BILL NUMBER: SB 1591 CHAPTERED
BILL TEXT
CHAPTER 497
FILED WITH SECRETARY OF STATE SEPTEMBER 16, 1996
APPROVED BY GOVERNOR SEPTEMBER 14, 1996
PASSED THE SENATE AUGUST 29, 1996
PASSED THE ASSEMBLY AUGUST 22, 1996
AMENDED IN ASSEMBLY AUGUST 20, 1996
AMENDED IN ASSEMBLY JUNE 26, 1996
AMENDED IN SENATE MAY 15, 1996
INTRODUCED BY Senator Beverly
FEBRUARY 16, 1996
An act to add Section 1799.103 to the Civil Code, to amend
Sections 488.450, 697.740, and 700.130 of the Code of Civil
Procedure, to amend Sections 1105, 1206, 4104, 5114, 9103, 9105,
9106, 9203, 9301, 9302, 9304, 9305, 9306, 9309, 9312, 15103, and
15104 of, to add Sections 9115 and 9116 to, and to repeal and add
Division 8 (commencing with Section 8101) of, the Commercial Code, to
amend Sections 156.1, 166, 171.1, 174, and 191.1 of the Corporations
Code, and to amend Section 7151 of the Government Code, relating to
commercial law.
LEGISLATIVE COUNSEL'S DIGEST
SB 1591, Beverly. Commercial law.
Existing provisions of the Commercial Code govern securities, and
the relationships, rights, and duties of the issuers of and parties
that deal with certificated and uncertificated securities.
This bill would repeal those provisions and replace them with new
provisions concerning that subject. Among other things, the new
provisions would more specifically deal with the rights and duties of
securities intermediaries, and also revise provisions relating to
security interests in securities. This bill would make related
conforming changes.
This bill would incorporate additional changes to Section 9105 of
the Commercial Code made by Senate Bill 1599 and Senate Bill 2091,
and to Sections 1105, 9103, 9106, 9304 and 9305 of the Commercial
Code made by Senate Bill 1599.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1799.103 is added to the Civil Code, to read:
1799.103. No consumer credit contract or guarantee of a consumer
credit contract shall provide for a security interest in any
investment property, as defined in paragraph (f) of subdivision (1)
of Section 9115 of the Commercial Code, that is pledged as
collateral, unless (a) the contract either specifically identifies
the investment property as collateral or (b) the secured party is a
securities intermediary, as defined in paragraph (14) of subdivision
(a) of Section 8102 of the Commercial Code, or commodity
intermediary, as defined in paragraph (d) of subdivision (1) of
Section 9115 of the Commercial Code, with respect to the investment
property. The identification of an account shall include the name of
the holder, account number, and name of the institute holding the
investment property. In the event that a consumer credit contract or
guarantee does not comply with this section, the security interest
in the investment property is void.
SEC. 1.5. Section 488.450 of the Code of Civil Procedure is
amended to read:
488.450. To attach a security, the levying officer shall comply
with Section 8112 of the Commercial Code. The legal process referred
to in Section 8112 of the Commercial Code means the legal process
required by the state in which the chief executive office of the
issuer of the security is located and, where that state is
California, means personal service by the levying officer of a copy
of the writ of attachment and notice of attachment on the person who
is to be served.
SEC. 2. Section 697.740 of the Code of Civil Procedure is amended
to read:
697.740. Except as provided in Section 9504 of the Commercial
Code and in Section 701.630, if personal property subject to an
execution lien is not in the custody of a levying officer and the
property is transferred or encumbered, the property remains subject
to the lien after the transfer or encumbrance except where the
transfer or encumbrance is made to one of the following persons:
(a) A person who acquires an interest in the property under the
law of this state for reasonably equivalent value without knowledge
of the lien. For purposes of this subdivision, value is given for a
transfer or encumbrance if, in exchange for the transfer or
encumbrance, property is transferred or an antecedent debt is secured
or satisfied.
(b) A buyer in ordinary course of business (as defined in Section
1201 of the Commercial Code) who, under Section 9307 of the
Commercial Code, would take free of a security interest created by
the seller or encumbrancer.
(c) A lessee in ordinary course of business (as defined in
paragraph (15) of subdivision (a) of Section 10103 of the Commercial
Code) who, under subdivision (c) of Section 10307 of the Commercial
Code, would take free of a security interest created by the lessor.
(d) A holder in due course (as defined in Section 3302 of the
Commercial Code) of a negotiable instrument within the meaning of
Section 3104 of the Commercial Code.
(e) A holder to whom a negotiable document of title has been duly
negotiated within the meaning of Section 7501 of the Commercial Code.
(f) A protected purchaser (as defined in Section 8303 of the
Commercial Code) of a security.
(g) A purchaser of chattel paper or an instrument who gives new
value and takes possession of the chattel paper or instrument in the
ordinary course of business.
(h) A holder of a purchase money security interest (as defined in
Section 9107 of the Commercial Code).
(i) A collecting bank holding a security interest in items being
collected, accompanying documents and proceeds, pursuant to Section
4210 of the Commercial Code.
(j) A person who acquires any right or interest in letters of
credit, advices of credit, or money.
(k) A person who acquires any right or interest in property
subject to a certificate of title statute of another jurisdiction
under the law of which indication of a security interest on the
certificate of title is required as a condition of perfection of the
security interest.
SEC. 3. Section 700.130 of the Code of Civil Procedure is amended
to read:
700.130. To levy upon a security, the levying officer shall
comply with Section 8112 of the Commercial Code. The legal process
referred to in Section 8112 of the Commercial Code means the legal
process required by the state in which the chief executive office of
the issuer of the security is located and, where that state is
California, means personal service by the levying officer of a copy
of the writ of execution and notice of levy on the person who is to
be served.
SEC. 4. Section 1105 of the Commercial Code is amended to read:
1105. (1) Except as provided hereafter in this section, when a
transaction bears a reasonable relation to this state and also to
another state or nation the parties may agree that the law either of
this state or of such other state or nation shall govern their rights
and duties. Failing such agreement this code applies to
transactions bearing an appropriate relation to this state.
(2) Where one of the following provisions of this code specifies
the applicable law, that provision governs and a contrary agreement
is effective only to the extent permitted by the law (including the
conflict of laws rules) so specified:
Rights of creditors against sold goods. Section 2402.
Applicability of the division on leases. Sections 10105 and
10106.
Applicability of the division on bank deposits and collections.
Section 4102.
Letters of credit. Section 5116.
Bulk sales subject to the division on bulk sales. Section 6103.
Applicability of the division on investment securities. Section
8110.
Perfection provisions of the division on secured transactions.
Section 9103.
SEC. 5. Section 1206 of the Commercial Code is amended to read:
1206. (1) Except in the cases described in subdivision (2) of
this section 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 writing
which 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 by the party against whom enforcement
is sought or by his or her authorized agent.
(2) Subdivision (1) of this section does not apply to contracts
for the sale of goods (Section 2201) nor of securities (Section 8113)
nor to security agreements (Section 9203).
SEC. 6. 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) "Clearing house" means an association of banks or other payors
regularly clearing items.
(5) "Customer" means a person having an account with a bank or for
whom a bank has agreed to collect items, including a bank that
maintains an account at another bank.
(6) "Documentary draft" means a draft to be presented for
acceptance or payment if specified documents, certificated securities
(Section 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 presentment" Section 4110
"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
"Good faith" Section 3103
"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. 7. Section 5114 of the Commercial Code is amended to read:
5114. (1) An issuer must honor a draft or demand for payment that
complies with the terms of the relevant credit regardless of whether
the goods or documents conform to the underlying contract for sale
or other contract between the customer and the beneficiary. The
issuer is not excused from honor of the draft or demand by reason of
an additional general term that all documents must be satisfactory to
the issuer, but an issuer may require that specified documents must
be satisfactory to it.
(2) Unless otherwise agreed, when documents appear on their face
to comply with the terms of a credit but a required document does not
in fact conform to the warranties made on the negotiation or
transfer of a document of title (Section 7507) or of a certificated
security (Section 8108) or is forged or fraudulent or there is fraud
in the transaction:
(a) The issuer must honor the draft or demand for payment if honor
is demanded by a negotiating bank or other holder of the draft or
demand which has taken the draft or demand under the credit and under
circumstances which would make it a holder in due course (Section
3302) and in an appropriate case would make it a person to whom a
document of title has been duly negotiated (Section 7501) or a bona
fide purchaser of a certificated security (Section 8302).
(b) In all other cases as against its customer, an issuer acting
in good faith may honor the draft or demand for payment despite
notification from the customer of fraud, forgery or other defect not
apparent on the face of the documents.
(3) Unless otherwise agreed, an issuer which has duly honored a
draft or demand for payment is entitled to immediate reimbursement of
any payment made under the credit and to be put in effectively
available funds not later than the day before maturity of any
acceptance made under the credit.
SEC. 8. Division 8 (commencing with Section 8101) of the
Commercial Code is repealed.
SEC. 9. Division 8 (commencing with Section 8101) is added to the
Commercial Code, to read:
DIVISION 8. INVESTMENT SECURITIES
CHAPTER 1. SHORT TITLE AND GENERAL MATTERS
8101. This division may be cited as Uniform Commercial
Code--Investment Securities.
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) "Good faith," for purposes of the obligation of good faith in
the performance or enforcement of contracts or duties within this
division, means honesty in fact and the observance of reasonable
commercial standards of fair dealing.
(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.
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 Section 9115, is not a
security or a financial asset.
8104. (a) A person acquires a security or an interest therein,
under this division, if either of the following applies:
(1) The person is a purchaser to whom a security is delivered
pursuant to Section 8301; or
(2) The person acquires a security entitlement to the security
pursuant to Section 8501.
(b) A person acquires a financial asset, other than a security, or
an interest therein, under this division, if the person acquires a
security entitlement to the financial asset.
(c) A person who acquires a security entitlement to a security or
other financial asset has the rights specified in Chapter 5
(commencing with Section 8501), but is a purchaser of any security,
security entitlement, or other financial asset held by the securities
intermediary only to the extent provided in Section 8503.
(d) Unless the context shows that a different meaning is intended,
a person who is required by other law, regulation, rule, or
agreement to transfer, deliver, present, surrender, exchange, or
otherwise put in the possession of another person a security or
financial asset satisfies that requirement by causing the other
person to acquire an interest in the security or financial asset
pursuant to subdivision (a) or (b).
8105. (a) A person has notice of an adverse claim if any of the
following applies:
(1) The person knows of the adverse claim.
(2) The person is aware of facts sufficient to indicate that there
is a significant probability that the adverse claim exists and
deliberately avoids information that would establish the existence of
the adverse claim.
(3) The person has a duty, imposed by statute or regulation, to
investigate whether an adverse claim exists, and the investigation so
required would establish the existence of the adverse claim.
(b) Having knowledge that a financial asset or interest therein is
or has been transferred by a representative imposes no duty of
inquiry into the rightfulness of a transaction and is not notice of
an adverse claim. However, a person who knows that a representative
has transferred a financial asset or interest therein in a
transaction that is, or whose proceeds are being used, for the
individual benefit of the representative or otherwise in breach of
duty has notice of an adverse claim.
(c) An act or event that creates a right to immediate performance
of the principal obligation represented by a security certificate or
sets a date on or after which the certificate is to be presented or
surrendered for redemption or exchange does not itself constitute
notice of an adverse claim except in the case of a transfer more than
either of the following:
(1) One year after a date set for presentment or surrender for
redemption or exchange.
(2) Six months after a date set for payment of money against
presentation or surrender of the certificate, if money was available
for payment on that date.
(d) A purchaser of a certificated security has notice of an
adverse claim if the security certificate is any of the following:
(1) Whether in bearer or registered form, has been endorsed "for
collection" or "for surrender" or for some other purpose not
involving transfer.
(2) Is in bearer form and has on it an unambiguous statement that
it is the property of a person other than the transferor, but the
mere writing of a name on the certificate is not such a statement.
(e) Filing of a financing statement under Division 9 (commencing
with Section 9101) is not notice of an adverse claim to a financial
asset.
8106. (a) A purchaser has "control" of a certificated security in
bearer form if the certificated security is delivered to the
purchaser.
(b) A purchaser has "control" of a certificated security in
registered form if the certificated security is delivered to the
purchaser, and either of the following applies:
(1) The certificate is endorsed to the purchaser or in blank by an
effective endorsement.
(2) The certificate is registered in the name of the purchaser,
upon original issue or registration of transfer by the issuer.
(c) A purchaser has "control" of an uncertificated security if
either of the following applies:
(1) The uncertificated security is delivered to the purchaser; or
(2) The issuer has agreed that it will comply with instructions
originated by the purchaser without further consent by the registered
owner.
(d) A purchaser has "control" of a security entitlement if either
of the following applies:
(1) The purchaser becomes the entitlement holder.
(2) The securities intermediary has agreed that it will comply
with entitlement orders originated by the purchaser without further
consent by the entitlement holder.
(e) If an interest in a security entitlement is granted by the
entitlement holder to the entitlement holder's own securities
intermediary, the securities intermediary has control.
(f) A purchaser who has satisfied the requirements of paragraph
(2) of subdivision (c) or paragraph (2) of subdivision (d) has
control even if the registered owner in the case of paragraph (2) of
subdivision (c) or the entitlement holder in the case of paragraph
(2) of subdivision (d) retains the right to make substitutions for
the uncertificated security or security entitlement, to originate
instructions or entitlement orders to the issuer or securities
intermediary, or otherwise to deal with the uncertificated security
or security entitlement.
(g) An issuer or a securities intermediary may not enter into an
agreement of the kind described in paragraph (2) of subdivision (c)
or paragraph (2) of subdivision (d) without the consent of the
registered owner or entitlement holder, but an issuer or a securities
intermediary is not required to enter into such an agreement even
though the registered owner or entitlement holder so directs. An
issuer or securities intermediary that has entered into such an
agreement is not required
to confirm the existence of the agreement to another party unless
requested to do so by the registered owner or entitlement holder.
8107. (a) "Appropriate person" means any of the following:
(1) With respect to an endorsement, the person specified by a
security certificate or by an effective special endorsement to be
entitled to the security.
(2) With respect to an instruction, the registered owner of an
uncertificated security.
(3) With respect to an entitlement order, the entitlement holder.
(4) If the person designated in paragraph (1), (2), or (3) is
deceased, the designated person's successor taking under other law or
the designated person's personal representative acting for the
estate of the decedent.
(5) If the person designated in paragraph (1), (2), or (3) lacks
capacity, the designated person's guardian, conservator, or other
similar representative who has power under other law to transfer the
security or financial asset.
(b) An endorsement, instruction, or entitlement order is effective
if it is made by any of the following:
(1) It is made by the appropriate person.
(2) It is made by a person who has power under the law of agency
to transfer the security or financial asset on behalf of the
appropriate person, including, in the case of an instruction or
entitlement order, a person who has control under paragraph (2) of
subdivision (c) or paragraph (2) of subdivision (d) of Section 8106.
(3) The appropriate person has ratified it or is otherwise
precluded from asserting its ineffectiveness.
(c) An endorsement, instruction, or entitlement order made by a
representative is effective even if:
(1) The representative has failed to comply with a controlling
instrument or with the law of the state having jurisdiction of the
representative relationship, including any law requiring the
representative to obtain court approval of the transaction.
(2) The representative's action in making the endorsement,
instruction, or entitlement order or using the proceeds of the
transaction is otherwise a breach of duty.
(d) If a security is registered in the name of or specially
endorsed to a person described as a representative, or if a
securities account is maintained in the name of a person described as
a representative, an endorsement, instruction, or entitlement order
made by the person is effective even though the person is no longer
serving in the described capacity.
(e) Effectiveness of an endorsement, instruction, or entitlement
order is determined as of the date the endorsement, instruction, or
entitlement order is made, and an endorsement, instruction, or
entitlement order does not become ineffective by reason of any later
change of circumstances.
8108. (a) A person who transfers a certificated security to a
purchaser for value warrants to the purchaser, and an endorser, if
the transfer is by endorsement, warrants to any subsequent purchaser,
all of the following:
(1) The certificate is genuine and has not been materially
altered.
(2) The transferor or endorser does not know of any fact that
might impair the validity of the security.
(3) There is no adverse claim to the security.
(4) The transfer does not violate any restriction on transfer.
(5) If the transfer is by endorsement, the endorsement is made by
an appropriate person, or if the endorsement is by an agent, the
agent has actual authority to act on behalf of the appropriate
person.
(6) The transfer is otherwise effective and rightful.
(b) A person who originates an instruction for registration of
transfer of an uncertificated security to a purchaser for value
warrants to the purchaser all of the following:
(1) The instruction is made by an appropriate person, or if the
instruction is by an agent, the agent has actual authority to act on
behalf of the appropriate person.
(2) The security is valid.
(3) There is no adverse claim to the security.
(4) At the time the instruction is presented to the issuer, all of
the following will be applicable:
(A) The purchaser will be entitled to the registration of
transfer.
(B) The transfer will be registered by the issuer free from all
liens, security interests, restrictions, and claims other than those
specified in the instruction.
(C) The transfer will not violate any restriction on transfer.
(D) The requested transfer will otherwise be effective and
rightful.
(c) A person who transfers an uncertificated security to a
purchaser for value and does not originate an instruction in
connection with the transfer warrants all of the following:
(1) The uncertificated security is valid.
(2) There is no adverse claim to the security.
(3) The transfer does not violate any restriction on transfer.
(4) The transfer is otherwise effective and rightful.
(d) A person who endorses a security certificate warrants all of
the following to the issuer:
(1) There is no adverse claim to the security.
(2) The endorsement is effective.
(e) A person who originates an instruction for registration of
transfer of an uncertificated security warrants all of the following
to the issuer:
(1) The instruction is effective.
(2) At the time the instruction is presented to the issuer the
purchaser will be entitled to the registration of transfer.
(f) A person who presents a certificated security for registration
of transfer or for payment or exchange warrants to the issuer that
the person is entitled to the registration, payment, or exchange, but
a purchaser for value and without notice of adverse claims to whom
transfer is registered warrants only that the person has no knowledge
of any unauthorized signature in a necessary endorsement.
(g) If a person acts as agent of another in delivering a
certificated security to a purchaser, the identity of the principal
was known to the person to whom the certificate was delivered, and
the certificate delivered by the agent was received by the agent from
the principal or received by the agent from another person at the
direction of the principal, the person delivering the security
certificate warrants only that the delivering person has authority to
act for the principal and does not know of any adverse claim to the
certificated security.
(h) A secured party who redelivers a security certificate
received, or after payment and on order of the debtor delivers the
security certificate to another person, makes only the warranties of
an agent under subdivision (g).
(i) Except as otherwise provided in subdivision (g), a broker
acting for a customer makes to the issuer and a purchaser the
warranties provided in subdivisions (a) to (f), inclusive. A broker
that delivers a security certificate to its customer, or causes its
customer to be registered as the owner of an uncertificated security,
makes to the customer the warranties provided in subdivision (a) or
(b), and has the rights and privileges of a purchaser under this
section. The warranties of and in favor of the broker acting as an
agent are in addition to applicable warranties given by and in favor
of the customer.
8109. (a) A person who originates an entitlement order to a
securities intermediary warrants all of the following to the
securities intermediary:
(1) The entitlement order is made by an appropriate person, or if
the entitlement order is by an agent, the agent has actual authority
to act on behalf of the appropriate person.
(2) There is no adverse claim to the security entitlement.
(b) A person who delivers a security certificate to a securities
intermediary for credit to a securities account or originates an
instruction with respect to an uncertificated security directing that
the uncertificated security be credited to a securities account
makes to the securities intermediary the warranties specified in
subdivision (a) or (b) of Section 8108.
(c) If a securities intermediary delivers a security certificate
to its entitlement holder or causes its entitlement holder to be
registered as the owner of an uncertificated security, the securities
intermediary makes to the entitlement holder the warranties
specified in subdivision (a) or (b) of Section 8108.
8110. (a) The local law of the issuer's jurisdiction, as
specified in subdivision (d), governs the following:
(1) The validity of a security.
(2) The rights and duties of the issuer with respect to
registration of transfer.
(3) The effectiveness of registration of transfer by the issuer.
(4) Whether the issuer owes any duties to an adverse claimant to a
security.
(5) Whether an adverse claim can be asserted against a person to
whom transfer of a certificated or uncertificated security is
registered or a person who obtains control of an uncertificated
security.
(b) The local law of the securities intermediary's jurisdiction,
as specified in subdivision (e), governs the following:
(1) Acquisition of a security entitlement from the securities
intermediary.
(2) The rights and duties of the securities intermediary and
entitlement holder arising out of a security entitlement.
(3) Whether the securities intermediary owes any duties to an
adverse claimant to a security entitlement.
(4) Whether an adverse claim can be asserted against a person who
acquires a security entitlement from the securities intermediary or a
person who purchases a security entitlement or interest therein from
an entitlement holder.
(c) The local law of the jurisdiction in which a security
certificate is located at the time of delivery governs whether an
adverse claim can be asserted against a person to whom the security
certificate is delivered.
(d) "Issuer's jurisdiction" means the jurisdiction under which the
issuer of the security is organized or, if permitted by the law of
that jurisdiction, the law of another jurisdiction specified by the
issuer. An issuer organized under the law of this state may specify
the law of another jurisdiction as the law governing the matters
specified in paragraphs (2) to (5), inclusive, of subdivision (a).
(e) The following rules determine a "securities intermediary's
jurisdiction" for purposes of this section:
(1) If an agreement between the securities intermediary and its
entitlement holder specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the securities
intermediary's jurisdiction.
(2) If an agreement between the securities intermediary and its
entitlement holder does not specify the governing law as provided in
paragraph (1), but expressly specifies that the securities account is
maintained at an office in a particular jurisdiction, that
jurisdiction is the securities intermediary's jurisdiction.
(3) If an agreement between the securities intermediary and its
entitlement holder does not specify a jurisdiction as provided in
paragraph (1) or (2), the securities intermediary's jurisdiction is
the jurisdiction in which is located the office identified in an
account statement as the office serving the entitlement holder's
account.
(4) If an agreement between the securities intermediary and its
entitlement holder does not specify a jurisdiction as provided in
paragraph (1) or (2) and an account statement does not identify an
office serving the entitlement holder's account as provided in
paragraph (3), the securities intermediary's jurisdiction is the
jurisdiction in which is located the chief executive office of the
securities intermediary.
(f) A securities intermediary's jurisdiction is not determined by
the physical location of certificates representing financial assets,
or by the jurisdiction in which is organized the issuer of the
financial asset with respect to which an entitlement holder has a
security entitlement, or by the location of facilities for data
processing or other record keeping concerning the account.
8111. A rule adopted by a clearing corporation governing rights
and obligations among the clearing corporation and its participants
in the clearing corporation is effective even if the rule conflicts
with this division and affects another party who does not consent to
the rule.
8112. (a) The interest of a debtor in a certificated security may
be reached by a creditor only by actual seizure of the security
certificate by the officer making the attachment or levy, except as
otherwise provided in subdivision (d). However, a certificated
security for which the certificate has been surrendered to the issuer
may be reached by a creditor by legal process upon the issuer.
(b) The interest of a debtor in an uncertificated security may be
reached by a creditor only by legal process upon the issuer at its
chief executive office in the United States, except as otherwise
provided in subdivision (d).
(c) The interest of a debtor in a security entitlement may be
reached by a creditor only by legal process upon the securities
intermediary with whom the debtor's securities account is maintained,
except as otherwise provided in subdivision (d).
(d) The interest of a debtor in a certificated security for which
the certificate is in the possession of a secured party, or in an
uncertificated security registered in the name of a secured party, or
a security entitlement maintained in the name of a secured party,
may be reached by a creditor by legal process upon the secured party.
(e) A creditor whose debtor is the owner of a certificated
security, uncertificated security, or security entitlement is
entitled to aid from a court of competent jurisdiction, by injunction
or otherwise, in reaching the certificated security, uncertificated
security, or security entitlement or in satisfying the claim by means
allowed at law or in equity in regard to property that cannot
readily be reached by other legal process.
8113. A contract or modification of a contract for the sale or
purchase of a security is enforceable whether or not there is a
writing signed or record authenticated by a party against whom
enforcement is sought, even if the contract or modification is not
capable of performance within one year of its making.
8114. The following rules apply in an action on a certificated
security against the issuer:
(a) Unless specifically denied in the pleadings, each signature on
a security certificate or in a necessary endorsement is admitted.
(b) If the effectiveness of a signature is put in issue, the
burden of establishing effectiveness is on the party claiming under
the signature, but the signature is presumed to be genuine or
authorized.
(c) If signatures on a security certificate are admitted or
established, production of the certificate entitles a holder to
recover on it unless the defendant establishes a defense or a defect
going to the validity of the security.
(d) If it is shown that a defense or defect exists, the plaintiff
has the burden of establishing that the plaintiff or some person
under whom the plaintiff claims is a person against whom the defense
or defect cannot be asserted.
8115. A securities intermediary that has transferred a financial
asset pursuant to an effective entitlement order, or a broker or
other agent or bailee that has dealt with a financial asset at the
direction of its customer or principal, is not liable to a person
having an adverse claim to the financial asset, unless the securities
intermediary, or broker or other agent or bailee did one or more of
the following:
(1) Took the action after it had been served with an injunction,
restraining order, or other legal process enjoining it from doing so,
issued by a court of competent jurisdiction, and had a reasonable
opportunity to act on the injunction, restraining order, or other
legal process.
(2) Acted in collusion with the wrongdoer in violating the rights
of the adverse claimant.
(3) In the case of a security certificate that has been stolen,
acted with notice of the adverse claim.
8116. A securities intermediary that receives a financial asset
and establishes a security entitlement to the financial asset in
favor of an entitlement holder is a purchaser for value of the
financial asset. A securities intermediary that acquires a security
entitlement to a financial asset from another securities intermediary
acquires the security entitlement for value if the securities
intermediary acquiring the security entitlement establishes a
security entitlement to the financial asset in favor of an
entitlement holder.
CHAPTER 2. ISSUE AND ISSUER
8201. (a) With respect to an obligation on or a defense to a
security, an "issuer" includes a person that does any of the
following:
(1) Places or authorizes the placing of its name on a security
certificate, other than as authenticating trustee, registrar,
transfer agent, or the like, to evidence a share, participation, or
other interest in its property or in an enterprise, or to evidence
its duty to perform an obligation represented by the certificate.
(2) Creates a share, participation, or other interest in its
property or in an enterprise, or undertakes an obligation, that is an
uncertificated security.
(3) Directly or indirectly creates a fractional interest in its
rights or property, if the fractional interest is represented by a
security certificate.
(4) Becomes responsible for, or in place of, another person
described as an issuer in this section.
(b) With respect to an obligation on or defense to a security, a
guarantor is an issuer to the extent of its guaranty, whether or not
its obligation is noted on a security certificate.
(c) With respect to a registration of a transfer, issuer means a
person on whose behalf transfer books are maintained.
8202. (a) Even against a purchaser for value and without notice,
the terms of a certificated security include terms stated on the
certificate and terms made part of the security by reference on the
certificate to another instrument, indenture, or document or to a
constitution, statute, ordinance, rule, regulation, order, or the
like, to the extent the terms referred to do not conflict with terms
stated on the certificate. A reference under this subdivision does
not of itself charge a purchaser for value with notice of a defect
going to the validity of the security, even if the certificate
expressly states that a person accepting it admits notice. The terms
of an uncertificated security include those stated in any
instrument, indenture, or document or in a constitution, statute,
ordinance, rule, regulation, order, or the like, pursuant to which
the security is issued.
(b) The following rules apply if an issuer asserts that a security
is not valid:
(1) A security other than one issued by a government or
governmental subdivision, agency, or instrumentality, even though
issued with a defect going to its validity, is valid in the hands of
a purchaser for value and without notice of the particular defect
unless the defect involves a violation of a constitutional provision.
In that case, the security is valid in the hands of a purchaser for
value and without notice of the defect, other than one who takes by
original issue.
(2) Paragraph (1) applies to an issuer that is a government or
governmental subdivision, agency, or instrumentality only if there
has been substantial compliance with the legal requirements governing
the issue or the issuer has received a substantial consideration for
the issue as a whole or for the particular security and a stated
purpose of the issue is one for which the issuer has power to borrow
money or issue the security.
(c) Except as otherwise provided in Section 8205, lack of
genuineness of a certificated security is a complete defense, even
against a purchaser for value and without notice.
(d) All other defenses of the issuer of a security, including
nondelivery and conditional delivery of a certificated security, are
ineffective against a purchaser for value who has taken the
certificated security without notice of the particular defense.
(e) This section does not affect the right of a party to cancel a
contract for a security "when, as and if issued" or "when distributed"
in the event of a material change in the character of the security
that is the subject of the contract or in the plan or arrangement
pursuant to which the security is to be issued or distributed.
(f) If a security is held by a securities intermediary against
whom an entitlement holder has a security entitlement with respect to
the security, the issuer may not assert any defense that the issuer
could not assert if the entitlement holder held the security
directly.
8203. After an act or event, other than a call that has been
revoked, creating a right to immediate performance of the principal
obligation represented by a certificated security or setting a date
on or after which the security is to be presented or surrendered for
redemption or exchange, a purchaser is charged with notice of any
defect in its issue or defense of the issuer, if the act or event
either:
(1) Requires the payment of money, the delivery of a certificated
security, the registration of transfer of an uncertificated security,
or any of them on presentation or surrender of the security
certificate, the money or security is available on the date set for
payment or exchange, and the purchaser takes the security more than
one year after that date.
(2) Is not covered by paragraph (1) and the purchaser takes the
security more than two years after the date set for surrender or
presentation or the date on which performance became due.
8204. A restriction on transfer of a security imposed by the
issuer, even if otherwise lawful, is ineffective against a person
without knowledge of the restriction unless either of the following
applies:
(1) The security is certificated and the restriction is noted
conspicuously on the security certificate.
(2) The security is uncertificated and the registered owner has
been notified of the restriction.
8205. An unauthorized signature placed on a security certificate
before or in the course of issue is ineffective, but the signature is
effective in favor of a purchaser for value of the certificated
security if the purchaser is without notice of the lack of authority
and the signing has been done by one of the following:
(1) An authenticating trustee, registrar, transfer agent, or other
person entrusted by the issuer with the signing of the security
certificate or of similar security certificates, or the immediate
preparation for signing of any of them.
(2) An employee of the issuer, or of any of the persons listed in
paragraph (1), entrusted with responsible handling of the security
certificate.
8206. (a) If a security certificate contains the signatures
necessary to its issue or transfer but is incomplete in any other
respect, the following apply:
(1) Any person may complete it by filling in the blanks as
authorized.
(2) Even if the blanks are incorrectly filled in, the security
certificate as completed is enforceable by a purchaser who took it
for value and without notice of the incorrectness.
(b) A complete security certificate that has been improperly
altered, even if fraudulently, remains enforceable, but only
according to its original terms.
8207. (a) Before due presentment for registration of transfer of
a certificated security in registered form or of an instruction
requesting registration of transfer of an uncertificated security,
the issuer or indenture trustee may treat the registered owner as the
person exclusively entitled to vote, receive notifications, and
otherwise exercise all the rights and powers of an owner.
(b) This division does not affect the liability of the registered
owner of a security for a call, assessment, or the like.
8208. (a) A person signing a security certificate as
authenticating trustee, registrar, transfer agent, or the like,
warrants all of the following to a purchaser for value of the
certificated security, if the purchaser is without notice of a
particular defect:
(1) The certificate is genuine.
(2) The person's own participation in the issue of the security is
within the person's capacity and within the scope of the authority
received by the person from the issuer.
(3) The person has reasonable grounds to believe that the
certificated security is in the form and within the amount the issuer
is authorized to issue.
(b) Unless otherwise agreed, a person signing under subdivision
(a) does not assume responsibility for the validity of the security
in other respects.
8209. A lien in favor of an issuer upon a certificated security
is valid against a purchaser only if the right of the issuer to the
lien is noted conspicuously on the security certificate.
8210. (a) In this section, "overissue" means the issue of
securities in excess of the amount the issuer has corporate power to
issue, but an overissue does not occur if appropriate action has
cured the overissue.
(b) Except as otherwise provided in subdivisions (c) and (d), the
provisions of this division that validate a security or compel its
issue or reissue do not apply to the extent that validation, issue,
or reissue would result in overissue.
(c) If an identical security not constituting an overissue is
reasonably available for purchase, a person entitled to issue or
validation may compel the issuer to purchase the security and deliver
it if certificated or register its transfer if uncertificated,
against surrender of any security certificate the person holds.
(d) If a security is not reasonably available for purchase, a
person entitled to issue or validation may recover from the issuer
the price the person or the last purchaser for value paid for it with
interest from the date of the person's demand.
CHAPTER 3. TRANSFER OF CERTIFICATED AND UNCERTIFICATED
SECURITIES
8301. (a) Delivery of a certificated security to a purchaser
occurs when any of the following occur:
(1) The purchaser acquires possession of the security certificate.
(2) Another person, other than a securities intermediary, either
acquires possession of the security certificate on behalf of the
purchaser or, having previously acquired possession of the
certificate, acknowledges that it holds for the purchaser.
(3) A securities intermediary acting on behalf of the purchaser
acquires possession of the security certificate, only if the
certificate is in registered form and has been specially endorsed to
the purchaser by an effective endorsement.
(b) Delivery
of an uncertificated security to a purchaser occurs when any of the
following occur:
(1) The issuer registers the purchaser as the registered owner,
upon original issue or registration of transfer.
(2) Another person, other than a securities intermediary, either
becomes the registered owner of the uncertificated security on behalf
of the purchaser or, having previously become the registered owner,
acknowledges that it holds for the purchaser.
8302. (a) Except as otherwise provided in subdivisions (b) and
(c), upon delivery of a certificated or uncertificated security to a
purchaser, the purchaser acquires all rights in the security that the
transferor had or had power to transfer.
(b) A purchaser of a limited interest acquires rights only to the
extent of the interest purchased.
(c) A purchaser of a certificated security who as a previous
holder had notice of an adverse claim does not improve its position
by taking from a protected purchaser.
8303. (a) "Protected purchaser" means a purchaser of a
certificated or uncertificated security, or of an interest therein,
who does all of the following:
(1) Gives value.
(2) Does not have notice of any adverse claim to the security.
(3) Obtains control of the certificated or uncertificated
security.
(b) In addition to acquiring the rights of a purchaser, a
protected purchaser also acquires its interest in the security free
of any adverse claim.
8304. (a) An endorsement may be in blank or special. An
endorsement in blank includes an endorsement to bearer. A special
endorsement specifies to whom a security is to be transferred or who
has power to transfer it. A holder may convert a blank endorsement
to a special endorsement.
(b) An endorsement purporting to be only of part of a security
certificate representing units intended by the issuer to be
separately transferable is effective to the extent of the
endorsement.
(c) An endorsement, whether special or in blank, does not
constitute a transfer until delivery of the certificate on which it
appears or, if the endorsement is on a separate document, until
delivery of both the document and the certificate.
(d) If a security certificate in registered form has been
delivered to a purchaser without a necessary endorsement, the
purchaser may become a protected purchaser only when the endorsement
is supplied. However, against a transferor, a transfer is complete
upon delivery and the purchaser has a specifically enforceable right
to have any necessary endorsement supplied.
(e) An endorsement of a security certificate in bearer form may
give notice of an adverse claim to the certificate, but it does not
otherwise affect a right to registration that the holder possesses.
(f) Unless otherwise agreed, a person making an endorsement
assumes only the obligations provided in Section 8108 and not an
obligation that the security will be honored by the issuer.
8305. (a) If an instruction has been originated by an appropriate
person but is incomplete in any other respect, any person may
complete it as authorized and the issuer may rely on it as completed,
even though it has been completed incorrectly.
(b) Unless otherwise agreed, a person initiating an instruction
assumes only the obligations imposed by Section 8108 and not an
obligation that the security will be honored by the issuer.
8306. (a) A person who guarantees a signature of an endorser of a
security certificate warrants that at the time of signing all of the
following were true:
(1) The signature was genuine.
(2) The signer was an appropriate person to endorse, or if the
signature is by an agent, the agent had actual authority to act on
behalf of the appropriate person.
(3) The signer had legal capacity to sign.
(b) A person who guarantees a signature of the originator of an
instruction warrants that at the time of signing all of the following
were true:
(1) The signature was genuine.
(2) The signer was an appropriate person to originate the
instruction, or if the signature is by an agent, the agent had actual
authority to act on behalf of the appropriate person, if the person
specified in the instruction as the registered owner was, in fact,
the registered owner, as to which fact the signature guarantor does
not make a warranty.
(3) The signer had legal capacity to sign.
(c) A person who specially guarantees the signature of an
originator of an instruction makes the warranties of a signature
guarantor under subdivision (b) and also warrants that at the time
the instruction is presented to the issuer all of the following are
true:
(1) The person specified in the instruction as the registered
owner of the uncertificated security will be the registered owner.
(2) The transfer of the uncertificated security requested in the
instruction will be registered by the issuer free from all liens,
security interests, restrictions, and claims other than those
specified in the instruction.
(d) A guarantor under subdivisions (a) and (b) or a special
guarantor under subdivision (c) does not otherwise warrant the
rightfulness of the transfer.
(e) A person who guarantees an endorsement of a security
certificate makes the warranties of a signature guarantor under
subdivision (a) and also warrants the rightfulness of the transfer in
all respects.
(f) A person who guarantees an instruction requesting the transfer
of an uncertificated security makes the warranties of a special
signature guarantor under subdivision (c) and also warrants the
rightfulness of the transfer in all respects.
(g) An issuer may not require a special guaranty of signature, a
guaranty of endorsement, or a guaranty of instruction as a condition
to registration of transfer.
(h) The warranties under this section are made to a person taking
or dealing with the security in reliance on the guaranty, and the
guarantor is liable to the person for loss resulting from their
breach. An endorser or originator of an instruction whose signature,
endorsement, or instruction has been guaranteed is liable to a
guarantor for any loss suffered by the guarantor as a result of
breach of the warranties of the guarantor.
8307. Unless otherwise agreed, the transferor of a security on
due demand shall supply the purchaser with proof of authority to
transfer or with any other requisite necessary to obtain registration
of the transfer of the security, but if the transfer is not for
value, a transferor need not comply unless the purchaser pays the
necessary expenses. If the transferor fails within a reasonable time
to comply with the demand, the purchaser may reject or rescind the
transfer.
CHAPTER 4. REGISTRATION
8401. (a) If a certificated security in registered form is
presented to an issuer with a request to register transfer or an
instruction is presented to an issuer with a request to register
transfer of an uncertificated security, the issuer shall register the
transfer as requested if the following conditions are met:
(1) Under the terms of the security the person seeking
registration of transfer is eligible to have the security registered
in its name.
(2) The endorsement or instruction is made by the appropriate
person or by an agent who has actual authority to act on behalf of
the appropriate person.
(3) Reasonable assurance is given that the endorsement or
instruction is genuine and authorized (Section 8402).
(4) Any applicable law relating to the collection of taxes has
been complied with.
(5) The transfer does not violate any restriction on transfer
imposed by the issuer in accordance with Section 8204.
(6) A demand that the issuer not register transfer has not become
effective under Section 8403, or the issuer has complied with
subdivision (b) of Section 8403 but no legal process or indemnity
bond is obtained as provided in subdivision (d) of Section 8403.
(7) The transfer is in fact rightful or is to a protected
purchaser.
(b) If an issuer is under a duty to register a transfer of a
security, the issuer is liable to a person presenting a certificated
security or an instruction for registration or to the person's
principal for loss resulting from unreasonable delay in registration
or failure or refusal to register the transfer.
8402. (a) An issuer may require the following assurance that each
necessary endorsement or each instruction is genuine and authorized:
(1) In all cases, a guaranty of the signature of the person making
an endorsement or originating an instruction including, in the case
of an instruction, reasonable assurance of identity.
(2) If the endorsement is made or the instruction is originated by
an agent, appropriate assurance of actual authority to sign.
(3) If the endorsement is made or the instruction is originated by
a fiduciary pursuant to paragraph (4) or (5) of Section 8107,
appropriate evidence of appointment or incumbency.
(4) If there is more than one fiduciary, reasonable assurance that
all who are required to sign have done so.
(5) If the endorsement is made or the instruction is originated by
a person not covered by another provision of this subdivision,
assurance appropriate to the case corresponding as nearly as may be
to the provisions of this subdivision.
(b) An issuer may elect to require reasonable assurance beyond
that specified in this section.
(c) In this section:
(1) "Guaranty of the signature" means a guaranty signed by or on
behalf of a person reasonably believed by the issuer to be
responsible. An issuer may adopt standards with respect to
responsibility if they are not manifestly unreasonable.
(2) "Appropriate evidence of appointment or incumbency" means:
(A) In the case of a fiduciary appointed or qualified by a court,
a certificate issued by or under the direction or supervision of the
court or an officer thereof and dated within 60 days before the date
of presentation for transfer.
(B) In any other case, a copy of a document showing the
appointment or a certificate issued by or on behalf of a person
reasonably believed by an issuer to be responsible or, in the absence
of that document or certificate, other evidence the issuer
reasonably considers appropriate.
8403. (a) A person who is an appropriate person to make an
endorsement or originate an instruction may demand that the issuer
not register transfer of a security by communicating to the issuer a
notification that identifies the registered owner and the issue of
which the security is a part and provides an address for
communications directed to the person making the demand. The demand
is effective only if it is received by the issuer at a time and in a
manner affording the issuer reasonable opportunity to act on it.
(b) If a certificated security in registered form is presented to
an issuer with a request to register transfer or an instruction is
presented to an issuer with a request to register transfer of an
uncertificated security after a demand that the issuer not register
transfer has become effective, the issuer shall promptly communicate
to (A) the person who initiated the demand at the address provided in
the demand and (B) the person who presented the security for
registration of transfer or initiated the instruction requesting
registration of transfer a notification stating all of the following:
(1) The certificated security has been presented for registration
of transfer or the instruction for registration of transfer of the
uncertificated security has been received.
(2) A demand that the issuer not register transfer had previously
been received.
(3) The issuer will withhold registration of transfer for a period
of time stated in the notification in order to provide the person
who initiated the demand an opportunity to obtain legal process or an
indemnity bond.
(c) The period described in paragraph (3) of subdivision (b) may
not exceed 30 days after the date of communication of the
notification. A shorter period may be specified by the issuer if it
is not manifestly unreasonable.
(d) An issuer is not liable to a person who initiated a demand
that the issuer not register transfer for any loss the person suffers
as a result of registration of a transfer pursuant to an effective
endorsement or instruction if the person who initiated the demand
does not, within the time stated in the issuer's communication,
either:
(1) Obtain an appropriate restraining order, injunction, or other
process from a court of competent jurisdiction enjoining the issuer
from registering the transfer.
(2) File with the issuer an indemnity bond, sufficient in the
issuer's judgment to protect the issuer and any transfer agent,
registrar, or other agent of the issuer involved from any loss it or
they may suffer by refusing to register the transfer.
(e) This section does not relieve an issuer from liability for
registering transfer pursuant to an endorsement or instruction that
was not effective.
8404. (a) Except as otherwise provided in Section 8406, an issuer
is liable for wrongful registration of transfer if the issuer has
registered a transfer of a security to a person not entitled to it,
and the transfer was registered in any of the following
circumstances:
(1) Pursuant to an ineffective endorsement or instruction.
(2) After a demand that the issuer not register transfer became
effective under subdivision (a) of Section 8403(a) and the issuer did
not comply with subdivision (b) of Section 8403.
(3) After the issuer had been served with an injunction,
restraining order, or other legal process enjoining it from
registering the transfer, issued by a court of competent
jurisdiction, and the issuer had a reasonable opportunity to act on
the injunction, restraining order, or other legal process.
(4) By an issuer acting in collusion with the wrongdoer.
(b) An issuer that is liable for wrongful registration of transfer
under subdivision (a) on demand shall provide the person entitled to
the security with a like certificated or uncertificated security,
and any payments or distributions that the person did not receive as
a result of the wrongful registration. If an overissue would result,
the issuer's liability to provide the person with a like security is
governed by Section 8210.
(c) Except as otherwise provided in subdivision (a) or in a law
relating to the collection of taxes, an issuer is not liable to an
owner or other person suffering loss as a result of the registration
of a transfer of a security if registration was made pursuant to an
effective endorsement or instruction.
8405. (a) If an owner of a certificated security, whether in
registered or bearer form, claims that the certificate has been lost,
destroyed, or wrongfully taken, the issuer shall issue a new
certificate if the owner does all of the following:
(1) So requests before the issuer has notice that the certificate
has been acquired by a protected purchaser.
(2) Files with the issuer a sufficient indemnity bond.
(3) Satisfies other reasonable requirements imposed by the issuer.
(b) If, after the issue of a new security certificate, a protected
purchaser of the original certificate presents it for registration
of transfer, the issuer shall register the transfer unless an
overissue would result. In that case, the issuer's liability is
governed by Section 8210. In addition to any rights on the indemnity
bond, an issuer may recover the new certificate from a person to
whom it was issued or any person taking under that person, except a
protected purchaser.
8406. If a security certificate has been lost, apparently
destroyed, or wrongfully taken, and the owner fails to notify the
issuer of that fact within a reasonable time after the owner has
notice of it and the issuer registers a transfer of the security
before receiving notification, the owner may not assert against the
issuer a claim for registering the transfer under Section 8404 or a
claim to a new security certificate under Section 8405.
8407. A person acting as authenticating trustee, transfer agent,
registrar, or other agent for an issuer in the registration of a
transfer of its securities, in the issue of new security certificates
or uncertificated securities, or in the cancellation of surrendered
security certificates has the same obligation to the holder or owner
of a certificated or uncertificated security with regard to the
particular functions performed as the issuer has in regard to those
functions.
CHAPTER 5. SECURITY ENTITLEMENTS
8501. (a) "Securities account" means an account to which a
financial asset is or may be credited in accordance with an agreement
under which the person maintaining the account undertakes to treat
the person for whom the account is maintained as entitled to exercise
the rights that comprise the financial asset.
(b) Except as otherwise provided in subdivisions (d) and (e), a
person acquires a security entitlement if a securities intermediary
does any of the following:
(1) Indicates by book entry that a financial asset has been
credited to the person's securities account.
(2) Receives a financial asset from the person or acquires a
financial asset for the person and, in either case, accepts it for
credit to the person's securities account.
(3) Becomes obligated under other law, regulation, or rule to
credit a financial asset to the person's securities account.
(c) If a condition of subdivision (b) has been met, a person has a
security entitlement even though the securities intermediary does
not itself hold the financial asset.
(d) If a securities intermediary holds a financial asset for
another person, and the financial asset is registered in the name of,
payable to the order of, or specially endorsed to the other person,
and has not been endorsed to the securities intermediary or in blank,
the other person is treated as holding the financial asset directly
rather than as having a security entitlement with respect to the
financial asset.
(e) Issuance of a security is not establishment of a security
entitlement.
8502. An action based on an adverse claim to a financial asset,
whether framed in conversion, replevin, constructive trust, equitable
lien, or other theory, may not be asserted against a person who
acquires a security entitlement under Section 8501 for value and
without notice of the adverse claim.
8503. (a) To the extent necessary for a securities intermediary
to satisfy all security entitlements with respect to a particular
financial asset, all interests in that financial asset held by the
securities intermediary are held by the securities intermediary for
the entitlement holders, are not property of the securities
intermediary, and are not subject to claims of creditors of the
securities intermediary, except as otherwise provided in Section
8511.
(b) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) is a pro rata
property interest in all interests in that financial asset held by
the securities intermediary, without regard to the time the
entitlement holder acquired the security entitlement or the time the
securities intermediary acquired the interest in that financial
asset.
(c) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) may be enforced
against the securities intermediary only by exercise of the
entitlement holder's rights under Sections 8505 to 8508, inclusive.
(d) An entitlement holder's property interest with respect to a
particular financial asset under subdivision (a) may be enforced
against a purchaser of the financial asset or interest therein only
if all of the following conditions are met:
(1) Insolvency proceedings have been initiated by or against the
securities intermediary.
(2) The securities intermediary does not have sufficient interests
in the financial asset to satisfy the security entitlements of all
of its entitlement holders to that financial asset.
(3) The securities intermediary violated its obligations under
Section 8504 by transferring the financial asset or interest therein
to the purchaser.
(4) The purchaser is not protected under subdivision (e). The
trustee or other liquidator, acting on behalf of all entitlement
holders having security entitlements with respect to a particular
financial asset, may recover the financial asset, or interest
therein, from the purchaser. If the trustee or other liquidator
elects not to pursue that right, an entitlement holder whose security
entitlement remains unsatisfied has the right to recover its
interest in the financial asset from the purchaser.
(e) An action based on the entitlement holder's property interest
with respect to a particular financial asset under subdivision (a),
whether framed in conversion, replevin, constructive trust, equitable
lien, or other theory, may not be asserted against any purchaser of
a financial asset or interest therein who gives value, obtains
control, and does not act in collusion with the securities
intermediary in violating the securities intermediary's obligations
under Section 8504.
8504. (a) A securities intermediary shall promptly obtain and
thereafter maintain a financial asset in a quantity corresponding to
the aggregate of all security entitlements it has established in
favor of its entitlement holders with respect to that financial
asset. The securities intermediary may maintain those financial
assets directly or through one or more other securities
intermediaries.
(b) Except to the extent otherwise agreed by its entitlement
holder, a securities intermediary may not grant any security
interests in a financial asset it is obligated to maintain pursuant
to subdivision (a).
(c) A securities intermediary satisfies the duty in subdivision
(a) if it does either of the following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to obtain and maintain the financial asset.
(d) This section does not apply to a clearing corporation that is
itself the obligor of an option or similar obligation to which its
entitlement holders have security entitlements.
8505. (a) A securities intermediary shall take action to obtain a
payment or distribution made by the issuer of a financial asset. A
securities intermediary satisfies the duty if it does either of the
following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to attempt to obtain the payment or distribution.
(b) A securities intermediary is obligated to its entitlement
holder for a payment or distribution made by the issuer of a
financial asset if the payment or distribution is received by the
securities intermediary.
8506. A securities intermediary shall exercise rights with
respect to a financial asset if directed to do so by an entitlement
holder. A securities intermediary satisfies the duty if it does
either of the following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
either places the entitlement holder in a position to exercise the
rights directly or exercises due care in accordance with reasonable
commercial standards to follow the direction of the entitlement
holder.
8507. (a) A securities intermediary shall comply with an
entitlement order if the entitlement order is originated by the
appropriate person, the securities intermediary has had reasonable
opportunity to assure itself that the entitlement order is genuine
and authorized, and the securities intermediary has had reasonable
opportunity to comply with the entitlement order. A securities
intermediary satisfies the duty if it does either of the following:
(1) The securities intermediary acts with respect to the duty as
agreed upon by the entitlement holder and the securities
intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to comply with the entitlement order.
(b) If a securities intermediary transfers a financial asset
pursuant to an ineffective entitlement order, the securities
intermediary shall reestablish a security entitlement in favor of the
person entitled to it, and pay or credit any payments or
distributions that the person did not receive as a result of the
wrongful transfer. If the securities intermediary does not
reestablish a security entitlement, the securities intermediary is
liable to the entitlement holder for damages.
8508. A securities intermediary shall act at the direction of an
entitlement holder to change a security entitlement into another
available form of holding for which the entitlement holder is
eligible, or to cause the financial asset to be transferred to a
securities account of the entitlement holder with another securities
intermediary. A securities intermediary satisfies the duty if it
does either of the following:
(1) The securities intermediary acts as agreed upon by the
entitlement holder and the securities intermediary.
(2) In the absence of agreement, the securities intermediary
exercises due care in accordance with reasonable commercial standards
to follow the direction of the entitlement holder.
8509. (a) If the substance of a duty imposed upon a securities
intermediary by Sections 8504 to 8508, inclusive, is the subject of a
federal statute, regulation, or rule, compliance with that statute,
regulation, or rule satisfies the duty.
(b) To the extent that specific standards for the performance of
the duties of a securities intermediary or the exercise of the rights
of an entitlement holder are not specified by other statute,
regulation, or rule or by agreement between the securities
intermediary and entitlement holder, the securities intermediary
shall perform its duties and the entitlement holder shall exercise
its rights in a commercially reasonable manner.
(c) The obligation of a securities intermediary to perform the
duties imposed by Sections 8504 to 8508, inclusive, is subject to the
following:
(1) Rights of the securities intermediary
arising out of a security interest under a security agreement with
the entitlement holder or otherwise.
(2) Rights of the securities intermediary under other law,
regulation, rule, or agreement to withhold performance of its duties
as a result of unfulfilled obligations of the entitlement holder to
the securities intermediary.
(d) Sections 8504 to 8508, inclusive, do not require a securities
intermediary to take any action that is prohibited by other statute,
regulation, or rule.
8510. (a) An action based on an adverse claim to a financial
asset or security entitlement, whether framed in conversion,
replevin, constructive trust, equitable lien, or other theory, may
not be asserted against a person who purchases a security
entitlement, or an interest therein, from an entitlement holder if
the purchaser gives value, does not have notice of the adverse claim,
and obtains control.
(b) If an adverse claim could not have been asserted against an
entitlement holder under Section 8502, the adverse claim cannot be
asserted against a person who purchases a security entitlement, or an
interest therein, from the entitlement holder.
(c) In a case not covered by the priority rules in Division 9
(commencing with Section 9101), a purchaser for value of a security
entitlement, or an interest therein, who obtains control has priority
over a purchaser of a security entitlement, or an interest therein,
who does not obtain control. Purchasers who have control rank
equally, except that a securities intermediary as purchaser has
priority over a conflicting purchaser who has control unless
otherwise agreed by the securities intermediary.
8511. (a) Except as otherwise provided in subdivisions (b) and
(c), if a securities intermediary does not have sufficient interests
in a particular financial asset to satisfy both its obligations to
entitlement holders who have security entitlements to that financial
asset and its obligation to a creditor of the securities intermediary
who has a security interest in that financial asset, the claims of
entitlement holders, other than the creditor, have priority over the
claim of the creditor.
(b) A claim of a creditor of a securities intermediary who has a
security interest in a financial asset held by a securities
intermediary has priority over claims of the securities intermediary'
s entitlement holders who have security entitlements with respect to
that financial asset if the creditor has control over the financial
asset.
(c) If a clearing corporation does not have sufficient financial
assets to satisfy both its obligations to entitlement holders who
have security entitlements with respect to a financial asset and its
obligation to a creditor of the clearing corporation who has a
security interest in that financial asset, the claim of the creditor
has priority over the claims of entitlement holders.
CHAPTER 6. TRANSITION PROVISIONS
8601. This division becomes operative January 1, 1997.
8603. (a) This division does not affect an action or proceeding
commenced before this division becomes operative.
(b) If a security interest in a security is perfected at the date
this division becomes operative, and the action by which the security
interest was perfected would suffice to perfect a security interest
under this division, no further action is required to continue
perfection. If a security interest in a security is perfected at the
date this division takes effect but the action by which the security
interest was perfected would not suffice to perfect a security
interest under this division, the security interest remains perfected
for a period of four months after the operative date and continues
perfected thereafter if appropriate action to perfect under this
division is taken within that period. If a security interest is
perfected at the date this division becomes operative and the
security interest can be perfected by filing under this division, a
financing statement signed by the secured party instead of the debtor
may be filed within that period to continue perfection or thereafter
to perfect and that financing statement shall contain a statement
that it is being filed pursuant to this section.
SEC. 10. Section 9103 of the Commercial Code is amended to read:
9103. (1) (a) This subdivision applies to documents, instruments,
rights to proceeds of written letters of credit, and goods other
than those covered by a certificate of title described in subdivision
(2), mobile goods described in subdivision (3), and minerals
described in subdivision (5).
(b) Except as otherwise provided in this subdivision, perfection
and the effect of perfection or nonperfection of a security interest
in collateral are governed by the law of the jurisdiction where the
collateral is when the last event occurs on which is based the
assertion that the security interest is perfected or unperfected.
(c) If the parties to a transaction creating a purchase money
security interest in goods in one jurisdiction understand at the time
that the security interest attaches that the goods will be kept in
another jurisdiction, then the law of the other jurisdiction governs
the perfection and the effect of perfection or nonperfection of the
security interest from the time it attaches until 30 days after the
debtor receives possession of the goods and thereafter if the goods
are taken to the other jurisdiction before the end of the 30-day
period.
(d) When collateral is brought into and kept in this state while
subject to a security interest perfected under the law of the
jurisdiction from which the collateral was removed, the security
interest remains perfected, but if action is required by Chapter 3
(commencing with Section 9301) to perfect the security interest:
(i) If the action is not taken before the expiration of the period
of perfection in the other jurisdiction or the end of four months
after the collateral is brought into this state, whichever period
first expires, the security interest becomes unperfected at the end
of that period and is thereafter deemed to have been unperfected as
against a person who became a purchaser after removal.
(ii) If the action is taken before the expiration of the period
specified in subparagraph (i), the security interest continues
perfected thereafter.
(iii) For the purpose of priority over a buyer of consumer goods
(subdivision (2) of Section 9307), the period of the effectiveness of
a filing in the jurisdiction from which the collateral is removed is
governed by the rules with respect to perfection in subparagraphs
(i) and (ii).
(e) If goods are or become fixtures (Section 9313(1)(a)) in
relation to real estate located in this state, the conflicting
interest of an encumbrancer or owner of the real estate is governed
by Section 9313.
(2) (a) This subdivision applies to goods covered by a certificate
of title issued under a statute of this state or of another
jurisdiction under the law of which indication of a security interest
on the certificate is required as a condition of perfection whether
such certificate is designated a "certificate of title," "certificate
of ownership," or otherwise.
(b) Except as otherwise provided in this subdivision, perfection
and the effect of perfection or nonperfection of the security
interest are governed by the law (including the conflict of laws
rules) of the jurisdiction issuing the certificate until four months
after the goods are removed from that jurisdiction and thereafter
until the goods are registered in another jurisdiction, but in any
event not beyond surrender of the certificate. After the expiration
of that period, the goods are not covered by the certificate of title
within the meaning of this section.
(c) Except with respect to the rights of a buyer described in the
next paragraph, a security interest, perfected in another
jurisdiction otherwise than by notation on a certificate of title, in
goods brought into this state and thereafter covered by a
certificate of title issued by this state is subject to the rules
stated in paragraph (d) of subdivision (1).
(d) If goods are brought into this state while a security interest
therein is perfected in any manner under the law of the jurisdiction
from which the goods are removed and a certificate of title is
issued by this state and the certificate does not show that the goods
are subject to the security interest or that they may be subject to
a security interest not shown on the certificate, the security
interest is subordinate to the rights of a buyer of the goods who is
not in the business of selling goods of that kind to the extent that
he or she gives value and receives delivery of the goods after
issuance of the certificate and without knowledge of the security
interest.
(3) (a) This subdivision applies to accounts (other than an
account described in subdivision (5) on minerals) and general
intangibles (other than uncertificated securities) and to goods which
are mobile and which are of a type normally used in more than one
jurisdiction, such as motor vehicles, trailers, rolling stock,
airplanes, shipping containers, roadbuilding and construction
machinery and commercial harvesting machinery and the like, if the
goods are equipment or are inventory leased or held for lease by the
debtor to others, and are not covered by a certificate of title
described in subdivision (2).
(b) The law (including the conflict of laws rules) of the
jurisdiction in which the debtor is located governs the perfection
and the effect of perfection or nonperfection of the security
interest.
(c) If, however, the debtor is located in a jurisdiction which is
not a part of the United States, and which does not provide for
perfection of the security interest by filing or recording in that
jurisdiction, the law of the jurisdiction in the United States in
which the debtor has its major executive office in the United States
governs the perfection and the effect of perfection or nonperfection
of the security interest through filing. In the alternative, if the
debtor is located in a jurisdiction which is not a part of the United
States or Canada and the collateral is accounts or general
intangibles for money due or to become due, the security interest may
be perfected by notification to the account debtor. As used in this
paragraph, "United States" includes its territories and possessions
and the Commonwealth of Puerto Rico.
(d) A debtor shall be deemed located at the debtor's place of
business if he or she has one, at the debtor's chief executive office
if he or she has more than one place of business, or otherwise at
the debtor's residence. If, however, the debtor is a foreign air
carrier under the Federal Aviation Act of 1958, as amended, it shall
be deemed located at the designated office of the agent upon whom
service of process may be made on behalf of the foreign air carrier.
(e) A security interest perfected under the law of the
jurisdiction of the location of the debtor is perfected until the
expiration of four months after a change of the debtor's location to
another jurisdiction, or until perfection would have ceased by the
law of the first jurisdiction, whichever period first expires.
Unless perfected in the new jurisdiction before the end of that
period, it becomes unperfected thereafter and is deemed to have been
unperfected as against a person who became a purchaser after the
change.
(4) The rules stated for goods in subdivision (1) apply to a
possessory security interest in chattel paper. The rules stated for
accounts in subdivision (3) apply to a nonpossessory security
interest in chattel paper, but the security interest may not be
perfected by notification to the account debtor.
(5) Perfection and the effect of perfection or nonperfection of a
security interest which is created by a debtor who has an interest in
minerals or the like (including oil and gas) before extraction and
which attaches thereto as extracted, or which attaches to an account
resulting from the sale thereof at the wellhead or minehead are
governed by the law (including the conflict of laws rules) of the
jurisdiction wherein the wellhead or minehead is located.
(6) (a) This subdivision applies to investment property.
(b) Except as otherwise provided in paragraph (f), during the time
that a security certificate is located in a jurisdiction, perfection
of a security interest, the effect of perfection or nonperfection,
and the priority of a security interest in the certificated security
represented thereby are governed by the local law of that
jurisdiction.
(c) Except as otherwise provided in paragraph (f), perfection of a
security interest, the effect of perfection or nonperfection, and
the priority of a security interest in an uncertificated security are
governed by the local law of the issuer's jurisdiction as specified
in subdivision (d) of Section 8110.
(d) Except as otherwise provided in paragraph (f), perfection of a
security interest, the effect of perfection or nonperfection, and
the priority of a security interest in a security entitlement or
securities account are governed by the local law of the securities
intermediary's jurisdiction as specified in subdivision (e) of
Section 8110.
(e) Except as otherwise provided in paragraph (f), perfection of a
security interest, the effect of perfection or nonperfection, and
the priority of a security interest in a commodity contract or
commodity account are governed by the local law of the commodity
intermediary's jurisdiction. The following rules determine a
"commodity intermediary's jurisdiction" for purposes of this
paragraph:
(i) If an agreement between the commodity intermediary and
commodity customer specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(ii) If an agreement between the commodity intermediary and
commodity customer does not specify the governing law as provided in
subparagraph (i), but expressly specifies that the commodity account
is maintained at an office in a particular jurisdiction, that
jurisdiction is the commodity intermediary's jurisdiction.
(iii) If an agreement between the commodity intermediary and
commodity customer does not specify a jurisdiction as provided in
subparagraphs (i) or (ii), the commodity intermediary's jurisdiction
is the jurisdiction in which is located the office identified in an
account statement as the office serving the commodity customer's
account.
(iv) If an agreement between the commodity intermediary and
commodity customer does not specify a jurisdiction as provided in
subparagraphs (i) or (ii) and an account statement does not identify
an office serving the commodity customer's account as provided in
subparagraph (iii), the commodity intermediary's jurisdiction is the
jurisdiction in which is located the chief executive office of the
commodity intermediary.
(f) Perfection of a security interest by filing, automatic
perfection of a security interest in investment property granted by a
broker or securities intermediary, and automatic perfection of a
security interest in a commodity contract or commodity account
granted by a commodity intermediary are governed by the local law of
the jurisdiction in which the debtor is located. The rules in
paragraphs (c), (d), and (e) of subdivision (3) apply to security
interests to which this paragraph applies.
SEC. 11. Section 9105 of the Commercial Code is amended to read:
9105. (1) In this division unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on an
account, chattel paper or general intangible.
(b) "Chattel paper" means a writing or writings which evidence
both a monetary obligation and a security interest in or a lease of
specific goods, but a charter or other contract involving the use or
hire of a vessel is not chattel paper. When a transaction is
evidenced both by a security agreement or a lease and by an
instrument or a series of instruments, the group of writings taken
together constitutes chattel paper.
(c) "Collateral" means the property subject to a security
interest, and includes accounts and chattel paper which have been
sold.
(d) "Debtor" means the person who owes payment or other
performance of the obligation secured, whether or not he or she owns
or has rights in the collateral, and includes the seller of accounts
or chattel paper. Where the debtor and the owner of the collateral
are not the same person, "debtor" means the owner of the collateral
in any provision of the division dealing with the collateral, the
obligor in any provision dealing with the obligation, and may include
both where the context so requires.
(e) "Deposit account" means a demand, time, savings, passbook or
like account maintained with a bank, savings and loan association,
credit union or like organization, other than an account evidenced by
a negotiable certificate of deposit.
(f) "Document" means document of title as defined in the general
definitions of Division 1 (Section 1201), and a receipt of the kind
described in subdivision (2) of Section 7201.
(g) "Encumbrance" includes real estate mortgages and other liens
on real estate and all other rights in real estate that are not
ownership interests.
(h) "Goods" includes all things which are movable at the time the
security interest attaches or which are fixtures (Section 9313), but
does not include money, documents, instruments, investment property,
accounts, chattel paper, general intangibles or minerals or the like
(including oil and gas) before extraction. "Goods" also includes
standing timber which is to be cut and removed under a conveyance or
contract for sale, the unborn young of animals, and growing crops.
(i) "Instrument" means a negotiable instrument (defined in Section
3104) or any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease and is of a
type which is in ordinary course of business transferred by delivery
with any necessary endorsement or assignment. The term does not
include investment property.
(j) "Mortgage" means a consensual interest created by a real
estate mortgage, a trust deed on real estate, or the like.
(k) An advance is made "pursuant to commitment" if the secured
party has bound himself or herself to make it, whether or not a
subsequent event of default or other event not within his or her
control has relieved or may relieve him or her from his or her
obligation.
(l) "Security agreement" means an agreement which creates or
provides for a security interest.
(m) "Secured party" means a lender, seller or other person in
whose favor there is a security interest, including a person to whom
accounts or chattel paper have been sold. If a security interest is
in favor of a trustee, indenture trustee, agent, collateral agent, or
other representative, the representative is the secured party.
(n) "Transmitting utility" means any person primarily engaged in
the railroad, street railway or trolley bus business, the electric or
electronics communications transmission business, the transmission
of goods by pipeline, or the transmission or the production and
transmission of electricity, steam, gas or water, or the provision of
sewer service.
(o) "New value" includes new advances or loans made, or new
obligations incurred, or the release of a valid and existing security
interest, or the release of a claim to proceeds; but "new value"
shall not be construed to include extension or renewals of existing
obligations of the debtor, nor obligations substituted for such
existing obligations.
(2) Other definitions applying to this division and the sections
in which they appear are:
"Account." Section 9106.
"Attach." Section 9203.
"Commodity contract." Section 9115.
"Commodity customer." Section 9115.
"Commodity intermediary." Section 9115.
"Consumer goods." Section 9109(1).
"Construction mortgage." Section 9313(1).
"Control." Section 9115.
"Equipment." Section 9109(2).
"Farm products." Section 9109(3).
"Fixture." Section 9313(1).
"Fixture filing." Section 9313(1).
"General intangibles." Section 9106.
"Inventory." Section 9109(4).
"Investment property." Section 9115.
"Lien creditor." Section 9301(3).
"Proceeds." Section 9306(1).
"Purchase money security interest." Section 9107.
"United States." Section 9103.
(3) The following definitions in other divisions apply to this
division:
"Broker." Section 8102.
"Certificated security." Section 8102.
"Check." Section 3104.
"Clearing corporation." Section 8102.
"Contract for sale." Section 2106.
"Control." Section 8106.
"Delivery." Section 8301.
"Entitlement holder." Section 8102.
"Financial asset." Section 8102.
"Holder in due course." Section 3302.
"Letter of credit." Section 5102.
"Note." Section 3104.
"Proceeds of a letter of credit." Subdivision (a) of Section
5114.
"Sale." Section 2106.
"Securities intermediary." Section 8102.
"Security." Section 8102.
"Security certificate." Section 8102.
"Security entitlement." Section 8102.
"Uncertificated security." Section 8102.
(4) In addition, Division 1 (commencing with Section 1101)
contains general definitions and principles of construction and
interpretation applicable throughout this division.
SEC. 12. Section 9106 of the Commercial Code is amended to read:
9106. "Account" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an
instrument or chattel paper, whether or not it has been earned by
performance. "General intangibles" means any personal property
(including things in action) other than goods, accounts, chattel
paper, documents, instruments, investment property, rights to
proceeds of written letters of credit, and money. All rights to
payment earned or unearned under a charter or other contract
involving the use or hire of a vessel and all rights incident to the
charter or contract are accounts.
SEC. 13. Section 9115 is added to the Commercial Code, to read:
9115. (1) In this division:
(a) "Commodity account" means an account maintained by a commodity
intermediary in which a commodity contract is carried for a
commodity customer.
(b) "Commodity contract" means a commodity futures contract, an
option on a commodity futures contract, a commodity option, or other
contract that, in each case, is either of the following:
(i) 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
the federal commodities laws.
(ii) 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.
(c) "Commodity customer" means a person for whom a commodity
intermediary carries a commodity contract on its books.
(d) "Commodity intermediary" means either of the following:
(i) A person who is registered as a futures commission merchant
under the federal commodities laws.
(ii) A person who 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 the federal commodities
laws.
(e) "Control" with respect to a certificated security,
uncertificated security, or security entitlement has the meaning
specified in Section 8106. A secured party has control over a
commodity contract if by agreement among the commodity customer, the
commodity intermediary, and the secured party, the commodity
intermediary has agreed that it will apply any value distributed on
account of the commodity contract as directed by the secured party
without further consent by the commodity customer. If a commodity
customer grants a security interest in a commodity contract to its
own commodity intermediary, the commodity intermediary as secured
party has control. A secured party has control over a securities
account or commodity account if the secured party has control over
all security entitlements or commodity contracts carried in the
securities account or commodity account.
(f) "Investment property" means any of the following:
(i) A security, whether certificated or uncertificated.
(ii) A security entitlement.
(iii) A securities account.
(iv) A commodity contract.
(v) A commodity account.
(2) Attachment or perfection of a security interest in a
securities account is also attachment or perfection of a security
interest in all security entitlements carried in the securities
account. Attachment or perfection of a security interest in a
commodity account is also attachment or perfection of a security
interest in all commodity contracts carried in the commodity account.
(3) A description of collateral in a security agreement or
financing statement is sufficient to create or perfect a security
interest in a certificated security, uncertificated security,
security entitlement, securities account, commodity contract, or
commodity account whether it describes the collateral by those terms,
or as investment property, or by description of the underlying
security, financial asset, or commodity contract. A description of
investment property collateral in a security agreement or financing
statement is sufficient if it identifies the collateral by specific
listing, by category, by quantity, by a computational or allocational
formula or procedure, or by any other method, if the identity of the
collateral is objectively determinable.
(4) Perfection of a security interest in investment property is
governed by the following rules:
(a) A security interest in investment property may be perfected by
control.
(b) Except as otherwise provided in paragraphs (c) and (d), a
security interest in investment property may be perfected by filing.
(c) If the debtor is a broker or securities intermediary, a
security interest in investment property is perfected when it
attaches. The filing of a financing statement with respect to a
security interest in investment property granted by a broker or
securities intermediary has no effect for purposes of perfection or
priority with respect to that security interest.
(d) If a debtor is a commodity intermediary, a security interest
in a commodity contract or a commodity account is perfected when it
attaches. The filing of a financing statement with respect
to a security interest in a
commodity contract or a commodity account granted by a commodity
intermediary has no effect for purposes of perfection or priority
with respect to that security interest.
(5) Priority between conflicting security interests in the same
investment property is governed by the following rules:
(a) A security interest of a secured party who has control over
investment property has priority over a security interest of a
secured party who does not have control over the investment property.
(b) Except as otherwise provided in paragraphs (c) and (d),
conflicting security interests of secured parties each of whom has
control rank equally.
(c) Except as otherwise agreed by the securities intermediary, a
security interest in a security entitlement or a securities account
granted to the debtor's own securities intermediary has priority over
any security interest granted by the debtor to another secured
party.
(d) Except as otherwise agreed by the commodity intermediary, a
security interest in a commodity contract or a commodity account
granted to the debtor's own commodity intermediary has priority over
any security interest granted by the debtor to another secured party.
(e) Conflicting security interests granted by a broker, a
securities intermediary, or a commodity intermediary that are
perfected without control rank equally.
(f) In all other cases, priority between conflicting security
interests in investment property is governed by subdivisions (5),
(6), and (7) of Section 9312. Subdivision (4) of Section 9312 does
not apply to investment property.
(6) If a security certificate in registered form is delivered to a
secured party pursuant to agreement, a written security agreement is
not required for attachment or enforceability of the security
interest, delivery suffices for perfection of the security interest,
and the security interest has priority over a conflicting security
interest perfected by means other than control, even if a necessary
endorsement is lacking.
SEC. 14. Section 9116 is added to the Commercial Code, to read:
9116. (1) If a person buys a financial asset through a securities
intermediary in a transaction in which the buyer is obligated to pay
the purchase price to the securities intermediary at the time of the
purchase, and the securities intermediary credits the financial
asset to the buyer's securities account before the buyer pays the
securities intermediary, the securities intermediary has a security
interest in the buyer's security entitlement securing the buyer's
obligation to pay. A security agreement is not required for
attachment or enforceability of the security interest, and the
security interest is automatically perfected.
(2) If a certificated security, or other financial asset
represented by a writing that in the ordinary course of business is
transferred by delivery with any necessary endorsement or assignment
is delivered pursuant to an agreement between persons in the business
of dealing with those securities or financial assets and the
agreement calls for delivery versus payment, the person delivering
the certificate or other financial asset has a security interest in
the certificated security or other financial asset securing the
seller's right to receive payment. A security agreement is not
required for attachment or enforceability of the security interest,
and the security interest is automatically perfected.
SEC. 15. Section 9203 of the Commercial Code is amended to read:
9203. (1) Subject to the provisions of Section 4210 on the
security interest of a collecting bank, Sections 9115 and 9116 on
security interests in investment property, and Section 9113 on a
security interest arising under the divisions on sales and leases, a
security interest is not enforceable against the debtor or third
parties with respect to the collateral and does not attach unless all
of the following are applicable:
(a) The collateral is in the possession of the secured party
pursuant to agreement, the collateral is investment property and the
secured party has control pursuant to agreement, or the debtor has
signed a security agreement which contains a description of the
collateral and in addition, when the security interest covers crops
growing or to be grown or timber to be cut, a description of the land
concerned.
(b) Value has been given.
(c) The debtor has rights in the collateral.
(2) A security interest attaches when it becomes enforceable
against the debtor with respect to the collateral. Attachment occurs
as soon as all of the events specified in subdivision (1) have taken
place unless explicit agreement postpones the time of attaching.
(3) Unless otherwise agreed, a security agreement gives the
secured party the rights to proceeds provided by Section 9306.
(4) A transaction, although subject to this division, is also
subject to the Retail Installment Sales Act, Chapter 1 (commencing
with Section 1801) of Title 2 of Part 4 of Division 3 of the Civil
Code; the Automobile Sales Finance Act, Chapter 2b (commencing with
Section 2981) of Title 14 of Part 4 of Division 3 of the Civil Code;
the Industrial Loan Law, Division 7 (commencing with Section 18000)
of the Financial Code; the Pawnbroker Law, Division 8 (commencing
with Section 21000) of the Financial Code; the Personal Property
Brokers Law, Division 9 (commencing with Section 22000) of the
Financial Code; the Consumer Finance Lenders Law, Division 10
(commencing with Section 24000) of the Financial Code; the Commercial
Finance Lenders Law, Division 11 (commencing with Section 26000) of
the Financial Code; and the Mobilehomes-Manufactured Housing Act of
1980, Part 2 (commencing with Section 18000) of Division 13 of the
Health and Safety Code, and in the case of conflict between the
provisions of this division and that statute, the provisions of that
statute control. Failure to comply with any applicable statute has
only the effect which is specified in that statute.
SEC. 16. Section 9301 of the Commercial Code is amended to read:
9301. (1) Except as otherwise provided in subdivision (2), an
unperfected security interest is subordinate to the rights of all of
the following:
(a) Persons entitled to priority under Section 9312.
(b) A person who becomes a lien creditor before the security
interest is perfected.
(c) In the case of goods, instruments, documents, and chattel
paper, a person who is not a secured party and who is a transferee in
bulk or other buyer not in ordinary course of business to the extent
that he or she gives value and receives delivery of the collateral
without knowledge of the security interest and before it is
perfected.
(d) In the case of accounts, general intangibles, and investment
property, a person who is not a secured party and who is a transferee
to the extent that he or she gives value without knowledge of the
security interest and before it is perfected.
(2) If the secured party files with respect to a purchase money
security interest before or within 20 days after the debtor receives
possession of the collateral, he or she takes priority over the
rights of a transferee in bulk or of a lien creditor which arise
between the time the security interest attaches and the time of
filing.
(3) A "lien creditor" means a creditor who has acquired a lien on
the property involved by attachment, levy or the like and includes an
assignee for benefit of creditors from the time of assignment, and a
trustee in bankruptcy from the date of the filing of the petition or
a receiver in equity from the time of appointment. "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.
(4) A person who becomes a lien creditor while a security interest
is perfected takes subject to the security interest only to the
extent that it secures advances made before he or she becomes a lien
creditor or within 45 days thereafter or made without knowledge of
the lien or pursuant to a commitment entered into without knowledge
of the lien.
SEC. 17. Section 9302 of the Commercial Code is amended to read:
9302. (1) A financing statement must be filed to perfect all
security interests except the following:
(a) A security interest in collateral in possession of the secured
party under Section 9305.
(b) A security interest temporarily perfected in instruments,
certificated securities, or documents without delivery under Section
9304 or in proceeds for a 10-day period under Section 9306.
(c) A security interest created by an assignment of a beneficial
interest in a trust or a decedent's estate.
(d) A purchase money security interest in consumer goods; but
filing is required for a motor vehicle or boat required to be
registered; and fixture filing is required for priority over
conflicting interests in fixtures to the extent provided in Section
9313.
(e) A security interest of a collecting bank (Section 4210) or
arising under the divisions on sales and leases (see Section 9113) or
covered in subdivision (3) of this section.
(f) An assignment for the benefit of all the creditors of the
transferor, and subsequent transfers by the assignee thereunder.
(g) A security interest in a deposit account. Such a security
interest is perfected:
(i) As to a deposit account maintained with the secured party,
when the security agreement is executed.
(ii) As to a deposit account not described in subparagraph (i),
when notice thereof is given in writing to the organization with whom
the deposit account is maintained.
(h) A security interest in investment property that is perfected
without filing under Section 9115 or 9116.
(i) A security interest in or claim in or under any policy of
insurance including unearned premiums. Such interest shall be
perfected when notice thereof is given in writing to the insurer.
(2) If a secured party assigns a perfected security interest, no
filing under this division is required in order to continue the
perfected status of the security interest against creditors of and
transferees from the original debtor.
(3) The filing of a financing statement otherwise required by this
division is not necessary or effective to perfect a security
interest in property subject to any of the following:
(a) A statute or treaty of the United States which provides for a
national or international registration or a national or international
certificate of title or which specifies a place of filing different
from that specified in this division for filing of the security
interest.
(b) The provisions of the Vehicle Code which require registration
of a vehicle or boat, or provisions of the Health and Safety Code
which require registration of a mobilehome or commercial coach; but
during any period in which collateral is inventory, the filing
provisions of this division (Chapter 4 (commencing with Section
9401)) apply to a security interest in that collateral.
(c) A certificate of title statute of another jurisdiction under
the law of which indication of a security interest on the certificate
is required as a condition of perfection (subdivision (2) of Section
9103).
(d) The provisions of the Health and Safety Code which require
registration of all interests in approved air contaminant emission
reductions (Sections 40709 to 40713, inclusive, of the Health and
Safety Code).
(4) Compliance with a statute or treaty described in subdivision
(3) is equivalent to the filing of a financing statement under this
division and a security interest in property subject to the statute
or treaty can be perfected only by compliance therewith except as
provided in Section 9103 on multiple state transactions. Duration
and renewal of perfection of a security interest perfected by
compliance with the statute or treaty are governed by the provisions
of the statute or treaty; in other respects the security interest is
subject to this division.
SEC. 18. Section 9304 of the Commercial Code is amended to read:
9304. (1) A security interest in chattel paper or negotiable
documents may be perfected by filing. A security interest in the
rights to proceeds of a written letter of credit can be perfected
only by the secured party's taking possession of the letter of
credit. A security interest in money or instruments (other than
instruments which constitute part of chattel paper) can be perfected
only by the secured party's taking possession, except as provided in
subdivisions (4), (5), and (7) of this section and subdivisions (2)
and (3) of Section 9306 on proceeds.
(2) During the period that goods are in the possession of the
issuer of a negotiable document therefor, a security interest in the
goods is perfected by perfecting a security interest in the document,
and any security interest in the goods otherwise perfected during
the period is subject thereto.
(3) A security interest in goods in the possession of a bailee
other than one who has issued a negotiable document therefor is
perfected by issuance of a document in the name of the secured party
or by the bailee's receipt of notification of the secured party's
interest or by filing as to the goods.
(4) A security interest in instruments, certificated securities,
or negotiable documents is perfected without filing or the taking of
possession for a period of 21 days from the time it attaches to the
extent that it arises for new value given under a written security
agreement.
(5) A security interest remains perfected for a period of 21 days
without filing where a secured party having a perfected security
interest in an instrument, a certificated security, a negotiable
document, or goods in possession of a bailee other than one who has
issued a negotiable document therefor does either of the following:
(a) Makes available to the debtor the goods or documents
representing the goods for the purpose of ultimate sale or exchange
or for the purpose of loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with
them in a manner preliminary to their sale or exchange, but priority
between conflicting security interests in the goods is subject to
subdivision (3) of Section 9312.
(b) Delivers the instrument or certificated security to the debtor
for the purpose of ultimate sale or exchange or of presentation,
collection, renewal or registration of transfer.
(6) After the 21-day period in subdivisions (4) and (5),
perfection depends upon compliance with applicable provisions of this
division.
(7) If an instrument claimed as proceeds (other than cash
proceeds) under Section 9306 is in the custody of a levying officer,
a secured party may perfect a security interest in such instrument by
filing a third-party claim with the levying officer pursuant to
Chapter 3 (commencing with Section 720.210) of Division 4 of Title 9
of Part 2 of the Code of Civil Procedure within the 10-day period
allowed under Section 9306.
SEC. 19. Section 9305 of the Commercial Code is amended to read:
9305. A security interest in goods, instruments, money,
negotiable documents or chattel paper may be perfected by the secured
party's taking possession of the collateral. A security interest in
the right to proceeds of a written letter of credit may be perfected
by the secured party's taking possession of the letter of credit.
If such collateral other than goods covered by a negotiable document
is held by a bailee, the secured party is deemed to have possession
from the time the bailee receives notification of the secured party's
interest. A security interest is perfected by possession from the
time possession is taken without relation back and continues only so
long as possession is retained, unless otherwise specified in this
division. The security interest may be otherwise perfected as
provided in this division before or after the period of possession by
the secured party.
SEC. 20. Section 9306 of the Commercial Code is amended to read:
9306. (1) "Proceeds" includes whatever is received upon the sale,
exchange, collection or other disposition of collateral or proceeds.
Insurance payable by reason of loss or damage to the collateral is
proceeds, except to the extent that it is payable to a person other
than a party to the security agreement. Any payments or
distributions made with respect to investment property collateral are
proceeds. Money, checks, deposit accounts, and the like are "cash
proceeds." All other proceeds are "noncash proceeds."
(2) Except where this division or subdivision (4) of Section 8321
otherwise provides, a security interest continues in collateral
notwithstanding sale, exchange or other disposition thereof unless
the disposition was authorized by the secured party in the security
agreement or otherwise, and also continues in any identifiable
proceeds including collections received by the debtor.
(3) The security interest in proceeds is a continuously perfected
security interest if the interest in the original collateral was
perfected but it ceases to be a perfected security interest and
becomes unperfected 10 days after receipt of the proceeds by the
debtor unless any of the following apply:
(a) A filed financing statement covers the original collateral and
the proceeds are collateral in which a security interest may be
perfected by filing in the office or offices where the financing
statement has been filed and, if the proceeds are acquired with cash
proceeds, the description of collateral in the financing statement
indicates the types of property constituting the proceeds.
(b) A filed financing statement covers the original collateral and
the proceeds are identifiable cash proceeds.
(c) The original collateral was investment property and the
proceeds are identifiable cash proceeds.
(d) The security interest in the proceeds is perfected before the
expiration of the 10-day period.
Except as provided in this section, a security interest in
proceeds can be perfected only by the methods or under the
circumstances permitted in this division or Division 8 (commencing
with Section 8101) for original collateral of the same type.
(4) In the event of insolvency proceedings instituted by or
against a debtor, a secured party with a perfected security interest
in proceeds has a perfected security interest only in all of the
following proceeds:
(a) In identifiable noncash proceeds and in a separate deposit
account containing only proceeds.
(b) In identifiable cash proceeds in the form of money which is
neither commingled with other money nor deposited in a deposit
account prior to the insolvency proceedings.
(c) In identifiable cash proceeds in the form of checks and the
like which are not deposited in a deposit account prior to the
insolvency proceedings.
(d) In all cash and deposit accounts of the debtor in which
proceeds have been commingled with other funds, but the perfected
security interest under this paragraph (d) is both:
(i) Subject to any right of setoff.
(ii) Limited to an amount not greater than the amount of any cash
proceeds received by the debtor within 10 days before the institution
of the insolvency proceedings less the sum of (I) the payments to
the secured party on account of cash proceeds received by the debtor
during such period and (II) the cash proceeds received by the debtor
during such period to which the secured party is entitled under
paragraphs (a), (b), and (c).
(5) If a sale of goods results in an account or chattel paper
which is transferred by the seller to a secured party, and if the
goods are returned to or are repossessed by the seller or the secured
party, the following rules determine priorities:
(a) If the goods were collateral at the time of sale, for an
indebtedness of the seller which is still unpaid, the original
security interest attaches again to the goods and continues as a
perfected security interest if it was perfected at the time when the
goods were sold. If the security interest was originally perfected
by a filing which is still effective, nothing further is required to
continue the perfected status; in any other case, the secured party
must take possession of the returned or repossessed goods or must
file.
(b) An unpaid transferee of the chattel paper has a security
interest in the goods against the transferor. Such security interest
is prior to a security interest asserted under paragraph (a) to the
extent that the transferee of the chattel paper was entitled to
priority under Section 9308.
(c) An unpaid transferee of the account has a security interest in
the goods against the transferor. Such security interest is
subordinate to a security interest asserted under paragraph (a).
(d) A security interest of an unpaid transferee asserted under
paragraph (b) or (c) must be perfected for protection against
creditors of the transferor and purchasers of the returned or
repossessed goods.
(6) Cash proceeds retain their character as cash proceeds while in
the possession of a levying officer pursuant to Title 6.5
(commencing with Section 481.010) or Title 9 (commencing with Section
680.010) of Part 2 of the Code of Civil Procedure.
SEC. 21. Section 9309 of the Commercial Code is amended to read:
9309. Nothing in this division limits the rights of a holder in
due course of a negotiable instrument (Section 3302) or a holder to
whom a negotiable document of title has been duly negotiated (Section
7501) or a protected purchaser of a security (Section 8303) and the
holders or purchasers take priority over an earlier security interest
even though perfected. Filing under this division does not
constitute notice of the security interest to the holders or
purchasers.
SEC. 22. Section 9312 of the Commercial Code is amended to read:
9312. (1) The rules of priority stated in other sections of this
chapter and in the following sections shall govern where applicable:
Section 4210 with respect to the security interest of collecting
banks in items being collected, accompanying documents and proceeds;
Section 9103 on security interests related to other jurisdictions;
Section 9114 on consignments; Section 9115 on security interests in
investment property.
(3) A perfected purchase money security interest in inventory has
priority over a conflicting security interest in the same inventory
and also has priority in identifiable cash proceeds received on or
before the delivery of the inventory to a buyer if all of the
following occur:
(a) The purchase money security interest is perfected at the time
the debtor receives possession of the inventory.
(b) The purchase money secured party gives notification in writing
to the holder of the conflicting security interest if the holder had
filed a financing statement covering the same types of inventory (i)
before the date of the filing made by the purchase money secured
party, or (ii) before the beginning of the 21-day period where the
purchase money security interest is temporarily perfected without
filing or possession (subdivision (5) of Section 9304).
(c) The holder of the conflicting security interest receives the
notification within five years before the debtor receives possession
of the inventory.
(d) The notification states that the person giving the notice has
or expects to acquire a purchase money security interest in inventory
of the debtor, describing such inventory by item or type.
(4) A purchase money security interest in collateral other than
inventory has priority over a conflicting security interest in the
same collateral or its proceeds if the purchase money security
interest is perfected at the time the debtor receives possession of
the collateral or within 20 days thereafter.
(5) In all cases not governed by other rules stated in this
section (including cases of purchase money security interests which
do not qualify for the special priorities set forth in subdivisions
(3) and (4)), priority between conflicting security interests in the
same collateral shall be determined according to the following rules:
(a) Conflicting security interests rank according to priority in
time of filing or perfection. Priority dates from the time a filing
is first made covering the collateral or the time the security
interest is first perfected, whichever is earlier, provided that
there is no period thereafter when there is neither filing nor
perfection.
(b) So long as conflicting security interests are unperfected, the
first to attach has priority.
(6) For the purposes of subdivision (5) a date of filing or
perfection as to collateral is also a date of filing or perfection as
to proceeds.
(7) If future advances are made while a security interest is
perfected by filing, the taking of possession, or under Section 9115
or 9116 on investment property, the security interest has the same
priority for the purposes of subdivision (5) with respect to the
future advances as it does with respect to the first advance. If a
commitment is made before or while the security interest is so
perfected, the security interest has the same priority with respect
to advances made pursuant thereto. In other cases a perfected
security interest has priority from the date the advance is made.
SEC. 23. Section 15103 of the Commercial Code is amended to read:
15103. The owner of an interest (other than a security interest)
in an uncertificated security (paragraph (b) of subdivision (1) of
Section 8102) whose interest was acquired prior to January 1, 1985,
or was acquired after January 1, 1985, in an uncertificated security
issued in respect of a security in which the owner had such an
interest, shall not be required to take any action under Section 8313
or otherwise to preserve or protect that ownership interest, which
shall remain effective and enforceable to the same extent it was
prior to January 1, 1985, in the absence of that action. However, if
a security interest first attaches to the security or any other
interest in the security first becomes effective after that date, the
provisions of Division 8 (commencing with Section 8101) as revised
shall govern the rights and obligations of all persons with respect
to those interests. Except as otherwise provided in this division,
the rights and obligations of all persons with respect to
uncertificated securities issued prior to January 1, 1985, shall be
governed by Division 8 (commencing with Section 8101) as revised by
Chapter 927 of the Statutes of 1984. All references in this section
to Division 8 (commencing with Section 8101) or
a section thereof are references to
Division 8 (commencing with Section 8101) as revised by Chapter 927
of the Statutes of 1984.
SEC. 24. Section 15104 of the Commercial Code is amended to read:
15104. A secured party who has a security interest in an
uncertificated security (paragraph (b) of subdivision (1) of Section
8102), which security interest attached to that uncertificated
security (a) prior to January 1, 1985, or (b) after that date in an
uncertificated security issued in respect of a security in which the
secured party had the pre-January 1, 1985, security interest, shall
not be required to take any action under Division 8 (commencing with
Section 8101) to protect, preserve, or perfect that security
interest, which shall remain attached and perfected to the same
extent it was prior to that date in the absence of any such action.
The priority and perfection of those security interests shall
continue to be governed by Division 9 (commencing with Section 9101)
as it existed prior to that date. However, on or before the last
date on which any action is required under Division 9 (commencing
with Section 9101) (as it existed prior to that date) to continue the
perfection of the security interest, in order to continue the
perfection of the security interest the secured party, rather than
complying with Division 9 (commencing with Section 9101), shall
furnish to a party described in subparagraph (i), (iii), or (iv) of
paragraph (h) of subdivision (1) of Section 8313, or if none of those
is applicable, then to the issuer of the uncertificated security,
either (x) a copy of either the financing statement previously filed
to perfect the security interest or the security agreement that
created the security interest, in either case bearing a copy or an
original of the debtor's signature, or (y) a written notification
from the registered owner under paragraph (b) of subdivision (7) of
Section 8403. Any such notice to an issuer shall be deemed a written
notification under paragraph (b) of subdivision (7) of Section 8403,
subject to the limitation that there can be no more than one
registered pledge of an uncertificated security at any time (Section
8108). Except as otherwise provided in this division, the provisions
of Division 8 (commencing with Section 8101) as revised shall govern
the rights and obligations of all persons with respect to a security
interest in an uncertificated security that first attaches after
January 1, 1985. All references in this section to Division 8
(commencing with Section 8101) or a section thereof are references to
Division 8 (commencing with Section 8101) as revised by Chapter 927
of the Statutes of 1984.
SEC. 25. Section 156.1 of the Corporations Code is amended to
read:
156.1. "Certificated security" means a share (Section 184), as
defined in paragraph (4) of subdivision (a) of Section 8102 of, or an
obligation of the issuer as described in paragraph (15) of
subdivision (a) of, the Commercial Code.
SEC. 26. Section 166 of the Corporations Code is amended to read:
166. "Distribution to its shareholders" means the transfer of
cash or property by a corporation to its shareholders without
consideration, whether by way of dividend or otherwise, except a
dividend in shares of the corporation, or the purchase or redemption
of its shares for cash or property, including the transfer, purchase,
or redemption by a subsidiary of the corporation. The time of any
distribution by way of dividend shall be the date of declaration
thereof and the time of any distribution by purchase or redemption of
shares shall be the date cash or property is transferred by the
corporation, whether or not pursuant to a contract of an earlier
date; provided, that where a debt obligation that is a security (as
defined in Section 8102 of the Commercial Code) is issued in exchange
for shares the time of the distribution is the date when the
corporation acquires the shares in the exchange. In the case of a
sinking fund payment, cash or property is transferred within the
meaning of this section at the time that it is delivered to a trustee
for the holders of preferred shares to be used for the redemption of
the shares or physically segregated by the corporation in trust for
that purpose. "Distribution to its shareholders" shall not include
(a) satisfaction of a final judgment of a court or tribunal of
appropriate jurisdiction ordering the rescission of the issuance of
shares, (b) the rescission by a corporation of the issuance of it
shares, if the board determines (with any director who is, or would
be, a party to the transaction not being entitled to vote) that (1)
it is reasonably likely that the holder or holders of the shares in
question could legally enforce a claim for the rescission, (2) that
the rescission is in the best interests of the corporation, and (3)
the corporation is likely to be able to meet its liabilities (except
those for which payment is otherwise adequately provided) as they
mature, or (c) the repurchase by a corporation of its shares issued
by it pursuant to Section 408, if the board determines (with any
director who is, or would be, a party to the transaction not being
entitled to vote) that (1) the repurchase is in the best interests of
the corporation and that (2) the corporation is likely to be able to
meet its liabilities (except those for which payment is otherwise
adequately provided) as they mature.
SEC. 27. Section 171.1 of the Corporations Code is amended to
read:
171.1. "Initial transaction statement" means a statement signed
by or on behalf of the issuer sent to the new registered owner or
registered pledgee, and "written statements," when used in connection
with uncertificated securities, means the written statements that
are periodically, or at the request of the registered owner or
registered pledgee, sent by the issuer to the registered owner or
registered pledgee describing the issue of which the uncertificated
security is a part.
SEC. 28. Section 174 of the Corporations Code is amended to read:
174. "On the certificate" means that a statement appears on the
face of a share certificate or on the reverse thereof with a
reference thereto on the face or, in the case of an uncertificated
security, that the applicable provisions of subdivision (a) of
Section 8202 and Section 8204 of the Commercial Code have been
complied with.
SEC. 29. Section 191.1 of the Corporations Code is amended to
read:
191.1. "Uncertificated security" means a share (Section 184), or
an obligation of the issuer, described in paragraphs (15) and (18) of
subdivision (a) of Section 8102 of the Commercial Code.
SEC. 30. Section 7151 of the Government Code is amended to read:
7151. "Bona fide purchaser" has the same meaning as "protected
purchaser" as defined in Section 8303 of the Commercial Code.
SEC. 31. This act shall become operative on January 1, 1997.