscertained or liquidated amount.

28 :3--409. Draft not an assignment

(1) A check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until he accepts it.
(2) Nothing in this section shall affect any liability in contract, tort
or otherwis_e arisi!lg ~rom any letter of creCl.it or other obligation or
representation which is not an acceptance.

..

'

-------------_...~"'"
PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

77

STAT.]

PUBLH

(2) When the i11str11111e

28:3--UO. Definition and operation of acceptance

( 1) .\creptanre is the drawee's signed engagement to honor the
clraft as presented. It must be written on the draft, and may consist
of his si1:rnnture alone. It becomes operathe when completed by delivtrv or notification.
(2) A draft may be accepted although it has not been signed by
the drawer or is otherwise incomplete- or is overdue or has been
clishonored.
(3) Where the draft is payable at a fixed period after sight and
the acceptor fails to date his acceptance the holder mav complete it by
)'npi;lying a date in good faith.

28 :3--Ul. Certification of a check

(1) Certification of a check is acceptan<'e. "?here a holder procures certification the drawer and all prior indorsers are discharged.
(2) l'nless otherwise agreed a bank has no obligation to certify a
check.
(3) A bank may certify a check before returning it for Jack of
proper indorsement. If it does so the drnwer is discharged.
28 :3-412. Acceptance varying draft
(1) 'Vhere the dmwee's proffered acceptance in any manner varies
the draft as presented the holder may refuse the acceptance and treat
lhe draft as dishonored in which case the drawee is entitled to have
!tis acceptance cancelled.
(2) The terms of the draft are not varied by an acceptance to pay
at any particular bank or phice in the l:nited States, unless the
accepta11ce states that the draft is to be paid only at such bank or
place.
(3) 'Where the holder assents to an acceptance varying the terms
of the draft each drawer and indorser who does not affirmatively
nssent is dis('harged.

th, U("<'Ommo<lation party

signed eYen though the ta

(3) As a~ainst a holde
acconHnodution oraJ proof
gin:- the accommodation p
his l'harncter ns such. I1
may he shown by oral pro1
( 4) An indorsement wl
is notice of its accommoda
( 5) An accommodatior
dated, and if he pays thE
instrument against such I
28 :3-416. Contract of
( 1) "Payment guaranr
ture mean that the signe1
when due he will pay it
holder to any other part.}
( 2) "Collection guariu
ture mean that the signe1
when due he will pay it
holder has reduced his cla
and execution has been
neceptor has become ins<
useless to proceed against
( 3) 'Vords of guarnnt
payment.
(4) Xo words of guar
or acceptor affect his lial
to the signature of one
a presumption that the
others.
( 5) When words of
dishonor and protest an
( 6) Any guaranty wr:
:-1tanding any statute of i
28:3-417. Warrantie
(1) Any person who
1 r1msferor warrants to a
(a) he has a goc
obtain payment or
title: and
(b) he has no k1
tlra wer is 11nautho1
by a holder in due c
(i) to a mak
or
(ii) toa dra
whether or not
(iii) to an r
took the draft
a.nee without
unauthorized;
(c) the instrum1
this warranty is n
good faith

28:3-413. Contract of maker, drawer and acceptor

(1) The maker or acceptor engages that he will pay the instrument
nccording to its tenor at the time of his engagement or as completed
pursuant to section 28 :3-115 on incom ete instruments.
(2) The drawer engages that upon onor of the draft and any
necessary notice of dishonor or protest he will pay the amount of the
draft to the holder or to any indorser who takes it up. The drawer
may disclaim this liability by drawing without recourse.
(3) By making, drawing or accepting the party admits as against
all subsequent parties including the drnwee the existence of the
payee and his then capacity to indorse.
' 28 :3-414. Contract of indorser; order of liability
(1) 'C'nless the indorsement otherwise specifies (as by such words
as "without recourse") every indorser engages that upon dishonor and
any necessary notice of dishonor and protest he will pay the instrument according to its tenor at the time of his indorsement to the
holder or to any subsequent indorser who takes it up, even though the
indorser who takes it up was not obligated to do so.
(2) Unless they otherwise agree indorsers are liable to one another
in the order in which they indorse, which is presumed to be the order
in which their signatures appear on the instrument.
28 :3-415. Contract of accommodation party
(1) An accommodation party is one who signs the instrument in
any capacity for the purpose of lending his name to another party
to it.

if

.;;

77 STAT.]

PUBLIC LAW 80-243-DEC. 30, 1963

685

('.!) "'hl:'n tlu i11s11u111l:'11t lws bl:'en takl:'11 for rnlut> bl:'forp it is due

r~rn ae<'om111o<lation party is liable i1~ the capacity in which hf' has
;.:1gne~l e\en t.hongh the taker knows of the accommodation.
(3) ~\.s against n holde1 in due course and without notit't' of the
a~lommodntion ornl prnof of the aeeom~nodat~on is not iulmissible to

~~n the accommodnt10u pnrty the benefit of discharges dependent on

lus character ns such. In other cases the aecommodation drnrnctl:'r
may be shown bJ oral proof.
(4) .An indorsement. which shows that it is not in the chain of title
is notice of its accommodation character.
(5) An accommodation party is not liable to the pnrtv accommo<lnterl, and if he pnys the instrument lrns a right of recourse on the
instrument against such party.

28 :~16. Contract of guarantor

( 1) "Payment guaranteed'~ or equirnleut words ad( led to a signa1 ure mean that the signer engages that if the instrument is not paid
when due he will pay it according to its tenor without resort hy the
holder to any other party.
(:2) "Collection guaranteed~ or equinilent words atlded to n signnr ure mean that the signer engages that if the instrnme11t is not paid
when due he will pay it according to its tenor, but only after the
holder has reduced his chlim against the maker or acceptor to judgment
an<l execution has been returned unsatisfied, or after the maker or
acceptor has become insohent or it is otherwise apparent that it is
useless to proceed against him.
(3) "Tords of guaranty which do not otherwise specify guarantee
payment.
(4) Xo words of guaranty added to the signature of a sole maker
or acceptor affect his liability on the instrument. Such words added
to the sigmiture of one of two or more mnkers or acceptors create
n presumption that the signature is for the accommodation of the
others.
( 5) \rhen words of guaranty nre used presentment, notice of
<lishonor and protest are not necessary to charge the user.
(6) Any guaranty '"ritten on the instrument is enforcible notwith~tanding any statute of frauds.

28 :~17. Warranties on presentment and transfer

( 1) Any person who obtains payment or acceptance and any prior
warrants ton person '.tllo in good faith~r acce .ts that
(a) he has a good title to~ or fi:;-aut 10rized to
obtain payment or acceptance on behalf of one who hns n, good
title: and
(h) he has no knowledge that the signature of the maker or
drawer is unauthorized, except that this warrnnty is not given
by a holder in due course acting in good faith
(i) to a maker with respect to the maker's own signature;
or
(ii) toa drawer with res_pect to the drawer~s own signature,
whether or not the drawe1 is also the drawee; or
(iii) to an acceptor of a draft if the hold~r in due course
took the draft after the acceptance or ohtamed the accept.a.nee without knowledge that the drawer's signature was
unauthorized; and
(o) the instrument has not been materially altered, except that
this warranty is not giv~n by a holder in due course acting in
good faith

I ransferor

Y.

PUBLIC LAW 88-243-DEC. 30, 1963

(77

STAT.

(i) to the maker of a note; or

(ii) t-0 the drawer of i~ draft whetlwr or not the dmwer is
also the drawee; or
(iii) to the acceptor of a draft with respect to an alteration made prior to the acceptance if the holder in due
course took the draft after the acceptance, even though the
acceptance proYide<l "payable as originally drawn" or e.quivalent terms; or
(iv) t-0 the arceptor of a draft with respect to an alteration made after the acceptance.
(2) .\ny person who transfers au instrument and receives consideration warrants to his transferee and if the transfer is by indorsement to any subsequent holder who takes the instrument. in good faith
that
(a) he has a good title to the instrument or is authorized to
obtain payment or accephmce on behalf of one who has a good
title and the transfer is otherwise rightful; and
(b) all signatures are genuine or authorized; and
(c) the instrument l.ias not been materially altered; an~
( d) no defense of any party is good agiiinst him; and
( e) he has no knowledge of any insolvency proceeding instituted with respe.ct to the maker or acceptor or the drawer of an
unac.cepted instrument.
( 3) By transferring "wit hont reeourse.! the transferor limits the
obligation stated in subsection (2) ( d) to a warranty that he has no
knowledge of such a defense.
( 4) A selling agent or broker who does not disc.lose the fa.ct that he
is acting only as such gives the warranties provided in this section,
but if he makes such disclosure warrants only his good faith and
authority.
28 :3-418. Finality of payment or acceptance
Except for recovery of bank payments as 1wovided in the article on
bank deposits and collections (article 4) and except for liability for
breach of warranty on presentment. under the prec.eding section, payment or acceptance of any instrument is final in favor of a holder m
due course, or a person who has in good faith changed his position in
reliance on the payment.
28 :3-419. Conversion of instrument; innocent representative
(1) An instrument is converted when
(a) a drawee to whom it is delivered for n.cceptance refuses to
return it on demand; or
(b) an,y person to whom it is delivered for pnyment refuses on
demand either to pay or to return it; or
( c) it is paid on a forged indorsement.
(2) In an action against a dmwee under subsection ( 1) the measure
of the drawee's liability is the face amount of the instrument. In any
other action under subsection ( 1) the measure of liability is p1esumed
to be the face amount of the instrument.
(3) Subject to the provisions of this subtitle concerning restrictive
indorsements a representative, including a depositary or collecting
bank, who has a good faith and in accordance with the reasonable
commercial standards applicable to the business of such reptesentl't
live dealt with au instrument or its proceeds on behalf of one who was
not the true owner is not liable in conversion or otherwise to the true
owner beyond the amount of any proceeds remaining in his hands.
( 4) An intermediary ba.nk or payor bank.which is not a depositary
bank is not liable in conversion solely by reason of the fact. that
proceeds of an item indorsed restrictively (sections 28 :3-205 and
28 :3-206) are not paid or applied consistently with the restrictive
indorsement of an indorser other than its immediate transferor.

77

STAT.]

PUBLIC

PART 5-PRESENTMI
28 :3-501. When presen1

necessary o

( 1) rnless excused (sec1

to drn!ge secondary parties
(a) presentment. fo1
drawer and indorsers o
payable elsewhere that
the drawee, or its datt'
ment. The holder ma1
other draft payable at';
( b) presentment fo
indorser;
( c) in the case of ar
at a bank or the make1
for payment is necess:
charges such drawer, r.
28:3~502(1)(b).

(:.?) rnless excused (sect

(a) notice of any di
(b) in the case of ni
nt a bank or the make1
dishonor is necessnry,
such drawer, acceptor
(l)"(b).
(3) L'nless excused (sec
necessary to charge the dr
its face appears to be drav
ritories of the rnited Sta
his option make protest '
and in the. case of a foreig
before maturity make prot
( 4) K otwithstanding a
scntment nor notice of dii=
indorser who has indorse<
28 :3-502. Unexcused '
(1) 'Where without exr
dishonor is delayed beyon
(a) any mdorser h
(b) any drawer 01
or the maker of a not
or payor bank becom
funds maintained wi
instrument may disc]
the holder of his ri:
respect of such fund;
otherwise discharged
(2) Where without ex
the time when it is due a
28:3-503. Time of prE
( 1 ) Unless a different
for any presentment is d
(a) where an inst
a stated date any pr(
before the date 1t is ]

.~

77 STAT.]

PUBLIC LAW 88-'.' ... )EC. 30, 1963

PART 5-PRESENTMENT, NOTICE OF DISHONOR AND

PROTEST
28:3-501. When presentment, notice of dishonor, and protest
necessary or permissib1e
{1) rnless excused (section 28 ::~-511) presentment is neeessn ry
to eharge secondary parties as follows:
(a) presentment for acceptance is necessary to eha1i.re the
drawer and indorsers of a. draft where the draft so provides, or is
payable elsewhere that at the residence or pince of busineRS of
the drawee, or its date of payment depends upon such presentment. The holder may at his option present for ncceptance an_y /
other draft payable at a stated date;
( b) presentment for payment is necessary to drnrge any
indorser;
(c) in the case of any drawer, the acceptor of a draft payable
at a bank or the maker of n note payable at a hank, presentment
for payment is necessary, but failure to make presentment discharges such drawer, acceptor or maker only as st11ted in section
28:3-502(1)(b).
.
(::!) Fnless excused (section 28:3-511)
(a) notice of any dishonor is necessary to charge any indorser;
)
(b) in the case of any drawer, the acceptor of a draft. payable
at a bank or the maker of a note payable at a bank, notice of any
[ /v?1 /,
dishonor is necessary, but failure to give such notice dischar~es
~
y)/O
such drawer, acceptor or maker only as stated in section 28 :3-502"
'
L
( 1H b) .
Jt"' .- 1~
(3) Unless excused (section 28:3-511) protest of imy dishonor is /JJ5
/' ~el.necessary to charge the drawer and indorsers of any draft which on ~y
,~
its face appears to be drawn or paynble outside of the states and ter- hvf
ritories of the rnited States and the District. The holder may at
I
his option make protest of any dishonor of any other instrument
ic:,~
and in the case of a foreign draft may on insolYency of the acceptor
IV7
before maturity make protest for better security.
(4) Notwithstanding any provision of this section, neither presentment nor notice of dishonor nor protest is necessary to charge an
indorser who has indorsed an instrument. after maturity.
28 :3-502. U nex:cused delay; discharge
( 1) 'Where without excuse any necessa r:y 1;>resentment or notice of
dishonor is dela,ved beyond the time when it 1s due
(a) any mdorser is discharged; and
(b) any drawer or the acceptor of a draft payable at a bank
or the maker of a note payable at a bunk who because the drawee
or pa.yor bank becomes insolvent during the delay is deprived of
funds maintained with the drawee or pa_yor bank to cover the
instrument may discharge his liability by written assignment to
the holder of his rights ng1dnst the drawee or a or bank in
respect of such funds, but such drawer. acreptor or ma er is no .
otherwise discharged.
(2) Where without excuse a necessary protest is delayed beyond
the time when it is due any drawer or indorser is discharged.

28:3-503. Time of presentment

(1) Unless a different time is expressed in the instrument the time
for any presentment is determined as follows :
(a) where an instrument is payable at or a fixed period after
a stated date anY. presentment for acceptance must he made on or
before the date it is payable;

;;i

688

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77

STAT.

( b) where an instrument is payable after sight it must either

be presented for acceptance or negotiated within a reasonable
time after date or issue whicheYer is later;
( c) where an instrument shows the date on which it is payable
presentment. for payment is due on that.date;
( d) where an instrument is accelerated presentment for payment is due within a reasonable time after the acceleration;
(e) with respect to the liability of any secondary party presentment for acceptance or payment of any other instrument is
due within a reasonable time after such party becomes liable
thereon.
(2) A reasonable time for presentment is determined by the nature
of the instrument, any usage of banking or tra<le and the facts of
the particular case. In the case of an uncertifled check which is drawn
ancl payable within the rnited States and which is not il draft drawn
by a bank the following are presumed to be reasonable periods within
which to present for payment or to initiate bank collection:
(a) with respect. to the liability of the drawer, thirty <lays after
date or issue whiche,er is later; and

IJtf"' [
. (~) with respect to the liability of an in<lorser, seYen <lays after7 S'tA
lus mdorsement.
/
(3) where any presentment is due on a day which is not a full
business dav for either the person making presentment or the party
to pay or accept, presentment is due on the next following day which
is a full business day for both parties.

( 4) Presentment to be sufficient must he made at 11 rensonable hour,

:md if nt n bnnk <luring its banking day.
28 :3-50~ How presentment made
( 1) Presentment is a demand for acceptance or payment made upon
the make1, acceptor, drawee or other pay01 by or.on behnlf of the
holder.
(2) Presentment may be ma.de
(a) by mail, in which event the time of presentment is determined by the time of receipt of the mnil; or
( b) through a clearing house; or
( c) at the place of acceptance or payment specified in the
instrument or if there be none nt the place of busines8 or residence
of the party to accept or pay. If neither the party to accept or
pay nor anyone authorized to act for him is present or n<cessible
at such place presentment is excused.
(3) It mny be made
(n) to any one of two or more makers, acceptors, drnwees or
other payors; or
(b) to any person who has nuthority to make or refuse the
:u:ceptance or payment.
( .J:) A draft accepted or a note made pnynble at a bank in the
rnited States must be presented at such bank.
( 5) In the cases described in section 28 :!--210 Presentment may
he made in the manner and with the result stated in that section.
28 :3-505. Rights of party to whom presentment is made
(1) The party to whom presentment is made may without dishonor require
(a) exhibition of the instrument; and
(b) reasonable identification of the person making presentment and evidence of his authority to make it if made for
1mother; and
( c) that the instrument be produced for acceptance or payment at a place specified in it, or if there be none at any place
reasonable m the circumstances; and

1A t:,i4

STAT. ]

PUE

( <1) a signed 1
full payment aml
(2) Failure to cm
the p1~sentment but
in which to comply :
from the time of comi:
28 :3-506. Time all
( 1) Acceptance ma
of the next business
als0 in a good faith
dishonor of the instr
postponement of acce
( 2) Except as a 101
1lrafts drawn under :
agreed to by the pat
deferred without disl
mine whether it is ]
in any event before t
28 :3-507. Dishono

re-pre

(1) An instrument

(a) a 11ecessa1
due acceptance
within the presc
instrument is SE
(section 28 :4-8{
(b) presentme
accepted or paid.
(2) Subject to ~n:
holder has upon d1sli
1lrnwers and indorse1
( ;) ) Retnm of an i
1lishonor.
(4) A term in u d
time for re-presentm
nonacceptnu('e if 11 .ti:
the holder ns agairn
option to wah-e the
~econdary pnrty and
time.
28 :3-508. Notice
(1) Notice of disl
liable on the instrun
who has himself rec~
pelled to pay the ins
lrn.nds t.he instrumen
rnstomer or to anotr
l'e(eived.
(2) Any necessnr:
night deadline and 1
hnsiness day aft.er d
(3) Notice ma.y l
oral or writ.ten and
state that it. has bee
mislead the party n
instrument. bearing
or payment has beer
to the instrument is

93--025 0-64-46

PUBLIC LAW 88-243-DEC. 30, 1963

77 STAT.)

[77 STAT.

(4) "\Yritten notiee is gfren when sent althmwh it j,. not re<ei,ed.
(5) _Xotiee to one pmtner is notice to eaeh ~!though the Jinn hus
been d1ssohed.
. ( 6) "\Yhe~1 nny pn tty is in im;ohency proceeding;; instituted dter the
issue oft he yustrum_ent notice may be gi,en either tot he pnrty or to the
representat.ffe of lus estate.
. (i) "\Yhen any pn11y is <lend or incompetent notiee may he sent to
lus lnst~kn.own i1ddress or girnn to his personal representathe.
( ~) ); ot1l'e operates fort he benefit of nll partie; who hnn rights on
the mstrument against the party notified.

28 :3-509. Protest; noting for p,rotest

(1) A. protest is a certificate of dishonor made nnderthe hand and
~l of a CnitecJ. t:1tes consnl .or vi_ce eonsul or;n notary puDlfo or
other erson n.uthor1ze<l to ce111f d1sh01 by t te law of the pince
where c is ionor occurs. It may )e made upon information sutis- -;r::-;e ~
factory to such person.
-
(2) The protest must identify the instrument and l'e1tify eitherf
that due presentment has been made or the reason whylt 1s excuse<I
/~
nnd that. the instmment has ben dishonored hy nom1c<eptance or
~
nonpayment.
(3) The protest nmy also certify tlmt notice of dishonor has been
izfren to aJl parties 01' to SJ?e<.ified parties.
(4) Subject to subsection ( 5) any neces.sary protest is <lne hy the
time that notice of dishonor is due.
( 5) If, before protest is due, au instrument hns been noted for
protest by the officer to make protest, the protest may be made at anv
time thereafter as of the dnte of the noting.

28 :3-510. Evidence of dishonor and notice of dishonor

The following are admissible as evidence and create a presumption

of dishonor and of any notice of dishonor therein sho,\-n:
(a) a document regular in form as prodded in the precedi1w
0
section which purports to be a protest;
(b) the.Purported stam~ or writing of the d1"1:1wee, payor bnnk
or presentmg bank on the mstrument or aceompanying it stating
that acceptance or payment has been refused for reasons consistent
with dishonor;
(c) any book or record of the drawee, payor bnnk, or nny
eollecting bank kept in the usual course of business which shows
dishonor, e\en though there is no e~idence of who made the entry.
28 :3-511. Waived or excused presentment, protest or notice of

dishonor or delay therein

(1) Delay in presentment, protest or notice of dishonor is excused
when the party is without notice that it is due or when the delay is
<~msed b circumst n
his control and he exercises reasonn) e I 1gence after the cause of the delay ceases to operate. ~
(2) Presentment or notice or protest as the case may be is entirely
t>xcused when
(a) the party to be charged has waiYed it. expressly or by
imP.hcation either before or after it is due; or
(b) such party has himself dishonored the instrument or has
~countermanded payment or otherwise has no reason to expect or
right to require that the instrument be accepted or paid; or
( c) by reasonable diligence the presentment or protest cannot /
be made or the notice given.
( 3) Presentment is also entirely excused when
(a) the maker, acceptor or drawee of any instrument except
a documentary draft is dead or ,in. insolvency proceedings instituted after the issue of the instrument; or

cu

PUBl

\ b) ncceptance <
proper presentment
( 4:) Where a drn ft Ii
presentment for payme:
nonpayment are excuse
been 11ccepted.
( 5) A waiver of pr<
notice of dishonor e\en
( 6) "\Yhere a waher
in the instniment itself
u. J written abo\e the sigm1

~.,,.---

p
28 :3-601. Discharg
( l) The extent of ti
instrument is govemed
(a) payment or
(b) tender of p
( t) cance1latior
( d. ) impairmeu
~8 :3-606) ; or
( e) reacquisitio
28 :3--208) ; or
( f) fraudu1ent
(g) certificatio
( h) acceptance
( i) unexcused
protest (section 2
(2) Anypnrtyisah
to another pnrty by n1
would discharge his s
(3) The liability o
hns himself no right.
(a) reacquires
(b) is discha.r;
ns otherwise pro'
of recourse or of
28 :3-602. Etfect o
X o discharge of n
n~ainst a subsequent
when he takes the ins
28 :3-603. Payme1
( 1) The liability
payment or satisfnct
kno,;ledge of a claim
to such payment or
:-:npplies indemnity
discharge or enjoins
eompetent jurisdicti
nnd the holder are p
in the discharge of ti
(a) of a par
who acquired th
rights .of a. hol
acquired it; or
\b) of a par
bank which is :

77 STAT,)

PUBLIC LAW 88-2

JEC. 30, 1963

( d) a si:rned rNeipt on the instrument for :rny partial or

full payment nnd its surrender upon full pa.yment.
(2) FailmP to rnmply with any such requirement inrnlidntes
the p1~sentment but the person presenting has a reasonable time
in w11ich to C"omply and the time for nC"eei)tance or pnyment runs
from the time of eompl:ance.

28 :3-506. Time allowed for acceptance or .payment

(1) AcceptanC"e may be deferred without dishonor until the close
of. the next business day following presentment. The holder may
also in a good faith effort to obtam acceptanee and "ithout either
dishonor of the instrument or discharge of secondary pnrties allow
postponement of aC"ceptance for an additional business day.
(2) Except as a longer time is allowed in the case of documentary
1lrafts drawn under a letter of credit, and unless an earlier time is
agreed to by the party to pny, payment of an instrument may be
1leferred without dishonor pending reasonable examination to determine whether it is properly payable, but payment must be made
in any event before the close of business on the day of presentment.
28 :3-507. Dishonor; holder's right of recourse; term allowing
re-presentment
(I) An instrument is dishonored when

(a) a necessary or optional presentment is duly made and

due acceptance or payment is refused or cannot be obtained
within the prescribed time or in case of bank collections the
instrument is seasonably returned by the midnight deadline
(section 28 :4-301) ; or
(b) presentment is excused and the instrument is not duhaccepted or paid.

(2) Subject to any necessary notice of dishonor and protest, the

l101der has upon dishonor un immediate right of recourse against the
<lm we rs nnd indorsers.
(a) Return of an instrument for lack of proper illdorsement is not
dishonor.
(4) A term inn draft or an indorsement thereof allowing 11 stated
time for 1e-pre...c:;entment in the event of imy dishonor of the draft by
uonacceptanee if a time draft or by nonpayment if a sight draft gives
the holder ns ngninst any secondary party bound b) the te1m an
option to waive the dishonor without affecting the liability of the
~eondary patty and he mny present again up to the end of the stated
time.

~ 28 :3-508. Notice of dishonor

(1) Xotice of dishonor may be given to any person who may be
liable on the instrument by or on behalf of the holder or any party
who has himself received notice, or any other party who can be com)elled to pay the instrument. In addition an agent or bank in whose
frnnds the instrument is dishonored may give nt?tice to ~1is principal or
eustomer or to another ngent orbank from winch the mstrument was
re<eived.
(2) Any necessary notice must be given by a bank before its midnight deadline and by any other person before midnight of the third
lmsiness day after dishonor or receipt of notice of dishonor.
(3) Notice may he given in any reasonable manner. It may be
oral or written and in any terms which identify the instrument and
state that it has been dishonored. A misdescription which does not
mislea<l the party notified does not vitiate the notice. Sending the
instrument bearing a stamp, ticket. or writing stating that acceptance
or payment has been refused or sending a notice of debit with respect
to the instrument is sufficient.
93-02, 0-64-46

. )

,:,,:;

77 STAT.]

PUBLIC LAW 88-. Ji.DEC. 30, 1963

. _,:Jl

( b) aeceptanee or payment is refnsell Lut uot for wnut of

proper presentment.
(-) "There a drn ft hns been dishonored by nonacceptance a later
presentment for payment nnd any notice of dishonor and protest for
nonpiiyment are excused unless m the meantime the instrument has
been accepted.
( 5) A wa iYer of protest is also a wafrer of presentment 11 nd of
notice of dishonor eyen though protest is not required.
(6) 'Yhere a waher of presentment or notice or protest is embodied
in the instrument itself it is binding upon all parties; but where it is
written abme. the signature of an indorser it binds him only.

PART &-DISCHARGE
28 :~01. Discharge of parties
(1) The extent of the discharge of any party from liability on an
instrument is governed by the sections on

(a) payment or satisfaction (section 28 :3-603); or

( b) tender of payment (section 28 :3-604) ; or
(c) cancellation 01 renunciation (section 28 ::3-605) ; or
./
,,-~
(d.) impairment of right of recourse or of collateral (section- UI) cid-f'r'
28 :3-606) ; or
(e) reacquisition of the instrument by a prior party (section - - 28 :3-208 >; or
( f) fraudulent and material alterntion (section 28 :3-'-:l:Oi) ; or - U.<; e. An )~ev.fr
(g) certification of a check (section 28 :3-411); or
u;f lfr""//
(h) acceptance ntrying n. draft (section 28 :3--412) ; or
( i) unexcused delay in presentment or notice of dishonor or}
( J_ protest (section 28 :a-502). .
....,:.... ( 2) Any pnrty is also discharged from his liability on an instrument
to another pn1ty by imv other act or agreement with such party which
would discharge hi's simple contract for the payment of money.
(3) The liability of all parties is discharged when any party who
has himself no right of action or recourse on the instrument
J;
(a) rencquirestheinstrnmentinhisownright;or - -
\.....JLLC. ~ ... L-~e
1.1
(b) is discha.rged under any provision of t.his article except
as otherwise provided with resJ.>ect to discharge for impairment
of iecourse or of collateral (section 28 :3--606).
28 :3-602. Effect of discharge against holder in due course
Xo dischnrge of any party provided by this a1ticle is effective
a~tinst a subsequent holder in due course unless he has notice thereof
when he takes the instrument.
<
28 :3-603. Payment or satisfaction
(1) The liability of any party is discharged to the extent of his
pnyment or satisfaction to the holder 'even though it is made with
knowledge of a claim of another person to the instrument unless \)rim:
j to such payment or satisfaction the person making the c]ajm e1th.e1
;,1.r ;::m>mies indemnity deemed adequate bv the party seeking the
dise arge or enjoins payment or satisfaction by order of a court, of
e,~ompetent jurisdiction in an action in which the adverse claimant
I}
'f.J:1
and the holder are parties. This. subsection does not, however, result
'J' (
in the discharge of the liability
(a) of a pa1ty who in bad faith pays or satisfies a holder
who acquired the instrument by theft or who (unless having the
rights .of a holder in due course) holds through one who so
acquired it; or
\ b) of a party (other than an intermediary bank or a pa;yor
bank which is not a depositary bank) who pays or satisfies the

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77 STAT.)

STAT.

Pl.RT 7-ADVICE OF

holdt:>r of nil i11str11mt:>11t which has been rt:>strkthely in<lorsed in

eo11sistt:>11t with tht:' tt:>rms of s11d1 rt:'strietire i11<lor~c
ment.
{ 2) Paymt:'11t or sat i:-;fad ion may he made with the consent of the
holder by any person inel11di11g a :-;trnnger to tht:> instrument. Surrender of the instrnmeut to such a person gi\es him the rights of a
I r1111sferee (sect ion 28 ::1-:W 1).
a Ill<lllJH'r nol

28 :3-701. Letter of adv

(1) .\."letter of n<hi<'e"'
thnt a described draft hasl
(2) l~nless otherwise a~
hank a letter of 1Hhi<e of
bank may immediately del
ning of interest pro tnnto.
any account co,erin,z ouh
power to stop payment or (
no trust or interest in fa,o:
(:3) l:nless otherwise a
under a. credit issued by t
s;ght draft owes the dri~m
it does so and the draft is 1
er's a<cotmt.

28 :3-604. Tender of payment

(1) Any party making tender of full payment to a holder when

31:0_,.

or 11fter it is due is discharged to the extent of all subsequent liability !J7f

n interest, costs, and attomey"s fees.

(2) The holder\; refusal of such tender wholly di~harges any pa1iyl
ho has a right of recourse against the party making the tender.
~
(3) where the maker or acceptor of u.n instrument payable otherwise than on denrnnd is ahie and read to n n eYer lace
tn ment si)eeiliec m the instrument w 1en 1t 1::; dut:', it is equindent
to ten< er.
28 :3-605. Cancellation and renunciation
( 1) The holde1 of an instrument may e\eu without consideration
ilischa1ge a~1y party
(a) many manner apparent on the face of the instrument or
the i11dorsement, as by intentionally cancelling the instrument or
the party's signature by destruction or mutilation, or by striking
out the party's signature; or
( b) by renouncing his rights by 11 writing signed and deliYered
or by surrender of the instrument to the party to be discharged.
l~) Xeither cancellation nor renunciation wirhont surrender of
the instrument affects the title thereto.
28 :3-606. Impairment of recourse or of collateral
( 1} The holder discharges any party to the instrument to the extent
1l111t without such party's consent the holder
(a) without express reservation of rights releases or ngrees not
to sue any person against whom the party has to the knowledge
of the holder a right of re.course or agrees to suspend the right
to enforce against such person the instrument or collateral or
otherwise discharges such person, except that failure or delay in
effecting any reqmred presentment, protest or notice of dishonor
with respect. to an:y such person does not discharge any party as
to whom presentnient, protest or notice of dishonor 1s effective
or unnecessary; or
(b) unjustifiably impairs any collateral for the instrumentL
il(i,eu by or on behalf of the party or any person against whom <'"
he has a. right of recourse.
.;
( :!) By express reservation of rights against a party with a right of
l't:>'ottrse the holder preserves
(a) all his rights against such party as of the time when the
i11:;trument was originally due; and
( b) the right of the party to pay the instrument as of that
time; and
( c) all rights of such party to recourse against others.

PUBLIC

PART
28 :3-801. Drafts in a

I
f

I
I
I

( 1) Where a draft is d1
bered and expressed to l::
honored, the ,,hole of t.h
any part may become a he
(2) Any person who 1
of a draft drawn in a set
course of that part as if i
holders in due course to
the holder whose tit.le fir
proceeds.
( 3) As against. the dra
in a set is the part entitle
and payment. Acceptan
the drawee liable thereo1
~t holder and to the dra"
of a draft payable at si~
notwithstandmg an effet
( 4) Except as othen
of a draft in a set is di
draft is discharged.

28 :3-802. Eff~ct of
given
(1) Unless otherwisE
underlying obliga~ion.
(a) the obhgat1<
maker or acceptor
the instrument a~a
(b) in any otn1:
until the instrume
its presentment.
be maintained on
charge of the u~de
him on the obhgat
(2) The taking in g
not of itself so extend
charge a surety.

:-~~

77 STAT.]

PUBLIC LAW 88-243

:c. 30, 1963

69"

PART 7-ADVICE OF INTERNATIONAL SIGHT DRAFT

28:3-701. Letter of advice of international sight draft
(1) .\.''letter <>f ach-iee .. i8 a drawer's l'OilllllllJli(/ltion to tht> dmwee
that a described draft ha:-; been drawn.
(2) l-nless otherwise agreed wheu a hunk iecehes from another
bank a letter of 11<h-i('e of 1rn intenwtional sight draft the drawee
bank nmy immediately debit the drnwer's iueount imd stop the running of interest pro tnnto. Sueh a debit nnd any resulting credit to
nny nccount co,erin- outstanding dm fts leaves in the drnwer fuJl
power to stop pnymeut or othel'\dse dispose of the amount imd creates
no trust or interest in fin-or of rhe holder.
(:3) L'n1es..,; otherwise iwreed and except where a draft is dmwn
under ii credit issued by the drawee, the drnwee of an international
";ght drnftowes the drnwer 110 duty to pay an unadYised draft but if
it does so and the drnft is g-enuine, may appropriately debit the drawer's 1wcount.

PART 8-MISCELLANEOUS

28:3-801. Drafts in a set

(1) 'Vhere a draft is drawn in a set of parts, each of which is numbered nnd expressed to be an order only if no other part has been
honored, the whole of the parts constitutes one draft but a taker of
any part may become a holder in due course of the draft.
(2) Any person who negotiates, indorses or accepts a single part
of a draft drawn in a set thereby becomes liable to any holder in due
course of that part as if it were the whole set, but as between different
holders in due course to whom different parts have been negotiated
the holder whose tit.le first accrues has all rights to the draft and its
proceeds.
( 3) As against. the drawee the first presented part of a draft drawn
in a set is the part entitled to payment, or if a time draft to acceptance
and payment. Acceptance of any subsequently presented part renders
the drawee liable thereon under subsection (2). With respect both to
1L holder and to the drawer payment of a subsequently presented part
of a draft payable at sight has the same effect as payment of a check
notwithstanding an effective stop order (section 28 :4-407).
( 4) Except as otherwise provided in this section, where any part
of a draft in a set is discharged by payment or othendse the whole
draft is discharged.
28:3-802. Effect of instrument on obligation for which it is

given
(1) Unless otherwise agreed where an instrument is taken for an

underlJ:ing obligation
the obligation is pro tanto discharged if a bank is drawer,
ihte"r or acceptor of the instrument and there is no recourse on
he instrument against the underlying obligor; and
~ in any other case the oblignt1011 is suspended pro tanto
unhf the instrument is due or if 1t is payable on demand until
its presen!ment. I~ the instrument is dishonored. act.ion m~y
be maintained on either the instrument or the obhgat1on; discharge of the underlying obligor on the instrument also discharges
him on the obligation.
(2) The taking in good faJth of a check .w!1ich is i~ot ~ostdated d~s
not of itself so extend the time on the or1gmal obhgat10n as to discharge a surety.

rn

,.,
"

PUBLIC LAW 88-243-DEc. 30, 1963

(77

(77

l':4'l'.

28 :4-:ml. llt>ft>rre1l 11oi11l11

dishonor.
28 :4-30'l. Payor hnnki;; ref
2s :~ao:~. Wlwn lteml'I su
order in whi<I
PART 4-Rt:l-\T!ONS

28 :4-401.
28 :4-402.
28 :4-403.
28 :4--404.
28 :4--405.

alteration.

28 :4--407. Payor bank's ri

28 :4-501. Handling of do
to notify cust
28 :4-:>02. Presentment of
28 :4-503. Responsibility
of reasons fo1
28 :4-504. l'rivilege of pr
tor expe.nses.

PART1-GENER

PAR"r 1-GENER.Al. PROVISIONS AND DEFINITIONS

See.

28 :4-101. Short title.

28 :4-102. Applicability.
28 :4-103. Variation by agreement; meaimre of damages; certain action constituting ordinary aare.
28 :4-104. Definitions and index of definitions.
28 :4-105. "Depositary bank": intermediary bank"; "collecting bank"; "paYI'.'"
bank"; "presentiug bank"; "remitting bank".
28 :4-106. Separate office of a bank.
28 :4-107. Time of receipt of items.
28 :4-108. Delays.
28 :4-109. Process of posting.
2-CoLLECTION OF ITEMS : DEPOSITARY AND COLLECTING BANKS

I
I

cases.

28 :4--212. Right of charge-back or refund.

28 :4-213. Final payment of item by payor bank; when provisional debits and
credits become final ; when certain credits become available tor
withdrawal.
28 :4--214. Insolve.ncy and preference.

When bank lllll)

Bank's liability
Custo111er'111 righ
Bank not ohllga
Death or hwom

28 :4--406. Customt>r'i1 dut

ARTICLE 4-BANK DEPOSITS AND

COLLECTIONS

28 :4-201. Presumption and duration of agency status of collecting banks and

provisional status of credits; applicability of article; item indorsed
"pay any bank".
28 :4-202. Responsibility for collection ; when action seasonable.
28 :4-203. Eire.ct of instructions.
28 :4--204. Methods of sending and presenting ; sending direct to payor bank.
28 :4-205. Supplying missing indorsement; no notice from prior indorsement.
28 :4-206. Transfer between banks.
28 :4-207. Warranties of customer and collecting bank on transfer or presentment of items; time for claims.
28 :4--208. Security interest of collecting bank in items, accompanying documents and proceeds.
28 :4-209. When bank gives value for purposes of holder in due course.
28 :4-210. Presentment by notice of item not payable by, through or at a bank:
liability of secondary parties.
28 :4-211. Media of remittance; provisional and final settlement in remittance

PUBLIC

ARTICLE
COLI

28 :3-803. Notice to third party

Where a defendant. is sued for hreal'h of 1111 obligation for which
a third person is answerable <n-er under this article he may give the
third person written notke of the liti~ntion, and the person notified
may then <rive similat notice to any other person who is answe1able
over to hi~ under this artic.le. If the notice states that the rerson
notified may come. in and defend and thnt if the person notified does
not do so he will in any action against him by the pe1son ghing the
notice be bound by any determinntion of fact common to the two
"litigations, then unless after seasonable rPceipt of the notice the person
notified does come in and defend he is so b:mnd.
28 :3-804. Lost, destroyed or stolen instruments
The owner of an instrument which is lost, whethet by destruction,
theft or otherwise, nuw maintain an action in his own name and
recover from any part); liable thereon upon due proof of his ownership, the facts wluch prevent his produetion of the. instrument and
it.s terms. The court may require security indemnifying the defendant
ngainst loss by reason of further claims on the instrument.
28 :3--805. Instruments not payable to order or to bearer
This article applies to any instrument whose terms do not preclude
transfer and which is otherwise negotiable within this :uticle but
which is not payable to order or to bearer, except that there can be
no holder in due course of such an instrument.

P ABT

STAT.

STAT.

l
I

'

28 :4-101. Short tit:

This article shall be l
Code-Bank Deposits
28 :4-102. Applicab
( 1) To the extent tl
scope of articles 3 and
articles. In the event
those of article 3 but t
article.
(2) The liability of
any item handled by i
lection is governed by
ln the case of action o
of a bank, its liability
branch or separate offi
28:4-103. Vari~tio

tain a

( 1) The effect of t
agreement except tha
b11ity for its own lack
or can limit the measl
parties may by agreE
respousibihty is to be
unreasonable.
(2) Federal Reser
house rules, and the
section ( 1), whether
interested m items ha

(77

STAT.

PUBLIC LAW 88-2 ""'"')EC.

30, 1963
;,,"'

i95

ARTICLE 4-BANK DEPOSITS AND

COLLECTIONS-Continued
l'.\1rl' 3--l'm.1.t:cnox

In:~1s: P.\YOR H.\XKS

jlp,,

28 :4-:m I. l>t'ft1rrt1d prn<I i11g ; rt>toyny of p11yuw11t h~ rt-turn of ltt1111" : I 11111 of

dishonor.
2S :4-302. l'nyor hank's respon;:ihility for lnte return of Item.
2S :+-30:-i. When Items i<ubjeo;ot to notice, stop-order, legal proce"s or ;:t>tofr;
order in whith items may be C'hnrgetl or (ertified.
P.\K'r 4-R.:1..\noxH111P BE1'WEt::x PAYOR BA:->K .\xu h's l'1i:;10Mt:11

28 :4--101.
28 :4-402.
28 :4-403.
28 :4--104.
28 :4--!0::i.

"'hen hank mny (harge l'Ustomer's aC'C'Otmt.

Bank's liability to customer for wrongful clishonor.
Customer'i:< right t.o stop payment; burden of proof of loss.
Bank not obllgnted to pay check more than ,;ix mouths oltl.
Deatb or into1111ietE'nl'e of cnstnmer.
:.!8 :4--406. <'ustonwr',.; duty to di:i<'mer nml rt1f1ort 1111a11thorizt1d ..;ii.:1111 I nr1 ur
alterntion.
28 :4--107. Payor hank',; rlgllt to subrogntiou 011 lm11roper payment.
l'.\RT :i-COl.U:<"TIOX OF ))Ocl'~!EXT.\llY l>ll.\t'1'S

:.!8 :4--::iOl. Haudllug of <loe11111t111tu ry draft,;; duty to >'t>nd fo1 11rt1..;t111111wnt :11ul

to notify <'Ustorner of dishonor.

28 :4-:ro2. Presentment of ..on arrl\"al" drai'ts.
28 :4-503. Responsibility of presenting bank for documents nnd goods; rt1port
of reasons tor dishonor; referee in case of need.
28 :4-l'i04. l'ril'ilege of presenting bank to deal with goodl; security interest
for expe.nses.

PART 1-GENERAL PROVISIONS AND DEFINITIONS

28 :4-101. Short title
This article shall be known and may be cited as Uniform Commereial . Citation ot ......
Code-Bank Deposits and Collections.
tiele.
28 :4-102. Applicability
(1) To the extent that items within this article are also within the
scope of articles 3 and 8, the are subject to the provisions of those
articles. In the event of c
ict the provisions of this article govern
those of article 3 but the provisions of article 8 govern those of this
article.
(2) The lia.bility of a. bank for action or non-action with respect to
any item handled by it for purposes of presentment, payment or col,,, ~k ,....~Cir"
leetion is governed by the 1
e 1 where the bank is located. - ~
n
;JE;
ln the case of action or nonn by or at a branch or separate office
e;;r B

of a bank, its liability is governed by the law of the place where the
branch or separate office is located.
28:4-103. Variation by agreement; measure of damages; cer
tain action constituting ordinary care
( 1) The effect of the provisions of this article may be varied b,Y
agreement except that no agreement can disclai!ll a bank's responsibility for its own lack of ood faith or failure to exercise ordinary care
or can limit e measure o amages for sue ac or a1 ure; u
e
parties may by agreement determine the standards by 'fh1ch such
responsibility is to be measured if such standards are' not mamfestly
unreasonable.
(2) Federal Reserve regulations and operating letters, clearing
liouse rules, and the like, have the effect of agreements under subsection ( 1), whether or not specifically assented to by all parties
interested in items handled.

~f.~.~~ti11~~
.

-.~::

PUBLIC LAW 88-243-DEC. 30, 1963

.
[77

STAT.

(:~) .\.ction or 11011-<wtion approved hy thi;; artiele m p1mmant to

Federal Reserve re1[11latio11s or operating- letters tonstitntes the exercii;e of ordinnty rare nnd, i11 the nbse1we of special i11Htr1wtions, nction
or non-nct1on consistent with clearing house rnles nml the like t)I' with
a !?'.eneral banking- usage not disappr<n-ed II\' thi:-> a1ti<le, prima facie
eanstitutes the exercise of ordinary care.

{4) The spedtieation or approvnl of eertitin pr<X'e<lmes hv this

a1tiele does not constitute disapptoval of other pr<)('ed11res whieh mny
he reasonable under the eireumstanees.
(5) The measure of damages for foihtre to exer<"ise or<linan- enre
in handling nn item ii; the amo1111t of the item redtwed h\ an ainount
which could not lrn w been rea 1ized ln- the use of ord im\n <'are, and
where there is bad faith it ineludes oti1er damnl!es, if uny. 'sntfere!l hy
the party as a p1ox1mate consequence.
28 :4-104. Definitions and index of definitions
( 1) In this niticle unless the eontext otherwise requires
(a) "Account .. 1ueaus anv ael'Ollllt with il hauk nud i1wlmles
ll <"hecking, time, interest or Sn\in!lS llCl'OUllt;
(b) "Afternoon~ meaus the pe~iod of a chn- between noon and
midnight;

( c). "Banking day .. m~ans that pi~rt of any <lay '.m which a
bank 1s open to the puhhc for <'llrrymg on s11bsta11t11tllv all of
its banking functions;
..
( d) "Clearing house~ means anv assoeiatiou of hank:> or other
payors regularly clearing items;
(e) "Customer'' means any peron hadng an account with
:1 bank or for whom. n bnnk has agreed to eolleet items and
meludes a bnnk carrymg an 11ceount with another bank:
. ( f) "Docum~ntnry draft'' ~eans any nel[otiahle or nonnegotiable draft with accompanymg documents, seeurities or other
papers to be delhered against honor of the draft;
(g) "Item''. t~eans any in.strument for the p~yment of money
e\en though it is not negotiable but does uot mclude money;
(h) "Midnight deadline'' with respect to a Lank is mid1iio'ht
on i!s next banking d:iy followin.I! the banking ~a.y 011 which it
receives the rele\ant item or notice or from which the time for
taking action commences to run, whichever is later;
(i) "Properly payable'' includes the arnilability of funds
for payment at the time of decision to pay or dishonor;
(j) ~'Settle'' means to P?-Y in cash, by clearing house settlement, m a charge or credit or by remittance, or otherwise as
instructed. A settlement may be either pro\isional or final;
. (k) "Suspends payments" with respect to a bank means that
it has ?een closed by order of !he supervisory authorities, that
a public officer has been appomted to take it o\er or that it
ceases or refuses to make payments in the ordinary course of
business.
(2) Other definitions applying to this article and the sections in
which they apJ;>ear are:
"Collectmg bunk". Section 28 :4-105.
"Depositary bank''. Section 28 :4-105.
"Intermediar hank". Section 28 :4-105.
"Payor hank'. Section 28 :4-105.
"Presenting bank". Section 28 :4-105.
"Remitting bank". Section 28 :4-105.

77

STAT.

PUBLIC LA

( :i) The followinp definiti<

'' ~\cce.pt:ance' . 8ectio1

"Certificate of deposif
"Certification". Secfi
"Check". Section 28:
"Draft''. Section 28 ::
"Holder in due coul'Se
":Sotice of dishonor".
"Presentment". Secti
"Protest". Section 2f
"Secondary party". :
( 4) In addition article 1 c
of construction and interpre
28:4-105. "Depositary Ii

ing bank";
"remitting 1
In this article unless the c
(a) "Depositary ban
is transferred for collec
(b) "Payor bank" n:
as drawn or acceptoo;
( c) "Intermediary 1:
is transferred in coun
payor hank;
( d) "Collectin!l ban
eollection except the p~
( e) "Presenting ba1
except a payor bank;
( f) "Remittinl! ban
remitting for an citem.
28 :4-106. Separate offi1
A branch or separ-ate offi
pose of computing the tim
at or to which action may
nnder this article and und
order by or the knowledgt
is not actual or constructiv
or office of the same bank
branch or office to be a hok
28:4-107. Time of rect
( 1) For the purpose oi
nnces and make the ne<:'e
position for the day, a bo
or later as a cut-off hour i
making of entries on its 1::
(2) Any item or depos
off hour so fixed or a.fter
as being received at the <
28 :4-108. Delays
( 1) Unless otherwise i
effort t-0 secure p&yment
without the approval of i
time limits imposed or r
excess of an additional l
parties and without liabi
(2) Delay by a. collec
prescribed or permitted I

77 STAT.]

PUBLIC LAW 88-'"ia-DEC. 30, 1963

697

(a) The following definitions in other art iclt>s ;q..1plY to 1hi:-; a rt i<' lt>:
"Acceptance". Section 28 :3--:IJO.

"Certificate of deposif'. Section 28 ::~-JC.

"Certification~. Section 28 :3--:IJ J.
"Check". Section 28 :3-10.
"Draft''. Section 28 :3-10.
"Holder in due. course". Section i!8 :!i-!i0'2.
"Notice of dishonor~. Section 28 :3-508.
"Presentmene'. Section 28 :3-504.
"Protest". Section 28 :3-509.
"Secondary party''. Section 28 :3-102.
( ) In addition article 1 contains general definitions and prineiples
of construction and interpretation applicable throughout this nrticle.
28 :4-105. "Depositary bank"; "intermediary bank"; "collecting bank"; "payor bank"; "presenting bank";
"remitting bank"
In this article unless the context otherwise requires:
(a) "Depositary bank'~ means the first bank to which an item
is transferred for collection eYen thongh it is also the payor bnnk:
(b) "Payor bank!~ means a b:mk by which an item is payable
ns drawn or accepted;
(c) "Intermediary bank~ mem1s any bank to which nn item
is transferred in course of collection except the depositary or
payor bank;
(d) ."Collecting bank'' means any bank hnndling the item for
eollection except the payor bank;

( e) "Presenting bank~ means nuy bank pl'esenting: an item

except a payor bank;
(f) "Remitting bank~ menns any pnyol' or i11te11nediary bnnk
remitting for an item.
28 :4-106. Separate office of a bank
A branch or separate office of a bank is n separate bank for the purpose of computing the time within which and determinin~ the place
itt or to which action may be taken or notices or orders shall be given
under this article and under article 3. The receipt of any notice or
order by or the knowledge of one branch or separate office of a bank
is not actual or constructiYe notice to or knowledge of any other branch
or office of the same bank and does not impair the right of another
branch or office to be a holder in due course of an item.
28 :4-107. Time of receipt of items
( 1) For the purpose of allowing time to process items, proYe balances and make the necessary entries on its books to determine its
position for the day, a bank may fix an nftemoon hour of two P.lf.
or later as a cut-off hour for the handling of money and items and the
making of entries on its books.
(2) Any item or deposit of money received on any day after a cutoff hour so fixed or after the close of the banking day may be treated
as being received at the opening of the next banking day.
28 :4-108. Delays
( 1) L'.'nless otherwise instructed, a collecting bank in a good faith
effort t.o secure payment may, in the case of specific items and with or
without the approval of any person involved, waive, modify or extend
time limits imposed or permitted by this subtitle for a period not in
excess of an additional banking day without discharge of secondary
parties and without liability to its transferor or any prior party.
(2) Delay by a collecting bank or payor bank beyond time limits
prescribed or permitted by this subtitle or by instructions is excused if

.
'

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77
STAT.

cnnsed by i11terr11ptiou of <omm11niention fneilitiei..;, :;nspension of payments by another ba.nk, wnr, emergency conditions or other circuml>tances beyond the control of the bnnk pro,ided it exercises such
diligence as the circumstances require.
28 :4-109. Process of posting
The "process of posting~ means the usun 1 procedure followed by a
payor bank in determining to pay nn item 'iuul in reeording the payment including one or more of the following or other steps ns rleter. mined by the bank:
(a) verification of nny signature;
(b) ascertaining that sufficient funds are arnilnble;
( c) affixing a ''pnid~' or other stamp;
( d) entering a. charge or entry to a customer's account:
( e) correcting or reYersing an entry or enoneons iwtion with
respect to the item.

PART 2-COLLECTION OF ITEMS: DEPOSITARY AND

COLLECTING BANKS
28 :4-201. Presumption and duration of agency status of collecting banks and provisional status of credits;
applicability of article; item indorsed "pay any
bank"
( 1) l"nless n. contrary intent clearly appears and prior to the time
that a settlement ghen by a collecting bank for nn item is or becomes
final ( subseetiou (:3) of section 28 :4--211 nnd soctions 28 :4--212 nnd
28 :4--213) the bank is an ngent or sub-agent of the owner of the item
and any settlement given for the item is prmisional. This provision
applies regardless of the form of indorsement or hwk of indorsement
and eYen though credit ghen for the item is subject to immediate
withdrawal as of right or is in fnct withdrawn; but the continuance
of ownership of nn item by its owner and nny rights of the owner
to proceeds of the item are subject to rights of a collecting bnnk such
as those resulting from outstanding adnrnces on the item und Yalid
rights of setoff. When nn item is handled by banks for purposes of
presentment, payment and colledion, the releYant prmis10ns of this
article apply even though action of parties cl~uly establishes that a
particular bank has purchased the item 1111d is the owner of it.
(2) After an item has been indorsed with the words "pay any
hank" or the like, only a bank may ncquire the rights of n holder
(a) until the item has been returned to the customer initiating
collection; or
(b) until the item has been specially indorsed by n bank ton
person who is not a bank.
28:4-202. Responsibility for collection; when action seasonable
(1) A collecting bank must use ordinary care in
(a) presenting an item or sending 1t for presentment; and
(b) sending notice of dishonor or non-payment or returning
an item other than a documentary draft to the bank's transferor
or directly to the depositary bank under subsection (2) of section
28 :4--212 after learning that the item has not been paid or
accepted, as the case may be; and
( c) settling for an item when the bank receiYes final settlement;
nnd
( d) making or providing for any necessary protest; and
(e) notifying its transferor of any loss or delay in transit
within a reasonable tim~ after discovery thereof.
( 2) A collecting bank taking proper action before its midnight
deadline following receipt of an item, notice or payment acts season-

STAT.]

PUBLI

ably: taking proper act

;.:emionnble but the bnnk
(~) ~ubject to snbse<
insolnncy, neglect, mis1
or person or for loss m
possession of others.
28 :4-203. Effect of i
Subject to the proYisio
men ts (section 28 :3-41
I his article concerning re
1rnnsferor citn gfre ms1
notice to it and a collect
:l<'tion taken pursuant t
agreement with its tram
28 :4-204. Methods <
to payo1
( 1) A collecting ba
method taking into cons
of the item, the number
1 ion imohed und them
im<'h items.
( :l) A collecting bani
(u) anyite.mdi1
(b) nnyitemto:
feror; and
(c) any item otl
pnyor, if authorize
letter, clearing hou
( :3) Presentment ma:
the payor bank has requ
28 :4-205. Supplyini
indorse
( 1) A clepositnry ba
supply any indorseme.1
unless the item conta1
or the like. In the ab~
on the item by the de
tleposited by a custom
customer's mdorsemen
(2) An intermedinr:
hnnk, is neither given
indorsement of any pe
28 :4-206. Transfer
Any agreed method
for the item's further t
28 :4-207. Warrant
fer or
( 1) Each customer
:teetptance of an iteff
warrants to the payo:
or accepts the item th:
(a) he has a g
payment or acce}
and
(b) he has no
drawer is unautl"

77 STAT.]

PUBLIC LAW 88-243-DEC. 30, 1963

ably: taki11g propPr action \\"ithin a rea:;onalily longer t i1t1P lll:lY he

:-ea:;onahle lmt the bank has the lmr<len of so estat1lishing:.
(;{) ~ubjeet to subsection (l)(a), a hank is not liable for the
insoheney, negleet. Ill iseon<luet, mistake or de fa 11 It of a not her hank
or person or for loss or <lest ruction of an item in t ra n:;it or in the
possession of others.

28 :4-203. Effect of instructions

Subject tot he pro,isions of article :3 concerning coll\en;ion of inst ruments (section 28:~---119) and the prO\isions of both article :1 and
I his article concernin~ restrict in~ indorsements 011 ly a collecting bank'::;
11ansferor can gi,e 111structions \\"hich affeet the bank or constitute
notice to it and a collecting bank is not liable to prior parties for any
action taken pursuant to such instructions or in a<conlan<'e \\"ith any
agreement with its transfernr.
28 :4-204. Methods of sending and presenting; sending direct
to payor bank
(1) A eollecting bank must send items by 1ea:;onably prompt
method taking into consideration any relenrnt instruetions, the nature
of the item, the number of such items 011 hand, and the eo,.;t of eolle<'t ion imohed and the method generally n,.;ed by it or others to present
~neh items.
(~) A collecting bank may send
(a) any item direct to the payor hank:
(b) any item to any non-bank payor if authorized by its transferor: and
( c) any item other than documentary <Ira fts to any non-bank
payor, if authorized by Fe<leral Rese1Te regulation or operating:
letter, clearing house rule or the like.
(:3) Presentment may be made by a presenting bank at a place where
the pnyor bank has requested that presentment be made.
28 :4-205. Supplying missing indorsement; no notice from prior
indorsement
(1) A depositary bank which has taken an item for eollection may
supplv any indorsement of the customer which is necessary to title
unless the item contains the words "payee's indorsement. required''
or the like. In the absence of such a requirement a statement placed
on the item by the depositary bank to the effect. tlwt the item was
deposited by a customer or credited to his account is effectirn as the
<nstomer's mdorsement.
(2) ~.\..n intermediary bank, or payor bank which is not a depositary
bank, is neither given not ice nor otherwise n tfected by a restrictirn
indorsement of any person except the bnnk's immediate transferor.
28:4-206. Transfer between banks
Any agreed method which identifies the transferor bank is sufficient
for the item's further transfer to another bank.
28 :4-207. Warranties of customer and collecting bank on transfer or presentment of items; time for claims
(1) Each customer or collecting bank who obtains payment or
:tl'eeptance of an item and each prior customer and collecting bank
warrants to the payor bank or other payor who in good faith pays
or accepts the item that
(a.) he has a good title to the item or is authorized to obtain
payment or acceptance on behalf of one who has a good title;
:ind
(b) he has no knowledge that the signature of the maker or
drawer is unauthorizerl, except that this warranty is not ghen

699

PUBLIC LAW 88-243-DEC. 30, 1963

700

[77

STAT.

hy any customer 01 rolleding bnnk that is a holder in due course

ancl acts in good faith
(i) to a maker with respect to the maker's own signature;
or
(ii) to a drawer with respect to the drawer's own signature, whether or not the drawer is also the drawee; or
(iii) to an acceptor of an item if the holder in due course
took the item after the acceptance or obtained the acceptance
without knowledge that the drawer:s signature was unauthorized ; and
( c) the item has not been materially altered, except that this
warranty is not given by any customer or collecting bank that is
a holder in clue course and acts in good faith
(i) to the maker of a note; or
(ii) to the drawer of a draft whether or not the drawer
is also the dmwee; or
(iii) to the acceptor of an item with respect to an alteration made prior to the aeceptmH'e if the. holder in dne course
took the item after the acceptmice, e\en though the acceptaILce provided ';payable as originally drawn" or equivalent
terms; or
(h) to the neceptor of nn item with respect to an alteration made after the acceptance.
(~) Each customer and collectmg bank who transfers an item and
re<e1,ei; n settlement or other <011:-:idernt io11 fo1 it wnna11ts to his
transferee nnd to nnv subsequent collecting bank who takes the item

in good faith that

(a) he has a good title to the item or is authorizell to obtain
payment or acceptance on behalf of one who has n Jroml title ancl
the tmnsfer is otherwise rightful; and
(b) all signatures are genuine or authorized; and
(c) the item has not been mllteriallv altered; and
(d) no defense of any pnrty is good against him: and
( e) h~ has no knowledge of 1rny insohency proceeding instituted with respect to the maker or 1tcceptor or the drawer of
an unaccepted item.
In addition each customer and collecting bank so transferring an
item and recei\"ing a settlement or other consideration engages that
llJ?Oll dishonor and any necessary notice of dishonor and protest he
will take up the item.
(3) The warranties and the engagement to honor set forth in the
j WO preceding subsections flrise notwithstanding the absence of
indorsement of words of guaranty or warranty in the transfer or
presentment and a collecting. bank remains liable for their breach
despite remittance to its h;ansfe.ror. Damages for breach of such
warranties or engagement to honor shall not exceed the consideration
received by the customer or collecting bank responsible plus finance
<'harges and expenses related to the item, if any.
( 4) Unless a claim for breach of warrantv under this section is
made within a reasonable time after the person claiming learns of
the breach, the person liable is discharged to the extent of any loss
<aused by the delay in making claim.

77

(b) in case of an
for withdrawal as
whet her or not the c:
is a ri~ht of charge-
( c) if it makes an r
(2) When credit whi<
at one time or pursuant t
in part the security inte
pnnying documents or 1
th is section, credits first;
( 3) Receipt by a coll
is a realization on its seci
ments and }noceeds. T1
receiYe fina settlement 1
or accompanying docun
security interest continn
except that
(a) no security '
interest enforceable
and
(b) no filing is 1
( c) the security i
security interests
proceeds.

28 :4-209. When ban

course
For purposes of dete1
bank has ~iven value to
item provided that the l
of section 28 ::l--302 011
28 :4-210. Presentm

througl

(1) Unless otherwiSl

item not payable by, th

accept or pay a written
ance or payment, The
before the day when p1
requirement of the pa
by the close of the bu
requirement.
( 2) 'Where presentn
request for complia11c1
is received by the clO!'
the case of demand itei
da.y after notice was s.
dishonored and charge
the facts.
28 :4-211. Media of

in rem

( 1) A collecting bn

(a) a check of
bank except the ri
(b) a cashier's
ting bank which i~
same clearing hot:
(c) appropriat
bank or of anothe

28 :4-208. Security interest of collecting bank in items, accompanying documents and proceeds
(1) A bank has a security interest in an item and any accompanying documents or the proceeds of either
(a) in case of an item deposited in an account to the extent
to which credit given for the item has been withdrawn or applied;

PUBLIC

STAT.]

PUBLIC LAW

J-DEC. 30, 1963

/
"
(b) in case of a11 item fo1 which it !ms gin11 nedit arnilahlt
for withdrawal as of right, to the extent of tht <'1edit given
whether or not the credit is drawn upon n11<l wht>thPI' or not therP.
is a right of charge-bnck; or
( c) if it makes an ndrnnce 011 or against !ht' itt>lll.
(2) "Then credit which has been given for se,ernl items recein'\l
at one time or pursuant to a single agreement is witlHlrnwn 01 applied
in part the security intel'est remains upon all the items, nnv accompanying documents or the proceeds of eithe1. For the pttrpose of
this section, credits first given are first withdmwn.
(:)) Receipt by a collectinp: hank of a ti11al settlement for an item
is :t renlization on its setPrity interest in the item, n1eompnnying documents and proceeds. To tlre extent and so long as the ba11k does not
!'ecein. final settlement for the item or gi,e lip possesHion of the item
or accompanying documents for pllrposes other than collection, the
security interest. continues a11d is suhjl.'('t to the provi:-;ions of article 9
except that
(a) no security agreeme11t is 11ecessan to make the security
interest enforceable (subsection (1) (b) "of section 28:V-203);
~d
'
.
(b) no filing is req~1ired to perfe('t the secmity i1itere~t: and
(c) the security interest has prioritv over contticting perfected
security interests in the item. iwcompanyinl! documents or
proceeds.

77 STAT.}

28:4-209. When bank gives value for purposes of holder in due

course
For purposes of determininl! its statusm; a holde1 in due course, tlw.
~auk has giYen rnlu.e to the extent t.hat it hn~ a se~urity inter~st. in an
item provided that the bunk otl)erw1se complies with the reqmrements
of section 28 :3-302 on what constitutes n holder in due course.
28 :4-210. Presentment by notice of ite~ not payable by,
through or at a bank; liability of secondary parties
( 1) "Gnless otherwise instructed, a collecting bank may present an
item not payable by, through or at a hank by sending to the party to
accept or pay a written notice that the bank holds the item for .acceptance or payment.. The notice musf be sent in time to be received on or
before the day when presentment is due and the bank must meet any
requirement of the party to accept or pny under section 28 :3-505
by the close of the bnnk's next bnnkinl! day after it knows of the
requirement.
(2) \Vhere presentment is nrnde by notice and neither honor nor
request for compliance with a requirement under section 28:3-505
is recehed by the close of business on the day after. maturity or in
the c.ase of demand items by the close of huKinei:;s on the third banking
day after notice was senL the presenting bank may treat the item as
dishonored and charge any secondary party by sending him notice of
the facts.
28 :4-211. Media of remittance; provisional and final settlement
in remittance cases
( 1) A collecting bank may take in settlement of tlll item
(a) a check of the remitting bank or of another bank on any
bank except the remitting bank; or
(b) a cashier's check or similar primary obligation of a remitting bank which is a member of or elears thl'ottgh a member of the
same clearing house 01" group as the. collecting bank; or
( c) appropriate authori~y to charge nn account of the remitting
bank or of another bank with the collecting bank; or

701

',

702

PUBLIC LAW 88-243-DEC. 30, 1963

[77 STAT,

(d) if tlw item is drawn upon or pa_yahle hy a person other

than a bank. n ('nsh ier's l'hel'k, eert ified eheek 01 other b1111k check
or obligation.
( i) If before its mi1lnight clen<lli lit> the colleeting hnnk properly
1lishonors a remittnn<'e l'heek or authorization to elmrge on itself or
presents or forwards for rolle<"tion n remittance instrument of or on
another bank whi<h is of n kind approved by subsection (1) or has
11ot been authorized by it, the colle<ting bank is not liable to prior
parties in the eYent of the dishonor of such check, instrument or
authorization.
(3) A settlement for an item by means of a remittance instrument
or authorization to charge is or ~omes n final settlement as to both
the person making and the person receiving the. settlement.
(a) if the remittance instrument or nuthorizntion to charge
is of a kind appro,ed by subsection ( 1) or has not been authorized
by the person receiving the settlement nnd in either citse the person receiving the settlement acts seasonably before its midnight
deadline in presenting, fonrnrding for collection or paying the
instrument or nuthorization,-nt the time the remittance instrument or authorization is finally paid by the payor by which it is
payable;
(b) if the person recei,ing the settlement has authorized
a non-bank check or obligation or by a cashier's
remittance
check or similar primary obligation of or a check upon the payor
or other remitting bank which is not of a kind approved by subsection (1) (b),-at the time of the receipt of such remittance
check or obli~ation; or
(c) if in .a .case not covered by s~1b-paragraphs (a) or (b) the
person rece1nng. the settlement fails to se~sonablY: present, forward for collectton, pay or return a remittance mstrument or
authorization to it to charge before its midnight deadline,-at
such midnight deadline.
28 :4-212. Right of charge-back or refund
(,1) If a collecting bank has made pro,isional sett Jement with its
customer for an item and itself fails by reason of dishonor, suspension
of payments by a bank or otherwise to receive a settlement for the
it~m whic~ is or becomes final, the bank may rernke the settlement
gwen bJ: it, charge ,back the amount .of any credit given for the
item to its customers account or obtam refund from its customer
whet~er or n?t _it is able to return th~ items if by its midnight
deadline or w1thm a. longer reasonable time after it learns the facts
it returns the item or sends notification of the facts. These rights to
revoke, clrnrge-back and obtain refund terminate if and when a
settlement for the item received by the bank is or becomes final (sub..
section (3) of section 28 :4-211 and subsections (2) and (3) of section 28 :4-213).
(2) (Omitted.)
(3) A deposi~ary ban~ which is also the payor may charge-back the
amount of an item to its customer's account or obtain refund in
accordance with the section go,erning return of an item received
by a payor f?ank for credit on its books (section 28 :4-301).
( 4) The r1~ht to charge-back is not affected by
(a) pr~or use of the credit given ~or the ~tern ; or
(b) . failure by any bank to exercise ordmary care with respect
to the item but any bank so failing remains liable.
( 5) A failure to charge-back or claim refund does not affe.ct
other rights of the bank against the customer or any other f,arty.
(6) If credit is given in dollars as the equivalent of the va ue of
an item payable in a foreign currency the dollar amount of any charge-

tw

77 STAT.]

Pl

back or refund sha

rate for the foreigr
entitled to the cha1
payment in ordinar
28 :4-213. Final
sion
crec
(1) An item is.
done any of the foll
(a) paid thE
(b) settled
the settlement
clearing house
(c) complet
account of th
therewith; or
(d) made a
revoke the set1
ute, clearing l
rpon It final paym
hank shall be acoot
(2) If provisi01
nud payor banks
credits m an accou
debits or credits fc
sentin~ and payor
collectmg banks s
the item by the pay
(3) If a collect
or becomes final (
of section 28 :4-2
a.mount of the it.ei
an account with it
( 4:) Subject to:
gation of the custc
with its customer
(a) in an:}
settlement fo1
the bank has
is final;
(b) in any
ii payor bunk
bank's secom
( 5) A deposit
to any right of tl
customer, the de]
at the opening of
deposit.
28 :4-214. lnsc
(1) Any item:
ing ba.nk which ~
shall be returnee
closed bank to th
(2) If a. pa.yo
without making
presenting bank
item has a prefe1

-~
;

77 STAT.]

. 703

PUBLIC LAW Sb .. :43-DEC. 30, 1963

back 01 refund shall he calculated on the basis of the buying sight

tate for the foreign currency preYailing 011 the dav wh~n the person
entitled to the charge-back or refund fearns that 1t
not recehe
payment in ordinary course.
28 :4-213. Final payment of item by. payor bank; when provisional debits and credits become final ; when certain
credits become available for withdrawal
(1) An item is finally paid by a payor bank when the bank has
done any of the following, 'vhichever happens first:
(a) paid the item in cash; or
(b) settled for the item without reserving a right to revoke
the settlement and without having such right under statute,
clearing house rule or agreement; or
. (c) completed the process of posting the item to the indicated
account of the drawer, maker or other person to be charged
therewith; or
( d) made a provisional settlement for the item and failed to
re\oke the sett lemeut in the time and mnnner permitted by statute, clearing house rule or agreement.
l'pon a final payment undersubp1lragraphs (b), (c) or (d) the payor
bank shall be acoountable for the amount of the item.
(2) If provisional settlement for an item between the presenting
nnd payor banks is made through a clearing house or by debits oi
credits m an account between them, then to the extent that provisional
debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior
collect.mg banks seriatim, they become final upon final payment of
the item by the payor bank.
(3) If a collecting bank receives a settlement for an item which is
or becomes final (subsection (3) of section ~8 :4-211, subsection (2)
of section 28 :4-213) the bank is accountable to its customer for the
a.mount of the item and any provisional credit given for the item in
an account with its customer becomes final.
( 4) Subject to any right of the bank to apply the credit to an oblig.ition of the customer, credit given by a bank for an item in an account
with its customer becomes available for withdrawal !\S of right
(a) in any case where the bank has received a provisional
settlement for the item.-when such settlement becomes final and
the bank has had a reasonable time to learn that. the settlement
is final;
(b) in any case where the bank is both a de2ositary bank ancl
n. payor bank and the item is finally pnid,-at the opening of the
bank's second banking day following receipt of the item.
( 5) A deposit of money in a bank is fiilal when made but, subject
to any right of the bank to apply the deposit to an obligation of the
customer, the deposit becomes available for withdrawal as of right
at the opening of the bank!s next banking day following receipt of the
deposit.
28:4-214. Insolvency and preference
( 1) Any item in or coming into the possession of a payor or collecting ba.nk which suspends payment and which item is not finallyfaid
shall be returned by the receiver, trustee or
t in charge o the
dosed bank to the presenting bank or the cl
nk's customer.
(2) If a payor bank finally pays an item and susp.ends payments
without making a settlement. for the item with its customer or the
presenting ba.nk which settlement is or becomes final, the owner of the
item has a preferred claim against the payor bank.

''ill

-!''

704

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(3) If a pnyol' bank iYes or a !'Olle('ti11 u;rnk l!iYes or 1elei\'es a

provisional settlement fol' an item arnl t hereafter s11spe11<ls payments,
the suspension does not prewnt or interfere with the seHlement becoming final if such finality occms automatically upon the lapse of certain
time or t.he happening of certain ernnts (subsection (3) of section
28 :4-211, subsections (1) ( d), (2) and (3) of sect.ion 28: 4-213).
( 4) If a collecting bank receives froni subsequent. piut ies settlement for an item \vhich settlement is or he(omes fina 1 and suspends
payments without making a settlement for the item with its customer
which is or becomes final, the owner of the itPm has a preferred clnim
against such collecting lmnk.

PART 3-COLLECTION OF ITEMS: PAYOR BANKS

28 :4-301. Deferred posting; recovery of payment by return of
~
items; time of dishonor
( 1) "There an ant horized settlement for n demand item (other than
n documentary draft) recei,ed Ly a payo1 hank otherwise than for
immediate payment onr the eounter hns Leen made before midnight
of the banking day of receipt the payor bank may rHoke the settlement an~ recoYer nny payment if hefore it has m.ade ~un~ payment
(subsection ( 1) of section 28 :4-21:)) <llld before its nrnlmght deadline it
(a) returns the item; or
(b) sends written notice of (lish011or or no.np;1y111e11t if the
item is held for protest or is othel'wise unanulahle for return.
(2) If a demaJl(l item is reeeiwd by n paym bank for credit on ib
books it may return sueh item or sernl notiee of dishonor nnd mny
re\'oke any credit giwn or 1erowr the arnonnt thereof withdrawn
by its customer, if it acts within the time limit and in the mnnnel'
specified in the precedin~ s11hseetion.
(3) Unless pre\ious notiee of dishonor has b(l'en sent nn item is
dishonored at the time when foi purposes of dishonor it is 1et11med or
notice sent in nccordnnce with tlus se<'tion.
( 4) An item is returned:
(a) as to im item ieceiYed thmngh n clearing house~ whe11 it
is delivered to the presenting or last. collecting hank 01 to the
clearing house or is sent or delivered in iweordanee with ib
rules; or
. .
.
.
(b) in all other cases, when 1t is sent o!' <~eliYere<~ to the banln;
customer or trnnsferor or ptmmant to lus mstrnct ions.

28:4-302. Payor bank's responsibility for late return of item

In the absence of a n11id defense such as breach of it presentment
wnrrnnty (subsection ( 1) of section 28 :-J:.-207), settlement effected or
t.he like, if an item is presented on and recein'd hy n payor bank the
bank is accountable fort he amount of
(a) a demand item other thnn a documentary draft whether
properly payable or not. if the.bank, i1~ any case whe1:e i~ is not
also the depositary bank, retams the item beyond m1dmght of
the banking day of receipt wit hont settling for it or, regardles."
of whether it is also the deposita n bnnk, does not pay or retum
the item or send notice of <l1shon01: nntil after its midnight deadline or
(b) any other propel'ly p11yable item un~es;; within the .time
allowed for ucceptnll<'e. or payment of that item the bnnk either
accepts or pnys the it.em or retnrm; it. and al'companying
documents.

77

STAT.)

28 :4-303. Wher

or

cer
( 1) Any knowh
serYed upon or &
effect.h-e under of
the bank's right c
account for the ite1
such right or duty
is recei\ed or sern
expire~ or the setr
followmg:
(a) accepte
(b) paid th1
( c) sett.led
the settlemen
clearing house
(d) comple'
account of th<:'
with or ot hen
account. and bi
(e) become
subsection ( 1
dealing with t
(2) Sub1ect to
.nccepted, .raid, ce
enstomer many or

PART 4-RELA'
28 :4-401. Whe1
( 1) As aga!nst .
any item wluch :
e,,en though the Ci
(2) A bank ;v
may charge the 1!
(a) the or11
(b) the te1
knows the ite1
the completio

28 :4-402. Bani
A I>ayor bank
caused by the wr
occurs through ill'
If so proximately
for an arrest or ]
damarres. Whetl
causea by the wro:
in each case.

28 :4-403. Cust
of
( 1) A custome
item payable for
time and in such n
to act on it prior.
described in sect1
ever, unless it shf
which it relates b
93-02~

0-64-47

77 STAT.]

PUBLIC LAW

88-~ ...&-DEC.

30, 1963

28 :4-303. When items subject to notice, stop-order, legal process

or setoff; order in which items may be charged or
certified
(1) Any knowledg-e. 11otiee or stop-order receiwd by, legal process
ser,ed upon or setoff exercised by a payor bank, whether or not
effectfre under other rules of law to terminate, suspend or modify
the bank's right or duty to pay an item or to charge its cnst<'lmer's
nccount. for the item, comes too late to so terminate, suspend or modify
such right or duty if the knowledge, notice, stop-order or legal proces.<s
is receiYed or ser\ed and a reasonable time for the bank to act thereon
expires or the setoff is exerl'ised after the bank has done any of the
following:
(a) accepted or certified the item;
(b) paid the item in cash:
( c) settled for the item without re.serdn~ a right to rernka
the settlement and without luHing such right 1\nder statute,
clearing house rule or agreement;
(d) completed the process of posting the item to the indicated
account of the drawer, maker or other person to be charged therewith or otherwise has eddence<l by examination of such i11dicnted
account. and by action its decision to pay the item: or
(e) become aceountable :for the amount of the item unclPJ'
subsection ( 1) ( d) of sect ion 28 :4--213 and section 28 :-t-aM
dealing with the payor bank's responsibility for late return items.
(2) Sub1ect to the prmisions of subsection (1) items may be
.accepted, paid, ce1titied or charged to the indicated account of its
customer in any order cmn-e.11ient to the bank.
PART 4-RELATIONSHIP BETWEEN PAYOR BANK AND
ITS CUSTOMER
28:4--401. When bank may charge customer's account
(1) As against its customer, a bank may charge against his nctom1t
any item which is otherwise properly payable from thnt account
(Wen though the clrnrge creates an overdraft..
(2) A bank which in good faith makes payment to a holder
may charge the indicitted account. of its customer according to
(a) the originn.l tenor of his altered item; or
(b) the tenor of his completed item, even though the hank
knows the item has been completed unless the bank has notice that
the completion was improper.
28:4--402. Bank's liability to customer for wrongful dishonor
A payor bank is liable to its customer for damages proximtttely
caused by the wrongful dishonor of an item. 'Vhen the dishonor
occurs through mistake liability is limited to actual damag-es proYed.
If so proximately caused and proved damages may include damages
for an arrest or prusecution of the customer or other consequential
damaO'es. 'Vhether any consequential damages are proximately
causea by the wrongful dishonor is a question of fact to be determined
in each case.
28 :4--403. Customer's right to stop payment; burden of proof
of loss
(1) A customer may by order to his bank stop payment of any
item payable for his account but the order must be recehed at such
time and in such manner as to afford the bank a reasonable opportunity
to act on it prior to any action by the bank with respect to the item
described in seetion 28 :4-303. No such order shall be 'valid, however, unless it shall be in writing specifically describing the item to
which it relates by stating the amount, dnte and payee thereof.
9 :>-02 5 0-64-P

705

706

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(:!) .\nything- in this ::;ection 28 :-1----J.O:~ t.o the ro11trnry notwithstanding, any stop payment order. trnns1111tt~d b~ telephone b.y a
l'UStomer to an officer of a bank. while sul'h otlfrer 1s on the premises
thereof, shall be ael'epted by such bank1 upon sul'h identitil'ation that
will insure the order has been trammutte<l by snl'h l'llstorne_r, as. an
effective order for a perio<l of twenty-four hours,, after wh1l'h time
it shall no longer be rnlid unless follo~wd by n w~Itten o~der as provided in this section :!8 :~O~. :\.. wrltt~n order 1s etfectlY~ for 01.1ly
six months unless renewed rn wnt111g. r.he bank mny, at ~ts <~pt1on
and without !iabilitv. stop payment of an Itelll afte1'.the exp1rnt1<?11 of
a stop payment or<ler or i11~y ~enewal thereof relatmg to snch Item.
( :~) The burden of estabh~l11ng the fad and a!11ot.mt of loss resulting from the payment of an item contra1y to a lnndm;.! stop payment
order is on the l'\\Storner.
28 :4--404. Bank not obligated to pay check more than six months
old
A bank is under no obligation to a l'llS.t?mer having i.1 ch.ecking
a<'count to pay a <'hel'k, other than :1 l'ert1tied eh~ck, whll'h 1s p~e
sented more than six months after its date, bnt 1t may charge Its
customer's ac,01mt for a payment lllade thereafter in the absenre of
an etfeetive stop payment order in accordanee with section :!H :-1--103.
28 :4-405. Death or incompetence of customer
( 1) A payor or l'olleding bank's au~ !10rity to. aee~pt. pay ~r collect
an item or to account for proceeds of its eo!lect10n If othennse effectirn is not rendered inetfectiw by .incompetence of a customer of
either bank existing at the time the item is issued or its eollection is
undertaken if the hank does not know of an adjudication of incompetenee. Xeither death nor incompetence of a eustomer rernkes such
authoritv to aceept, pay, eollect or aceount until the bank knows of
the fal't 'of death or of an adjudication of incompetence and has reasonable opportnnity to aet on it.
(2) Even with knowledge a bank may for ten days after the date of
death pay or ceI1ify eheeks drawn on or prior to that date unless
ordered to stop paylllent by a person da nni11g an interest in the
account.
28 :4-406. Customer's duty to discover and report unauthorized signature or alteration
( 1) "hen a bank sends to its customer a statement of account
uecompanied by items paid in good faith in support of the debit entries
or holds the statement and items pursuant to a request or instructions
of its customer or otherwise in a reasonable manner makes the statement and items an!ilable to the customer, the customer must exercise
reasonable care and promptness to examine the statement and items
to discover his unauthorized signature or anv alteration on an item and
must notify the bank promptly after discO\~ery thereof.
(2) If the bank establishes that the customer failed with respect to
an item to comply with the duties imposed on the customer by sub!:'ection (1) the customer is precluded from asserting against the bank
(a) his unauthorized signature or any alteration on the item if
the bank also establishes that it suffered a loss by reason of such
failure; and
(b) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the
first item and statement was arnilable to the customer for a
reasonable period not exceeding fourteen calendar days and before
the bank recei,es notification from the customer of any such
unauthorized signatme or alteration.

77

STAT.]

PUBLI

( :~) The preclusion i

eustomer establishes lac
in paying the item(s).
( 4) Without regard
or the bank a customer
the statement and items
( 1) ) discover and repo1
on the face or back of
that time discover an
precluded from assertin
or indorsement or such :
( 5) If under this sec
a claim of a customer u
waives or fails upon r1
assert against any colle
transferring the item a
alteration giving rise to
28 :4-407. Payor ha
ment
If a payor bank has I
drawer or maker or ot1
objection by the draw1
only to the extent n~cf
its payment of the Ite
rights
(a) of any hold
or maker; and
(b) of the pay
drawer or maker ,
of which the item
(c) of the dra
holder of the iter
the item arose.

PART 5-COLL:E
28 :4-501. Handlin
preser
A bank which takes
or send the draft and
upon learning that f
course must seasonab
it may Im ye discount
able for withdrawal a
28 :4-502. Present
'When a draft or ti
arrival" ' "when
. . good:
.
present until m its :
goods has expired. J
not arrived'is not dis!
refusal but need not J
so or learns of the arr
28 :4-503. Respon
good~

case
Unless otherwise i
bank presenting a d1

I - ~

i,'

77 STAT.]

PUBLIC LAW 88-243-DEC. 30, 1963

(::~) The preclusion u1tder ::;uhsection (2) does not apply if the
eustomer establishes lnck of ordinary care on the part of the bank
in paying the item(s).
(4) 'Vithout regard to care or lack of care of either the customer
or the bank a customer who does not within one year from the time
the statement and items are made available to the customer (subsection
(I)) discover and report his unauthorized signature or any alteration
on the face or back of the item or does not within three years from
that time discover and report any unauthorized indorsement is
precluded from asserting agamst the bank such unauthorized signature
or indorsement or such alteration.
(5) If under this section a payor bank has a valid defense against
a claim of a customer upon or resulting from payment of an item and
waives or fails upon request to assert the defense the bank may not
assert against any collecting bank or other prior party presenting or
transferring the item a claim based upon the w1anthorized signature or
alteration giving rise to the customer's claim.
28:4-!07. Payor bank's right to subrogation on improper payment
If a payor bank has paid an item mer the stop payment order of the
drawer or maker or otherwise under circumstances givins a basis for
objection by the drawer or maker, to prevent unjust enrichment and
only to the extent necessary to prevent loss to the bank by reason of
its payment of the item, the payor bank shall be subrogated to the
rights
. (a) of any holder in due course on the item against the drawer
or maker; and
( b) of the payee or any other holder of the item against the
drawer or maker either on the item or under the transaction out
of which the item arose; and
( c) of the drawer or maker against the payee or any other
holder of the item with respect to the transaction out of which
the item arose.

PART 5-COLLECTION OF DOCUMENTARY DRAFTS

28 :4-501. Handling of documentary drafts; duty to send for

presentment and to notify customer of dishonor

A bank which takes a documentary draft for collection must present
or send the draft and accompanying documents for presentment and
upon leaming that the draft has not been paid or aceepted in due
course must seasonably notify its customer of such fact even though
it may ha\'e discounted or Loug;ht the draft or extended credit nnulable for withdrawal as of right.
28 :4-502. Presentment of "on arrival" drafts
When a draft or the relevant instructions require presentment "on
arrival", "when goods arrive" or the like, the collecting bank need not
present until in its judgment a reasonable time for arrival of the
goods has expired. Refusal to pay or accept because the goods have
not a1Tived'is not dishonor; the Lank must 11otify its transferor of such
refusal but need not }?resent the draft again until it is instructed to do
so or learns of the arr1 val of the goods.
28 :4-503. Responsibility of presenting bank for documents and
goods; report of reasons for dishonor ; referee in
case of need
Unless otherwise instructed and except as provided in article 5 a
bank presenting a documentary draft

707

PUBLIC LAW 88-243-DEC. 30, 1963

708

[77 STAT.

(a) must <lelher the documents to the <lra wee on acceptance

of the draft if it is payable more than three days after presentment; otherwise, only on payment; and
(b) upon dishonor, ~ither in the case of presentment for
acceptance or presentment for payment: may seek and follow
instructions from any referee in case of need designated in the
draft or if the presenting bank does not choose to utilize his
services it must use diligence and good faith to asce1tain the reason for dishonor, must notify its transferor of the 1lishonor 1111d
of the results of its effort to ascertain the reasons therefor and
must request instructions.

But the presenting bank is under no obligation with respect to goods

represented by the documrnts except to follow any rensonable instructions seasonably received; it has a right to reimbursement for any
expense incurred in following instructions and to prepayment of or
indemnity for such expenses.
28 :4-504. Privilege of presenting bank to deal with goods;

security interest for expenses

(1) A presenting bank ,fhich, following the <lishonor of a docu-

mentary drnft1 has seasonably requested mstructions but. does not

receive them within a reasonable time may store, sell, or otherwise
deal with the goods in any reasonable manner.
(2) For its reasonable expenses incurred by action under subsection
(1) the presenting bank has a lien upon the goods or their proceeds,
which may be foredosed in the same manner as an unP'aid seller's lien.

ARTICLE 5-LETTERS OF CREDIT

Sec.

28: l>-101.
28: 5-102.
28: l>-103.
28: l>-104.
28: l>-105.
28: 5-106.
28: 5-107.
28 : 5-108.
28: l>-109.
28: 5-110.
-"'\,.

" 'l
"-.

citation of art1c1e.

Short title.
Scope.
Definitions.
Formal requirements; signing.
Consideration.
Time and etTect of establishment of credit.
Advice of credit; confirmation; error in statement of terms.
"Notation credit" ; exhaustion of credit.
Issuer's obligation to its customer.
Availability of credit in portions; presenter's reservation of lien or
claim.
28: l>-111. Warranties on transfer and presentment.
28: l>-112. Time allowed for honor or rejection; withholding honor or rejection
by consent; "presenter".
28: l>-113. Indemnities.
28: l>-114. Issuer's duty and privilege to honor; right to reimbursement.
28: l>-115. Remedy for improper dishonor or anticipatory repudiation.
28: 5-116. Transfer and assignment.
28: l>-117. Insolvency of bank holding funds for documentary credit.

28 :5-101. Short title

The article shall be known and mav be cited as Uniform Commercial
Code-Letters of Credit.

28 :5-102. Scope
( 1) This article a-pp lies

(a) to a credit issued by a bank if the credit requires a documentary draft or a documentary demand for payment; and
(b) to a credit issued by a person other than a bank if the
credit requires that the draft or demand for payment be accom
panied by a document of title; and
( c) to a credit issued by a bank or other person if the c~it is
not within subparagraphs (a) or (b) but conspicuously states
that it is a letter of credit or is conspicuously so entitled.

77 STAT..]

PUBI

( ~) rnless the en:x:

( 1), this artide does

to honor drafts or dern

ehase, to guarantees OI
( 3) This article dea
eepts of letters of credi
to this subtitle or may
states a rule does not li
the sa.me or a convers
person not sped tied by
28 :5-103. Definitio;
( 1) In this article u
(a) "Credit" or
bank or other per~
kind within the sc
issuer will honor
compliance with t
may be either ren
either an agreemE
other person is aut
(b) A "documt
payment" is one h1
tion of a documen1
including docume
of default and the
( c) An "issuer~
( d) A "benefici:
its terms to draw <
( e) An "advisi1
the issuance of a c1
(f) A "confirm
it will itself hono
that such a credit
(g) A "custom
issuer to issue a 1
procures issuance
customer.
(2) Other definitio1
which they appear are
"Notation of cr1
"Presenter". 81
(3) Definitions in <
sections in which they:
"Accept" or "A
"Contract for sa
"Draft". Secti<
"Holder in due
"Midnight dead
"Security". Se
( 4) In addition, art
of construction and in
. 28 :5-104. Formal 1
( 1) Except as othe
28 :5-102 on scope, nc
credit. A credit must
confirmation must be
A modification of the
by the issuer or confin

77

STAT.

(~)

PUBLIC LAW

143-DEC. 30, 1963

r11les.'\ tlie eni.rag:ement meets the 1eq11ir!:'lllents of ,.,uhsedio11

( 1), this article does not a ppl,v to !:'lll!H/.fements to make ad rn11ees 01

to honor drafts 01 dt>IH:lllds fo1 payment. to a11thoritie::; to pay 01 purd1ase, to ;..uarnntees or to .i.re11eral agreements.
(3) This nrtide deals with sorne hut 11ot all of the rules and eoneepts of letters of eredit as s1wh 1ules or 101H'epts lrnw developed prior
to this subtitle or mny hereafter develop. The faet that this artide
states a rule does not hy itself reqni:e. i1~1ply or neg:tte application of
the same or n conn'I'Se rule to 11 s1tnat1011 not pro\"i<led for or to a
person not speeitied by this nrtide.

28:5-103. Definition&
(1) In this art ide unless the contt-xt otherwise rt>quire:.;
{a) '"Credif" or "'lt>tte1 of credit .. means an engag:ernent by a.
hnnk or other person made at the request of n eustomer and of a
kind within the scope of this 1111iele 1seetio11 :l~:5-10:l) that the
issuer will honor drafts or other demands for puynwnt upon
compliance with the eouditions speeitied in the credit. A credit
may be either renxable or irrevoeable. The engagement may be
either an agreement to honor or a statement tluit the bank or
other person" is authorized to honor.
{b) A ''documentary dmft"" or a "documentary demand for
payment'' is one honor of which is conditioned upon the presentation of a document or documents. "'D()('lJlllenf' means any paper
including document of title, security. imoice, certificate, notice
of default and the like.
( c) An "issuer'" is a bnnk or other person issuing n credit.
. ( d) A "beneficiary'' of a credit is a person who is entitled under
its terms to drnw or demand pityment.
(e) An ''adYising bank'' is a bank which gives notification of
the issuance of a credit by another bank.
( f) A ''confirming birnk" is a bank which engages either that
it will itself honor n credit already issued by another bank or
thnt such a credit will be honored by the issuer or a third hank.
(g) A "customer'' is a buyer or other person who causes nn
issuer to issue a credit. The te11n 1dso includes a bank which
procures issuance or confirmation on behalf of that bank's
customer.
(2) Other definitions applying to this a1ticle and the sections in
which they appear are:
"Notation of credit". Sect.ion 28 :5-108.
"Presenter". Section 28 :5-112(3).
(3) Definitions in other articles applying to this article and the
sections in which they appear are:
"Accepe' or "Acceptance". Section 28 :3--110.
''Contract for sale"'. Section 28 :2-106.
"Draft". Section 28 :3-104.
"Holder in due course". Section 28 :3--302.
":Midnight deadline". Section 28 :4-104.
"Security". Section 28 :8-102.
( 4) In addition, article 1 contains general definitions and principles
of construction and interpretation applicable throughout this article.

28 :5-104. Formal requirements; signing

( 1) Except as otherwise required in subsection ( 1) { c) of section
28 :5-102 on scope, no particular form of t>hrasing is required for a.
credit. A credit must be in writing and signed by the issuer and a
confirmation must be in writing and signed by the confirming hank.
A modification of the terms of a credit or confirmation must be signed
by the issuer or confirming bank.

709

710

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(2) A telegrnm may be a sufficient :;igned writing if it identifies it;,

sender by an authorized authentication. The anthenticMion may be
in code and the authorized naming of tlie is::mer in an advice of credit
is a sufficient signing.
28 :5-105. Consideration
No consideration is necessary to establish a l'redit or to enlarge or
otherwise modify its terms.
28 :5-106. Time and effect of establishment of credit
(1) lTn]ess otherwise agreed a credit is established
(a) as regards the customet as soon as a letter of credit is
sent to him or the letter of credit or an authorized written adYice
of its issuance is sent to the benefkiarv; and
(b) as regards the beneficiary w'hen he recei,es <l letter of
credit or an authorized written ad,ice of its issnnnce.
(2) Unless otherwise agreed once an irrerncable credit is established as regards the customer it can be modified or revoked only with
the consent of the customer and once it is established as regards the
beneficiary it can be .modified or revoked onl:r with l_tis. consent:
(3) rnle.ss othennse agreed after a revocable credit is established
it may be modified or revoked by the issuer without notice to or consent from the customer or beneficiary.
{4) Xotwithstanding any modification or 1e,ocation of a revocable
<>redit. auy person authorized to honor 01 negotiate under the terms
of the orig:urnl credit is entitled to reimbursement for or honor of
any draft or demand for payment duly honored or negotiated before
receipt of notice of the moditkntion or reYOt'<ltion and the issuer in
turn is entitled to reimlrnrseme11t from its customer.
28:5-107. Advice of credit; confirmation; error in statement of
terms
( 1) C11less otherwise specified an ad vising bank by advising a
credit. issued by another bank does not assume any obligation to honor
clrafts drawn or demands for payment made under the credit but it
does assume obligation for the accuracv of its own statement.
(2) A confirmi1lg bank by confirming: a credit becomes directly
obligated on the credit to the extent of 'its confirmation as though it
were its issuer and acquires the rights of an issuer.
(3) Even though an ad,ising bank ineoneetlv advises the tt:dns
of a credit it has been authorized to advise the credit is established
as against the issuer to the extent of its original terms.
. ( 4) 'Gnless otherwise specified the customer bears as against the
issuer all risks of transmission and reasonable translation or interpretation of any message relatiug to a credit.
28 :5-108. "Notation credit"; exhaustion of credit
( 1) A credit which specifies that any person pmchasing or paying
drafts drawn m demands for payment made under it must note the
amount of the <ka ft or demand 011 the letter or a ch-ice of credit is n
"notation credit'.
(2) l:"ndet a notation credit
(a) a person pa~in~ the beneficiary or purchasing a draft or
demand for payment from him acquires <l right to honor only if
!he appropriate notntion is made and by transfening or forward,
mg for honor the rlocuments un<ler the credit such a person warrants to the issuer tlm.t the notiltion has been made; and
(b ). unless the eredit or 11 signed statement that an appropriate
notation hJlS been miule accompanies tl!e dr~ft or demand for payment the issuer may delay honor until endence of notation has
and
been prol'urecl which is satisfndorv
to it but its oblirration
e .

77

STAT. ]

PUI

thnt of its t11sti11m

thirtv <luvs to ohti1

(:q Ifthe~reditis1

( u) the issuer
p1lyment presente1
and is dts<.'hnrge(
demand;

(b) as between
<lmfts or denumd:
a subsequent pm<
demand has been
28 :5-109. Issuer's 1
( 1) An issuer's obli
obsernrnce of any O"en
(loes not include li~il'
(a) for perfor
other transaction
(b) for any act
its own branch c
or doeument in tr
(c) based on h
of any particular
(2) An issuer must
th11.t on their face n
credit but unless oth
sibility for the genui
which appears on su
(3) A non-bank i~
which it has no knowl
28 :5-110. Availabi
tion of
(1) Unless otherw:
in the discretion of th
(2)1 Unless otherw
mentary draft or de1
upon its honor all cl
ferring such draft or
such relinquishment.
draft or demand non 28 :5-111. Warran
( 1 ) Unless otherw
presenting a docume
to all interested part
ha\e been complied
arising under articles
( 2) Unless othel'"\\
collecting or issuing b
for payment under
by a collecting bank
a document warrants
under articles 7 and 8
28 :5-112. Time a
hono:r
(1) A bank to whl
is presented underac
or credit

77 STAT.]

'

PUBLIC LAW&. .A3-DEC. 30, 1963

that of its ('\lsto11nr ('01\tinue for a reasonable ti1ne 11ot exceedi11/,!

thirtv davs to obtai11 sud1 evidence.
pq I (the Zr.:>dit is not a 11otation credit
(a) the is~m.:>r may honor complying- <lra fts or <lema1Hls for
payn~ent presented. to it in the order in whi<'h they are presente<l
and 1s <l1schar/.!ed pro tanto by honor of any such draft or
(lemand;
(b) as between competing good faith purchasers of complyin/.!
drafts oi <lemands the person first purchasing has priority over
a subsequent purchaser even though the later purchased draft or
demand has been first honored.
28 :5-109. Issuer's obligation to its customer
( 1) An issuer"s obligation to its customer includes good faith and
olisernmce of any &"eneral banking usage but unless otherwise ngree(l
(loes not include liability or responsibility .
(a) for performance of the underly mg contract for sale or
other transaction between the customer and the beneficiary; or
(b) for any act or omission of any person other than itself or
its own branch or for loss or destruction of a draft, demand
or document in transit or in the possession of others; or
(c) based on knowledge or lack of knowledge of any usag-e
of any particular trade.

(:2) An issuer must examine documents with care so as to ascertain

that on their face they appear to comply with the terms of the
credit but unless otherwise agreed assumes no liability or responsibility for the genuineness, falsification or effect of any document
which appears on such examination to be regular on its face.
(3) A non-bank issuer is not bound by any banking usage of
which it has no knowledge.
28 :5-110. Availability of credit in portions; presenter's reservation of lien or claiin
( 1) l_;nless otherwise specified a credit may be used in portions
in the discretion of the beneficiary.
(2)1 Unless otherwise specified a person by presenting a documental}' draft or demand for payment under a credit relinquishes
upon its honor all claims to the documents and a person by transferring such draft or demand or causing such presentment authorizes
such relinquishment. An explicit reservation of claim makes the
draft or demand. non-complying.
28:5-111. Warranties on transfer and presentment
(1) tJnless otherwise agreed the beneficiary by transferring or
presenting a documentary draft or demand for l?ayment warrants
to all interested parties that the necessary condit10ns of the credit
have been complied with. This is in addition to any warranties
arising under articles 3, 4, 7 and S..
(2) Unless otherwise agreed a negotiating, advising, confirming,
collecting or issuing bank presenting or transferring a draft or demand
for payment under a credit warrants only the matters warranted
by a collecting bank under article 4 and any such bank transferring
a document warrants only the matters warranted by an intermediary
under articles 7 and 8.
28 :5-112. Time allowed for honor or rejection; withholding
honor or rejection by consent; "presenter"
(1) A bank to which a documentary draft or demand for payment
is presented under a credit may without dishonor of the draft, demand,
or credit

711

.I'.

'.

PUBLIC LAW 88-243-DEC. 30, 1963

712

[77 STA_:

(a} tlefer honm until the dose of the tl1inl liankingday following receipt. of the do<'lllllellts: aml
(b) further defer honor if the presentN ha:-: expressly or
impliedly consented thereto.
Failure to honor within the time here speeifie.d constitutes 1fo,J10nor of
the. draft or demand nml of the cre<lit.
(2) {)pol). dishonor the bank mnv 11nle:;s otherwise inst11wted fulfill its duty to return the draft or demnnd and the documents by holding them at the disposal of the presenter and sendin~ him an ad dee to
that effect.
(3) "Presenter.. means any person presenting n draft or demand for
payment for honor under n credit e\en thongh that person i;.; a l'onfh1n1H,!! bank or other e01-respomlent "hirh is nrting under an i;.;s11er's
nut horization.
28 :5-113. Indemnities
(1) A bank seeking to obtain (whether for itself or another) honor.
negotiation or reimbursement under n credit may :,!iH an indemnin;
to.mduce. such honor, negotintion or reimbursement.

(2) An indemnity ag-reement inducing honor, negotiation or reimlmrsement

(a) unless otherwise explicitly a.irreed applies to defects in
the documents but not .in the jeoods: and
(b) unless a longer time. is explicitly agreed expires nt the end
of ten business days following receipt of the. documents by the
ultimate customer unless notice of objection is sent before such
expiration date. The ultimate customer may send notice of objection to the person from whom he received the documents and any
bank receivintr such notice is under a dntv to send notice to its
transferor before its midnight deadline.
.
28:5-114. Issuer's duty and privilege to honor; right to reim-

,.......,,~~

-~-c

. bursement

(1) An issue.i must honor a draft or demand for payment. which

complies with the tern1s of the relevant.credit regardless of whether
the goods or 9.ocuments conform to the underlying contrnct for sale
or other contract betw.een the customer and the henefkiary. The
issuer is not excused from honor of s1ich a draft or demand by reason
of an additional generni term that all documents must. be satisfactory
to the. i~uer, but ~:n issuer may require that specified documents. must
he satisfactory to 1t.
(2) Fnless otherwise ngreed when documents appear on their.face
to comply with the terms of a credit hut a required document does not
in fact conform to the warranties mi1de on ne~otiation or trnnsfe1.. of
:i d6cument of title (Se('tion :28:7-507) or of a se('uritv (section
:!8 :8-306) or is forged or fraudulent or there is fraud in.the transaction
.( il) the issuer must honor the drnft or demand for payment
if honor is demanded by a negotiating bank or other holder of
the draft or demand which has taken the draft or demand U11der
the credit and under circumstances which would make ir a holder
in due ~ourse (section 28 :3-'-302) and in an af p~opriate case would
make it a person to whom a <loenment o title has been duly
negotiated (section 28 :7-502) or a bonil fide purchaser of u.
security (section 28 :8-::-302) ; and
(b) in all other cases as against its customer, an issuer acting
in good faith may honor the <lmft. or demand for payment despite
notification from the. customer of fraud, forgery or other defect
not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.

77 STAT.]

PUl

(3) rnless otherw

draft or demand for
of any pavment mac
a.vailable funds not I:
a nee made under the
(4) (5) (Omitted.)

28 :5-115. Remed)
pudia
( 1) When au issu
payment presented m
respect to any docun
seller (section 28 :2amount of the draft
under section 28 :2-but less any amount
the subject matter of
utilization is made
i1wolved in the tram
ment of judgment.
( 2) When an iss1
a. credit before prese1
under it the benefici:
l'epudiation by the b
repudiation in time i
documents. Otherwi
for wrongful dishon<
28 :5-116. Transf
(1) The right to d
only when the crec
assignable.
(2) Even thought
able or nonassignabl
conditions of the ere
ment is an assignme:
transactions and is g
(a) the assig1
ad vice of credit
stitutes perfecti(
(b) the issuer
under the credit
signed by the b
involved in the
assignee; and
(c) after.wh3
been received t1
or pay even to a
of credit or adv
(3) Except where
to draw or his right t
to transfer or negoti

28 :5-117. Insolvt
credi
( 1) Where an iss
which has for a cm
bank becomes insolv
<"redit is one to whi
(a) or (b) of sectirn

~,

77 STAT.

PUBLIC LAW 88-24:

iEC. 30, 1963

(3) rnless otherwise agreed an issuer which has duly honored a

draft or demand forJ)ayment is entitled to immediate reimbursement
of a,ny pavment ma e nuder the credit and to be put in elfeltivelY
a.vailable funds not later ~lum the day before maturity of any aeceptance made under the credit.
(4) (5) (Omitted.)
28 :5-115. Remedy for improper dishonor or anticipatory repudiation
( 1) W'hen an issuer wrongfully dishonors a draft or demnll(l for
payment presented under a credit the person entitled to honor has with
respect to any documents the rights of a person in the position of a
seller (section 28 ::2-707) and may recover from the issuer the face
amount of the draft, or demand to~ether with incidental damages
under section :28 :2--710 on sellers mcidental damages and interest
but less any amount realized by resale or other use or disposition of
the subject matter of the transaction. In the event no resale or other
utilizatwn is made the documents, goods or other subject matter
involrnd in the tmnsaction must be turned over to the issuer on payment of judgment.
(2) "hen an issuer wrongfully cancels or otherwise repudiates
a credit before presentment of a draft or demand for payment drnwn
under it the beneficiary has the rights of a seller after anticipatory
repudiation by the buyer under section 28 :2--610 if he le..'lrns of the
repudiation in time reasonably to avoid procurement of the required
documents. Otherwise the beneficiary has im immediate right of action
for wrongful dishonor.
28 :5-116. Transfer and assignment
( 1) The right to draw under a credit can be transferred or assigned
only when the credit is expressly designated as transferable or
assignable.
,
(2) Even though the credit specifically states that it is nontransferable or nonassignable the beneficiary may before performance of the
conditions of the credit assign his right to proceeds. Such an assignment is an assigmnent of a contract right under article 9 on secured
transactions and is governed by that article except that
(a) the assignment is ineffective until the letter of credit or
advice of credit is delhered to the assignee which delivery constitutes perfection of the security interest under article 9; and
(b) the issuer may honor drafts or demands for payment drawn
under the credit until it receives a notification of the assignment
signed by the beneficiary which reasonably identifies the credit
involved in the assignment ,and contains a request to pay the
assignee; and
( c) after what reasonably appears to be such a notification has
been received the issuer may without dishonor refuse to accept
or pay even to a person otherwise entitled to honor until the letter
of credit or adnce of credit is exhibited to the issuer.
(3) ExceJ?t where the beneficiary has effectively assigned his right
to draw or his right to proceeds, nothing in this section limits his right
to transfer or negotiate drafts or demands drawn under the credit.
28 :5-117. Insolvency of bank holding funds for documentary
credit
(1) Where an issuer or an advising or confirming bank or a bank
which, has for a customer procured issuance of a credit by another
hank becomes insolvent before final payment under the credit and the
credit is one to which this article is made applicable by paragraphs
(a) or (b) of section 28:5-102(1) on scope, the receipt or allocation

PUBLIC LAW 88-243-DEC. 30, 1963

714

[77 STAT.

775TAT.]

of funds or collateral to secure or meet oblignticms under the credit

shall have the following results:
(a) to the extent of any funds or collateral turned o\er after
or before the insolvency as indemnity against or specifically for
the purpose of payment of drafts or demands for payment drawn
under the designated credit, the drafts or demands are entitled
to payment in preference over depositors or other general creditors
of the issuer or bank; and
(b) on expiration of the credit or surrender of the beneficiary's
rights under it unused any person who has given such funds or
collateral is similarly entitled to return thereof.; and
( c) a charge to a general or current account with a bank if
specifically consented to for the purpose of indemnity against
or payment of drafts or demands for payment drawn under
the designated credit falls under the same rules as if the funds
had been drawn out in cash and then turned over with specific
instructions.
(2) After honor or reimbursement under this section the cucstomer
or other person for whose account the insohent bank has acted is
entitled to receive the documents involved.

ARTICLE 6-BULK TRANSFERS

See.

28 :6-101. Short title.

28 :6-102. '"Hulk transfer"; trnusfers of equipment; enterprises subject to this
article ; bulk transfers subject to this article.
28 :6-103. Transfers excepted from this article.
28 :6-104. Schedule of property, list of creditors.
28 :6-105. Xotice to creditors.
28:6-106. (Omitted.)
28 :6-107. The notice.
28 :6-101:\. Auction sales; '"auctioneer"
:!8 :6-100. What creditors protected.
28 :6-110. Subsequent transfers.
:IB :6-111. Limitation of actions and le\ies.
Citation or a...
t!ele.

28 :6-101. Short title

This article shall be known and may be cited as Uniform Commercial Code--Bulk Transfers.
28 :6-102. "Bulk transfer''; transfers of equipment; enterprises

subject to this article; bulk transfers subjeet to

this article
( 1) A "bulk transfer~' is any transfer in bulk and not in the
ordinary course of the transfemr's business of a major part of the
materials, supplies, merchandise or other inventory (section 28 :9109) of an enterprise st1Lject to this article. (2) A transfer of a substantial part of the equipment (section
~8 :9-lOV) of such an enterprise is a bulk tmnsfer if it is made in
connection with a bulk transfer of inventor,v, but not otherwise.
(3) The enterprises subject to this article are all those whose
principal business is the sale of merchandise from stock, including
those who manufacture what they sell.
( 4:) Except as limited by the following section all bulk transfers
of goods located within the District are subject to this article.

28 :6-103. Transfers excepted from this article

The following transfers are not subject to this article:
(1) Those made to give security for the performance of an
obligation;
(2) Geneml assignments for the benefit of all the creditors of the
trn.nsferor, and subsequent transfers by the aS8ignee thereunder;

12

: ::i::::;

/~"(

PUE

(:~) Transfers in !:ie

interest;
( -J.) Sales by execu
ruptcy, or any public
( 5) Sitles made in 1
ings for the dissolut
which notice is sent
order of the court or 11
( 6) Transfers to a
in the District who bt
in full. and gives pul:
becommg so bound;
(7) A transfer to :
nnd continue the busi
and the new enterpr
receives nothing fror
t>nterprise junior to 1
( 8) Transfers of r
Public notice unde
liy publishing once a
of general circulntim
lrnsiness in the Dist1
:lddresses of the tm1
the transfer.
28:6-104. Schedu
( 1) Except as pro1
108), a bulk transfer
('reditor of the transf
(a) The trnm
his existing cred
(b) The parti
sufficient to iden
( c) The trun
months next fo
either or both :i1
nny creditor of 1
office of the Reci
(2) The list of c1
Ly the transferor or l
nd<lresses of all ere<
known. and also the
teror to assert t' hti
disputed. If the trr
bonds, debentures or
the list of creditors
indenture trustee an
the issue.
( 3) Responsibilit
of creditors rests or
ineffective by error
shown to have had l
28:6-105. Notice
In addition to t
bulk transfer subjei
(section 28 :6-108)
feror unless at leas1
or pays for the~, w
of the transfer m t
(section 28 :6-107)

77 STAT.]

PUBLIC LAt. dS-243-DEC. 30, 1963

. (:l) Transfers i11 sPttlt>lllt>llt Ol' I"ealization of n lit.111 or othl:'r ;;;ecnrity

mtl:'l'est :
(-l) Sales by execntors, administmton;. I"e<'ei,el's, trustees in bankruptcy, or any public officer under judieia I process:
{5) Sales made in the eonI"se of judicial or ndministrative proceedings for the <lissolution or reorganization of a eorpol'ntion and of
which notice is sent to Jhe creditors of the corporation pursuant to
order of the con rt or n<lministratiye n.g~ncy:
(6) Transfers to n person nuuntnmmg n known place of business
in the District who becomes bound to pay the debts of the transferor
in full and giYes publit notice of thnt fact, aud who is so]yent after
becoming so bound;
( 7) A transfer to a new lmsiness enterprise or~anized to take over
nnd continue the business, if public notice of the tmnsaction is given
and the new enterprise assn mes the debts of the transferor and he
receives nothing from the trnnsnction except an interest in the new
"'nterprise junior to the claims of creditors;
( 8) Tnmsfers of property which is exempt from execution.
Public notice under subsection ( 6) or subsection ( i) mny be given
hy publishing once a week for two consecutive weeks in a newspaper
of general circulntion where the transferor had its principal place of
lmsmess in the District an adrertisement indnding the names and
:'1ddresses of the transferor nnd transferee nnd the effective date of
1he transfer.
28 :6-104. Schedule of property, list of creditors
(1) Except as prodded with respect to auction sales (section 28 :6108), a bulk transfer subject to tlus article is ineffective against any
l'reditor of the transferor unless:

(a) The trnnsferee requires the transferor to furnish a list of

his existing creditors prepared as stated in this section; and
(b) The parties prepare a schedule of the property ttansferred
sufficient to identify it; and

( c) The transferee preser,es the list nnd schedule for six

months next following the transfer and permits inspection of
either or both 1tnd copying therefrom at all reasonable hours by
any creditor of the tmnsferor, or tiles the list and schedule in the
office of the Recorder of Deeds of the District.
(2) The list of creditors must be signed and sworn to or nffirmed
Ly the trnnsferor or his agent. It must contain the names and business
addresses of all creditors of the transferor, with the amounts when
known. and also the names of aT! persons who nre known to the transferor to assert elnims against him e\en though such claims nre
disputed. If the t1~rnsferor is the obligor of an outstanding issue of
Louds, debentures or the like as to which there is an indenture trustee,
the list of creditors need ineh1de only the name and address of the
indenture trustee and the nggregnte outstanding principal amount of
the issue.
(3) Responsibility for the completeness and accumcy of the list
of creditors rests on the transferor, nnd the transfer is not rendered
ineffective by errors or omissions therein unless the transferee is
shown to have had knowledge.

28 :6-105. Notice to creditors

In addition to the requirements of the preceding section, any
hulk transfer subject to this article except one made by auction sale
(section 28 :6-108) is ineft'ectiYe against any creditor of the transferor unless at least ten days before he takes possession of the ~oods
or pays for them, whiche\er happens first, the transferee #{ives notice
of the transfer in the mi1.11ner and to the persons hereafter provided
(section 28 :6-107).

715

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(Omitted.)
28:6-107. The notice
(1) The notice to creditors (section 28 :6-105) shall state:

(a) that a bulk transfer is about to be made; and

(b) the names and business addresses of the trnnsferor and
tnmsferee, and all other business names and addresses used
hy the transferor within three years last past so far as known to
the transferee; and
(c) whether or not all the debts of the transferor are to be
paid in full as they fall due as n result of the transaction, and
1f so, the address to which creditors should send their bills.
(2) If the debts of the transferor are not to be paid in full as they
fall due or if the transferee is in doubt on that point then the notice
:-hull state further:
(a) the location and genernl description of the property to
he transferred imd the estimated total of the transferor's
debts;
(b) the address where the schedule of property and list of
creditors (section 28 :6-104:) may be inspected;
(c} whether the transfer is to pay existing debts and if so
the amount of such debts and to whom owing;
(d) whether the transfer is for new eonsideration and if so
the amount of such consideration and the time and place of
payment.
(:~) The notice in nny <'nse shall be delivered personally or sent
h\ registered or certified mail to all the persons shown on the list of
ei:editors furnished by the transferor (section ~R:fi-104) and to all
other persons whoarn known to the transferee to hold or assert claims
against the transferor.
28 :6-108. Auction sales; "auctioneer"
{1) A bulk trnnsfe1 is subject to this nrticle even though it is by
:-ale at auction, but onlv in the manner and with the results stated in

this section.
(2) The transferor shall furnish a list of his creditors and assist
in the preparation of a schedule of the property to be sold, both prepu.red us before stated (section 28 :6~104).
(3) The person or persons other thirn the tnmsferor who direct,
rnntrol or are responsible for the auction nre collectively called the
';mwtioneer''. The auctioneer shall:
(a) receive and retain the list of creditors and prepare and
retain the schedule of property for the period stated in this article
(section 28 :6-104):
(b) g-ive noti<'e of the auction personally or by registered or
certified mail at least ten days before it 0ccurs to all persons
shown on the list of creditors and to all other persons who are
known to him to hold or assert claims against the transferor.
( 4) Failure of the auctioneer to perform ii.ny of these duties does
!IOt affect t.he validity of t11e sale or t.he title of the purchasers, but
if the auct10neer knows that the auction constitutes a bulk transfer
such failure renders the auctioneer Jiahle to the creditors of the
transferor as a class for the sums owing to them from the transferor
n.p to but n~t exceeding the net proceeds of the auction. If the auct10neer consists of several persons their liability is joint and several.
28 :6-109. What creditors protected
(1) The creditors of the transferor mentioned in this article are
those holding claims based o~ transactions or events occurring before
the bulk transfer, but creditors who become such after notice to
~28:6-106.

77

STAT.]

PUBLIC

c:reditors i~ given (sertio11

to notice.
(2) (Omitted.)
28 :6-110. Subsequent
when the title of a tra
reason of his non-compli
then:
( 1 ) a purchaser o
who pays no value ,
pliance takes subject
(2) a purchaser
notice taKes free of s
28 :6-111. Limitation
No action under this 1
than six months after tl
sion of the goods unle~
transfer has been concer
within six months after

ARTICLE r/-WAI
LADING AND 0
See.

28 :7-101.
28 :7-102.
28 :7-103.
28 :7-104.

Short title.
Definitions and i
Relation of artic
Negotiable and
other docwne1
2S :7-10::>. Construction ag.
PART 2-WAF

28 :7-201. Who may issm

bond.
28 :7-202. Form of warehc
28 :7-203. Liability for no
28 :7-204. Duty of care;
28 :7-205. Title under wa1
28 :7-206. Termination of
:is :7-207. Goods must be
28 :7-208. Altered wareho
28 :7-209. Lien of warehc
!!8 :7-210. Enforcement o1
PART3-1

2:-< :7-301. Liability for

28 :7-802.
28 :7-803.
28 :7-304.
28 :7-805.
28 :7-806.
28 :7-807.
28 :7-308.
28 :7-809.

"shipper's Jo;
Through bills c
Diversion; rec
Bills of lading
Destination bil
Altered bills o:
Lien of carrie1
Enforcement o
Duty of care;

I'ART 4--WAREllOUSE R

28 :7-401.
28 :7-402.
28 :7-403.
28 :7-404.

Irregularities
Duplicate rece
Obligation of
No liability f

~',
77 STAT.]

PUBLIC LAW St,

J~-DEC.

30, 1963

r:reditors is l!iren (sect ions 28 :fi-105 :rnd 28 :f-107) nre not entitlecl
to notice.
(2) (Omitted.)
28 :6-110. Subsequent transfers
when the title of a transferee to property is subject to a defect by
reason of his non-compliance \Yith the requirements of this article,
then:
( 1) a purchaser of any of such property from such transferee
who pays no value or \~ho takes with notice of such non-compliance takes subject to such defect, but
(2) a purchaser for value in good faith and without such
notic~ takes free of such defect.
28 :6-111. Limitation of actions and levies
No action under this article shall be brought nor levy made more
than six months after the date on which the transferee took possession of the goods unless the transfer has been concealed. If the
transfer has been concealed, actions may he brought or leYies made
within six months after its discovery.

ARTICLE '7-WAREHOUSE RECEIPTS, BILLS OF

LADING AND OTHER DOCUMENTS OF TITLE
PART 1-GEXER.A.L

Sec.

Short title.
Definitions and index of definitions.
Relation of article to treaty, statute, tariff, classification or regulation.
Negotiable and non-negotiable warehouse receipt, bill of lading or
other document of title.
!!S :i-10.:>. Construction against negative implication.

28 :i-101.
28 :7-102.
28 :7-103.
28 :7-104.

PART 2-,VA.REHOUSE RECEIPTS: SPECIAL PRO\'ISIOXS

28 :7-201. ""ho n1ay issue a warehouse receipt; storage under goYernruent

bond.
28 :i-202. Form of warehouse receipt; essential terms; optional terms.
28 :7-203. Liability for non-receipt or lllisdescription.
28 :7-204. Duty of care; contractual limitation of warehouseman's liability.
28 :i-205. Title under warehouse receipt defeated in certain cases.
28 :7-206. Termination of storage at warehouseman's option.
:!8 :7-207. Goods must be kept separate; fungible goods.
28 :7-208. Altered warehouse receipts.
28 :7-209. Lien of warehouseman.
:!8 :7-210. Enforcement of warehouseman':; lien.
PART 3---BILLS OF LADING; SPECIAL PROVISIO:li!S

2X :7-301. Liability for non-receipt or misdescri11tion; "said to contain";

''shipper's load and count" : improper handling.
:!8 :7-302. Through bills of lading and similar documents.
28 :7-303. Diversion; reconsignment; change of instructions.
28 :7-304. Bills of lading in a set.
28 :7-305. Destination bills.
28 :7-306. Altered bills of lading.
28 :7-307. Lien of carrier.
28 :7-308. Enforcement of carrier's lien.
28 :7-309. Duty of care; contractual limitation of cnrrier's liability.
I'ART 4--WAREIIOUSE

28 :7-401.
28 :7-402.
28 :7-403.
28 :7--404.

RECEIPTS AND BILLS OF LADING: GENERAL OBLIGATIONS

Irregularities in issue of receipt or bill or conduct of issuer.

Duplicate receipt or bill; overissue.
Obligation of warehouseman or carrier to deliver; excuse.
No liability for good faith dell.,.ery pursuant to receipt or bill.

717

718

PUBLIC LAW 88-243-DE.C. 30, 1963

[77

77 STAT.]

STAT.

ARTICLE 7-WAREHOUSE RECEIPTS, BILLS OF

LADING AND OTHER DOCUMENTS OF TITLEContinued

( :~) lJetinitions i
~edions in which tl

"Contract fo
"0,erseas" s
"Receipt"' of
( .J.) In addition ~
l'.rn-r :-.--\\'An:11onu: HEn:1PTs .\:>ll BI1.1.1-1 o~ LAm:>o: XKGOTIATIO:"! A:St> Tll.\Nsn:1:
of
eonstruction nnd
See.
:!8 :7-:JOl. Form of 1wgotiado11 1111(1 re1111irt>u1111ts of "due negotiation ...
28 :7-103. Relati
:!8 :7-:iO:!. Rights ae1111iled LJ~ due negotiation.
cati1
:!X :7-:-,oa. noemneut. of title to goo<ls deft'nhd in eert11i11 eases.
To the extent that
:!I') :7-;:i04. Ri;.:bts nequirt>d in the nhst>IWe of due nt>gotiation: efrl:'l.!t of <liYPr,;ion;
sellt>r's ;;top1mge of dt>linr~-.
tory statute of the
:!8 :7-:JI);). Iudorser not n guarantor for othe1 pa1'tie><.
or
issued pursuant t
:.!S :7-500. Dt>live1y without indor:<t>lllt>llt: right to tom1iel indorsement.
a1e subjeet thereto.
:.!8 :7-J07. Wnrrantit>>< on llt>;.(otintiou or trirnsft1 of reeeipt or bill.
:!8 :7-508. \\'arrantiei;; of <'ollecting bunk as to documents.
28 :7-104. Negot
:!8 :7-509. Receipt 01 I.Jill: when adequate complian<'e with commercial contract.
of I.
l'ART 6--\VAREHOUSE RECEIPTS AND BILLS OF LADING: )!ISCEl.l.ANEQC:S PROVISIO:\'K
( 1) A warehouse
1wgotiable
:.!8 :7-601. Lost and 111i;;:-1ing cl1KUmt>11t:<.
(a) if by its

:.!8 :7-60:!. Attndnnent of iroods covt>recl lJy a negotiablt document.

:!8 :7-603. Confikting <'laims: interpleader.
the order of a l
(b) where rE
PARTl-GENERAL
person or assig:
( 2) Any other d
28 :7-101. Short title
7
which it is stated ti
1
Citation of arThis article shnll be known and may be l'ite<l as Uniform Commer/)&,, .
not made negotiablE
ticle.
(t.inl Code--Documents of Title.
~ .'
only against. ii writ
person.
.A,,,;.TP 28:7-102. Definitions and index of definitions
i
28 :7-105. Consti
~~
(1) In this article, unless the context otherwise re<1uites:
The omission frrn
;~tfW
>"'
-- (a} "Bailee~ meims the person ,\ho by a wnrehouse receipt~ ..-pC~
l ,().,
bill of lading or other document of title i~cknowled~s possession .;1 1tJ---;::: b .- Yision correspondin,
pt I""
of goods and contrilcts to deli\er them.
t5 d .....-_ imply that a corresJ
....- (b) "Consignee'' m~ans t~e. person. named in a bill to whom
~:
.. ~n ti,__...
] t,.>;O
1
or to whose order the bill promises delivery.
c.. v'V - ;
PART 2-WAREH
. ,,;
- ( c) "Consignor' means the person nnmed in a bill as the
,
28:7-201. Who n
f;k S /)<.person from whom the ~oods ha,e been received for shipment.
:
gove
_,..,.- (d) "Delivery order' means a written order to deliver goods
(1) .\warehouse
4 cf"{.,,
directed to a warehouseman, cnrrier or other person who in ti1e
( 2) Where goods
J
01dinary course of business issues warehouse receipts or bills of
mo<lities nre stored
lading.
drnwnl or a license :
--;:z-- (e) "Documenf~ means document of title as defined in the
. house receipts, a re<'
y J;,'
general definitions in article 1 (section 28 :l-201).
house l'El<'eipt even t:
{} . ~ .h __;.. (f) "Goods~' means all things which are trented as mornble
/ /'"'.-;"' I ;tl,,4'-l for the purposes of a contract ot storage 01 trn,nsportation.
goods and is not n ''
t
~~(g) "Issuer'~ means a bailee who issues a document except
28 :7-202. Form t
-"// f; r'
that in reln.tion to an unaccepted delivery order it means the
term
{Jpf/ ft/ '!
~
person who orders the possessor of goods to deliver. Issuer in(1) A warehouse
L:"r f"f/[ tJI' eludes a.n
erson for whom an ~ent or employe~ purpiitijtO act
(2) Unless a wa
/ "1
Pin issuing a ocument if the agent or employee has real or apprinted terms each
parent authority to issue documents, notwithstanding that the
dumages caused by tl
issuer received no goods or that the goods were misdescribed or
(a) the locat:
that in any other respect the agent or employee violated his
;
.
(b)
the date
instructions.
/fl
i
/J
1 (c) the conse
. - - (h) "Warehouseman" is a person engaged in the business of :-- cvm_ce.rct v ~z:: 1ft'(d)
a statem
storing goods for hire.
?vi}-"(/2
t:.<--Lr.:-J to the bearer, to
(2) Other definitions applying to this article or to specified parts
i..... t /J e C~5;pc;:- order;
thereof, and the sections in which they appear are:
:
(e) the rate o
"Duly negotiate" section 28 :7-501.
goods are store(
"Person entitled under the document" section 28 :7-403( 4).
ment of that fact

ft

.f-J

/) /rv"'

,;ttt ""Ts

''.:

-.

/""'~,

77 STAT.]

PUBLIC LAW,._ ~43-DEC. 30, 1963

719

1:1) l>etiniti011s i11 other artieles appl:ing- to this arti<'lt antl tlw
st-dions in which they nppeat are:
"Contract fot snle' section 28 :2-106.
"0,ei'Se.as" section 28 :2-32:3.
"Receipt" of goods section 28:2-10:!.
( +) In add it ion :utide 1 cont a ins genera I de fin it ions nn<l pri Ill' i pies
of con st ruction and interpt-Ptation n pplit'a hle th mnghout th is a 1t tcle.
28:7-103ielation of article to treaty, statute, tariff, cJassifi~

cation or regulation

To the ext nt that.~ treaty or statute of the r nitf.!..L.S.t.ates, regulatory statute of the Distric.t. or tariff, classification or regulation filed
or JSsue<l pursuant thereto is applicable, the proYisiom; <if this a 1tiel<>
a re ~nbject thereto.

28 :7-104. Negotiable and non-negotiable warehouse receipt, bill

of lading or other document of title
(1) Awnrehouse rel'eipt, bill ofladingorotherdocnment of title is
11eg:otinble

(a.) if by its terms the goods nre to be delin~red to bearer or to

the order of n name<l person; or
(b) where recogmze<trilO,ersens tmde, if it runs to a nnm~l
person or assigns.

(2) ~"lny 0th.er document is non-negotiable. .\. bill of lading i11

which it is stated that the goods are consigned ton m1med person is
not made negotinble by a p1;ovisio11 that the goods are to he delhered
011 ly against. a written order signed by the same or 1rnot ht!r named
person.
~ 28:7-105. Construction against negative implication
The omission from either part. 2 or part 3 oft his article of a proYision corresponding to a provision mi:tde in the other pnrt does not
imply that. a corresponding r~le of law is no_!:}ll~1k!tl~Je.

/t;f-J 12-L
7

2--?

///JJ;~
.f4-n,1 e,../,.,~
J...:'4-->
45 ~V L
,;A,!

/':.t.

h ..~ti-' , 1
/tj/~-

PART 2-WAREHOUSE RECEIPTS: SPECIAL PROVISIONS

28:7-201. Who may issue a warehouse receipt; storage under

govern1n:ent bond .

k.-

(1) A warehouse receipt may be issued by any warehouseman. - 0~-~ ~

( 2) Where goods including distilled spirits and agricultural com. ;.,_ d
lllO<lities lll'e Stored U!lder a Statute requiring ti bond I\ ainst With~IV
drn.wnl or a licc1se for the issuance of receipts 111 t 1e\J.uliJ1re f ":!'!.f_e..:
house receipls, a receipt issued for the goods has like effect ns a warelilluse-1~e<.-:eipt even though issued by a person who is the owner of the
:,roods and is not a wnrehouseman.

r .

28 :7-202. Form of warehouse receipt; essential terms; optional

terms

1J

( 1) A warehouse rec~ipt need not be in any particular form. ~ l'?.l<

(2) Unless a warehouse receipt embodies within its written or sc..~.J..,
printed terms each of the followmg, the warehouseman is liable for
damages caused by the omission to a person injured thereby:
(a) the location of the warehouse where the goods are stored;
(b) the date of issue of the receipt;
(c) the consecutive number of the receipt;
( d) a statement whether the goods received will be delivered
to the bearer, to a specified person, or to a specified person or his
order;
(e) the rate of storage and handling charges, except that where
goods are stored under a field warehousing arrangement a statement of that fact is sufficient on a non-negotiable receipt;

t\-..

_~

p;,,J

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77 STAT~]

STAT.

28 :7-205. Title under

cases
(I!) the sigw1t11re of the warehouseman, which may be ma1le
A buyer in the ordinary
by his authorized agent;
and delivered by a wareho
{h) if the reeeipt is issued for goods of which the warehouseing and selling such goods
man is owner, either solely or jointly or in common with others,
receipt even though it has l
the faC't of sueh ownership; and
.
I
_

28 :7-206. Termination
(i) a statement of the amount of advances made and Q:f...1.ia:
Pe
J1.
[;
<';)
( 1) A warehouseman m:
bilities inC'urred for which the warehouseman claims a lien or
3 . I f, J the goods are held and an
s~curitv interest (seetion :.28:i-2U9). If the precise amount of
/ .,.,p
.,-;,
in the,O'oods require paym1
such aarnnces made or of such liabilities incurred is, at the time
from the warehouse at th
of the issue of the receipt, unknown to the warehouseman or to
by the document, or, if nc
his ai;rent who issues it, a statement of the fad that adrnnces have
less
than thirty days aft
been made or liabilities incurred and the purpose thereof is
removed before the date '
. sufficient.
man may sell them in ac<
(:3) A wnrehousemim may insert in his reeeipt any other terms which
on enforrement. of a wnre1
ire not contrary to the provisions of this subtitle and do not impair
(2) If a warehousemai
iis oblii:ration of delivery (section 28 :7--:l:O:n or his duty of cnre (seea.bout to deteriorate or de
ion :28:7-204). Any contrary prmisions shall be ineffective.
/,
"f (...J
lien within the time pn
28 :7-203. Liability for non-receipt or misdescription
/ t: f!,,1-1, tJ
ndYertisement nnd sale, tIA party to or purchaser for value in good fnith of a document of ;)ft1!'
tion any reasonable short
title other than a bill of lnding relying in either case upon the de1he goods are not remove
scription therein of the goods mi1y recmer from the issuer damages
than one week after a sii
caused by the non-receipt or misdescription of the goods, except to
(3) If as a result of a
the extent that the document conspicuously indicates that the issuer
the warehouseman had n
does not know whether anv part or all of the goods in fact were!
a hazard to other prop
received or conform to the aesrription, as \~here the description is in
warehouseman may sell
terms of marks or labels or kind, quantity or condition, or the receipt
advertisement on reasonll
or description is qualified by "contents. condition and quality unan interest. in the goodE
known'~, "said to contain'' or the like, if such indication be true, or
effort is unable to sell th1
the party or purchaser otherwise has notice.
manner and shall incur 1
( 4) The warehousem:
28 :7-204. Duty of care; contractual limitation of warehousetitled to them under thi
man,s liability
prior to sale or other disf
( 1) A warehouseman is liable for dama s for loss of or inj urv to
( 5) The warehousem:
the goods caused by his rn ure to exe
such care in r~arg_to
any
sale or disposition
fliem as a reasonably careful man would exercise under like cirfor
delivery
on the der.
cumstances 6ut unless othenv1se agreed he is not liable for damages
been
bound
to
deliver thi
which could not have been avoided by the exercise of such care.

28:7-207.
Goods
mui
(2) Damages may be limited by a term in the warehouse receipt
or storage agreement limiting the amount of liability in case of loss
(1) linless the warel
or damage, and setting forth a specific liability per article or item,
man must kee(l separat
or value per unit of weight, beyond which the warehouseman shall
permit a.t all hmes ide:
not be liable: Provi4ed, however, That such liability may on written
that. different lots of ft
request of the bailor at the time of signing such storage agreement
(2) Fun~ible goods
or within a reasonable time after receipt of the warehouse receipt
persons entitled theret
be increased on part or all of the goods thereunder, in which event
each owner for that c
increased rates may be char~ed based on such increased ,aluation. but
mass of fungible goods
that no such increase shall oe permitted contrary to a lawful limitawarehouseman has iss1
tion of liability contained in the warehousemanls tariff, if any.
holders to whom over'
Xo such limitation is effecti\e with respect to the warehouseman's
28:7-208. Altered'
liabilitv for conversion to his own use.
'"Where a blank in a
(3) Reasonable provisions as to the time and manner of presentwithout authority, a l
ing claims and instituting actions based on the bailment may be inwant of authority, ma
cluded in the warehouse receipt or tariff. "'JJ
unauthorized alterati4
(4) (Omitted.)
.:::---V
issuer according to its
(f) a desniption of the goods or of the }><ttknges eontnining

them:

l(

PUBLIC

S'

93-on 0-64-48

PUBLIC LAW 88~'-DEC. 30, 1963

77 STAT.]

721

28 :7-205. Title under warehouse receipt defeated in certain

cases
A buyer in the ordinary course of busiues,; of fungible goods sold
nnd deliwred by a warehouseman who is also in the business of buving and selling such goods takes free of any claim under a mnehouse
receipt even. though it has been duly negotiated.
28 :7-206. Termi~ation of storage at warehouseman's option
(1) A warehouseman may on notifying the person on whose 11ccount
the goods are held and any other person kn'n1 to claim an interest
in the,goods require payment of any charges and removal of the goods
from the warehouse at the termination of the period of storage fixed
by the document, or, if no period is fixed, within a stated period not
less than thirty days after the notifieation. If the goods are not
removed before the date specified in the notification, the warehouseman may sell them in accordance with the provisions of the section
on enforcement. of a wnrehonsenurn's lien (section 28:i-210).
(2) If a warehouseman in good faith believes that the goods art>
about to deteriorate or decline m rnlue to less than the amount. of his
lien within the time prescribed in subsection ( 1) for notificatiop,
advertisement and sale, the warehouseman mny specify in the not1ticafion any reasonable shorter time for removal of the goods and in case
the goods are not removed, may sell them at public sale held not less
than one week after a single advertisement or posting.
( 3) If as a result of a quality or condition of the ~oods of which
the warehouseman had no notice at the time of deposit the goods are
n hazard to other property or to the warehouse or to persons, TilF
~seman may ~ITTh-e 1m9ds a~. public or -~".:Uf~J3al~~ with~ut
advertisement on reasonable not1ficat1on to all persons known to claim
an interest in the goods. If the ''arehouseman after a reasonable
effort is unable to sell the goods he may dispose of them in irny lawful
ma.nner and shall incur no liability by reason of such disposition.
( 4) The warehouseman must defoer t.he goods to any person entitled to them under this article upon due demand made at any time
prior to sale or other disposition under this section.
(5) The warehouseman may satisfy his lien from the proceeds of
nuy sale or disposition under this section but must hold the balance
for delivery on the demand of iu1y person to whom he would have
been bound to deliver the goods.
28 :7-207. Goods must be kept separate; fungible goods
(1) 'C'nless the warehouse receipt otherwise provides, a warehouseman must. keel? separate the ~oods coYered by each receipt so as to
permit at all times identification and delivery of those goods except
that different lots of fungible goods may be comming-led.
(2) Fungible goods so commingled are owned in common by the
persons ent.1t.led thereto and tlie warehouseman is severally liable to
each owner for that owner's share. \Vhere because of overissue a
mass of fungible goods is insufficient to meet all the receipts which the
warehouseman has issued against it, the persons entitled include all
holders to whom overissued receipts have been duly negotiated.
28:7-208. Altered warehouse receipts
Where a blank in a negotiable warehouse receipt has been filled in
without authority, a purchaser for value nnd without notice of the
want of authority, may treat the insertion as authorized. Any other
unauthorized alteration leaves any re<'eipt enforceable against the
issuer according to its original tenor.
93-02~

0-64-48

..

~ i,

22

PUBLIC LAW 88-243-DEC. 30, 1963

(77 STAT.

28 :7-209. Lien of warehouseman

( J) .\ wanhm1st:>rna11 has a lien 11gai11:<! tlw hailm 011 the gomls
101ered by n warehouse reeeipt or ou the procee<rs t he1eof in his possession for chnrges for stornp:e or tmnsportation ( i11elmlh1g <lenrnrra.ge
and terminal ch-arges). insmmtce. labor, or charges preseiif or future
iii relation to the goods, and for expenses necessary for preservation
of the goods or reasonably incurred in their snle p1mmant to law. If
the person on whose account the goods are held is liable for like
1lmrges or expenses in relation to other goods whene,er deposited
nud it is ::;tated in the receipt that a lien is ela imed for eharges and
i>xpenses in reliltion to other p:oods, the warehouseman also has a lien
agninst him for such charges nnd expenses whether or nof"the other
:.roods lune been deliwred by the warehouseman. But ngainst a person
to whorn a negotiable wnrehouse reeeipt is duly negotiated n warehonseman 's lien is limited to clrnrg:es in an amomit or at a. rate specified
on the receipt or if 110 dmrges are so specified then to a rensonable
ehnrge for storage of the goods eovered-hv the receipt suhseq11ent to
the(d)ateTo fthere ceipt.
l

.
2
1le ware 110nseman may a so reserve a 8ecn11tv interest against
the bnilor for a maximum amount spee1fied 011 the receipt~
other tlurn those specified in subsection (1), such ns for m01iev
:id vanced a11d i11terest. ~ueh a securitv interest is governed by the
n rtide on secured trnnsnctions ( nrtide 9).
(3) A warehouseman's lien for charges and expenses under subsection ( 1) or a security interest under subsection (2) is also effecthe
:t/,!ainst any person who so entrusted the bailor with posses.'lion of the
g-oods that a pledge of them by him to a good faith purchaser for
rnlue would hin-e been rnlid but is not effecti,e agninst a person as to
whom the document confers no right in the goods covered by it under
:<ection 28 :7- -503.
(4) A warehouseman l@es his lien on any goods which he voluntarily delivers ol which he unjustifiably refuses to deliver.
28:7-210. Enforcement of warehouseman's lien
(1) Except as prodded in subseetio11 (2). a warehouseman's lien
111ny he enforced by public or prirnte sale of the goods in bloc or in
parcels, nt any time or place and on any terms which nre commercially
rensonahle. after uotifving a1l )ersons known to claim an interest in
the go0<_h>. Su<'h not1 'eat10n must me uc en statementofine.amom1f
due, the nature of the proposed sale and the time and place of any
puhlie sale. The fnet that a better price could ha,e been obtained by
a sale at a different time or in a different method from that selected
liy the warehouseman is not of itself sufficient to establish that the
s:;le was not m:tde in a commereially reasonable manner. If the
,,arehouse-man either sells the goods in the usual manner in any reco~Ynizecl n1nrket therefor, or if he sells at the J;rice current in such
nwrket at the time of his sale, or if he has otherwise sold in conformity
with commercially reasonable praetiees among dealers in the type of
:oods sold, he has sold in a commercinlly reasonable manner. A sale
of more goods than ap(>arently necessary to he offered to insure satisfaction of the obligation is not eommercially reaso11able except in
1ases co\ered by the preceding sentence.
(2) A warehouseman's lien on goods other than goods stored~
merchant in the course of his business may be enforced only as follows:
""=
(a) AIJ persons known to claim an interest in the goods must
be notified.
(h) The notifieation must be delivered in person or sent by
Yegistered or eertitied letter to the last known address of any
~to he Hot ified.
.-

77 STAT.]

t:,(. ~<'.'.

!_..

PUB

(e) The notifiea

the da im, a de:,'rrip
for payment withi1
receipt of the notifo
the claim is paid wi
sale and sold by au
(d) The snle mu
(e) The sale mu
where the goods uri
(f) After thee~
an adYertisement <
two weeks consecu
where the sale is t
deseription of the~
they are being he:
sale must take ~la
tion. If there IS I
sale is to be held,
da;rs before the sal
neighborhood of ti
(3) Before any sale
right in the goods ma:
and the reasonable ex~
the goods must not bes
subject to the terms of
( 4) The warehouser
this section.
( 5) A purchaser in
houseman s lien takes t
whom the lien was vali
with the requirements
( 6) The warehouse1
any sale pursuant to th
delivery on demand to
to delher the goods.
(7) The rights pro'
other rights allowed b.
( 8) Where a lien i>
of his business the lien
section (1) or (2).
( 9) The warehouse:
comply with the requ'
of willful violation IS

PART 3-BILLS

t---"--;

28 :7-301. Liability
contai1
handli
(1) A consignee 01
good faith or a hol<
negotiated relying in
l?oods, or upon the di
dama_ges caused by th
descnption of the goc
cates that the issuer
goods in fact were rec
description is in tern
dition or the receipt

...~;~]
77 STAT.]

PUBLIC LAW a.

tc) Thi" 11otitinition 11111,.;t inelnde an itemizNl :;tatPrne11t of

tlw rlaim, a dtwription of tlw good,.; ,.;11hjeet to tht> lien, a dt'nt:11HI
fo1 payment within a peeitied timl' not le;o;s than ten day,; after
rt'eeipt of the notiti<"ation, and a 1onspi111011s statement that 1111less
the dai111 is paid within that time the g-oods will he aih-t>rtised for
sale and sold by amtion at a peeitied time and pla<'e.
(d) The snle must <"Onfonu to the terms of the notification.
(e) The sale must be heldat the ne;\rest ;;;uitable pince to that
where the g-oods are held or stored.
(f) ~\fte1 the expiration of the time given in the notification,
an ndvertiseme11t of the &lie must be published once 11 week for
two weeks consecutively in a newspaper of general circulation
where the sale is to be held. The advertisement must include a
description of the g'()(Xls, the name of the person on whose account
they are being held, and the time and place of the sale. The
sale must. take place at least fiftee-n days after th!' first publication. If there is no newspaper of g-enernl eirc11lntion where the
snle is to be held, the advertisement must be posted at least ten
dnvs be.fore the sale in not less than six conspicuous plnces in the
ne.lg:hborhood of the. proposed sale.
(3) Before anv sale pursuant to this se.('tion an~ person claiming a
right in the goods may pay the amount necessary to satisfy the lien
and the reasonable expenses incurred under this section. In that event
the goods must not be sold, but must be retn.ined bv the wal'ehouseman
subject. to the terms of. the receipt and this nrticle.'

( 4) The warehouseman may buy at any public sale pursuant to

this section.

(5) A purchaser in good faith of gnods sold to enforce a warehouseman s lien takes the ~oods free of nny rights of persons against
whom the lien was valid; despite nonc-0mplinnce by the ware.houseman
with the requirements of this section.
(6) The warehouseman may satisfy his lien from the proceeds of
any sale pursuant to this section but must hold the hnlance. if any, for
delivery on demand to any person to whom he would have been bound
to deliYer the goods.

(7) The rights provided by this section shall be in addition to all

other rights al1owed by law to a creditor ngainst his debtor.
(8) 'Vhere a lien is on ~00<ls stored by :\. merchant in the cO\ll"Se
of his business the lien may be enforced in accordance with either subsection (1) or (2).
(9) The warehouseman is liable for damages caused by failure to
. comply with the requirements for sale under this section and in case
of willful Yiolation is liable for comersion.

PART 3-BILLS

OF

) 723

i-3-DEC. 30, 1963

LADING: SPECIAL PROVISIONS

28 :7:--301. Liability for non-receipt or misdescription; "said to

contain"; "shipper's load and count"; improper
handling
(1) A consignee of a non-negotiable bill who has gh'en yalue in
good faith _or a lrolder to whom a. negotiable bill has been duly
negotiated relying in either case upon t.he description therein of the.
~oods, or upon the da.te therein shown, may recover from the issuer
damages caused by the misdating of the bill or the non-receipt or misdescription of the goods, except to the extent that the document indicaW5 that the issuer does not know whether any part or all of the
goods in fact were received or conform to the description, as where the
description is in terms of marks or labels or kind, quantity, or condition or the receipt or description is qualified by "contents or con-

ifU

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Se::c~47j

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i. j

PUBLIC LAW 88-243-DEC. 30, 1963

724

[77

STAT.

dition of contents of packages unknown'', "said to contain'\ ''ship;Jt>1's

weight load and count .. or the like. if such indicHtion be trne.
(2) \n1en goods are loade<l hy ii.n issuer wl~o is a commo1~ carrier,
1he issuer must count the packages of ~oods if package freight and
ascertain the kind nnd quantity
bulk treight. In such Cll8eS ''shipper's .w~ight, load and count"~ o~ other wo~ds in4icnting that the
description was made by the shipper are metfeetne exeept as to
freight concealed by pnckages.
(3) "'hen bulk freight is loaded by n shipper "ho mnkes nvnilable
to the issuer adequate f:wilities for weighing- sneh freight, an issuer
who is a common carrier must nscertnin the kind and quantity within
a reasonable time after receiving- the written request of the ship~er
to do so. In such cases 'shipper's wei~hf' or other words of hke
purport are ineffective.
.
.
.
.
. .
.
( 4) The issuer may bv msert mg Ill the h1 II the words ''slupper s
weight, load and count" or other words of like purport indiente that
the goods were loaded by the shippe1; and if such statement be true
the issuer shall not be liable for dama(res caused by the improper
loading. But their omission does not im\)ly liability for such damages.
( 5) The shipper shall be deemed to une guaranteed to the issuer
the accuracy at the time of shipment of the des<ription, marks, labels,
number, kind, quantit;, eondition and weight, as furnished by him:
and the shipper shall mdemnify the issuer ag-ninst damage caused by
inaccuracies in such partif'ulars. The right of the issuer to such
indemnity shall in no \Vay limit his responsihility and liability under
the contract of carriage to any person other thai} the shipper.
28 :7-302. Through bills of lading and similar documents
(1) The issuer of a through bill of hlding or other doeument emhodyiug an undertaking to be performed In part by persons acting
as its ngents or by connecting earriers is liable to anyone entitled t<}
recover on the document for any breach by such other persons or by
a connecting carrier of its obligation mHler the document but to the
<xtent that the bill coYers an tmdertnki11g to be performed overseas
or in territory not co11tig-uous to the contii1ental l'nited States or nn
undertakin including nrntters other than transportation this liability
max be varied by agreement of the pnrties.
(2) 'Vhere goodsco,ered by a through bill of lading or other document embodyin.!]: an u11dertakmg to be performed in part by persous
<~t~1er than the 1~uer are received hy any such person, he is subject
w1tl.1 respect to lu.s O\~n pedorm:u1<e wlul~ the ~oo(!s :n:e in his pos::;ess101~ to the obhgat1011 of the issuer. His obhgnt1on is discharged
hy delnery of the goods to a not hel' su('lt person p11 rsuant to the document, and does n_ot include liability for breach hy auy other such
persons or by the issuer.
(3) . The issuer of such through bill of lad in/! or other docmnent. shall
!>e entitle~ to recover from the conneding earrier or snch other person
m possess10n of the p:oods when the breach of the obligntio11 u11der the
doc~ment occurred, the amount it may be required to pay to anyone
tnhtled ~o re~over on the doc11111e1.1t therefor,, as may be evidenced by
:my receipt, Judgment, or transcript thereof, and the amount of any
expense reaso~ably incurred by it in defending any action brouglit
hy anyone entitled to recover on the document therefor.
28 :17-303. Diversion; reconsignment; change of instructions
(1) Unless the bill of Jading otherwise proddes, the carrier may
deliver the goods to it person or destination of.her tlrnn that stated in
the bill or m:iy otherwise dispose of the goods on in!,tr1wtio11s from
(a) the holder of a nep:otiable hill; or

77

PU!

STAT.]

(b) the tonsiir11

contrnry instrut'tic
( c) the eonsign
1ontrnry instructi
arri,ed at the bill
sion of the bill: or
( d) the consigr
against the ronsigi
(:2) rnless s11d1 insing, n person to whom
aecording to the origin
28 :7-304. Bills of 1
( 1) Except where <
lading must not be isi
di1mages ca used by ,ic
(2) 'Vhere a bill of
of which is numbere(
ha Ye not been delivere
1onstitute one bill.
(3) Where a. bill 01
different parts are n
holder to whom the fi
the document and tbE
received the goods fi
1he carrier's obligat.io1
(4) Any person wh
luding drawn in a set
whole set.
( 5) The bailee is ol
article against the fi
drawn in a set. Such
whole bill.
28 :7-305. Destina
( 1 ) Instead of iss\
of shipment a carrie
the bill to be issued ri
the request.
(2) upon ~eq!lest'
the goods wlnle m tr:
lading or other rece
a substitute bill to l:
28 :7-306. Altere
An unauthorized 11
len\es the bill enforc
28:7-307. Lien 01
( 1) A carrier has
charges subseq~1ent '.
or transportation ('
for expenses necessa
transportation or rE
But. a~i~st !!' P!lr<;
carriers hen is hm1
tariffs, or if no char
(2) A lien for ch
which the carrier w
etfective against th
unless the carrier l

.('?:~

77 STAT.]

PUBLIC LAW 88

(b) the eo11sig110t on n

;_:::DEC. 30, 1963

11011-ne~otinble

hill

1101

~5

wit hstandinO'

~ontJiH)' in:->trul'tions from the consignee: or

"
(l'} the .<'Ollsignee 011 a 11011-11e7otinble bill in the nhse1we of

1ontrnry i11:;tnwtio11s from the eonsip:nor, if the goo<ls haw

arrived nt the billed de,.;tination or if the l'Oll1'lignee is in possession of the hill: or
(<l) the consignee 011 11 11011-negotiable bill if he is entitled us
ngainst the consignor to dispose of them.
(2) rnless SlH'h instructions nre noted on a negotinble bill of lading, a person to whom the hill is duly negotiated can hold the bailee
lll'cording to the original te11ns.
28 :7-304. Bills of Jading in a set
( 1) Except where customary in O\"ersens transportation, a bill of
la<ling must not be issued in a set of parts. The issuer is liable for
damages caused by violation of this subsection.
(2) '\Vhere a bill of lading is lawfully drawn in a set of parts, each
of which is numbered and expressed to be rnlid only if the goods
have not. been delivered against any other part, the whole of the parts
<'Onstitute one bill.
,
( 3) 1\-.here a bill of lading is lawfully issued in a set of parts and
different pa1ts are negotiated to different persons, the title of the
holder to whom the first due negotiation is made prentils as to both
the dorument and the goods even though any later holder may have
ieceived the goods from the carrier in good faith imd discharged
lhe carrier's obligation by surrender of his part.
( 4) Any person who negotiates or trnnsfers a single pnrt. of a bill of
ln<ling drnwn in a set is linble to holders of that pnrt as if it were the
whole set.
( 5) The bailee is obliged to deliver in accordance with part 4 of this
article ngainst the first presented part of a bill of ladmg lawfully
drawn in a set. Such delivery discharges the bailees obligation on the
whole bill.
28 :7-305. Destination bills
(1) Instead of issuing a bill of lading to the consignor nt the place
of shipment a carrier may at the request of the consiJ,rnor procure
the bill to be issued at destination or at any other place designated in
the request.
(2) Upon request of anyone entitled as against the carrier to control
the goods while in transit and on surrender of any outstanding bill of
lading or other receipt covering such goods, the issuer may procure
a substitute bill to be issued at any place designated in the request.
28 :7-306. Altered bills of lading
An unauthorized alteration or filling in of a blank in a bill of lading
leaves the .bill enforceable according to its ~iginal tenor:..
28:7-307. Lien of carrier
( 1) A carrier has a Jien on the goods covered by a bill of lading for
charges subsequent to the date of its receipt of the goods for storage
or transportation (including demurrage and terminal charges) and
for expenses necessary for preservation of the goods incident to their
transportation or reasonably incurred in their sale pursuant to law.
But against a purchaser for value of a negotiable bill of lading a
carrier's lien is limited to charges stated in the bill or the applicable
tariffs, or if no charges are stated then to a reasonable charge.
(2) A lien for charges and expenses under subsection (1) on goods
which the carrier was required by law to receive for transportation is
effective against the consignor or any person entitled to the goods
unless the carrier had notice that the consignor lacked authority to

;. ~,

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77

STAT.

subject th(> goo(ls to sneh charges and expenses. .\nv other lien under
:mbsect ion. ( 1) is etfect i \'e against the consignor ana any person who
permitted the bailor to h:lYe control or possession of the goods unless
the carrier had notice that the bailor Jacked sud1 authority.
( 3) .A carrier loses his lien on any goods which he volnntarily
deli\ers or which he unjnstifiably refuses to delher.
28:7-308. Enforcement of carrier's lien
(1) A carriers lien may be enforced by ~bJlc or arivate sale of
the goods, in bloc or in parcels, at any time or p ace an on any terms
which are commercially reasonable, after notifying all persons known
to claim an interest in the goods. Such notification must include a
statement of the amount due, the nature of the proposed sale and the
time and place of any public sale. The fact that a better price could
have been obtained by a sale at a different time or in a different method
from that selected by the carrier is not of itself sufficient to establish
that the sale was not made in a commercially reasonable manner. If
the carrier either sells the goods in the usual manner in any recognized
market therefor or if he sells at the price current in such market at
the time of his sale or if he has otherwise sold in conformity with
commercially re:1sonable prn<:tices among denJers in the type of goods
:-;old. he has sold ma commercrnlly reasonable manner. A sale of more
goods than apparently necessary to be offered to ensure satisfaction
of the obligation is not connnercinlly reasonable except in cases covered by the preceding sentence;

(:2) Before any sale pursuant to this section any person claiming
a right in the goods mny pay the amount necessary to satisfy the
lien an<l the reasonable expem;es incurred under this section. In
that e\em the goods must not be sold, but must be retained by the
earrier subject to the terms of the bill and this Article.
(3) The carrier may buy at ;my public sale pursunnt to this
section.

(:I:) A purchaser in goo<l faith of. goods sol<l to enforce a carrier's

1ien takes the goods free of any rights of persons against whom the
lien was rnlid, despite nonc01n1)I innce by the carrier with the requirements of this section.
( 5) The carrier may satisfy his lien from the proceeds of any sale
pursuant to this section but must hold the balance, if any, for deliver;'
on demand to any person to whom he would have been bound to
deliver the goods.
(6) The rights prodded by this section shall be in addition to
all other rights 11llowed by law to a creditor against his debtor.
(7) A carriers lien may be enforced in accordance with either
subsection (1) or the procedure set forth in subsection (2) of section
~8:7-210.

(8) The carrier is liable for damages caused by failure to comply

with the requirements for sale under this section and in case of willful
violation is liable for conversion.
28 :7-309. Duty of care; contractual limitation of carrier's

liability
(1) A carrier who issues a bill of lading whether negotiable or
non-negotiable must exercise the degree of care in relation to the goods
which a reasonably careful man would exercise under like circumstances. This subsection does not repeal or chan~e any law or rule
of Jaw which imposes liability upon a common carrier for damages not
('aused by its negligence.
(2) Damages may be limited by a provision that the carrier's lia
bility shall not exceed a vnlne stated in the document if the carrier's
rates are dependent upon rnlue and the consignor by the canier's

STAT.]

PUBL

ta1itf is afforded an opp

as lawfully provided int
wise advised of such OPJ
with respect to the carr1
( 3) Reasonable provi~
c1aims and institutmg ac
in a bill of lading or tari:

1?/C-

PART 4-WAREHOU~
GE1'
28:7-tOl. Irregularit

issuer
The obligations impoSt
ment of title regardless c
(a) the documen:
this article or of an
form or content; or
(b) the issuer mr
of his business ; or
( c) the goods co
bailee at the time the
( d) the person is
definition of warel
receipt.
28:7-t02. Duplicate
:Neither a duplicate nc
cover goods already rep
:-;a.me issuer confers any
1ase of bills in a set, ov
l'nbstitutes for lost, stol1
. liable for damages cau~
duplicate document as s1
28 :7-t03. Obligation

excuse
(1) The bailee must (

1locument. who complies

the extent that the baih
(a) delivery of tl
as against the clain:
(b) damage to <
which the bailee is
( c) previous sa l
enforcement of a 1
of storage;
( d) the exercise
suant to the provi
705);
( e) a diversion,
to the provisions
regulating such ri$".
( f) release, satis
defense against the
(g) anyotherla
(2) A person claimi
satl.Sfy the bailee's lien
is prohibited by law fJ.
paid.

77 STAT.]

.27

tu riff is afforded an opportunity to declare a higher rn lue or a ni lue

ns lawfully prO\'ided in the tariff, or where no tariff is filed he is otherwise advised of such opportunity; but no such limitation is etfectin~
with respect to the carriers liability for comersion to its own use.
(3) Reasonable provisions as to the time and manner of presenting
claims and institutmg actions based on the shipment may be included
in a bill of lading or tariff.

PART4-WAREHOUSE RECEIPTS AND BILLS OF LADING:

GENERAL OBLIGATIONS
28 :7-401. Irregularities in issue of receipt or bill or conduct of
issuer
The ob~igations imposed by this article on an issuer npplv to a d0<.ument of title ~ardless of the fact that
,
.
(a) the document may not comply with the requirements of
this article or of any other law or regulation regarding its issue,
form or content; or
(b) the issuer may luwe Yiolated laws regulating the eondnct
of his business : or
(c) the goods coYered by the document were owned In- the
bailee at the time the docume11t was issued: or
~
( d) the person issuing the document d0es not come within the
(~-~~!.11 of warehouseEE.l.!! if it purports to be a warehouse
receipt.
28:7-402. Duplicate receipt or bill; overissue
-~ther a duplicate nor any other document of title purporting to
('over goods already represented by an outstanding document of the
snme issuer confers any ri~ht in the goods, except as prO\ided in the
1ase of bills in a set, o,enssue of documents for fungibl~o~~~ nn.d
substitutes for lost, st Olen or destroyed doc11ments. Rut the. issuer 1s
. liable for damages c<rnsed by his oYerissue or failure to identify a
duplicate document as such by conspicuous notation on its face.
28:7-403. Obligation of warehouseman or carrier to deliver;
excuse
( 1) The bailee must delher the goods to a person entitled under the
document who complies with subsections (2) and (3), unless and to
the extent that the bailee establishes any of the following:
(a) deliver:; of the goods to a person whose receipt was rightful
as against the claimant;
(b) damage to or delay, loss 01 destruetion of the goods for
which the bailee is not liable;
(c) previous sale or other disposition of the ~oo<ls in lawful
enforcement of a lien or on warehouseman's lMdul termination
of storage;
( d) the exercise by a seller of his right to stop de 1hery pursuant to the provisions of the article on sales (section 28 :2705);
( e) a diversion, reconsignment or other diseosition pursuant
to the provisions of this articJe (section 28:1-303) or tariff
regulating such ri~ht;
(f) release, satisfaction or any other fact affording n personal
defense against the claimant;
,
(g) any other lawful excuse.
(2) A person claiming goods covered by a document of title must
satisfy the bailee's lien where the bailee so requests or where the bailee
is prohibited by law from delivering the goods until the charges are
paid.

v--

;:;4J

v/i'~
c?ft'ndj FF

';

728

(77 STAT.

PUBLIC LAW 88-243-DEC. 30, 1963

( 3) Unles:; the person claiming is one a;p1i11st whom the document

confers no right under section 28 :7-503\1), he must surrender for
cancellation or notation of partial deliveries any outstanding negotiable document covering the goods, nnd the bailee must cancel the document or conspicuously note the partial delivery thereon or be liable to
any person to whom the document is duly ne(Yotiated.
( 4) "Person entitled under the document~ means holder in !he case
ol a negotiahl.e._d_Qcument, or the person to whom delivery is to be
made by the terms of or pursunnt to written instructions under a nonnegotiable document.
28 :7-404. No liability for good faith delivery pursuant to receipt
or bill
A bailee who in g?Od faith ineluding obsenance of reasonable ~gm
mercial standards lills recei,ecl goods and delivered or otherwise disposed of them according to the terms of the document of tit le or pursuant to this article is not liable therefor. This rule applies even
though the person from whom he received the goods had no authority
to procure the document or to dispose of the goods and even though
the person to whom he delivered the goods had no authority to receive
them.

PART 5-WAREHOUSE RECEIPTS AND BILLS OF LADING:")

NEGOTIATION AND TRANSFER
(
28 :7-501. Form of negotiation and requirements of "due
negotiation"
X:
( 1) A negotiable document of tit le running to the order of a named
,,. )"V 1
person is negotiated by his indorsemeut and delivery. After his in/ . ktl ,
dorsement in blank or to bearer t~ny person can negotiate it by delivery
ji/'{)
...< , alone.

~.
fj>f- (2) (a) A negotiable document of title is also negotiated by delivery r
~/
alone when by its original terms_it runs to bearer.
.
; n,..il'
(b) 'When a document runnmg to the order of a named person is
'r
delivered to him the effect is the same as if the document had been
negotiated.
(3) Negotiation of a negotiable document of title after it has<::?
been indorsed to a specified person requires indorsement by the ~
special indorsee as well as delivery.
( 4) A negotiable document of title is "duly negotiated~' when it is
negotiated m the manner stated in this section to a holder who
purchases it in good faith without notice of any defense against or
claim to it on the part of any person and for value, unless it is established that the negotiation is not in the regular course of business
or financing or involves receiving the document in settlement or
payment of a money obligation.
(5) Indorsement of a non-negotiable document neither makes it
negotiable nor adds to the transferee's rights.
( 6) The naming in a negotiable bill of a person to be notified
of the arrival of the goods does not limit the negotiability of the bill
nor constitute notice to a purchaser thereof of any interest of such
person in the goods.
28:7-502. Rights acquired by due negotiation
( 1) Subject to the following section and to the provisions of
section 28 :7-205 on fungible goods, a holder to whom a negotiable
document of title has been duly negotiated acquires thereby:
(a) title to the document;
(b) title to the goods;
. ( c) .all r~ghts accruing un~er the la.w of a~encl or esta;pel, l>-~
mcludmg rights to goods delivered tOflie ba.i
a ter the0cument was issued; and

Ji'/
, ft
. , rv

ee

77 STAT.}

(<I) the <lire1

-oocls :Hrm<lin
or <'la im bv hi
<hwument <ll' ur
the bailee's obli
g-atiou 11<q11i reel
will pr()('ure th<
(~) tiuhjeet to ti
a te not defeated b
dotmnent or hv su:
i 111 pn ired e\en t hon
~itute<l a breach 1
<lepri,ecl of possess
accident, mistake <
. sale or' c
a prenous
made to a third per
28 :7-503. Docun
(1) A document .
,,ho before issuan
perfected security i
(a) delivere
ing them to ti
authority to sh
under this arti<
under this sub
statute or rule
(b) acquiesc
of any docume( 2) Title to go<
subject to the right:
or bill of lading cc
u title may be defE
the rights of the is>'
( 3) Title to goo
forwarder is subje<
thA freight forw:.u
in accordance witl
lading discharges t
~28:7-504. Right
etfe
( 1) A transfer
negotiable, t~~wh
. .c
negotiated, a uir<
liad actual aut 1or~
(2) In the case
the bailee receives
feree may be defea
(a) by tho:
sale as void m
(b) by a l
business if ti
received notifi
(c) as agai
with the tram
(3) A d.iversioi
eons1gnor m a no
not to deliver to tl
if they have been
and in any event

,-)
77 STAT.]

PUBLIC LAW bu-243-DEC. 30, 1963

(cl) the clirt>t't obligation of tlit> iss\IPI' to hold 01 dt>li,-er the

goods <ll'l'01"cli11g to tlJp tel'lllS of nip dO<'lllllellt free of any defense
01 <'la iIll L,. Iii 111 PX<'ept t host:> a risi 1w under t ht:> terms of the
do('11111_t:>nt. <;I' 11~Hlt:>1: tl1is arti\'lt:>. In t{e ease of a de]i,-ery order
the. lrndet:> s ol>l1gat ..in a<Tl'lles <11ly upon a\'<'eptanC'e an<l the obligation a<quired by the holder is that the issuer and any indorser
will pr0<111e the a<<e1Ha11ce of the bailee.
(~) ~ubj~et to the following section. title and rights so acquired
are not defeated by any 5to >>nge of the goods represented by the
clo<ume11t 01 Ii\' s11ne11<ler o sue 1 uoods bv the bailee and are not
i1.npai1ed e\en 'though the negotiati~n or a11y prior negotiation con!'Jtut~d a ?reach C!f <luty or even though any person has been
de1~r1,ed of. possess10n of the document by misrepresentation. fraud,
aec1de11t, mistake, duress, loss, theft. or co1ffersion. or even thouuh
a pre,ious sale 01 other transfer of the goods or document. hns be~n
111ade to a third person.

28 :7-503. Document of title to goods defeated in certain cases

(I) _-\. doeu.ment of title confers no right in goods ag:ainst a person
be.fore 1~srnrnce of the document h;1d a legal interest or a
perfeeted_e!'.lll'U.): _i1_1j_~_r~~t _in them and who neither
--- -. (a) delin~red or ~1irriiSted-fhenCoral"iyoocume11t of title covermg them to the b;ulor or his nominee -with a<'hrn I or apparent
authority to ship. store or sell or with power to obtain delivery
under this article (section 28 :7---103) or with power of disposition
under this subtitle (sections 28 :2---103 and 28 :D-:307) or other
statute or rule of law; nor
(b) acquiesced in the procurement bY. the bailor or his nominee
of any document of tit.le.
(2) Title to goods based upon an mrncc~('ted deliwry order is
subject to the rights of anyone to whom a 1~otmbfe warehouse recei t
or bill of lading covering the goods has been duly negotiate .
uch
a title may be defeated under the next section to the same extent as
the rights oft.he issuer or a transfe1-ee from the issuer.
( 3) Title to goods based upon a bill of lading issued to a ;freight
forwarder is subject to the rights oranyone to whom a bill issuer! ).>y
the freight forwarder is duly negotiated; but delivery by the earner
in accordance with part -! of this article pursuant to its own bill of
lading discharges the carrier's obligation to deliver.

'llio

S 28 :7-504. Rights acquired in the absence of due negotiation;

'
effect of diversion; seller's stoppage of delivery
(1) A transferee of a document, whether negotiable or nonnegotiable, to whom the document has been delivered but not duly
negotiated, acquires the title and rights which l\is transferor had or
Jiad act,y;tl authority to convey.
(2) In the ca~ of a non-negotiable document, t~ntil but. not after
the bailee r~ives notification of the transfer, the r1ght.s of the transferee may be defeated
(a) by those creditors of the transferor who could treat the
sale as void under section 28 :2--402; or
(b) by a buyer from the transferor in ordinary course of
business if the bailee has delivered the goods to the buyer or
received notification of his rights; or
.
(c) as against the bailee by good faith dealings of the bailee
with the transferor.
(3) A diversion or ot~er cha!1ge of s~ipping. instructions by ~he
consignor in a non-nego.tiable bill of ladmg :wlucl~ c~uses the bailee
not to deliver to the c<;ms1gnee defeats tl~e cons~gnee s title to the g_oods
if they have been delivered to a b~yer i,n o!'dmary C?urse of b~smess
and in any event defeats the consignee s rights agamst the bailee.

729

PUBLIC LAW 88-243-DEC. 30, 1963

[77

77

STAT.

due notification there provi<le4. A ba1lt>e. honoring t!1e sellers mstr.uctions is entitled to he. indemmfied by the seller agn111st any resnltmg
loss or e.xpense.

28 :7-505. Indorser not a guarantor for other parties

PUBLIC

28:7--602. Attachment
ment

The indorsement of a document of title is...,ned by a bailee d<lt'S not

make the indorser liable for any default hy the hallee or by previous
indorsers.

Except wher{} the doc1

of the goods by a person
lien attaches by virtue of~
of a bailee for which a 1
unless the document be fir
enjoined, and the bailee
pursuant to process unt
impounded by the court.
without notice of the pre
posed by judicial process.
28 :7-603. Confticting
If more than one pers<
bailee is excused from <
to ascertain the validity
to compe! .all ~laimarit~
pleader, either m defend:
by original action, which

28 .:7-506. Delivery without indorsement: right to compel

indorsement .
The transferee of a negotiable document of title has a spe_cifically.}w;;.

enforceable right to have his transfel:or supply any nece;:;sary l}tdorse- (l.
ment but the transfer becomes a negotiation 011ly as of the time the
indorsemen t is i-;u pp I ied.

28:7-507. Warranties on negotiation or trarisfer of receipt or

~ ~iAI". D :t
.
"'here a. net.;>~ fiei!~>t iates 01 t ra1.1sfers a document of tit le f.<~r q~J!!.e
otherwise. than ns a mere intermedia1y under the n~x~ follm~1111! 8ection, then unless otherwise 11~reed h!L:n.t:I:llll.t.:> t<~ his U~lll!edrnte pur.. h.wc-r ouly in ndfl1tion to any warranty mndi> m selhnJ! the.Jroods
(a).thatthedocumentis~enuine:irnd ~
.
(h) that he hmi no knowledJ!e of any fa<'t whith \multi i1Hpair
its validity or worth: and ._....
( c) that his negotintion or tm11sfer is rightful and fully t>ffe<'the with respect to the title to the do('Ulllellt and the goods it
represents.

28:7-508. Warrant:es of collecting bank as to documents

A collecting- hank or other intermediary known to he entrusted with \:'{1 C.....
<lo<'uments Qll heh:tlf of another or \nth colleetion of n draft or other a.e;. .?~
dulm against delivery of do<'uments \Yarrants liy suc-h deliYery <>f the
documei1ts only its own ~ood f:iith and authority. This rule applies
twen though the intermediary has purchased or made advanees ain1i11st
the claim or draft to be collected.
28:7-509. Receipt or bill: when adequate compliance with co.mmercial contract
The question whether a document is adequate to fulfill the ohliJrat ions of a contract for.s.al~,nr the conditions of a credit is l!me1;ned hr
the articlesOii=s:rteirtn.-rticl~ 2) and on lettet'S of eredit (artiele 5). '

ARTICLESPARTl-8
See

PART6-WAREHOUSE RECEIPTS AND BILLS OF LADING:

MISCELLANEOUS PROVISIONS.

or<ler delivery of the goods or issuance of a substitute document

and the bn.ilee may without liability to any person c.omply with such
order. If the document was negotiable the claimant must post
security approved by the court to indemnif:y any person who may
suffer loss as a result of non-surrender of the document.. If the docu~ent was not pegotiable, such security.may be required at the discretion of the court. The court may nlso m its discretion order payment.
of the baiJee's reasonable costs and counsel fees.
(2). A baiJee wh~ ".ithout c<?urt order deliv~t'S _goods to a person
cla1mmg under a mtssmg negotiable document is liable to any person
injured thereby, and if the delivery is not in good fait.h he<"omes !:able

for eo11\ersio11. l>eli\ery

accordance with a filed cla:
or tariff is filed, if the cl:
amount at least double the
indemnify any person in~
claim within one year afte1

( 4) Deli\en- put"Hllnllt to a 11on-negotiablt>.<l<x:u111l'11t may !'t> stopped

by a seller under se<"tion :!8 :l!-70;\ at_Hl subject. to the reqm~e!iwnt. of

28 :7--601. Lost and missing documents

( 1) If !1- document has been los.t, stolen, or destroyed, n comt may

STAT.

..
1

28 :8-101.

28 :8-102.
28 :8-103.
28 :8-104.
28 :S-105.
28 :8-106.
28 :S-10r;

Short title.
Definitions and i
Issuer~s lien.
Effect ot overh!e
Securities negot
Applicability.
Securities delivE

28 :8-201.
28 :8-202.
28 :8-203.
28 :8-204.
28 :S-205.
28 :8-206.
28 :8-207.
28 :S-208.

"Issuer".
Issuer's respon:
Staleness as no
Effect of issuer'
Effect of unautl
Completion or t
Rights of issue1
Effect of stgn1
agent.

28 :8--301. Rights acquir

.bona ftde pu
28 :8-302. "Bona ftde pm
28 :8--303. "Broker".
28 :8--304. Notice to pure
28 :8--305. Staleness as n
28 :8-306. Warranties or
28 :8--307. Effect of dell
28 :8--308. Indorsement.
antor; part
28 :8-300. Effect of indo
28 :8--310. Indorsement
28 :8--311. Effect of una
28 :8--312. Effect of gUal

77 STAT.]

PUBLIC LAW ~-243-DEC. 30, 1963

for l'OJl\"er:;ion. l>elivl'r.v iu good faith is not eo11nrsio11 if 11rndl' in

accordance with a. tiled classification or tnriff or, where no cl:ts.-;itieation
or tariff is filed, if the claimant posts security with the bailee in nu
amount at least double the n1lue of the goods at the time of posting to
indemnify any person injured by the deli\ery who files a notice of
claim within one year after the delivery.
28 :7-602. Attachment of goods covered by a negotiable document
Except wher~ the document was originally issued upon delivery
of the goods by a person who had no ower to dispose of them, no
ie
b v ue of

ocess to goods in the possession

of a bailee for
ch a
ocument of title is outstanding
unless the document be first surrendered to the bailee or its negotiation
enjoined, and the bailee shall not be compelled to delher the good<>
pursuant to process until the document is sunendered to him or
impounded hy the court. One who purchases the document for value
without notice of the proeess or injunction hlkes free of the lien imposed by judicial process.
28 :7-603. Conflicting claims; interpleader
~f m?re than one person _claims titJe or possession of the goods, the
bailee 1s ~::-i:cused fr.orp delivery until he h~s had a re~sonable time
to ascertam the vahd1ty of t.he adverse ~hmno o .. 1-n hrm!! a.n action
to com e~ all claimaf!ts to_!.l!!~l'.l?le.ad. and m~y~~pel such interplea er, either m e enamg an action for ilon=-delivery of the goods, or
by original action, whichever is appropriate.

ARTICLE 8-INVESTMENT SECURITIES

Sec

PART 1-SHOBT TITLE AND GENERAL MATTERS

28 :8-101.
28 :8-102.
28 :8-103.
28 :8-104.
28 :8-105.
28 :8-106.
28 :8-107.

Short title.
Definitions 11.nd index of definitions.
Issuer's lien.
Effect of overh"ue; "overtssue".
Securities negotiable; presumptions.
Applicability.
Securities deliverable; action for price.

28 :8-201.
28 :8-202.
28 :8-203.
28 :8-204.
28 :8-205.
28 :8-206.
28 :8-207.
28 :8-208.

"Issuer".
Issuer's responsibility and defenses ; notice of defect or defense.
Staleness as notice of defects or defenses.
Effect of issuer's restrictions on transfer.
Effect of unauthorized signature on issue.
Completion or alteration of inst~ent.
Rights of issuer with respect to registered owners. .
Effect of signature of authenticating trustee, registrar or transfer
agent.

PART 2--IBBUE---ISBUEB

PART 3--PURCHABE

28 :8-301. Rights acquired by purchaser; "adverse claim"; title acquired by

bona fide purchaser.
28 :8-302. "Bona fide purchaser".
28 :8-303. "Broker".
28 :8-&M. Notice to purchaser of adverse cl~ims.
28 :8-305. Staleness as notice of adverse claims.
28 :8-306. Warranties on presentment and transfer. .
.
28 8-307. Effect of delivery without indorsement; right to compel mdorsement.
28 ;8-308. Indorsement, how made; special indorsement; indorser not a guarantor ; partial assignment.
28 :8--309. Effect of indorsement without delivery.
28 :8-310. Indorsement of security in bearer form.
28 :8-311. Effect of unauthorized indorsement:
28 :8-312. Effect of guaranteeing signature or mdorsement.

731

PUBLIC LAW 88-243-DEC. 30, 1963

732

[77

STAT.

77 STAT.]

( ;1) Other tlefinitio

ht'rPof and the 8ecti
"Adverse claim
"Bona fide pttr<
"Broker". Sec
"Guarantee of 1
''Intermediary
"Issuer".. Sec1
"0,erissue". ~
( 6) In addition art
of <onstruction and i:

ARTICLE 8-INVESTMENT SECURITIESContinued

PAR.T :~-l't:RCHAsr.-Coutinued

~e;&-:n3.
28 :8-314.
28 :8-315.
28 :8-31tl.
28:8-317.
28 :8-318.
28 8-319.
28 ;8-320.

When deliery to the purehaser occurs; purchaser's broker as holder.

Duty to delher, when completed.
.
Action against purchaser based upon wr.ougft~l transfer. ,
_
Purchaser's right to requisites for reg1strat1011 of tramfer llll hooks.
Attachment or leQ upon seeuri~~'.
Xo conversion by good faith delivery.
Statute of frauds.
.
Transfn or llledge within a central depository sr::;tem.

28 :S-103. Issuer's
A lien upon a seem
n purchaser only if t
sp1cuously on the seen
28 :S-104. EtJect o
( 1) The provisions
pel its issue or reissue
or reissue would resul1
(a) if an idem
issue is reasonaL'
issue or validatio
such a security t
which he holds;<
(b) if a secur
[,.,.;)
entitled to issue
price he or the l:
from the date of 1
( 2) "0,erissue" m1
which the issuer has
28:S-105. Secnrit;

PART 4--REGISTRATIO~

28 :8--401.
28 :8-402.
28 :8--403.
28 :8--404.
28 8--405.
28 ;8--406.
28 :8-407.

Duty of issuer to register transfer.

.
Assurance that indorsements are efl'ect1 ve.
Limited duty of inqui:;:
.
.
Liability ancl non-liab1hty for re~1~tratwn.
Lost destroyed, and stolen securities.
.
Duty of authenticating trustee, transfer agent or 1ei;1strar.
Limitation of actions.

PART 1-~HORT TITLE AND GENERAL MATTERS

28:S-101. Short title

This article shall be known and may be cited as Uniform Commerticle,
cial Code-Investment Securities.
~
28 :S-102. Definitions and index of definitions
~ t ,. '
( 1) In this article unless the context otherwise requires
ti
1\< '
"' (a) A "security" is an instrument which
p,1 iv 1
fl
-":} ~ v
(i) is issued in bearer or re~istered f?rm ; and
. .
/ pc
lJP<
(ii) is of a type common y dealt m _upon. secur1t1es e~- -- t
chnui,;t.:> Vl HM1kCto or ~ommo?lly recO,gnJzed Ill flllY !\!'ea ln
P'
which it is issued or dealt in as a medium for investment; and
~ (
,. t. &tAJ II~ ~ (iii) is either one of a class-or series or by its terms is di vis- ~ 'J {t
fl'"''''
tr~
ible into a class or series of instruments; and
~ (iv) evidences a share, participation or other interest in
ff-fJ 1),,.1
property or in an enterprise or evidences an obligation of the
issuer.
(b) A writing which is a security is governed by this article and
// ;i ,J
not by Uniform Commercial Code--Commercial Paper even
r I"'
though it also meets the requirements of that article. This article
~
does not apply to money.
( c) A security is in "registered form., when it specifies a person {Jv ~ ;
entitled to the security or to the rights it evidences and when its
transfer -may be registered upon books maintained for that purpose by or on behalf of an issuer or the security so states.
l
( d) A security is in "bearer form~' when it runs to bearer according to its terms and not by reason of any indorsement.
/\-~'--} N
(2) A "subsequent purchaser" is a person who takes other than by r
original issue.
"'r
( 3) A ''clearing corporation" is a corporation all of the capital stock .{ 1lf l
of which is held by or for a national securities exchange or associ<ttion
I ,1 .l'"
registered under a statute of the United States such as the Securities
l
Exchnnge Act of 1934.
')
'
( 4) A "custodian bank" is any bank or trust company which is
supervised and examined by state or federal authority having superYision over banks and which is acting as custodian for a clearing "
corporation.
Citation of ar-

vr ,

K"i

(6 7

tfl/~,,,,/~ 4-7~ ~ &'f ~r~

Pl

,,.- ( 1) Soouritiea Pov

(2) In any action

(a) unless spE

on the security 1
(b) when the
burden of establ
nature but the si
( c) when sig:
of the instrume
defendant estab
of the security;
( d) after it ii
tiff has the burc
whom he claim>
is ineffective (s

28 :S-106. App lie

The validity of a
with respect to re~
(including ~he confl
t10n of the issuer.
28 :S-107. Securi
(1) -pnless oth~r
regulat10n respectm
ties may deli,'er an:
registered in the n

blB.nk.

77 STAT.]

PUBLIC LA. d8-243-DEC. 30, 1963

Other \lefinit i?11s a_Pplying to th is a rt icle or to ~)><'\' j tied pa i1,..:

and the se~tJ<!!lS ~n -:hich theJ appenr :ire:
Acberse rln1m . ::Section 28 :8-:101.
;:Bona. fi~e p~1rchnser''. Section :?S :8-:-302 .
.Broker-. ~eC'tion 28 :8-:10:~.
;;Guarante~ of the signature". Se('f ion 28 :6---to~.
,Intermediary bank''. Section ~8:4--105.
'Issuer". Section 28 :8---201
"Overissue''. Section 28 :8-i04.
(6) In ad?ition ar.ticle 1 contains general definitions :rnd priiwi >les
of constrnction and mterpretntion npplienble throughout this art~l~.
28 :~103. Issuer's _lie~
I
. A hen l\~011 a .s~cur1ty ~n faYOr of l~ll issuer thereof is \'H l i<l aga in,..,t
t~/ ~purchaser only If th~ right of the issuer to such Ji~1 i~ 11.ote<l eon~ sp1cuously on the security.
g/~~~le::.s~

733

( i>)

1 lw1eo'.,

28:&-104. Effect of overissue; "overissue"

(!.} c:f"\{

t) L .
A 9a~YrV

,....-'/~

~IY~-~ri p..r

(~) '~'he provi~ions of this :1rticle which rnlidate a seeuritv or <omp:l 1~s 1ssui: or reissue ~lo not :i-pply to the extent that n1lidat'ion, issue
01 reissue" onld result m o,er1ssue: but

. (a). if an identical security which does not constitute an over}Ssue IS rea~ona.uly n ..niln'bl .. fnr [~urchase, the person en tit.led to
issue or vah4at1on ~ay eompel the issuer to purc1m~ ""'' ,l~1~-
such a security to him against surrender of the security if anY
which he holds; or
'
~'
(b) if a ~ecurity is i~ot so avaih\ble for purchase, the person
entitled to issue or validation mav recover from the issuer the
price he or the last purchaser for value paid for it with interest
from the date of his demand.
(2) "O,erissue'' means the issue of securities in excess of the amount
which the issuer has corporate power to issue.
28 :S-105. Securities negotiable; presumptions
(1) Securities ~oYern~d uy tllis art1ele are negotiable instruments.
(2) In any action on a security
(a) unless specifically denied in the pleadings, each sig1H1tnre
on the security or in a necessary indorsement is admitted;
(b) when the effectheness of a signature is put in issue the
burden of establishing it is on the party claiming under the signature but the signature is presumed to be genuine or authorized;
(c) when sigriatures are admitterl or established production
of the instrument ent it 1es a holder to recover on it unless the
[ defendant establishes a defense or n defect going to the rnlidity
of the security; and
(d) after it is shown that a defense or defect exists the plain:
tiff has the burden of establishing that he or some person under
whom he claims is a person against whom the defense or defect
is ineffective (section 28 :8-202).

28:&-106. Applicability
The validity of a security and the rights and duties of the issuer
":ith respect to re~istration of transfer nr~ goY~r1~ed by the ~aw
(including the conflict of laws rules) of the ]Hrtsd1ction of organization of the issuer.
28 :S-107. Securities deliverable; action for price
(1) Unless otherwise agreed and subject to any applicable law or
regulation respecting short sales, a person obligated to deliver securities may deliver any security of the specified issue in bearer form or
registered in the name of the transferee or indorsecl to him or in
blank.

l ,,, t ..J ii

77

PUBLIC LAW 88-243-DEC. 30, 1963

734

(7i

(2) "~he-n the bnyer fails to pay the pric~ ns it eonw:-i due under a
<ontract of sale the seller may recover the price
(a) of securities accepted by the bu ye~; and
(b) of other securities if efforts ~t their .resale wouhl bt> nndul.Y
burdernmme or if there is no readily fl\'atlable market for their
resale.
PART 2-ISSUE-ISSUER

28 :8-201. "Issuer"
. w
,,
(1) 'Vith respect to obligations on or defenses to a security issuer
includes a person who
.
.
.
(a) places or authorizes the placmg of lus nanJ_LOn a security SS 71
(otherwise than as authenhcatn~g trustee, registrar, t.ra;n~fer
t/lfi.agent or the like) to eYidence that 1t rep~-esents a shar~. partic.1p~
tion or other interest in his property o_r m .rm ent~rpr1se or to en- f7t .t"7C..dence his duty to perform an obhgat.10n endenced by the
security; or

l
(b) directly or indirectly <.T~ates fmct10m1 1 mter~sts 111 us
rights or property whi<'h fra.ctwnal mterests a rt> evidenced by
securities; or
.
(c) becomes respoi~::;ible. for ~r 111 place of any other person
described as an issI\Pt 1 n. th"':' ooct........
.
(Q) ""lt.tt respect to obhgat10ns on o_r defenses to it security a.
~narantor is an issuer to the exte~1t of lm1 gm1nrnty whether or not
his obliga_tion is noted m1 t_he se~ur1ty.
.
.
,c.,,
(3) 'V1th respect to reg1stmt1011 of tmnsfer (putt .J: of this article) . . (.~ .J. f!.
"issuer" means a person on whoHe ht>half tmnsfer books a.re f"._. A
n1aintained.
L~~
28 :8-202. Issuer's responsibility and defenses; notice of defect
or defense
( 1) Even against a purchaser for ntlue and ,~ithout notice, the
- \
t.mo ol n. "ceuri.t;r ineh..lo tlu~ ~t~tted Oil the security !llld those made
<)
l,
part of the security by reference to another ll!Stl'Ulllt, indenture or
document or to a constitu on, stafote, ordmance, rule;- regulation,
I" vA J.; order or the like er .le extent t1111t the terms so referred to do not
{,,~ ("Onflict with the stated terms. Such a refetence does not of itself
(j:f!
.
l'harge a rurchaser for value with notice of a defect going to the
rnlidity o the security even though the security expressly states that
a person acc~pting it admits such notice.
(2) (a) A security other tlum one issued by a goYernment or govt>rnmental agency or unit even though issued with n defect going to it.5
rn1idity is valid in the hands of a purchaser for ntlue and without
notice of the particular defect unless the defect i1wolves a violation
of constitutional provisions in which cnse the security is valid in the
hands of a subsequent pmchaser for vahw and without notice of the
defect.
(b) The rule of subparagraph (tt) applies to an issuer which is a
government or governmental agency or unit only if either there has
been substantial compliance with the legal requirements governing
the issue or the issuer has received a substantial consideration for the
issue as a whole or for the particular security and a stated purpose
of the issue is one for which the issuer has power to borrow money or
issue the security.
(3) Except as otherwise provided in the <'ase of certain unauthorized signatures on issue (section 28 :8-205), lack of genuineness of a
( security is a complete defense even against a purchaser for value and
without notice.
( 4) All other defenses of the issuer including nondelivery and
conditional delivery of the security are ineffective against a p~rchaser
for value who has taken without notice of the particular defense.
ri.

Uc .f

STAT.]

PUBLI<

STAT.

(5) Xothing in this s

of a party to a "when,
contract to cancel the cc
the character of the seci
in the plan or arrange1
be issued or distributed.
28 :8-203. Staleness :::
(1) After an act ore
formance of the princi'
which sets a date on or :
i:mrrendered for redem.Pt
uotice of anv rlefe<:t in it~
/1 ,r(" Y
(a) if the act or
1.-- , ,.,Y,_,t:/
or the delivery of s1
r1 v
of the security and
date set for paymer
than one year after
(b) if the act 01
he takes the securi1
surrender or preser
became due.
, ( 2) A call whic11 ha
28 :8-204. Effect of
Unless noted conspi<
fer imposed by the issl
except against a person
28 :8-205. Effect of
An unauthorized sif
course of issue is ine
in favor of a purchas
authority if the signin
(a) nn 1rnthenti

person entruste~ ~
of similar secunt:
or
(b) an emplo.}
entrusted with r
28:8-206. Comple1
(1) Where a. ~ur
or transfer but is mco
(a) any persc
authorized; and
(b) even thou
as completed is 1
and without not
(~) A complete S<
t houO'h
., fraudulent!.}
originnl terms.
28:8-207. Rights
(1) Prior to dm
;-;t>curity. in registerE
the reg1stei:ed oym
receive 11otificat.10n
powers of an owner
(2) Xot.hing int
of the registered <
like.

77 STAT.]

~.

PUBLIC LAW f .. 1;i3-DEC. 30, 1963

735

(5) Xothing i1~ this section shall be construed to affPct the rig-ht
of a party to a "when, as and if issued .. or a "when distributed ..
contract to cancel the con!ract i~ th~ event o~ a material change in
!he character of the security wluch is the sub3ect of the contract or
m the plan or arrangement pursuant to which such securitv is to
be issued or distributed.

28 :8-203. Staleness as notice of defects or defenses

(1) After an act ?r ~nnt w~ich_create~ a right to immediate perfor!Ilance of the prmc1pal obligation endenced by the security or
which sets a date on or 8:fter which the security is to be presented or
sur~endered for red~m_pti?n or exchange, a purchaser is charged with
11ot1ce of any defect m its issue or defense of the issuer
(a) if t_he act or eve~t. is one requiring the payment of money
or the dehv~ry of secur1t1es or both on l?resentat10n or surrender
of the security and such funds or securities are available on the
date set for payment or exchange and he takes the security more
than one year after that date; and
(b) if the act or event is not covered by paraO"raph (a) and
he takes the security ~10re than two years after the date set for
surrender or presentation or the date on which such performance
became due.
(2) A call which Im~ been rmokod. ;., not. within subsection (1).
28:8-204. Effect of issuer's restrictions on transfer
Fnless noted conspicuously on the security a restriction on transfer imposed by the issuer enn though otherwise lawful is ineffective
except against a person with actual knowledge of it.
28:8-205. Effect of unauthorized signature on issue
Au unauthorized signature placed on a security prior to or in the
course of issue is ineffective except that the signature is effective
in favor of a purchaser for value and without notice of the la~k of
authority if the signing has been done by
(a) nn authenticu.ting trn;,ilee, registrar, transfer agent or other
person entrusted by the issuer with the signing of the security or
of similar securities or their immediate preparation for signing;
or
(b) an employee of the issuer or of any of the foregoing
entrusted with responsible handling of the security.
28 :8-206. Completion or alteration of instrument
(1) 'Vhere a "t1eurity contains the signatures necessary to its issue
or transfer but is incomplete in any other respect
(a) any person may complete it by filling in the blanks as
authorized; and
(b) even though the blanks are incorrectly filled in, the security
as completed is enforceable by a purchaser who took it for value
and without notice of such incorrectness.
(~) A complete security which has been improperly alt~red ev~n
though fraudulently remains enforceable but only accordmg to its
original terms.
28:8-207. Rights of issuer with respect to registered owners
( 1) Prior to due presentment for registration of transfer of a
:it'curity in registered form the issuer or m~enture t~ustee may treat
the register:ed o:wner as the pe~on exclusiv~ly entitled t<;> vote, to
receive notificat10ns and otherwise to exercise all the nghts and
powers of an owner.
. ..
(i) Xot.hing in this article shall be construed to affect the hab1hty
of the registered owner of a security for calls, assessments or the
like.

PUBLIC LAW 88-243-DEC. 30, 1963

736

[77

STAT.

28:8-208. Effect of signature of authenticating trustee, regis-

trar or transfer agent

(1) _\. person pl:icing his signature _11pm_1 n sel:1~rity .. a~ .. rnt!1enticating trustee, registrar, tran~fer agent 01. the like \\,U1.mts to n
purchaser for vnlue without notice of the part1cuh1r defect that
(a) the security i~ genu_ine ~and .
.
: . . . . .
( b) his own part1c1J,Jllt10n m the issue of the se~lll 1.ty 1;; '' l!lun
his capacity and withm the scope of the nnthor1znt1on recened
by him from the issuer; and
.
. . : . .
(c) he has reas?m~ble gronnds to behe,:e tlrn.t ~he. ;;ecm~~,Y ism
the form and w1thm the amount the 1ssue1 is .mtho11zed to
issue.
1 I
(2) Unless otherwise.ng~eed, a person_b~ ~op arn'.i:r. 1~~ ~1f!111tt111~
<loes not assume respons1b1hty for the vnhdit) of the set 1111t) m othe1
respects.
PART 3-PURCHASE

28 :8-301. Rights acquired by purchaser; "adverse claim"; title

acquired by bona fide purchaser
.
.
(1) Upon. delin~y of. n secur~ty the purchaser a~qt'.1r~s the ~:1~hts

in the security winch lus transferor had ~>r had act11.1l .rnth011ty to
convey except that ii l;!lll'qhitSf>t' who ha.."' lum,,cH been a pn~-ty to imy
.i;~ ......J. ... a- m~gttmy affectmg the secm:1ty or wl~o as :1 ynor hol~er
had notice of an adverse chum cannot unpro,e Ins pos1t10n hy takmg
from a later bona fide purchaser. "Adverse claim'! in~lndes a claim
that a transfer wns or would be wrongful or that a pnrt1c11lnr ad,er:;e
person is the owner of or has nn interest in the security.
(2) A bona fide purchaser in addition to acquiring the rights of
a purchaser also acquires the security free of any adverse claim.
(3) A purchaser of n limited interest acquires rights only to the
extent of the interest purchased.

8 !ltil .g

~oo, "Un.nA

fide nuuhaser"

A "bona fide purchaser~ is a purchaser for rnlt11:! in guud faith and

without notice of any adverse claim who takes delivery of a security
in bearer form or of one in registered form issued to him or indorsed
to him or in blank.

28 :8-303. "Broker"
"Brokf'r~' means a person engaged for all or part of his time in the
business of buying and selling securities, who in the transaction conl'erned acts for, or buys a security from or sells a security to a customer.
~othing in this article determines the capacity in which a person acts
for purposes of any other statute or rule to which such person is
subject.

28:8--'.304. Notice to purchaser of adverse claims

( 1) A purchaser (including a broker for the seller or buyer but
excluding an intermediary bank) of a security is charged with notice
of adverse claims if
(a) the security whether in bearer or registered form has been
indorsed "for collection" or "for surrender" or for some other
purpose not involving transfer; or
(b) the security is m bearer form and has on it an unambiguous
statement that it is the property of a person other than the
transferor. The mere writing of a name 011 a security is not such
a statement.
(2) The fact that the purchaser (including a broker for the seller
or buyer} has notice that the security is held for a third person or is
registered in the name of or indorsed by a fiduciary does not create a
duty of inquiry into the rightfulness of the transfer or constitute

77

STAT. ]

PU

notice of a<herse clai

intermeuiary bank) I
or that the transactio1
otherwise in breach o
adverse claims.

28 :8-305. Stalenei
An act or event wh
the principal obligation or after which th
redemption or excha
:1dn:rse claims except
(a) after one
surrender for re<
(b) after six 1
ngainst presenta
available for pay

28:8-306. Warrar
(1) A person who
or for payment or ex<
the regisfration, pay
without notice of ad,,
istered security on re1
knowledge of any 11
11ecess11ry indorseme1
(2) A person by
warrants only that
(a) his transi
(b) the secur
and
(c) he knO\n
security.
( 3) Where a secu
f'ntrusted with delh
collection of a draf
mediary by such d
:mthor1ty even tho1
the claim to be collec
( 4) A pledgee or
rity received, or af
that security to a n
mediary under subs
(5) A broker giv
l he warranties prO\
leges of a purchas(
farnr of the broke1
warranties given b3

28 :8-307. Etrect
pel
Where a securiti
chaser without a
purchaser only as C
the transferor the
chaser has a spec
indorsement suppl

9Hl25 0-64-49

77 STAT.]

PUBLIC LAW

88-~

;_DEC. 30, 1963

notice of 1Hhe1'8e daims. If, howe,er, the purchaser (excluding an

intermtdiary bank) has knowledge that the proceeds are being used
or than he transaction is for the indhidual benefit of the fiduciary or
otherwike in breach of duty, the purchaser is charged with notice of
n<lverse claims.
28 :8-305. Staleness as notice of adverse claims
An act or event which creates a right to immediate performance of
the principal obligation evidenced by the security or which sets a date
on or after which the security is to be presented or surrendered for
redemption or exchange does not of itself constitute any notice of
11<herse claims except in the case of a purchase
(a) after one year from any date set for such presentment or
surrender for redemption or exchange; or
( b) after six months from any date set for payment of money
against pre.sentatiou or surrender of the security if funds are
a,;ailable for payment Oil that date.
~

28:8-306. Warranties on presentment and transfer

( 1) A person who presents a security for registration of transfer

or for payment or exchange warrants to the issuer that he is entitled to
the registration, payment or exchange. But a purchaser for value
without notice of ad,erse claims who receives a new, reissued or re-regir-;tered security Oil registration of transfer warrants only that he has no
knowledge of any unauthorized signature (section 28 :8-311) in a
necessary indorsement.
(2) A person by transferring a security to a purchnser for value
warrants only that
(a) l11s transfer is effective and rightful; an<l
(b) the security is genuine and has not been materially altered;
and
( c) he knows no fact which might impair the validity of the
security.
(3) Where a security is delivereq by an intermediary known to be
('Jltrusted with delivery of the security on behalf of another or with
<'ollection of a draft or other claim against such delivery, the intermediary by such delivery warrants only his own good faith and
authority e\en though he has purchased or made advances against
the claim to be collected against the delivery.
( 4) A pledgee or other holder for security who redelivers the secun
rity received, or after payment and on order of the debtor delivers
that security to a third person makes only the warranties of an intermediary under subsection ( 3).
( 5) A broker gives to his customer and to the issuer and a purchaser
i he warranties provided in this section and has the rights and privileges of a purchaser under this section. The warranties of and in
favor of the broker acting as an agent are in addition to applicable
wnrranties given by and in favor of his customer.
28 :8-307. Effect of delivery without indorsement; right to com-

pel indorsement
where a security in registered form has been delivered to a purchaser without a necessary indorsement he may become a bona fide
purchaser only as of the time the indorsement is supplied, but against
the transferor the transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary
indorsement supplied.
9Hl2~

0-64-49

/37

'38

PL:BLIC LAW 88-243-DEC. 30, 1963

[77

77 STAT.]

STAT.

28 :8-308. Indorsement, how made; special indorsement; indorser not a guarantor; partial assignment
(1) .\n indorsement of a security in registered form is made when
an appropriate person signs on it or 011 a separate document an
assignment. or transfer of the security or a power to assign or transfer
it or when the signature of such person is written without more upon
the back of the security.
_ ,,[,,
(:2) .\n in<lorsement may be in blank or special. ..-\n indorsement ,,-~,, ,
in blnnk inclmles an indorsement to bearer. .\ special indorsement
svedfies the person to whom the security is to be transferred, or who
has power to transfer it. .\ holder nun: convert a blank indorsement
into a special inclorsement.

(:~) '"An appropriate person .. in subsection (1) means

(a) the person spe<.'itied by the Sl'enl'ity or by spedal indorsement to be entitled to the seemity: or
( b) where the person so !'peci lie(l is <lesnibed as a liduciarv
but is no longer sening in the described capa(ity,-either dui't
person or his successor; or
(e) where the security or indo1sement so specifies more thnn
one person as fiduciaries and one or more are no longer serving
in the cleseribed capacity,-the remnining fiduein1y or fiduciaries,
whether or not n successor has been appointed or qualified; or
( d) where the person so specitied 1s an individunl and is without capacity to act hy ,irtne of denth, ineompetence, infancy or
ot herwise,-his executor, ndmiu istrntor, guard inn or like
fiduciary; or
(e) where the security or indorsement so specifies more than
one person ns tenants by the entirety or with right of sur\i,orship
and by reason of death all cannot sign,-the smTivor or survivors;
or
(f) a person having power to sign under applicable htw or
controlling instrument; or
(g) to the extent that any of the foregoing persons mny act
throu(J'h an agent,-his authorized agent.
(i:) Uniess otherwise agreed the indorser by his indorsement
assumes no obligation that the security will be honored by the issuer.
(5) An indorsement purporting to be only of pn1t of a security
representing units intended by the issuer to be separately transferable
is effective to the extent of the indorsement.
(6) 'Whether the person signing is appropriate is determined as of
the date of signing and an indorsement by such a person does not
become unauthorized for the purposes of this article by virtue of any
subsequent change of circumstances.
~
(7) Failure of a fiduciary to comply with a controlling instrument
or with the law of the state hnving j1trisdiction of the fiduciary relationship, including any law requiring the fiduciary to obtain court
approval of the transfer, does not render his indorsement unauthorized
for the purposes of this article.
28 :8-309. Effeet of indorsement without delivery
An indorsement of a security whether special or in blank does not
constitute a transfer until delivery of the security on which it appe.'1.rs
or if the indorsement is on a separate document until delivery of both
the document and the security.
28:8-310. lndorsement of security in bearer form
An indorsement of a security in bearer form may give notice
of adverse claims (section 28:8-304) but does not otherwise affect
nny right to registration the holder may possess.
v

.ft>

PUBL

28 :8-311. Effect of 1
F nless the owner hn
otherwise precluded fr01
(a) he may asse
purchaser other th
of adverse claims "
or re-registered sec
(b) an issuer wr
unauthorized indo
registration ( sectic
28 :8-312. Effect of ;
(1) Any person gu
l"\>curity warrants that
(a) the signatu r
(b) the signer '
28 :8-308) ; and
( c) the signer ht
But the guarantor doe:
particular transfer;
(2) Any person mHJ
"o doing warrants not
rightfuln~s of the pa1
may reqmre a gunrant
of transfer.
(3) The foregoing
tlealing with the secnr:
tor is liable to snch pt
warranties.
~ 28 :8-313. When de
w
broker
( 1) Delivery to a p1
(a) heorape1
security; or
( b) his broke1
indorsed to or iss( c) his broker
by book entry ?J
broker's .PossesSH
( d) with respe
~tiJl in the possesi
edges that he l~o
(e) nppropr1a
are made under s
( 2) The purchaser
broker, but is not tl
( b), ( c) and ( e) of
fongible bulk the pm
interest in the fungil
(3) Notice of an
purchaser after the I
elfective either as to
between the broker
delivery of an equiv:
daim has been recei1

~.

77 STAT.]

'

739

PUBLIC L:\W Sv-243-DEC. 30, 1963

28:8-311. Effect of unauthorized indorsement

Fnless the owner has ratified an unauthorized imloi=-enwnt or is
otherwise pre(']uded from asserting its ineffectiYeness
(a) he may assert its ineffectiveness uga inst the iss1ter or any
purchaser other than a purchaser for ntlue arnl withont notice~
of adverse claims who has i11 good faith received a new, reissue(!
or re-registered security on registration of transfer: and
(b) an issuer who registers the transfer of a se<'urity upon the?
unauthorized indorsement is subject to linbilitv for improper
registration (section ~8 :8--!0-1).

28:8-312. Effect of guaranteeing signature or indorsement

(1) Any person guaranteeing a signature of an indorser of a
:-t>eurity warrants that nt. the time of sip:ning
(a) the signature wast,renuine: :llld
(b) the signer was an nppropriatf person to indorsp (:oeetion
28:8-308); and
( c) the signer lnu.l legal capacity to si-n.
But the guarantor does not otherwise warrant the rig-htfulness of the
particular transfer.
(2) Any person may gmmrntee an indorsemeut of a st><'urity and by
so doinO' warrants not only the signatnre (snbse('tion 1) hut also the
rightfufi1ess of the particulnr transfer in nil respeets. But no issut>1
may require a guarantee of indorsement as a eondition to registration
of transfer.
(3) The foregoing warranties are made to any pe1-son taking or
1lealing with the security in reliance on the gunrnntee and the guarantor is liable to such person for any loss resulting from brenl'h of the
w:lrranties.
28 :8-313. When delivery to the purchaser occurs; purchaser's
broker as holder
( 1) Delivery to a purchaser occurs when
(a) he or a person designated hy him acquires possession of a
seeurity: or
(b) his broker acquires possession of a security specially
indorsed to or issued in the name of the purchaser; or
(c) his broker sends him confirmation of the pnrchnse and also
by book entry <;>r otherwise ~dentifies a specific se('urity in the
broker's ;possession as belongmg to the J,:ntrchnser: or
(d} with respect to an identified security to be delivered while
still in the possession of a third person when that person neknO\vledges that he holds for the purchaser; or
(e) npprol>rinte entries on the hooks of n clearing corporation
are made unc er section 28 :8-:320.
(2) The purchaser is the owner of a security held for him by his
hroker, but is not the holder except as specified in subparngraphs
1b), (c) and (e) of subsection (1). Where a security is part of a
fungible bulk the purchaser is the owner of a proportionate property
i;1terest in the fungible bulk.
(3) Notice of an adverse claim received by the broker or by the
purchaser after the broker takes delivery as a holder for value is not
effective either as to the broker or as to the purchaser. Howe\er, as
between the broker and the purchaser the pur('haser may demand
delivery of an equivalent security as to which no notice of an adverse
cl aim has been received.

PUBLIC LAW 88-243-DEC. 30, 1963

740

[77 STAT.

77

PU

STAT.]

28:8-314. Duty to deliver, when completed

( 1) l"nless otherwise agreed where a sn le of a seeurity is 1u.1de on

to p1operty which c:
dinary legal process.

an exchange or otherwise through brokers.

.
(a) the selling customer fulfills Ins duty to deltYer when he
pluces snch a security in the possession of the selling broker or
of a person designated by the broker or if requested causes an
itcknowledgment to be made to the selling hroker that it is hehl
for him; and
( b) the selling, broker i ncl11di11g a corres\>ornlent broker net ing
for a selling customer fulfills his duty tot eli,er by placing the
security or a I ike secnrity in the possession of the buying hroker
or a person designnte<l by him or by effecting den ranee of the sale
in accordnnce with the rules of the exchange on which the transaction took pince.

( 2) E:x:cept as otherwise l>l'OYided in this sect ion and unless otherwise agreed, n trnnsferor's duty to deliwr n seeurity under a cont met
of purchase is not fulfilled until he places the. se<.urity in form to be
11egotiated b~ the purdmser iu the possessio11 of the purehaser or of a
person desi~nnted by him or at the purl'haser's request eanses nn
acknowledgment to he nmde to the purchaser thnt it is held for him.
tnless mnde. on an e:s:than/!e a snle to n hrnker lmrchnsing for his
own neconnt is within this suhsettion and not wit 1i11 subsection (1).
28:8-315. Action against purchaser based upon wrongful

28:8-318. No con'
An agent or bailee

transfer
(1) .\ny person ng-ainst whom the transfer of a securitv is wrongful for any re1~:'1011, i11dutling his .i11capiwity 7 may agaiiist a~1yo11e

fX<.'ept a bona. fide purehaser retla~m po~sess1~m of the se<urity or

ohta m _possession of nny new see1111t : ende11e111g all or pa rt. of the
same r1:.rhts or hnYe damagPs.

(2) If the transfer is wrongful lwtanse of :111 111rn11t hol"ized imloriiement, the ow!1er ma,v ulso rellni111 or obtain possession of the securit:
or new security eYen from a bona fide pnrl'lrnser if the i11efferti,eness
of the purported indorsement l'Hll he asi-;ertetl against him under the
provisions of this n rticle 011 m1i111t horized indorsements (sect ion
28 :8-"-311) .
(3) The right to obtnin. or reclnim pos~e:sion of a secmity may h~
specifically enforced and its tr:rnsfer ellJOllled and the securitv im-)
pounded pending the litigntion.

28:8-316. Purchaser's right to requisites for registration of

transfer on books
Cnless otherwise ngreed the tmnferor must on dne demand supply his purchaser with any proof of his authority to transfer or with
any other requisite which may be necessary to obtain registration of
1he tram.fer of the security but if the trnnsfer is not for Yalue a transferor need not do so miless the purchaser furnishes the necessary
expenses. Failure to comply with n demnnd made within a reasonable
time gives the purchaser the right to reject or rescind the tmnsfer.

28:8-317. Attachment or levy upon security

(1) :So attachment or levy upon a security 01 nn.r share or other
interest evidenced thereby which is outstanding shall be nilid until
the security is actually seized by the officer making the attachment
or levy but a security which has been surrendered to the issuer mny
be attached or levied upon at the source.
(2) A creditor whose debtor is the owner of a security shnll he entitled to such aid from courts of appropriate jurisdicti.on, by injunction or otherwise, in reaching such security or in satisfying- the
claim by means thereof as is allowed nt law or in equity in regind

sonable commercial st
or otherwise dealing
pledged or delivered
cipal is not liable f,
fiduciary duty alth.m~

28 :8-319. Statute
A contract for th1
nction or defense uni
(a) there is s
eufor<"ement is ::
ficient to indicat
quantity of desc
(b) delivery
been mude but
only to the exten
(c) within a
sale or purchase
(a.) has been re<
sought and he h
within ten days:
(d) the part'
his pleading,
made for sale (
defined or stated

u;

28 :8-320. Transf
sysb
( 1) If a. seeurit.y
(a) is in the
bank or a nom
dearing corpon
(b) is in bea
person or regis1
custodian bank
(c) is shown
books oft he clea
then, in addition to
or any interest ther
entries on the hook~
of the transferor or
feree or pledgee by
shares or rights tran
(2) Fnder this$(
01 interests therein
to a quantity of a p:
the registered owm
appropriate cases,
transfers or pledges
( 3) A. transfer o
livery of a. security
28 :8-301) represei
of shares or ri~hts t
of a security mtere
of a taking of deli
28 :9-304 a.nd 28 :9is a holder.

77 STAT.]

PUBLIC LA~ lil3-243-DEC. 30, 1963

to property which cannot.readily be attached or levied npoll by 01dinary legal process.

28 :8-318. No conversion by good faith delivery
An agent or bailee who in good faith (including observnnce of reasonable commercial standards if he is in the busine8s of buying. selling
or otherwise dealing with securities) has received securities and sold,
pledged or delivered them according to the instructions of his principal is not liable for conversion or for participntion in breach of
fiduciary duty although the principal had no right to dispose of them.
28 :8-319. Statute of frauds
A contract for the sale of securities is not enforceable by miy of
action or defense unless
(a) there is some writing signed by the party against whom
enfonement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated
quantity of described securities at a defined or stated price: or
(b) delivery of the security has been accepted or payment has
been made but the contract is enforceable under this provision
only to the extent of such delivery or payment; or
( c) within a reasoil!lble time a writing in confirmation of the
sale or purchase and sufficient. against the sender under paragraph
(a.) has been received by the party aga.inst whom enforcement is
sought. and he has failed to send written objection to its contents
within ten days after its receipt; or
( d) the party against whom enforcement is sought. admits in )
his pleiiding, testimony or otherwise in court that a contract was 1
made for sale of a stated quantity of described securities at a
defined or stated price.
28:8-320. Transfer or pledge within a central depository
system
( 1) If a sec.urity
(a) is in the custody of a. clearing corporation or of a custodian
bank or a nominee of either subject to the instructions of the
den ring corporation; and
(b) is in bearer form or indorsed in blank by an appropriate
person or registered in the name of the clearing corporation or
custodian bank or a nominee of either; and
/. 11~
( c) is shown on the account of a. transferor or pledgor on the"/ /(,l"P- {
books oft he clearing corporation;
.
then, in addition to other methQds, a transfer or pledge of the security
or any interest therein ma.y be effected by the making of appropriate
entries on the hooks of the clearing corporation reducing the account
of the transferor or pledgor and increasing the account of the transferee or pledgee by the amount of the obligation or the number of
shat"es or rights transferred or pledged.
(2) Cnder this section entries may be with respect to like securities
or interests therein as a. pa.rt of a fungible 'Qulk and may re~er merely
to a quantity of a particular seeur1ty without reference to the name of
the registered owner, certificate or bond number or the like and, in
appropriate cases, may be on a net basis taking into account other
transfers or pledges of the same security.
(3) A. transfer or pledge under this section has the effect of a delivery of a security in bearer form or duly indorsed in blank (section
28 :8-301) representing the amount of the obligation or the number
of shares or rights transferred or pledged. If a pledge or the creation
of a security interest is intended, the making of entries has the effect
of it taking of delivery by the pledgee or a secured party (sections
28 :9-304 a.nd 28 :9-305). A transferee or pledgee under this section
is a holder.

..

741

PUBLIC LAW 88-243-DEC. 30, 1963

742

[77

STAT.

I 4) .\. t m rn;fer or ple.dp:e lmder this se<.tion does not l.'onst itute a

re:.rist ra tiou oft mnsfer under patt 4 of this a rticJe.

( 5) That entries made on the books of the clearing corporation as
prO\ided in subsection (1) are not appropriate do~s not affect the
rnlidity or effect of the entries nor the liabilities or obligations of tlw
1.'learing corporation to any person adversely affected thereby.
PART 4-REGISTRATION

28 :8-401. Duty of issuer to register transfer

( 1) where il security in registered form is presented to the issuer
with a request to register transfer, the issuer is under a duty to register
the transfer as requested if
(a) the security is indorsed by the :tppropriate person or persons ( se.ct ion 28 :8--308) ; and
(b) reasonable assurance is giYt>n that t h08e indorsements are
genuine a.nd etfecthe. (section 28:8-40~); and
( c) the issue.r has no duty to inquire. into ndwrse elaims or lrns
disc ha rge<l any such duty (sect ion 28 :8--10:3) ; and
( d) any applicable ln w relating to the collection of taxes has
been complied with; and
( e) the transfer is in fact rightful or is to a bonn fide purchaser.
( :Z) where an issuer is under a duty to register a transfer of a
seeurity the issuer is also liable to the person presenting it for registrn.tion or his principal for loss resulting from anv unreasonable delay
in registration or from failure or refusal to register the transfer.
28 :8--402. Assurance that indorsements are e1ieetive
(1) The issuer may require the following assurance th.at each neces:-;itry indorsement (section 28:8-308) is genuine and effective
(a,) in all cases, a guarantee of the signature (subsection (1)
of section 28:8-312) of the person indorsing; and
(b) where the indorsement is by an agent, appropriate assur- ltC'-v
ance of authority to sign;
(c) where the indorsement is by a. fiduciary, appropriate evi- (efi, i,S_
dence of appointment or incumbt'ncy;
( d) where there is more than one fiduciary, reasonable assur- (lo 51
ance that a.ll who are required to sign ha.Ye done so;
( e) where the indorsement is by a person not covered by any
Y of the foregoing, assurance appropriate to the case corresponding
.
.\~
as nearly :ts may be to the foregoing.
Iv>
(2) A "guarantee of the signature.. in subsection (1) means a
6
guarantee signed by or on behalf of a pe1son reasonably believed by
the issuer to be resP.onsible. The issuer may' adopt standards with
'7 respect to responsibility pro\"ided such standards are not manifestly
unreasonable.
(:~) :Appropriate evidence of appointment or incumbency~' in subsedion (l) means
(a) in the case of a fiduciary appointed or qualified by a court,
a certificate issued by or under the direction or supervision of thilt
court or an officer thereof and dated within sixty days before the
date of presentation for transfer; or
(b) in any other case, a copy of a document showing the ap
pointment or a certificate issued by or on behalf of a :{Jenron
reasonably believed by the issuer to be responsible or, m the
absence of such a document or certificate, other evidence reasonably deemed by the issuer to be appropriate. The issuer may
adopt standards with respect to such evidence provided such
standards are not manifestly unreasonable. The issuer is not
charged with notice of the contents of any document obtained

77

STAT. ]

PUBl

pursuant. to this l
contents relate dir1
{4) The issuer may
1 hat s\>ecified in this Sf
than t rn t specified in s
of a will, trust, indent1
controlling instrument
tained therein affectin~
28 :8--403. Limited
( 1) An issuer to w
nuder a duty to inquire
(a) a written i
time and in a n
opportunity to ac
or re-registered s
ant, the registere
a part and pro,i
the claimant; or
(b) the issuer
a controlling im
subsection ( 4) of
( 2) The issuer ma
able means, includin
or certified mail at th
itddress at his reside1
lias been presented fo
that the transfer will
date of mailing the n
(a) an appr1
process issues fr
(b) an inderr
protect the issue
of the issuer im
by complying "
( 3) Unless an isi
from a controlling
subsection (4) of ~
adverse claim unde:
presented for regis1
persons the issuer
In particular
(a) an issue
who is a fiduci:
to inquire into
fiduciary relati
out inquiry th
fiduciary until
is no longer ac1
(b) an issu
~duciary. is n<
m compliance
state having j
any law requi
transfer; and
(c) the iss1
court record o
though the d
transfer is m
ciary himself

j' ..

77 STAT.]

PUBLIC LAV

~~

.:243-DEC. 30, 1963

743

pm-:-;trn11t to thi::; paragrnph (b) except to the exte1lt that tht>

contents relate directly to the appointment or i11<11mhe1H"y.
(-l) The issuer may elect to 1equire reasonable nssul'ance beyond
that specified in this section but if it dol:'s so irnd for n pmpose oth11
I lmn that specified in s11bsect io11 :H b) both reqnires and obt:\ i11s a copy
of a~ ..t.!ll.st, indenture, artideti of co-partnership, bv-law:; or otlwr
tontrolling instrument it is charged with uoti<"e of all mattl:'rs eontaine<l therein affecting the transfer.
28:8--403. Limited duty of inquiry
(1) An issuer to whom a security is presented for registration is
. nnder a duty to inquire into adYerse claims if
c. <;
(a) a written notification of an adYerse elaim is reeeived at a /
time and in a manner which affords the issuer a reasonable
opportunity to act on it prior to the issuance of a new, reissued
or re-registered security and the 11ot1ficat1on identifies the chumiiht, the registered owner ami the issue of whwh the security is
apart and provides an address for comm1mieations dil'eded ro
the claim:u:i.t; or

' (b) the issuer is charged with notiee of an atherse claim from
a controlling instrument which it has elected to require under
subsection ( 4) of sect ion 28: 8-----102.
(2) The is;>uer n~ay disc)rn1:ge any duty of inquiry by any reasonable ~eans, ir:cludmg notifying- a~1 nckerse. claimant by registered
or certified mail at the address furn1shecl hv lum or if there he no such
address at his residence or regular pince o'f lmsiness that the security
has been presented for registr1ition of tnmsfer hy n !lllll1ed person, and
that the transfer will be registered unless within thirty days from the
<late of mailing the notification, either
(a) an appropriate restraininir order. injunction or other
process issues from a court of competent jmis<liction; or
(b) an indemnity bond sufficient in the issuer's jmlg-ment to . ./
protect the issuer and any transfer agent, reg-istrar or other al!ent V
of the issuer invohed, from any loss whieh it 01 they may suffer
by complying with the adverse claim is filed with the issuer.
(3) Unless an issuer is charged with notice of an a<herse claim
from a controllinf()' instrument which it has elected to require under
subsection (4) o section 28 :8-402 or re('eives notitkation of an
:tdverse claim under subsection ( 1) of this section. wlwre a security
presented for registration is indorned by the n ppropriate person or
persons the issue1 is under 110 duty to inquire into :Hherse tlaims.
In particular
(a) an issuer registering a se<urity in the name of a person
who is a fiduciary or who is des('ribed as a fiduciary is not bound
to inquire into the existence, extent, or correet description of the
fiduciary relationship and thereafter the issuer may assume without inquiry that the newly registered owner continues to be the
fiduciary until the issuer receives written notice that t.he fiduciary
is no longer acting as such with respect to the particular security;
(b) an issuer registering transfer on an indorsement by n,
fiduciary is not bound to inquire whether the transfer is made
in compliance with a eontrollin~ instrument or with the law of the
state having jurisdiction of the fidn<'iiu.y relationship, including
any law requiring the fiduciary to ohtatn eonrt appro,val of the
transfer; and
(c) the issuer is not charged with notice of the <011tents of any
court record or file or other recorded or unreeorded document even
though the document is in its possession :md e\en though the
transfer is made on the indorsement of u fidmiury to the fiduciary himself or to his uomine('.

fr

PUBLIC LAW 88-243-DEC. 30, 1963

l4

[77 STAT.

28 :8-404. Liability and non-liability for registration

(1) Except. as otherwii-;e proYided in 11nv law relating- to the ('ollection of taxes, the issuer ii; not liable to the owner or any other person
i-;uif'ering loss as a result of t\ie, registration of a transfer of a se('llritv if

(a) thPre were on or with the st>('lll'ity the ne('es~mry in<lorsements (section ~8 :8-:W8) ; aml
(b) the iss11e1 had no duty to inquire into adYerse lnims or
has discharged any sn('h duty (sedion :!8:8--40:1).
(:l) "'here an ii.;suer has registered a tmm;fer of a ,.;e('urity to a
person 11ot entitled to it the is.<Juer on denrnnd nmi-st deliwr a like
se1uritv to the true owuer unless
(a) the registration was pursuant tos11hi;eetio11 ( 1): 01
(b) the owner h~ pre1luded from assertin~ rny elnim for re.gistering the trnm;fer under s11bsedion ( 1) of the followiug ~<'tion;
or
'
(c) snch delinry would result i11 meriss11e, in whi<'h 1ase the
issuer's liability 1s gmemed by seetion :!8 :H-104.
' 28 :8-405. Lost, destroyed and stolen securities
( 1) "'here a security has been lost, a1>pa1ent ly destroye1l or wrong-fully tnken nnd the owner fails to notify the issuer of that fad withm
;1 reasonable time. nfter he has notice of it nud the issuer registers a
tmnsfer of the seeurity before receiving sueh a notifil'ation, the owner
is precluded from asserting against the issuer any el aim for registering
the transfer under the pre1eding section or nny daim to a new security
nnder this section.
(2) 'Vhere the owner of a security claims that the security has been
lost, destroyed or wrongfully taken, the issuer must issue a new security in place of the original se<'urity if the owner
(a) so requests before the issuer has notile that the security has
been acquired by a bona fide purehaser: nnd
( b) files with the issue1 a sufficie.nt indemnity bond; nnd
( c) satisfies any other reasonu ble requirements imposed hy the
issuer.
(3) If, after the issue of the new security, a bona fide purchaser of
the original security presents it for registration of transfer~ the issuer
must register the transfer unless registration would result in overissue,
in which event the issuer's liability is gO\erned by section 28 :8-104.
In addition to any rights on the indemnity bond, the issuer may
ecover the new security from the person to whom it was issued or any
>erson taking under him except n. bona fide purchaser.
28:8-406. Duty of authenticating trustee, transfer agent or
registrar
(1) "Where a person acts as authenticating trustee, transfer agent,
registrar, or other agent for 1111 issuer in the registration of trnnsfers
of its securities or in the issue of new securities or in the cancellation
of surrendered securities

(a) he is under a duty to the issuer to exercise good faith and

due diligence in performing his functions; and
(b) he hns with regnrd to the pa.rticulnr functions he performs
the same oblig-ation to the holder or owner of the security and has
the same rights and privileges as the issuer has in regard oo those
functions.
(2) Notice to an authenticating trustee, transfer agent, registrar
or other such agent is notice to the issuer with respect to the functions
performed by the agent.

77

PUBL

STAT.]

28 :8-407. Limitatior
( l} In the e\ent of r
he<:omes etfeethe, of a t
a person not entitled tc
to eompel the issue, rei:
damages or any other t
registration may be br
owner or nny other pe
transfer agent, regist1i1
of t rausfers of its seeu
which such registratio1
(2) The time limita
mny not be tolled or sr
tional to, and does not
statute of limitations a
to clnims or causes of
becomes etfecthe ns w
becomes eif'ecti,e. Th
issuer which 11t the tin
sons registered upon b
the class and series, if
not entitled to it.
(3) If the eight ye
to one year n fter the
tended to one year nftt

ARTICLE 9-SE
OF ACCOUN
CHATrEL PJ.
PART

Sec.

1-Su

28 :9-101. Short title.

28 :9-102. l'olicy and sci
28 :9-103. Accounts, cor
to another
security in
28 :9-10-l. Transactions
28 :9-105. Definitions a1
28 :9-106. Definitions:
28 :9-107. Definitions:
28 :9-108. When after-.
28 :9-100. ClassifiC'atio1
products":
28 :9-110. Suffidency o
28 :9-111. ApplicabilitJ
28 :U-112. Where collat
28 :9-113. Security int
P.\RT

2-V ALIDITY OF

28 :9-201.
28 :9-202.
28 :9-203.
28 :9-204.
28 :9-205.
28 :9-206.
28 :9-207.
28 :9-208.

General vali
Title to colh
Enforceabil'
When secu
advances.
Use or dlsi
Agreement
sales wa1
Rights and
Request fo1

77 STAT.]

PUBLIC LAW t '~"i.3-DEC. 30, 1963

28 :8--407. Limitation of actions

(1) In the e\ent of registration, either before or after this subtitle
beeomes effe<'tive, of n transfer or purported transfer of a security to
a person not entitled to it, no aetion of any kind, legal or equitable,
to compel the issue, reis~::e or delivery of n like security or to obtain
damages or any other relief as a result of or in connection with such
registration may he brought, s~1bject to subsection (~), ?Y the true
owner or any other person agamst nn ii>:mer~ authent1catmg trustee,
transfer agent, regist rnr, or other agent for an issuer in the registration
of transfers of its se<"nrities, more than eight years after the date ou
which such registration to a person not entitled has taken place.
(2) The time limitations in subsections (1) and (:i} of this section
may not be tolled or suspended for any reason. This section is additional to, and does not prnent or affect the application of, any other
statute of limitations as a defense to any aetion. This section applies
to daims or ('anses of action which lune a<'crued before this subtitle
Lecomes effeetiYe as well as to those which accrue after this subtitle
becomes etfe('ti\e. This section does not apply to nny action ngainst an
issuer which at the time of sul'h re~istrat10n has fewer than fifty persons registered upon books mnintnmed for that purpose as hoJders of
the class and series, if any, of the secmity i;o registered to the person
not entitled to it.
(ii} If the eight year pe.riod spe<'itied.in thi~ se('tion expi_res .Prior
to one year after the effedffe date of tlus subtitle, Hll('h period 1s extended to one year after such efl'ecti,e date.

ARTICLE 9-SECURED TRANSACTIONS; SALES

OF ACCOUNTS, CONTRACT RIGHTS AND
CHATI'EL PAPER
See.

l'ART 1-dHORT TITLE, APPLICARILITY ASD DEFIXITIOSS

28 :9-101. Short title.

28 :9:-102. Policy and scope of artiele.
28 :9-103. Accounts, (outract rights, general intangibles and equipmeut relating
to another jurisdiction ; and ineoming goods already i,;ubject to a
se<urity iuterest.
28 :9-104. Transactions excluded from artide.
28 :9-10.3. Deflnitiom; aud index of definitions.
28 :9-106. Definitions: account"; contract right"; "general intangibles".
28 :9-107. Definitions: "purchase money security interest".
28 :9-108. When after-acquired collateral not security for antecedent debt.
28 :9-lO'J. Classification of goods: "consumer goods"; "equipment"; "farm
products"; "inventory".
28 :9-110. Suffidency of descri1>tion.
28 :9-111. Applicability of bulk transfer laws.
28 :9-112. Where collateral is not owned by debtor.
28 :9-113. Security interests arh,;ing under article on sales.
PART 2-VALIDITY OF SECURITY AGREEllENT ASD RIGHTS OF PARTIES THERETO

28 :9-201.
28 :9-202.
28 :9-203.
28 :9-204.
28 :9-205.
28 :9-206.
28:9-207.
28 :9-208.

General validity of security agreement.

Title to collateral immaterial.
J<}nforceability of security interest; proceeds, formal requisites.
When security interest attaches; after-acquired property; future
advances.
t:se or disposition of collateral without accounting permissible.
Agreement not to assert defenses against assignee; modification of
sales warranties where security agreement exists.
Rights and duties when C"ollateral is in secured party's possession.
Request for statement of account or list of collateral.

745

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

ARTICLE 9-SECURED TRANSACTIONS; SALES

OF ACCOUNTS, CONTRACT RIGHTS AND
CHATTEL PAPER-Continued
I

l'.\K'l' 3-Huarrs

<w

T11rnu l'.rnn:s: l':Hn:1"n;u .\XII 1xl't:H:cn:11 8t:1THITY

lxn:HF.STS; l(n.t:s <W l'HIOHITY

:!1:1 :U-:lol. l'ersum; who take prio1ity ol't>r 111111erfedeil :<l'Clll'itl iutert>:<ts; "lit>u

creditor".
:.!l'l :U-30:.!. When tiling i" rt'(]uired to lll'rfeet ,;e<urity intere:>t; :security intert>sh;

to whieh filing pro,bious of this 111tide do not 11pply.

:!/'\ :U-:~03. When seeurity intere:<t is lll'rfeeted; continuity of perfection.
:!X :V-mH. l't>rfeetion of l'.'eturity interest in instruments. documents, and good"

1ol'ered b~ t!IX'lllnent:s; perfedion by permisshe filing; temporary

perfe.-tion without tiling or transfer uf po,.,,.e:>sion.
:!8 :tl--:io:i. When pos:<e""ion hy >'eeuretl 11arty perfects i::eeurity intere8t without
filing.
:!1:1 :U-30li ... l'ro<:eeds; 8t!C11red 11arty,; rights 011 (li>'position of eollntt>rnl.
:!1:1 :U--307. l'rotediou of huyerl'! of goods.
:!8 :!l-:iOl:I. l'meb1H<I' of dmttel paper 1111d non-negotiable in><trumenti;.
:.!S :tl-:iOtl. l'rott>dion of 1mrehu:<el'l'! of i11:<t111111ent:< and 1locuments.
:.!8 :U-:iltl. l'riurit.' of <'t'rtnin lien:; arising hy 01wratiou of law.
:.!8:11--lll1. .\litm1bility of 1lPbtor'" Tights: judidal proees.'-'.
:!1:1 :tl-:31:.?. l'rioritit>:-: nmoug (ontlieting seturity interests ill the ~uue eolhtlt'l'al.
:!8 :9-3I:t l'riority of >'t1urity iutere:;ts in fixtures.
:.!8 :9--:iH. At."t:essiuns.
:.!8 :11--:n:;. l'riority when gnod8 are commingled or 1irucessed.
:.!8 :9-3lll. Priority snhjeet to subordination.
:.!8 :9-317. ~t-cured party not obligated on contract of debtor.
:.!8 :0--318. l>efenses agaiu:.t assignee; moditkution of contract after notitit-ativn
f assignment; term prohibiting assignment ineffecthe; identification nud proof of assignment.
P.-1.RT 4-FrLING

28 :9--101. Place of filing; erroneous filing; removal of collateral.

28 :9--402. Formal requisites of financing statement; amendments.
28 :9--403. What constitutes filing; duration of filing; effect of lapsed filing;
duties of filing officer.
28 :9--404. Termination statement.
28 :9---105. Assignment of security interest: duties of filing officer; fees.
:!8:9---106. Release of collateral; duties of filing officer; fees.
:.!8 :9-407. Information from filing officer.
PART 5--DEFAULT

28 :9-.'501. Default; procedure when security agreement co\'ers both real and
personal property.
28 :9-502. Collection rights of secured party.
28 :9-503. Secured party's right to take possession after default.
28 :9-504. Secured party's right to dispose of collateral after defa ult; effect of
disposition.
28 :9-505. Compulsory disposition of collateral; aC<'eptance of the eollateral as
discharge of obligation.
28 :9-506. Debtor's right to redeem collateral.
28 :9-507. Secured party's liability for failure to comply with this part.

Citation of article.

PART 1-SHORT TITLE, APPLICABILITY AND

DEFINITIONS
28 :9-101. Short title
This article shall be known and may be cited as Uniform Commercial Code-Secured Transactions.
28 :9--102. Policy and scope of article
(1) Except 11s otherwise provided in section 28 :9-103 on multipl~
state transactions and in section 28 :9-10! on excluded transactions,
this artic1e applies so far as concerns any personalproperty and fixtures within the jurisdiction of the District
-----'-~~~--~~~

77

STAT .]

PUI

( n) to any tri:
intended to create
tures including g
b1es, chattel pape
(b) to any salE
(2) This article ap
including pledge, assi
<leecl, factor!s lien, ec
other lien or title rete11
as security. This art
1n0Yided in section 21
(3) The applicatirn
obligation is not affe
secured by a trnnsae1
apply.
28 :9--103. Account
equipr
com in
( 1) If the office wl
keep his records cone
perfect ion of a securi
of proper filing is g
(including the confli<
offi('e is located.
(~) If the chief p
this article gmerns t
and the possibility ai
intangibles or with re
in more than one jur:
stock, airplanes, roa
equipment, construct
<'hissified as equi}Jme
being leased by t le <.
the eonflict of laws r
of business is locatec:
loeatecl in a jurisdid
security interest by l
seenrity interest. ma~
purpose of determi111
est. m an nirplane, t
foreign air carrier till
is the- designated offi1
he made on behalf 01
(3) If personnl p
(I) and (2) is alreac
into the District, th
is to be determined
of the jurisdiction "
atta<'hed. Howe\'er
the time t.Jrnt the se
be kept in the Dist
ao dnys after the SE
transportation thrm
interest in the Disti
If the security inte
jurisdiction where tl
nncl before being b1
tinues perfede(r in
if wit Inn the four m

l:~\

77

STAT.]

PUBLIC LAW'-

.!~3-DEC.

30, 1963

747

(a) to any transaction (rep:anlles,:; of its for111) whi<'h .is

intended to create a seeurity i11te1est in personal propertv or fixtures including goods, doc11111ents, instruments, p:e.1wral lnta11gi".. 4
oles, chattel pn per, ae<ounts or cont ra<'t rights; an<l a bo
l.,
lb) to any snle of :H'eo1mts, contr:H't rights or chattel paper.
/
(2) This artirle applies to security interests r~.e_<Loy C()ntract
', ' ; t~ (
I
indmling }.l_ledge, assignment, chattel mortg-age, cnattel trust, trust
[.,;/ 1:
,
,,, ,:
deed, factorslien, equipment trust, conditional sale, trust receipt,
-1 : ,,, i" ,, _
Other lien Or title retention COntrad l\lld lense Or Consignment intended
I
/
'-'
i
_a::; security. This article does not a p1)l"'to sf.\fofory li-e11s exrept as
. I "'
!- ,,. '
.
proYidP<1 in sef'tion 28 :9-310.
, ,
(3) ';fhe '.lpplicati<~n of this arti<I<' lo a !-iecurity int~rest_in n.sec.:mec~
. '
obhgat1011 1s not alle-cted by the fa<'t that the ohligat1011 1s itself
,.
secured hy n tmnsaetion or interl'st. to whieh this arti<'le does no
'.'.'./'/applv.
,
28 ;9-103. Accounts, contract righ_ts, general intangibles and
/7 /,~~--equipment relating to another jurisdiction; and in- {/_;? ~ .--

/t.

~oming goods al~eady subject

to a security

int~rest

/C.4

&J

( 1) If the office where the assignor of ilC'co11.nts or contract rights,

)~
keep his records concerning them i in theDistri<:t, tlievalidity an'tl "'\ ~

pel'feetion of .a se:urity interest ther.em ai~cl the possih_ility and effect

US (JC
of proper filmg 1s gO\erned by this article; othennse by the law
(inclu<lin~ t11e conflict of laws rules) of the jmisdiction where suC'h
offi<e is located.
.
{ /J,e/
(~) If the chief place of business of n dehtor is in the .District, ; I,1 d
this article gO\ei:ns the rnlidity and perfel't1on of a security interest
:uHI th~ possibil~ty and effeC't of proper filing w.ith regard (o'ffeneral
111ta11g1ble.fi_or mth regard to goods of a type wluch are norma ynsecl
more than one .i11risdiC'tion (snch as autom<.>the equipment, rolli11g
stock, airplanes, rond huilding equipment,. cornn1etTinl hanesting
t>quipment, <'Onstruetion nmrhinery and the like) if such goods are
dnssified as equipn1ent or C'lassified as in\"e.ntory by reason .of their
being leased by the debtor to others. Otherwise, the law (including I .the conflict of lnws rules) of the jnrisdiC'.tion where such rhief place/
of business is located .sfrn.11 go,ein. If the <'hief place of business is
lo<'ated in a jttrisdidionwhiC'h does not' proyide forperfection of the
setm!t.r !nterest by filing or recording .i_n tl:at juris(.liC't!on, then the
secuntv mterest mn.r be perfected by filmg 111 the D1str1ct. For the
pmvose of determining the rnlidity and pel'fed ion of a !oiecurity interest man airplane, the ehief phwe of business of a debtor who is a
foreign air carrier under the Federal.\ ,iation .\et of 1958, as amended,
i:-; the. designated office of the agent upon "'hom sen ice of process may
be made on hehaJf of the debtor.
.
(3) If ;ersonal property other than that gmerned hy subsections
ULand 2 1s already subject. to a secnrit interest when it is brought
into t le District, the nilidity o
rn security interest in the District
is to be determined by the law (including the eouflid of laws rules)
of the jurisdiction where the property wa" when the secnritv interest
i~~L However, if the parfles to the tm11sadi<ii'iliilderstood at
ffie tune tlrnt the seemity interest atta<.:hed that the property would
be kept in the District and it was brought into the District within
:w days after the security interest attached for. purposes other than
tr:msportation through the District, then the validity of the security
intet-eHt in the District is to be determined by the law of the District.
If the security interest was already perfected under the law of the
jurisdiction where the property was when the security interest attached
and before being brought into the District, the security interest continues perfeeted in the District for fom months and also thereafter
if within the fom month period it is perfected in the District. These-

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[77

PUBLIC LAW 88-243-DEC. 30, 1963

748

STAT.

c111;it.v i11terest'may nlso lie pel'fleted in the l>istrkt a ft er the expirati<>n

of the four mo11th pe1iod: in sneh <ase perfection dates from the time
of perfection in the Distril't. If the security interei;t was not perfected
nnder the law of the jurisdiction where the property was when the
:;ecurity interest attached and before being- brought into the District,
it may be perfected in the District; in s1wh ease perfection dates
from the time of perfection in the Distri<'t.
(-1) Xot,\ithstnndingsnhseetions (A!) and (:1), if personal property
is eonred by a <'ertitieate of title issued under 11 statute of the District
or any other jtiriSdiction which requires in<lieation on a certilicatc of
title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction
which issued the certificate.
(i>) Xotwithstnnding snbsertion (1) :rnd set"tion ~S:!l-:102. if the
office where the assignor of ncconnts or co11tr:uts ri1..d1ts keeps his
records concerning them is not locatecl in a jmisdictio11 which is a
part of the l.7nited States, its territories or possessions, nnd the
nttotmts or contract rights are within the jmisdtction of the District.
01 the tlnnsaction which creates the sel'mity interest otherwise bears
an appropriate relation to the Distrid, this al'ticle ,!!'O\erns the rnlidity
an<l perfection of the secnrity inte1est and the se<'lll'ity interest may
only be perfected by notificntion to the a<co11nt debtor.
28:9-104. Transactions excluded from article
This article does not apply
(a) to a seeurity interest subject to any stntnte of the l ;nited
States sueh as the Ship .'.\lmtl!llge .\ct, rn~o, to the. extent that
such statute governs the rights of parties to and third pa11ies
1tffected by transact ions in pnrticn lar types of property; or
(b) to a lnndlord~s lie1l;~ or
( c) to a lien given by stl\tute or other rn le of ln w for services
or materials except as provided in section i8 :0-:110 on priority
of such liens; or
(d) to a transfer of a claim for wages, salary or other compensation of an employee; or
(e) to an equipment. trust conring n~ihrny rolling stock: or
(f) to a sale of accounts, contract rights or chattel puper as
part of a sale of the business out of which they arose, or an
assignment of a.ccounts, contract rights or chattel paper which
is for the purpose of collection only, or a transfer of a contract
right to an assignee who is also to do the performnnce under
the contract; or
(g) to a transfer of an interest or elnim in or under any policy
of insurance; or

(h) to a right represented by a judgment; or .

( i) to any right of set-off; or
. . .
.
(j) except to the extent tlu~t prons1on Is made f?r fixtur~ m
section 28 :9-313, to the creation or transfer of u.n mterest m or
lien on real estate, including a lease or rents thereunder; or
(k) to a tx:a!1sfer in whole or in part o! any ?f the following:
any claim ar1smg out of tort; any deposit, savmgs, passbook or
like account maintained with a bank, ~wings and loan association,
credit union or like organization.
28 :9-105. Definitions and index of definitions
( 1) In this article unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on an
account, chattel paper, contract right or general intangible;
(b) "Chattel paper" means a writing or writings which evidence both a monetary obligation and a ~j_ty}~tere~~ in or a

77

;/

Pl

STAT.]

lease of spee!Iic /1
sue1l 1t security a
series of instrum
stitntes chattel p:
( c) "Coll at era
terest, and inclw
which have been~
( d) "Debtor"
performn nee of
or has rights in t
/
'contract rights 01
1
of the collateral:
.; 1.J ' the owner of the
with the collater
., ///'1 rob ligation, and 11
( e) "Documer
eral definitions c
( f) "Goods" i
the security inte1
:n3), but does 1
counts, chattel J
other things in :
of animals and g
(g) "Instrum1
section 28 :3-10or anv other wr'
mone) and is no
type which is in
ery with :tny nee
(h) "Security
or provides for ;
( i) "Secured
whose favor tlH
whom accounts,
When the holder
equipment trust
or other person,
(2) Other definiti
which they appear a
"Account". S
"Consumer ~o
"Contract rig!
"Equipment".
"Farm prodm
"Filing Office'
"General inta1
:'Inventory".
"Lien credito1
"Proceeds".
"Purchase mo
( 8) The followin~
"Check". Se
"Contract for
"Holder in du
"Note". Sect
"Sale". Sect;
( 4) In addition a
of construction and

;.~~,

77 STAT.]

PUBLIC LAW,

i-t.3-DEC. 30, 1963

lea~e of :::pe<i lje goml:;. \Ylw11 a t 1:rn:-a\'I io11 i:- ,.,. id111nd I101 h h,,.
s~h :i security a.l~elllt'llt qt:,,HI~~ and l1y an i11cl.!'.!.!_llll'll( OI' a
St>!'if's of i.i:-t11111w11t~. tlw gro11p of \\:riling-.; 1:1kP11 togtlht>1' ('Oil
st1tute~

chattt>l papt>1:
(r) "('01l:ttP1al .. uw:111s the pmpl'l'I\' :-11bj1('f to :t '."'t'c11rit\' intt>rt>~t, n11d inclmles :1teo1111ts, co11tr:1<t 1ights a1Hl ('hatttl 1;:qwr
which have bt>ell sold;
-~~---.( d) "Debtor'! means the pei::mn who owes paylllent or otl1er
__ ,. , perform a nee of the ohl igation seeure1l, whet her m not he owns
or hns rights in the eollnfern 1, :rnd inclndesfTfe-'sellet-"of ncro1111ts,
contrad rights or chattel paper. \Yhere the debtor and the owner
of the collateral nre not the snme person, the term "debtor'' means
the owner of the collnternl in any pro,ision of the nrtide den ling
with the collnternl, the obli~or in nny JH'<ffision dealing "ith the
obligation, and lllny include both wh!.'re the context :;o requires:
(e) "Doeunwnt'' m<'ans doemnent of title as <hfilw<l in th{' irenernl definitiorn; of nrticle 1 (sel'fion 28:1-201):
(f) "Gornls" inC"llld<'s nil things whid1 are mornhle nt the time
the security intel'est nttaehes or whi1h nl'e fixtures (seC"tion 28 :fl~H3), but 'dces not i1lt'lmle m011ey, documents, inst rnments, a.ccounts. chattel paper, :,reneral intnn:,ribles, co11traet ri:,rhts nnd
other thinirs in action. "Goods" also indnde the 1111hom young
of nnimnls nnd growing crops;
(g) ''Instrm11enf~ n\enns n ll<'gotinhle instrument ( defineq in
section 2B :3-104), or n security (defined in sedion 28 :8-102)
or nny other writin:;r which eYidences a right to the payment of
money nnd is not itself a security n::rreement 0_1:.Jea,i'e and is of a
type which is in ordinary course of business transferred by delivery with nny necessary indorsement or assignment;
(h} "Security ng-reement'~ means an ai,neement which neates
or provides for a seenrity interest:
(i) "Secured party" means n lender, seller or other person in.
whose favor there is a security interest, including a person to
0
" hom accounts, contract rights or chattel paper haYe been sold.
'Vhen the holders of obligations issued under ar)!1denture of trust,
equipment trust agreement or the like are represented by a trustee
or other person, the representative is the secured party. ---
(2) Other definitions applying to this article and the sections in
whieh they appear are:
"Account". Section 28 :9-106.
"Consumer ~oods~'. Section 28 :9-109(1).
"Contract right". Section 28 :9-106. ~- -
"Equipment". Section 28:9--109(2).
"Farm products". Section 28:9-109(3).
"Filing Office". Section 28 :9-401 ( 1).
"General intangibles". Section 28 :9-106. t,~ ,
;'Inventory". Section 28 :9-109 ( 4}.
"Lien creditor". Section 28 :9-301 (3).
"Proceeds". Section 28 :9-306 ( 1).
"Purchase money security interest". Section 28 :9-107. i:_...../
(:1) The following definitions in other articles apply to this article:
"Check". Section 28 :3-104.
"Contract for sale". Section 28 :2-106.
. _
"Holder in due course". Section 28 :3-302. ~
"Note". Section 28 :3-104.
"Sale". Section 28 :2-106.
( ) In addition article 1 contains general definitions and principles
of construction and interpretation applicable throughout this article.

7-t.9

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

750

[77 STAT.

PUB

28 :9-112. Where <

28 :9-106. Definitions: "account"; "contract right"; "general
Unless otherwise af
intangibles"
is owned by a person
is entitled to receive j
"Account'' means any ri~ht to pa vment for goods sold or leased or
28 :9-50'2(2) or undf
for services rendered whirh is not evide11('ed hv an iusi'h1111enf'"or
debt or for any defic
chattel pa per. "Cont rnet righC men ns any riglit to paf ment nuder
the debtor
a contract. 1~aj:. ye.t earn~d_J)y perfornuuwe a n<l not e\ identt>d hy an

(a) to receive,
instrument or chattel pa per. ..General int:tnf!ihles.. men ns n11 v per1
-</.:: h (b) to receive
sona1 prol>erty ( i!wh1<Un~ things in at'! ion) other t lum goods, iH1~01mt:-:.
, posnl to retain t
contmct rights, cha tte 1pa per, <loc11111ents and inst111111e11ts.
under section 28
28 :9-107. Definitions: "purchase money security interest"
( c) to redeem
A security intt'rest is n .. purchase monev set111'it, i11tf'rest'' to tht>
( d) to obtain
l'Xtent that it is

507(1); and
(a) taken _(n re: a ine<l by the sellt'I' of the 1olh1tem l to sel'lll'I:'
( e) to recover J
, a 11 or part of its price; or
/
~,f<
.~
28 :9-113. Securit;
(b) taken hy a pe1son who hy making a<lnllH'l:'S or in('11rri1w
:, ,.., ~. __,
A security interest
an obligation gin;; \":tlue to e11:1hle the dehtor to a1q11i1< right;,;
2) is subject to the p
in or the use of 1ollatera l if s1wh rn hie is in fal't so nsl."11.
that and so long as t
28 :9-108. When after-acquired collateral not security for antetain possession of thf
1
cedent debt
(a) no securit.
/
'\Yhere a sen1re<l party makes an a1h:111te. inl'nt-z.; :111 obli;.rntion,
1 , .:. - / ~" <
terest enforceabl
releases a perfe!'ted sernrity interest, or otht'rwise gi\es 11ew ,-:tlue
I '
( b) no filing is
which j::; to be setnrt'd in whole or in pa1t hy after-nP'<lflirPd property / .:- : ( c) the rights
his security interest in the a ftt'r-al'qui1ed 1ollatera I shall he dt'emed
-'i,/ .,,.f?
governed by the
to be taken for new vah1t' and not as se('l\l'it ,. for ;111 :rntect>dent !lebt
'i
if the debtor acquires his rights in sneh <'oll;tternl eitht>r in the ordi"
PART 2-V ALII
nary course of hh; ln1si11e:->s or undPr a ('011tr:1l't of purehase llHHle pmRIGI
suant to the seeul'it\ al!reement within a reusonnbh time nfte1 new
value is gi ,-en.
~
28 :9-201. Genera
Except as otherwi
28 :9-109. Classification of goods; "consumer goods"; "equipeffective a.ccording t<
ment"; "farm products"; "inventory"
of the collaterol an<Goods are
da tes any charge or
"consumer goods" if they are used 01 houl,!ht for 11se priurnriJ:.
thereunder governir
for persona 1, fiuni1:r or household purposes;
the like, or extends
(2) "equipment' if they nre w;ed or bought for use primarih in
to any transaction n
business ( induding fur111 ing or a profession) or by n <lebto1 who.is a
non-profit, organization or a gmern111e11t11l s11bdi,isio11 or agl'llt'V or
28 :9-202. Title t
if the goods are not included i11 the <lefi11itio11s of imt'ntory, farm
Each provision of
products or consumer goods;
remedies applies wl
(3) "farm products'~ if they are crops or Ji,estock or supplies used
in the debtor.
or produced in farming operations or if they are products of crops or

28 :9-203. Enfor
livestock in their unmanufactured states (such as ginned cotton, wool1
,,,._J
requ
dip, maple syrup, milk and eggs), and if they are in the possession of
; l/"'
( 1) Subject to ti
a debtor engaged in raising-, fattening, grazing or other farming open\;
!ions. If goods are farm products they are neither equipment nor
J11 / /'o/ interest of a collecti
arising under th
mventory;
rtzr est
able against the deb
( 4) "inventory" if t~1ey nre ]1eld bya perso11 who hol<ls}l.1em for sale ~
i
(a) the col111
or lease or o be furnished under contracts of ser,ice or if he has so_, /) //!,
(b) the deb1
furnishe~m, or i
i~y are r~w ma eria s, wor 111 p1~ocess <;>r matef./l
tains a descrii:
rrars-uSed oroonsumed m a business; Imentorv of a person IS not to
security iutere.s
be classified as his equipment.
or timber to l
28 :9-110. Sufficiency of description
describing coll
For the rurposes of this article any description of personal propfurther descri1
erty or rea estate is sufficient whether or not it is specific if it reason(2) A transilctic
nbly identifies what is described.

to chapter 20 of T
26, relating to mor
28 :9-111. Applicability of bulk transfer laws
The creation of a security interest is not a bulk transfer under article
6 (see section 28:6-103).

/;

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~,~;:;.

77STAT.]

PUBLIC LAV

,:243-DEC. 30, 1963

751

28 :9-112. Where collateral is not owned by debtor

yr
agree d , wI1en a secure(1 party knows t I1at co11 at era l
1... n 1ess ot I1erw1se

.'rl

1
' i (A'
Y. 1 \ ,.,,.
1

is owned by a person who is not the debtor, the ownt>r of the collateral
\ (, ; f7 '1 11_ ", I
is entitled to receive from the secured party nn.r smplus under section
K""
.1"'
28:9-502(2) or umler section :.?S:!l-504(1) . and is not liable f01 tlw
J:r
1) 1
..111
debt Or for an.r deficienC.)' after resale, Hild he has the S:lll\e right :I~ ') 1'. !,i a~
I .
thedebtor
.
,y
r'~1,J
1
(a) to recei,e statements under section 28 :0-208;
'.
., !'
1 VV
1
(b) to recein notice of and to object to a secured party's pr~~ G '
~1
posal to retain the collateral in satisfaction of the indebtedness
Jc i/
under section 28 :9-505;
g, 0 \
( c) to redeem the collateml under section 28 :9-506;
J; ,&,
(d) to obtain injunctive or other relief nnder section 28:9( I -:{
507(l);and
yJ
( e) to reco,er losses caused to him under section 28 :ll-:W8(2).
\
28 :9-113. Security interests arising under article on sales ,,.--..,\.
A security interest arising solely under the article on sales (article
2) is subject to the provisions of this article except tlrnt to the extent
that nnd so long as the debtor does not ham or does not lawfully ob- I
tain possession of the goods

/;
(a) no security ngreement is necessar.r to mnke the security in .
terest enforcenble; and

( b) no filing is required to perfect the security interest; and

"'\
(c) the rights of the secured party on default by the debtor nre
governed by the urticle on sales (article 2).

PART 2-VALIDITY OF SECURITY AGREEMENT AND

RIGHTS OF PARTIES THERETO

28 :9-201. General validity of security agreement

Except as otherwise provided by this title a seemity agreement is
effective n.ccordin!! to its terms betweei1 the part~_~, against purchasers
of the ~nd ngamst c e.d.i1liii Nothing in this nrticle validates any charge or m:acti~e_ illegal under any statute or regulation
thereunder governing usury, small loans, retail installment sales, or
the like, or extends the ilpplicntion of any s11eh statute or regulation ~~
to any transaction not otherwise subject thereto.
28 :9-202. Title to collateral immaterial
Each provision of this article with regard to.,.rig}1ts. obligations and
remedies applies whether title to collateral is m t le secured part_x~_Qt,:_
in the uebtor.
28 :9-203. Enforceability of security interest; proceeds, formal
requisites
(1) Subject to the provisions of section 28 :-1--208 on the security
interest of a collecting bank and section 28 :9-113 on tt security interest arising under the article on sales, a security interest is not enforceable against the debtor or third parties unlesS'
(a) the collateral is in the possession of the secured party; or
(b) the debtor luu; signed a security ngteement which contains n description of the collateral and in addition, when the
security interest. covers crops or oil, gas or minemhi to he extracted
or timber to be cut, a description of the land concerned. In
describing collateral, the w0td ''proceeds.. is sufficient without
further description to cover proceeds of any (lumwtet.
(2) A tr:rnsaetion, although subject to thh; urtiele, is also subject
to chapter 20 of Title 2, rela,ting to pnwnbrokers, chapter 6 of Title o.c. Code 22019
96
reh.tin()'
to money lenders ' chtlI)ter 7 of Titlt> .J.O' rt>lating to liens 2001
to 2;
!
' ' b
26-601 to 26-611;
40.70 l to 4071 S.

f Co-I--

52

PUBLIC LAW 88-243-DEC. 30, 1963

o.c.

['77

STAT.

77

on motor vehil'les, and ehapter !) of Title 40, rt>l11ti11g- to installment

sales of motor ,ehicles, and in the rase of contlict between the pro\'i8ions of this article and any snch stntnte, the prod8ions of such statute
control. Failure to comply with nny applicable statute has only the
effect which is specified therein.

Code 40-

1 to 40-910.

28 :9-204. When security interest attaches; after-acquired property; future advances

k 5~

( 1) ..-\. ~cnrity interest cannot attal'h until there is agreement (subl2

-, .
I rI v
/~ section(!~) of se<;"tion ~8 :1-:Wl) that it attach and \alue is given aml _,,,..,
1 /'
!. the debtor has rights m the collateral. It nttal'hes as soon as ull of
;!._;, ./ the events in the ])receding sentence han tnken plal'e unless explieit, l
'
agreement. postpones the time of nttachi11g-.
/ /
(2) For the purposes of this section the debtor has 110 ri}El~1ts
, /~/~
. (n) in r1:ops until they nr~ planted o~\'lselieco111~ grow.: / /
mg crops m the youwr of hvesto1:k until they are l'o11re1ved:
//
(b) in 'tish until cat:g.ht, in oil, gas or minerals until they at\>
/
extracted, in timber until it is cut;
\
----" (c) in a rontraet right until the l"Ontmd has Leen made: J
'-( d) in an ncconnt until it comes into existence.
- --pq Except as provided in subsectio~t (-l) a security agreem~nt 1~iay
provide that collnternl, )dienever n<'qmred, shall secure all obhgat1011s
l'overed by the security agreement.
.
(4) Xo security interest attaches nn<ler an after-iwqmred property
dause
(a.) to crops which become such more tlrnn one year after the
security iwreement is executed except thnt a security interest in
.:rops whicl1 is given in conjunction with a lease or a land purchase
or improvement transaction evidenced by a contract, mortgage or
deed of trust may if so agreed uttnch to crops to be grown on the
lanrl concerned during the period of such real estate transaction:
(b) to consumer goods other than accessions (section 28:9ri .J)314) when given as additional security unless the debt~r acquires
' ;.) ,,,'
. ---- ri<rhts in them within ten days nfter the secured party gwes value.
!'
(5) ~Obligations covered by a seeurity agreement may inchtde fu!ure
,. , ndnrnces or other value whether or not thenrl\ancesor value are given
:,_pursuant to commitment.
.

,.

Al

28 :9-205. Use or disposition of collateral without accounting

permissible
A security interest. is not invalid or fraudulent agaii~st creditors by
renson ofJlbetl,}W!!.Jh~ debt~r to use, con:_~E_:gle or diSI!Q$0 of all or
part of the collateral (m.cludmg returned or repossessed goods) or to
colle<:t or compromise accounts, eontract rights .or chattel paper, or
to accept. the return of goods or make repossess1o~s, or to use, commingle or dispose of pr01?eeds, or by reason of the failure of the secured
party to ~equir~ the debtor to account fo!' proceeds or repln;ee collateral. Tlns section does not relax the reqmrements of possess10n where
perfection of a security interest depends upon possession of the collateral by the secured party or by a bailee.

6 28 :9-206. Agreement not to assert defenses against assignee;

~
modification of sales warranties where security
agreement exists
( 1) Subject to any statute or decision which establishes a different
rule for buyers or lessees of consumer goods, an agreement by a buyer
or lessee that he will not assert against an assignee any daim or defense
which he may have ~gain:>t the seller or 10SS?r is ep.foi:ceable by. an
assignee who takes his assignment for value, m good faith and w1~h
out notice of a claim or defense, except as to defenses of a type which
may be asserted against a holder in due course of a. negotiable instru

4,,1

STAT.]

ment under the article 01

as pa1t of one transacti
~urity agreement makr
(2) When a seller re
g-oods the article on sal
..!aimer, limitation or mi
{!'( 28 :9-207. Rights am~
_ .
possess1c
-~
( 1) A secured party
preser,ation of collateri
ment or chaUel paper r,
w preserve rights agair
(2) Unless otherwise
possession
(a) reasonable e
and payment of tn
presenation, use o
the debtor and are
(b) the risk of
the extent of any
( c) the secured
increase or profits
but money so rec'
applied in reducti<
(cl) the secured
fungible collateru 1
( e) the secured
which do not imp1
(3) A secured part:
meet any obligation im
lose his security inte1-e~
( 4) A secured part:
pose of preserving the
of n c>onrt of itpprop1
snmer goods, in them
agreement.
28 :9-208. Request
(1) .\ debtor mny
lie the aggregate amo1
and mny send it to th1
lie approved or corre
cnrity ngreement or n
lies the <:ollateral a d
a pprove or correct. a Ii
( 2) The se<"ured pi
weeks after receipt b
I he secured party cla
of c>ollnteral owned b
an<l need uot apprO\.;
I he secured party wit
for any loss caused t.
l'rly included in his
or a list of the collatE
interest only as sho''
failure to comply.
ol collateral at the
llame and address o
i,.; liable for :my los~
93-025 0--64-50

PUB LI

4)

77 STAT.)

PUBLIC LA\\ _..:~43-DEC. 30, 1963

ment under the article on comme1rial paper (article:)). ~\ huyer who

as part of one trnrnmction signs both ii negotiable inst mment and :1
security agreement makes such an agreeme1!t.
(2) \Vhen a seller retains a. purchase money security interest i11
goods the article on salE:s (article 2) g<H"ems the snle an<l am <lisdaimer, limitation or modification of the seller's warrunties.
28 :9-207. Rights and duties when co1Jateral is in secured party's
possession
(1) A secured party must. use reHsonable ea re in the custody an cl
preserYation of collateral in his posses.<>ion. In the rase of an instrument or chatt.el paper reasonable care includes taking necessary steps
to preserve rights against prior part.ies unless otherwise agreed.
(2) Unless
otherwise agreed, when eollaternl is in the secured partv':-i
.
.
possession
(a) reasonable expenses ( inclmling- the .ost of any immrnnce
and payment of taxes or other charges) incurred i11 the custody,
preservation, use or operation of the <ollatern l a 1e ehaqreahle to
the debtor and are secured by the tollaternl:
(b) the risk of accident a I loss or damage i:-; on the debtor to
the extent of any deficiency in any effective insurance covernge;
. ( c) the secured party may hold as additional seeurity im;r
mcrease or pl'Ofits (except money) 1-eceind from the collateral.
but money so reeeirnd, unless remitted to the dehtor, shall he
applied in reduction of the secured obligation;
( d) the secured part\ must. keep the colhiteml identifinble but
fungible collatera! may~he commingled:
( e) the secured pa11y may rep ledge the <ollateriil upon tem1s
which do not impair the debtors right. to redeem it.
(3) A secured party is liuble for uny loss <~aused by his failure to
meet any obligation impo:-;ecl by the preceding subsections hut does not
lose his seemity inte1-est.
(-l) A secured pa11y may use or opernte the collateral for the purpose of preservin~ the eollater:il or its rnlue or pursuant to the order
of n rourt of appropriate jurisdiction or, except in the ense of consumer goods, in the manner and to the extent provided in the security
ag1-eement.
28:9-208. Request for statement of account or list of collateral
( 1) .\. debtor may sign a statement indicating what he belie\es to
be the aggregate amount of unpaid indebtedness as of a specified date
and may send it to the seeurecl party with a request that the statement
he approved or <orre<"tecl nnd retumed to the debtor. "11en these1urity ngreement or any other record kept hy the secured party identities the collateral a debtor may Himilarly re1ue:-;t the secured party to
a pproe or correct a list of the tollateral.
(2) The serured party mu:-;t romply with sueh u request within two
weeks after receipt by sending IL written l'OtTeetion or approntl. If
1he secured pa.My clauns a security interest in all of n particulnr type
of collateral owned by the debtor he may indicate that fact in his reply
and need not appro,e or correct an itemized list of sueh collateral. If
the secured party without reasonnble excuse fails to comply he is liable
for any loss caused to the debtor thereby; and if the debtor has propPrly included in his request a good faith statement of the obligation
or a list of the collateral or both the secured :party may claim a security
interest only as shown in the statement agamst persons misled by his
failure to comply. If he no longer has an intere:-;t in the obligation
ot collateral at the time the request is received he must disclose the
name and address of any successor in interest, known to him and he
is linhle for any ]oss caused to the debtor as a result of fa,ilure to dis93-025 0-64-50

753

754

'

""~i;,.,~::..,., ,.:; ;,. ~\cyt,,~K ... '

t-'i~{

'

PUBLIC LAW 88-243-DEC. 30, 1963

:t' "

:::_.':.,.s t~:1~ ".

t e ~~~ :.~,.\.: ;;,,.~ $~

(77

STAT.

<'1o:-ie . .\ :-;mTessor in i111e1e:<t j;.; not s11hjet'f to this sedio11 1111til n re'Jnest is recehed h.v him.
_(:~) A debtor is entitled to s1wh n stntemen~ 01we every six months
without thnqre. The secured pnrty may reqmre payment of a chnrrre
not exceeding$11l forench nddttionnl statement fumished.
"'

PART 3-RIGHTS OF THIRD PARTIES; PERFECTED AND

UNPERFECTED SECURITY INTERESTS; RULES OF PRIORITY
28:9--301. Persons who take priority over unperfected security
interests; "lien creditor"
(1) Ex<'ept as otherwise provided in subsection (2), an 1mperfe<'te<l security interest is subordinate to the rights of
(a) persons entitled to priorit~ under .seetio1~ 28 :n-:n2;
(b) a person who becomes a hen creditor w1tho11t k11owled1re
of the security interest and before it is perfected:
"'
( c) in the cnse of goods, instrnments. documents, and drnttel
pa per, a person who is not a secured pn rt y nnd who is n t rn nsferee
m bulk or other buyer not in ordinnry course of business to the
extent that he gins mine and reeeiYes deli\erv of the collateral
without knowledge of the security interest and before it is
perfected;
(d) in the case of accounts, contract rights, and genernl intangibles, a person wl,10 is not a secured party nnd who is ii trnnsferee
tot he extent that he ghes mine wit lwut knowledge of the security
interest and before it is perfected.
(i) If the secured party files with respect to n purehnse money
t'iecurity interest before or within ten days after the col1atera.l comes
into possession of the debtor, he hikes priority o,er the rights of a
transferee in bulk or of a lien creditor which nrise between the time
the security interest attaches and the -time of filin~.
(3) A "lien creditor" means a creditor who has ncquired a lien on
the property imolved by attachment, levy or the like and includes an
assignee for benefit of creditors from the time of assignment, and a
trustee in bankruptcy from the date of the filing of the petition or a
receiver in equity from the time of appointment. Unless all the
ereditors represented had knowledge of the security interest such a
representathe of creditors is a lien creditor without knowledge e\en
though he personally has knowledge of the security interest.
28 :9--302. When filing is required to perfect security interest;
security interests to which filing provisions of this
article do not apply
(I) A financing statement must he filed to perfect all security
interests except the following:
(a) a security interest in collaternl in possession of the secured
party under section 28 :!J-305;
(b) a security intere;t temporarily perfected in instruments or
documents without delivery under section 28 :9-304 or in proceeds
for a 10 day period under section 28 :9-306;
( c) 1i purchase money security interest in farm. equipment
having a purchase price not in excess of $2,500; hut filmg is
required for n fixture under section 28 :9-31:i or for a motor
vehicle required to be licensed;
( d) a purchase money security interest in consumer goods; but
filing is required for a fixture under section 28 :!J-313 or for
a motor velucle required to be licensed;

77 STAT.}

PUBL

( e} an nssigmneu
not alone or in con'
assignee transfer a
or contract rights of
(f) a security in
208) or arising und
or covered in subsec
( 2) If a seemed part)
under this article is req1
of the security interest
original debtor.
(3) The filing provis
interest in property sub:
(a) of the Fnih
istrntion or filing 1
(b) of the Unite
,ides for central fil
trailer which is not
of tit le is required
of Title 40.
( -1) .\ security inter1
in subsection (3) can b(
that statute or by indici
tit le or a duplicnte then
28 :9--303. When sef

perfecti

(I) ..:\ secul'ity inter<

:ill of the applicable s

Such steps are specifie
and i8 :9-306. If su<
attaches, it is perfected
(2) If a security in
mitted under this artic
wuy under this article,
perfected, the security
tinuously for the pnt'P
28 :9--304. Perfectic

men ts,

by per1

filing c
(1) A security inte
may be perfected by fi
than instruments whic
fected only by the se<
,-ided in subsections ( <
(2) During the pe
issuer of a negotinble
~oods is perfected by
and any security inter
period is snbje~t t~ere
(3) A security 1?1te
than one who has 1ssr
by issuance of a docm
bailee's receipt of no
filing as to the ~oods.
( 4) A secur1ty int<
perfected without fl.Ii

fj}

77 STAT. ]

PUBLIC LAW 88-243-DEC. 30, 1963

( e) nn assignment of nccounts or cont rad rights which does

not alone or in conjunction with other nssi.!!nnwnts to the ;.;ame
assignee transfer <\ signitkn11t pnl't of the c'Jntstanding nero11nts
or contract rights oft he assignor;
( f) a security interest of a co lied ing bank (section ~8: +208) or arising under the artide on sales (see section ~8:9-113)
or conred in subsection (:3) of this seetion.
(2) If a secured pnrtv assigns a perfected sec11l'ity interest, no tiling
under this article is reqiiired in order to eontin11e the perfe<'ted status
of the security interest against creditol's of and trnrn;fe1ees from the
original debtor.
(3) The filing proYisions of this article do not apply to a seeurity
interest in property subject to a statute
(a) of the rnited States which p10,i<les for a national 1egistrntio11 or filing of all security interests in such property: oi(b) of the United States pertaining to the Distriet which pro,ides for central filing of secnritv interests in a motor Yehicle or
trniler which is not in\entory hefd for sale for whidt a c.ertificate
of tit le is requil'e<l to be i~sued under the pro\"isions of ('ha pt er 7
of Title 40.
(!) .\security interest in property eo\"ered hy a statute described
in suhse('tion (3) can he perfected only by l'egistration or filing under
thitt statute or by indication of the security interest on a eertificate of
title or a duplieate thereof by a p11blic officiul.

28 :9-303. When security interest is perfected; continuity of

perfection
(1) _\security interest is perfected when it has ntta<'hecl and when
nil of the applicable step~ required fo1 perfection hnYe been taken.
Such steps are specified in sectiom; 28 :0-302, 28 :!.l-30-!-, 28 :9-305,
and 28 :9-306. If sueh steps are taken before the security interest
attaches, it is perftcted at.the time when it nttaches.
(2) If a security interest is orij.!innlly perfected i11 any way permitted under this article and is snh~equently perfected in some other
way under this article, without an intermedinte period when it was unperfected, the security interest. shall be deemed to he perfected continuously for the purposes of this a1ticle.

28 :9-304. Perfection of security interest in instruments, docu. ments, and goods covered by documents; perfection
by permissive filing; temporary perfection without
filing or transfer of possession
(1) A security interest in chattel paper or negotiable documents
may be perfected by filing. .A security interest in instruments (other
than instruments which constitute part of clrnttel paper) can be perfected only by the secured party's taking possess10n, except as pro,ided in subsections (4) and (5).
(2) During the period that goods are in the possession of the
issuer of a negotinhle document therefor, a security interest in the
~oods is perfected by perfecting a security interest in the document,
nnd any security interest in the goods otherwise perfected during such
period is subject thereto.
(3) A security interest in goods in the possession of n, bailee other
than one who has issued a negotiable document therefor is perfected
hy is.'lunnce of a document in fhe name of the secured party or by the
bailee's receipt of notification of the secured party's interest or by
filing as to Hie goods.
( 4:) A security interest in instruments or negotiable documents is
perfected without filing or the taking of possession for a period of

755

756

PUBLIC LAW 88-243-DEC. 30, 1963

[77 STAT.

21 days from the time it attnd1es to the extent that it ariSE>s for new
rnlue given under ii written security 1wreement.
(5) A security interest remains pe1fected for a period of 21 days
without filing where ii secured l?arty hitYing a perfected security
interest in an instntment. a negotiable document or goods in possession of a bnilee other thnn one who has issued a, negotiable document.
therefor
(a) makes nvnilable to the debtor the goods or documents
representing the goods for the purpose of ultimate sale or
exchnnge or for the purpose of loading, unloading, storing, shipping. transshipping, manufacturing, prO<'essing or otherwise dealmg with them in a manner preliminary to their sale 01 exchange;
or
(b) delivers the instrument to the deht01 fm the purpose of
ultimate sale or exclump:e or of present at io11, collection, renewal
or registration of transfer.
(6) After the 21 day period in snhseetions (4) untl (5) perfection
depends upon compliance with applicable proYisions of this article.
28 :9--305. When possession by secured party perfects security
interest without filing
A security interest in letters of credit. and adYiees of credit (subsection (2)(a) of section 28:5-116), goods, instruments, negotiable
documents or chiittel paper may be perfected by the secured pnrty's
taking/ossession of the collateral. If such collateral other than goods
covere by a negotiable document is held by a bailee, the secured party
is deemed to have possession from the time the bailee receives notification of the secured party's interest. .A security interest is perfected
hy possession from the hroe possession is taken without relation back
and continues only so l01ig as possession is retained, unless otherwise
specified in this article. The security interest may be otherwise perfected as provided in this article before or after the period of possession by the secured party.
28 :9--306... Proceeds"; secured party's rights on disposition of
coHateraJ
(1) "Proceeds' includes whatever is received when collateral 01
pr1weeds is sold, exehanged, collected or otherwise disposed of. The
term also includes the nceount arising when the right to payment
is enrned under a contract right. Monev, checks and the like are
'"cash proceeds". All other proceeds are ''non-cnsh proceeds".
(2) Except where this article otherwise pro,ides, a security interest
1011ti11ues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by
the secured party in the security agreement or otherwise, and also
1~ontinues in any identifiable proceeds including collections received
hv the debtor.
v (:3)
The security interest in p1oceeds is a continuously perfecte<l
!oleeurity interest if the interest in the orig-inal collateral was perfected
hut it ceases to be a perfected security interest and becomes unperfeded ten days after receipt of the proceeds by the debtor unless
(a) a filed financing statement covering the original collateral
also covers proceeds; or
(b) the security interest in the proceeds is perfected before the
expiration of the ten da.y period.
(-1:) In the event of insolvency proceedings instituted by or al?ainst
a debtor, a secured party with a perfected security interest in proceeds
has a perfected security interest
(a) in identifiable non-cash proceeds;

77

STAT.]

PU Bl

(h) in i1leut ifiable

<ommingled wit
prio1 to the insolve
( c) in identifiabh.
like which are not
insolvency proceedii
( d) in all cash a1
1roeeeds have been
lilt. the perfected s
( i) subject t;
(ii) limited
any cash l!roc!
before the mstl
mingled 01 dep
proceedings le~
debt01 and pai
period.
( 5) If a sale of good
is trllnsferred by the s1
J"t"tllrlled to 01" are rer
1h1:> following rules det(
(a.) If the good
debtedness of the s
interest attaches UJ
security interest ii
were Hold. If the
tiling which is stil
t.inue the perfecte
must take posse~
must file.
(b) An unpaid
interest in the goc
est is prior to it se
the extent that th 1
priority under ~c1
(c) An unpaid
in the goods aga
imbordinate to a ~
( d) A security
paragraph (b) o
creditors of the t
possessed goods.
28:9--307. Protecti
( 1) A buyer in 01
irection 28:1-201) ot
a. person engage<_i in ~
est created by his sel
imd even though the \:
(2) In.the case .o~
ment ha vmg an or1g1
than fixtures, see sec
interest even though
Hecurity interest, for
hold purposes or h
purchase the secure<
Huch goods.
not

~\

' ':~

77 STAT. ]

PUBLIC LAW a._ .. 43-DEC. 30, 1963

(h) in i<le11tifiaule cnsh proceeds in the fomi of moneJ which is

uot comminirle<l. with other money or deposited in a ha11k lH'('OUllt
prior to the insoh-ency proceedings;
( c) in identifiable cash proceeds in the form of checks aml the
like which are not deposited in a bank account prior to the
insohency proceedings; and
(d) in all c1tsh and bank accounts of the debtor, if other ca~h
1roceeds have been commingled or deposited in a bank account,
1mt. the perfected security interest under this paragraph (d) is
( i) subject to any dght of set-off; and
(ii) limited to an amount not greater than the amount of
any cash eroceeds received by the debtor within ten days
before the mstitution of the insolvency proceedings and commingled or deposited in a bank aceount prior to the insolvenc.r
proceedings less the amount of cash proceeds received by the
debtor and pa.id over to the secured party during the ten day
period.
(f>) If a sale of goods results in an account or chattel pnper which
is trnnsferred by the seller to a se<'ured party, and if the goods :tr\.'
'"turned to or are repossessed by the seller or the secured pa11y,
the following rules determine priorities:
(a) If the goods were collateral at the time of s:tle for an indebtedness of the seller which is still unpaid, the original security
interest. attaches again to the goods and continues as a p:?rfected
security interest if it was pedected at the time when the goo~ls
were wld. If the security interest was orig:nally perfected by .l.
tiling which is still elfective, nothing further is required to continue the perfected status; in any other ease, the secured pilrty
must take possession of the. returned or 1-epossessed goods or
must file.
( b) An unpaid trnnsferee of the chattel paper has a security
interest in the goods against the trnnsferor. Such security interest is prior ton security interest asserted umlt>r paragraph (a) to
the extent that the transferee of the chattel paper was entitled to
priority under section 28 :9-308.
( c) An unpaid transferee of the account has a security interei:;t
in the goods against the transferor. Such security interest is
subordinate to a security interest asserted under paragraph (a).
( d) A security interest of an unpaid transferee asserted under
paragraph (b) or ( c) must be perfected for protection against
creditors of the transferor and purchasers of the returned or repossessed goods.
28 :9-307. Protection of buyers of goods
(1) A buyer in ordinary course of business (subsection (9) of
section 28 :1-201) other than a person buying farm products from
a. person engaged in farming operat'.ons takes free of a security interP.st created by his seller even though the security interest is perfected
1md even though the buyer knows of its existence.
(2) In the case of consumer goods and in the case of form e<p1iprnent having an original purchase price not in excess of $2,500 (other
th1m fixtures, see section 28:9-318), a buyer takes free of a security
interest even though perfected if he buys without knowledge of the
Hecurity interest, for value and for his own personal, family or household purposes or his own farming operations unless prior to the
purchase the secured party has filed a financing statement covering
11uch goods.

757

PUBLIC LAW 88-243-DEC. 30, 1963

i8

[77

STAT.

77

28:9-.'lOS. Purchase of chattel paper and non-negotiable instruments

28 :9-.309. Protection of purchasers of instruments and documents

Xothi11g in this a1;ti<le limits thp 1ights of a lwl<ln in due <011rse <if
a 11e1rotiable. i11str11111ent (sectio11 ::!8 ::\-:10-2) or a holde1 to whom a.
11eirotiable <lrn11111e11t of tit le h:ts hePll duh 1wgot iate<l ( se<~t ion i8 :7tilll) or n lm11a fide [Hll'<'lt:1se1 of n ~ec11r'1t \' (s(c1 ion :!8 :K-:~01) and
siwh holders or p111chase1s take ptior:ty ,;\'Pl' au earlier secur ty i11. t Prest e\'ell though perfedt>c l. l'i I i111! 1111de1 th is a rt icle doP., 11ot. eon!.t; t11te 110tic1;> of the se111rity i11te1est his1wJ1 holder::; or p1mhasers.

28 :9--.310. Priority of certain liens arising by operation of law

"lien a person in the orct:11:1ry !'0111s(> of liis_ lmsi1iess l\1mi.s!1es ser\i11;>i:; or nmterials with respet't to gornls.suhje!'t to a se('1111ty mrerest, a
lien upon goods in the p!!Hse:::sim1. of such perso_ll gi\'e11 h,\~ st11tute or
nrle of Ju w for s1wh ma term I:-; or sPn wes takes 1iriont .v <H"e1 a pl'rfe<"ted
s1;><11ritv interest 1111'1;>ss the l_il'll is stnt11tory a11<l tlw statute exprf:'Hsly
provides otherwise.

28 :9-311~

Alienability of debtor's rights~ judicial process

The llehtor's l'ights in !'ollareml may IJP ,-ol1111t~1r-ily or ill\Jl111it11rily

t rani:;fer1e<.l (by way of sale, ~'l'P:~t i.0111.1f a se<11rity in.tP1 est, a!taC'lunent!
lPvy, ,garn1i:;hment. pt other ,111d1<rnl p:o~~ss) notw1thst1~1_1d111g 11 p_ro-

vision in the. see11r1ty agree111e11t prol11h1t111g nny t1:111sfer or makmg

the tmnsfer constitute a default.

28 :9;-.--312. Priorities among conflicting security interests in the

same collateral
g~,

ern where applieahle: ;;edion 28:4-208 with resped to the see11l'lt)'

interei;t of collect in~ hauks_in items ;ing colle<'te<~, :1<'<'<?lllP:!11ying <l~l<'11me11ts and proceeds: sed1011 28 :n-.~01 011 <e1t:1 m 1>11ont.'"'s.: Sl'd ion
28 :9-304 on goods co,ered by documents; section 28 :9-.~0h 011 proceeds and repossessions; sect ion 28 :9-!307 011 buyers of goo<ls; se<'t ion 28 :9-308 on possessory against non-possesHory interests in chat!el
paper or non-ne .....otinble instruments; section 28 :!l-:109 on security
interests in negotiable instruments, documents or securities; section
28 :9-31~ on priorities b.etween perfected secu~ity. interests. and lien~
by ope!-'atu~n of law i section 28 :9-313. on security mterests 11_i fi~ture~
as ngamst mterests m real estate; section 28 :9-:U4 on security rnterests in accessions as against interest in goods; section 28:~)--~15 on
conflicting security interests where goods lose their identity or.hec;>nw
part of a product; and se~tioi:i 28 :9~16 on contractual subord1:iatton.
(2) A perfected security mterest m crOJ?S for new valu~ f!trnn to
enable the debtor to produce the crops durmg the product10n se1u:io11
and given not more than three months before the crops become :rro.winu crops by planting or otherwise takes priority over an earher
pe~fected security interest to the extent that snch earlier interest

PUBLI

scc11res obligations due 111

g1owil1g crops by planti1
iiw new vah1t- lrnd know
(a) A purchase money
pl'iority mer a conflicti11
(a) the purcluu1e
time the debtor rece
(b) any secured J
1he holder of the pm
to the date of the
money security inter
the same items or ty
the purchase money
possession of the coll:
interest.; and
(c) such notifi<ati
has or expects to aC'
in:ventory of the debt
(-:I:) A purchn~ :i.1one
i1He11tory hrcs priority o\
!'Ollnteral if the pure has!
time the debtor receires
1lavs thereafter-.
u>) In a 11 cases not 1:!'
( i11cludi11g cases -0f _pure
qualify for the specml_p1
of this seetion), priority
same eoll11.teml shall be df
(it) in the order oless of whieh seeurit
:!04( 1) au<l ""hether
(l>) in the order
"filing, regardless of
section 28:9-20-:1:(1;
whether it nttachedl:
(c) in the order<
long- as neither is per
(Ii) For the purpose<
1eding subsection, a. eont
tnated at all times as i
rwrf(>(ted and it shall be
than hy liling if it was<

.\. purehaser of <'hnttel pa per 01: a 11011.-n~got iahle i.nsl rm11e11t who
gfres new rnlue and t11kes possess10n of 1t m the 01"<l111ary <011rse of
his husines...; a11<l witho11t k11owle1lgl'. that the spe<"iti<~ paper or in.stru111e11t. is subject to 11 i:;e<mity interest. has priority mer a ?e<;urit:y .in1p1est wh i<h is pt>deded nn<ler sl'd.1011 ::!H :H-:\04 (perm 1Hs1 \'e tilmg
:11ul te111 porn ry perfeC'tio11) .. .\. l?l!rt;hnser of ~~hattl'l pa per wit~> giv~is
new \'al11e and takei:; possts:-;1011 of 1t m the onl111ary <0111se of l11s bui:;111esi:; has priority o\er a Hl'<'ll.''!ty i11tl:'l'e:->t ir~ chattel pap~r ":hich is
dai111ed 111erely a:-; prrnee<ls of 111\'e11tory s11hJel'f to a se!'11~1.ty 111terei:;t
(sedio11 ::!H:9-:1!16), e\eu tho11,td1 lw knows that the spp11fk paper is
imbject to the se111rity interest.

(1) The rules of priority stnted in the fo!lowing :-1e<'tio11i; r-;hall

STA.T.

28 :9-313. Priority of
( 1) The rules of this s
a !itl'Ucture in the manm
work and the like and l
a1;ticle unless the structt
bte law. The law of th
whe1her nnd when other
pre,ent creation of nn e
!'llll nt tot.he law applicnb
(2) A security mtere~
fixtures takes priority n
who have an interest in
( 4:).
(:1) A security iutere
lixt ures is valid against
in the real estate excer
against any person witl

77 STAT. J

PlBLIC LAW 88-2-t.3-DEC. 30, 1963

secures obligations 1hw 11101e than ,.;ix 111011ths htfore thf' cl'Ops lil'<'ot110
growing crops OJ pla111i11g or otlit-1wise, l'\"Pll though tlie 1wrso11 g;i1i11g ne-w \'a]11p had knowledge of tlw 1arli11 sp111rity inttnst.
(a) A purchase money secmit~' interest in innntory 1ollateral ha,.;
prio1ity o,er a contlictin,!! see1mty intPre-st in the same collateml if
(a) the purchase money security intert>st is perfl'cte1l at the
time the debtor reeei\'e8 poi;se11sio11 of the collateml: and
(b) any secured pnrty whose ;:;eeurity interest. i:-i k11ow11 to
the holder of the purchase mo11ey 11ecurity interest or who, prior
to the <lnte of the filing 1111ule by the holde1 of the p11rclu1se
money security interest., had filed :t fi11anci111! st:lteme-nt 1ove1i11;.r
the same items or tvpe of in,entorv, has received notification of
the purchase money se<nrity i11te1-E-st before the debtor l'P<'1i1es
possession of the collateral l'o1ered hv the p111<'hase 111011e, til'<'nritv
i11terest:nnd

(c) such 11otitfratio11 states that the pt>rson giving the notice
has or expects to 1H.'<p1ire rt pm1hase money i:;el'Hl'ity inte1est in
imentory of the debtor, des11ihing sueh inwntmv hv item 01 t\pe.
(.:!) A purchase money security interest in eoll:lte11il other tlwn
inventory has priority o,er a to11tficti11g security interest in the same
!'Ollateral if the pmchnse mo11ev securitv intel'est is perfede<l at the
time the debtor recei,es pm;i:;e8sion of the collateral or '"ithin ten
1lnys thereafter.
(5) In all cases not gme11ie(l hy other rnlls state1l i11 this sedion
( iuC'luding cases of purchase money sel'lll'it y i 11te-rests wh kh 1lo not
qualify for the speeial priorities set forth in subsedions (:l) h1ul (-j.)
of this se<'tion), priority between contlirting S(;'l'11rity i11ten~sts in the
snme collatern l shall be clete1111i11ed as follows:
(ii) int he order of Iii ing if both are iwrfeded by filing, regardless of which seeurity interest attached tirst umler tie<'t ion ~8 :!)204( 1) nnd wh 0~ther it attached before or a ft er fi I ing;
(b) in the order of perfection 1111les.-; hoth are perfeeted by
tiling, regardless of which security i11tere::;t attachetl fir& under
section 28:9-20-l(l) and, in the <'ase of a filed se<'urity interest,
whether it attached before or after filing; and
(c) in the order of attachment. nmler sedion 28:0-20-J.(1) so
long as neither is perfected.
(ti) For the puq)()se of the priority rules of the immediately preceding subsection, a contin11ously perfected security interest shall be
treated nt all times as if perfected by filing if it wns originally so
perfected and it shall be treated nt all times as if perfected otherwise
than by filing if it was originally perfected otherwise than by filing.
28 :9-313. Priority of security interests in fixtures
(1) The rules of this seetion do not apply to goods incorporated into
a structure in the manner of lumber, bricks, tile, cement, glass, metal
work and the like and no seeurity interest in them exists under this
article unless the structure remains personal property under applkabte law. The law of the District. other than this subtitle determines
whether and when other goods become fixtures. This subtitle does not
prevent creation of an encumbrance upon fixtures or real estate pursuant to the law applicable to real estate.
(2) A security mterest which attaches to 1:toods before they become
fixtures tnkes priority as to the goods over the claims of all persons
who ha.ve au interest in the real estate except as stated in subsection
( 4).
(3) A security interest which attaches to goods after they become
fixtures is valid against all persons subsequently acquiring interests
in the real estate except as stated in subsection ( 4:) but is invalid
against any person with an interest in the real estate at the time the

759

760

PUBLIC LAW {lB-243-DEC. 30, 1963

[77 STAT.

security interest attaches to the goods who has not in wl'itiiw consented to the security interest or disclaimed an interest in the "'goods
as fixtures.
(4) The security interests described in subsections (2) imd (3) do
not take priority owr
(a) a subsequent. purchaser for rnlue of any interest in the
real estate; or
(b) a creditor with a lien on the real estate subsequently
obtained by judicial proceedings; or
( c) a creditor with a prior encumbrnnce of record on the real
estate to .the extent that he makes subsequent advances
if th~ subsequent purchase is made, the lien by jud!cial proceedings is
obtamed, or the subsequent advance under the pnor encumbrance is
made o~ c.ontracted for without knowledge of the security interest and
before 1t 1s perfected. A purchaser of the real estate nt a foreclosure
sale other than an encumbrancer purchasing at his own foreclosure
sale is a subsequent purchaser within this section.
(5) 'Vhen under subsections (2) or (3) and (-l) a secured party
has priority over the claims of all persons who have interests in the
real estate; he may, on default, subject to the provisions of part 5,
remove his collateral from the real estate but he must reimburse any
encumbrancer or owner of the real estllte who is not the debtor and
who has not otherwise agreed for the cost of repair of any physical
injury, but not for any diminution in Ya lue of the real estate caused
by the absence of the J?:OOds removed or by nny necessity for replacing
them. .A person entitled to reimbursement may refuse permission
to remove until the secured party gives adequate security for the
performance of this obligation.

28 :9-314. Accessions
(1) A security interest in goods which attaches before they are
installed in or affixed to other goods takes priority as to the goods
installed or affixed (called in this section ''accessions") over the
claims of all persons to the whole except as stated in subsection (3) and
subject to section 28 :9-315 ( 1).
(2) A security interest which athtches to goods after they become
part of a whole is valid against all .persons subsequently acquiring
interests in the whole except as stated in subsection ( 3) but is in valid
against any person with an interest in the whole at the time the secu~
ritv interest attaches to the goods who has not in ''-riting consented to
the security interest or disclaimed an interest in the goods as part of
the whole.
(3) The security interests described in subsections (1) and (2) do
not take priority over
(a) a subsequent purchaser for value of any interest in the
whole; or
(b) a creditor with a lien on the whole subsequently obtained
by judicial proceedings; or
( c) a creditor with a prior perfected security interest in the
whole to the extent that he makes subsequent advances
if the subsequent purchase is made, the lien by judicial proceedings
obtained or the subsequent advance under the prior perfected security
interest is made or contracted for without knowledge of the security
interest and before it is perfected. A purchaser of the whole at a.
foreclosure sale other than the holder of a perfected security interest
purchasing at his own foreclosure sale is a subsequent purchaser
within this section.

77 STAT.]
(-!) "'hen under~
has an interest in ace
persons who have in
to the provisions of
he must reimburse a
not the debtor imd wl
of nny physical inju
whole caused by the ,,
for replacing them.
permission to remov1:
for the performance o
28 :9-315. PrioritJ
(1) If a security i
the goods or a part
the security interest c
(a) the goods
commingled that
(b) a financir
covers the prodw
proeessed or asse1
In a case to which pa;
in that part of the
processed or a.ssemblt
~8:9-314.

( 2) 'Vhen under :
attaches to the prod1
ratio that the cost (
nttached hears to the<
28 :9-316. PrioritJ
.Nothing in this iu1
person entitled to pri
28:9-317. Securec
The mere existe11c1:
1lebtor to dispose of
liability upon the se
28 :9-318. Defel1S4

after
assig1
assig
( 1) rnless nn nee
not to assert defense
;;ection 28 :9-206 the
(a) all the te
and assignor am
( b) any othe1
the assignor wl
notification of tl
(2) So far as the 1
has not already beco
of the assignment, 1u
made in good faith
standards is effectiv
has otherwise agree(
under the modified 01
''ide that such modifi
( 3) The account {
account debtor receh

~f~

77 STAT.]

PUBLIC .. /Sa-243-DEC. 30, 1963

(4:) "hen under subsections (1) or (:l) arnl (:~) a secu1ed pal'ty
lias an interest in aeeessions \\'hiclt has priol'ity oYer the claims of all
persons who have interests in the whole. he nrnv on default suhjed
to the proYiSiOllS Of part ;) remo\e his coJ1atera i from the whole but
he must l'eimburse any encumbrancer or owne1 of the whole who is
not the debtor and who has not otherwise agreed for the cost of repai1
of any physical injury but not for any diminution in value of the
whole caused by the absence of the goods removed or by any 11eces...,it\
for replacing them. A person entitled to reimbursement may refns'e
permission to remove until the secured party gi,es adequate sernritv
for the performance of this obligation.

28 :9-315. Priority when goods are commingled or processed

(1) If a security interest in goods was perfected and snbsequent ly
the goods or a part thereof h;tve become part of a product or mass,
the security interest continues in the product or mass if
(a) the goods are so manufactured, processed, assembled or
commingled that their identitv is lost in the prod!1ct or mas:i; 01
(b) a financing statement coverincr the original goods also
covers the product into which the gooJs ha,e been manufactured,
proeessed or assembled.
In a case to which paragraph ( b) applies, no separnte security interest
in. that part of the original goods which hns heen manufactured,
processed or assembled into the product may be claimed under section
='8:9-314.
(2) 'Vhen under subsection ( 1) more than one security interest
attaches to the product or mass~ they rank equally aceording to the
ratio that the cost of the gooas to which each interest originally
attached bears to the cost of the total product or mnss.

28 :9-316. Priority subject to subordination

:N'othing: in this :u~ic~e prevents snbordinntion by agreement by any
person entitled to pr10r1ty.

28:9-317. Secured party not obligated on contract of debtor

The mere existence of a security interest or authority gi,en to the
debtor to dispose of or use collateral does not impose contmct or torr
liability upon the secured party for the debtor~s acts or omissions.

28:9-318. Defenses against assignee; modification of contract

after notification of assignment; term prohibiting
assignment ineffective; identification and proof of
assignment
(1) Fnless an account debto1 has made an enforceable agreement
not to assert defenses or claims arising out of a sale as provided in
section 28 :9-206 the rights of an assignee are subject to
(a) all the terms of the contrnct between the account debtor
nnd assignor and any defense or claim arising therefrom; and
(b) any other defense or claim of the account debtor ago.inst
the assignor which accrues before the account debtor receives
notification of the assignment.
(2) So far as the right to payment under an assigned contract right
has not already become an account, and notwithstanding notification
of the assignment, any modification of or substitution for the contract
made in good faith and in accordance with reasonable commercial
standards is effective against an assignee unless the account debtor
has otherwise agreed but the assignee acquires corresponding rights
under the modified or substituted contract. The assignment may provide that such modification or substitution is a breach by the assignor.
(3) The account debtor is authorized to pay the assignor until the
account debtor receives notification that the account has been assigned

761

PUBLIC LAW 88-243-DEC. 30, 1963

(77

STAT.

:uul that pilyment is to he made to tl~e assigne.e. _\. ~ot.ificatio~1 which

Joes not reasonnblv identify the rights assigned is meffect1ve. If
requested bv the a('Zount debtor, the assignee must seasonably furnish
reasonable proof that the assignment has. been made and unless he
(loes so the a('count debtor may pay the assignor.
(-!) A term in any contract between an account debtor an~ an
assi~nor which prohibits assignment of an account or contract right
to which they are parties is ineffectire.
PART 4-FILING
28 :9-4:01. Place of filing; erroneous filing; removal of collateral
( 1) The proper place to file in order to perfect a security ii:ter~t
is, in nil cases, in the office of the Recorder of Deeds of the D1str1ct.
In this a1ticle, ''filing officer'! means said ~eco~der.. ~"'ir"-'7 O'~
(2) A tiling which is made in good faith m an improper !?lace 1s
11evertheless etfe<'tive with reO'ard to 1lJ~Ollnteral as to wluch the
tilmg ('Omphed with the requi~ements of this artic.Ie an~ is also effective with regnrd to collateral co,ered by the finnncmg s~atem~nt
against any person who lrns knowledge of the contents of such financmg
:statement.
.
.
(:3) A tiling whieh is mac_le in the properflac~ contmues effect.1ve
eYen though the debtor's residence or place o busmess .o~ the lo~at10.n
of the colh1teral or its use, whicheYer controlled the or1gmal filmg, 1s
thereafter changed.
. .
. .
(-!) If collateral is brought. into the District fr<?m .another .Jurisdiction, the rules stated in section ~8 :!J-103 determme whether fffii.lg
tsc:necessary in the District.
28 :9-402. Formal requisites of financing statement; amendments
(1) ..\. financing stiitement is suffi<'ient if it is signed by the debtor
and the secured party, gi,~es an address o~ the secured party ~rom
which information concerning the security mter~st may be o:bta!ne~,
o'i\-es a mnilinu address of the debtor nnd contams a statement md1~ating the typ~, or describing the item~, of collateral.. _.\. financing
statement may be tiled before a security agreement !S made or a
security interest otherwise attaches. "~hen the fin~ncmg statement
coYers crops growin(J' or to be grown or goods which are or are to
become fixtures the ~tatement must also contain a description of the
real estate con~rned. A copy of the security ag1~ment i~ sufficieJ?-t
ns a financing statement if it contains the above mformat10n and is
signed bv both .Parties.
(2) A. fimmcm(J' statement which otherwise complies with subsection (1) is suffici:nt although it is signed only by the secured party
when it is filed to perfect a security interest in
(a) collateral already subjed to a secu~ity. interest in another
jurisdiction when it is brought into the District. Such a financmg statement must state that the collateral was brought into
the District under such circumstances.
(b) proceeds under section 28 :9-306 if the securi.ty interest in
the original collateral was perfected. Such a financmg statement
must describe the original collateral.

77

STAT.]

PUBLIC

\ 3) _\. form substantially

;.;nbsection (1):
Name of debtor (or
Address------------
Name of secured pa1
Address ___________ _
1. This financin;
(or items) of prop.
(Describe'
2. (If collateral
are growing or are
(Describe
oF O~ytf?. 3. (If collateral
.,--(!JI"f!ures) The above
t..-vI'f er
to:
(Describe
4. (If proceeds
Prot'eeds-Produc
Signature of
Signature of ~
( +) The term "tinancin~
the original financing sta_
:tmendment ndds <'ollutem
only from the filin~ date of 1
( 5) A financing stnteme1
ments of this sedion is etfE
which nre not seriously mis1
28 :9-403. What constit
lapsed fili11
( 1) Presentation for fil
the filing fee or accephmce
tutes filing under this artic l
(2) A filed fimmcing sb
obligation secured of fh-e ~
date and thereafter for a p
ing statement is e!fectire
tiling. The etfeetn'~ness '
expiration of such sixty d:
the expir!1tion of such .fo
continuat1011 stntement 1s f
security interest become?
which states that. the obli~
tive for five years from the
(3) A continuation stn1
within six months before
of five years or less, an<l
the expiration of the five :
snch continuation stateme
tify the original statemer
Htatement is still effect.iv
statement., the effeetivene:
five years after the last da
it lapses in the same m:
another continuation stah
<'ontinuation statements 1
the effectiveness of the 01
sit.ion of public records ,
move a lapsed stutement f

~)

77 STAT.]

PUBLIC LA v. 08-243-DEC. 30, 1963

~a) :\ form !-uh:;tantially as follow~ is ~ufficient to comply with

;.;ubsechon ( 1) :
Na.me of deutor (or as:;ignor)_____
----------"\ddress ____________ ------- -------------- ---- Xame of secured party (or assigHee)----------------------

1.. This linaneing statement co,ers the following types

(or items) of property:
,
(I>escribe)------------------------------------2. (If collateral is crops) The aboYe described erops
are growing or are to be grown on:
(I>escribe Real Estate) ________________________ _
3. (If collateral is goods which nre or are to become fix
tures) The above described goods are affixed or to be affixed
to:
(I>escribe Real Estate)
4. (If proceeds or products of eollateml are C'laimed)
Proceeds-Products of the collateral are nlso eo,ered.
Signature of Debtor (or .\ssig110r)
Signature of Secured Party (or As."iiil?'nee)
(4) The term "li11anci11g statemenr ns used in this artiele means
the original fimmriug statement and any ameuclmentH but if any
nmendment adds l'ollnteral. it is etfe<'tiYe as to the added <'ollnh'I'al
only from the filing date of the ameHdme11t.
(5) A financing statement 8llUsta11tiall,v e0111plyingwith the requirements of this sedion iH etfeeti,e e\e11 though it 1011tnins minor error:;
which are not seriously misleading.

28 :9-403. What constitutes filing; duration of filing; effect of

lapsed filing; duties of filing officer
( 1) Presentation fol' filing of a fin:uwing statement and tender of
the filing fee or acceptnnce of the statement by the filing officer consti
tutes filing under this n1ticle.
(2) A filed financing Htntement "hich statl:'s a 111at11rit.v date c,f the
obligation secured of fin~ years or le8s iH etfeetive until such mnturity
date and thereafter fo1 n period of sixty clitys. Any other filed tinan<'
ing statement is effective for a period of live years from the <late of
tiling. The etfecti,eness of :1 tilecl tinm1eing stntf'ment lapses on the
expiration of sueh sixty clay period after n Htate<l matnrity elate or 011
the expiration of s11d1 fh-e year period, a8 the ease mny he, unless n
continua tio11 statement is filed prior to the la p!<e. 1pon such In pse the
security interest becomes uuperfecte<l. .\ tiled tinan('ing statement
which states that the obligation secured is pH_Y<thle 011 cleman<l is effective for five yen rs from thednte of filing.
(3) A continnat.iou statement may be tiled by thf' secured party (i)
within six months before and sixt\ davs after a st<lted matnritv date
of five .Years or less, and (ii) otlierwise within six months prior to
the expiration of the fiye year period specified in snhsect ion ( 2). Any
such continuation statement must be signed by the secured pnrty, iden
tify the original statement by file number and state that the original
statement is still effective. Cpon timely filing of the continuation
statement, the effectheness of tl1e original statement is continued for
five years after the last date to which t11e filing was effective whereupon
it lapses in the same manner as prO\ided in subsection (2) unless
another continuation statement is filed prior to such lapse. Succeedingrontinuation statements may be filed in the same manner to continue
the effectiveness of the original statement. rnless a statute on disposition of public records pro,ides otherwise, the filing offi('er nmy remove a hlpsed .~ta tement from the files nnd destroy it.

763

PUBLIC LAW 88-243-DEC. 30, 1963

764

[77 STAT.

() ~\.filing officer shall mark en('h stnteme11t with a ronse('11tive filp

number nnd with the elate an<l hour of filing and shnll hold the statement for public inspection. In nddition the filing: offiC'er shall index
the statements HC'Cording to the name of the debtor and shall note i11
the index the file nnmber and the address of the debtor giren in tlw
statement.
(5) The unifom1 fee for filing, imlexing- and furnishing: filing dnta
for a,n original or a conti111rntion stllteme11t slrnll he $2.00.
28 :9-404. Termination statement
(1) 'Vhenever there is no outstanding !:'leC'ul'e(l obligation and 110
commitment to make adnuwes, incur obligations or otherwise gin
n1lue, the secured party must on written demand by the debtor send
the debtor it statement that he no longer clnims a seeurity int~rest
under the financing statement, whi<'h shall he identified by file number. A termination statement signed by a person other than the
secured party of record must include or be aeeompunied by the assignment or a statement by the secured partv of rl:'cord that he has assigned
the security interest to the signer of tlie termin11tion statement. The
uniform fee for filing and indexing such an nssignment or statement
thereof shall be $2.00. If the a tferted secured pnrtv fails to send surh
a termination statement within ten days after proper demnml therefor
he shall be liable tot he debtor for one hundred dollars, nnd in addition
for any loss caused to the debtor by such failure.
(2) On presentation to the filing offfrer of surh n termination statement he must note it in the inclex. The filing: officer shall remove from
the files, n1ark "terminated~' and send or deliver to the secured parh
the. financing stntement and any co11tin11atio11 statement, stntf'ment o~f
nss1gnment or statement of release pertaining thereto.
(3) The uniform fee for filing and indexi11g n terminntion statenre.11t
including sending or delivering the finanC'ing statement sha 11 be $2.00.
28 :9-405. Assignment of security interest; duties of' filing

77 STAT.]

PUE

28 :9-406. Release of
A secured party of
a II or a part of any coll:
The statement of relea&
collateral being release
name and address of ti
financin~ statement. l
filing officer he shall att
to which it relates nnd
the index record thereof
statement. of release, an
fee for filing and notin
28 :9-407. Informati
(1) If the person fili1
ment, statement of assii
tiling officer a copy the
upon the copy the file 1
original nnd deliYer o
(2) '[pon request of
certificnte showmg wh
~tated therein, any pr
a particulnr debtor iuH
there is, giving the da
itnd the names and add1
form fee for such a cert
ing statement and for t
Upon request the filing
ing, continuation or ter
or release for a unifor
and $1.00 for each add

officer; fees

(1) A financing statement may <lisclose an assignment of a security

interest in the eollaternl described in the statement by indi<'ntion i11 the
statement of the name and address of the assignee or by an assi~nment
itself or a copy thereof on the faC'e or hack of the statement. Either
the original secured party or the nssignee may sign this statement as
the secured party. On prese11tatio11 to the filing offieer of sud1 a
financing statement the filing offieer shn 11 !nark the same as provided
in section ~8:9--t.0:5(4). The uniform fee fm filiug, indexing all<l
fur.nishing filing dntn for a limrncing stnternent so i11dicati1ig a11
m1s1g11ment shall he $2.00.
(:2) .A secured party may assign of reeord all or a part of his
rights under a financing statement by the filing of a separate written
stntement of assignment sig:ne<l by the secured party of record and
setting forth the nnme of the secured party of record irnd the debtor,
the file number and the date of filing of the financing statement nnd
the name and address of the assignee and containing a description of
the collateral assi~ned. .A copy of the assignment is sufficient as a
separate statement if it complies with the preceding sentence. On presentation to the filing offic~r of such it separate statement, the filing
office-r shitll mark such separate statement. with the date and hour of
the filing. He shall note the assignment on the index of the financing
statement. The uniform foo for filing~ indexing and fumishing
filing data about such a separate statement of assignment shall be
$2.00.
( 3) After the disclosure or filing of an assignment under this
section, the assignee is the secured pa,rty of record.

28 :9-501. Default;
both re
( 1) '\Yhen a debtor
secured party has the
except. as limited by :
n~reement. He may r<
wise enforce the securi
If the collateral is d<>
:ts to the documents o
party in possession h:
section 28 :9-207. Th
tion are cumulative.
(2) After default, 1
in this part, those pro
vicled in section 28 :9---'
(3) To the extent t
duties on the secured I
to below may not be "
to compulsory dis:poE
28 :9-505) and with
28 :9-506) but the pa
bv which the fulfillm
if such standards are
(a) subsection
section 28 :9-504
proceeds of colla.t

77 STAT.]

'~
PUBUC LAW, 243-DEC. 30, 1963

28:9--106. Release of collateral; duties of filing officer; fees

A secured party of record may hy lus signed stntement release
all or a part 01 nny collateral descrihe1l in.~ filed tinancing statement.
The statement of relense is sufficient if it contains a description of the
collateral being released, the name and address of the debtor, the
name and address of the secured party, and the file number of the
financing statement. rpon presentation of sm:h a statement to the
filing officer he sha II attnc h the sti1tement of i-elense to the instrument
to which it rehltes and shall enter on the released instrument and on
the index record thereof the word "released'\ the date of filing of the
statement of release, and n facsimile of his signature. The uniform
fee for filing irnd noting such a statement of 1-elease shall be $2.00.
28 :9-407. Information from filing officer
( 1) If the person tiling any tinanr.ing statement, terminntion statement, statement of assignment, or statement of release, furnishes the
tiling officer a <'opy thereof, the filing officer shall upon request note
upon the eopy the file number nnd date and hour of the filing of the
original and delher or send the copy to such person.
(2) rpon request of any person, the filing officer shall issue his
certificate showmg whether there is on file on the date and hour
i:-tated therein~ any presently etfectirn tiuancing statement naming
a particular debtor and any statement of assi1.r11ment thereof and if
there is, gi,ing the date and hour of filing of each such stntement
nnd the names and addresses of each secured party therein. The uniform fee for such a certitiri1te shall be $1.00 plus $0.50 for each financing statement and for eaeh statement of assignment reported therein.
lTpon request the filing officer shall furnish a copy of any filed financing, continuation or termination statement or statement of assignment
or release for a uniform fee of $:too for the. first two pages or less,
and $1.00 for each adclitional page. plus $0.50 for certification.
PART 5-DEFAULT

28 :9-501. Defa ult; procedure when security agreement covers

both real and personal property
{l) \V11en a debtor is in default under a security agreement, a
'7!l
secured party has the rights and remedies prO\ided in this part and .,
except as limited by subsection. (3) those prO\ided in the security 1',,,~)1
agreement. He may reduce his claim to judgment, foreclose or other- ''
wise enforce the security interest by any avnilable judicial proce~ure.
If the collateral is documents the secured party may proceed either
as to the documents or as to the goods covered thereby. A secured
party in possession has the rights, remedies and duties provided in
section 28 :9-207. The rights and remedies referred to in this subsection are cumulathe.
(2) After default, the debtor has the rights and remedies provided
in this part, those provided in the security agreement and those provided in section 28 :9-207.
(3) To the extent that they give rights to the debtor and impose
duties on the secured party\ the rules stated in the subsections referred
to below may not be wairna or varied except as provided with respect
to compulsory disposition of collateral (_subsection ( 1) of sect!on
28 :9-505) and with respect to redemption of collateral (section
28 :9-506) but the parties may by agreement determine the standards
by which the fulfillment of these rights and duties is to be measured
if such standards are not manifestly unreasonable:
(a) subsection (2) of section 28 :9-502 and subsection (2) of
section 28 :9-504 insofar as they require accounting for surplus
proceeds of collateral;

765

766

PUBLIC LAW 88-243-DEC. 30, 1963

[77

STAT.

(b) subsection (a) of section 28:9-ii04 arnl s11h::;edio11 (!)of

section 28 :9-505 which deal with dispo::;ition of rnllateml;
(c) subsection (2) of section 28:9-505 which <len18 with
acceptance of collateral as discharge of obligation;
( d) section 28 :0-506 which deals with redemption of collateral and
( ~) subsection ( 1) of section 28 :9-507 which deals with the
secured party's liability for failure to comply with this part.
( 4) If the security agreement covers both real and personal property, the secured party may proceed under this part as to the personal
property or he may proceed as to both the real and the personal property in accordance with his rights and remedies in respect of the real
property in which cn.se the provisions of this part do not apply.
(5) "!hen n seemed pnrt~' has reduced his 1laim to judgment the
lien of nn~ le\y whi<'h may he. mnde upon his <'ollaternl by \irtue of
any executwu lmsed upon the 1udgme11t shall rt>late hnek to the date
of the perfeetion of the se<'lll'itv interest in sud1 collnteml. .-\.judicial
sale, pursuant to su<'h exee11tioi1, is a fore('los111e of tlw seeurity interest
hy jndieial proeedme \\ithin the meanin~ of this section, and the
S(>(ure<l party may pllr<'lmse at the sale and theren ftt'l' hold the collaternl free of any other requirE:>ments of this nrticle.
28:9-502. Collection rights of secured party
( 1) 'Yhen so agreed and in any e\ent 011 default the se<'med party
is enftled to notifv an iucount del)tor or the ohligor on an instrument
lo make. pnyment to him whether or not the a::;:-;;ignor Willi theretofore
mnking- <'olle\tions on the collaternl, and also to take control of anv
pro<'eecls to whiC'h he is ~>it it led nnder section 28 :9-~06.

(2) A seemed partv who by agl'eeme11t is entitled to 1hnrge li:ij~k

1\lll'Olle<ted co1Jatera] or othel'wise to full 01' limited l'e<"OllrSe ngnif}~r.1.
the debtor and who undertakes to collect from the ac<'o1111t de o"
or ohligors must proct"ed in a commercially reasonable 1rn1n
,nd
mav deduct h;s rensonab 1 e expenses of realization from the col
1~
If the security agreement secures an indebtedness, the secmed a ty
nrnst. account to the debtor for any surplus, and unless otherwise
agreed, the debtor is liable for nny deficieney. But, if the underlying
transaction wns a sn le of aceounts, contrnet rights, or chattel paper,
the debtor is ent:tled to :my surplus or is I in hie for any defi<'ien<'y only
if the security ag1eement so provides.

28 :9-503. Secured partyts right to take possession after default

lTnless otherwise agreed n secured party has 011 default the right
to bike posses::>ion of the collaternl. In t'nking possession a seenred
rrnrty may proceed without judi~ial process if this can be done without
breach of the peace or may/roceed by ad i01.1. If the se<'lll'i ty agreement so proY:des the s1:>cure party may require the debtor to assemble
the collateral and m:'ke it available to the seeured party at a place
to be designated by the secured pnrty which is 1eas01mbly convenient
to both parties. 'Vithout remo,ral a sPcured partv may render equipment unus'.lble, and may dispose of collateral on the debtor's premises
under se.ct1on 28 :9-50 t

28 :9-504. Secured party's right to dispose of collateral after default; eft'ect of disposition
(I) A secured party after default may sell. lease or otherwise dispose of any or all of the collateral in its then condition or followinl!
any comm"ercially reasonnble preparation or processing. Any salP
of goods is snbiect to the ,,rfc 1e on s'\les (nrticle 2). Tiu~ proceeds of.
disposition shall be applied in the order following to

77 STAT.]

PUE

(a) the reasonable '

selling and the !
ngreement and not p1
fees and legnl expens<
(b) the satisfactioi
interest under which 1
( c) the satisfactiot1
security interest in tlu
therefor is received l
pleted. If reque.sted
ordinate security int
proof of his interest, t
not. comply with his <
(2) If the security in1
pa1ty must acconnt to the
aureed, the debtor is liabl
t ;;'ansaction wns a. sRle of
the debtor is entitled to a1
if the security agreement
( 3) Disposition of the
ceedings and may be mad
other disposition may be
place and on any terms l
the method, manner, time
sonable. Unless collater:
ily in value or is of a ty)
reasonable not.ification o
reasonable notification of
intended disposition is t(
to the debtor, and except
person who has n securit.
filed a financing stateme
District or \Yho is kno\1
intere.st in the collateral.
sale and if the collateral
market or is of a type
standard price quotation
( 4) When collateral i~
the disposition transfers
ri~hts the1ein, discharge.;
and any secui'ity interes
takes free of all such r
party fails to comply \\
judieinl proceedings
(a) in the case of
edge of a.ny defects
with the secured pi
the sn.le; or
( b) in any other
( 5) A person who is
in< lo1'Sement, repurcha84
transfer of collateral f1
rights has thereafter tlu
a. hansfer of collnternl
nnder this art.icle.
:;a le,

77

STAT.]

PUBLIC LAW 88-243-DEC. 30, 1963

(a) the reasonable expenses of retaking, holding, preparing for

sale, selling and the like and, to the extent prO\ide<.l f01 in thP
agreement and not prohibited by law, the reasonable attomeys"
fees and legal expenses incu1Ted by the secured party:
(b) the satisfad.ion of indebtedness secured by the security
interest under which the disposition is made;
( c) the satisfaction of indehtedness secured by any subordinate
security interest in the collateral if written notification of demand
therefor is received before distribution of the proceeds is completed. If requested by the secured party, the holder of a, subordina.te security interest must seasonably furnish reasonable
proof of his interest, and unless he does so, the secured party need
not comply wit.h his demand.
(2) If the security interest secures an indebtedness, the secured
p:trty must account to the debtor for any surplus, and, unless otherwise
agreed, the debtor is liable for any deficiency. But if t.he 11nderlyingrt~'l.nsaction was a. sale of accounts, contract ri!!hb;, or chattel paper.
the debtor i~ entitled to any surpl~1s or is liable for any deficiency only
if the security agreement so provides.
(3) Disposition of the collateral may be by public or prirnte proceedings and may be made by way of one or more contrads. Sale or
other disposition may be as a unit or in parcels and at. any time and
place and on any terms but eYery aspect of the disposition i11cludin:.r
the method, manner, time, place and terms must be commercially rea80nable. Unless collateral is perishable or threatens to decline speedily in Yalue or is of a type customarily sold 011 a recognized market.
reasonable notification of the time and place of any public &'l.le or
reasonable notification of the time after which any prinite sale or other
intended disposition is to be made shall be sent by the secured party
tot.he debtor, and except in the case of consnmer.i.r()(){ls to any other
person who has a security interest in the collateral and who has duly
filed a financing statement indexed in the name of t.he debt.or in the
District or who is known by the secured party to have a security
interest in the colb.teral. The secured party may buy at ifry public
sale and if the collateral is of a type customarily sold i11 a reeoi-.111ize~l
mn,rket or is of a type which is the subject of widely distribute<f
st11.ndard price quotations he may buy at private sale.
(-J.) 'Vhen collateral is disposed of by a secured party after default,
the disposition tr:<;1sfers to a purchaser for value all of the debtor~s
ri1.d1ts therein, discharges the security interest under which it is made
and any security interest or lien subordinate thereto. The purchaser
tnkes free of all such rights and interests Hen though the secured
party fails to comply with the requirements of this Part or of any
judil'ial proceedings
(a) in the case of a public sale, if the purchaser has no knowledge of any defects in the sale and if he does not. buy in collusion
with the secured party, other bidders or the person conducting
the sale; or
(b) in any other case, if the purchaser acts in good faith.
(i">) A person who is liable to a secured party under a guaranty,
i111lo1-sement, repurchase agreement or the like and who receives a
transfer of collateral from the secured pa1ty or is subrogated to hiH
rights has thereafter the rights and duties of the secured party. Such
a t.ransfer of collateral is not a sale or disposition of the collateral
under this a1ticle.

767

768

PUBLIC LAW 88-243-DEC. 30, 1963

(77

STAT.

28:9-5p5. Compulsory disposition of collateral; acceptance of

the collateral as discharge of obligation
(1) If the debtor has paid sixty per cent of the cnsh price in the
case of a, pnrdrnse money seenrity interest in consumer goods or.sixty
per cent of the loan in the case of another security interest in consumer
goods, and has not signed nfter default a stntement renouncing or
modify_ing his rights Hnder tl~is pnrt a. secured par.ty who has taken
possess10n of collntera l must dispose of 1t under section 28 :!)-504 and
if he fails .to do. so within ninety days after he takes possession the
dehtor at. !us opt 1011 may reco,e.r m co11'"ersion or nnder seetion 28 :950i (1) on secured pat1y's liability.
(2) In any other case imohing consumer goods or any other collateral a secured pa11y in possession 111<1v, after default, propose to
retnin the collateral in sntisfaetion of the~ obligation. 'Vritten notice
of such proposal shall be sent to the debtor and except in the case of
consumer goods to nny other secured pnrty who has a security interest
in the collateral and who lrns duly tiled n financing stittement indexed
in the nnme of the debtor in the District or is known by the secured
party in possession to ha Ye n security inte1-est in it. If 'the debtor or
other person entitled to re<>eive notification objects in writing within
thirty da,vs from the. re<'eipt of the notification or if any other secured
pa11y objeets in writing within thiI1y days after the secured party
obtains possession the secured party must dispose of the collateral
under section 28 :9-504. In the absen<'e of such written objection the
secured party may retnin the collateral in satisfaction of the debtor's
obligation.
28 :9-506. Debtor's right to redeem collateral
At any time before the secured party has disposed of c
entered mto a contract for its disposition under section 2
before the obligation has been discharged under section 28.
the debtor or any other secured party may unless otherwi
in writin~ after default redeem the collateral by tenderin:r ful ment
of all obligations secured by the collateral as well as the expenses
reasonably incurred by the secured party in retaking, holding and
preparing the collateral for disposition, in arranging for the sale, and
to the extent provided in the ag-reement and not prohibited by law,
his reasonable attorneys' fees and legal e.xpenses.
28 :9-507. Secured party's liability for failure to comply with
this part
(1) If it is established that the secured party is not proceeding in
accordance with the provisions of this Part dispasition may be ordered
or restrained on appropriate terms and condit10ns. If the disposition
has occurred the debtor or any person entitled to notification or whose
security interest has been made known to the secured party prior to
the disposition has a right to recover from the secured party any loss
caused by a failure to comply with the provisions of this Part. If the
collateral is consumer goods, the debtor ha.a a right to reeover in any
event an amount not less than the credit service charge plus ten per
cent of the principal amount of the debt or the time price differential
plus ten per cent of the cash price.
(2) The fact that a better price could have been obtained by a sale.
at a different time or in a different method from that selected by the
secured party is not of itself sufficient to establish that the sale was
not made in a conunercially reasonable manner. If the secured party
either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the
time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold

77

STAT.

PUB

he has sold in it eonum

in the two preced:
ns may be appropriate I
which has been nppro,e
lide creditors' committe
elusively be deemed to b
does not indicate thnt 1111
nor does it indicate that
mercially reasonable.

~tated

ARTICLE 10-0
Sec.
:.!~

:l0-101.
:.!IS :10-102.
:.!8 :10-103.
:!8 :10-104.

(Omitt('(l.)
W.mitted.)
Inconsistent la''
Laws not. repea:

28 :10-101. (Omitted.
28:10-102. (Omitted.
28:10-103. Inconsist
Except as provided bJ
is inconsistent with this
:-ubtitle or the inconsis1
provides otherwise.
28 :10-104. Laws not
( 1) The a.rticle on d(
or modify any laws pre!:
title or the services or fn
legulating bailees' busi1
herein ; but the fact tlu
Htatus of a document
definition of a document
(2) This subtitle d0<
Columbia Uniform Ac
Transfers, approved Ju
l'hapter II of chapter 23
1961 edition, and if in a
that Act and article 8 of
the provisions of that Ac
SEc. 2. Section 1265
bia, approved March 3,
1961 ed., sec. 12-201),
1902 (chapter 1329, 32
thereof the following p~
"This section does no
sale governed by section
SEc. 3. (a) Section 8
lumbia, approved Marc
Code, 1961 ed., sec. 22-H .
"(a) A person or an
having executed a seci.11
personal property seem
party and having under
" ( 1) both the ri~
and the dut:y to ace
the disposition, sel
willfully and wro1
for proCeeds of dis:

';'";~'.;.

";/

'.:("

77 STAT.]

769

PUBLIC LA\\ d8-243-0EC. 30, 1963

he h1l:S sohl in a \'Olll111e1Tia lh 1taso11able 111<11tllt'I'. Tile priiH"iples

litnte<l in tlw two pl'e<"edini.r st>i1tt11t"es with 1es\H:'1t to snles itlso apply
as may Le app1opriatp to ot!iPr typp:-; of disposition . .\ disposition
which has Ueeu approwd in auy jrnli<ia] \H'Ol'<'edi11g- 01 hy any lmn:L
lide ereditors' conrn1ittet' or reprPsPutatiw of ereditors shall 1011dushely be deemed to be ton1111ercia lly reasonable. hut this sente11ee
does not. indicate that any snch approval must he obtained i11 any ease
nor ~oe.s it indhnte that any 1lisposition uot so apprme1l is not emnmercrn.Jly reasonable.

ARTICLE 10--CONSTRUCTION WITH OTHER

LAWS
See.

:!S :10-101.
:!ti :10-10:!.
:!8 :10-103.
:!8 :ll>-104.

( Olllitfttl.)
O.tnittetl. l
Inconsistent li111,,:; what law
Laws not rt>1ieu lt>d.
i

gol"l!l'll:<.

28 :10-101. (Omitted.)
28:10-102. (Omitted.)
28:10-103. Inconsistent laws; what law governs
Except as proYided by section ~8 :10-10-1, if any prmision of law
is inconsistent with this subtitle, this subtitle shall go,em~ llnless this
i'ubtitle or the inconsistent prmision of the other law :ipecilica lly
provides otherwise.
28:10-104. Laws not repealed
(1) The article on documents of.title (artide 7) dues not repeal
or modify any laws prescribin~ the form or contents of doemnents of
~
title or the services or facilities to be nfforded bv baileesi.-or otherwise --~
t"egulating bailees' busines!'es i11 respects not -S-pecilica lly dea It "it h
herein; but the fact that such laws are dolated does not affect the
status of a document of_title which otherwise complies with the
Jefinition of a document oI title -(section 28 :1-201).
:.
(2) This subtitle does not supersede or modify the District ~~' w.wr.:~.

Columbia Uniform Act for Simplific.ation of Fiduciary Securitif .: :a

Transfers, approved July 5, 19CO (74 Stat. 322), being all of sub-.'' r
, .
chapter.I~ of cha~te: 23 of Title 28 of th~ Distr~ct of ~::olumuin Code, ;l .
""
1961 ed1t10n, and if many respect there 1s any rncons1stency between ... Q::.~. colit<:2s
that Act. a.nd article 8 of this subtitle reht~ing to imestment securities, 23 :.h to 2 B-2~3.o..
the prov1s1ons of that Act, rather than article 8, control.
-

SEc. 2. Section 1265 of the code of law for the District of ('olum
-t
bia, approved March 3, 1901 (chapter 85, 31 Stat. 138!); D.C. Code,
1961 ed., sec. 12-201), as amended by the Act appro,ed .June :~o_,
1902 (chapter 1329, 32 Stat. 542), is amended by adding at the enct
thereof the following paragraph:
"This section does not apply to actions for breach of contracts for
5ale governed by section 28 :2-725 of the District of Columbia Code.~'.
SEc. 3. (a) Section 839 of the code of Jaw for the District of Cambia, approved March 3, 1901 (chapter 854, 31 Stat. 1326; D.C.
ode, 1961 ed., sec. 22-1209}, is amended to read as follows:
.
'(a) A person or any legal successor in interest of such person, security interest
having executed a security agreement creating a security interest in in personal proppersonal/roperty securing a monetary obligation owed to a secured erty.
party an having under the security agreement:
/1 ,,-
"(1) both the right of sale or other disposition of the property
l "#fl
.
and the dut;y to account to the secured party for the proceeds of
~
I J J'J?) ~
1
the disposit10n, sells or otherwise disposes of the property but
at'# 11(,,~
willfully and wrongfully fails to account to the secured part.y
L~
/
1
for proCeeds of disposition; or

~
Y

/( 'f

~~~-~"""~

PUBLIC LAW 88-243-DEC. 30, 1963

k
_

[77 STAT.

77 STAT.]

"'{2) no right of sale or other (li~position of the p1?perty,

which mny he added a clni

of said notice to the date 0
of the property, or cotl\"erts 1t to lus 1_>wn use, or, WI! l10~1t the
set forth nt a <laily or we
consent of the.secured party, 1-e1.110,:es I~ out. of the D1stnet._or
charges prevailing at the t
maliciously inJures or destroys 1t, m nolat1011 of the security
in excess of $3 per day or$
agreementin no event cover a period
if the lesser of the rnlue of the proceeds not so accounted for or of the
"(b) As used in this sec
property so secreted, withh~ld. _sold, disposed of, con:erted, removed,
have the same meanings
or injured or destroyed. or, m either case, of the unpaid balance of the
28:1-201 and 28:9-105{i
monetary obligation so secured, is more than $100, shall be fined not
Code."
more than $5,000 or imprisoned not more than five years, or both: or,
SEC. 6. (a) The definit'
if the lesser of anv of the vnlues as herein described is $100 or less,
Information'' in seetion 1 ~
shall be fined not i'nore than $1,000 or imprisoned not more than one
527, 54 Stat. 736; D.C. Cc
year or both.
'
read as follows:
"{h) In a case in which a debtor in possessi?n of rersonal property \
"Lien" shall mean 11
subject to a security interest. who would be gu~lty o an offens~ under
interest as defined in s
this section, is a corporation or a J?nrtnerslup,_ an officer, ?n:ector,
bia Code in, or lien o
partner or aaent of the debtor who aids or abets m the comm1ss1on of
trailer, or the equipme
thereto, in favor of a
the offehse shall be punished as prO\ided by subsection (n) of this
:;,ection.
.
. .
.
snle of such motor vel
" {c) As used in this section, 'security agreement', 'secur1~y mterest ,
po::;session and on exec
and 'secured earty' have the same meanmgs as those gl\"ell to~ t!1e
certificate covering it,
provided by law or an
terms by sections 28.:9-:-105(h), g8t~-201{3.~), and 28:9-100(1),
respectively, of the D1str1ct of Colum ia Code. .
"Instrument" shall :
SEC. 4. Subsection (b) of section 20 of the .Act apprond .Tune 8,
section 28:9-105(h) ,
1954 (ch. 269, 68 Stat. 18!); D.C. Code, 1001 eel., sec. 2~-l)08g(b) ),
such lien.
as amended by section :3 of the Act 1tpprornd .July 2;l, 19a9 (Pub. L.
"Lien information''
86-106, 73 Stat. 240), is amended _t'? read as fo~lows:
name and address of I
"(b) Notwithstanding the prov1s101~s of section 28:8-20-1 of the
28:9-105(i) of the J
District of Columbia Code, every certificate represent mg shares the
record number if any.
transferability of which is restri~~ecl or limited sluill .state up~i; tl!e' ,
(b) The second' sen ten<
face thereofthat the transferab1hty of such sh.ares l~ ~est~1c~..~ qr . .
~' 1940 (chapter 527, 54: 8
limited and upon the face or back thereo.f s_hall e1t~1e~ ~~ fo1 th a full{/""
.
is amen~ed to rea~ as fo
or summary statement of any such restr1ct1on or hm1tat1on upon t~1e . ~,,.ft/ . f/'f Subtitle I of Title 28
transferability of such shares or shall state th~it the corp.oration w111 .. l- . u1.l' np~1.;: to liens record~ as
furnish to any sharehol,?er upon request and without duuge such full 1 ;/-./!/
.
vuhd1ty oi: effect dui:mg- t
or summary statement. .
tJtif
. l
motor velucle or trailer c
SEC. 5. Section 2 of the Act approved .T'!ne _3, 1!)52 (chapter ~61,
. f-:''
the lien has been filed in
66 Stat. 97; D.C. Code, 1!)61 ed., sec. 38-200), 1s amended to read ns
/1 / , .v
SEc. 7. The ~r~t ~ent~m
follows:
. .
. .
.
(/ .d.J , /
1940 (chapter 021, a4 Sh
"SEC. 2. (a) All persons storin~, rep~~1rmg~ ?r furmshmg suppl.1es . rJ1' . !, [;
as amended by section 1 c
of or concernina motor \ehicles mcludmg trailers shall hav~ a hen If '.1
il65, 66 Stat. 100), is amei
for their aO'reef or reasonable cl:arges for such storage, repa1i:s,. and ry !
folio.wing words: "and a
~upplies wFien such charges are mcu_rred by an owner or cond1t10n:il
provided by law for deeds
,endee or chattel mortgagor ( includi~1g a grantor of d~d of trust m
SEc. 8. The first sent en
lieu of mortgage) of such motor Yelncle, and may.<letam such motor
rn-t:o {chapter 527, 54 Sta
\'ehicle at any time they may have lawful possession thereof .. Such
amended by section 2 of (
Jien shall have prioritY. over every securi!Y mtere~t !lnd ot !ier lien or
~)6 Stat. 100), is amended 1
right in or to the velucle except as h.eremafter. bm1te~ w1.th re~~ct
mg words: "and acknowl
to claims for storage. Before enforcing such hen, notice m wr1t~ng
law for deeds of real estate
shall be ofren to the title holder, every secured party and other hen
SEc. 9. (a) Paragraph
holder sfi'own by the certificate of title or registry of the vel~icle, a:nd
22, 1960 (Pub. L. 86-431,
any other persons known to claimant who ha'lte any interest m or hen
(9) ), is amended to read m
upon the vehicle. Such notice shall be delivered personally or sent.
"(9) 'Retail installmen
by registered mail to the last-known address of the person to :'"horn
in the District or entered
"lven, shall state that a lien is claimed for the charges therem set
licensed by the District
forth or thereto attached, and shall demand payment thereof. There
pursuant to which the tit
shall be incorporated in or attached to said notice a statement of
mterest in, the motor vehi
particulars of the charge or charges for which a lien is claimed, to
action, is retained or take

willfully nnd wrongfully see:etes, ':1thholds, sells, o~ disposes

j'

ertificate repmting shares.

, ~/ .
/, \ \\ (

/JV
' \

'

~otor vehicles,
n for storage,
pairs, etc.

PU Bl

<

p,
77 STAT.]

PUBLIC LA"

771

3-243-DEC. 30, 1963

which 111a,r lie n<ldPtl a claim for storage of the v~hicle from the date
of said notice to the date of payinent 01 sale, wluch amount shall be
set forth at a <lail\' or weekly rate which shall not be in exc~ss of
charges pren1ili11g'nt the .~ime for similar. stora~~'. and shall not be
iu excess of $:3 per dny or ::;21 per week, wluch add1t1onal charge shall
in no ewnt covet :l period in excess of ninety days.
"(b) As used in this section, 'security interest' and 'secured party'
have the same meanings as those given to the terms by sections
28:1-201 and 28 :fJ-105(i), respectively, of the District of Columbia
Code."
SEC. 6. (a) The definitions of "Lien", "lnstrumenf', and "Lien Definitions.
Information"' in se<'tion 1 of the Act approYed .July 2, 1940 (chapter
527, 5-!: Stat. 736; D.C. Code, 1961 ed., sec. -!:0-7-01) are amended to
read as follows:
"Lien'' shall mean :my right or interest in or to, any security
interest as defined in section 28 :1-201 of the District of Columbia Code in, or lien or encumbrance upon any motor vehicle or
trailer, 01 the equipment or accessories nffixed or sold to be itffixed
thereto, in favor of n person other than the owner, 1 ed~t (1) a.
snle oi such motor ,ehide or trailer aceompanied Uy e lvery of
possession and on execution of the assignment on the back of the
ce1tificate coYering it, or~ any posses~ory lien now 01 hereafter
prodded by law or any l~ acquired in any judicial proceeding.
"Instrmnent'' shall menn any seC'urity a:,creement. as defined in
section 28:9-105(h) of the I>istri<'t of Columhin Code, c1eating
such lien.
"Lien inforniation'' shall menn the amount, kind, date of lien,
nnme and address of holder 01 !'ecmed pnrty as defined in se<'tion
~8:9-105(i) of the District of Colnmhin Code, nnd recorder's
record number, if nnv.
(b) The !'eC'ond sentei1ce of section 2 of the Act apprmed .July
2, 1940 ( <'hapter n:l7, 54 Stat. 7:J6; D.C. ('ode, 1H61 eiL see. 40-702), .
i:; amended to ren1..i as follows: "The filing provisions of Article U"'
of Subtitle I of Title 28 of the District of Columbia Code do not '"
np~l): to liens re(ord~d as hei:in provid~d, an~ a lien has. 110 1reate\(!
validity or: effect dm:mg the time a certificate 1s outstand. u~.~. fo1 d!e ,.: i
motor nb1cle or trailer coYered thereby by reason of tl~'itltct ti.flit ~'
the 1ien has been filed in accordance with that article.''.
~"'
.SEc. 7. The first sentence of section'! of the Act apprmed .July 2,
<
1940 (chapter 527, 54 Stat. 737; D.C. Code, 1!)61 ed., se<'. -t.0-70+), ~i
as amended by section 1 of the Act ap,PrO\ed June 4, 1952 (chapter
~
:165, 66 Stat. 100), is amended by strikmg out at the end thereof the \lr'f
1
following words: "and acknowledged by the owner in the manner
provided by law for deeds of real estate".
SEC. 8. The first sentence of section 8 of the A.ct appro\ed July 2,
19-!0 (chapter 527, 5-! Stat. 738; D.C. Code, 1961 ed., sec. 40-708), ~is
amended by section 2 of the Act appro\'ed June 4, 1952 (chapter 365,
66 Stat. 100), is amended by striking out at the end thereof the following words: "and acknowledged by him in the manner provided by
la'v for deeds of real estate".
SEc. 9. (a) Paragraph (9) of section 1 of the Act approved Apd
22, 1960 (Pub. L. 86-4~1, 74 Stat. 69; D.C. Code, 1961 ed., sec. 40-901
(9) ) , is amended to read as follows:
"Retail install" (9) 'Retail installment contract' means a contract entered into ment contract."
in the District or entered into by a seller licensed or required to be
licensed by the District evidencmg a retail instnllment transaction
.Pursuant to which the title to or a lien on, or security or a security
mterest in, the motor vehicle, \vhich is the subject matter of the transaction, is retained or taken to secure, in whole or in part, the retail

tJt:

772

Recorder of
Deeds .
Financ Ing state

. <#

PUBLIC LAW 88-243-DEC. 30, 1963

buyer's obligations. The term includl'S a security n~eement, ch11tt~l

mortgage, conditional sale contract and a eontract m the form of a
bailment or a lease if the bailee or Jessee contracts to pay as compensation for use n sum substantially equirnlent to or in excess of the value
of the motor \ehicJe sold and it is agreed thnt the bailee or Jessee is
bound to become, or, for no further or.a merely nominal consideration,
hns the option of becoming, the owner of the motor vehicle upon full
compliance with the terms of the bailment or lease."
(b) Seetion 1 of the Act appro\ed April 22, 1960 (Pub. L. 86-!Sl,
i4 Stat. 69; D.C. Code, 1961 ed., sec. 40-901), is further amended by
adding at the end thereof the following paragraph:
"'(1 f) 'Security interest' and 'secured pnrty' have the same mea~ings
ns those given to the terms in sections 28:1-201 and 28:9-105(1) of
the District of Columbia Code.~~.
SEc. 10. Section 546-C of the code of law for the District of
Columbia, nppro,ed .March 3, 1901 (chapter 854, 31 Stat. 1275; D.C.
Code. 1961 ed., sec. 42-10:!), ns so renumbered and amended by sectio.n
2 of the Act approved .Tune fl, 1952 (chapter 370, 66 Stat. 126), is
amended to read as follows:
'SEc. 546-C. It is not necessary for the Recorder of Deeds to spread
upon the records of his office the financing statements or other papers
filed pursuant tO P:irt 4 of Article 9 of Subti!le I of Title 28 of the
District of Columbia Code, but they shall be mdexed and, ex~ept as
hereinafter provided, shall be kept on file and shall be open to mspec!ion by the public, and shall _have the same ~or~ a1!? legal effect as
if they wereact~ally recorde<l m the booksofh1soffice ..-. .
SEC. 11. Section 546-D of the code of law for the D1str1c of Columbia, approved ::\larch 3, 1901 (chapter 85?, 31 Stat. 1189), added by
section 3 of the Act approved June 5, 19o2 (chapter 370, , tat. 126;
D.C. Code 1961 ed., sec. 42-104), and amended by

. of the
Act appro~ed June 18, 1953 (chapter 126, 67 St!Y:;:M
n"a~lo
read as follows:
"SEC. 546-D. (a) Unless the Recorder of Jilee'tls
. p.o,J!e of
nction pending relative thereto, he may remove from tihe'files
destroy:
.
'' " . ,
" ( 1) an instrument filed in his office pursuant to sectioi'1
and 546-B, as amended, of the code of law for the ff
Columbia approved lfarch 3, 1901 frhnpter 854, 31 St .
,
us so renumbered by the'.Act approved June 5, 1952, chnpter 370,
sec. 1, 66 Stat. 126 (D.C. Code, 1!)61 ed., secs. 42-101and42-103)
or pursuant to the .Act apprO\'ed July 2, 1940 (chapter 527, 54
Stat. 736; D.C. Code, 1961 ed., secs. 40-701 to 40-712, 40-713 to
40-715), ns amended, whieh has become void or lapsed, anq which
has been \'oid or laJ?sed for one year or I?Ore, toget!1er :'1th any
atfida vit, release, nss1gnment, or cont muut10n or termmat10n statement relating thereto; .
.
.
"(2) a lapsed financmg statement, a lapsed contmuat1on statement R statement of assignment or release relating to either, filed
purs;mnt to Part 4 of .ArticJe 9 of Subtitle I of Title 28 of the
District of Columbia Code, and any index of any of them, one
year or more after lapse of the financing statement and every
<'ontiuuation statement relating thereto; and
"(3) a. termination statement filed pursuant to section 28 :9404 of the District of Columbia Code, and the index on which it
is noted, one year or more after the filing <?f the termination

statement.
"(b) Subsection (a) of this section does not apply to a bill of saJe,
mortgage deed of trust, conditional sale of, fuiancing statement or
security ~greement covering, railroad rolling stock.".

F '

Void instruments ..

Disposal.

77 STAT.]

[77 STAT.

SEC. 12. Section :

lumbin, approved :
added by section 3
66 Stat. 126; D.C. (
folJows:

"SF.c. :>46-F. Wh

of Article 9 of Subt
has not lapsed, but
ment has been relea
Recorder of Deeds
date of rhe filing of
the financing staterr.
nssignment, and sta
SEC. 13. Section
lumbia, appro,ed .
added by section ;3
66 Stat. 126; D.C.
as follows:
"SEC. 546-G. (a)
with respect to a f
Recorder of Deeds
Title 28 of the Dish
in full of the debt :
demand bv the deb
as provided by sec!:
than $500 or lIDJ?ru
" ( b) Prosecut 10n
Corporation Couns
ants; in the nam~ of
"1.c) As used ms
ineans the attorney
attorney mny be d
District of Columl
SEC. 14. Section i
apprmed March 3,
td., sec. 45-701), aE
"'SEC. 548. (a) 'I
appointed by the (
:;ha II:
"(1) except
all deeds, cont
the title or ow
have been duly
"{2) accept
all instrument
his office pm;iu
of the District
(chapter 527,
to 40-712, 40-7
"(3) perfor
prescribed in c
"(4) have c
property appe1
"(b) A person_:
he has been a. res1
vears next precedi
" ( c) Th~ pe~for
employees m .J:1s o
to the superv1s10n l

77 STAT. ]

PUBLIC ....AW 88-243-0EC. 30, 1963

773

~EC. 1~. Section ;)-1.fi-F of the ('Ode of law for the District of Columbia, u ppro,e<l :\l:lrl'h ;~. mo 1 ( l'hapter 854, :n :-\tat. 118!)}' ns
added by sect ion 3 of the A1t n ppr<fred .Tune i>, H>M (chapter ;\ii 1,
66 Stat. 126; D.C. Code, J!l61 ed., sec . .J.2-106), is ametHled to rend as
folJows:
"SF.c. :>46-F. "'hen a financin~ stnternent filed pursuant to Pa rt -~ o.,struction or
of Article 9 of Subtitle I of Title :28 of the District of ('olumhia CoilP r.,1.,as.,d instruhas not lapsed, I.mt all the collateral described in the fin1111ein:.r state- ments.
ment has been released in the mitnner provided by Part 4 theJ"eof, t lw
Recorder of Deeds may, after the exp1mtion of three years from t It~
date of rhe filing of the statement releasing all the collateral, destroy
the financin- statement and ea('h ccmtin1111tion statement, statement 1,f
assignment, and statement of release relating thereto.~
Sw. 13. Section 546-G of the code of law for the Di:->tl'il't of Columbia, apprornd :\lnr<'h :1, 1901 (chapte1 8M, :n ::'\tat. 118!l), a;;
added by section ;~ of the .\ct apprO\ed .June i>, 1952 {chnl>ter :no.
66 Stat. 126; D.C. Code, HJ61 ed., sec> . .J.2-lOi), is amen<le< to rend
as follows:
"SEC. 546-G. (a) "hoover intent ion ally makes n fil lse stntement Fats" stat..with respect to a financing stn.tement. or other pllper filed
,... with the ments.
p.,nalty.
Recorder of Deeds pursuant to P art 4 o f A1itcle !) of ::;uhtitle I of
Title 28 of the District of Columbia Code, or, after re<'eipt. of payment
in full of the debt secured thereby. neglects .or refuses, after written
demand bv the debtor, to send to the debtor a termination statement.
as provided by sec~ion 28 :9--J.O-:I: of the Code, shall be fined not more
than $500 or unpr1soned not more than one year, or both.
"(b) Prosecutions for Yiolations of this subchapter slu\11 he by tlu
Corporation Counsel of the District of Columbii\ or any of his assist_
ants, in the name of the Disttict of Columbia.'.
'~(c) As used in subsection (b) of this section Corporation Com1::-;el'
means the nttorney for the District of Columbia, by wh;tte,er title rlw
at!on:-~Y n:rny be de_si~,nnted by the Board of Commissioners of rri~
D1str1ct of Colmnb1a. .
: . ..
SEC. H. Section 548 of the code of law for the District of. Col.tJ~1b'.iA;,l ~., '...
npproYed~March :3, HJOl (chap.te1 854, :)I Stat. 1~75; p.C'f'.';'C'od.e; l!J6! !
~
NL, sec. 4o-701), as amended, 1s amended to read as fol~Q:"s:
. (

"SEC. 548. (a) There shall be 11 Recorde1 of Deeds of the Dist1kt,' Recorder or
appointed by the Commissioners of the Distri<'t of Columbia, ,\lho De.,ds.?
:-hall:
. , Appomtm-;nt.
"(1) except ns provided by elnuse (2) of this subsection, rec@l:cf' '~~'
,
all deeds, contracts, nnd other instruments in w1iting affecting~~~'..,
th1;> title or ownershi of re 1 estate or personal property which - ~ ~
nave en u y ac nowledged mid certified:
"(2) accept for filing, without acknowledgment or certification.
all instruments, fi!lancing stntemen_!.s and other papers filed in
hiSOffice pursuant to_5irt 4 of Article 9 of Subtitle I of Title 28
of the D1~trict _of Columbia Code, :;nd the Act of July y~iQ__~ ~~
(chapter 027, <>4 Stat. 7:36; D.C. Code, 1961 ed., secs. 0-701
to 40-712, 40-713 to 40-715).
" ( 3) perform a II requisite serdces connected with the duties
prescribed in clauses (1) and (2) of this subsection; and
" ( 4) have charge iind custody of all the records, papers, an<l
property appertaining to his office.
"(b) A person may not be appointed Recorder of Deeds unless
he has been a resident of the District of Columbia for at least fhe
vears next preceding his appointment.
c) The performance, by the Recorder of Deeds and officers and
employees in ,h,is office, of their duties and tu~1ctions shall be. su~je?~
to the .superv1s1on and control of the Commissioners of the D1str1ct:

.:t

"

774

PUBLIC LAW 88-243-DEC. 30, 1963

(77

STAT.

!'iEC. 1.-. (a) Tht> following .\\'t and part.-. of .\ct,.. a;; :tlllt'!Hle<l, are
lwrehy repealed:
~ ~
. ( 1) Section ~m:fa of the rode of law for the Distl"iet or Colum,:J,
l lna, nppron<I :\larch a, 1901 (chapter 85-l, :ll Stat. 1189), as
}.u .. ~ added by the Act apprond April 28, 190-l !chapter 1808, aa Stat.
55-1), nnd amended bv the Act apprmec~ :\fay 27, 1921 (chapter
.J ~Q
13, -12 Stat. 9; D.('. Code, 1961 ed., ser. 22-1-106).

Repeals.

/\,, \ X""

(2) Sections 130-l to 1-19:3, inclusive. of the code of law for the

-~District of Colnmbin, npprm'ed ~larch 3, 1901 (chapter 854:, 31

~Stat. 13H5-1-l14), llnch seetions bein~ known as the Xegotiable

- ......-- I Instruments Law (D.C. Code, 1961 ed., Title 28, chapters 1to10.
inclusive, except sees. 28-1:10, 28-71-ln, ~8-9:.W, 28-1004, 28-1008
to 28-1011, inclusi,e), except that, with respect to seetion 1389
of such code of laws for the District of Columbia pn Stat. 1404;
l>.C. Code, 1961 ed., sec. 28-()16), as amended, this repeal applies
oulv to the first three sentences thereof.
(3) Sect ions 1, 3. 6 and 7 of the Aet approved April 5, 1939
(chapter 37, 53 Stat. :S66, 567; D.C. Code, Hlfil ed., sees. 28--100-t
28-1008 to 28-1010. i11elusive).
< <f) Sections. 1._to .? ~nelusi,e, o!}he
approve~ ,July 26,
L>4.) ( ehapter .1fin. fi.1 Htnt. .J.Hl, -l~L. J>.(. Code, HHH ed., sec.
28-1011 ).
(5) Sections I to ;1, inclusi,e. of the Act approved August 7,
!!I.')() (chnpte1 1\0:.!, fi4 Stnt. -llfi, -lli; D.C. C'o<le, l!>fil ed., sec.

\et

28-iUn}.
(6) Sections 1 to ilfa, inelusi,e, and i!> of the Act approved
March 17. rnai (chapter 4:3, 50 Stat. 20--18; D.C. Code, Hl61 ed.,
Title 28, eha pters 11 to rn. inclusive}, known as the l niform S

k'i (

~ Ofi

Ari'

Q;I'

(\

Act.
(7) Sections 1 to i'i, inclusi,e, of the .\ct approved
1904 (clrnpter 1809, :33 Stat. Mil, ."i:16; D.C. Code, 1
28-1701 to 28-llOi'i, inclusive). relating to bulk
"
( 8) Sections 1 to -19. inclusive, 5() to 59, i
ve, and 62 of .
the Act appro\ed Apr:il 15, 1910 (chapter 161 ';3,6 Stat. 301-311;
D.C. Code, 1961 ed., Title 28, chapters 18, 19 (ex
8--1918
thereof), 20 and 22), constituting part of the war
1;1ipts
Act.
(9) Section 1621 of the code of law for the District
bia, approved llarch 3, 1!)01 (chapter 8fJ4, :n Stat. 1
Code, 1961 ed., sec. 28-1918).
( 10) Sections 1 to 26, inclusive, of the Act approved December
2:3, 1944 (chapter 72!l, 58 Stnt. f>27-!l32: D.C. Coile, HHH ed., sees.
28-2901, 28-2901 notes, 28--200-2 to 28-2923, inclusive) constituting the l"niform Stock Transfer Act.
11) Sections 546-A and 546-B, as amended, of the code of
law for the District of Columbia, apprond :\larch 3, 1901 (chapter
854, 31 Stat. 1275), as so renumbered by the Act approved .June 5,
1952, chapter 370, sec. 1, 66 Stat. 126 (D.C. Code, 1961 ed., secs.
42-101 and 42-103).
(12) Section 546-E of the code of law for the District of
Columbia, approved March 3, 1901 (chapter 854, :u Stat. 1189),
as added by the Act apprond .June 5, lf>52, chapter HiO, see. 3,
66 Stat. 126 (D.C. Code, 1961 ed., sec. 42-105).
(13) Section 1119 of the code of law for the District of Columbia, approved March 3, 1901 (chapter 854, 31 Stat. 1368; D.C.
Code. 1961 ed., sec. 12-304).

77

STAT .]

PUE

. (b) E~cept as iuo,,i<le

tions Yahdly entered into
16 of this Act, and the rii
remain valid thereafter u
mated or enforced as ~ui
amended or repealed by tl
had not occurred.
( c) The perfection of a
201 of the District of (
in any law repealed by tl
takes effect by a filing, re
t~is ~ct and requiring a
tmue its perfection, conti1
by the law so repealed f<
unless in such case, a co1
the Recorder of Deeds o
twelve months before th
otherwise lapse. Any sw
the secured party, identi
ever denominated, state fl
and the filing number, a
agreement is still effecti
sions of section 28 :9-40.
tion statement.
( d) The f ollowin#$ Bri
01 effect in the District 01
(1) 9 and 10 Wil
Code, 1961 ed., sec. 2:
(2) 3 and 4 Anne
1961 ed., sec. 28--920)
SEc. 16. This ..:\.ct shall
P.nacted after the :tppro\":
Act, supersede it to the f
Approved December 3

Public Law 88-244

J
To provide for participation l
Confere1we on Prhate h
Institute for tht> Unittcati
therefor.

Re.<solued by tlie Se1Ulll

States of Am.erica, in ('on
authorized to accept me1
States in ( 1) the Hagu.
md (2) the Internation
Private Law, and to n..p
alternates to meetings o
and organs thereof.
SEC. 2. There is autlH
~ :i:ecessary, not to exce
Umted States of ( 1) it~
Hague Conference on I
national (Rome) Instit1
( 2) all other necessary
United States in the acti
clause ( 1) of this sectior.
Approved December 3

77

STAT .]

PUBLIC L.

775

88-244-DEC. 30, 1963

(b) Except as prodded by subsection ( c) of this section, transactions mlidly entered into before the effecti\e date specified in section
16 of this .Act, and the rights, duties and interests flowing from them
remain nllid thereafter and may be terminated, completed, consummated or enforced as required or permitted by any statute or other law
amended or repealed by this Act as though such repeal or amendment
had not occurred.
( c) The perfection of a security interest, as defined in section 28 :1201 of the District of Columbia Code, and however denominated
in any law repealed by this Act, which was perfected when this Act
takes effect by a filing, refiling or recording under a law repealed by
this Act and re9uiring a further filing, refiling or recording to continue its perfect10n, continue until and will lapse on the date provided
by the law so repealed for such further filing, refiling or recording,
unless in such case, a continuation statement is filed, m the office of
the Recorder of Deeds of the District, by the secured party within
twelve months before the perfection of the security interest would
otherwise lapse. Any such continuation statement must be signed by
the secured party, identifying the original security agreement, however denominated, state t.he date of the last filing, refiling or recording
and the filing number, and further state that the original security
ngreement is still effective. Except as herein specifiea, the provisions of section 28 :9-403(3) of the Code apply to such a continuation statement.
I (d) The followin~ Brit.ish statutes shall no longer have any force
\ or effect in the District of Columbia:
(1) 9 and 10 'Villiam III (1698), chapter li, sec. 3 (D.C.
.1
Code, 1961 ed., sec. 28-410).

(2) 3 and 4 Anne (li04): chapter 9, secs. 7 and 8 (D.C. Code,

'. . ;,.1961 ed., sec. 28-920).
J $Ee. 16. This .\ct shall become effective on January 1, 1965. Laws
1
'"im:il'.cted after tl~t> apprornl of this .\et1 that '.lre inconsistent with th" .. ~:.
Act, supersede 1t to the extent of the mcons1stency.
. ,,r.. :...
Approved Decembe< 30, 1963.
#-..
'
'

i?ublic Law 88-244

<~;-.

JOINT RESOLUTION
To providt' for vartlr-iJl.tion by the <.lon~rnment of the United States in th
Conferent"E! on Private International Law and the International ( .
Institute for tht' Unitkation of Prhatt> Law, and authorizing appro11ria
therefor.

Re8ofoed by the Senate 011.d llou.'fe of Repre.~eritative". oft~ Cnited

States of A-m.erie(/, in ( 'ongre.'fx u.'f.~embled, That the President 1s hereby Hague c".nfer d to accept memuers
1.
1up
f or t 1ie (":r~ve111ment of t;11e U m"te,;i
on Private
11 ence
auth or1ze
International Law,
StateR in ( 1) the Hague Conference on. Pnvitte lnter1~a. ~1ona~ Lt\.'\\: ~~: participa1md (2) the Intemationa.1 (Rome) Institute for the limficat.10~

Private Law, and_ to appoint the 1;nite~ S!1ttes delegates 11.nd .their
:flternates to meetmgs of the two or~an1zat10ns, 1md the committees
and organs thereof.
SEC. 2. There is 1tut horized to be appmpri1tted such sums as may Appropriations.
be necessary, not to exceed $25,000 tmnually! for the payment by the
United States of (1) its propo11ionate share of the expenses of the
H~e Conference on Private International I...aw and of the International (Rome) Institute for the l!nification of Private Law, and
(2) all other necessary expenses incident to participation by tl_ie
United States in the activities of the two organizations referred tom
clause (1) of this section.
Approved December 30, 1963.

PUBLIC LAW 88-245-DEC. 30, 1963

776

[77 STAT,

77 STAT.1

Public Law 88-245

December 30, 1963
[H. R. 7063]

------

AN ACT
:\(akin~ 11ppropri11tionl! for

the Dc>11111tnw11tx of 8tntl', .Ju,..rit'l', 1111!1 Commerce

the J1111ici11ry. a111l rel11tl'd agendei-: for the ti:<!nl yt-ar !nrliug J1111P :m, 1064'
and for other P1ll'IJ<,;ei<.
'

Be it enacted by the ''et11tfe and l101ti.<e of

Departments of

State, Justice, and

Commerce, the
Judiciary, and
Related Agencies
APpropriation Act,
1964.

Reprexe1datfoe.~

of the

Cnited ,_.;,fate.~ of Amedca in. ('trnqref!x a11.~embled. That. the followi1w

l'nms ar~ a pproprinted, out of imy money, in the Tre.asury not ot herwi~
approprrnted, for the Departments of State, ,Justice, and Commerce,
the .Tudieiary, and relnted agencie:; for the fiscal year endi11g: .Tunt> 20,
W64, namely:

TITLE 1-I>EP.\.RT}f.EXT OF STATE

~

.\.n:\nxisTllA'l'IOX OF FoREIOX .\1''1<.\lllli

SALARIES ANO EXl'ENSF.'>

60 Stat. 999;
74 Stat. 831.

63 Stat. 405.

60 Stat.

s 10.

63 Stat. 62;
73 Stat. 471.
7 6 Stat. 263.

For necessary expenses of the Department of State, not othen'rise

provided for, including expenses authorized by the Foreign Service
Act of 1946, as amended (22 U.S.C. 801-1158), not otherwise provided
for; expenses necessary to meet the responsibilities and obligations of
the United States in Germitny (including those arising under the
supreme authority 11ssumed by the ~Tnited States on .June 5, 1945, and
nnder contractual arr:i1,%ements with the Federal Republic of Germany); salary of the I:;nited Stc'ltes member of t e Board for the
Validation of German Bonds in the United
at the rate of
$17,100 per annum; purclmse (not to e.irceed t
which four are
for rephtcernent ou]y) or hire of passe1
les; printing
nnd binding outside the continental Un
wit.
regard to
J.S.C. Ill). rvices as
section 11 of the Act of March 1, 1
:iuthorized by section 15 of the .\ct
.2., 1946 ( 5
.C. 55a);
purch:tse of uniforms; pn.yment of ..~
';'iii the man
authorized in the first paragraph of section
as amended,
title 28
of the rnited States Code when such cl
rise in forei
and payment of meritorious claims as at
...secti
the Act of August 1, 1956, ns amended
librnry membership in orgauizntions which issue publi tions to members only, or to members a price lower than to others; employment
of aliens by contract. for sernces abroad; refund of fees erroneously
charged and paid for passports; radio communications; payment in
advance for subscriptions to commercial information, telephone and
similar services a.brood; care and transportation of prisoners and persons declared insane; expenses, as authorized by law ( 18 U.S.C. 319'2),
of bringin~ to the United States from foreign countries persons
charged with crime; and procurement by contract or otherwise, of
services, supplies, and facilities, as follows: (1) translating, (2)
nnalysis and tabulation of technical information, and (a) prepa.ration
of special maps, globes, and geographic aids; $153,000,000, of which
not less than $12,000,000 shtill be used to purchase foreign currencies
or credits owed to or owned by the Treasury of the United States:
Prorided. That passenger motor vehicles in possession of the Foreign
Service abroad may be rep'laced in ll('cordance with section 7 of the
Act of August I, 1956 (70 Stat. 891), and the cost, including the
exchange allowance, of each such replacement shall not exceed $3,800
in the case of the chief of mission nutomobile at each diplomatic
mission (except that five such vehicles ma.y be purchased at not to
exceed $7,800 each) and $1,500 in the ~1se of ull other such Yehicles
except station wagons.

at

62 Stat. 825.

5 USC 170l.

For repre:
Foreign Ser
A,CQUI.SlTIOl

For neces~
Buildings..A
sonal serv1c1:
allowances c
Service A~t
as authonze
55a) ; $18,1

purchase fc
Treasury of
PrO'IJided, 'I
tive expense

Forpurc1
Agricultura
amended (~
104(1) of t1

pr~at~on a~
buildm~

;;.
PrO'IJidea, 'I
currencies a
of such Act
ments of th
E'ME

For expe
unforeseen
ice, to be e1
Revised St:
I
{

For expe
obligations
pursuant 1
$81,305,000

For exp.
internatior
pursuantt
mgexpens
ing for su
~rsonnel:

of 1946, a!
one) and
without re
111); and