BILL NUMBER: SB 1481 CHAPTERED
BILL TEXT
CHAPTER 254
FILED WITH SECRETARY OF STATE SEPTEMBER 14, 2006
APPROVED BY GOVERNOR SEPTEMBER 14, 2006
PASSED THE SENATE AUGUST 22, 2006
PASSED THE ASSEMBLY AUGUST 7, 2006
AMENDED IN ASSEMBLY JUNE 22, 2006
AMENDED IN SENATE MAY 26, 2006
AMENDED IN SENATE MAY 16, 2006
AMENDED IN SENATE APRIL 6, 2006
INTRODUCED BY Senator Poochigian
FEBRUARY 23, 2006
An act to amend Sections 1646.5, 1812.622, 3061.5, 3343.5, and
3440.3 of, and to add Section 1624.5 to, the Civil Code, to amend
Sections 1101, 1103, 1201, 2103, 2104, 2202, 2310, 2323, 2401, 2503,
2505, 2506, 2509, 2605, 2705, 3103, 4104, 4210, 5103, 8102, 8103,
9102, 9203, 9207, 9208, 9301, 9310, 9312, 9313, 9314, 9317, 9338,
9601, 10103, 10501, 10514, 10518, 10519, 10526, 10527, 10528, 11105,
11106, and 11204 of, to amend and renumber Sections 1107, 1205, 1207,
1208, and 1209 of, to amend, renumber, and add Sections 1106, 1108,
1202, 1203, and 1204 of, to add Chapter 3 (commencing with Section
1301) to Division 1 of, to repeal Sections 1105, 1210, 2208, 10207,
and 13104 of, to repeal and add Sections 1102 and 1206 of, and to
repeal and add Division 7 (commencing with Section 7101) of, the
Commercial Code, to amend Section 55702 of the Food and Agricultural
Code, to amend Section 7152 of the Government Code, and to amend
Section 574 of the Penal Code, relating to commercial transactions.
LEGISLATIVE COUNSEL'S DIGEST
SB 1481, Poochigian Commercial transactions.
(1) Existing provisions of the Commercial Code generally govern
commercial transactions.
This bill would revise those provisions generally in accordance
with the revisions of Uniform Commercial Code Article 1 proposed by
the National Conference of Commissioners on Uniform State Law.
Specifically, the bill would revise various definitions, including
the definitions for "bill of lading," "document of title," and
"security interest." The bill would revise the definition of "good
faith" to also mean the observance of reasonable commercial standards
of fair dealing. The bill would expand the definition of "purchase"
to include taking by lease. The bill would revise the definition of
"bank" to include savings banks, savings and loan associations,
credit unions, and trust companies. The bill would make various other
definitional changes relating to commercial transactions.
The bill would also modify, limit, and supersede specified
portions of the federal Electronic Signatures in Global and National
Commerce Act as it relates to the Commercial Code. The bill would
revise provisions governing waiver or renunciation of a claim or
right after breach by requiring agreement of the aggrieved party. The
bill would make conforming changes.
(2) Existing law sets forth principals governing documents of
title, including bills of lading and warehouse receipts, and governs
the rights, duties, and liabilities of a warehouseman or carrier as
well as of the holder of the document and other parties to a
transaction involving the document of title.
This bill would revise those provisions generally in accordance
with the revision of Uniform Commercial Code Article 7 proposed by
the National Conference of Commissioners on Uniform State Laws.
Specifically, the bill would revise those provisions to apply to
electronic documents of title. The bill would also revise terms used
in those provisions, substituting "warehouse" for "warehouseman" and
adding definitions for certain terms relating to documents of title.
The bill would clarify the circumstances making a document of title
nonnegotiable and the requisite terms for a valid warehouse receipt.
The bill would delete references to tariffs or filed classifications
and make other changes and would expand the liability limitation a
warehouse may impose in a warehouse receipt. The bill would also
revise the warehouse and carrier lien provisions.
This bill would also revise the provisions governing documents of
title to conform with those in the Uniform Commercial Code. The
conforming changes would be made by the bill to certain definitional
provisions and negotiability characteristics of documents of title.
The bill would also make conforming changes by deleting a provision
that limits a warehouse's liability to the actual value of the goods
in designated circumstances and by deleting a provision in a
warehouse receipt relating to the storage and handling rate for goods
in a public utility warehouse. The bill would make other conforming
changes by describing the obligations of a bailee under a delivery
order and the defeasance of title through an unaccepted delivery
order. The bill would also make conforming changes to warehouse lien
provisions.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1624.5 is added to the Civil Code, to read:
1624.5. (a) Except in the cases described in subdivision (b), a
contract for the sale of personal property is not enforceable by way
of action or defense beyond five thousand dollars ($5,000) in amount
or value of remedy unless there is some record, as defined in
subdivision (m) of Section 1633.2, but solely to the extent permitted
by applicable law, that indicates that a contract for sale has been
made between the parties at a defined or stated price, reasonably
identifies the subject matter, and is signed, including by way of
electronic signature, as defined in subdivision (h) of Section
1633.2, but solely to the extent permitted by applicable law, by the
party against whom enforcement is sought or by his or her authorized
agent.
(b) Subdivision (a) does not apply to contracts governed by the
Commercial Code, including contracts for the sale of goods (Section
2201 of the Commercial Code), contracts for the sale of securities
(Section 8113 of the Commercial Code), and security agreements
(Sections 9201 and 9203 of the Commercial Code).
(c) Subdivision (a) does not apply to a qualified financial
contract as that term is defined in paragraph (2) of subdivision (b)
of Section 1624 if either of the following exists:
(1) There is, as provided in paragraph (3) of subdivision (b) of
Section 1624, sufficient evidence to indicate that a contract has
been made.
(2) The parties thereto, by means of a prior or subsequent written
contract, have agreed to be bound by the terms of the qualified
financial contract from the time they reach agreement (by telephone,
by exchange of electronic messages, or otherwise) on those terms.
SEC. 1.5. Section 1646.5 of the Civil Code is amended to read:
1646.5. Notwithstanding Section 1646, the parties to any
contract, agreement, or undertaking, contingent or otherwise,
relating to a transaction involving in the aggregate not less than
two hundred fifty thousand dollars ($250,000), including a
transaction otherwise covered by subdivision (a) of Section 1301 of
the Commercial Code, may agree that the law of this state shall
govern their rights and duties in whole or in part, whether or not
the contract, agreement, or undertaking or transaction bears a
reasonable relation to this state. This section does not apply to any
contract, agreement, or undertaking (a) for labor or personal
services, (b) relating to any transaction primarily for personal,
family, or household purposes, or (c) to the extent provided to the
contrary in subdivision (c) of Section 1301 of the Commercial Code.
This section applies to contracts, agreements, and undertakings
entered into before, on, or after its effective date; it shall be
fully retroactive. Contracts, agreements, and undertakings selecting
California law entered into before the effective date of this section
shall be valid, enforceable, and effective as if this section had
been in effect on the date they were entered into; and actions and
proceedings commencing in a court of this state before the effective
date of this section may be maintained as if this section were in
effect on the date they were commenced.
SEC. 2. Section 1812.622 of the Civil Code is amended to read:
1812.622. As used in this title:
(a) "Advertisement" means a commercial message in any medium that
directly or indirectly solicits or promotes one or more specific
rental-purchase transactions, excluding instore merchandising aids.
This definition does not limit or alter the application of other
laws, including Chapter 5 (commencing with Section 17200) of Part 2
and Chapter 1 (commencing with Section 17500) of Part 3, of Division
7 of the Business and Professions Code, to rental-purchase
transactions.
(b) "Consumer" means a natural person or persons who rent or lease
personal property from a lessor pursuant to a rental-purchase
agreement or to whom a lessor offers personal property for use
pursuant to a rental-purchase agreement.
(c) "Lessor" means any person or entity that provides or offers to
provide personal property for use by consumers pursuant to a
rental-purchase agreement.
(d) "Rental-purchase agreement," except as otherwise provided in
this subdivision, means an agreement between a lessor and a consumer
pursuant to which the lessor rents or leases, for valuable
consideration, personal property for use by a consumer for personal,
family, or household purposes for an initial term not exceeding four
months that may be renewed or otherwise extended, if under the terms
of the agreement the consumer acquires an option or other legally
enforceable right to become owner of the property. A rental-purchase
agreement is a lease subject to Title 1.5 (commencing with Section
1750) and Title 1.7 (commencing with Section 1790).
"Rental-purchase agreement" shall not be construed to be, nor be
governed by, and shall not apply to, any of the following:
(1) A retail installment sale, as defined in Section 1802.5.
(2) A retail installment contract, as defined in Section 1802.6.
(3) A retail installment account, as defined in Section 1802.7.
(4) A lease or agreement that constitutes a security interest, as
defined in paragraph (35) of subdivision (b) of Section 1201 of the
Commercial Code.
(5) A consumer credit contract, as defined in Section 1799.90.
(e) "Cash price" means the price at which retail sellers are
selling and retail buyers are buying the same or similar property for
cash in the same trade area in which the lessor's place of business
is located. Cash price may be evidenced as provided in subdivision
(b) of Section 1812.644.
(f) "Cost of rental" means the difference between the total of all
periodic payments necessary to acquire ownership under the
rental-purchase agreement and the cash price of the rental property
that is subject to the rental-purchase agreement.
(g) "Fee" means any payment, charge, fee, cost, or expense,
however denominated, other than a rental payment.
SEC. 3. Section 3061.5 of the Civil Code is amended to read:
3061.5. (a) Except as provided in subdivision (d), any person who
as an employee shall, by his or her own labor, do or perform any
work harvesting or transporting harvested crops or farm products as
defined in Section 55403 of the Food and Agricultural Code which are
owned and grown or produced by a limited partnership as defined in
Section 15501 of the Corporations Code, has a lien upon any and all
of the severed crops or severed farm products or proceeds from their
sale for the value of the labor done up to a maximum of earnings for
two weeks. The liens attach whether the work was done at the instance
of the owner who is the grower or producer of severed crops or
severed farm products or of any other person acting by or under the
owner's authority, directly or indirectly, as contractor or
otherwise; and every contractor, subcontractor, or other person
having charge of the harvesting or transporting of the severed crops
or severed farm products shall be held to be the agent of the owner
for the purposes of this section.
(b) The liens provided for in this section attach from the date of
the commencement of the work or labor, and are preferred liens,
prior in dignity to all other liens, claims, or encumbrances. Except
as provided in subdivisions (a) and (c) they shall not be limited as
to amount by any contract price agreed upon between the owner who is
the grower or producer of the severed crops or severed farm products
and any contractor, but the several liens shall not in any case
exceed in amount the reasonable value of the labor done, nor the
price agreed upon for the labor between the claimant and his or her
employer. In no event, where the claimant was employed by a
contractor, or subcontractor, shall the lien extend to any labor not
contemplated by, covered by, or reasonably necessary to the execution
of, the original contract between the contractor and the owner who
is the grower or producer of severed crops or severed farm products
and of which contract, or modification thereof, the claimant had
actual notice before the performance of the labor.
(c) The maximum liability of severed crops, severed farm products
or the proceeds from their sale subject to liens under this section
is limited to the lesser of actual proved claims or 25 percent of the
fair market value of the severed crops, severed farm products, or 25
percent of the proceeds after their sale.
(d) No person has a lien if the owner who is the grower or
producer of the severed crops, severed farm products, or their
proceeds, who otherwise would be subject to a lien pursuant to
subdivision (a), either gives directly, or requires a person or
entity hired or used to furnish labor in connection with harvesting
or transporting the severed crops, to give to the Labor Commissioner
prior to the harvest and for 45 days after its completion, a bond
executed by an admitted surety insurer in an amount and form
acceptable to the Labor Commissioner, which is conditioned upon the
payment of all wages found to be due and unpaid in connection with
such operations under any provision of this code.
(e) A buyer in the ordinary course of business, as defined in
paragraph (9) of subdivision (b) of Section 1201 of the Commercial
Code, shall take free of any security interest created by this
section, notwithstanding the fact that the lien is perfected and the
buyer knows of its existence.
SEC. 4. Section 3343.5 of the Civil Code is amended to read:
3343.5. (a) Any one or more of the following who suffers any
damage proximately resulting from one or more acts of unlawful motor
vehicle subleasing, as described in Chapter 12.7 (commencing with
Section 570) of Title 13 of Part 1 of the Penal Code, may bring an
action against the person who has engaged in those acts:
(1) A seller or other secured party under a conditional sale
contract or a security agreement.
(2) A lender under a direct loan agreement.
(3) A lessor under a lease contract.
(4) A buyer under a conditional sale contract.
(5) A purchaser under a direct loan agreement, an agreement which
provides for a security interest, or an agreement which is equivalent
to these types of agreements.
(6) A lessee under a lease contract.
(7) An actual or purported transferee or assignee of any right or
interest of a buyer, a purchaser, or a lessee.
(b) The court in an action under subdivision (a) may award actual
damages; equitable relief, including, but not limited to, an
injunction and restitution of money and property; punitive damages;
reasonable attorney's fees and costs; and any other relief which the
court deems proper.
(c) As used in this section, the following terms have the
following meanings:
(1) "Buyer" has the meaning set forth in subdivision (c) of
Section 2981.
(2) "Conditional sale contract" has the meaning set forth in
subdivision (a) of Section 2981. Notwithstanding subdivision (k) of
Section 2981, "conditional sale contract" includes any contract for
the sale or bailment of a motor vehicle between a buyer and a seller
primarily for business or commercial purposes.
(3) "Direct loan agreement" means an agreement between a lender
and a purchaser whereby the lender has advanced funds pursuant to a
loan secured by the motor vehicle which the purchaser has purchased.
(4) "Lease contract" means a lease contract between a lessor and
lessee as this term and these parties are defined in Section 2985.7.
Notwithstanding subdivision (d) of Section 2985.7, "lease contract"
includes a lease for business or commercial purposes.
(5) "Motor vehicle" means any vehicle required to be registered
under the Vehicle Code.
(6) "Person" means an individual, company, firm, association,
partnership, trust, corporation, limited liability company, or other
legal entity.
(7) "Purchaser" has the meaning set forth in paragraph (30) of
subdivision (b) of Section 1201 of the Commercial Code.
(8) "Security agreement" and "secured party" have the meanings set
forth, respectively, in paragraphs (73) and (72) of subdivision (a)
of Section 9102 of the Commercial Code. "Security interest" has the
meaning set forth in paragraph (35) of subdivision (b) of Section
1201 of the Commercial Code.
(9) "Seller" has the meaning set forth in subdivision (b) of
Section 2981, and includes the present holder of the conditional sale
contract.
(d) The rights and remedies provided in this section are in
addition to any other rights and remedies provided by law.
SEC. 5. Section 3440.3 of the Civil Code is amended to read:
3440.3. A transfer of personal property, as to which the
conditions set forth in subdivision (h) of Section 3440.1, Section
3440.2, or subdivision (b) of Section 3440.5 are satisfied, shall,
nevertheless, be void under Section 3440 as against a person who has
purchased the personal property from the transferor and who is a
"buyer in the ordinary course of business," as defined in paragraph
(9) of subdivision (b) of Section 1201 of the Commercial Code.
SEC. 6. Section 1101 of the Commercial Code is amended to read:
1101. This code may be cited as the Uniform Commercial Code.
SEC. 7. Section 1102 of the Commercial Code is repealed.
SEC. 8. Section 1102 is added to the Commercial Code, to read:
1102. This division applies to a transaction to the extent that
it is governed by another division of this code.
SEC. 9. Section 1103 of the Commercial Code is amended to read:
1103. (a) This code shall be liberally construed and applied to
promote its underlying purposes and policies, which are:
(1) to simplify, clarify, and modernize the law governing
commercial transactions;
(2) to permit the continued expansion of commercial practices
through custom, usage, and agreement of the parties; and
(3) to make uniform the law among the various jurisdictions.
(b) Unless displaced by the particular provisions of this code,
the principles of law and equity, including the law merchant and the
law relative to capacity to contract, principal and agent, estoppel,
fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and
other validating or invalidating cause supplement its provisions.
SEC. 10. Section 1105 of the Commercial Code is repealed.
SEC. 11. Section 1106 of the Commercial Code is amended and
renumbered to read:
1305. (a) The remedies provided by this code shall be liberally
administered to the end that the aggrieved party may be put in as
good a position as if the other party had fully performed but neither
consequential or special damages nor penal damages may be had except
as specifically provided in this code or by other rule of law.
(b) Any right or obligation declared by this code is enforceable
by action unless the provision declaring it specifies a different and
limited effect.
SEC. 12. Section 1106 is added to the Commercial Code, to read:
1106. In this code, unless the statutory context otherwise
requires:
(1) words in the singular number include the plural, and those in
the plural include the singular; and
(2) words of any gender also refer to any other gender.
SEC. 13. Section 1107 of the Commercial Code is amended and
renumbered to read:
1306. A claim or right arising out of an alleged breach may be
discharged in whole or in part without consideration by agreement of
the aggrieved party in an authenticated record.
SEC. 14. Section 1108 of the Commercial Code is amended and
renumbered to read:
1105. If any provision or clause of this code or its application
to any person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of the code which can be
given effect without the invalid provision or application, and to
this end the provisions of this code are severable.
SEC. 15. Section 1108 is added to the Commercial Code, to read:
1108. This chapter modifies, limits, and supersedes the federal
Electronic Signatures in Global and National Commerce Act, 15 U.S.C.
Section 7001 et seq., except that nothing in this chapter modifies,
limits, or supersedes Section 7001(c) of that act or authorizes
electronic delivery of any of the notices described in Section 7003
(b) of that act.
SEC. 16. Section 1201 of the Commercial Code is amended to read:
1201. (a) Unless the context otherwise requires, words or phrases
defined in this section, or in the additional definitions contained
in other divisions of this code that apply to particular divisions or
chapters thereof, have the meanings stated.
(b) Subject to definitions contained in other divisions of this
code that apply to particular divisions or chapters thereof:
(1) "Action," in the sense of a judicial proceeding, includes
recoupment, counterclaim, setoff, suit in equity, and any other
proceeding in which rights are determined.
(2) "Aggrieved party" means a party entitled to pursue a remedy.
(3) "Agreement," as distinguished from "contract," means the
bargain of the parties in fact, as found in their language or
inferred from other circumstances, including course of performance,
course of dealing, or usage of trade as provided in Section 1303.
(4) "Bank" means a person engaged in the business of banking, and
includes a savings bank, savings and loan association, credit union,
and trust company.
(5) "Bearer" means a person in possession of a negotiable
instrument, document of title, or certificated security that is
payable to bearer or endorsed in blank.
(6) "Bill of lading" means a document evidencing the receipt of
goods for shipment issued by a person engaged in the business of
transporting or forwarding goods.
(7) "Branch" includes a separately incorporated foreign branch of
a bank.
(8) "Burden of establishing" a fact means the burden of persuading
the trier of fact that the existence of the fact is more probable
than its nonexistence.
(9) "Buyer in ordinary course of business" means a person that
buys goods in good faith, without knowledge that the sale violates
the rights of another person in the goods, and in the ordinary course
from a person, other than a pawnbroker, in the business of selling
goods of that kind. A person buys goods in the ordinary course if the
sale to the person comports with the usual or customary practices in
the kind of business in which the seller is engaged or with the
seller's own usual or customary practices. A person that sells oil,
gas, or other minerals at the wellhead or minehead is a person in the
business of selling goods of that kind. A buyer in ordinary course
of business may buy for cash, by exchange of other property, or on
secured or unsecured credit, and may acquire goods or documents of
title under a preexisting contract for sale. Only a buyer that takes
possession of the goods or has a right to recover the goods from the
seller under Division 2 (commencing with Section 2101) may be a buyer
in ordinary course of business. "Buyer in ordinary course of
business" does not include a person that acquires goods in a transfer
in bulk or as security for or in total or partial satisfaction of a
money debt.
(10) "Conspicuous," with reference to a term, means so written,
displayed, or presented that a reasonable person against whom it is
to operate ought to have noticed it. Whether a term is "conspicuous"
or not is a decision for the court. Conspicuous terms include the
following:
(A) a heading in capitals equal to or greater in size than the
surrounding text, or in contrasting type, font, or color to the
surrounding text of the same or lesser size; and
(B) language in the body of a record or display in larger type
than the surrounding text, or in contrasting type, font, or color to
the surrounding text of the same size, or set off from surrounding
text of the same size by symbols or other marks that call attention
to the language.
(11) (Reserved)
(12) "Contract," as distinguished from "agreement," means the
total legal obligation that results from the parties' agreement as
determined by this code and as supplemented by any other applicable
laws.
(13) "Creditor" includes a general creditor, a secured creditor, a
lien creditor, and any representative of creditors, including an
assignee for the benefit of creditors, a trustee in bankruptcy, a
receiver in equity, and an executor or administrator of an insolvent
debtor's or assignor's estate.
(14) "Defendant" includes a person in the position of defendant in
a counterclaim, cross-claim, or third-party claim.
(15) "Delivery," with respect to an instrument, document of title,
or chattel paper means voluntary transfer of possession.
(16) "Document of title" includes a bill of lading, dock warrant,
dock receipt, warehouse receipt, or order for the delivery of goods,
and also any other document which in the regular course of business
or financing is treated as adequately evidencing that the person in
possession of it is entitled to receive, hold, and dispose of the
document and the goods it covers. To be a document of title, a
document must purport to be issued by or addressed to a bailee and
purport to cover goods in the bailee's possession which are either
identified or are fungible portions of an identified mass.
(17) "Fault" means a default, breach, or wrongful act or omission.
(18) "Fungible goods" means:
(A) Goods of which any unit, by nature or usage of trade, is the
equivalent of any other like unit; or
(B) Goods that by agreement are treated as equivalent.
(19) "Genuine" means free of forgery or counterfeiting.
(20) "Good faith," except as otherwise provided in Division 5
(commencing with Section 5101), means honesty in fact and the
observance of reasonable commercial standards of fair dealing.
(21) "Holder," means:
(A) the person in possession of a negotiable instrument that is
payable either to bearer or, to an identified person that is the
person in possession; or
(B) the person in possession of a document of title if the goods
are deliverable either to bearer or to the order of the person in
possession.
(22) "Insolvency proceeding" includes an assignment for the
benefit of creditors or other proceeding intended to liquidate or
rehabilitate the estate of the person involved.
(23) "Insolvent" means:
(A) having generally ceased to pay debts in the ordinary course of
business other than as a result of bona fide dispute;
(B) being unable to pay debts as they become due; or
(C) being insolvent within the meaning of federal bankruptcy law.
(24) "Money" means a medium of exchange currently authorized or
adopted by a domestic or foreign government. The term includes a
monetary unit of account established by an intergovernmental
organization or by agreement between two or more countries.
(25) "Organization" means a person other than an individual.
(26) "Party," as distinguished from "third party," means a person
that has engaged in a transaction or made an agreement subject to
this code.
(27) "Person" means an individual, corporation, business trust,
estate, trust, partnership, limited liability company, association,
joint venture, government, governmental subdivision, agency, or
instrumentality, public corporation, or any other legal or commercial
entity.
(28) "Present value" means the amount as of a date certain of one
or more sums payable in the future, discounted to the date certain by
use of either an interest rate specified by the parties if that rate
is not manifestly unreasonable at the time the transaction is
entered into or, if an interest rate is not so specified, a
commercially reasonable rate that takes into account the facts and
circumstances at the time the transaction is entered into.
(29) "Purchase" means taking by sale, lease, discount,
negotiation, mortgage, pledge, lien, security interest, issue or
reissue, gift, or any other voluntary transaction creating an
interest in property.
(30) "Purchaser" means a person that takes by purchase.
(31) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(32) "Remedy" means any remedial right to which an aggrieved party
is entitled with or without resort to a tribunal.
(33) "Representative" means a person empowered to act for another,
including an agent, an officer of a corporation or association, and
a trustee, executor, or administrator of an estate.
(34) "Right" includes remedy.
(35) "Security interest" means an interest in personal property or
fixtures which secures payment or performance of an obligation.
"Security interest" includes any interest of a consignor and a buyer
of accounts, chattel paper, a payment intangible, or a promissory
note in a transaction that is subject to Division 9 (commencing with
Section 9101). "Security interest" does not include the special
property interest of a buyer of goods on identification of those
goods to a contract for sale under Section 2401, but a buyer may also
acquire a "security interest" by complying with Division 9
(commencing with Section 9101). Except as otherwise provided in
Section 2505, the right of a seller or lessor of goods under Division
2 (commencing with Section 2101) or Division 10 (commencing with
Section 10101) to retain or acquire possession of the goods is not a
"security interest," but a seller or lessor may also acquire a
"security interest" by complying with Division 9 (commencing with
Section 9101). The retention or reservation of title by a seller of
goods notwithstanding shipment or delivery to the buyer under Section
2401 is limited in effect to a reservation of a "security interest."
Whether a transaction in the form of a lease creates a "security
interest" is determined pursuant to Section 1203.
(36) "Send," in connection with a writing, record, or notice
means:
(A) to deposit in the mail or deliver for transmission by any
other usual means of communication with postage or cost of
transmission provided for and properly addressed and, in the case of
an instrument, to an address specified thereon or otherwise agreed
or, if there is none, to any address reasonable under the
circumstances; or
(B) in any other way to cause to be received any record or notice
within the time it would have arrived if properly sent.
(37) "Signed" includes using any symbol executed or adopted with
present intention to adopt or accept a writing.
(38)
"State" means a state of the United States, the District of Columbia,
Puerto Rico, the United States Virgin Islands, or any territory or
insular possession subject to the jurisdiction of the United States.
(39) "Surety" includes a guarantor or other secondary obligor.
(40) "Term" means a portion of an agreement that relates to a
particular matter.
(41) "Unauthorized signature" means a signature made without
actual, implied, or apparent authority. The term includes a forgery.
(42) "Warehouse receipt" means a receipt issued by a person
engaged in the business of storing goods for hire.
(43) "Writing" includes printing, typewriting, or any other
intentional reduction to tangible form. "Written" has a corresponding
meaning.
SEC. 17. Section 1202 of the Commercial Code is amended and
renumbered to read:
1307. (1) A bill of lading, policy or certificate of insurance,
official weigher's or inspector's certificate, consular invoice, or
any other document authorized or required by the contract to be
issued by a third party is admissible as evidence of the facts stated
in the document by the third party in any action arising out of the
contract that authorized or required the document.
(2) In any action arising out of the contract that authorized or
required the document referred to in subdivision (1):
(a) A document in due form purporting to be the document referred
to in subdivision (1) is presumed to be authentic and genuine. The
presumption is a presumption affecting the burden of producing
evidence.
(b) If the document is found to be authentic and genuine, the
facts stated in the document by the third party are presumed to be
true. The presumption is a presumption affecting the burden of proof.
SEC. 18. Section 1202 is added to the Commercial Code, to read:
1202. (a) Subject to subdivision (f), a person has "notice" of a
fact if the person:
(1) has actual knowledge of it;
(2) has received a notice or notification of it; or
(3) from all the facts and circumstances known to the person at
the time in question, has reason to know that it exists.
(b) "Knowledge" means actual knowledge. "Knows" has a
corresponding meaning.
(c) "Discover," "learn," or words of similar import refer to
knowledge rather than to reason to know.
(d) A person "notifies" or "gives" a notice or notification to
another person by taking such steps as may be reasonably required to
inform the other person in ordinary course, whether or not the other
person actually comes to know of it.
(e) Subject to subdivision (f), a person "receives" a notice or
notification when:
(1) it comes to that person's attention; or
(2) it is duly delivered in a form reasonable under the
circumstances at the place of business through which the contract was
made or at another location held out by that person as the place for
receipt of such communications.
(f) Notice, knowledge, or a notice or notification received by an
organization is effective for a particular transaction from the time
it is brought to the attention of the individual conducting that
transaction and, in any event, from the time it would have been
brought to the individual's attention if the organization had
exercised due diligence. An organization exercises due diligence if
it maintains reasonable routines for communicating significant
information to the person conducting the transaction and there is
reasonable compliance with the routines. Due diligence does not
require an individual acting for the organization to communicate
information unless the communication is part of the individual's
regular duties or the individual has reason to know of the
transaction and that the transaction would be materially affected by
the information.
SEC. 19. Section 1203 of the Commercial Code is amended and
renumbered to read:
1304. Every contract or duty within this code imposes an
obligation of good faith in its performance and enforcement.
SEC. 20. Section 1203 is added to the Commercial Code, to read:
1203. (a) Whether a transaction in the form of a lease creates a
lease or security interest is determined by the facts of each case.
(b) A transaction in the form of a lease creates a security
interest if the consideration that the lessee is to pay the lessor
for the right to possession and use of the goods is an obligation for
the term of the lease and is not subject to termination by the
lessee, and:
(1) the original term of the lease is equal to or greater than the
remaining economic life of the goods;
(2) the lessee is bound to renew the lease for the remaining
economic life of the goods or is bound to become the owner of the
goods;
(3) the lessee has an option to renew the lease for the remaining
economic life of the goods for no additional consideration or for
nominal additional consideration upon compliance with the lease
agreement; or
(4) the lessee has an option to become the owner of the goods for
no additional consideration or for nominal additional consideration
upon compliance with the lease agreement.
(c) A transaction in the form of a lease does not create a
security interest merely because:
(1) the present value of the consideration the lessee is obligated
to pay the lessor for the right to possession and use of the goods
is substantially equal to or is greater than the fair market value of
the goods at the time the lease is entered into;
(2) the lessee assumes risk of loss of the goods;
(3) the lessee agrees to pay, with respect to the goods, taxes,
insurance, filing, recording, or registration fees, or service or
maintenance costs;
(4) the lessee has an option to renew the lease or to become the
owner of the goods;
(5) the lessee has an option to renew the lease for a fixed rent
that is equal to or greater than the reasonably predictable fair
market rent for the use of the goods for the term of the renewal at
the time the option is to be performed; or
(6) the lessee has an option to become the owner of the goods for
a fixed price that is equal to or greater than the reasonably
predictable fair market value of the goods at the time the option is
to be performed.
(7) in the case of a motor vehicle, as defined in Section 415 of
the Vehicle Code, or a trailer, as defined in Section 630 of that
code, that is not to be used primarily for personal, family, or
household purposes, that the amount of rental payments may be
increased or decreased by reference to the amount realized by the
lessor upon sale or disposition of the vehicle or trailer. Nothing in
this paragraph affects the application or administration of the
Sales and Use Tax Law (Part 1 (commencing with Section 6001) of
Division 2 of the Revenue and Taxation Code).
(d) Additional consideration is nominal if it is less than the
lessee's reasonably predictable cost of performing under the lease
agreement if the option is not exercised. Additional consideration is
not nominal if:
(1) when the option to renew the lease is granted to the lessee,
the rent is stated to be the fair market rent for the use of the
goods for the term of the renewal determined at the time the option
is to be performed; or
(2) when the option to become the owner of the goods is granted to
the lessee, the price is stated to be the fair market value of the
goods determined at the time the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonably
predictable" fair market rent, fair market value, or cost of
performing under the lease agreement must be determined with
reference to the facts and circumstances at the time the transaction
is entered into.
SEC. 21. Section 1204 of the Commercial Code is amended and
renumbered to read:
1205. (a) Whether a time for taking an action required by this
code is reasonable depends on the nature, purpose, and circumstances
of the action.
(b) An action is taken "seasonably" if it is taken at or within
the time agreed or, if no time is agreed, at or within a reasonable
time.
SEC. 22. Section 1204 is added to the Commercial Code, to read:
1204. Except as otherwise provided in Divisions 3, 4, 5, and 6, a
person gives value for rights if the person acquires them:
(1) in return for a binding commitment to extend credit or for the
extension of immediately available credit, whether or not drawn upon
and whether or not a chargeback is provided for in the event of
difficulties in collection;
(2) as security for, or in total or partial satisfaction of, a
preexisting claim;
(3) by accepting delivery under a preexisting contract for
purchase; or
(4) in return for any consideration sufficient to support a simple
contract.
SEC. 23. Section 1205 of the Commercial Code is amended and
renumbered to read:
1303. (a) A "course of performance" is a sequence of conduct
between the parties to a particular transaction that exists if:
(1) the agreement of the parties with respect to the transaction
involves repeated occasions for performance by a party; and
(2) the other party, with knowledge of the nature of the
performance and opportunity for objection to it, accepts the
performance or acquiesces in it without objection.
(b) A "course of dealing" is a sequence of conduct concerning
previous transactions between the parties to a particular transaction
that is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.
(c) A "usage of trade" is any practice or method of dealing having
such regularity of observance in a place, vocation, or trade as to
justify an expectation that it will be observed with respect to the
transaction in question. The existence and scope of such a usage
must be proved as facts. If it is established that such a usage is
embodied in a trade code or similar record, the interpretation of the
record is a question of law.
(d) A course of performance or course of dealing between the
parties or usage of trade in the vocation or trade in which they are
engaged or of which they are or should be aware is relevant in
ascertaining the meaning of the parties' agreement, may give
particular meaning to specific terms of the agreement, and may
supplement or qualify the terms of the agreement. A usage of trade
applicable in the place in which part of the performance under the
agreement is to occur may be so utilized as to that part of the
performance.
(e) Except as otherwise provided in subdivision (f), the express
terms of an agreement and any applicable course of performance,
course of dealing, or usage of trade must be construed whenever
reasonable as consistent with each other. If such a construction is
unreasonable:
(1) express terms prevail over course of performance, course of
dealing, and usage of trade;
(2) course of performance prevails over course of dealing and
usage of trade;
(3) course of dealing prevails over usage of trade.
(f) Subject to Section 2209, a course of performance is relevant
to show a waiver or modification of any term inconsistent with the
course of performance.
(g) Evidence of a relevant usage of trade offered by one party is
not admissible unless that party has given the other party notice
that the court finds sufficient to prevent unfair surprise to the
other party.
SEC. 24. Section 1206 of the Commercial Code is repealed.
SEC. 25. Section 1206 is added to the Commercial Code, to read:
1206. Whenever this code creates a "presumption" with respect to
a fact, or provides that a fact is "presumed," the trier of fact must
find the existence of the fact unless and until evidence is
introduced that supports a finding of its nonexistence.
SEC. 26. Section 1207 of the Commercial Code is amended and
renumbered to read:
1308. (a) A party that with explicit reservation of rights
performs or promises performance or assents to performance in a
manner demanded or offered by the other party does not thereby
prejudice the rights reserved. Such words as "without prejudice,"
"under protest" or the like are sufficient.
(b) Subdivision (a) does not apply to an accord and satisfaction.
SEC. 27. Section 1208 of the Commercial Code is amended and
renumbered to read:
1309. A term providing that one party or that party's successor
in interest may accelerate payment or performance or require
collateral or additional collateral "at will" or when the party
"deems itself insecure," or words of similar import, means that the
party has power to do so only if that party in good faith believes
that the prospect of payment or performance is impaired. The burden
of establishing lack of good faith is on the party against which the
power has been exercised.
SEC. 28. Section 1209 of the Commercial Code is amended and
renumbered to read:
1310. An obligation may be issued as subordinated to performance
of another obligation of the person obligated, or a creditor may
subordinate its right to performance of an obligation by agreement
with either the person obligated or another creditor of the person
obligated. Subordination does not create a security interest as
against either the common debtor or a subordinated creditor.
SEC. 29. Section 1210 of the Commercial Code is repealed.
SEC. 30. Chapter 3 (commencing with Section 1301) is added to
Division 1 of the Commercial Code, to read:
CHAPTER 3. Territorial Applicability and General Rules
1301. (a) Except as otherwise provided in this section, when a
transaction bears a reasonable relation to this state and also to
another state or nation, the parties may agree that the law either of
this state or of the other state or nation shall govern their rights
and duties.
(b) In the absence of an agreement effective under subdivision
(a), and except as provided in subdivision (c), this code applies to
transactions bearing an appropriate relation to this state.
(c) If one of the following provisions specifies the applicable
law, that provision governs and a contrary agreement is effective
only to the extent permitted by the law so specified:
(1) Section 2402.
(2) Section 4102.
(3) Section 5116.
(4) Section 6103.
(5) Section 8110.
(6) Sections 9301 to 9307, inclusive.
(7) Sections 10105 and 10106.
(8) Section 11507.
1302. (a) Except as otherwise provided in subdivision (b) or
elsewhere in this code, the effect of provisions of this code may be
varied by agreement.
(b) The obligations of good faith, diligence, reasonableness, and
care prescribed by this code may not be disclaimed by agreement. The
parties, by agreement, may determine the standards by which the
performance of those obligations is to be measured if those standards
are not manifestly unreasonable. Whenever this code requires an
action to be taken within a reasonable time, a time that is not
manifestly unreasonable may be fixed by agreement.
(c) The presence of certain provisions of this code of the phrase
"unless otherwise agreed," or words of similar import, does not imply
that the effect of other provisions may not be varied by agreement
under this section.
SEC. 31. Section 2103 of the Commercial Code is amended to read:
2103. (1) In this division unless the context otherwise requires:
(a) "Buyer" means a person who buys or contracts to buy goods.
(b) (Reserved)
(c) "Receipt of goods" means taking physical possession of them.
(d) "Seller" means a person who sells or contracts to sell goods.
(2) Other definitions applying to this division or to specified
chapters thereof, and the sections in which they appear are:
"Acceptance." Section 2606.
"Banker's credit." Section 2325.
"Between merchants." Section 2104.
"Cancellation." Section 2106(4).
"Commercial unit." Section 2105.
"Confirmed credit." Section 2325.
"Conforming to contract." Section 2106.
"Contract for sale." Section 2106.
"Cover." Section 2712.
"Entrusting." Section 2403.
"Financing agency." Section 2104.
"Future goods." Section 2105.
"Goods." Section 2105.
"Identification." Section 2501.
"Installment contract." Section 2612.
"Letter of Credit." Section 2325.
"Lot." Section 2105.
"Merchant." Section 2104.
"Overseas." Section 2323.
"Person in position of seller." Section 2707.
"Present sale." Section 2106.
"Sale." Section 2106.
"Sale on approval." Section 2326.
"Sale or return." Section 2326.
"Termination." Section 2106.
(3) The following definitions in other divisions apply to this
division:
"Check." Section 3104.
"Consignee." Section 7102.
"Consignor." Section 7102.
"Consumer goods." Section 9102.
"Control." Section 7106.
"Dishonor." Section 3502.
"Draft." Section 3104.
(4) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
SEC. 32. Section 2104 of the Commercial Code is amended to read:
2104. (1) "Merchant" means a person who deals in goods of the
kind or otherwise by his occupation holds himself out as having
knowledge or skill peculiar to the practices or goods involved in the
transaction or to whom such knowledge or skill may be attributed by
his employment of an agent or broker or other intermediary who by his
occupation holds himself out as having such knowledge or skill.
(2) "Financing agency" means a bank, finance company or other
person who in the ordinary course of business makes advances against
goods or documents of title or who by arrangement with either the
seller or the buyer intervenes in ordinary course to make or collect
payment due or claimed under the contract for sale, as by purchasing
or paying the seller's draft or making advances against it or by
merely taking it for collection whether or not documents of title
accompany or are associated with the draft. "Financing agency"
includes also a bank or other person who similarly intervenes between
persons who are in the position of seller and buyer in respect to
the goods (Section 2707).
(3) "Between merchants" means in any transaction with respect to
which both parties are chargeable with the knowledge or skill of
merchants.
SEC. 33. Section 2202 of the Commercial Code is amended to read:
2202. Terms with respect to which the confirmatory memoranda of
the parties agree or which are otherwise set forth in a writing
intended by the parties as a final expression of their agreement with
respect to such terms as are included therein may not be
contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented
(a) By course of dealing, course of performance, or usage of trade
(Section 1303); and
(b) By evidence of consistent additional terms unless the court
finds the writing to have been intended also as a complete and
exclusive statement of the terms of the agreement.
SEC. 34. Section 2208 of the Commercial Code is repealed.
SEC. 35. Section 2310 of the Commercial Code is amended to read:
2310. Unless otherwise agreed:
(a) Payment is due at the time and place at which the buyer is to
receive the goods even though the place of shipment is the place of
delivery; and
(b) If the seller is authorized to send the goods he may ship them
under reservation, and may tender the documents of title, but the
buyer may inspect the goods after their arrival before payment is due
unless such inspection is inconsistent with the terms of the
contract (Section 2513); and
(c) If delivery is authorized and made by way of documents of
title otherwise than by subdivision (b) then payment is due
regardless of where the goods are to be received (i) at the time and
place at which the buyer is to receive delivery of the tangible
documents or (ii) at the time the buyer is to receive delivery of the
electronic documents and at the seller's place of business or if
none, the seller's residence; and
(d) Where the seller is required or authorized to ship the goods
on credit the credit period runs from the time of shipment but
postdating the invoice or delaying its dispatch will correspondingly
delay the starting of the credit period.
SEC. 36. Section 2323 of the Commercial Code is amended to read:
2323. (1) Where the contract contemplates overseas shipment and
contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller
unless otherwise agreed must obtain a negotiable bill of lading
stating that the goods have been loaded on board or, in the case of a
term C.I.F. or C. & F., received for shipment.
(2) Where in a case within subdivision (1) a tangible bill of
lading has been issued in a set of parts, unless otherwise agreed if
the documents are not to be sent from abroad the buyer may demand
tender of the full set; otherwise only one part of the bill of lading
need be tendered. Even if the agreement expressly requires a full
set
(a) Due tender of a single part is acceptable within the
provisions of this division on cure of improper delivery (subdivision
(1) of Section 2508); 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
shipment is "overseas" insofar as by usage of trade or agreement it
is subject to the commercial, financing or shipping practices
characteristic of international deepwater commerce.
SEC. 37. Section 2401 of the Commercial Code is amended to read:
2401. Each provision of this division with regard to the rights,
obligations and remedies of the seller, the buyer, purchasers or
other third parties applies irrespective of title to the goods except
where the provision refers to such title. Insofar as situations are
not covered by the other provisions of this division and matters
concerning title become material the following rules apply:
(1) Title to goods cannot pass under a contract for sale prior to
their identification to the contract (Section 2501), and unless
otherwise explicitly agreed the buyer acquires by their
identification a special property as limited by this code. Any
retention or reservation by the seller of the title (property) in
goods shipped or delivered to the buyer is limited in effect to a
reservation of a security interest. Subject to these provisions and
to the provisions of the division on secured transactions (Division
9), title to goods passes from the seller to the buyer in any manner
and on any conditions explicitly agreed on by the parties.
(2) Unless otherwise 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, despite any
reservation of a security interest and even though a document of
title is to be delivered at a different time or place; and in
particular and despite any reservation of a security interest by the
bill of lading
(a) If the contract requires or authorizes the seller to send the
goods to the buyer but does not require him to deliver them at
destination, title passes to the buyer at the time and place of
shipment; but
(b) If the contract requires delivery at destination, title passes
on tender there.
(3) Unless otherwise explicitly agreed where delivery is to be
made without moving the goods,
(a) If the seller is to deliver a tangible document of title,
title passes at the time when and the place where he delivers such
documents and if the seller is to deliver an electronic document of
title, title passes when the seller delivers the document; or
(b) If the goods are at the time of contracting already identified
and no documents of title are to be delivered, title passes at the
time and place of contracting.
(4) A rejection or other refusal by the buyer to receive or retain
the goods, whether or not justified, or a justified revocation of
acceptance revests title to the goods in the seller. Such revesting
occurs by operation of law and is not a "sale."
SEC. 38. Section 2503 of the Commercial Code is amended to read:
2503. (1) Tender of delivery requires that the seller put and
hold conforming goods at the buyer's disposition and give the buyer
any notification reasonably necessary to enable him to take delivery.
The manner, time and place for tender are determined by the
agreement and this division, and in particular
(a) Tender must be at a reasonable hour, and if it is of goods
they must be kept available for the period reasonably necessary to
enable the buyer to take possession; but
(b) Unless otherwise agreed, the buyer must furnish facilities
reasonably suited to the receipt of the goods.
(2) Where the case is within the next section respecting shipment
tender requires that the seller comply with its provisions.
(3) Where the seller is required to deliver at a particular
destination tender requires that he comply with subdivision (1) and
also in any appropriate case tender documents as described in
subdivisions (4) and (5) of this section.
(4) Where goods are in the possession of a bailee and are to be
delivered without being moved
(a) Tender requires that the seller either tender a negotiable
document of title covering such goods or procure acknowledgment by
the bailee of the buyer's right to possession of the goods; but
(b) Tender to the buyer of a nonnegotiable document of title or of
a record directing the bailee to deliver is sufficient tender unless
the buyer seasonably objects, and except as otherwise provided in
Division 9 (commencing with Section 9101), receipt by the bailee of
notification of the buyer's rights fixes those rights as against the
bailee and all third persons; but risk of loss of the goods and of
any failure by the bailee to honor the nonnegotiable document of
title or to obey the direction remains on the seller until the buyer
has had a reasonable time to present the document or direction, and a
refusal by the bailee to honor the document or to obey the direction
defeats the tender.
(5) Where the contract requires the seller to deliver documents
(a) He must tender all such documents in correct form, except as
provided in this division with respect to bills of lading in a set
(subdivision (2) of Section 2323); and
(b) Tender through customary banking channels is
sufficient and dishonor of a draft accompanying or associated with
the documents constitutes nonacceptance or rejection.
SEC. 39. Section 2505 of the Commercial Code is amended to read:
2505. (1) Where the seller has identified goods to the contract
by or before shipment:
(a) His procurement of a negotiable bill of lading to his own
order or otherwise reserves in him a security interest in the goods.
His procurement of the bill to the order of a financing agency or of
the buyer indicates in addition only the seller's expectation of
transferring that interest to the person named.
(b) A nonnegotiable bill of lading to himself or his nominee
reserves possession of the goods as security but except in a case of
conditional delivery (subdivision (2) of Section 2507) a
nonnegotiable bill of lading naming the buyer as consignee reserves
no security interest even though the seller retains possession or
control 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 of title.
SEC. 40. Section 2506 of the Commercial Code is amended to read:
2506. (1) A financing agency by paying or purchasing for value a
draft which relates to a shipment of goods acquires to the extent of
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 delivery and the shipper's
right to have the draft honored by the buyer.
(2) The right to reimbursement of a financing agency which has in
good faith honored or purchased the draft under commitment to or
authority from the buyer is not impaired by subsequent discovery of
defects with reference to any relevant document which was apparently
regular.
SEC. 41. Section 2509 of the Commercial Code is amended to read:
2509. (1) Where the contract requires or authorizes the seller to
ship the goods by carrier
(a) If it does not require him to deliver them at a particular
destination, the risk of loss passes to the buyer when the goods are
duly delivered to the carrier even though the shipment is under
reservation (Section 2505); but
(b) If it does require him to deliver them 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 buyer when
the goods are there duly so tendered as to enable the buyer to take
delivery.
(2) Where the goods are held by a bailee to be delivered without
being moved, the risk of loss passes to the buyer
(a) On his receipt of possession or control of a negotiable
document of title covering the goods; or
(b) On acknowledgment by the bailee of the buyer's right to
possession of the goods; or
(c) After his receipt of possession or control of a nonnegotiable
document of title or other direction to deliver in a record, as
provided in subdivision (4)(b) of Section 2503.
(3) In any case not within subdivision (1) or (2), the risk of
loss passes to the buyer on his receipt of the goods if the seller is
a merchant; otherwise the risk passes to the buyer on tender of
delivery.
(4) The provisions of this section are subject to contrary
agreement of the parties and to the provisions of this division on
sale on approval (Section 2327) and on effect of breach on risk of
loss (Section 2510).
SEC. 42. Section 2605 of the Commercial Code is amended to read:
2605. (1) The buyer's failure to state in connection with
rejection a particular defect which is ascertainable by reasonable
inspection precludes him from relying on the unstated defect to
justify rejection or to establish breach
(a) Where the seller could have cured it if stated seasonably; or
(b) Between merchants when the seller has after rejection made a
request in writing for a full and final written statement of all
defects on which the buyer proposes to rely.
(2) Payment against documents made without reservation of rights
precludes recovery of the payment for defects apparent in the
documents.
SEC. 43. Section 2705 of the Commercial Code is amended to read:
2705. (1) The seller may stop delivery of goods in the possession
of a carrier or other bailee when he discovers the buyer to be
insolvent (Section 2702) and may stop delivery of carload, truckload,
planeload or larger shipments of express or freight when the buyer
repudiates or fails to make a payment due before delivery or if for
any other reason the seller has a right to withhold or reclaim the
goods.
(2) As against such buyer the seller may stop delivery until
(a) Receipt of the goods by the buyer; or
(b) Acknowledgment to the buyer by any bailee of the goods except
a carrier that the bailee holds the goods for the buyer; or
(c) Such acknowledgment to the buyer by a carrier by reshipment or
as a warehouse; or
(d) Negotiation to the buyer of any negotiable document of title
covering the goods.
(3) (a) To stop delivery the seller must so notify as to enable
the bailee by reasonable diligence to prevent delivery of the goods.
(b) After such notification the bailee must hold and deliver the
goods according to the directions of the seller but the seller is
liable to the bailee for any ensuing charges or damages.
(c) If a negotiable document of title has been issued for goods
the bailee is not obliged to obey a notification to stop until
surrender of possession or control of the document.
(d) A carrier who has issued a nonnegotiable bill of lading is not
obliged to obey a notification to stop received from a person other
than the consignor.
SEC. 44. Section 3103 of the Commercial Code is amended to read:
3103. (a) In this division:
(1) "Acceptor" means a drawee who has accepted a draft.
(2) "Drawee" means a person ordered in a draft to make payment.
(3) "Drawer" means a person who signs or is identified in a draft
as a person ordering payment.
(4) (Reserved)
(5) "Maker" means a person who signs or is identified in a note as
a person undertaking to pay.
(6) "Order" means a written instruction to pay money signed by the
person giving the instruction. The instruction may be addressed to
any person, including the person giving the instruction, or to one or
more persons jointly or in the alternative but not in succession. An
authorization to pay is not an order unless the person authorized to
pay is also instructed to pay.
(7) "Ordinary care" in the case of a person engaged in business
means observance of reasonable commercial standards, prevailing in
the area in which the person is located, with respect to the business
in which the person is engaged. In the case of a bank that takes an
instrument for processing for collection or payment by automated
means, reasonable commercial standards do not require the bank to
examine the instrument if the failure to examine does not violate the
bank's prescribed procedures and the bank's procedures do not vary
unreasonably from general banking usage not disapproved by this
division or Division 4 (commencing with Section 4101).
(8) "Party" means a party to an instrument.
(9) "Promise" means a written undertaking to pay money signed by
the person undertaking to pay. An acknowledgment of an obligation by
the obligor is not a promise unless the obligor also undertakes to
pay the obligation.
(10) "Prove" with respect to a fact means to meet the burden of
establishing the fact (paragraph (8) of subdivision (b) of Section
1201).
(11) "Remitter" means a person who purchases an instrument from
its issuer if the instrument is payable to an identified person other
than the purchaser.
(b) Other definitions applying to this division and the sections
in which they appear are:
"Acceptance" Section 3409
"Accommodated party" Section 3419
"Accommodation party" Section 3419
"Alteration" Section 3407
"Anomalous endorsement" Section 3205
"Blank endorsement" Section 3205
"Cashier's check" Section 3104
"Certificate of deposit" Section 3104
"Certified check" Section 3409
"Check" Section 3104
"Consideration" Section 3303
"Demand Draft" Section
3104
"Draft" Section 3104
"Holder in due course" Section 3302
"Incomplete instrument" Section 3115
"Indorsement" Section 3204
"Indorser" Section 3204
"Instrument" Section 3104
"Issue" Section 3105
"Issuer" Section 3105
"Negotiable instrument" Section 3104
"Negotiation" Section 3201
"Note" Section 3104
"Payable at a definite time" Section 3108
"Payable on demand" Section
3108
"Payable to bearer" Section 3109
"Payable to order" Section 3109
"Payment" Section 3602
"Person entitled to enforce" Section 3301
"Presentment" Section 3501
"Reacquisition" Section 3207
"Special indorsement" Section 3205
"Teller's check" Section 3104
"Transfer of instrument" Section 3203
"Traveler's check" Section 3104
"Value" Section 3303
(c) The following definitions in other divisions apply to this
division:
"Bank" Section 4105
"Banking day" Section 4104
"Clearinghouse" Section 4104
"Collecting bank" Section 4105
"Depositary bank" Section 4105
"Documentary draft" Section 4104
"Intermediary bank" Section 4105
"Item" Section 4104
"Payor bank" Section
4105
"Suspends payments" Section 4104
(d) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
SEC. 45. Section 4104 of the Commercial Code is amended to read:
4104. (a) In this division unless the context otherwise requires:
(1) "Account" means any deposit or credit account with a bank,
including a demand, time, savings, passbook, share draft, or like
account, other than an account evidenced by a certificate of deposit.
(2) "Afternoon" means the period of a day between noon and
midnight.
(3) "Banking day" means the part of a day on which a bank is open
to the public for carrying on substantially all of its banking
functions.
(4) "Clearinghouse" means an association of banks or other payors
regularly clearing items.
(5) "Customer" means a person having an account with a bank or for
whom a bank has agreed to collect items, including a bank that
maintains an account at another bank.
(6) "Documentary draft" means a draft to be presented for
acceptance or payment if specified documents, certificated securities
(Section 8102) or instructions for uncertificated securities
(Section 8102), or other certificates, statements, or the like are to
be received by the drawee or other payor before acceptance or
payment of the draft.
(7) "Draft" means a draft as defined in Section 3104 or an item,
other than an instrument, that is an order.
(8) "Drawee" means a person ordered in a draft to make payment.
(9) "Item" means an instrument or a promise or order to pay money
handled by a bank for collection or payment. The term does not
include a payment order governed by Division 11 (commencing with
Section 11101) or a credit or debit card slip.
(10) "Midnight deadline" with respect to a bank is midnight on its
next banking day following the banking day on which it receives the
relevant item or notice or from which the time for taking action
commences to run, whichever is later.
(11) "Settle" means to pay in cash, by clearinghouse settlement,
in a charge or credit or by remittance, or otherwise as agreed. A
settlement may be either provisional or final.
(12) "Suspends payments" with respect to a bank means that it has
been closed by order of the supervisory authorities, that a public
officer has been appointed to take it over or that it ceases or
refuses to make payments in the ordinary course of business.
(b) Other definitions applying to this division and the sections
in which they appear are:
"Agreement for electronic Section 4110
presentment"
"Bank" Section 4105
"Collecting bank" Section 4105
"Depositary bank" Section 4105
"Intermediary bank" Section 4105
"Payor bank" Section 4105
"Presenting bank" Section 4105
"Presentment notice" Section 4110
(c) The following definitions in other divisions apply to this
division:
"Acceptance" Section 3409
"Alteration" Section 3407
"Cashier's check" Section 3104
"Certificate of deposit" Section 3104
"Certified check" Section 3409
"Check" Section
3104
"Control" Section 7106
"Holder in due course" Section 3302
"Instrument" Section 3104
"Notice of dishonor" Section 3503
"Order" Section 3103
"Ordinary care" Section 3103
"Person entitled to enforce" Section 3301
"Presentment" Section 3501
"Promise" Section 3103
"Prove" Section 3103
"Teller's check" Section 3104
"Unauthorized signature" Section 3403
(d) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
SEC. 46. Section 4210 of the Commercial Code is amended to read:
4210. (a) A collecting bank has a security interest in an item
and any accompanying documents or the proceeds of either:
(1) In case of an item deposited in an account to the extent to
which credit given for the item has been withdrawn or applied.
(2) In case of an item for which it has given credit available for
withdrawal as of right, to the extent of the credit given, whether
or not the credit is drawn upon or there is a right of chargeback.
(3) If it makes an advance on or against the item.
(b) If credit given for several items received at one time or
pursuant to a single agreement is withdrawn or applied in part, the
security interest remains upon all the items, any accompanying
documents or the proceeds of either. For the purpose of this section,
credits first given are first withdrawn.
(c) Receipt by a collecting bank of a final settlement for an item
is a realization on its security interest in the item, accompanying
documents, and proceeds. So long as the bank does not receive final
settlement for the item or give up possession of the item or
possession or control of the accompanying documents for purposes
other than collection, the security interest continues to that extent
and is subject to Division 9 (commencing with Section 9101), but all
of the following are applicable:
(1) No security agreement is necessary to make the security
interest enforceable (subparagraph (A) of paragraph (3) of
subdivision (b) of Section 9203).
(2) No filing is required to perfect the security interest.
(3) The security interest has priority over conflicting perfected
security interests in the item, accompanying documents, or proceeds.
SEC. 47. Section 5103 of the Commercial Code is amended to read:
5103. (a) This division applies to letters of credit and to
certain rights and obligations arising out of transactions involving
letters of credit.
(b) The statement of a rule in this division does not by itself
require, imply, or negate application of the same or a different rule
to a situation not provided for, or to a person not specified, in
this division.
(c) With the exception of this subdivision, subdivisions (a) and
(d), paragraphs 9 and 10 of subdivision (a) of Section 5102,
subdivision (d) of Section 5106, and subdivision (d) of Section 5114,
and except to the extent prohibited in Section 1302 and subdivision
(d) of Section 5117, the effect of this division may be varied by
agreement or by a provision stated or incorporated by reference in an
undertaking. A term in an agreement or undertaking generally
excusing liability or generally limiting remedies for failure to
perform obligations is not sufficient to vary obligations prescribed
by this division.
(d) Rights and obligations of an issuer to a beneficiary or a
nominated person under a letter of credit are independent of the
existence, performance, or nonperformance of a contract or
arrangement out of which the letter of credit arises or which
underlies it, including contracts or arrangements between the issuer
and the applicant and between the applicant and the beneficiary.
SEC. 48. Division 7 (commencing with Section 7101) of the
Commercial Code is repealed.
SEC. 49. Division 7 (commencing with Section 7101) is added to the
Commercial Code, to read:
DIVISION 7. DOCUMENTS OF TITLE
CHAPTER 1. General
7101. This division may be cited as the Uniform Commercial
Code--Documents of Title.
7102. (a) In this division, unless the context otherwise
requires:
(1) "Bailee" means a person that by a warehouse receipt, bill of
lading, or other document of title acknowledges possession of goods
and contracts to deliver them.
(2) "Carrier" means a person that issues a bill of lading.
(3) "Consignee" means a person named in a bill of lading to which
or to whose order the bill promises delivery.
(4) "Consignor" means a person named in a bill of lading as the
person from which the goods have been received for shipment.
(5) "Delivery order" means a record that contains an order to
deliver goods directed to a warehouse, carrier, or other person that
in the ordinary course of business issues warehouse receipts or bills
of lading.
(6) "Good faith" means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
(7) "Goods" means all things that are treated as movable for the
purposes of a contract for storage or transportation.
(8) "Issuer" means a bailee that issues a document of title or, in
the case of an unaccepted delivery order, the person that orders the
possessor of goods to deliver. The term includes a person for which
an agent or employee purports to act in issuing a document if the
agent or employee has real or apparent authority to issue documents,
even if the issuer did not receive any goods, the goods were
misdescribed, or in any other respect the agent or employee violated
the issuer's instructions.
(9) "Person entitled under the document" means the holder, in the
case of a negotiable document of title, or the person to which
delivery of the goods is to be made by the terms of, or pursuant to
instructions in a record under, a nonnegotiable document of title.
(10) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(11) "Sign" means, with present intent to authenticate or adopt a
record:
(A) to execute or adopt a tangible symbol; or
(B) to attach to or logically associate with the record an
electronic sound, symbol, or process.
(12) "Shipper" means a person that enters into a contract of
transportation with a carrier.
(13) "Warehouse" means a person engaged in the business of storing
goods for hire.
(b) Definitions in other divisions applying to this division and
the sections in which they appear are:
(1) "Contract for sale," Section 2106.
(2) "Lessee in the ordinary course of business," Section 10103.
(3) "Receipt of goods," Section 2103.
(c) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
7103. (a) This division is subject to any treaty or statute of
the United States or regulatory statute of this state to the extent
the treaty, statute, or regulatory statute is applicable.
(b) This division does not modify or repeal any law prescribing
the form or content of a document of title or the services or
facilities to be afforded by a bailee, or otherwise regulating a
bailee's business in respects not specifically treated in this
division. However, violation of such a law does not affect the status
of a document of title that otherwise is within the definition of a
document of title.
(c) This division modifies, limits, and supersedes the federal
Electronic Signatures in Global and National Commerce Act (15 U.S.C.
Sec. 7001, et seq.) but does not modify, limit, or supersede Section
101(c) of that act (15 U.S.C. Sec. 7001(c)) or authorize electronic
delivery of any of the notices described in Section 103(b) of that
act (15 U.S.C. Sec. 7003(b)).
(d) To the extent there is a conflict between the Uniform
Electronic Transactions Act (Title 2.5 (commencing with Section
1633.1) of Part 2 of Division 3 of the Civil Code) and this division,
this division governs.
7104. (a) Except as otherwise provided in subdivision (c), a
document of title is negotiable if by its terms the goods are to be
delivered to bearer or to the order of a named person.
(b) A document of title other than one described in subdivision
(a) is nonnegotiable. A bill of lading that states that the goods are
consigned to a named person is not made negotiable by a provision
that the goods are to be delivered only against an order in a record
signed by the same or another named person.
(c) A document of title is nonnegotiable if, at the time it is
issued, the document has a conspicuous legend, however expressed,
that it is nonnegotiable.
7105. (a) Upon request of a person entitled under an electronic
document of title, the issuer of the electronic document may issue a
tangible document of title as a substitute for the electronic
document if:
(1) the person entitled under the electronic document surrenders
control of the document to the issuer; and
(2) the tangible document when issued contains a statement that it
is issued in substitution for the electronic document.
(b) Upon issuance of a tangible document of title in substitution
for an electronic document of title in accordance with subdivision
(a):
(1) the electronic document ceases to have any effect or validity;
and
(2) the person that procured issuance of the tangible document
warrants to all subsequent persons entitled under the tangible
document that the warrantor was a person entitled under the
electronic document when the warrantor surrendered control of the
electronic document to the issuer.
(c) Upon request of a person entitled under a tangible document of
title, the issuer of the tangible document may issue an electronic
document of title as a substitute for the tangible document if:
(1) the person entitled under the tangible document surrenders
possession of the document to the issuer; and
(2) the electronic document when issued contains a statement that
it is issued in substitution for the tangible document.
(d) Upon issuance of an electronic document of title in
substitution for a tangible document of title in accordance with
subdivision (c):
(1) the tangible document ceases to have any effect or validity;
and
(2) the person that procured issuance of the electronic document
warrants to all subsequent persons entitled under the electronic
document that the warrantor was a person entitled under the tangible
document when the warrantor surrendered possession of the tangible
document to the issuer.
7106. (a) A person has control of an electronic document of title
if a system employed for evidencing the transfer of interests in the
electronic document reliably establishes that person as the person
to which the electronic document was issued or transferred.
(b) A system satisfies subdivision (a), and a person is deemed to
have control of an electronic document of title, if the document is
created, stored, and assigned in such a manner that:
(1) a single authoritative copy of the document exists which is
unique, identifiable, and, except as otherwise provided in paragraphs
(4), (5), and (6), unalterable;
(2) the authoritative copy identifies the person asserting control
as:
(A) the person to which the document was issued; or
(B) if the authoritative copy indicates that the document has been
transferred, the person to which the document was most recently
transferred;
(3) the authoritative copy is communicated to and maintained by
the person asserting control or its designated custodian;
(4) copies or amendments that add or change an identified assignee
of the authoritative copy can be made only with the consent of the
person asserting control;
(5) each copy of the authoritative copy and any copy of a copy is
readily identifiable as a copy that is not the authoritative copy;
and
(6) any amendment of the authoritative copy is readily
identifiable as authorized or unauthorized.
CHAPTER 2. Warehouse Receipts: Special Provisions
7201. (a) A warehouse receipt may be issued by any warehouse.
(b) If goods, including distilled spirits and agricultural
commodities, are stored under a statute requiring a bond against
withdrawal or a license for the issuance of receipts in the nature of
warehouse receipts, a receipt issued for the goods is deemed to be a
warehouse receipt even if issued by a person that is the owner of
the goods and is not a warehouse.
7202. (a) A warehouse receipt need not be in any particular
form.
(b) Unless a warehouse receipt provides for each of the following,
the warehouse is liable for damages caused to a person injured by
its omission:
(1) a statement of the location of the warehouse facility where
the goods are stored;
(2) the date of issue of the receipt;
(3) the unique identification code of the receipt;
(4) a statement whether the goods received will be delivered to
the bearer, to a named person, or to a named person or its order;
(5) the rate of storage and handling charges, unless goods are
stored under a field warehousing arrangement, in which case a
statement of that fact is sufficient on a nonnegotiable receipt;
(6) a description of the goods or the packages containing them;
(7) the signature of the warehouse or its agent;
(8) if the receipt is issued for goods that the warehouse owns,
either solely, jointly, or in common with others, a statement of the
fact of that ownership; and
(9) a statement of the amount of advances made and of liabilities
incurred for which the warehouse claims a lien or security interest,
unless the precise amount of advances made or liabilities incurred,
at the time of the issue of the receipt, is unknown to the warehouse
or to its agent that issued the receipt, in which case a statement of
the fact that advances have been made or liabilities incurred and
the purpose of the advances or liabilities is sufficient.
(c) A warehouse may insert in its receipt any terms that are not
contrary to the provisions of this code and do not impair its
obligation of delivery under Section 7403 or its duty of care under
Section 7204. Any contrary provision is ineffective.
7203. A party to or purchaser for value in good faith of a
document of title, other than a bill of lading, that relies upon the
description of the goods in the document may recover from the issuer
damages caused by the nonreceipt or misdescription of the goods,
except to the extent that:
(1) the document conspicuously indicates that the issuer does not
know whether all or part of the goods in fact were received or
conform to the description, such as a case in which the description
is in terms of marks or labels or kind, quantity, or condition, or
the receipt or description is qualified by "contents, condition, and
quality unknown," "said to contain," or words of similar import, if
the indication is true; or
(2) the party or purchaser otherwise has notice of the nonreceipt
or misdescription.
7204. (a) A warehouse is liable for damages for loss of or injury
to the goods caused by its failure to exercise care with regard to
the goods that a reasonably careful person would exercise under
similar circumstances. Unless otherwise agreed, the warehouse is not
liable for damages that could not have been avoided by the exercise
of that care.
(b) Damages may be limited by a term in the warehouse receipt or
storage agreement limiting the amount of liability in case of loss or
damage beyond which the warehouse is not liable. Such a limitation
is not effective with respect to the warehouse's liability for
conversion to its own use. On request of the bailor in a record at
the time of signing the storage agreement or within a reasonable time
after receipt of the warehouse receipt, the warehouse's liability
may be increased on part or all of the goods covered by the storage
agreement or the warehouse receipt. In this event, increased rates
may be charged based on an increased valuation of the goods.
(c) Reasonable provisions as to the time and manner of presenting
claims and commencing actions based on the bailment may be included
in the warehouse receipt or storage agreement.
(d) This section does not modify or repeal Section 1630 of the
Civil Code nor any of the provisions of the Public Utilities Code or
the Food and Agricultural Code or any lawful regulations issued
thereunder.
7205. A buyer in ordinary course of business of fungible goods
sold and delivered by a warehouse that is also in the business of
buying and selling such goods takes the goods free of any claim under
a warehouse receipt even if the receipt is negotiable and has been
duly negotiated.
7206. (a) A warehouse, by giving notice to the person on whose
account the goods are held and any other person known to claim an
interest in the goods, may require payment of any charges and removal
of the goods from the warehouse at the termination of the period of
storage fixed by the document of title or, if a period is not fixed,
within a stated period not less than 30 days after the warehouse
gives notice. If the goods are not removed before the date specified
in the notice, the warehouse may sell them pursuant to Section 7210.
(b) If a warehouse in good faith believes that goods are about to
deteriorate or decline in value to less than the amount of its lien
within the time provided in subdivision (a) and Section 7210, the
warehouse may specify in the notice given under subdivision (a) any
reasonable shorter time for removal of the goods and, if the goods
are not removed, may sell them at public sale held not less than one
week after a single advertisement or posting.
(c) If, as a result of a quality or condition of the goods of
which the warehouse did not have notice at the time of deposit, the
goods are a hazard to other property, the warehouse facilities, or
other persons, the warehouse may sell the goods at public or private
sale without advertisement or posting on reasonable notification to
all persons known to claim an interest in the goods. If the
warehouse, after a reasonable effort, is unable to sell the goods, it
may dispose of them in any lawful manner and does not incur
liability by reason of that disposition.
(d) A warehouse shall deliver the goods to any person entitled to
them under this division upon due demand made at any time before sale
or other disposition under this section.
(e) A warehouse may satisfy its lien from the proceeds of any sale
or disposition under this section but shall hold the balance for
delivery on the demand of any person to which the warehouse would
have been bound to deliver the goods.
7207. (a) Unless the warehouse receipt provides otherwise, a
warehouse shall keep separate the goods covered by each receipt so as
to permit at all times identification and delivery of those goods.
However, different lots of fungible goods may be commingled.
(b) If different lots of fungible goods are commingled, the goods
are owned in common by the persons entitled thereto and the warehouse
is severally liable to each owner for that owner's share. If,
because of overissue, a mass of fungible goods is insufficient to
meet all the receipts the warehouse has issued against it, the
persons entitled include all holders to which overissued receipts
have been duly negotiated.
7208. If a blank in a negotiable tangible warehouse receipt has
been filled in without authority, a good-faith purchaser for value
and without notice of the lack of authority may treat the insertion
as authorized. Any other unauthorized alteration leaves any tangible
or electronic warehouse receipt enforceable against the issuer
according to its original tenor.
7209. (a) A warehouse has a lien against the bailor on the goods
covered by a warehouse receipt or storage agreement or on the
proceeds thereof in its possession for charges for storage or
transportation, including demurrage and terminal charges, insurance,
labor, or other charges, present or future, in relation to the goods,
and for expenses necessary for preservation of the goods or
reasonably incurred in their sale pursuant to law. If the person on
whose account the goods are held is liable for similar charges or
expenses in relation to other goods whenever deposited and it is
stated in the warehouse receipt or storage agreement that a lien is
claimed for charges and expenses in relation to other goods, the
warehouse also has a lien against the goods covered by the warehouse
receipt or storage agreement or on the proceeds thereof in its
possession for those charges and expenses, whether or not the other
goods have been delivered by the warehouse. However, as against a
person to which a negotiable warehouse receipt is duly negotiated, a
warehouse's lien is limited to charges in an amount or at a rate
specified in the warehouse receipt or, if no charges are so
specified, to a reasonable charge for storage of the specific goods
covered by the receipt subsequent to the date of the receipt.
(b) A warehouse may also reserve a security interest against the
bailor for the maximum amount specified on the receipt for charges
other than those specified in subdivision (a), such as for money
advanced and interest. The security interest is governed by Division
9 (commencing with Section 9101).
(c) A warehouse's lien for charges and expenses under subdivision
(a) or a security interest under subdivision (b) is also effective
against any person that so entrusted the bailor with possession of
the goods that a pledge of them by the bailor to a good-faith
purchaser for value would have been valid. However, the lien or
security interest is not effective against a person that before
issuance of a document of title had a legal interest or a perfected
security interest in the goods and that did not:
(1) deliver or entrust the goods or any document of title covering
the goods to the bailor or the bailor's nominee with:
(A) actual or apparent authority to ship, store, or sell;
(B) power to obtain delivery under Section 7403; or
(C) power of disposition under Section 2403 or 9320 or subdivision
(c) of Section 9321 or subdivision (b) of Section 10304 or
subdivision (b) of Section 10305 or other statute or rule of law; or
(2) acquiesce in the procurement by the bailor or its nominee of
any document.
(d) A warehouse's lien on household goods for charges and expenses
in relation to the goods under subdivision (a) is also effective
against all persons if the depositor was the legal possessor of the
goods at the time of deposit. In this subdivision, "household goods"
means furniture, furnishings, or personal effects used by the
depositor in a dwelling.
(e) A warehouse loses its lien on any goods that it voluntarily
delivers or unjustifiably refuses to deliver.
7210. (a) Except as otherwise provided in subdivision (b), a
warehouse's lien may be enforced by public or private sale of the
goods, in bulk or in packages, at any time or place and on any terms
that are commercially reasonable, after notifying all persons known
to claim an interest in the goods. Notification may be made by mail,
personal service, or verifiable electronic mail. The notification
must include a statement of the amount due, the nature of the
proposed sale, and the time and place of any public sale. The fact
that a better price could have been obtained by a sale at a different
time or in a method different from that selected by the warehouse is
not of itself sufficient to establish that the sale was not made in
a commercially reasonable manner. The warehouse sells in a
commercially reasonable manner if the warehouse sells the goods in
the usual manner in any recognized market therefor, sells at the
price current in that market at the time of the sale, or otherwise
sells in conformity with commercially reasonable practices among
dealers in the type of goods sold. A sale of more goods than
apparently necessary to be offered to ensure satisfaction of the
obligation is not commercially reasonable, except in cases covered by
the preceding sentence.
(b) A warehouse may enforce its lien on goods, other than goods
stored by a merchant in the course of its business, only if the
following requirements are satisfied:
(1) All persons known to claim an interest in the goods must be
notified.
(2) The notification must include an itemized statement of the
claim, a description of the goods subject to the lien, a demand for
payment within a specified time not less than 10 days after receipt
of the notification, and a conspicuous statement that unless the
claim is paid within that time the goods will be advertised for sale
and sold by auction at a specified time and place.
(3) The sale must conform to the terms of the notification.
(4) The sale must be held at the nearest suitable place to where
the goods are held or stored.
(5) After the expiration of the time given in the notification, an
advertisement of the sale must be published once a week for two
weeks consecutively in a newspaper of general circulation where the
sale is to be held. The advertisement must include a description of
the goods, the name of the person on whose account the goods are
being held, and the time and place of the sale. The sale must take
place at least 15 days after the first publication. If there is no
newspaper of general circulation where the sale is to be held, the
advertisement must be posted at least 10 days before the sale in not
fewer than six conspicuous places in the neighborhood of the proposed
sale.
(c) Before any sale pursuant to this section, any person claiming
a right in the goods may pay the amount necessary to satisfy the lien
and the reasonable expenses incurred in complying with this section.
In that event, the goods may not be sold but must be retained by the
warehouse subject to the terms of the receipt and this division.
(d) A warehouse may buy at any public sale held pursuant to this
section.
(e) A purchaser in good faith of goods sold to enforce a warehouse'
s lien takes the goods free of any rights of persons against which
the lien was valid, despite the warehouse's noncompliance with this
section.
(f) A warehouse may satisfy its lien from the proceeds of any sale
pursuant to this section but shall hold the balance, if any, for
delivery on demand to any person to which the warehouse would have
been bound to deliver the goods.
(g) The rights provided by this section are in addition to all
other rights allowed by law to a creditor against a debtor.
(h) If a lien is on goods stored by a merchant in the course of
its business, the lien may be enforced in accordance with subdivision
(a) or (b).
(i) A warehouse is liable for damages caused by failure to comply
with the requirements for sale under this section and, in case of
willful violation, is liable for conversion.
CHAPTER 3. Bills of Lading: Special Provisions
7301. (a) A consignee of a nonnegotiable bill of lading which has
given value in good faith, or a holder to which a negotiable bill
has been duly negotiated, relying upon the description of the goods
in the bill or upon the date shown in the bill, may recover from the
issuer damages caused by the misdating of the bill or the nonreceipt
or misdescription of the goods, except to the extent that the bill
indicates that the issuer does not know whether any part or all of
the goods in fact were received or conform to the description, such
as in a case in which the description is in terms of marks or labels
or kind, quantity, or condition or the receipt or description is
qualified by "contents or condition of contents of packages unknown,"
"said to contain," "shipper's weight, load, and count," or words of
similar import, if that indication is true.
(b) If goods are loaded by the issuer of a bill of lading:
(1) the issuer shall count the packages of goods if shipped in
packages and ascertain the kind and quantity if shipped in bulk; and
(2) words such as "shipper's weight, load, and count," or words of
similar import indicating that the description was made by the
shipper are ineffective except as to goods concealed in packages.
(c) If bulk goods are loaded by a shipper that makes available to
the issuer of a bill of lading adequate facilities for weighing those
goods, the issuer shall ascertain the kind and quantity within a
reasonable time after receiving the shipper's request in a record to
do so. In that case, "shipper's weight" or words of similar import
are ineffective.
(d) The issuer of a bill of lading, by including in the bill the
words "shipper's weight, load, and count," or words of similar
import, may indicate that the goods were loaded by the shipper, and,
if that statement is true, the issuer is not liable for damages
caused by the improper loading. However, omission of such words does
not imply liability for damages caused by improper loading.
(e) A shipper guarantees to an issuer the accuracy at the time of
shipment of the description, marks, labels, number, kind, quantity,
condition, and weight, as furnished by the shipper, and the shipper
shall indemnify the issuer against damage caused by inaccuracies in
those particulars. This right of indemnity does not limit the issuer'
s responsibility or liability under the contract of carriage to any
person other than the shipper.
7302. (a) The issuer of a through bill of lading, or other
document of title embodying an undertaking to be performed in part by
a person acting as its agent or by a performing carrier, is liable
to any person entitled to recover on the bill or other document for
any breach by the other person or the performing carrier of its
obligation under the bill or other document. However, to the extent
that the bill or other document covers an undertaking to be performed
overseas or in territory not contiguous to the continental United
States or an undertaking including matters other than transportation,
this liability for breach by the other person or the performing
carrier may be varied by agreement of the parties.
(b) If goods covered by a through bill of lading or other document
of title embodying an undertaking to be performed in part by a
person other than the issuer are received by that person, the person
is subject, with respect to its own performance while the goods are
in its possession, to the obligation of the issuer. The person's
obligation is discharged by delivery of the goods to another person
pursuant to the bill or other document and does not include liability
for breach by any other person or by the issuer.
(c) The issuer of a through bill of lading or other document of
title described in subdivision (a) is entitled to recover from the
performing carrier, or other person in possession of the goods when
the breach of the obligation under the bill or other document
occurred:
(1) the amount it may be required to pay to any person entitled to
recover on the bill or other document for the breach, as may be
evidenced by any receipt, judgment, or transcript of judgment; and
(2) the amount of any expense reasonably incurred by the issuer in
defending any action commenced by any person entitled to recover on
the bill or other document for the breach.
7303. (a) Unless the bill of lading otherwise provides, a carrier
may deliver the goods to a person or destination other than that
stated in the bill or may otherwise dispose of the goods, without
liability for misdelivery, on instructions from:
(1) the holder of a negotiable bill;
(2) the consignor on a nonnegotiable bill, even if the consignee
has given contrary instructions;
(3) the consignee on a nonnegotiable bill in the absence of
contrary instructions from the consignor, if the goods have arrived
at the billed destination or if the consignee is in possession of the
tangible bill or in control of the electronic bill; or
(4) the consignee on a nonnegotiable bill, if the consignee is
entitled as against the consignor to dispose of the goods.
(b) Unless instructions described in subdivision (a) are included
in a negotiable bill of lading, a person to which the bill is duly
negotiated may hold the bailee according to the original terms.
7304. (a) Except as customary in international transportation, a
tangible bill of lading may not be issued in a set of parts. The
issuer is liable for damages caused by violation of this subdivision.
(b) If a tangible bill of lading is lawfully issued in a set of
parts, each of which contains an identification code and is expressed
to be valid only if the goods have not been delivered against any
other part, the whole of the parts constitutes one bill.
(c) If a tangible negotiable bill of lading is lawfully issued in
a set of parts and different parts are negotiated to different
persons, the title of the holder to which the first due negotiation
is made prevails as to both the document of title and the goods even
if any later holder may have received the goods from the carrier in
good faith and discharged the carrier's obligation by surrendering
its part.
(d) A person that negotiates or transfers a single part of a
tangible bill of lading issued in a set is liable to holders of that
part as if it were the whole set.
(e) The bailee shall deliver in accordance with Chapter 4
(commencing with Section 7401) against the first presented part of a
tangible bill of lading lawfully issued in a set. Delivery in this
manner discharges the bailee's obligation on the whole bill.
7305. (a) Instead of issuing a bill of lading to the consignor at
the place of shipment, a carrier, at the request of the consignor,
may procure the bill to be issued at destination or at any other
place designated in the request.
(b) Upon request of any person entitled as against a carrier to
control the goods while in transit and on surrender of possession or
control of any outstanding bill of lading or other receipt covering
the goods, the issuer, subject to Section 7105, may procure a
substitute bill to be issued at any place designated in the request.
7306. An unauthorized alteration or filling in of a blank in a
bill of lading leaves the bill enforceable according to its original
tenor.
7307. (a) A carrier has a lien on the goods covered by a bill of
lading or on the proceeds thereof in its possession for charges after
the date of the carrier's receipt of the goods for storage or
transportation, including demurrage and terminal charges, and for
expenses necessary for preservation of the goods incident to their
transportation or reasonably incurred in their sale pursuant to law.
However, against a purchaser for value of a negotiable bill of
lading, a carrier's lien is limited to charges stated in the bill or
the applicable tariffs or, if no charges are stated, a reasonable
charge.
(b) A lien for charges and expenses under subdivision (a) on goods
that 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 subject the goods to those charges and expenses. Any
other lien under subdivision (a) is effective against the consignor
and any person that permitted the bailor to have control or
possession of the goods unless the carrier had notice that the bailor
lacked authority.
(c) A carrier loses its lien on any goods that it voluntarily
delivers or unjustifiably refuses to deliver.
7308. (a) A carrier's lien on goods may be enforced by public or
private sale of the goods, in bulk or in packages, at any time or
place and on any terms that are commercially reasonable, after
notifying all persons known to claim an interest in the goods. The
notification must include a statement of the amount due, the nature
of the proposed sale, and the time and place of any public sale. The
fact that a better price could have been obtained by a sale at a
different time or in a method different from that selected by the
carrier is not of itself sufficient to establish that the sale was
not made in a commercially reasonable manner. The carrier sells goods
in a commercially reasonable manner if the carrier sells the goods
in the usual manner in any recognized market therefor, sells at the
price current in that market at the time of the sale, or otherwise
sells in conformity with commercially reasonable practices among
dealers in the type of goods sold. A sale of more goods than
apparently necessary to be offered to ensure satisfaction of the
obligation is not commercially reasonable, except in cases covered by
the preceding sentence.
(b) Before any sale pursuant to this section, any person claiming
a right in the goods may pay the amount necessary to satisfy the lien
and the reasonable expenses incurred in complying with this section.
In that event, the goods may not be sold but must be retained by the
carrier, subject to the terms of the bill of lading and this
division.
(c) A carrier may buy at any public sale pursuant to this section.
(d) A purchaser in good faith of goods sold to enforce a carrier's
lien takes the goods free of any rights of persons against which the
lien was valid, despite the carrier's noncompliance with this
section.
(e) A carrier may satisfy its lien from the proceeds of any sale
pursuant to this section but shall hold the balance, if any, for
delivery on demand to any person to which the carrier would have been
bound to deliver the goods.
(f) The rights provided by this section are in addition to all
other rights allowed by law to a creditor against a debtor.
(g) A carrier's lien may be enforced pursuant to either
subdivision (a) or the procedure set forth in subdivision (b) of
Section 7210.
(h) A carrier is liable for damages caused by failure to comply
with the requirements for sale under this section and, in case of
willful violation, is liable for conversion.
7309. (a) A carrier that issues a bill of lading, whether
negotiable or nonnegotiable, shall exercise the degree of care in
relation to the goods which a reasonably careful person would
exercise under similar circumstances. This subdivision does not
affect any statute, regulation, or rule of law that imposes liability
upon a common carrier for damages not caused by its negligence.
(b) Damages may be limited by a term in the bill of lading or in a
transportation agreement that the carrier's liability may not exceed
a value stated in the bill or transportation agreement if the
carrier's rates are dependent upon value and the consignor is
afforded an opportunity to declare a higher value and the consignor
is advised of the opportunity. However, such a limitation is not
effective with respect to the carrier's liability for conversion to
its own use.
(c) Reasonable provisions as to the time and manner of presenting
claims and commencing actions based on the shipment may be included
in a bill of lading or a transportation agreement.
CHAPTER 4. Warehouse Receipts and Bills of Lading: General
Obligations
7401. The obligations imposed by this division on an issuer apply
to a document of title even if:
(1) the document does not comply with the requirements of this
division or of any other statute, rule, or regulation regarding its
issuance, form, or content;
(2) the issuer violated laws regulating the conduct of its
business;
(3) the goods covered by the document were owned by the bailee
when the document was issued; or
(4) the person issuing the document is not a warehouse but the
document purports to be a warehouse receipt.
7402. A duplicate or any other document of title purporting to
cover goods already represented by an outstanding document of the
same issuer does not confer any right in the goods, except as
provided in the case of tangible bills of lading in a set of parts,
overissue of documents for fungible goods, substitutes for lost,
stolen, or destroyed documents, or substitute documents issued
pursuant to Section 7105. The issuer is liable for damages caused by
its overissue or failure to identify a duplicate document by a
conspicuous notation.
7403. (a) A bailee shall deliver the goods to a person entitled
under a document of title if the person complies with subdivisions
(b) and (c), unless and to the extent that the bailee establishes any
of the following:
(1) delivery of the goods to a person whose receipt was rightful
as against the claimant;
(2) damage to or delay, loss, or destruction of the goods for
which the bailee is not liable;
(3) previous sale or other disposition of the goods in lawful
enforcement of a lien or on a warehouse's lawful termination of
storage;
(4) the exercise by a seller of its right to stop delivery
pursuant to Section 2705 or by a lessor of its right to stop delivery
pursuant to Section 10526;
(5) a diversion, reconsignment, or other disposition pursuant to
Section 7303;
(6) release, satisfaction, or any other personal defense against
the claimant; or
(7) any other lawful excuse.
(b) A person claiming goods covered by a document of title shall
satisfy the bailee's lien if the bailee so requests or if the bailee
is prohibited by law from delivering the goods until the charges are
paid.
(c) Unless a person claiming the goods is a person against which
the document of title does not confer a right under subdivision (a)
of Section 7503:
(1) the person claiming under a document shall surrender
possession or control of any outstanding negotiable document covering
the goods for cancellation or indication of partial deliveries; and
(2) the bailee shall cancel the document or conspicuously indicate
in the document the partial delivery or the bailee is liable to any
person to which the document is duly negotiated.
7404. A bailee that in good faith has received goods and
delivered or otherwise disposed of the goods according to the terms
of a document of title or pursuant to this division is not liable for
the goods even if:
(1) the person from which the bailee received the goods did not
have authority to procure the document or to dispose of the goods; or
(2) the person to which the bailee delivered the goods did not
have authority to receive the goods.
CHAPTER 5. Warehouse Receipts and Bills of Lading: Negotiation
and Transfer
7501. (a) The following rules apply to a negotiable tangible
document of title:
(1) If the document's original terms run to the order of a named
person, the document is negotiated by the named person's indorsement
and delivery. After the named person's indorsement in blank or to
bearer, any person may negotiate the document by delivery alone.
(2) If the document's original terms run to bearer, it is
negotiated by delivery alone.
(3) If the document's original terms run to the order of a named
person and it is delivered to the named person, the effect is the
same as if the document had been negotiated.
(4) Negotiation of the document after it has been indorsed to a
named person requires indorsement by the named person and delivery.
(5) A document is duly negotiated if it is negotiated in the
manner stated in this subdivision to a holder that purchases it in
good faith, without notice of any defense against or claim to it on
the part of any person, and for value, unless it is established that
the negotiation is not in the regular course of business or financing
or involves receiving the document in settlement or payment of a
monetary obligation.
(b) The following rules apply to a negotiable electronic document
of title:
(1) If the document's original terms run to the order of a named
person or to bearer, the document is negotiated by delivery of the
document to another person. Indorsement by the named person is not
required to negotiate the document.
(2) If the document's original terms run to the order of a named
person and the named person has control of the document, the effect
is the same as if the document had been negotiated.
(3) A document is duly negotiated if it is negotiated in the
manner stated in this subdivision to a holder that purchases it in
good faith, without notice of any defense against or claim to it on
the part of any person, and for value, unless it is established that
the negotiation is not in the regular course of business or financing
or involves taking delivery of the document in settlement or payment
of a monetary obligation.
(c) Indorsement of a nonnegotiable document of title neither makes
it negotiable nor adds to the transferee's rights.
(d) The naming in a negotiable bill of lading of a person to be
notified of the arrival of the goods does not limit the negotiability
of the bill or constitute notice to a purchaser of the bill of any
interest of that person in the goods.
7502. (a) Subject to Sections 7205 and 7503, a holder to which a
negotiable document of title has been duly negotiated acquires
thereby:
(1) title to the document;
(2) title to the goods;
(3) all rights accruing under the law of agency or estoppel,
including rights to goods delivered to the bailee after the document
was issued; and
(4) the direct obligation of the issuer to hold or deliver the
goods according to the terms of the document free of any defense or
claim by the issuer except those arising under the terms of the
document or under this division, but in the case of a delivery order,
the bailee's obligation accrues only upon the bailee's acceptance of
the delivery order and the obligation acquired by the holder is that
the issuer and any indorser will procure the acceptance of the
bailee.
(b) Subject to Section 7503, title and rights acquired by due
negotiation are not defeated by any stoppage of the goods represented
by the document of title or by surrender of the goods by the bailee
and are not impaired even if:
(1) the due negotiation or any prior due negotiation constituted a
breach of duty;
(2) any person has been deprived of possession of a negotiable
tangible document or control of a negotiable electronic document by
misrepresentation, fraud, accident, mistake, duress, loss, theft, or
conversion; or
(3) a previous sale or other transfer of the goods or document has
been made to a third person.
7503. (a) A document of title confers no right in goods against a
person that before issuance of the document had a legal interest or
a perfected security interest in the goods and that did not:
(1) deliver or entrust the goods or any document of title covering
the goods to the bailor or the bailor's nominee with:
(A) actual or apparent authority to ship, store, or sell;
(B) power to obtain delivery under Section 7403; or
(C) power of disposition under Section 2403 or 9320 or subdivision
(c) of Section 9321 or subdivision (b) of Section 10304 or
subdivision (b) of Section 10305 or other statute or rule of law; or
(2) acquiesce in the procurement by the bailor or its nominee of
any document.
(b) Title to goods based upon an unaccepted delivery order is
subject to the rights of any person to which a negotiable warehouse
receipt or bill of lading covering the goods has been duly
negotiated. That title may be defeated under Section 7504 to the same
extent as the rights of the issuer or a transferee from the issuer.
(c) Title to goods based upon a bill of lading issued to a freight
forwarder is subject to the rights of any person to which a bill
issued by the freight forwarder is duly negotiated. However, delivery
by the carrier in accordance with Chapter 4 (commencing with Section
7401) pursuant to its own bill of lading discharges the carrier's
obligation to deliver.
7504. (a) A transferee of a document of title, whether negotiable
or nonnegotiable, to which the document has been delivered but not
duly negotiated, acquires the title and rights that its transferor
had or had actual authority to convey.
(b) In the case of a transfer of a nonnegotiable document of
title, until but not after the bailee receives notice of the
transfer, the rights of the transferee may be defeated:
(1) by those creditors of the transferor which could treat the
transfer as void under Section 2402 or 10308;
(2) by a buyer from the transferor in ordinary course of business
if the bailee has delivered the goods to the buyer or received
notification of the buyer's rights;
(3) by a lessee from the transferor in ordinary course of business
if the bailee has delivered the goods to the lessee or received
notification of the lessee's rights; or
(4) as against the bailee, by good-faith dealings of the bailee
with the transferor.
(c) A diversion or other change of shipping instructions by the
consignor in a nonnegotiable bill of lading which causes the bailee
not to deliver the goods to the consignee defeats the consignee's
title to the goods if the goods have been delivered to a buyer in
ordinary course of business or a lessee in ordinary course of
business and, in any event, defeats the consignee's rights against
the bailee.
(d) Delivery of the goods pursuant to a nonnegotiable document of
title may be stopped by a seller under Section 2705 or a lessor under
Section 10526, subject to the requirements of due notification in
those sections. A bailee that honors the seller's or lessor's
instructions is entitled to be indemnified by the seller or lessor
against any resulting loss or expense.
7505. The indorsement of a tangible document of title issued by a
bailee does not make the indorser liable for any default by the
bailee or previous endorsers.
7506. The transferee of a negotiable tangible document of title
has a specifically enforceable right to have its transferor supply
any necessary indorsement, but the transfer becomes a negotiation
only as of the time the indorsement is supplied.
7507. If a person negotiates or delivers a document of title for
value, otherwise than as a mere intermediary under Section 7508,
unless otherwise agreed, the transferor, in addition to any warranty
made in selling or leasing the goods, warrants to its immediate
purchaser only that:
(1) the document is genuine;
(2) the transferor does not have knowledge of any fact that would
impair the document's validity or worth; and
(3) the negotiation or delivery is rightful and fully effective
with respect to the title to the document and the goods it
represents.
7508. A collecting bank or other intermediary known to be
entrusted with documents of title on behalf of another or with
collection of a draft or other claim against delivery of documents
warrants by the delivery of the documents only its own good faith and
authority even if the collecting bank or other intermediary has
purchased or made advances against the claim or draft to be
collected.
7509. Whether a document of title is adequate to fulfill the
obligations of a contract for sale, a contract for lease, or the
conditions of a letter of credit is determined by Division 2
(commencing with Section 2101), Division 5 (commencing with Section
5101), or Division 10 (commencing with Section 10101).
CHAPTER 6. Warehouse Receipts and Bills Of Lading:
Miscellaneous Provisions
7601. (a) If a document of title is lost, stolen, or destroyed, a
court may order delivery of the goods or issuance of a substitute
document and the bailee may without liability to any person comply
with the order. If the document was negotiable, a court may not order
delivery of the goods or issuance of a substitute document without
the claimant's posting security unless it finds that any person that
may suffer loss as a result of nonsurrender of possession or control
of the document is adequately protected against the loss. If the
document was nonnegotiable, the court may require security. The court
may also order payment of the bailee's reasonable costs and attorney'
s fees in any action under this subdivision.
(b) A bailee that, without a court order, delivers goods to a
person claiming under a missing negotiable document of title is
liable to any person injured thereby. If the delivery is not in good
faith, the bailee is liable for conversion. Delivery in good faith is
not conversion if the claimant posts security with the bailee in an
amount at least double the value of the goods at the time of posting
to indemnify any person injured by the delivery which files a notice
of claim within one year after the delivery.
7602. Unless a document of title was originally issued upon
delivery of the goods by a person that did not have power to dispose
of them, a lien does not attach by virtue of any judicial process to
goods in the possession of a bailee for which a negotiable document
of title is outstanding unless possession or control of the document
is first surrendered to the bailee or the document's negotiation is
enjoined. The bailee may not be compelled to deliver the goods
pursuant to process until possession or control of the document is
surrendered to the bailee or to the court. A purchaser of the
document for value without notice of the process or injunction takes
free of the lien imposed by judicial process.
7603. If more than one person claims title to or possession of
the goods, the bailee is excused from delivery until the bailee has a
reasonable time to ascertain the validity of the adverse claims or
to commence an action for interpleader. The bailee may assert an
interpleader either in defending an action for nondelivery of the
goods or by original action.
SEC. 50. Section 8102 of the Commercial Code is amended to read:
8102. (a) In this division:
(1) "Adverse claim" means a claim that a claimant has a property
interest in a financial asset and that it is a violation of the
rights of the claimant for another person to hold, transfer, or deal
with the financial asset.
(2) "Bearer form," as applied to a certificated security, means a
form in which the security is payable to the bearer of the security
certificate according to its terms but not by reason of an
indorsement.
(3) "Broker" means a person defined as a broker or dealer under
the federal securities laws, but without excluding a bank acting in
that capacity.
(4) "Certificated security" means a security that is represented
by a certificate.
(5) "Clearing corporation" means any of the following:
(A) A person that is registered as a "clearing agency" under the
federal securities laws.
(B) A federal reserve bank.
(C) Any other person that provides clearance or settlement
services with respect to financial assets that would require it to
register as a clearing agency under the federal securities laws but
for an exclusion or exemption from the registration requirement, if
its activities as a clearing corporation, including promulgation of
rules, are subject to regulation by a federal or state governmental
authority.
(6) "Communicate" means to either:
(A) Send a signed writing.
(B) Transmit information by any mechanism agreed upon by the
persons transmitting and receiving the information.
(7) "Entitlement holder" means a person identified in the records
of a securities intermediary as the person having a security
entitlement against the securities intermediary. If a person acquires
a security entitlement by virtue of paragraph (2) or (3) of
subdivision (b) of Section 8501, that person is the entitlement
holder.
(8) "Entitlement order" means a notification communicated to a
securities intermediary directing transfer or redemption of a
financial asset to which the entitlement holder has a security
entitlement.
(9) "Financial asset," except as otherwise provided in Section
8103, means any of the following:
(A) A security.
(B) An obligation of a person or a share, participation, or other
interest in a person or in property or an enterprise of a person,
that is, or is of a type, dealt in or traded on financial markets, or
that is recognized in any area in which it is issued or dealt in as
a medium for investment.
(C) Any property that is held by a securities intermediary for
another person in a securities account if the securities intermediary
has expressly agreed with the other person that the property is to
be treated as a financial asset under this division. As context
requires, the term means either the interest itself or the means by
which a person's claim to it is evidenced, including a certificated
or uncertificated security, a security certificate, or a security
entitlement.
(10) (Reserved)
(11) "Endorsement" means a signature that alone or accompanied by
other words is made on a security certificate in registered form or
on a separate document for the purpose of assigning, transferring, or
redeeming the security or granting a power to assign, transfer, or
redeem it.
(12) "Instruction" means a notification communicated to the issuer
of an uncertificated security that directs that the transfer of the
security be registered or that the security be redeemed.
(13) "Registered form," as applied to a certificated security,
means a form in which both of the following apply:
(A) The security certificate specifies a person entitled to the
security.
(B) A transfer of the security may be registered upon books
maintained for that purpose by or on behalf of the issuer, or the
security certificate so states.
(14) "Securities intermediary" means either:
(A) A clearing corporation.
(B) A person, including a bank or broker, that in the ordinary
course of its business maintains securities accounts for others and
is acting in that capacity.
(15) "Security," except as otherwise provided in Section 8103,
means an obligation of an issuer or a share, participation, or other
interest in an issuer or in property or an enterprise of an issuer
that is all of the following:
(A) It is represented by a security certificate in bearer or
registered form, or the transfer of it may be registered upon books
maintained for that purpose by or on behalf of the issuer.
(B) It is one of a class or series or by its terms is divisible
into a class or series of shares, participations, interests, or
obligations.
(C) It is either of the following:
(i) It is, or is of a type, dealt in or traded on securities
exchanges or securities markets.
(ii) It is a medium for investment and by its terms expressly
provides that it is a security governed by this division.
(16) "Security certificate" means a certificate representing a
security.
(17) "Security entitlement" means the rights and property interest
of an entitlement holder with respect to a financial asset specified
in Chapter 5 (commencing with Section 8501).
(18) "Uncertificated security" means a security that is not
represented by a certificate.
(b) Other definitions applying to this division and the sections
in which they appear are:
Appropriate person. Section 8107.
Control. Section 8106.
Delivery. Section 8301.
Investment company security. Section 8103.
Issuer. Section 8201.
Overissue. Section 8210.
Protected purchaser. Section 8303.
Securities account. Section 8501.
(c) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
(d) The characterization of a person, business, or transaction for
purposes of this division does not determine the characterization of
the person, business, or transaction for purposes of any other law,
regulation, or rule.
SEC. 51. Section 8103 of the Commercial Code is amended to read:
8103. (a) A share or similar equity interest issued by a
corporation, business trust, joint stock company, or similar entity
is a security.
(b) An "investment company security" is a security. "Investment
company security" means a share or similar equity interest issued by
an entity that is registered as an investment company under the
federal investment company laws, an interest in a unit investment
trust that is so registered, or a face-amount certificate issued by a
face-amount certificate company that is so registered. Investment
company security does not include an insurance policy or endowment
policy or annuity contract issued by an insurance company.
(c) An interest in a partnership or limited liability company is
not a security unless it is dealt in or traded on securities
exchanges or in securities markets, its terms expressly provide that
it is a security governed by this division, or it is an investment
company security. However, an interest in a partnership or limited
liability company is a financial asset if it is held in a securities
account.
(d) A writing that is a security certificate is governed by this
division and not by Division 3 (commencing with Section 3101), even
though it also meets the requirements of that division. However, a
negotiable instrument governed by Division 3 (commencing with Section
3101) is a financial asset if it is held in a securities account.
(e) An option or similar obligation issued by a clearing
corporation to its participants is not a security, but is a financial
asset.
(f) A commodity contract, as defined in paragraph (15) of
subdivision (a) of Section 9102, is not a security or a financial
asset.
(g) A document of title is not a financial asset unless
subparagraph (C) of paragraph (9) of subdivision (a) of Section 8102
applies.
SEC. 52. Section 9102 of the Commercial Code is amended to read:
9102. (a) In this division:
(1) "Accession" means goods that are physically united with other
goods in such a manner that the identity of the original goods is not
lost.
(2) "Account," except as used in "account for," means a right to
payment of a monetary obligation, whether or not earned by
performance, (i) for property that has been or is to be sold, leased,
licensed, assigned, or otherwise disposed of, (ii) for services
rendered or to be rendered, (iii) for a policy of insurance issued or
to be issued, (iv) for a secondary obligation incurred or to be
incurred, (v) for energy provided or to be provided, (vi) for the use
or hire of a vessel under a charter or other contract, (vii) arising
out of the use of a credit or charge card or information contained
on or for use with the card, or (viii) as winnings in a lottery or
other game of chance operated or sponsored by a state, governmental
unit of a state, or person licensed or authorized to operate the game
by a state or governmental unit of a state. The term includes health
care insurance receivables. The term does not include (i) rights to
payment evidenced by chattel paper or an instrument, (ii) commercial
tort claims, (iii) deposit accounts, (iv) investment property, (v)
letter-of-credit rights or letters of credit, or (vi) rights to
payment for money or funds advanced or sold, other than rights
arising out of the use of a credit or charge card or information
contained on or for use with the card.
(3) "Account debtor" means a person obligated on an account,
chattel paper, or general intangible. The term does not include
persons obligated to pay a negotiable instrument, even if the
instrument constitutes part of chattel paper.
(4) "Accounting," except as used in "accounting for," means a
record that is all of the following:
(A) Authenticated by a secured party.
(B) Indicating the aggregate unpaid secured obligations as of a
date not more than 35 days earlier or 35 days later than the date of
the record.
(C) Identifying the components of the obligations in reasonable
detail.
(5) "Agricultural lien" means an interest in farm products that
meets all of the following conditions:
(A) It secures payment or performance of an obligation for either
of the following:
(i) Goods or services furnished in connection with a debtor's
farming operation.
(ii) Rent on real property leased by a debtor in connection with
its farming operation.
(B) It is created by statute in favor of a person that does either
of the following:
(i) In the ordinary course of its business furnished goods or
services to a debtor in connection with a debtor's farming operation.
(ii) Leased real property to a debtor in connection with the
debtor's farming operation.
(C) Its effectiveness does not depend on the person's possession
of the personal property.
(6) "As-extracted collateral" means either of the following:
(A) Oil, gas, or other minerals that are subject to a security
interest that does both of the following:
(i) Is created by a debtor having an interest in the minerals
before extraction.
(ii) Attaches to the minerals as extracted.
(B) Accounts arising out of the sale at the wellhead or minehead
of oil, gas, or other minerals in which the debtor had an interest
before extraction.
(7) "Authenticate" means to do either of the following:
(A) To sign.
(B) To execute or otherwise adopt a symbol, or encrypt or
similarly process a record in whole or in part, with the present
intent of the authenticating person to identify the person and adopt
or accept a record.
(8) "Bank" means an organization that is engaged in the business
of banking. The term includes savings banks, savings and loan
associations, credit unions, and trust companies.
(9) "Cash proceeds" means proceeds that are money, checks, deposit
accounts, or the like.
(10) "Certificate of title" means a certificate of title with
respect to which a statute provides for the security interest in
question to be indicated on the certificate as a condition or result
of the security interest's obtaining priority over the rights of a
lien creditor with respect to the collateral.
(11) "Chattel paper" means a record or records that evidence both a
monetary obligation and a security interest in specific goods, a
security interest in specific goods and software used in the goods, a
security interest in specific goods and license of software used in
the goods, a lease of specific goods, or a lease of specific goods
and license of software used in the goods. In this paragraph,
"monetary obligation" means a monetary obligation secured by the
goods or owed under a lease of the goods and includes a monetary
obligation with respect to software used in the goods. The term does
not include (i) charters or other contracts involving the use or hire
of a vessel or (ii) records that evidence a right to payment arising
out of the use of a credit or charge card or information contained
on or for use with the card. If a transaction is evidenced by records
that include an instrument or series of instruments, the group of
records taken together constitutes chattel paper.
(12) "Collateral" means the property subject to a security
interest or agricultural lien. The term includes all of the
following:
(A) Proceeds to which a security interest attaches.
(B) Accounts, chattel paper, payment intangibles, and promissory
notes that have been sold.
(C) Goods that are the subject of a consignment.
(13) "Commercial tort claim" means a claim arising in tort with
respect to which either of the following conditions is satisfied:
(A) The claimant is an organization.
(B) The claimant is an individual and both of the following
conditions are satisfied regarding the claim:
(i) It arose in the course of the claimant's business or
profession.
(ii) It does not include damages arising out of personal injury to
or the death of an individual.
(14) "Commodity account" means an account maintained by a
commodity intermediary in which a commodity contract is carried for a
commodity customer.
(15) "Commodity contract" means a commodity futures contract, an
option on a commodity futures contract, a commodity option, or
another contract if the contract or option is either of the
following:
(A) Traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to
federal commodities laws.
(B) Traded on a foreign commodity board of trade, exchange, or
market, and is carried on the books of a commodity intermediary for a
commodity customer.
(16) "Commodity customer" means a person for which a commodity
intermediary carries a commodity contract on its books.
(17) "Commodity intermediary" means a person that is either of the
following:
(A) Is registered as a futures commission merchant under federal
commodities law.
(B) In the ordinary course of its business provides clearance or
settlement services for a board of trade that has been designated as
a contract market pursuant to federal commodities law.
(18) "Communicate" means to do any of the following:
(A) To send a written or other tangible record.
(B) To transmit a record by any means agreed upon by the persons
sending and receiving the record.
(C) In the case of transmission of a record to or by a filing
office, to transmit a record by any means prescribed by filing-office
rule.
(19) "Consignee" means a merchant to which goods are delivered in
a consignment.
(20) "Consignment" means a transaction, regardless of its form, in
which a person delivers goods to a merchant for the purpose of sale
and all of the following conditions are satisfied:
(A) The merchant satisfies all of the following conditions:
(i) He or she deals in goods of that kind under a name other than
the name of the person making delivery.
(ii) He or she is not an auctioneer.
(iii) He or she is not generally known by its creditors to be
substantially engaged in selling the goods of others.
(B) With respect to each delivery, the aggregate value of the
goods is one thousand dollars ($1,000) or more at the time of
delivery.
(C) The goods are not consumer goods immediately before delivery.
(D) The transaction does not create a security interest that
secures an obligation.
(21) "Consignor" means a person that delivers goods to a consignee
in a consignment.
(22) "Consumer debtor" means a debtor in a consumer transaction.
(23) "Consumer goods" means goods that are used or bought for use
primarily for personal, family, or household purposes.
(24) "Consumer-goods transaction" means a consumer transaction in
which both of the following conditions are satisfied:
(A) An individual incurs an obligation primarily for personal,
family, or household purposes.
(B) A security interest in consumer goods secures the obligation.
(25) "Consumer obligor" means an obligor who is an individual and
who incurred the obligation as part of a transaction entered into
primarily for personal, family, or household purposes.
(26) "Consumer transaction" means a transaction in which (i) an
individual incurs an obligation primarily for personal, family, or
household purposes, (ii) a security interest secures the obligation,
and (iii) the collateral is held or acquired primarily for personal,
family, or household purposes. The term includes consumer-goods
transactions.
(27) "Continuation statement" means an amendment of a financing
statement which does both of the following:
(A) Identifies, by its file number, the initial financing
statement to which it relates.
(B) Indicates that it is a continuation statement for, or that it
is filed to continue the effectiveness of, the identified financing
statement.
(28) "Debtor" means any of the following:
(A) A person having an interest, other than a security interest or
other lien, in the collateral, whether or not the person is an
obligor.
(B) A seller of accounts, chattel paper, payment intangibles, or
promissory notes.
(C) A consignee.
(29) "Deposit account" means a demand, time, savings, passbook, or
similar account maintained with a bank. The term does not include
investment property or accounts evidenced by an instrument.
(30) "Document" means a document of title or a receipt of the type
described in subdivision (b) of Section 7201.
(31) "Electronic chattel paper" means chattel paper evidenced by a
record or records consisting of information stored in an electronic
medium.
(32) "Encumbrance" means a right, other than an ownership
interest, in real property. The term includes mortgages and other
liens on real property.
(33) "Equipment" means goods other than inventory, farm products,
or consumer goods.
(34) "Farm products" means goods, other than standing timber, with
respect to which the debtor is engaged in a farming operation and
which are any of the following:
(A) Crops grown, growing, or to be grown, including both of the
following:
(i) Crops produced on trees, vines, and bushes.
(ii) Aquatic goods produced in aquacultural operations.
(B) Livestock, born or unborn, including aquatic goods produced in
aquacultural operations.
(C) Supplies used or produced in a farming operation.
(D) Products of crops or livestock in their unmanufactured states.
(35) "Farming operation" means raising, cultivating, propagating,
fattening, grazing, or any other farming, livestock, or aquacultural
operation.
(36) "File number" means the number assigned to an initial
financing statement pursuant to subdivision (a) of Section 9519.
(37) "Filing office" means an office designated in Section 9501 as
the place to file a financing statement.
(38) "Filing-office rule" means a rule adopted pursuant to Section
9526.
(39) "Financing statement" means a record or records composed of
an initial financing statement and any filed record relating to the
initial financing statement.
(40) "Fixture filing" means the filing of a financing statement
covering goods that are or are to become fixtures and satisfying
subdivisions (a) and (b) of Section 9502. The term includes the
filing of a financing statement covering goods of a transmitting
utility which are or are to become fixtures.
(41) "Fixtures" means goods that have become so related to
particular real property that an interest in them arises under real
property law.
(42) "General intangible" means any personal property, including
things in action, other than accounts, chattel paper, commercial tort
claims, deposit accounts, documents, goods, instruments, investment
property, letter-of-credit rights, letters of credit, money, and oil,
gas, or other minerals before extraction. The term includes payment
intangibles and software.
(43) (Reserved)
(44) "Goods" means all things that are movable when a security
interest attaches. The term includes (i) fixtures, (ii) standing
timber that is to be cut and removed under a conveyance or contract
for sale, (iii) the unborn young of animals, (iv) crops grown,
growing, or to be grown, even if the crops are produced on trees,
vines, or bushes, and (v) manufactured homes. The term also includes
a computer program embedded in goods and any supporting information
provided in connection with a transaction relating to the program if
(i) the program is associated with the goods in such a manner that it
customarily is considered part of the goods, or (ii) by becoming the
owner of the goods, a person acquires a right to use the program in
connection with the goods. The term does not include a computer
program embedded in goods that consist solely of the medium in which
the program is embedded. The term also does not include accounts,
chattel paper, commercial tort claims, deposit accounts, documents,
general intangibles, instruments, investment property,
letter-of-credit rights, letters of credit, money, or oil, gas, or
other minerals before extraction.
(45) "Governmental unit" means a subdivision, agency, department,
county, parish, municipality, or other unit of the government of the
United States, a state, or a foreign country. The term includes an
organization having a separate corporate existence if the
organization is eligible to issue debt on which interest is exempt
from income taxation under the laws of the United States.
(46) "Health care insurance receivable" means an interest in or
claim under a policy of insurance which is a right to payment of a
monetary obligation for health care goods or services provided or to
be provided.
(47) "Instrument" means a negotiable instrument or any other
writing that evidences a right to the payment of a monetary
obligation, is not itself a security agreement or lease, and is of a
type that in ordinary course of business is transferred by delivery
with any necessary indorsement or assignment. The term does not
include (i) investment property, (ii) letters of credit, or (iii)
writings that evidence a right to payment arising out of the use of a
credit or charge card or information contained on or for use with
the card.
(48) "Inventory" means goods, other than farm products, which are
any of the following:
(A) Leased by a person as lessor.
(B) Held by a person for sale or lease or to be furnished under a
contract of service.
(C) Furnished by a person under a contract of service.
(D) Consist of raw materials, work in process, or materials used
or consumed in a business.
(49) "Investment property" means a security, whether certificated
or uncertificated, security entitlement, securities account,
commodity contract, or commodity account.
(50) "Jurisdiction of organization," with respect to a registered
organization, means the jurisdiction under whose law the organization
is organized.
(51) "Letter-of-credit right" means a right to payment or
performance under a letter of credit, whether or not the beneficiary
has demanded or is at the time entitled to demand payment or
performance. The term does not include the right of a beneficiary to
demand payment or performance under a letter of credit.
(52) (A) "Lien creditor" means any of the following:
(i) A creditor that has acquired a lien on the property involved
by attachment, levy, or the like.
(ii) An assignee for benefit of creditors from the time of
assignment.
(iii) A trustee in bankruptcy from the date of the filing of the
petition.
(iv) A receiver in equity from the time of appointment.
(B) "Lien creditor" does not include a creditor who by filing a
notice with the Secretary of State has acquired only an attachment or
judgment lien on personal property, or both.
(53) "Manufactured home" means a structure, transportable in one
or more sections, which, in the traveling mode, is eight body-feet or
more in width or 40 body-feet or more in length, or, when erected on
site, is 320 or more square feet, and which is built on a permanent
chassis and designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical
systems contained therein. The term includes any structure that meets
all of the requirements of this paragraph except the size
requirements and with respect to which the manufacturer voluntarily
files a certification required by the United States Secretary of
Housing and Urban Development and complies with the standards
established under Title 42 of the United States Code.
(54) "Manufactured home transaction" means a secured transaction
that satisfies either of the following:
(A) It creates a purchase money security interest in a
manufactured home, other than a manufactured home held as inventory.
(B) It is a secured transaction in which a manufactured home,
other than a manufactured home held as inventory, is the primary
collateral.
(55) "Mortgage" means a consensual interest in real property,
including fixtures, which secures payment or performance of an
obligation.
(56) "New debtor" means a person that becomes bound as debtor
under subdivision (d) of Section 9203 by a security agreement
previously entered into by another person.
(57) "New value" means (i) money, (ii) money's worth in property,
services, or new credit, or (iii) release by a transferee of an
interest in property previously transferred to the transferee. The
term does not include an obligation substituted for another
obligation.
(58) "Noncash proceeds" means proceeds other than cash proceeds.
(59) "Obligor" means a person that, with respect to an obligation
secured by a security interest in or an agricultural lien on the
collateral, (i) owes payment or other performance of the obligation,
(ii) has provided property other than the collateral to secure
payment or other performance of the obligation, or (iii) is otherwise
accountable in whole or in part for payment or other performance of
the obligation. The term does not include issuers or nominated
persons under a letter of credit.
(60) "Original debtor," except as used in subdivision (c) of
Section 9310, means a person that, as debtor, entered into a security
agreement to which a new debtor has become bound under subdivision
(d) of Section 9203.
(61) "Payment intangible" means a general intangible under which
the account debtor's principal obligation is a monetary obligation.
(62) "Person related to," with respect to an individual, means any
of the following:
(A) The spouse of the individual.
(B) A brother, brother-in-law, sister, or sister-in-law of the
individual.
(C) An ancestor or lineal descendant of the individual or the
individual's spouse.
(D) Any other relative, by blood or marriage, of the individual or
the individual's spouse who shares the same home with the
individual.
(63) "Person related to," with respect to an organization, means
any of the following:
(A) A person directly or indirectly controlling, controlled by, or
under common control with the organization.
(B) An officer or director of, or a person performing similar
functions with respect to, the organization.
(C) An officer or director of, or a person performing similar
functions with respect to, a person described in subparagraph (A).
(D) The spouse of an individual described in subparagraph (A),
(B), or (C).
(E) An individual who is related by blood or marriage to an
individual described in subparagraph (A), (B), (C), or (D) and shares
the same home with the individual.
(64) "Proceeds," except as used in subdivision (b) of Section
9609, means any of the following property:
(A) Whatever is acquired upon the sale, lease, license, exchange,
or other disposition of collateral.
(B) Whatever is collected on, or distributed on account of,
collateral.
(C) Rights arising out of collateral.
(D) To the extent of the value of collateral, claims arising out
of the loss, nonconformity, or interference with the use of, defects
or infringement of rights in, or damage to, the collateral.
(E) To the extent of the value of collateral and to the extent
payable to the debtor or the secured party, insurance payable by
reason of the loss or nonconformity of, defects or infringement of
rights in, or damage to, the collateral.
(65) "Promissory note" means an instrument that evidences a
promise to pay a monetary obligation, does not evidence an order to
pay, and does not contain an acknowledgment by a bank that the bank
has received for deposit a sum of money or funds.
(66) "Proposal" means a record authenticated by a secured party
that includes the terms on which the secured party is willing to
accept collateral in full or partial satisfaction of the obligation
it secures pursuant to Sections 9620, 9621, and 9622.
(67) "Public finance transaction" means a secured transaction in
connection with which all of the following conditions are satisfied:
(A) Debt securities are issued.
(B) All or a portion of the securities issued have an initial
stated maturity of at least 20 years.
(C) The debtor, obligor, secured party, account debtor or other
person obligated on collateral, assignor or assignee of a secured
obligation, or assignor or assignee of a security interest is a state
or a governmental unit of a state.
(68) "Pursuant to commitment," with respect to an advance made or
other value given by a secured party, means pursuant to the secured
party's obligation, whether or not a subsequent event of default or
other event not within the secured party's control has relieved or
may relieve the secured party from its obligation.
(69) "Record," except as used in "for record," "of record,"
"record or legal title," and "record owner," means information that
is inscribed on a tangible medium or which is stored in an electronic
or other medium and is retrievable in perceivable form.
(70) "Registered organization" means an organization organized
solely under the law of a single state or the United States and as to
which the state or the United States must maintain a public record
showing the organization to have been organized.
(71) "Secondary obligor" means an obligor to the extent that
either of the following conditions are satisfied:
(A) The obligor's obligation is secondary.
(B) The obligor has a right of recourse with respect to an
obligation secured by collateral against the debtor, another obligor,
or property of either.
(72) "Secured party" means any of the following:
(A) A person in whose favor a security interest is created or
provided for under a security agreement, whether or not any
obligation to be secured is outstanding.
(B) A person that holds an agricultural lien.
(C) A consignor.
(D) A person to which accounts, chattel paper, payment
intangibles, or promissory notes have been sold.
(E) A trustee, indenture trustee, agent, collateral agent, or
other representative in whose favor a security interest or
agricultural lien is created or provided for.
(F) A person that holds a security interest arising under Section
2401, 2505, 4210, or 5118, or under subdivision (3) of Section 2711
or subdivision (5) of Section 10508.
(73) "Security agreement" means an agreement that creates or
provides for a security interest.
(74) "Send," in connection with a record or notification, means to
do either of the following:
(A) To deposit in the mail, deliver for transmission, or transmit
by any other usual means of communication, with postage or cost of
transmission provided for, addressed to any address reasonable under
the circumstances.
(B) To cause the record or notification to be received within the
time that it would have been received if properly sent under
subparagraph (A).
(75) "Software" means a computer program and any supporting
information provided in connection with a transaction relating to the
program. The term does not include a computer program that is
included in the definition of goods.
(76) "State" means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.
(77) "Supporting obligation" means a letter-of-credit right or
secondary obligation that supports the payment or performance of an
account, chattel paper, document, general intangible, instrument, or
investment property.
(78) "Tangible chattel paper" means chattel paper evidenced by a
record or records consisting of information that is inscribed on a
tangible medium.
(79) "Termination statement" means an amendment of a financing
statement that does both of the following:
(A) Identifies, by its file number, the initial financing
statement to which it relates.
(B) Indicates either that it is a termination statement or that
the identified financing statement is no longer effective.
(80) "Transmitting utility" means a person primarily engaged in
the business of any of the following:
(A) Operating a railroad, subway, street railway, or trolley bus.
(B) Transmitting communications electrically, electromagnetically,
or by light.
(C) Transmitting goods by pipeline or sewer.
(D) Transmitting or producing and transmitting electricity, steam,
gas, or water.
(b) The following definitions in other divisions apply to this
division:
"Applicant" Section 5102.
"Beneficiary" Section 5102.
"Broker" Section 8102.
"Certificated security" Section 8102.
"Check" Section 3104.
"Clearing corporation" Section 8102.
"Contract for sale" Section 2106.
"Control" Section 7106.
"Customer" Section 4104.
"Entitlement holder" Section 8102.
"Financial asset" Section 8102.
"Holder in due course" Section 3302.
"Issuer" (with respect to a
letter of credit or Section 5102.
letter-of-credit right)
"Issuer" (with respect to a Section 8201.
security)
"Issuer" (with respect to Section 7102.
documents of title)
"Lease" Section 10103.
"Lease agreement" Section 10103.
"Lease contract" Section 10103.
"Leasehold interest" Section 10103.
"Lessee" Section 10103.
"Lessee in ordinary course of Section 10103.
business"
"Lessor" Section 10103.
"Lessor's residual interest" Section 10103.
"Letter of credit" Section 5102.
"Merchant" Section 2104.
"Negotiable instrument" Section 3104.
"Nominated person" Section 5102.
"Note" Section 3104.
"Proceeds of a letter of credit" Section 5114.
"Prove" Section 3103.
"Sale" Section 2106.
"Securities account" Section 8501.
"Securities intermediary" Section 8102.
"Security" Section 8102.
"Security certificate" Section 8102.
"Security entitlement" Section 8102.
"Uncertificated security" Section 8102.
(c) Division 1 (commencing with Section 1101) contains general
definitions and principles of construction and interpretation
applicable throughout this division.
SEC. 53. Section 9203 of the Commercial Code is amended to read:
9203. (a) A security interest attaches to collateral when it
becomes enforceable against the debtor with respect to the
collateral, unless an agreement expressly postpones the time of
attachment.
(b) Except as otherwise provided in subdivisions (c) to (i),
inclusive, a security interest is enforceable against the debtor and
third parties with respect to the collateral only if each of the
following conditions is satisfied:
(1) Value has been given.
(2) The debtor has rights in the collateral or the power to
transfer rights in the collateral to a secured party.
(3) One of the following conditions is met:
(A) The debtor has authenticated a security agreement that
provides a description of the collateral and, if the security
interest covers timber to be cut, a description of the land
concerned.
(B) The collateral is not a certificated security and is in the
possession of the secured party under Section 9313 pursuant to the
debtor's security agreement.
(C) The collateral is a certificated security in registered form
and the security certificate has been delivered to the secured party
under Section 8301 pursuant to the debtor's security agreement.
(D) The collateral is deposit accounts, electronic chattel paper,
investment property, letter-of-credit rights, or electronic documents
and the secured party has control under Section 7106, 9104, 9105,
9106, or 9107 pursuant to the debtor's security agreement.
(c) Subdivision (b) is subject to Section 4210 on the security
interest of a collecting bank, Section 5118 on the security interest
of a letter-of-credit issuer or nominated person, Section 9110 on a
security interest arising under Division 2 (commencing with Section
2101) or Division 10 (commencing with Section 10101), and Section
9206 on security interests in investment property.
(d) A person becomes bound as debtor by a security agreement
entered into by another person if, by operation of law other than
this division or by contract, either of the following conditions is
satisfied:
(1) The security agreement becomes effective to create a security
interest in the person's property.
(2) The person becomes generally obligated
for the obligations of the other person, including the obligation
secured under the security agreement, and acquires or succeeds to all
or substantially all of the assets of the other person.
(e) If a new debtor becomes bound as debtor by a security
agreement entered into by another person, both of the following
apply:
(1) The agreement satisfies paragraph (3) of subdivision (b) with
respect to existing or after-acquired property of the new debtor to
the extent the property is described in the agreement.
(2) Another agreement is not necessary to make a security interest
in the property enforceable.
(f) The attachment of a security interest in collateral gives the
secured party the rights to proceeds provided by Section 9315 and is
also attachment of a security interest in a supporting obligation for
the collateral.
(g) The attachment of a security interest in a right to payment or
performance secured by a security interest or other lien on personal
or real property is also attachment of a security interest in the
security interest, mortgage, or other lien.
(h) The attachment of a security interest in a securities account
is also attachment of a security interest in the security
entitlements carried in the securities account.
(i) The attachment of a security interest in a commodity account
is also attachment of a security interest in the commodity contracts
carried in the commodity account.
SEC. 54. Section 9207 of the Commercial Code is amended to read:
9207. (a) Except as otherwise provided in subdivision (d), a
secured party shall use reasonable care in the custody and
preservation of collateral in the secured party's possession. In the
case of chattel paper or an instrument, reasonable care includes
taking necessary steps to preserve rights against prior parties
unless otherwise agreed.
(b) Except as otherwise provided in subdivision (d), if a secured
party has possession of collateral, all of the following apply:
(1) Reasonable expenses, including the cost of insurance and
payment of taxes or other charges, incurred in the custody,
preservation, use, or operation of the collateral are chargeable to
the debtor and are secured by the collateral.
(2) The risk of accidental loss or damage is on the debtor to the
extent of a deficiency in any effective insurance coverage.
(3) The secured party shall keep the collateral identifiable, but
fungible collateral may be commingled.
(4) The secured party may use or operate the collateral for any of
the following purposes:
(A) For the purpose of preserving the collateral or its value.
(B) As permitted by an order of a court having competent
jurisdiction.
(C) Except in the case of consumer goods, in the manner and to the
extent agreed by the debtor.
(c) Except as otherwise provided in subdivision (d), a secured
party having possession of collateral or control of collateral under
Section 7106, 9104, 9105, 9106, or 9107 may or shall, as the case may
be, do all of the following:
(1) May hold as additional security any proceeds, except money or
funds, received from the collateral.
(2) Shall apply money or funds received from the collateral to
reduce the secured obligation, unless remitted to the debtor.
(3) May create a security interest in the collateral.
(d) If the secured party is a buyer of accounts, chattel paper,
payment intangibles, or promissory notes or a consignor, both of the
following apply:
(1) Subdivision (a) does not apply unless the secured party is
entitled under an agreement to either of the following:
(A) To charge back uncollected collateral.
(B) Otherwise to full or limited recourse against the debtor or a
secondary obligor based on the nonpayment or other default of an
account debtor or other obligor on the collateral.
(2) Subdivisions (b) and (c) do not apply.
SEC. 55. Section 9208 of the Commercial Code is amended to read:
9208. (a) This section applies to cases in which there is no
outstanding secured obligation and the secured party is not committed
to make advances, incur obligations, or otherwise give value.
(b) Within 10 days after receiving an authenticated demand by the
debtor, all of the following apply:
(1) A secured party having control of a deposit account under
paragraph (2) of subdivision (a) of Section 9104 shall send to the
bank with which the deposit account is maintained an authenticated
statement that releases the bank from any further obligation to
comply with instructions originated by the secured party.
(2) A secured party having control of a deposit account under
paragraph (3) of subdivision (a) of Section 9104 shall do either of
the following:
(A) Pay the debtor the balance on deposit in the deposit account.
(B) Transfer the balance on deposit into a deposit account in the
debtor's name.
(3) A secured party, other than a buyer, having control of
electronic chattel paper under Section 9105 shall do all of the
following:
(A) Communicate the authoritative copy of the electronic chattel
paper to the debtor or its designated custodian.
(B) If the debtor designates a custodian that is the designated
custodian with which the authoritative copy of the electronic chattel
paper is maintained for the secured party, communicate to the
custodian an authenticated record releasing the designated custodian
from any further obligation to comply with instructions originated by
the secured party and instructing the custodian to comply with
instructions originated by the debtor.
(C) Take appropriate action to enable the debtor or its designated
custodian to make copies of or revisions to the authoritative copy
which add or change an identified assignee of the authoritative copy
without the consent of the secured party.
(4) A secured party having control of investment property under
paragraph (2) of subdivision (d) of Section 8106 or under subdivision
(b) of Section 9106 shall send to the securities intermediary or
commodity intermediary with which the security entitlement or
commodity contract is maintained an authenticated record that
releases the securities intermediary or commodity intermediary from
any further obligation to comply with entitlement orders or
directions originated by the secured party.
(5) A secured party having control of a letter-of-credit right
under Section 9107 shall send to each person having an unfulfilled
obligation to pay or deliver proceeds of the letter of credit to the
secured party an authenticated release from any further obligation to
pay or deliver proceeds of the letter of credit to the secured
party.
(6) A secured party having control of an electronic document under
Section 7106 shall:
(A) give control of the electronic document to the debtor or its
designated custodian;
(B) if the debtor designates a custodian that is the designated
custodian with which the authoritative copy of the electronic
document is maintained for the secured party, communicate to the
custodian an authenticated record releasing the designated custodian
from any further obligation to comply with instructions originated by
the secured party and instructing the custodian to comply with
instructions originated by the debtor; and
(C) take appropriate action to enable the debtor or its designated
custodian to make copies of or revisions to the authoritative copy
which add or change an identified assignee of the authoritative copy
without the consent of the secured party.
SEC. 56. Section 9301 of the Commercial Code is amended to read:
9301. Except as otherwise provided in Sections 9303 to 9306,
inclusive, the following rules determine the law governing
perfection, the effect of perfection or nonperfection, and the
priority of a security interest in collateral:
(1) Except as otherwise provided in this section, while a debtor
is located in a jurisdiction, the local law of that jurisdiction
governs perfection, the effect of perfection or nonperfection, and
the priority of a security interest in collateral.
(2) While collateral is located in a jurisdiction, the local law
of that jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of a possessory security interest in
that collateral.
(3) Except as otherwise provided in paragraph (4), while
negotiable tangible documents, goods, instruments, money, or tangible
chattel paper is located in a jurisdiction, the local law of that
jurisdiction governs all of the following:
(A) Perfection of a security interest in the goods by filing a
fixture filing.
(B) Perfection of a security interest in timber to be cut.
(C) The effect of perfection or nonperfection and the priority of
a nonpossessory security interest in the collateral.
(4) The local law of the jurisdiction in which the wellhead or
minehead is located governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in
as-extracted collateral.
SEC. 57. Section 9310 of the Commercial Code is amended to read:
9310. (a) Except as otherwise provided in subdivision (b) and in
subdivision (b) of Section 9312, a financing statement must be filed
to perfect all security interests and agricultural liens.
(b) The filing of a financing statement is not necessary to
perfect a security interest that satisfies any of the following
conditions:
(1) It is perfected under subdivision (d), (e), (f), or (g) of
Section 9308.
(2) It is perfected under Section 9309 when it attaches.
(3) It is a security interest in property subject to a statute,
regulation, or treaty described in subdivision (a) of Section 9311.
(4) It is a security interest in goods in possession of a bailee
which is perfected under paragraph (1) or (2) of subdivision (d) of
Section 9312.
(5) It is a security interest in certificated securities,
documents, goods, or instruments which is perfected without filing,
control, or possession under subdivision (e), (f), or (g) of Section
9312.
(6) It is a security interest in collateral in the secured party's
possession under Section 9313.
(7) It is a security interest in a certificated security which is
perfected by delivery of the security certificate to the secured
party under Section 9313.
(8) It is a security interest in deposit accounts, electronic
chattel paper, electronic documents, investment property, or
letter-of-credit rights which is perfected by control under Section
9314.
(9) It is a security interest in proceeds which is perfected under
Section 9315.
(10) It is perfected under Section 9316.
(11) It is a security interest in, or claim in or under, any
policy of insurance including unearned premiums which is perfected by
written notice to the insurer under paragraph (4) of subdivision (b)
of Section 9312.
(c) If a secured party assigns a perfected security interest or
agricultural lien, a filing under this division is not required to
continue the perfected status of the security interest against
creditors of and transferees from the original debtor.
SEC. 58. Section 9312 of the Commercial Code is amended to read:
9312. (a) A security interest in chattel paper, negotiable
documents, instruments, or investment property may be perfected by
filing.
(b) Except as otherwise provided in subdivisions (c) and (d) of
Section 9315 for proceeds, all of the following apply:
(1) A security interest in a deposit account may be perfected only
by control under Section 9314.
(2) Except as otherwise provided in subdivision (d) of Section
9308, a security interest in a letter-of-credit right may be
perfected only by control under Section 9314.
(3) A security interest in money may be perfected only by the
secured party's taking possession under Section 9313.
(4) A security interest in, or claim in or under, any policy of
insurance, including unearned premiums, may be perfected only by
giving written notice of the security interest or claim to the
insurer. This paragraph does not apply to a health care insurance
receivable. A security interest in a health care insurance receivable
may be perfected only as otherwise provided in this division.
(c) While goods are in the possession of a bailee that has issued
a negotiable document covering the goods, both of the following
apply:
(1) A security interest in the goods may be perfected by
perfecting a security interest in the document.
(2) A security interest perfected in the document has priority
over any security interest that becomes perfected in the goods by
another method during that time.
(d) While goods are in the possession of a bailee that has issued
a nonnegotiable document covering the goods, a security interest in
the goods may be perfected by any of the following methods:
(1) Issuance of a document in the name of the secured party.
(2) The bailee's receipt of notification of the secured party's
interest.
(3) Filing as to the goods.
(e) A security interest in certificated securities, negotiable
documents, or instruments is perfected without filing or the taking
of possession or control for a period of 20 days from the time it
attaches to the extent that it arises for new value given under an
authenticated security agreement.
(f) A perfected security interest in a negotiable document or
goods in possession of a bailee, other than one that has issued a
negotiable document for the goods, remains perfected for 20 days
without filing if the secured party makes available to the debtor the
goods or documents representing the goods for the purpose of either
of the following:
(1) Ultimate sale or exchange.
(2) Loading, unloading, storing, shipping, transshipping,
manufacturing, processing, or otherwise dealing with them in a manner
preliminary to their sale or exchange.
(g) A perfected security interest in a certificated security or
instrument remains perfected for 20 days without filing if the
secured party delivers the security certificate or instrument to the
debtor for the purpose of either of the following:
(1) Ultimate sale or exchange.
(2) Presentation, collection, enforcement, renewal, or
registration of transfer.
(h) After the 20-day period specified in subdivision (e), (f), or
(g) expires, perfection depends upon compliance with this division.
SEC. 59. Section 9313 of the Commercial Code is amended to read:
9313. (a) Except as otherwise provided in subdivision (b), a
secured party may perfect a security interest in tangible negotiable
documents, goods, instruments, money, or tangible chattel paper by
taking possession of the collateral. A secured party may perfect a
security interest in certificated securities by taking delivery of
the certificated securities under Section 8301.
(b) With respect to goods covered by a certificate of title issued
by this state, a secured party may perfect a security interest in
the goods by taking possession of the goods only in the circumstances
described in subdivision (d) of Section 9316.
(c) With respect to collateral other than certificated securities
and goods covered by a document, a secured party takes possession of
collateral in the possession of a person other than the debtor, the
secured party, or a lessee of the collateral from the debtor in the
ordinary course of the debtor's business, when either of the
following conditions is satisfied:
(1) The person in possession authenticates a record acknowledging
that it holds possession of the collateral for the secured party's
benefit.
(2) The person takes possession of the collateral after having
authenticated a record acknowledging that it will hold possession of
collateral for the secured party's benefit.
(d) If perfection of a security interest depends upon possession
of the collateral by a secured party, perfection occurs no earlier
than the time the secured party takes possession and continues only
while the secured party retains possession.
(e) A security interest in a certificated security in registered
form is perfected by delivery when delivery of the certificated
security occurs under Section 8301 and remains perfected by delivery
until the debtor obtains possession of the security certificate.
(f) A person in possession of collateral is not required to
acknowledge that it holds possession for a secured party's benefit.
(g) If a person acknowledges that it holds possession for the
secured party's benefit, both of the following apply:
(1) The acknowledgment is effective under subdivision (c) or under
subdivision (a) of Section 8301, even if the acknowledgment violates
the rights of a debtor.
(2) Unless the person otherwise agrees or law other than this
division otherwise provides, the person does not owe any duty to the
secured party and is not required to confirm the acknowledgment to
another person.
(h) A secured party having possession of collateral does not
relinquish possession by delivering the collateral to a person other
than the debtor or a lessee of the collateral from the debtor in the
ordinary course of the debtor's business if the person was instructed
before the delivery or is instructed contemporaneously with the
delivery to do either of the following:
(1) To hold possession of the collateral for the secured party's
benefit.
(2) To redeliver the collateral to the secured party.
(i) A secured party does not relinquish possession, even if a
delivery under subdivision (h) violates the rights of a debtor. A
person to which collateral is delivered under subdivision (h) does
not owe any duty to the secured party and is not required to confirm
the delivery to another person unless the person otherwise agrees or
law other than this division otherwise provides.
SEC. 60. Section 9314 of the Commercial Code is amended to read:
9314. (a) A security interest in investment property, deposit
accounts, letter-of-credit rights, electronic chattel paper, or
electronic documents may be perfected by control of the collateral
under Section 7106, 9104, 9105, 9106, or 9107.
(b) A security interest in deposit accounts, electronic chattel
paper, letter-of-credit rights, or electronic documents is perfected
by control under Section 7106, 9104, 9105, or 9107 when the secured
party obtains control and remains perfected by control only while the
secured party retains control.
(c) A security interest in investment property is perfected by
control under Section 9106 from the time the secured party obtains
control and remains perfected by control until both of the following
conditions are satisfied:
(1) The secured party does not have control.
(2) One of the following occurs:
(A) If the collateral is a certificated security, the debtor has
or acquires possession of the security certificate.
(B) If the collateral is an uncertificated security, the issuer
has registered or registers the debtor as the registered owner.
(C) If the collateral is a security entitlement, the debtor is or
becomes the entitlement holder.
SEC. 61. Section 9317 of the Commercial Code is amended to read:
9317. (a) A security interest or agricultural lien is subordinate
to the rights of both of the following:
(1) A person entitled to priority under Section 9322.
(2) Except as otherwise provided in subdivision (e), a person that
becomes a lien creditor before the earlier of the time the security
interest or agricultural lien is perfected, or one of the conditions
specified in paragraph (3) of subdivision (b) of Section 9203 is met
and a financing statement covering the collateral is filed.
(b) Except as otherwise provided in subdivision (e), a buyer,
other than a secured party, of tangible chattel paper, tangible
documents, goods, instruments, or a security certificate takes free
of a security interest or agricultural lien if the buyer gives value
and receives delivery of the collateral without knowledge of the
security interest or agricultural lien and before it is perfected.
(c) Except as otherwise provided in subdivision (e), a lessee of
goods takes free of a security interest or agricultural lien if the
lessee gives value and receives delivery of the collateral without
knowledge of the security interest or agricultural lien and before it
is perfected.
(d) A licensee of a general intangible or a buyer, other than a
secured party, of accounts, electronic chattel paper, electronic
documents, general intangibles, or investment property other than a
certificated security takes free of a security interest if the
licensee or buyer gives value without knowledge of the security
interest and before it is perfected.
(e) Except as otherwise provided in Sections 9320 and 9321, if a
person files a financing statement with respect to a purchase money
security interest before or within 20 days after the debtor receives
delivery of the collateral, the security interest takes priority over
the rights of a buyer, lessee, or lien creditor which arise between
the time the security interest attaches and the time of filing.
SEC. 62. Section 9338 of the Commercial Code is amended to read:
9338. If a security interest or agricultural lien is perfected by
a filed financing statement providing information described in
paragraph (5) of subdivision (b) of Section 9516 which is incorrect
at the time the financing statement is filed, both of the following
apply:
(1) The security interest or agricultural lien is subordinate to a
conflicting perfected security interest in the collateral to the
extent that the holder of the conflicting security interest gives
value in reasonable reliance upon the incorrect information.
(2) A purchaser, other than a secured party, of the collateral
takes free of the security interest or agricultural lien to the
extent that, in reasonable reliance upon the incorrect information,
the purchaser gives value and, in the case of tangible chattel paper,
tangible documents, goods, instruments, or a security certificate,
receives delivery of the collateral.
SEC. 63. Section 9601 of the Commercial Code is amended to read:
9601. (a) After default, a secured party has the rights provided
in this chapter and, except as otherwise provided in Section 9602,
those rights provided by agreement of the parties. A secured party
may do both of the following:
(1) Reduce a claim to judgment, foreclose, or otherwise enforce
the claim, security interest, or agricultural lien by any available
judicial procedure.
(2) If the collateral is documents, proceed either as to the
documents or as to the goods they cover.
(b) A secured party in possession of collateral or control of
collateral under Section 7106, 9104, 9105, 9106, or 9107 has the
rights and duties provided in Section 9207.
(c) The rights under subdivisions (a) and (b) are cumulative and
may be exercised simultaneously.
(d) Except as otherwise provided in subdivision (g) and in Section
9605, after default, a debtor and an obligor have the rights
provided in this chapter and by agreement of the parties.
(e) If a secured party has reduced its claim to judgment, the lien
of any levy that may be made upon the collateral by virtue of an
execution based upon the judgment relates back to the earliest of any
of the following:
(1) The date of perfection of the security interest or
agricultural lien in the collateral.
(2) The date of filing a financing statement covering the
collateral.
(3) Any date specified in a statute under which the agricultural
lien was created.
(f) A sale pursuant to an execution is a foreclosure of the
security interest or agricultural lien by judicial procedure within
the meaning of this section. A secured party may purchase at the sale
and thereafter hold the collateral free of any other requirements of
this division.
(g) Except as otherwise provided in subdivision (c) of Section
9607, this part imposes no duties upon a secured party that is a
consignor or is a buyer of accounts, chattel paper, payment
intangibles, or promissory notes.
SEC. 64. Section 10103 of the Commercial Code is amended to read:
10103. (a) In this division, 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 person in the business of selling goods of that kind, but does not
include a pawnbroker. "Buying" may be for cash or by exchange of
other property or on secured or unsecured credit and includes
acquiring goods or documents of title under a preexisting contract
for sale but does not include a transfer in bulk or as security for
or in total or partial satisfaction of a money debt.
(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 is a single whole for purposes of lease and division of which
materially impairs its character or value on the market or in use. A
commercial unit may be a single article, as a machine, or a set of
articles, as a suite of furniture or a line 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.
(4) "Conforming" goods or performance under a lease contract means
goods or performance that are in accordance with the obligations
under the lease contract.
(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.
(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 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 the goods or the right to possession and use of the goods is
a condition to effectiveness of the lease contract.
(iii) The
lessee, before signing the lease contract, receives an accurate and
complete statement designating the promises and warranties, and any
disclaimers of warranties, limitations or modifications of remedies,
or liquidated damages, including those of a third party, 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.
(iv) The lessor, before the lessee signs the lease contract,
informs the lessee in writing (aa) of the identity of the person
supplying the goods to the lessor, unless the lessee has selected
that person and directed the lessor to acquire the goods or the right
to possession and use of the goods from that person, (bb) that the
lessee is entitled under this division 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 (cc) 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.
(8) "Goods" means all things that are movable at the time of
identification to the lease contract, or are fixtures (Section
10309), 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 for 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 division. 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 division 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 acquiring goods or documents of title under a
preexisting lease contract but does not include a transfer in bulk or
as security for or in total or partial satisfaction of a money debt.
(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.
(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 division and the sections
in which they appear are:
"Accessions." Subdivision (a) of Section 10310.
"Construction mortgage." Paragraph (4) of subdivision (a) of
Section 10309.
"Encumbrance." Paragraph (5) of subdivision (a) of Section 10309.
"Fixtures." Paragraph (1) of subdivision (a) of Section 10309.
"Fixture filing." Paragraph (2) of subdivision (a) of Section
10309.
"Purchase money lease." Paragraph (3) of subdivision (a) of
Section 10309.
(c) The following definitions in other divisions apply to this
division:
"Account." Paragraph (2) of subdivision (a) of Section 9102.
"Between merchants." Subdivision (3) of Section 2104.
"Buyer." Paragraph (a) of subdivision (1) of Section 2103.
"Chattel paper." Paragraph (11) of subdivision (a) of Section
9102.
"Consumer goods." Paragraph (23) of subdivision (a) of Section
9102.
"Document." Paragraph (30) of subdivision (a) of Section 9102.
"Entrusting." Subdivision (3) of Section 2403.
"General intangible." Paragraph (42) of subdivision (a) of Section
9102.
"Instrument." Paragraph (47) of subdivision (a) of Section 9102.
"Merchant." Subdivision (1) of Section 2104.
"Mortgage." Paragraph (55) of subdivision (a) of Section 9102.
"Pursuant to commitment." Paragraph (68) of subdivision (a) of
Section 9102.
"Receipt of goods." Paragraph (c) of subdivision (1) of Section
2103.
"Sale." Subdivision (1) of Section 2106.
"Sale on approval." Section 2326.
"Sale or return." Section 2326.
"Seller." Paragraph (d) of subdivision (1) of Section 2103.
(d) In addition, Division 1 contains general definitions and
principles of construction and interpretation applicable throughout
this division.
SEC. 65. Section 10207 of the Commercial Code is repealed.
SEC. 66. Section 10501 of the Commercial Code is amended to read:
10501. (a) Whether the lessor or the lessee is in default under a
lease contract is determined by the lease agreement and this
division.
(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 division and, except as limited by this division, 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 division.
(d) Except as otherwise provided in subdivision (a) of Section
1305 or this division or the lease agreement, the rights and remedies
referred to in subdivisions (b) and (c) are cumulative.
(e) If the lease agreement covers both real property and goods,
the party seeking enforcement may proceed under this chapter 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 chapter does not
apply.
SEC. 67. Section 10514 of the Commercial Code is amended to read:
10514. (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 (Section 10513); 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 in the documents.
SEC. 68. Section 10518 of the Commercial Code is amended to read:
10518. (a) After a default by a lessor under the lease contract
of the type described in subdivision (a) of Section 10508, 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 (Section 10504) or otherwise
determined pursuant to agreement of the parties (Sections 1302 and
10503), 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 (1) the present value,
as of the date of the commencement of the term of the new lease
agreement, of the rent under the new lease agreement applicable to
that period of the new lease term which is comparable to the then
remaining term of the original lease agreement minus the present
value as of the same date of the total rent for the then remaining
lease term of the original lease agreement, and (2) 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 subdivision (b), or is by
purchase or otherwise, the lessee may recover from the lessor as if
the lessee had elected not to cover and Section 10519 governs.
SEC. 69. Section 10519 of the Commercial Code is amended to read:
10519. (a) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 10504) or otherwise
determined pursuant to agreement of the parties (Sections 1302 and
10503), 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 subdivision (b) of Section 10518, 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 (subdivision (c) of Section 10516), 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.
SEC. 70. Section 10526 of the Commercial Code is amended to read:
10526. (a) A lessor may stop delivery of goods in the possession
of a carrier or other bailee if the 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 subdivision (a), 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 holds the goods for the lessee; or
(3) Such an acknowledgment to the lessee by a carrier via
reshipment or as a warehouse.
(c) (1) 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 of lading is not
obliged to obey a notification to stop received from a person other
than the consignor.
SEC. 71. Section 10527 of the Commercial Code is amended to read:
10527. (a) After a default by a lessee under the lease contract
of the type described in subdivision (a) of, or paragraph (1) of
subdivision (c) of, Section 10523 or after the lessor refuses to
deliver or takes possession of goods (Section 10525 or 10526), 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 (Section 10504) or otherwise
determined pursuant to agreement of the parties (Sections 1302 and
10503), if the disposition is by lease agreement substantially
similar to the original lease agreement and the new lease agreement
is made in good faith and in a commercially reasonable manner, the
lessor may recover from the lessee as damages (1) accrued and unpaid
rent as of the date of the commencement of the term of the new lease
agreement, (2) 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 (3) any incidental damages allowed
under Section 10530, 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 subdivision (b), 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 Section 10528
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 division.
(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 security interest (subdivision
(e) of Section 10508).
SEC. 72. Section 10528 of the Commercial Code is amended to read:
10528. (a) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 10504) or otherwise
determined pursuant to agreement of the parties (Sections 1302 and
10503), 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 subdivision (b)
of Section 10527, or is by sale or otherwise, the lessor may recover
from the lessee as damages for a default of the type described in
subdivision (a) of, or paragraph (1) of subdivision (c) of, Section
10523, or, if agreed, for other default of the lessee, (1) 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, (2) the present value as of the date determined under
paragraph (1) of the total rent for the then remaining lease term of
the original lease agreement minus the present value as of the same
date of the market rent at the place where the goods are located
computed for the same lease term, and (3) any incidental damages
allowed under Section 10530, less expenses saved in consequence of
the lessee's default.
(b) If the measure of damages provided in subdivision (a) 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 Section 10530, due allowance for costs reasonably
incurred and due credit for payments or proceeds of disposition.
SEC. 73. Section 11105 of the Commercial Code is amended to read:
11105. (a) In this division:
(1) "Authorized account" means a deposit account of a customer in
a bank designated by the customer as a source of payment of payment
orders issued by the customer to the bank. If a customer does not so
designate an account, any account of the customer is an authorized
account if payment of a payment order from that account is not
inconsistent with a restriction on the use of that account.
(2) "Bank" means a person engaged in the business of banking and
includes a savings bank, savings and loan association, credit union,
and trust company. A branch or separate office of a bank is a
separate bank for purposes of this division.
(3) "Customer" means a person, including a bank, having an account
with a bank or from whom a bank has agreed to receive payment
orders.
(4) "Funds-transfer business day" of a receiving bank means the
part of a day during which the receiving bank is open for the
receipt, processing, and transmittal of payment orders and
cancellations and amendments of payment orders.
(5) "Funds-transfer system" means a wire transfer network,
automated clearinghouse, or other communication system of a
clearinghouse or other association of banks through which a payment
order by a bank may be transmitted to the bank to which the order is
addressed.
(6) (Reserved)
(7) "Prove" with respect to a fact means to meet the burden of
establishing the fact under subdivision (8) of Section 1201.
(b) Other definitions applying to this division and the sections
in which they appear are:
Acceptance: Section 11209.
Beneficiary: Section 11103.
Beneficiary's bank: Section 11103.
Executed: Section 11301.
Execution date: Section 11301.
Funds transfer: Section 11104.
Funds-transfer system rule: Section 11501.
Intermediary bank: Section 11104.
Originator: Section 11104.
Originator's bank: Section 11104.
Payment by beneficiary's bank to beneficiary: Section 11405.
Payment by originator to beneficiary: Section 11406.
Payment by sender to receiving bank: Section 11403.
Payment date: Section 11401.
Payment order: Section 11103.
Receiving bank: Section 11103.
Security procedure: Section 11201.
Sender: Section 11103.
(c) The following definitions in Division 4 (commencing with
Section 4101) apply to this division:
Clearinghouse: Section 4104.
Item: Section 4104.
Suspends payments: Section 4104.
(d) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
SEC. 74. Section 11106 of the Commercial Code is amended to read:
11106. (a) The time of receipt of a payment order or
communication canceling or amending a payment order is determined by
the rules applicable to receipt of a notice stated in Section 1202. A
receiving bank may fix a cutoff time or times on a funds-transfer
business day for the receipt and processing of payment orders and
communications canceling or amending payment orders. Different cutoff
times may apply to payment orders, cancellations, or amendments, or
to different categories of payment orders, cancellations, or
amendments. A cutoff time may apply to senders generally or different
cutoff times may apply to different senders or categories of payment
orders. If a payment order or communication canceling or amending a
payment order is received after the close of a funds-transfer
business day or after the appropriate cutoff time on a funds-transfer
business day, the receiving bank may treat the payment order or
communication as received at the opening of the next funds-transfer
business day.
(b) If this division refers to an execution date or payment date
or states a day on which a receiving bank is required to take action,
and the date or day does not fall on a funds-transfer business day,
the next day that is a funds-transfer business day is treated as the
date or day stated, unless the contrary is stated in this division.
SEC. 75. Section 11204 of the Commercial Code is amended to read:
11204. (a) If a receiving bank accepts a payment order issued in
the name of its customer as sender which is (i) not authorized and
not effective as the order of the customer under Section 11202, or
(ii) not enforceable, in whole or in part, against the customer under
Section 11203, the bank shall refund any payment of the payment
order received from the customer to the extent the bank is not
entitled to enforce payment and shall pay interest on the refundable
amount calculated from the date the bank received payment to the date
of the refund. However, the customer is not entitled to interest
from the bank on the amount to be refunded if the customer fails to
exercise ordinary care to determine that the order was not authorized
by the customer and to notify the bank of the relevant facts within
a reasonable time not exceeding 90 days after the date the customer
received notification from the bank that the order was accepted or
that the customer's account was debited with respect to the order.
The bank is not entitled to any recovery from the customer on account
of a failure by the customer to give notification as stated in this
section.
(b) Reasonable time under subdivision (a) may be fixed by
agreement as stated in subdivision (b) of Section 1302, but the
obligation of a receiving bank to refund payment as stated in
subdivision (a) may not otherwise be varied by agreement.
SEC. 76. Section 13104 of the Commercial Code is repealed.
SEC. 77. Section 55702 of the Food and Agricultural Code is
amended to read:
55702. (a) Except as otherwise provided in this section, any
person who sells or furnishes livestock to a meatpacker, shall have a
lien, not dependent upon possession, on the livestock and upon the
identifiable proceeds and products thereof, for the unpaid part of
the purchase price, or for the unpaid value of the livestock at the
time of the transfer of possession if no purchase price has been
agreed upon. The lien shall commence on the date of the transfer of
possession of the livestock to the meatpacker and shall have priority
over all other liens upon, and security interests in, the livestock
and the identifiable proceeds and products thereof, without regard to
the time of attachment or perfection of such other liens or security
interests and shall remain a lien upon the livestock and the
identifiable proceeds and products thereof notwithstanding sale,
exchange, or other disposition thereof.
(b) Notwithstanding the provisions of subdivision (a), a buyer in
the ordinary course of business, as that term is defined in paragraph
(9) of subdivision (b) of Section 1201 of the Commercial Code, shall
take free of such lien even though the buyer knows of the existence
of the lien.
(c) Notwithstanding the provisions of subdivision (a), the lien
shall cease to be of any force or effect after the expiration of 21
days from the date of delivery of the livestock unless a notice of
lien is filed pursuant to subdivision (e), in which case the lien
shall remain effective as long as such notice shall remain effective.
(d) No person shall have a lien pursuant to subdivision (a) to the
extent that the person shall have made the livestock available to
the meatpacker on credit terms.
(e) Any person selling or delivering livestock who claims a lien
under this article shall file a statement with the Secretary of State
and a copy thereof with the director, both within 21 days after
delivery of the
livestock to the meatpacker. The statement shall be in writing,
verified by the oath of the person filing, and shall contain all of
the following:
(1) The name and address of the person filing.
(2) A statement of the amount demanded by the person filing the
statement after deducting all credits and offsets.
(3) The name and address of the meatpacker who received the
livestock.
(4) A description of the livestock delivered to the meatpacker and
the date of delivery.
(5) A statement that the amount claimed is a true and bona fide
existing debt as of the date of the statement.
(6) A statement that the amount claimed is a true and bona fide
existing debt as of the date on which payment was due for the
livestock.
(f) Every statement that is filed shall be accompanied by the fees
required by Chapter 5 (commencing with Section 9501) of Division 9
of the Commercial Code in the case of a financing statement not on
the standard form and shall remain effective for a period of five
years from the date of filing.
SEC. 78. Section 7152 of the Government Code is amended to read:
7152. "Buyer in ordinary course of business" has the same meaning
as defined in paragraph (9) of subdivision (b) of Section 1201 of
the Commercial Code.
SEC. 79. Section 574 of the Penal Code is amended to read:
574. As used in this chapter, the following terms have the
following meanings:
(a) "Buyer" has the meaning set forth in subdivision (c) of
Section 2981 of the Civil Code.
(b) "Conditional sale contract" has the meaning set forth in
subdivision (a) of Section 2981 of the Civil Code. Notwithstanding
subdivision (k) of Section 2981 of the Civil Code, "conditional sale
contract" includes any contract for the sale or bailment of a motor
vehicle between a buyer and a seller primarily for business or
commercial purposes.
(c) "Direct loan agreement" means an agreement between a lender
and a purchaser whereby the lender has advanced funds pursuant to a
loan secured by the motor vehicle which the purchaser has purchased.
(d) "Lease contract" means a lease contract between a lessor and
lessee as this term and these parties are defined in Section 2985.7
of the Civil Code. Notwithstanding subdivision (d) of Section 2985.7
of the Civil Code, "lease contract" includes a lease for business or
commercial purposes.
(e) "Motor vehicle" means any vehicle required to be registered
under the Vehicle Code.
(f) "Person" means an individual, company, firm, association,
partnership, trust, corporation, limited liability company, or other
legal entity.
(g) "Purchaser" has the meaning set forth in paragraph (30) of
subdivision (b) of Section 1201 of the Commercial Code.
(h) "Security agreement" and "secured party" have the meanings set
forth, respectively, in paragraphs (73) and (72) of subdivision (a)
of Section 9102 of the Commercial Code. "Security interest" has the
meaning set forth in paragraph (35) of subdivision (b) of Section
1201 of the Commercial Code.
(i) "Seller" has the meaning set forth in subdivision (b) of
Section 2981 of the Civil Code, and includes the present holder of
the conditional sale contract.
SEC. 80. Section 49 of this act applies to a document of title
that is issued or a bailment that arises on or after January 1, 2007.
That section does not apply to a document of title that is issued or
a bailment that arises before January 1, 2007, even if the document
of title or bailment would be subject to that section if the document
of title had been issued or bailment had arisen on or after January
1, 2007. Section 49 of this act does not apply to a right of action
that has accrued before January 1, 2007.
SEC. 81. A document of title issued or a bailment that arises
before January 1, 2007, and the rights, obligations, and interests
flowing from that document or bailment are governed by any statute or
other rule amended or repealed by this act as if amendment or repeal
had not occurred and may be terminated, completed, consummated, or
enforced under that statute or other rule.